6. Power to change your Destiny

As shared in the previous post, we had brought Sterlite Technologies back to profitability in a matter of 18 months. Now, the focus was to sustainably grow the company. One major learning from this experience was to establish a plan to control our own destiny, as the previous highs from the dot-com years and the lows from the bust thereafter were due to market forces beyond our control. We were like a small boat without any sail or stability, in an ocean filled with large waves. I started making plans to drive our own destiny.

Our entire business was focused on the optical communication industry, which was exciting but cyclical. A strong part of our portfolio, based on copper-based communications, was on a decline. To get the growth back in a sustained manner, it was important to enrich the portfolio. We started looking for adjacent products as well as adjacent industries. The criteria for selection were large global markets that were unaffected by telecom cycles and synergistic to existing competencies.

We discovered that most global telecom cables companies also had a strong energy cables portfolio. While the reason for this was mostly evolutionary, the energy cables business was much larger than the telecom cables globally. Also, after the telecom revolution in 1995, the power industry globally was showing signs of growth.

We started looking for energy cable opportunities and found a power conductor (high voltage uninsulated power cable) business within Sterlite Industries. It was perfect from our perspective, as it was small, within our budget, and had footprints synergistic to the existing operations. Power cable is primarily sold to utilities and requires expertise in managing metals (aluminum). We had both these strengths as we had been dealing with copper telecommunication cables.?

In 2006, we acquired the power conductors business and rebranded from Sterlite Optical Technologies Ltd. to Sterlite Technologies Ltd. We started transforming from an optical communication entity to a Wire & Cable company.

This was also a time of personal transformation for our family. My wife and I?were expecting our third child and my wife decided that she did not want a hospital birth. She started researching and found a natural birthing center run by a German lady in Goa. We visited the center and found the environment to be extremely positive and naturalistic.

Our plan was for Shalini, my wife, to move to Goa close to the time of delivery with our two young daughters. There was no Airbnb then, and I recall scouring Goa apartments, sitting pillion on the scooter of a real estate agent. Finally, we found a great apartment in Panaji and Shalini’s mother joined us to help. My older daughter had to take a month’s leave from school. For several weeks, I would travel to Goa for the weekend and come back to Pune/Bombay for the week. We had our third daughter in the natural birthing center in Goa and it was an extremely blessed experience.

Shalini continues to take such non-conventional decisions, like homeschooling both our younger daughters, with our middle daughter now in college. We have made decisions for our family, which we felt were right, and not necessarily conventional. In retrospect, all such decisions were ‘risky,' but we felt they made sense for our family. I believe this has strengthened my own capabilities towards taking the right decisions in my life, including for the company, and not necessarily the popular ones. I can now better understand the line ‘Risk hai toh Ishq hai’ (Risk is the spice of life) from a recent popular Web series.

After the integration of the power cables business into STL, it was important to merge the teams from both business areas as well. We started lining up all the key functions and drew synergies immediately in sales, finance, HR, operations, and supply chain. It was extremely important to me that we were leveraging the strengths of both business areas and not running this as a portfolio of two entities.

This led to a good leadership team with everyone getting a bigger role and any functional overlaps being accommodated by our growth. We had been operating without a CFO for sometime now, as our previous CFO had left in the middle of the turnaround phase. At this time, Anupam Jindal, who was working in one of the group’s mines in Australia, was planning to come back to India and look for an alternate role. After we connected, Anupam liked the role and decided to come on as the CFO of the company. Anupam continued in the role for almost 14 years until late 2020 and was an extremely important partner for the journey subsequently.

Compared to the telecom business, the power vertical provided scale, as it had higher revenue but low profitability. Any error in decision making here, during booking orders or buying raw materials could push us back into a negative zone, which was not acceptable. I spent a lot of time understanding the drivers for this business and identified three areas to focus on: value added products, metal buying, and working capital.

As I had limited understanding of the industry norms, I would repeatedly get into my ‘stupid’ questions mode. I would question the need for paying a premium over LME (London Metal Exchange) to buy metals. I would incessantly question why, and how, to get superior products to the customers. We would create customer presentations showcasing a much better TCO (total cost of ownership) for value-added products and we challenged all established norms for working capital to bring it down significantly.

I knew my questions irritated? the experienced people in the industry, but I have always found opportunities whenever someone was unable to provide a logical answer to a query and shrugs it off with ‘that’s how it happens in this industry.’ We found multiple opportunities in selling, buying, and working capital management. We expanded operations closer to the source of raw materials and in tax-friendly zones.

