New Delhi: On a rainy evening in the last week of July, Hero MotoCorp Ltd chief Pawan Munjal, 61, and his younger brother Sunil, 55, met up with a common family friend for dinner.
The friend was Sunil Bharti Mittal, chairman of India’s largest telco Bharti Airtel Ltd, a company that has also leased out office space to Hero, the world’s largest two-wheeler maker, at its headquarters on 1 Nelson Mandela Marg, making the building one of the most high-profile corporate offices in New Delhi (the building also houses India’s largest car maker Maruti Suzuki India Ltd.)
The meeting, originally planned for a couple of hours, continued well past midnight, not surprising given the subject of discussion—the realignment of businesses between the Munjal brothers.
“Putting his goodwill to use, SBM (as Sunil Mittal is fondly called) facilitated the recent round of realignment within the Hero Group," said a person familiar with the matter who asked not to be identified.
“Both the brothers were uncomfortable talking to each other about the entire process. So they brought in Mittal as a facilitator," this person said.
Mittal did not respond to phone calls or text messages sent to his mobile phone seeking comment. An email sent to his office had not been answered till the time of going to press. Questionnaires sent to the Munjal brothers also remained unanswered as of press time on Wednesday.
Mittal’s relationship with the Munjals goes back several decades, to the time when both families were into the business of making bicycle and bicycle parts in Ludhiana.
Mittal’s father Sat Paul Mittal was a local politician and he himself started off as a supplier to Hero Cycles. Brijmohan Lall Munjal, the Munjal family patriarch, always accessible to any young person seeking his advice, played mentor to Sunil Mittal.
Days after the meeting, on 28 July, Sunil Munjal decided to step down from his position as Hero MotoCorp’s joint managing director to pursue his own interests in the defence and power sectors.
The announcement—it came barely nine months after the death of Brijmohan Munjal at the age of 92—was a surprise to most people. It was careful not to use the word division, instead stressing realignment.
But members of the Munjal family, senior executives, and suppliers to the group reveal that the realignment or the division had been brewing for almost 18 months, spurred, in one part, by emerging business opportunities, and in another, by Sunil Munjal’s desire to find a clear role for himself in the group. None of the people Mint spoke to for this inside account wanted to be identified.
The desire to diversify
Sunil Munjal wanted to diversify into the manufacturing of defence equipment. With 60% of India’s defence requirements met through imports, local defence production has emerged at the heart of the Narendra Modi government’s ‘Make In India’ programme.
Munjal sensed an opportunity, and on 18 and 19 February 2015, sold 5.28% of his 6.21% stake in the company in two tranches. He had received the shares as part of a family settlement in 2010, according to which the late Brijmohan Munjal, Renu Munjal (wife of the late Raman Munjal), Pawan Munjal, Suman Kant Munjal and Sunil Munjal were each given a 6.21% stake in the company.
A family trust, Bahadur Chand Investments Pvt. Ltd, also owned 8.67% in Hero MotoCorp.
Sunil Munjal raised ₹ 2,810 crore and entered into talks to acquire Pipavav Defence and Offshore Engineering Co. Ltd. The talks failed and Pipavav was eventually acquired by Anil Ambani’s Reliance Group, but that only seems to have intensified Sunil Munjal’s desire to diversify. He continues to look for acquisitions and joint ventures in the defence equipment manufacturing space, said a member of the Munjal family.
Sunil Munjal’s personal businesses are a small part of the $6 billion Hero group founded by Brijmohan Munjal. Through Hero Corporate Services Pvt. Ltd, Sunil Munjal and his family run businesses spanning insurance distribution, real estate development (Hero Realty Ltd), steel (Hero Steels Ltd), business process outsourcing and skill development (Hero Mindmine).
As other Munjals from the family’s next generation started tapping new opportunities, Sunil Munjal might have felt left out, said a supplier with long-standing ties to the Hero group and the founding family.
