CHAPTER1: THE GREAT ENTREPRENEUR OF INDIA:

1.1 UDAY KOTAK

About Uday Kotak

Uday Kotak is the Vice Chairman and the Managing Director of Kotak Mahindra Bank. He is
a self made Indian Business man with a net worth of 7.6 billion dollars. In less than two
decades he has not only made a prodigious fortune but has also created a brand name in the
banking and investment industry. Presently, Kotak Mahindra Bank is the 3rd largest private
sector bank in India .
As a young 26-year old entrepreneur in 1985, Uday Kotak started Kotak Capital Management
Finance Ltd. (which later became Kotak Mahindra Finance Ltd). The vision was to eventually
become a banking company. Private Indian banks were not even a speck on the horizon at
that time. On 22nd March 2003, Kotak Mahindra Finance Ltd. became the first non-banking
financial company (NBFC) in India's corporate history to be converted into a bank.
Kotak Mahindra Bank Ltd. (KMBL) is regarded as one of the most efficient and high
performing banks in India, built on the principles of simplicity and prudence. Uday remains
unfazed by market euphoria and his 'basics of banking' approach has ensured that the loan
book is of high quality and the bank is well-capitalised. In a journey spanning nearly three
decades, Uday has not only helped the company grow to this scale but also earn respect.
Today, Kotak Mahindra Group, a first generation enterprise, with networth of Rs. 33,361
crore (approx. US$ 5 billion), has a global presence, employs over 46,500 people and is
Page 1 of 33

recognised as one of the topmost employers in India. The group has the distinction of
providing a 40% CAGR to its shareholders over a 30 year period. The core of the business
model is 'concentrated India, diversified financial services'.
Uday has a strong focus on community development and inclusive growth which is reflected
by the Group's initiatives to provide low cost services to rural customers and its welfare
programmes. Uday feels strongly that education is key to the alleviation of the social malaise
afflicting India's under-privileged. In a bid to address this issue, he has established the Kotak
Education Foundation that focuses on the educational needs of underprivileged children.

Personal life of Uday Kotak

Uday Kotak was born on 15th March,1959 in Mumbai, India. He belonged to an upper
middle class family, who were traditionally Gujarati cotton traders and later expanded into
other commodities. He did his schooling from Hindi Vidya Bhavan, Mumbai. When Uday
was in school he discovered two talents in him: Cricket : He was captain of his school's
cricket team, and in college he went to play in Kagna League. Kotak is a big cricket fan.
Maths : He was very sharp in Maths; it was this second talent that determined his path in life.
He obtained his Bachelor's Degree from Sydenham College and completed his post
graduation in management studies in 1982 from Jamnalal Bajaj Institute of Management
Studies. Uday Kotak married Pallavi Kotak in 1985. They have two children.
Uday Kotak's Career
Uday Kotak made an entry into the finance business soon after his graduation. He found that
banks gave depositors 6% interest on their investments but charged an interest of 16.5% from
borrowers. Nelco,a subsidiary of Tata needed working capital and Uday took advantage of
this opportunity.
He formed a small trade-finance business by convincing his family and friends to lend money
to Nelco at 12% interest rate and provided short-term trade credit to Nelco at a rate lower
than the bank's lending rate. After the success of this venture Kotak progressed into bill
discounting proceeding with the same principles. It was then in 1986, Uday established his

Page 2 of 33

company Kotak Mahindra with an initial investment of Rs 30 lakhs and took 50% stake in the
business.
A huge capital was invested in his business by Anand Mahindra and hence Uday named his
finance company as Kotak Mahindra. Over the years Kotak Mahindra group has grown into
several areas like stock broking, investment banking, car finance, life insurance, mutual funds
etc.
Journey of Uday Kotak from the inception of Kotak Mahindra Finance Ltd till date
1986 - The Kotak Mahindra Finance Ltd started with its bill discounting activity.
1987 - Uday's company entered into Lease and Hire purchase market.
1990 - He started with auto finance division.
1991 - He took over FICOM, which is one of India's largest retail marketing networks.
1992 - Made an entry into Funds Syndication Sector.
1995 - He incorporated his Brokerage and Distribution businesses into a separate company
Securities. Also the Investment banking division was incorporated into - Kotak Mahindra
Capital Company.
1996 - His Auto Finance Business was hived off into a separate company - Kotak Mahindra
Prime Limited. He bought a significant stake in Ford Credit Kotak.He set up Mahindra
Limited, for financing Ford vehicles and launched Matrix Information Services Limited
which marked the Group's entry into information distribution.
1998 - He entered the mutual fund market with the launch of Kotak Mahindra Asset
Management Company.
2000 - He tied up Kotak Mahindra with Old Mutual plc. for the Life Insurance
business.Kotak Securities launched its on-line broking site. Commencement of private equity
activity. Kotak Mahindra Venture Capital Fund was set up to start a private equity venture.
2001 - * He sold Matrix to Friday Corporation. * He launched Insurance Services. * Kotak
Securities Ltd. was incorporated into Finance Ltd.

Page 3 of 33

2003 - He converted Kotak Mahindra Finance Ltd into a commercial bank which became the
first Indian company to do so.
2004 - He launched, India Growth Fund which was a private equity fund.
2005 - He realigned Kotak Group's joint venture in Ford Credit and their stake in Kotak
Mahindra Prime was bought out. Also, Kotak groups stake in Ford credit Kotak Mahindra
was sold. He also launched a Real estate fund.
2006 - He bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital
Company and Kotak Securities.
2008 - He launched a Pension Fund under the New Pension System.
2009 - Kotak Mahindra Bank Ltd. opened a representative office in Dubai. He Entered
Ahmedabad Commodity Exchange as anchor investor.
2010 He made the Ahmedabad Derivatives and Commodities Exchange which was a Kotak
anchored enterprise, operational as a national commodity exchange. Today, Kotak Mahindra
Bank has the second highest price-to-book ratio amongst major global banks, and the banks
market capitalization has risen 30 times since it went public in 1992 to about $6 billion.
Kotak presently owns 48 percent of the stock. It has gained popularity all over the world with
its tag line Think Investments, Think Kotak.
Early life and education
Kotak was raised in an upper middle class Gujarati joint-family. household with 60 persons
sharing a common kitchen under one roof. The family was originally into cotton trading. He
called this "Capitalism at work and Socialism at home"
His two pastimes had been cricket and playing the sitar. In a 2014 interview with NDTV he
admitted that he was no longer pursuing his playing of the sitar.[
His talent in mathematics influenced his choice of career. He obtained his Bachelor's Degree
from Sydenham College and completed his post graduation in management studies in 1982
from Jamnalal Bajaj Institute of Management Studies.
Memberships

Page 4 of 33

Kotak is a member of the Government of Indias High Level Committee on Financing

Infrastructure, the Primary Market Advisory Committee of the Securities & Exchange Board
of India, Member of the Board of Governors of the National Institute of Securities Markets
and ICRIER. He is also Governing Member of the Mahindra United World College of India,
and Member of National Council of CII. Kotak is also a member of the strategic board which
advises the national law firm, Cyril Amarchand Mangaldas
Awards

Sole Indian Financier to feature in Money Masters: The Most Powerful People in The
Financial World, by Forbes magazine, USA (May 2016)

Received the AIMA-JRD Tata Corporate Leadership Award for the year 2015 at
AIMAs 2nd National Leadership Conclav

Received Best Transformational Leader Award 2015 by Asian Centre for Corporate
Governance & Sustainability in 2016

Recognised as ET Business Leader of the Year at ET Awards 2015 for Corporate

Excellence.

