Explained: How Avantha's Gautam Thapar lost control of his companies

Illustration of Gautam Thapar by Ajay Mohanty
In the first week of May, YES Bank invoked the pledge on Gautam Thapar’s shares in CG Power and Industrial Solutions, which resulted in the promoter’s exit as a shareholder from the company. In 2015, he had already sold his entire shareholding in Crompton Greaves Consumer. 

A little more than 10 years since it was renamed, Gautam Thapar’s Avantha Group is a far cry from its past glory. The conglomerate, which was thriving in 2007, fell prey to its own ambitious inorganic growth and diversification into power generation, industry experts say.

“Avantha Group is a case similar to some other conglomerates in India that are facing the brunt of inorganic growth, which back then looked like a good decision. The existing good businesses of the group failed to support these loss-making acquisitions beyond a point,” said a rating agency analyst who did not wish to be named.

At the time of unveiling Avantha Group’s new identity in 2007, Chairman Gautam Thapar was quoted saying: “Consolidation involves coming together as a group, leveraging on individual and collective strengths and working together for higher ambitions and market aggressiveness.” Back then, Ballarpur Industries Ltd (BILT) and Crompton Greaves were two of the leading group companies, both listed on the bourses. Avantha Power and Infrastructure was still at a nascent stage.

Mired with financial troubles, Thapar demerged the consumer business, which became Crompton Greaves Consumer Electricals, and the erstwhile Crompton Greaves became CG Power and Industrial Solutions. Thapar’s stake in Crompton Greaves Consumer, which also houses the brand, was sold to private equity (PE) funds Advent International and Temasek Holdings for Rs 2,000 crore in 2015. Promoters had also pledged CG Power shares against loans they took to invest in other businesses. 

"Thapar did not see a long-term opportunity in a strong brand like Crompton Greaves and, hence, decided to monetise it at one go,” said another analyst on condition of anonymity. 

Lenders had taken control of the group’s oldest business — BILT — under strategic debt restructuring in May 2017, converting their loans into equity and taking 51 per cent equity stake. 

Avantha Power and Infrastructure is at the National Company Law Tribunal (NCLT) over debt default. "In one of our last meetings with the promoters six to seven years back, the group did not want to focus on flagship Crompton Greaves due to competition from biggies like GE and Siemens, which were strong on R&D,” said a fund manager. “Instead, he saw bright prospects in the power business, where you take up a coal mine and sell power to the government,” the manager said. The strategy failed after a Supreme Court order cancelled coal mining licences in 2014, and left power assets stranded.

An email query sent to Avantha Group last week remains unanswered.

“To know what went wrong with the group, one should trace all the acquisitions the group made between 2005 and 2013,” said an analyst with a domestic brokerage firm. As part of this acquisition spree, it bought companies in Belgium and Hungary. The CG Power board entered an agreement to sell the two Hungarian businesses in 2018, but it fell through earlier this month, as certain conditions were not met. 

 
“It is difficult to understand how it went wrong in gauging Hungary after so many years of experience in transformers. To its credit, it was early to enter the renewable transformers segment, and did not miss the curve,” the fund manager said.

Meanwhile, Thapar’s stake in CG Power slowly reduced from over 40 per cent in March 2014. Besides YES Bank with 12.79 per cent, PE firm KKR holds 21.6 per cent, and mutual funds have 28 per cent. Bharti Group Chairman Sunil Mittal, too, has 8.24 per cent investment now in the company through Bharti (SBM) Holdings. Avantha Group’s shareholding is now minuscule. 

BILT, too, was a victim of the group’s ambitions. The oldest business in the group, it bought Sabah Forest Industries, Malaysia’s then largest pulp and paper mill for $261 million in June 2006. “Back then, it was revolutionary. However, the company could never ramp up Malaysia’s operations due to various issues, and the total cost of importing from that plant to India was higher than buying it locally,” said another analyst who earlier tracked the company. In April 2018, a sale agreement for the Malaysian company was entered into for $310 million, but the deal has not been concluded yet. 

In the past decade, the group’s smaller companies came under the hammer too, as it sold the chlor-alkali and phosphoric acid division of Solaris ChemTech to Aditya Birla Chemicals. Today, the group website lists several businesses including Global Green, which is into food processing, and others such as Avantha Agritech, Avantha Business Solutions and Biltech Building Elements, but these are small. 

 
Avantha Group’s most ambitious bet, Avantha Power and Infrastructure, faces liquidation. “Entry into the power sector was one of the many bad decisions that the company made. The separation of the consumer business (sale of Crompton Greaves) coincided with stress in the power generation space,” said the domestic brokerage analyst quoted earlier.

In terms of equity shareholding as promoters in listed companies, all that’s left of Avantha group is its 25.05 per stake in Ballarpur Industries, which is valued at Rs 66 crore, but 99.6 per cent of it stands pledged. And it has 8,574 shares of CG Power valued at Rs 3.05 lakh.