TVS group restructured

In an earlier article Ownership aligned to family units (IE January 2021) IE had referred to the complexity of this exercise. It should go to the credit of the scions of the founder for the smooth restructure in quick time. This has the potential to be a model to follow by other family-owned businesses.

The Largest Family business of the south, the TVS group of companies, has successfully realigned dozens of its family units to the families of the third/fourth
generation of founder T V Sundaram Iyengar. Ownership of dozens of units of the group bequeathed by the founder to his four sons – T S Rajam, T S Krishna, T S Srinivasan and T S Santhanam – with their frenetic pace of growth, especially over the last six decades, has resulted in a complex web. The problem got confounded by the different paces of growth of individual units. There were also understandable differences and conflicts over control.

With increasing exposure to global practices, expanding opportunities for strident growth and a lot of interdependence among the units, there emerged a tacit understanding to leave management and expansion of the individual units to the families managing these by mutual consent. Thus, for instance, children of T S Krishna’s family managing Sundram Fasteners, Sundaram Brake Linings…, T S Srinivasan’s family managing Sundaram Clayton, TVS Motors, TVS Electronics…, T S Santhanam’s family handling Wheels India, Brakes India… T S Rajam’s family of TVS Logistics, TVS Tyres… are to fully own their respective units.

Logical evolution of transport business…

Founder Thirukkurungudi Vengaram Sundaram Iyengar conceived the potential for growth of the transport sector and founded the enterprise in 1911. It started with a bus service in Madurai. In quick time it was incorporated as a company in the 1920s.

There is a fascinating rapid evolution of the mother enterprise, woven around the transport sector. Over time TVS & Sons spawned Southern Roadways Private Ltd to cater to parcel (freight) and passenger services and Sundaram Industries Pvt Ltd to specialise bus body building, tyre retreading and production of rubber components.  The success of TVS & Sons as a bus operator drew a large number of other entrepreneurs to enter this business. TVS & Sons rapidly expanded into dealerships of automobiles, spare parts… Separate dealership companies – Impal, Madras Auto Service and Sundaram Motors – followed.

The promoters soon saw opportunities unfolding for the manufacture of auto components aided by progressive governments at the Centre and the state that encouraged industrialisation with handsome support. The TVS family seized the opportunities with alacrity. In the 1960s the group embarked on a rapid and massive expansion into the auto component sector. T S Srinivasan, on the lines of the Huzur Gardens cluster of the other Chennai conglomerate, Amalgamations Limited,  made bold to acquire a large parcel of land at Padi spread over 300 acres to house these units.

Facile funding…

The early 1960s was the period of nithya kalyanam and pachchai thoranam: Wheels India, Brakes India, Sundaram Clayton, Lucas TVS and Sundram Fasteners were set up in quick succession. Look at the facility of funding and jump-starting production in a matter of months: Wheels India was set up with an investment of Rs 200 lakh; promoters TVS & Sons and the British collaborator Dunlop, each contributed Rs 25 lakh to the equity; Financial Institutions lent the balance Rs 150 lakh. Presto! High-quality wheels fabricated at Padi rolled out in a matter of months! Similar alacrity in funding and execution on such a facile basis was witnessed at contiguous sites in Padi which grew among the most prominent hubs for the manufacture of auto components in India.

The policy of Indianisation helped the group record rapid growth as also to expand into production of mopeds, tyres, heavy castings, brake linings…

Complicated web of ownership…

The modest finances needed were also mobilised with ease by the three parent companies of TVS & Sons, Southern Roadways and Sundaram Industries. Thus evolved a complicated web of ownership of the rapidly proliferating business units managed by the families of four sons of the founder.

The web of complex ownership led to inevitable conflicts among the scions. Peace was ensured by a tacit understanding to leave control to families that managed the individual units and limiting the role of the three promoter companies. There was also the confidence to look at projects that involved much larger investments by the individual units without much support by the promoter companies.

Agreed to live separately, yet to work together…

The third and fourth generation scions of the founder understood the value of interdependence in the manufacture of the various products and services they dealt with. (eg. TVS Motors is a major buyer of TVS Tyres; Sundram Fasteners has been a supplier to most other units) and the enormous scope for expansion of their businesses post-liberalisation: with several renowned automobile MNCs making large investments in India, there were opportunities for massive expansion of the auto component units and trading outfits.

This was best illustrated by TVS Motors building handsome custom in global markets. Nearly a third of the production of this company goes for exports. In 1993, Sundram Fasteners grabbed opportunities for manufacturing and exporting radiator caps for General Motors and won consistent awards as the best supplier. This unit also set up a production unit in China in 2002.

TVS Logistics Solutions foresaw the opportunities both in India and abroad for logistics and supply chain technology. Other unit companies built expanding custom for exports of their products.

Smooth process…

After a few abortive attempts the four owner families agreed on the imperative not to postpone any further alignment of ownership with management control over the different units already in place. They accessed expertise of reputed consultancy firms and professionals like Transaction Square, JM Financial Consultancy, E&Y, HSB Partners and Mr Enamdar.  The process was smooth.