Recognised as Entrepreneur of the Year at Forbes India Leadership Awards 2015

Recognised as 'Entrepreneur of the Decade' by Bombay Management Association

(BMA) in 2015

Recognised as Banker of the Year 2014 by Businessworld

Won Ernst & Young World Entrepreneur of the Year 2014 Award

Won Ernst & Young Entrepreneur of the Year 2013 Award (India)

Received a special award for his contribution in the growth of Indias equity markets
at Indias Best Market Analyst Awards 2012 by Zee Business in 2012

Page 5 of 33

Felicitated with Financial Leadership Award at NDTV Profit's Business Leadership

Awards 2011 in 2012

Recognised as CNBC Asias Business Leader of the Year in 2008

Recognised as CNBC TV18s Innovator of the Year award in 2006

Euromoney listed him amongst the financial leaders of the 21st Century

Recognised as Global Leader for tomorrow by World Economic Forums annual met
at Davos in 1996

UDAY KOTAK: THE INSTITUTION BUILDER

Forbes India Leadership Award: Entrepreneur for the year
It was not narcissism which prompted the coming together of the names Kotak and
Mahindra. Uday Kotak had decided quite early that he would not refrain from putting his
reputation on the line. This resolve became stronger when he read numerous books on top
financial institutions like JP Morgan, Goldman Sachs and Morgan Stanley carry their family
names. He, too, decided to put his name, front and centre. This thought was reinforced when
he visited the United States in 1992, by which time the family name was established.
Today, Kotak Mahindra Bank (KMB) is the only Indian private sector lender which retains
the family names of its promoters. And the institution he has built over three decades has
become a byword for credibility and growth in the Indian banking industry.
Vanity had little to do with anything. Instead, it was an abiding belief in his entrepreneurial
instincts, one which has been validated many times over. And never more so than in recent
times: Little wonder then that the executive vice chairman and managing director of Kotak
Mahindra Bank had a distinct spring in his step when he met Forbes India. He greeted us
with a broad smile and a bright good afternoon, walking briskly, right hand outstretched,
leading us into one of the many meeting rooms at the banks sprawling headquarters at the
Bandra-Kurla Complex, in mid-town Mumbai.

Page 6 of 33

It isnt difficult to decode the smile. His bank is in the midst of a mega merger, integrating
former rival ING Vysya Bank with itself. The $2.4 billion all-stock dealannounced in
November 2014 and completed in April this yearhas propelled KMB into the big league. It
is now Indias fourth largest private sector lender, after ICICI Bank, HDFC Bank and Axis
Bank, with assets at over Rs 1,66,874 crore and a network of 1,260 branches. The deal has
also helped the bank solidify its footprint in South India (where it was weak and ING Vysya
always strong) and expand its product portfolio (ING Vysya brings in crop loans, stronger
SME business and multinational clients).
The acquisition of Bengaluru-based ING Vysya Bank has a distinct Uday Kotak touch. This
was not a hostile takeover or a distress sale: ING Vysya was won over by the comfort level
and constant dialogue shared between the banks since 2007. The Dutch financial services
group ING which owned 43 percent in ING Vysya Bank, prior to the dealhad even held a
3.1 percent stake in KMB in 2007. This was later sold through the open market in 2010.
Kotaks intuitive timing helped elbow out possible suitors, rumoured to include names such
as ICICI Bank, IndusInd Bank and L&T Finance. By 2013-14, things were starting to warm
up. We needed INGs support before talking to ING Vysya Bank, Kotak tells Forbes India.
When the merger happened, analysts said the deal maker in Kotak was alive and that he
was nimble and open to opportunity. It augurs well for a man who for 30 years has
constantly adapted to changing environments and opportunities, whether it was his first bill
discounting startup; or striking gold with two joint ventures (JVs) with major foreign
partners; or surviving the bust of non-banking financial companies (NBFCs) and then
becoming

bank

in

2003,

when

not

many

wanted

to

enter

banking.

But the tough end of the trek starts now. Kotak admits that the integration is challenging.
The financial integration of the balance sheets of both banks has started, as seen through
KMBs June-end earnings. Kotak has spelt out a detailed structure through which key
elements from the mergerpeople, processes, technology and customersare not
compromised with at any stage.
In fact, insiders say Kotak took the first step to welcome ING Vysya into its fold. In the first
few weeks prior to the merger, he did multiple town hall meetings and took time out from his
calendar to meet at least 200 top ING Vysya people across cities. That went down very well
with the team, says Uday Sareen, who was CEO-designate at the erstwhile ING Vysya Bank
and holds the designation of president, Bank in a Bank, at KMB, evidence of the fact that
continuity with change is what the KMB-ING Vysya merger will demonstrate.
Page 7 of 33

The Bank in a Bank is a dispensation under which banking operations of the erstwhile ING
Vysya will continue to function in their original format until decisions relating to integration
of staff, processes and technology are taken. The Integration Management Office (IMO) and
Bank in a Bank report directly to Kotak and joint managing directors C Jayaram and Dipak
Gupta. By April next year, when the entire merger process is expected to be completed, the
two departments will be wound up.
In most mergers or takeovers, one bank takes over the other and puts its people on top.
Udays clear message to us was: We need to get the best of both in people, processes and
technology, says Mohan Shenoi, head of the IMOwhich has representatives from both
banksto oversee the entire merger process. The two banks have already merged treasury
and wholesale banking operations.
THE YOUNG ENTREPRENEUR
Born in Mumbai into a large joint family of 60, Uday Kotak had a keen entrepreneurial
spirit, inclined more towards finance than his familys commodities trading business. After
an MBA from the Jamnalal Bajaj Institute of Management Studies, Kotak thought of a
financial consultancy firm, but a keen eye for opportunity drew him towards discounting
bills of large corporates.
He came to know from a friend working at Tata firm Nelco that it borrowed funds for 90
days at 17 percent. Banks lent to companies at 17-18 percent but offered just six percent
returns on fixed deposits to individuals, making an 11 percent spread. I told my family
friends that instead of a six percent return, I would give them a 12 percent return, Kotak
says. So he sourced funds at 12 percent and lent onward to reputed companies at 16 percent,
making a spread of around four percent. The bill discounting business grew and he formed
what was called Kotak Capital Management Finance, which later became Kotak Mahindra
Finance Ltd (KMFL).
Like Nelco, Mahindra Ugine Steel was also a Kotak client. It was through this relationship
that a game-changing event occurred in 1985, when Uday Kotak first met Anand Mahindra,
now chairman and managing director of the Mahindra Group.
Mahindra, just 30 at the time, was impressed with the young Kotak. When we met, the mini
steel business was in recession. I remember asking him why he was willing to lend to us
given the industrys fragility. He promptly replied that his credit evaluation was based on the
promoters reputation and record, Anand Mahindra told Forbes India in an emailed
response. I vividly remember being very impressed with his [Kotaks] maturity and my gut
Page 8 of 33