For instance, Rahul Munjal, son of the late Raman Kant Munjal, founded Hero Future Energies Pvt. Ltd, a renewable energy firm, in 2013 with the target of producing 1 gigawatt of power by 2016-17. Rahul’s younger brother, Abhimanyu, founded the group’s financial services business, Hero FinCorp Ltd, which expects to build a ₹ 5,000 crore loan book by 2016-17. Akshay Munjal—son of Suman Kant Munjal, managing director of Rockman Industries Ltd—has entered the education business by opening a university in Manesar, Haryana. His brother Ujjwal runs Hero Electronix, which designs and develops semi-conductors.
“So essentially, if you have noticed, all the other family members have started to put building blocks for diversification and somehow Sunil Munjal, who was one of the first ones in the family to look at diversification, was left behind," added the supplier.
And it wasn’t as if he had a lot to do at Hero MotoCorp.
A role for Sunil Munjal
Sunil Munjal, the joint managing director of Hero MotoCorp between 17 August 2011 (when he was named to the post) and 16 August 2016 (when he will step down), was barely involved in the firm’s day-to-day operations. None of the company functions reported to him. He was rarely seen at press conferences organized by Hero.
However, he was present (as was the entire Munjal family) at important milestones reached by Hero MotoCorp such as the unveiling of the company’s brand in 2011 or during the inauguration of Hero’s research and development centre in March.
Between 2011-12 and 2014-15, he received ₹ 131.08 crore as remuneration as the company’s joint managing director, according to company’s annual reports. At least 60% of the total remuneration came between 2013-14 and 2014-15.
Sunil Munjal’s elevation as joint managing director of Hero MotoCorp came eight months after the company and its joint venture partner of 26 years, Honda Motor Co. Ltd decided to go their separate ways.
The move was expected to open up global opportunities for the Indian company (its agreement with Honda had crimped global expansion) as well as management opportunities for members of the Munjal family.
Hero’s flagship company was run by Brijmohan Munjal and his elder son Raman Munjal in the beginning. After Raman Munjal’s death in 1991, Pawan Munjal, stepped up and, eventually, started running the show.
That remained the case even after the split with Honda and Sunil Munjal’s promotion. Pawan Munjal oversaw Hero’s entry into global markets, the creation of its first overseas manufacturing facility, the formation of a new globally diverse team and building of a research and development centre.
It remains unclear if fissures had developed between the two brothers but people familiar with the matter said that Hero MotoCorp “could not have accommodated two strong personalities".
And so, the brothers chose to do their separate things.
The realignment and after
The Munjals do not like messy and noisy splits. “Please do not see this development as a family feud or something. Munjals will never wash their dirty linen in public," said one person Mint spoke to, citing the 2010 restructuring of holdings between several arms of the extended Munjal family as an exercise in amicability.
Back then, the Munjals disentangled their cross-holdings in more than 20 group companies in a manner that each faction of the family received ownership of the businesses they managed. Hero Honda Motors (now Hero MotoCorp), the group’s flagship, is owned and managed by the Brijmohan Lall Munjal family.
Om Prakash Munjal and family now control and manage Hero Cycles. The sons of Brijmohan Lall Munjal’s brother Satyanand Munjal have Majestic Auto, Highway Cycle, Munjal Auto and Munjal Showa. Ashok Munjal, the son of late Dayanand Munjal, the eldest of the first generation, got Sunbeam Auto while his brother Vijay received Hero Exports.
The latest realignment isn’t as much about untangling cross-holdings as it is about meeting aspirations and tapping opportunities. Can Sunil Munjal deliver?
ALSO READ | Sunil Munjal to step down as Hero realigns businesses
“It is not too late to begin with. It is a very, very good time," said Gita Piramal, a business historian and post-doctoral fellow at Oxford University.
“Their reputation in two-wheelers is excellent. More importantly, the Modi government may be struggling to put its house in order but a lot of small changes are being made and that will help improve the business environment in the country. So, if we give Sunil one-two years for getting the project started, the time will be apt.
“This is exactly how growth happens in large business families. This is how Indian business families foster growth," she said.