In the first phase of the family settlement and arrangement  Sundaram Industries Pvt Ltd (SIPL, incorporated in 1943) and Southern Roadways Pvt Ltd (SRPL, commenced business in1946) merged with TVS & Sons. In this process there was consolidation of the shareholding of the different unit companies with the parent company, TVS & Sons.

In the next stage the shareholding of various operative companies was transferred by a process of demerger, to the holding companies of the relevant families. Due credit would have been given to the enterprise value of the new holding companies in the inter-family business settlements.  Obviously this would have called for a good deal of give and take as the valuations of individual family companies’ varied substantially; eg. TVS Motors/Sundaram Clayton, account for a nearly 50 per cent share in total revenues of the group and command a handsome market cap.

The new family holding companies…*

Post this restructuring, roughly the following entities would emerge as distinct holding companies for the families of the four second generation family members.

• TVS Holdings Pvt Ltd (THPL) under the control of Venu Srinivasan family. This will comprise TVS Motors, Sundaram Clayton, as also the die casting operations of TVS & Sons.
• TVS Investments Pvt Ltd (TIPL) under the control of Gopal Srinivasan family. This will comprise TVS Electronics Ltd and TVS Capital Funds Pvt Ltd.
• T K Balaji family holding company comprising Lucas TVS Ltd, India Nippon Electricals Ltd, Delphi-TVS Technologies Ltd…
• TVS Sundram Fasteners Pvt Ltd (TSFPL) will own Sundram Fasteners and allied companies under the control of Suresh Krishna family
• Madurai Alagar Enterprises Pvt Ltd (MAEPL) will own Sundaram Brake Linings Ltd (SBLL) under the control of K Mahesh family
• K Ramesh family will control the roadways business of Southern Roadways.

• Trichur Sundaram Santhanam & Family Pvt Ltd (TSSFPL)will own Wheels India, Brakes India, Impal, Sundaram Motors, Madras Auto Service and also the automotive business of TVS & Sons.
• TVS Mobility Pvt Ltd (TMPL) will be controlled by the TS Rajam family and comprise of TVS Srichakra, TVS Logistics  and a division of TVS & Sons.

(*Source: Splitting the century-old TVS Group-S Subramanian, IIM-Kozhikode)

There were few other interesting aspects of this restructuring:

The 100 plus year old brand of TVS can be used by all the family groups with no royalty or other brand usage payments by the operating companies.

There should also be tacit understanding among the new companies not to enter into competing businesses.

It could also be inferred that the members of a family group would buy out the interests of the other immediate family members. eg. the family of T S Ratnam, another son of T S Rajam, has not been very active in business. The shares of his children can be acquired by other members of the TVS Mobility Pvt Ltd.

Individual companies may still hold a small share of other family holding companies to maintain the TVS family bond.

Wider national and global exposures…

The smooth restructure should also have been the result of much wider global exposures and experiences of the third and fourth-generation descendants of founder Sundaram Iyengar. With most of these having studied abroad, they must have been more familiar with the evolution of family businesses. Active engagement with industry associations should also have been a help. Suresh Krishna as President of CII had the alacrity to accept boldly the offer of General Motors to acquire and transplant its radiator cap plant from the UK to Chennai and emerge stronger by this exposure. His company has been winning GM’s top vendor award for several years. He also took bold to set up a manufacturing unit in China.

Venu Srinivasan as President, CII, was in appreciation for the manufacturing excellence of  MNCs especially the yen for the quality of the Japanese. The vast contacts he built helped in accessing technology and adopting global management practices. Today he is among the prominent southern businessmen at the national level. He is a member of the board of Tata Sons, member of Tata Trust and Director of the Reserve Bank of India board. Besides, he is also reputed for his deep involvement in social, religious and economic uplift of rural Tamil Nadu.

Significantly, the TVS companies pioneered and motivated several southern corporates winning Deming awards as also in expanding the Japanese concepts of TQM, TPM, Kaizen…

R Dinesh, the President-designate of CII, is already expanding the logistics business at the global plane and can be expected to further hone his skills in supply chain logistics during the hectic tenure at CII.

It should go to the credit of the scions of the founder in completing the smooth restructure in quick time! This can as well be a model to follow by other family-owned businesses. – With inputs from V Durga and K Narayanan

Icons in component manufacture…

Total revenues of the group, which comprises several unlisted companies, are estimated at $ 8.5 billion (around Rs 65,000 crore). There are 40 notable companies in the group, not counting sundry subsidiaries, subsidiaries of subsidiaries and companies in which the group has non-controlling interest. Those of significant business weight are discussed here.

These companies will be under the close scrutiny of investors and analysts, not just for how the businesses pan out, but also for their management styles. But such analysis has to be based on a baseline on where each business stands today.