instinct told me this young man was going to make an impact on whatever he chose to do. So
rather impetuously I told him that if he ever decided to expand his firm and get into the
leasing businessfor which the government had recently liberalised licensingI would be
pleased to back him, adds Mahindra, who lent his family name and invested in KMFL in
1986.
One of Kotaks closest friends, top corporate lawyer Cyril Shroff, had invested into his bill
discounting firm, for similar reasons. [I] invested in the firm more as friend and wellwisher, and not in a monetary capacity. I would like to believe we always knew Uday was
different and would succeed.
Neither was going to be disappointed.
In 1987, KMFL expanded into leasing and hire purchase, and, by 1990, into auto finance. An
initial public offering and further expansion into investment banking and stock broking
followed.
During that time, between 1987 and 1994, Kotakbacked by just strong convictionshelped
attract and build his core team, many of whom have been with him for over 20 years. This
includes Shanti Ekambaram (now president, consumer banking), C Jayaram and Dipak
Gupta (both joint MDs), D Kannan (group head, commercial banking), Narayan SA
(president, commercial banking), KVS Manian (president, corporate, institutional and
investment

banking)

and

Jaimin

Bhatt

(group

chief

financial

officer).

Ekambaram was among the earliest staffers to join the firm when it was still a leasing and
bill discounting company. In the early days, there were people just shouting about in the
office, in trading-type frenzy. I had to roll up my sleeves and become one of them, she
recounts.
TRIAL BY FIRE
The 1990s also brought some highs and lows for Uday Kotak and these helped shape the
backbone of the bank. It was, after all, a period of dichotomy for the Indian economy. On the
one hand, liberalisation had opened the doors for India Inc. But, on the other, the period
from 1992 to 2002 also saw Indias financial markets being rocked by three scams, the
collapse

of

most

NBFCs

and

the

Southeast

Asian

financial

crisis.

The [period in the] 1990s was agnipariksha [trial by fire] for us. We learnt the rights and
wrongs, staying grounded after making lots of mistakes, as we grew, Kotak says.

Page 9 of 33

One of the rights was looking for learning in the right places. The opening up of the
economy prompted a need to understand how global firms operated. We were in an early
stage of capital markets development, more like frogs in a well, he says. So, in 1995, Kotak
struck a JV with Goldman Sachs (their first overseas tie-up) for an investment banking firm
Kotak Mahindra Capital Company, in which Kotak Mahindra held 75 percent and Goldman
Sachs the balance. And he got much of what he wanted from the arrangement. Goldman
taught us to make presentations, the independence of research and the marketing approach
to financial services, says Jayaram.
A year later, he set up two joint ventures for car finance with Ford Credit International, a
Ford Motor company, to finance passenger cars. The JVs introduced us to processes,
governance

practices

and

risk

management,

Kotak

says.

The JVs with Goldman and Ford ended in 2005 and Kotak is philosophical and realistic
about their impact. JVs are usually between two competitors, they do not last forever. Our
process orientation in retail lending comes from [working with] Ford, our equity research
[strength] comes from Goldman.

Page 10 of 33

He is equally candid about the mistakes the group made in the 1990s. When we started
taking credit calls in 1995-96 and lent to companies on leasing products, often we would look
at the financials and were not convinced about them. But we would assume that other banks
which had lent to them would know better than us, Kotak says. This created pain for us in
1997-98. Our mistake was that in the early stages of lending, we used to follow the herd.
Kotak saw the pain and pulled back to shrink the balance sheet in 1998-99, from Rs 1,600
crore to Rs 800 crore. We saved ourselves because we became paranoid early.
The 1990s taught them resilience. We had made several mistakes but were constantly
improving, internalising and learning, says Kotak. In this phase, we learnt to have our head
on our shoulders and were always questioning decisions. We learnt to follow our
convictions.

And

that

mantra

has

proved

to

be

fail-safe

for

them.

ENTER THE BANK

It was this conviction, and Kotaks drive to become a meaningful player in Indias growing
financial market space, which pushed Kotak Mahindra to become a bank. KMFL got a
banking licence from the Reserve Bank of India in 2003, becoming the first NBFC to be
converted into a commercial bank. At that point, nobody was interested in banking. If we
had to be meaningful in India, we had to have a full customer view, Kotak adds.
But as with all previous milestones, this was a well-thought-out and calibrated decision. We
spent three months debating [about becoming a bank], reviewed projections, and discussed
the bank versus NBFC model, says Manian, who headed the internal project at the time.
Kotak sought all the evidence and details: A bank would involve higher costs, defining
expansion plans and statutory requirements, while an NBFC would work cheaper with fewer
obligations. Manian says the clinchers were that a bank would get a wider platform to get
and retain customers; it was more scalable than an NBFC and would command better
valuations.
Between 2003 and 2007, Kotak Mahindra Bank, as it was now called, continued to
concentrate on piecing together technology, processes and branch networks. But going into
the 2008 Lehman Brothers crisis, the bank had turned cautious and did not take big bets on
the assets side. Also, it would have been remunerative to get into infrastructure financing,
but we stayed away, says joint MD Gupta. Even in recent years, it has curtailed its exposure
to the commercial vehicles and construction equipment sectors.

Page 11 of 33

But as the business environment and outlook improved, KMB stepped up its effort to gain
customers, expanded its wholesale banking business and introduced cutting-edge products.
In the past 4-5 years, the bank has seen a growth in savings deposits of 40 percent, against
an industry average of 14 to 15 percent. This has been boosted by their strategy of providing
six percent returns on savings accounts.
CHALLENGES POST MERGER
Today, the bank is riding high on its merger with ING Vysya but not everything about this
deal has been sweet. About six percent of the erstwhile ING Vysya book (funded and nonfunded) is in various forms of stress, a KMB investor presentation shows. This includes nonperforming assets (NPAs), assets sold to asset reconstruction companies, restructured assets
and those under a watchlist. The integration is beset with challenges. For instance, ING
Vysya was not a small bank: It was 65 percent of KMBs size in terms of branch network. The
integration committee of the bank is tackling matters like different provident fund
structures, grades and designations for staff as well. Technology, retail assets and core
banking

operations

will

be

merged

in

the

coming

months.