As we were scaling up with a lot of unstructured innovative ideas, it was equally important to get into rigorous performance management. We started the practice of closing our financial books by the 4th of every month and having rigorous monthly performance calls on the 5th. This required a lot of internal change, as we used to have material audits, book closure etc., going on for several days post the month closure. Anupam partnered in this initiative and for the last 16 years, I have never missed a single performance call irrespective of which part of the world I happened to be in.

I have always tried to create a culture which has the right balance between innovation and rigour, and between process and entrepreneurship. Another practice that I continue to follow is taking copious notes during any of my interactions, whether external or internal. While cleaning up my office, I was surprised at the number of physical notebooks that had assimilated over the last few years before I switched online to GoodNotes.

We also started focusing on building a strong team at this point. We hired Venkatesh Murthy as plant manager for the small data cables plant, who now leads global operations for all the cable facilities around the world. Pankaj Aggarwal was hired for finance for the Haridwar power cables facility, and is now the CFO for the system integration business. Navin Sharma was appointed to support Anupam in financial consolidation, who then took the CFO position for the entire optical business, before moving on a few months ago.

As we started growing, it was equally important to pay attention to our public investors and the media. I started interacting with equity analysts, equity broking houses, and mutual fund managers. I recall meeting Sunil Singhania, who was the Equity chief investment officer at Reliance Capital in the early 2000s and he started investing in the company. Sunil had quite a following in the equity markets, and his investments were followed by several others. Reliance (now Nippon Asset Management) continues to invest and holds about 3% of the company.

In terms of media, CNBC India was widely watched in business circles, and Udayan Mukherjee, the celebrated journalist, used to run the morning market show. For this show, I drove to their studio in Mumbai which was re-constructed within an old textile mill compound. I recall telling Udayan that very soon, they would be conducting all their video interviews over optical fibers and there would be no need to travel to their studio. It would take years before this would happen!

Around this time, we also restarted increasing our global footprint. We were exporting optical fiber to China and at a point reached about 10% market share within China - it was quite ironic that we were exporting a high technology product made from India to China, while the balance of trade from China was always in the opposite direction to most countries globally. We set up our footprints in Europe, initiating relationships with British Telecom in 2007, and started exporting power products into Africa.

As we were scaling up and moving global, it was important to have an extremely high focus on repeatable processes and predictable quality. Unfortunately, at that point of time, there was a concept called Jugaad, (frugal innovation) getting popularised within India which people were very proud of. It is a short-cut method for achieving the outcome through any means. I had to fight that hard across our operations and our business functions to the extent that it was taboo to practice or mention Jugaad in the company.

It was equally important to stop any practice of ‘short-cuts.’ I took pains to explain that the shortest distance between point A and B is always a straight line, and there was no need to look for alternate short-cuts, but follow the straight, established process.

In our desire to go global, we were also seeking global acquisitions with adjacent capabilities.? We found one such match in Scotland. Pratik Agarwal was advising our M&A team post his stint in London Business School and we finalised all the terms with the existing private equity owner. Pratik and I spent considerable time in Edinburgh, as this would be the place of our first global acquisition. It was around September of 2008 and we had to call off the transaction the day before the closing, as the Lehman Brothers’ bankruptcy and the liquidity crisis had squeezed all the financing plans for the deal. It was several years later that we would do our next global M&A transaction.

We had been exporting to China for several years. It was time to go local. We decided to start a Joint Venture with a local minority partner to manufacture optical fiber in China. This was our first operation outside of India.

With all the combined efforts in global sales and multiple operational expansion for the telecom and power business, our revenue started growing. In the five-year period between FY’05 and FY’10, our revenue grew 7 times, from 332 crores to about 2500 crores, our net profits increased from 10 crores to 246 crores and the market cap grew from 70 crores to 3100 crores.? And we were practically debt-free!??

As we were starting to grow with multiple business lines and sites, it was important to maintain an extremely frugal culture and an agile mindset. Our head offices were called central services and people working there knew that they had to play the role of the enabler, not the power center. While this decision has not been very popular with the traditional corporate officers, it helped us stay lean and agile.

We always also encouraged all operational decisions to be taken at the points of value creation, that is application engineering, design, manufacturing and project sites and rarely in fancy central service centers. The decision making and ownership energises (creates a cycle) the value creation centers and cuts the unnecessary bureaucracy that tends to build in organisations.

By this time in 2010, we had some degree of control of our direction and performance. We were a respectable ‘wire and cable company’ with business in telecom and power products, operations in India and China, and sales in India, China, Europe, and Africa. With the stabilising addition of power products to our portfolio and geographic and customer base diversity, we were consciously starting to take control of our own path.