Here is a look at the leading companies in the new entities:

Sundaram Clayton and TVS Motors (Venu Srinivasan)

The parent (Sundaram Clayton) and the offspring (TVS Motors) cannot be separated. TVS Motors is the biggest company of the group.

Notable highlights of the company’s recent performance include its crossing the 3-million mark in vehicle sales, a third of which came from exports;  its recent tie up with BMW is for “joint development of new platforms and future technologies, including urban-centric electric vehicles.” The company also bought 75 per cent stake in Swiss e-mobility, a firm that produces aspirational bicycles, for $100 million.

Stock market analysts have given TVS Motors a ‘buy’ call. India’s electric 2W market has taken off with a good start, but it still accounts for under 5 per cent of total 2W sales—so there are promising upsides which TVS Motors, with a strong brand recall, is well-positioned to capture. It has launched I-Qube electric scooters among a slew of recent product launches.

Sundaram Clayton (SCL) will divest its aluminium die-casting business to a new company, SCLDCD, after which SCL will be the holding company for TVS Motors and SCLDCD. Two other  companies promoted by the Venu Srinivasan group, TVS Holdings Pvt Ltd and VS Investments Pvt Ltd, will buy out other partners in the erstwhile group holding entities and then be merged with SCL which will ultimately become the holding company for the Venu Srinivasan group.

Another noteworthy company of the Venu Srinivasan group is TVS Credit Services, a finance company with total managed loan assets of Rs 15,460 crore (2021-22), net worth of Rs 1864 crore and net profit of Rs 121 crore in 2021-22.

Wheels India, Brakes India

This branch of the undivided TVS group has been managed by Ram and Viji Santhanam, R Ramanujam and their sons. Wheels India manufactures wheels for vehicles. Some noteworthy aspects of its performance include its recent foray into aluminium wheels and its crossing the Rs 1000-crore mark in exports.

Brakes India bought its 49 per cent share of ZF AG of Germany, in 2020. ZF was also the technology provider. About 30 per cent of Brakes India’s sales comes from exports, mostly to Europe.

The company has a strong presence in the Indian automotive sector, being a significant provider of braking systems.

Another company of the Santhanam family is Turbo Energy (Turnover: Rs 1734 crore in 2021-22), which is a joint venture with Borg Warner of USA. Turbo Energy manufactures turbo chargers for diesel vehicles.

Sundaram Brake Linings

A winner of Deming Prize and an early adopter of ‘lean manufacturing’ techniques, SBL manufactures friction materials for brakes and will continue to enjoy demand even after the transition to electric vehicles. The company recorded a turnover of Rs 298 crore in 2021-22. Half of its turnover comes from exports.

TVS Supply Chain Solutions 

Formerly known as TVS Logistics, the company is India’s largest and one of world’s leading supply chain management companies, with offerings across the value chain—transportation and logistics, material handling solutions, in-plant warehouse management and aftermarket warehousing. It began its journey as a division of the group’s holding company, TVS & Sons, in 1996 and was spun off as a separate company.

Sundram Fasteners (Suresh Krishna family)

Sundram Fasteners (SFL) is a dominant manufacturer of fasteners which accounts for 65 per cent of its turnover. Its product portfolio comprises fasteners, metal forms, radiator caps and automotive pumps. SFL is a large supplierof fasteners to other industries apart from auto.

SFL has six domestic and five overseas subsidiaries. A notable feature of this company is its continuous focus on capital expenditure. In 2021-22, it spent about Rs 150 crore on capex; in each of the next two years it plans to spend Rs 350-400 crore to expand into new products.

TVS Next is a subsidiary that provides IT solutions for the manufacturing sector. Another subsidiary, TVS Engineering Ltd, plans to manufacture components for Aerospace and Defence sectors that show a lot of promise.

TVS Srichakra

This Rs 2000 crore tyre company produces two-wheeler tyres at its plants in Tamil Nadu and Uttarakhand. Shobhana Ramachandran, who heads this company, is sister of Dinesh, Naresh (the Vice Chairman of the company) and Haresh – children of R Ramachandran. The company is foraying into ‘sensing’ technologies, including fibre optics sensing.

TVS Electronics Ltd

This computer peripherals and electronics hardware manufacturer, run by Gopal Srinivasan, had a turnover of Rs 309 crore in 2021-22.  TVS Electronics started as a manufacturer of keyboards and printers, is now into a range of products including ‘track and trace’ products like barcode scanners and surveillance equipment like cameras.  Gopal Srinivasan also runs TVS Capital, a reputed PE firm of the south.

Lucas TVS [T K Balaji family]

This company is engaged in the technology-oriented business of auto electricals. The company is debt-free, giving it a huge leverage to borrow for its proposed expansion into lithium-ion batteries.

Lucas TVS is coming up with a globally competitive giga scale plant to address both mobility and storage solutions for the Indian market. The plant is expected to commence production  by end  2023.

The company is adopting  a technology suited to the climatic conditions of India thourgh in-house design of cells… -Thungabhadran (With inputs from K S Sumedh)