But as is typical with the man, Kotak decided that his bank should take some pain upfront,
through the financial merger. In July this yearwhen the earnings for the combined entity
were disclosedKMB reported a standalone net profit of Rs 189.78 crore, a 56 percent fall
from Rs 429.8 crore in the corresponding quarter a year earlier. This was largely due to
higher provisioning costs towards retirement benefits of ING Vysya Bank employees, nonperforming assets, integration costs and additional interest on savings accounts.
And this is how Kotak has always done things. One should always practice total
transparency; dont try to shove anything under the carpet. You must have the courage to do
the right things. If we believe that this is the way to go, we will not be scared, says Kotak.
His philosophical approach to business practices is manifested in a chart, the inspiration for
which has been drawn from Indias two mythological epics: The Ramayana and
Mahabharata. And this has been shared down the line, to enable decision-making that is in
line with the overall vision of the bank.
Shenoi explains this concept, drawing four quadrants along the X (letter) and Y (spirit) axes.
The first or the Rama quadrant is the ideal, when a business decision seems true in letter
and spirit; the second, the Krishna quadrant, is one where the spirit is met but not so much
the letter; the third is the Duryodhana where the letter is met but not the spirit; and the
fourth is the Ravana quadrant, where neither spirit or letter are met. We sometimes get
Page 12 of 33

staff coming to us, saying we are falling in the Ravana quadrant, should we do the contract?
says Shenoi. The answer to that would be an emphatic no at KMB.
The bank is also walking the tightrope as it balances its branch expansion with a digital one.
Uday Kotak has often spoken about the rifle shot, not machine gun approach when
deciding on branch networks. But as it goes more kona kona (into every corner)a thrust
which its advertising campaign speaks ofthe new world is challenging old mantras.
We had learnt the 80:20 philosophy, i.e. that 20 percent of the customers make [provide]
for 80 percent of the money. But in the new age, 80 percent of customers, which is the long
tail, gets you the money, Kotak says.
Despite the ING Vysya merger, KMBs customer base is still small at about 80 lakh, which is
concentrated across urban India. Hence, going kona kona becomes more imperative for the
bank at this stage. We also have only one percent of [total] deposits in the system, says
Gupta.
The bank is also yet to launch overseas operations, despite having planned for them over the
past five years. There are branches of other businesses, but no banking operations outside
India. Gupta admits it is needed but could take at least a couple of years more.
MAKING BUSINESS WORK
KMB has grown from a team of three people in 1985 to a shade under 40,000 today
(including the erstwhile ING Vysya staff). One of the important aspects about growing a
business is to create employment and contribute to society by making it broad-based in what
you do, while also benefiting shareholders, Kotak says.
Here he quotes an oft-reported statistic: If a person had invested Rs 1 lakh into the finance
company in 1985, his holding in KMB would be worth Rs 1,100 crore, which works out to an
average compound annual growth rate (CAGR) of 48 percent over 30 years.
Associations with the right people have played their part too. He fondly remembers his
relationship with industrialist and Godrej Group chairman Adi Godrej. Kotak has worked
closely with the Godrejs and had helped them acquire Transelektra, which owned the Good
Knight brand of mosquito repellents, in 1994. Regarded as one of the savviest investment
bankers of this generation, Kotak also recalls with satisfaction the several deals which helped
the

then

Hutchison

and

now

Vodafone

to

expand

their

India

presence.

Page 13 of 33

The building of Kotak Mahindra Bank with a consolidated balance sheet size of Rs 2 lakh
crore is testimony to these two personalities of Uday Kotak: The entrepreneur (in the early
years) and the banker. This is where Kotak seems to have gone ahead of some of his seniors.
In the media, Kotak was often associated as being part of the three Ks of Indias top
dealmakers, the others being Nimesh Kampani, founder and chairman of JM Financial, and
Hemendra Kothari, non-executive chairman of DSP BlackRock Investment Managers, who
earlier partnered Merrill Lynch. Kothari is almost retired but the firm he built is well set as is
Kampanis JM Financial which is now run by his son Vishal. Kotak, on the other hand, has
built a much larger institution, one which is number four in the countrys private sector bank
pecking order.
The issue with businesses is that you have to strike the balance between being an individual
and building an institutional platform, says Kotak. And Kotaks keen business sense and
financial acumen has admirers even in his peer group.
Despite the ING Vysya merger, KMBs customer base is still small at about 80 lakh, which is
concentrated across urban India. Hence, going kona kona becomes more imperative for the
bank at this stage. We also have only one percent of [total] deposits in the system, says
Gupta.
The bank is also yet to launch overseas operations, despite having planned for them over the
past five years. There are branches of other businesses, but no banking operations outside
India. Gupta admits it is needed but could take at least a couple of years more.
And a history of growth indicates it would get there.

Page 14 of 33

Rashesh Shah, chairman and CEO of the financial services conglomerate Edelweiss Group,
feels that Kotak stands out among other investment bankers. Uday is a banker and an
entrepreneur rolled into one, which is rare. He can sense the next big opportunity, has the
ability to adapt and he listens a lot.
Nearly 30 years on, Kotak still has that eye for detail. Most of his top management team
speaks about the homework they have to do prior to each meeting. He knows more than
the guy who is making the presentation, says Sareen, a view echoed by nearly all his senior
colleagues. Chances are, when a presentation is being made, Kotak will quickly fish out his
calculator (yes, he still uses one, say colleagues) and ask deep, probing questions about that
line of business. Arvind Kathpalia, group head of risk at KMB, recounts that when he was
interviewed for the bank job in 2003, Kotak asked him the financial costs of setting up an
ATM. He also quizzed Kathpalia on how he would choose between substance and form.
And if you are sitting quietly at a group meeting, be ready: Kotak will pick your brains, not to
test you, but to ensure that everybody is involved in decision making. While he is among the
few bank heads active on Twitter, he is more old-world when tracking numbers, a world he is
most comfortable in. He rarely uses Excel sheets, everything is on the calculator, says
Gupta.
Now, having completed one of the biggest deals of his life, Uday Kotak knows rest is still far
away. The next three quarters could well go in ensuring that the ING Vysya staffthe newest
entrants into the Kotak Mahindra foldfind their space and role. There may be less time to
spend with family and none at all for his once-favourite hobbies, playing the sitar and cricket
Page 15 of 33

(he was taught the game by Ramakant Achrekar, Sachin Tendulkars coach).
But as with the journey the bank has taken to date, some things are certain. There is no
frenzied race to the top. KMB will continue to grow in a calibrated manner and will scale up
only when there is a chance to create value, as was the case of the mega ING Vysya buyout.
Kotak and his team are clear that they will continue to do what is right by the organisation
and its stakeholders. In the process, all their energies will be devoted to delivering what the
bank and its founder have worked towards: Making the bank bigger, bolder and better.
That is the legacy Uday Kotak is building. One measured step at a time.

By Salil Panchal, Forbes India Staff, Oct 12.

