Murugappa Group: From Burma to Parry’s Corner
Mumbai: When 14-year-old A.M. Murugappa Chettiar started as an apprentice at his uncle’s moneylending business in Burma (now Myanmar) in 1900, he was merely following the family business of financing, the traditional occupation of the Tamil Chettiar community.
Learning the local language helped the young Chettiar develop contacts and increase his grasp of the banking business in Burma, which was then a British province.
The group’s DNA for forging joint ventures manifested even before it was formally founded. Murugappa Chettiar started a moneylending and banking business in coastal Moulmein in 1915 in partnership with Ramanathan Chettiar, under the name AMMRM. Later, Murugappa Chettiar bought out his partner.
After gaining a foothold in finance, Chettiar diversified into textiles, rubber plantations, insurance and stockbroking between 1915 and 1934. He also took his businesses to Malaya (now Malaysia), Vietnam and Ceylon (now Sri Lanka).
Just before the Japanese invasion of Burma in World War II in 1941, the firm strategically moved its assets back to India. Chettiar had to start from scratch, a move that would turn to be critical to the group’s success.
Ahead of India’s independence, the Murugappa Group strengthened its presence in the country, largely in the south. It struck out in different directions, anticipating the business needs of the time. The Murugappas built steel safes, ran a sandpaper plant, opened an insurance firm and tended to rubber plantations. The diverse interests laid the foundation for one of the best-run and largest family-owned businesses in south India.
Twists and turns
In free India, the Chennai-based group embarked on a journey of joint ventures and acquisitions to power its growth. In many instances, the partners eventually lost interest due to acquisitions or changes in management or strategy. Thanks to their relation of trust, they often sold their shares back to the Murugappas at a price attractive to the family. The group counts over 40 joint ventures and acquisitions in its 114-year history.
It was at Tube Investments of India Ltd (TII) that the Murugappas whetted their appetite for collaborations. The group wanted to start a business that would make a product for the common man and decided to manufacture bicycles. So, TI Cycles of India was born in 1949 as a bicycle assembly firm in collaboration with a British company.
As business prospered, the group went in for backward integration, setting up two companies to make steel tubes for bicycle frames and cycle chains. Later, TII also diversified into engineering and metal products. It was also around this time that the third-generation entered the business.
The family always figured out the business potential of looming events. As the world war loomed, it anticipated that the volume and variety of goods imported on British ships would decrease. The group believed this would provide new opportunities for local manufacturing and bought a sandpaper plant, marking its entry into the abrasives business.
In 1954, Murugappa tied up with Carborundum Inc. of the US and Universal Grinding Wheel Co. Ltd of the UK to start Carborundum Universal Ltd, which later expanded into abrasives, electro-minerals, industrial ceramics and refractories through over a half a dozen acquisitions.
The acquisition that grabbed headlines came in 1981, when the Murugappa Group bought EID-Parry (India) Ltd, the second oldest commercial name in India. The company had set up India’s first sugar plant at Nellikuppam in Tamil Nadu in 1842. Its businesses included fertilizers, pesticides and confectionery, besides sugar mills.
Besieged by labour issues, Parry was struggling to survive and its creditors requested the Murugappa Group to take over its management. The family turned down the offer several times, until it was granted full control of the publicly-traded company.
Murugappa Group companies, which had turned around just ahead of the economic liberalization in 1991, focused on core businesses and invested substantially in research and development in the next 10 years. The death of third generation M.V. Arunachalam and M.A. Murugappan in 1996 prompted the group to craft a succession plan not typical of Indian family-led businesses, according to an essay by Professor John L. Ward on the company’s website.
M.V. Subbiah, grandson of founder A.M. Murugappa, paved the way for a new governance structure as he stepped down in 1999. Leaderships of individual business units were shifted from family members to professional managers, while the family members moved to board positions on the newly formed Murugappa Corporate Board, where family members are in minority. The board had three external independent directors, three executive directors and two family members.
The new structure did not diminish the company’s appetite for acquisitions: group flagship Coromandel Fertilisers (now known as Coromandel International Ltd) acquired Godavari Fertilisers in a hostile bid in 2003 while TII bought a majority stake in gearbox maker Shanthi Gears Ltd in 2012. The most recent one was in 2013, when Coromandel International acquired a stake in Liberty Phosphates.
The Rs.24,300 crore Murugappa Group is today one of India’s leading business conglomerates with 28 businesses, including 11 listed companies. The group has a workforce of over 32,000 employees. The group still gets about half of its revenue from agri-based businesses. Currently, under the leadership of fourth-generation members M.M. Murugappan, vice-chairman of the Murugappa Corporate Board, and A. Vellayan, executive chairman, the fifth generation is being groomed, as the family members are expected to retire at 65.