A will and a way: How MP Birla companies performed under Harsh Lodha

According to the APL committee, Lodha was acting against the interest of the estate of Priyamvada Birla by curtailing the scope of its controlling interest
Setbacks are not new to 53-year-old Harsh Vardhan Lodha. In 2012, a Division Bench of the Calcutta High Court appointed a Committee of Administrators Pendente Lite (APL) to administer the estate of Priyamvada Birla, setting the stage for things to come.

Over the past year, much of the focus has been around the committee and its decisions, taken by a majority, to not support resolutions pertaining to reappointment of Harsh Lodha as chairman of M P Birla group companies; first, in July 2019 to the boards of Vindhya Telelinks and Birla Cable and again in July 2020, to the boards of Birla Corporation and Universal Cables.

To get the committee decisions implemented, the Birlas moved the Calcutta High Court last year. On September 18, the court passed an order restraining Lodha from holding office in M P Birla group entities.

In the 16-year-old legal battle over the “purported” will of Priyamvada Birla bequeathing her estate to Kolkata-based chartered accountant Rajendra Singh Lodha (Harsh Lodha’s father), there has not been a bigger victory for the Birlas, or a bigger shock for the Lodhas.

But it has not ended the confusion. In focus is the scope of interest of the estate of Priyamvada Birla; the Birlas and the APL Committee (by majority) are of the view that the Birla family has a controlling interest in M P Birla companies; the Lodhas argue that it is a minority.

Appeals were filed before the Division Bench of Calcutta High Court by the Lodhas and group listed companies. The court on Thursday declined to pass an interim stay on the September 18 order and clarified that Harsh Lodha was restricted from holding any office in any of the entities of the M P Birla group during the pendency of the suit “on the strength of shares referable to the estate of Priyamvada Birla”.

Not that this has clarified matters. Thursday’s court order, according to the Lodhas, paves the way for Harsh Lodha to continue holding office in the M P Birla group; they argue that he was not reappointed as a director on the strength of the estate which has minority interest; the Birlas disagree, and say that the Division Bench has clarified that Lodha will not hold any office in the group on the strength of shares referable to the estate, which has controlling interest. More legal action is guaranteed.

But, for the first time in a decade, the Lodha family has come closest to being removed from offices of the M P Birla group. Rajendra Lodha chaired it from 2004 to 2008, and Harsh took over in 2009 after his father died in 2008.

Having been in charge of the group for almost 10 years, how did the companies perform under Harsh Lodha? The record of its listed companies suggests that the group has done reasonably well.

“Harsh Lodha is good at articulating a vision, implementation is left to the management team,” explained Pracheta Majumdar, wholetime director and CEO of Birla Corporation, the flagship, which accounts for more than half the group’s turnover.

In the last decade and a half, the company has moved from a capacity of 5 million tonnes to 15.58 mtpa; the real game changer was the acquisition of Reliance Infrastructure’s cement business, RCCPL, in a Rs 4,800-crore deal in 2016, which added 5.58 mtpa capacity.

“The shape of the company changed after the acquisition of the RCCPL plant with a significant addition of operating capacity. It provided the company an organic growth option given its sizeable limestone reserves. With steady ramp-up of RCCPL’s production, the overall operating profile has strengthened,” said Sumit Jhunjhunwala, assistant vice president, ICRA.

In August, ICRA’s rating rationale stated that Birla Corporation’s financial position improved at the consolidated level in FY20 with around 40 per cent in operating profit before interest, taxes, depreciation and amortisation primarily driven by stable volume and better realisations, mainly on account of an increase in the proportion of premium cement.

Around 40 per cent of Birla Corporation’s trade sales is in the premium segment today, said Sandip Ranjan Ghose, Birla Corporation’s chief operating officer till recently (the difference between premium and non-premium is about Rs 30 a bag).

Profitability under the Lodhas has not remained at the same level. One of the reasons cited by the APL Committee for opposing Harsh Lodha’s reappointment was the financial performance of Birla Corporation, which it said, had deteriorated since he became chairman in 2009-10.

It was not the main criterion for seeking his removal, though. According to the committee, Lodha was acting against the interest of the estate of Priyamvada Birla by curtailing the scope of its controlling interest. 

Majumdar pointed out that 2009 and 2010 were boom years for cement because of a mismatch between demand and supply. But then the industry became difficult as excess capacity got created.

Then there were problems with the Chanderia plant in Rajasthan. In 2011, the high court in Rajasthan suspended mining operations through blasting within 10km of Chittorgarh Fort. But the acquisition of RCCPL changed the equation. “It really turned the fortune of the company and was the single biggest success,” said Ghose.

In the initial years, under Rajendra Singh Lodha as chairman, Birla Corporation focused on brownfield expansion. After Rajendra Singh died, the focus changed to long-term planning, restructuring and digitisation. “Our plants are a combination of old and new. Every new plant will be more efficient, so cost of production will be lower,” said Majumdar.

By 2025, Birla Corporation has drawn up plans of taking its capacity to 25 million tonnes. Next year, a greenfield plant at Mukutban, Maharashtra, will be commissioned, which will take capacity to 20 million tonnes. As for the cable companies — Vindhya Telelinks, Universal Cables and Birla Cable — the group was positioned as a manufacturer of premium cables and capacitors, but the scale and premiumisation have gone up over the years. A group insider said, “While in cement, we closed the gap with leaders, in cables, we were always among the leaders.”

This management turmoil just as the pandemic has slowed economic growth is probably the last thing this classic “old economy” group can afford.

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