2015[http://forbesindia.com/article/leadership-awards-2015/uday-kotak-the-institutionbuilder/41239/4]

THE GREAT ENTREPRENEUR OF INDIA:

1.2 GRANDHI MALLIKARJUNA RAO

Page 16 of 33

Personal Background of Grandhi Mallikarjuna

Rao GMR belongs to coastal Andhra's traditional merchant moneylender caste, Komati.He
was born into a family of gold merchants. He failed his 10th class examination, due to which
his father asked him to leave his studies altogether, and instead assit him in the family
business But after two years he asked his mother to let him join school, once again. He went
on to pursue Mechanical Engineering from Andhra University. Failing in grade 10th and
leaving his studies altogether and yet becoming a billionaire- Rao definitely justified the fact
that degrees don't guarantee financial success.
Grandhi Mallikarjuna Rao's Career
After the death of his father, GMR moved on to work briefly for A P Paper Mills in
Rajahmundhry, from his family's gold and jute business in Srikakulam. There, he closely
observed the modus operandi of an experienced Marwari businessman.
He learnt the art of managing diverse stakeholders by handling the Jute business.
He gained experience in infrastructure building by joining the state's public works department
as an executive engineer, on the Vamsadhra Project.
After extensive research and learning through two salaried jobs, one in the private sector and
another in government, GMR started out on his own, manufacturing cotton ear buds.
In the meanwhile, he sold off a brewery that he had started in partnership with Shaw Wallace,
to Vijay Mallya, along with a small-time insurance business to the Rahejas.
Page 17 of 33

It was finally in the year 1991, when a big opportunity opened itself up for him.
He won the bid for the Hyderabad airport, beating competitors like L&T, but felt unsure
about the steps he should further take, in order to turn the project into a success. So he did
what he now regards as the most important step needed to be undertaken by an entrepreneur
he consulted experts in this stream of the business. He invested time, energy and money in
learning, by bringing about experts in airport construction and management from Germany,
Singapore and Malaysia, to teach his team members.
GMR believes in providing high quality work to his customers, and strives to obtain the
position of a leader through practical work and theoretical knowledge obtained through
investing in proper learning and research .
GMR Group- Company Profile

GMR group is amongst the nation's fastest growing organizations. It was founded in 1978,
and its headquarter lies in Bangalore, India. The group holds superior position in diverse
business areas such as Airports, Highways, Energy and Urban Infrastructure including SEZs.
It believes in providing sustainable development through public-private partnerships. GMR
Varalakshmi Foundation (GMRVF), is its social responsibility arm, that works with the under
privileged sections of society, in areas where the group is present. The group has established
three greenfield power plants in Tamil Nadu, Karnataka and Andhra Pradesh. Thirteen power
projects in Hydel and Thermal power have been developed, of which three are operational
with a capacity of 808 MW and ten are under various stages of implementation. The Group
has already completed six road projects, under the highway banner. Realizing the importance
of airports,GMR has also successfully invested in this field of business, and has built the
following airports around the world: New Greenfield International Airport at Hyderabad,
New Sabiha Gokcen International (SGA) airport terminal at Istanbul, Turkey. MALE
International Airport (MIA), Maldives. It won the bid to modernize India's third busiest
airport, the Delhi International Airport by constructing a world-class integrated terminal 3
(T3).
The founder envisions that : GMR Group will be an Institution in Perpetuity that will build
Entrepreneurial Organizations making a difference to society through Creation of Value.
Problems faced by GMR Group

Page 18 of 33

GMR's single minded engagement to the core infrastructure sector has resulted in some
failures for the group. It had to make an exit from some highly profitable businesses such as
banking, insurance, breweries and jute, due to lack of focus and attention diverted towards
them
Awards and Acheivements of Grandhi Mallikarjuna Rao
India's fifteenth richest person, and Forbes billionaire with a worth of US $ 3.2 billion, GM
Rao

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googletag.cmd.push(function()

{ googletag.display('div-gpt-ad-1430901414228-2'); }); He is the recipient of many awards

and honor, such as:
The "Entrepreneur of the year" at the Economic Times Awards for Corporate Excellence 2006
07.
The "Most Promising Entrant to the Big League" by CNBC TV18 at its "Indian Business
Leader Awards 2007".
On 12th March, 2009, he received the Infrastructure Person (Infra Person) of the year award
at the Infrastructure Journal Award Ceremony held in London.
The "Sir. M. Visveswaraiah Award - 2008" instituted by the Federation of Karnataka
Chamber Of Commerce and Industry (FKCCI).
The "Most Inspiring Entrepreneur of the Year 2008" award by National Institute of
Industrial Engineering (NITIE), Mumbai.
The 'First Generation Entrepreneur of the Year' at the CNBC TV18 India Business Leader
Awards 2009.
In April 2009 he took over English Premier League's Liverpool F.C for 500 million pounds.
He also owns the cricket team of Delhi Daredevils in the Indian Premier League T20 cricket.
The team has shown a good performance, and enjoys a huge fan-following.A self-made
infrastructure magnate, GM Rao's success story has impressed people all over the world.
GRANDHI MALLIKARJUNA RAO-THE MAN BEHIND GMR GROUP
Close to three decades ago, when people saw Grandhi Mallikarjuna Rao cycling 25
kilometres everyday around his village in Andhra Pradesh collecting money for the farm
Page 19 of 33

produce he had supplied, they never thought he would one day own the first Indian company
to develop an international airport.
On 10 July 2007, GMR Infrastructure bagged the contract for an international airport the
Sabiha Gokcen International Airport (SGA) in Istanbul. Along with its Hyderabad airport
partner, Malaysia Airports Holding Berhad (MAHB), and Limak, a construction company in
Turkey, the group will build an international terminal in the 400 million development
project.
GMRs stocks jumped nearly seven per cent, touching a 52-week high after the deal. But this
global foray is only an extension of GMRs dominance in India, where it is the only
developer handling two airport development projects.
There is the greenfield Hyderabad international airport, which will open by March 2008
and handle around 12 million passengers. It will also be fit to handle an Airbus A380, a vision
Rao had seen years ago.
Two, the Rs 8,000 crore development of the Delhi airport which, a year after GMR took
over, is acknowledged as the fastest developing airport in the country. The airport will be able
to handle around 37 million passengers after the first phase in 2010.
GMR is setting up aerotropolises around both airports for premium and business hotels,
convention centres, golf courses, and so on. GMR has already invited bids for building hotels
on nearly 40 acres of land around Delhi airport. An MRO (maintenance, repair and overhaul)
facility with Lufthansa Tech at the Hyderabad airport is also on the cards.
For Rao, it has been a long journey from handling a jute mill to doing global infrastructure
projects. The turning point, self-admittedly, came in 1985 when Rao became a director in
Vysya Bank.
It was in the banking sector that I learnt the lessons of financial discipline and also how
projects are structured, says the media shy chairman of GMR who has assets worth Rs
15,000 crore in airports, power and roads.
When Rao took over the reins of the bank in 1994, its non-performing assets (NPAs) had
touched 15.6 per cent. Rao brought in ING as a partner and scaled down the NPAs to 4.5 per
Page 20 of 33

cent. He finally sold a 50 per cent stake in the bank and part of the Rs 380 crore from the sale
went into the Hyderabad airport project.
Not many people know that Raos entry into infrastructure was an accident. Rao was all set to
invest in a brewery when Chandrababu Naidu tipped him off about the prohibition of liquor
distilleries he would announce after coming to power.
Around that time the power sector was opened for privatization and Rao focused all his
energies on the Chennai power project, for which he got the licence. After three power
projects in Tamil Nadu, Karnataka and Andhra Pradesh, the company has recently been
aggressive about hydro projects with three power plants in Uttarakhand, Orissa and
Arunachal Pradesh to be operational by 2010-11.
Rao forayed into airport infrastructure when he realized the uncertainty in the power sector.
He was also among the first to be bullish about aviation way back in 1999 when the
Andhra government had just invited bids for the Hyderabad airport.
After Hyderabad was bagged, there were claims that the government would not create a
monopoly by giving a second airport (Delhi/Mumbai) to the same developer. But
notwithstanding protests from competitors about an unlawful bidding process, GMR got the
Delhi airport project.
Around Rs 34 crore was spent for the bidding. It was a golden opportunity and Rao did not
want to miss it, says a company insider and close associate of Rao.
Global benchmarks in sight, Rao even has international models for his family. There is a
detailed family constitution detailing Raos succession, qualifications of family members to
enter the family business (they must be management graduates), their remuneration and
perks, among other details.
We decided on a legal framework so that the family stayed together and disputes were
solved within it, he said in an interview to Business Standard a few years ago.
The constitution, written in four years, has provisions for a family fund to support those
family members who opt for other professions, a family board consisting of the men who
look after the business, a non-family board of women to look after emotional matters, as also
Page 21 of 33

specific performance parameters for family members in the business whose work is reviewed
every six months.
Friday, July 13, 2007, ANURAG LALL, e blogger

G.M. RAO: BUILD, OPERATE, AND BE DAMNED

Safdarjung, Indias iconic British- era airfield that is now sadly defunct was the venue of a
remarkable meeting one hot day in May. The crme de la crme of Indias passenger aviation
business had assembled there to tell the sectors new regulator how much they think travelers
flying in and out of the city should be charged. The Airport Economic Regulatory Authority,
Page 22 of 33

or Aera, had a tough question to settle: Who should be made to bear the brunt of a 41% cost
escalation in the construction of the Capitals gleaming new international airportthe
passengers, the government or the guy who built the airport?
The guy who built the airportGrandhi Mallikarjun Rao, or GMRwas chewing his nails off
at his office in Bangalore 2,000 kilometres away. The veteran infrastructure entrepreneur was
seeing his best-laid plans being blown to smithereens at a pace even he could not keep up
with. In a matter of a few months, his world had turned topsy-turvy.
Rao was staring at a hole of Rs. 1,800 crore ($400 million) in his balance sheet for no fault of
his. He had built a world-class airport terminal with a capacity of 34 million passengers in a
record time of 37 months. Given that planning always lags behind demand growth for
infrastructure in India, he had to widen the scope of the project along the way. An exclusive
terminal for low-cost carriers, an underpass for easier access from the highway and a few
other bells and whistles had made the airport future-proof. Yet, in place of the accolades he
had expected, Rao was facing regulatory hurdles and policy flip-flops that could make his
business unviable.
At the core of his problems is the shift in the power equation from the civil aviation ministry
to the new regulator. Aera is pushing for a tight control on the returns of private airport
operators (and consequently on airfare) through a new system of calculating revenues. This
passenger-friendly move, however, could temper the rate of return and delay the breakeven at
Delhi International Airport Ltd. (DIAL), a subsidiary of the listed GMR Infrastructure.
Even if Rao were to accept a slower journey to breakeven, he has a more urgent problem to
solve. As per his calculations, the project cost had risen to Rs. 12,857 crore ($2.86 billion) of
which all the equity, debt and government funding could not meet a gap of about 15%. He
needs to recover that in some form and had proposed he be allowed to charge passengers a
development fee for another three-and-a half-years. It is this question that the Safdarjung
meeting debated. But no decision came through that day and it is still not clear whether the
regulator will allow this unpopular move.
There is more bad news. Aviation is not the only business that is in jeopardy in GMRs
empire. Each of his other venturespower, roads, special economic zones and even his recent
international forayhas gotten into trouble. In most of these cases, the problems have largely
Page 23 of 33

to do with the changes in the environment, like regulatory U-turns, irrational competition and
that fickle thing called stock market perception.
In the power sector, he is hemmed in by a shortage of gas and uncertainty over fuel linkages.
Earlier, Rao lost out on the bids for ultra mega power projects that seriously undermined its
plans to be a major player in power. As a way out, he paid a billion dollars for Dutch
company Intergen with a capacity of 8,000 MW in five countries. But falling margins quickly
turned that acquisition sour.
The roads business, while ostensibly more profitable than airports, has become a cutthroat
pursuit. Taken in by the hype surrounding the infrastructure business, rookie entrepreneurs
and road contractors are bidding aggressively. They are taking away the projects from more
experienced hands. Last year, GMR bid for 24 projects and won only one.
While GMR demonstrated more hunger for new projects than their rivals like GVK, the
pressure from investors grew by the day. It is simply impossible to keep sustaining the
hype, says Vinayak Chatterjee, chairman of Feedback Infra. When short-term excitement ran
out in this long-term business, shareholders became upset.
All this has led to a simple equation: Revenues are slow to come, profits uncertain, debt
mounting and new investors hard to come by. This is not just the story of GMR but of much
of the entire infrastructure sector in India, which after two decades of economic reforms, is
still choked by bureaucratic and regulatory bottlenecks.
Fighter-Survivor
Rao was born in a small town called Rajam in the Srikakulam district of Andhra Pradesh.
Before him, the town was known for its jute mills and a temple for Navadurga Mata. The
Goddess there has nine manifestations that represent creativity, energy, sacrifice, ambition,
charm, radiance, nurturing, aggression and tenacityqualities that Rao would go on to show
in his entrepreneurial career.
The mechanical engineer started out in 1978 with a jute mill and was coasting along as a
local satrap until the 1990s. When the economic reforms began, he sensed an opportunity in
the infrastructure business. His first choice was power plants. He was one of the early

Page 24 of 33

independent power producers caught in the whirlpool of a badly handled reforms process that
created more bottlenecks than it removed.
As someone who has launched 28 different businesses over the years, Rao knows a thing or
two about tight corners. Very early in his power business, he had a taste of government
indecision and learned to fight it. Lenders to his 220 MW barge-mounted power plant at Tanir
Bavi near Mangalore held back their financing when the Karnataka government reneged on
its commitment to open an escrow account (payment guarantee) for the electricity it would
buy. He fought a lengthy court battle to win back the escrow. As a result, that project is the
only one in the country to enjoy such a guarantee.
Not only was Rao willing to take on the government when his interests were at stake, he also
excelled in his ability to build and nurture relationships. Senior colleagues who have worked
with him closely say he is on excellent terms with the heads of banks and financial
institutions.
He is often able to do this effortlessly, building relationships in small ways that matter. GMR
once rented a house owned by a former governor of the Reserve Bank of India but lying
unused. Surely not illegal, but everyone knew why it was being done, says an executive.
Raos generosity in lending his corporate jets to politicians is also well known. Now that his
companies run Delhi and Hyderabad airports, there are even more avenues to keep in touch
special and discreet care at the airports for those who are important for him.
A bulk of Raos businesses is in regulated sectors. So being on the right side of the politicians
and bureaucracy is also important for him. Over the years, Rao has earned a reputation for
being what one rival calls everybodys man yet nobodys man.
His senior colleagues say he can build a rapport with the cook and remember him the next
time even if it is two years later. He is in touch with hundreds of people and can make
intelligent calls on politics, especially in his home state Andhra Pradesh.
He never refuses a phone call, says Subba Rao, chief financial officer of the GMR group.
Over the years, it is this blend of street smartness combined with a lot of tenacity that helped
him build assets worth $5 billion from total assets of a mere $11 million in 1999. With a

Page 25 of 33

personal net worth of $3.5 billion, G.M. Rao is 18th richest on the Forbes list of Indian
billionaires.
Doing the Impossible
Many of his earliest businesses were started with friends and classmatespeople who he
trusted. But this did not always work. One of his most trusted lieutenants at Vysya Bank,
Ramesh Gelli, was the cause of a serious crisis in 1994 when he quit and started a rival bank
with 180 other staffers. A stunned Rao nevertheless turned his attention to rebuild the team.
In due course, his investment in Vysya Bank proved extremely successful. He sold most of
his 30% stake in it to Dutch Bank ING. (It is another matter that Gelli had an ignominious
exit from his new venture, Global Trust Bank, on charges of fraud.)
Over the years, he has been amazingly lucky about exiting businesses for a profit, says
CFO Subba Rao. GMR once started a brewery and sold it overnight at double the price. He
also made a profitable exit from his software business, selling it to outsourcing company
iGate.
All his ambition, energy and persistence were tested to the limit in the last four years when he
spent most of his waking hours trying to get the Terminal 3 of the Delhi airport functional.
When work started in 2007, he was given a target to finish it before the Commonwealth
Games in late 2010. Just a little over three years to complete such a complex project? Even
the best in the airport business baulked at the thought. Not just larger companies such as
Changi Airport Group and Beijing Capital Airport but even the Delhi projects consultant
Mott MacDonald felt the deadline was unrealistic.
The stakes were simply too high for GMR. Winning the Delhi airport project had been a
virtual coup for him and he couldnt afford to fail.
During the bidding in 2005, it had actually been the pair of Anil Ambani group and ASA of
Mexico that emerged as the highest financial bidder. GMR with Fraport had been only the
second.
However, some in the group of ministers examining the bids werent keen on giving Ambani
either of the two largest airports in the country that together account for half of the national

Page 26 of 33

traffic. His political connections with Samajwadi Party chief, Mulayam Singh Yadav, and his
spat with his elder brother, Mukesh Ambani, weighed in.
It is still not clear what transpired but the group of ministers decided to give higher weight to
the technical part of the bids where GMR was strong given his partnerships with Malaysian
and Frankfurt airports. Rao was allowed to match Ambanis financial bid. He was also
allowed to choose between Delhi and Mumbai airports. He chose Delhi, given its larger size
and fewer land problems. (Ambanis court battle against this award proved futile.)
GMRs challenge really wasnt the construction of the 520,000-sq.m. terminal, but getting
relevant permissions from countless government departments. When we got into the project,
I did not fully know what I was in for, recalls Rao. He had a tough time convincing the
government of the need for the low-cost terminal and the underpass. Each of these mini
projects needed clearances from over 40 departments. In fact, to convince the Cabinet
Secretary K.M. Chandrasekhar of the need for the underpass, Rao drove him through the
traffic and showed how a jam on the highway could lead to thousands of people missing their
flights. He didnt even hesitate to knock on the doors of Delhi Chief Minister Sheila Dikshit
and Prime Minister Manmohan Singh when big decisions needed to be pushed through. All
this effort proved fruitful in the end and the terminal was completed in record time.
A Man Cornered
But as the applause dies down, GMR Infrastructure is left with a debt of about Rs. 22,000
crore ($5 billion). A large portion of this was incurred for the Delhi airport project. Ironically,
the total cost of this one project is slightly more than the entire net worth of the company at
Rs. 12,000 crore ($2.7 billion).
GMR could live with it only if the promised revenue sources from the Delhi airport were not
under threat. But the advent of Aera has changed the dynamics of the aviation business
almost overnight. Aera Chairman Yashwant Bhave marked out boundaries with advice from
the law ministry to make sure his rulings on airport revenues would overrule any agreement
signed in the pasteven if they were with the government. This simply meant that the
governments promises and GMRs assumptions in the Delhi airport project were invalid if
Aera didnt agree with them.

Page 27 of 33

Airports get two types of revenuesthe air side revenue for services rendered to airlines and
the land side revenues from restaurants, shops, parking lots and so on. If both revenue
streams are considered together, it will dramatically reduce the airport charges for the
passengers but also reduce revenue potential for the airport operator. But if only the airside
revenues are considered for determining the charges, the passengers will have to shell out
more to compensate the operator for all his investment. The government had promised GMR
to keep a large part of landside revenues out of the calculation, meaning he could hope to
recover his investment reasonably quickly.
But Aera is now considering putting all revenues in one pot and keeping the charges low for
the passenger. Rao says the logic of all his investment has gone for a toss with this volte-face.
Meanwhile, a separate effort to recoup the cost escalation due to extra projects such as the
underpass is being actively opposed by the Air Passengers Association of India. In the
Safdarjung meeting, the associations president, D. Sudharkara Reddy, argued that it would
be unfair to burden the passengers for the cost overrun. Aera is yet to 42 decide on the matter.
The stock market has sensed the uncertainty and hammered the stock down. GMR
Infrastructures shares have lost 50% of their value in the last one year alone to trade as low
as Rs. 34 apiece (a face value of Re. 1). This is a two-thirds loss from the peak of Rs. 1,005 (a
face value of Rs. 10) the shares saw in August 2007, at the peak of the market bubble and
infrastructure hype.
The market doesnt like infra stocks because the companies raised money at very high
valuations and now dont seem to be delivering fast enough, says analyst Rahul Agarwal of
Anand Rathi group. GMR, in particular, is perceived as having high debt and struggling to
charge enough user fees from passengers. There is no problem with execution of projects but
with the cash flow, he says. Why on earth should I put my money on these projects when I
have hundreds of other options with faster returns? asks Agarwal.
One of GMRs most scathing critics is stocks commentator S.P. Tulsian. He says the company
has been too slow to exploit the assets around the Delhi airport for income. It has got partners
for only 45 acres out of the 250 acres available there, he says. Investors, including PSU
banks that invested in the company three years ago, have not been able to make money.

Page 28 of 33

One could argue that it was the unrealistic expectation of the stock markets that was the
problem and not the way GMR or others run their airport projects. Four years ago, when the
private sector signed up for such projects, investors typically assigned value to the land
parcels that came with the contracts. So these projects were valued largely as real estate
developments.
Even though passenger numbers are growing now and the aviation sector is back on its feet,
the markets are spooked by the delay in converting the land parcels into revenue streams.
The same irrational exuberance had gripped the power and road sectors too. In power,
companies had been valued on the basis of merchant power tariffs. In 2006-07, two years
before elections, state electricity boards had been keen to avoid power cuts and had bought
power at Rs. 7-Rs. 10 per unit. Industrial users too kept up the demand. The markets gave
power companies equity value of Rs. 4 crore per MW of generation capacity. Even projects
on paper got astronomical valuations.
Today, merchant tariffs are down to Rs. 3-Rs. 4 per unit. State boards are in a financial mess.
As a result, valuations too have fallen. It has become extremely difficult for power companies
to raise money.
In roads, profit margins have fallen due to stiff competition. GMRs first two road projects
earned returns of as much as 65% but the latest projects yield returns in single digits. There
is likely to be a big shakeout here that will eliminate inexperienced players spoiling the
market with their abysmally low bids, Subba Rao says.
Too Foreign for Comfort
Meanwhile, GMR has had a close shave in his globalization plans. His power business abroad
has not gone as well as its airport contracts in Istanbul and Male. His billion-dollar
acquisition of Intergen was supposed to help in expansion but ended up bleeding the groups
finances.
Rao had lost out to the Tatas and Anil Ambanis group in the bids for the ultra mega power
projects.

Page 29 of 33

We had to build up scale and since there were no more big projects up for bidding in India,
we had to look abroad, Madhu Terdal, GMR groups president for new and emerging
businesses, explains. The plan was to use it to set up projects in emerging markets as well as
India.
The hard landing for Intergen came within six months of buying the company. The economic
slowdown pushed down the so-called spark spreads (the margins that power producers make)
and the companys core profits began to drop. But there was a bigger problem. GMRs plans
to expand Intergen were being blocked by the Ontario Teachers Pension Plan fund, which
owned the other half of the company. By early 2010, we had decided to exit, says Rao. His
only caveat to his officials was that the sale should not be a loss. Terdals team started
scouting for a strategic buyer.
GMR finally sold its 50% stake in Intergen this April to the Huaneng group for $1.2 billion
making the buyer the second largest power utility in the world. The transaction was at the
level of GMRs group holding company. But the listed GMR Infrastructure had stood
guarantee for the borrowings. The sale has freed up cash.
Rao says the Intergen experience had taught him lessons. A 50% stake doesnt make sense.
We will now only get into deals where we have a clear majority or are the operators.
The group has become more measured in its globalization effort. We have set clear hurdle
rates to evaluate all opportunities and are much more process-oriented on risk. What I did in
the past was largely intuitive but the business is much larger and more complex now and gut
feel cannot work, says Rao.
The experience has also made GMR avoid some of the other big moves that rivals like GVK
and Adani are making to secure resources. They are the billion-dollar coal mine-development
deals in Australia and elsewhere.
That doesnt mean Rao has ceased to be a risk-taker. Take his keenness to enter nuclear
power, for instance. We would like to be the first to enter once the government allows it, he
says. It is just that he will now count every rupee he invests in a new project.
The Fight-Back

Page 30 of 33

Indias infrastructure dream hasnt exactly gone sour, but it is clear by now that it is a terribly
difficult business to make money especially because the government doesnt seem to be ready
yet. Chatterjee of Feedback points to the lumpy nature of the business. He says GMR is like a
boa constrictor that has just swallowed a large animal. It will take a while before the meal is
digested and the hunter becomes nimble again.
Rao, on the other hand, is clear about what he needs to do.
First of all, he is not too worried about the stock markets daily judgment of his business.
Infrastructure is a long-term game and I am not in a hurry, he says. He and his family own
70% of the company and are ready to wait for the market to figure out the nature of its
operations.
Neither is Rao in a hurry to sell the land near the Delhi airport. He is waiting for Aera to rule
how the proceeds of such a sale would be treated.
With public equity markets turning their back on infrastructure, he has turned to private
equity investors. The company has raised $200 million from Macquarie and the State Bank of
India in April for the airport business and $300 million from Temasek and Infrastructure
Development Finance Corporation for the power business.
Subba Rao says domestic capital available in India is not enough to fund infrastructure. The
group is considering an overseas listing for GMR Power, most probably in London.
Secondly, Rao is making sure his company is in fighting form. For a family-run company,
one way to do this is to get an independent appraisal of the business. He has set up a five
member general performance advisory council, to evaluate the company every year and rate it
on a scale of 1 to 10. Planning commission member Arun Maira set up the framework for the
council and its scope. Management guru Ram Charan, Raos mentor, says he has never seen
anything like this elsewhere in the world.
Private equity investors have a much better understanding of the business and have a longterm horizon. Vikram Limaye, IDFCs executive director says, GMR has demonstrated the
capability of executing projects. Cash flows for the company will improve once projects that
are under development come online.

Page 31 of 33

One of the priorities is to improve revenues by bagging more airports. With four airports,
GMR is already the fifth largest private airport developer in the world. Now it is looking for
midsized airports for possible acquisitions. Facilities in Indonesia, Cambodia, North Africa
and Eastern Europe are being evaluated.
In new projects, GMR seeks to be the hands-on operator and will go without partners even
for retail, fuel and cargo operations. If you leave everything to the partners, you are simply a
landlord, says P. Sripahty, CEO for international airports at GMR.
The other major priority is to maximize cash flow. Rao says he will achieve this by keeping
projects at various stages of implementation and operation in his portfolio so that not all are
in the same phase.
Apart from airports, Rao is making serious moves towards ports where he sees a big
potential. He also has three large special economic zones, each exceeding 2,000 acres. He has
been steadily acquiring land over the past four years. The government has rolled back many
concessions for such zones and GMR must quickly come up with ways to make money off
them.
With Rs. 2,000 crore of cash reserves, the company isnt in any kind of a financial problem.
The Intergen sale has also released funds. This means the company will be able to meet its
investment needs.
Rao is also hedging against the worst-case scenario of Aeras ruling on land side revenues
going against its interests. (Aera has roped in PriceWaterhouseCoopers to evaluate the
strategy in such an event.) He is also closely looking at the model at the U.K.s Heathrow and
Gatwick airports that already follow the so-called single-till model that he wants to avoid.
Even as he fights these nerve-racking battles, the 61-year-old entrepreneur is giving shape to
his legacy. He has passed on the operational responsibility of the airports and international
businesses to his sons, Kiran and Raju, respectively. His son-in-law Srinivas Bommidala
serves as the chairman of GMRs urban infrastructure and highways business.
GMR doesnt think of any of the current problems as threatening his business. This intense
investment phase may make the balance sheet look stretched, but there is no other way to
build the infrastructure business. And expectations have to match that reality. We are being
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seen like real estate or construction companies, not as infrastructure developers, he

complains. We have a much larger view30, 40 years. We cant run the business on a
quarter-to-quarter basis.
Edited by S. Srinivasan
This article appears in the June 17 issue of Forbes India, a Forbes Media licensee.

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