How Ashish Bharat Ram transformed SRF and put the firm on fast track

Topics SRF | SRF stock

Ashish Bharat Ram
Armed with an MBA from Cornell University in the early 1990s, Ashish Bharat Ram sometimes wondered whether he had made a mistake in coming home to join the family business.  

He had reasons. His father, Arun Bharat Ram, was then engaged in yet another feud, this time with his own brothers Vinay and Vivek (all of them sons of Dr Bharat Ram), on a further division of the assets, following the first split in the Shriram family in 1989.

The good news was that in 1999 the dispute was settled amicably and Arun Bharat Ram gained control of SRF (known earlier as Shri Ram Fibres). The father inducted Ashish as an understudy in SRF for over five years to learn the ropes and ensure a smooth succession once he stepped down.  In 2007, Ashish Bharat Ram took over as managing director.

While learning the ropes he however soon realised that, with 70 per cent of the company’s revenues coming from nylon tyre cord (a segment that wasn’t growing), the business had a bleak future. SRF had to change.

“I realised it was not a good business model. There were limited buyers for nylon tyre cord. The only differentiator was cost and there were limited suppliers of raw material like carpolactam in the world and they controlled the price of the raw material. We had to change SRF’s business model,” he said.

That is precisely what Ashish Bharat Ram, now 51, has undertaken in the past 12 years. If market capitalisation (m-cap) is a measure of success, he runs the most successful of the listed Shriram companies after the split.

With a m-cap of over Rs 18,644 crore, SRF shares have been a darling of the stock market with their price going up by 52.9 per cent in the last one year to hit Rs 3,243.6 a share.

Ashish Bharat Ram has transformed the company from an overwhelmingly nylon tyre cord manufacturer to one where only 20 per cent of the revenue comes from technical textiles (mainly nylon tyre cord) and the rest comes, equally, from chemicals and packaging films, which earlier formed only 25 per cent and 5 per cent of revenues, respectively.

Investors are bullish because Ashish Bharat Ram has delivered a sustainable return on equity of 16-18 per cent annually and has been able to generate revenue growth of around 15 per cent year on year.  He points out that he has been able to do this by investing around Rs 1,000-1,200 crore every year and by earning half his revenues from exports.

To go a bit back in history, the Shrirams were a force to reckon with among Indian business houses. In many ways, some say they were to Delhi what the Tatas were to Mumbai. Found in 1909 as Delhi Cloth and General Mills by Lala Shriram, the family faced — and survived — a hostile takeover bid in the 1980s from London-based businessmen Swaraj Paul.

Later, as they were going through a three-way split in 1989 between brothers Bharat Ram, Charat Ram and Murli Dhar’s sons — Bansi Dhar and Sri Dhar — after a bitter family feud, they were ranked 11 out of the top-50 industrial houses in the country, far bigger than the Ruias, the Kirloskars, the Mahindras or the Wadias  in terms of assets.

The split, inevitably, had an adverse impact on the family fortunes. Nine years later, when yet another split between Bharat Ram’s sons happened, there was no breakaway Shriram group left in the coveted list of the top-50 business houses, based on market capitalisation.

Family members just cashed out with many of their crown jewels, such as in DCM-Daewoo and Honda-Siel in the automobiles space and in the 50-50 joint venture with Benetton. The Shrirams also closed their textile mills to sell prime real estate in Delhi.  

While many of the other Shrirams saw their empires shrink, SRF was one of the exceptions, along with DCM Shriram which straddles the sugar business under Ajay Shriram. SRF’s chemicals business, for example, grew stronger thanks to a 400-plus R&D team which won over 48 process patents, providing them with a key differentiator and better margins.

It also provided intermediates to foreign specialty and agro-chemical companies looking for high-quality but at relatively competitive prices. Ashish Bharat Ram recalls that in many ways European chemical companies used India as an outsourcing base. As much as 95 per cent of what they make is exported.

“The margins in this business are 10 per cent more than, say, in nylon tyre cord but more important is that it is growing by 15-20 per cent compared to 1 per cent in tyre cord as the market increasingly shifts from bias tyres to radials,” said Ashish Bharat Ram.

The tyre cord business is increasingly the cash cow for him, with very limited incremental investment required. The money is instead invested in the other two growth businesses.  

In the packaging films business, he says the big advantage was the huge size of the market spread across over 1,000 customers in India and the world whereas the tyre cord business was dependent on four to five tyre companies and had no export potential.  

Even in packaging film, SRF, by leveraging its R&D, has been able to get into value-added products (they constitute 30 per cent of its portfolio) which offer better margins. The company also realised there was a competitive advantage to setting up plants near customers which is why it set up operations in Thailand and South Africa, and is now commissioning a new plant in Hungary to cater to the specific needs of the region.

Finally, it built scale. By March 2020, it will have the capacity to produce 280,000 tonnes of packaging film annually — 56 times its capacity in September 2003.

Ask him now about coming back and Ashish Bharat Ram says he has no regrets. The Shriram family celebrates festivals and other special occasions together. They are well-knit, even if the businesses are separate.

Most of all, he feels vindicated that his strategy to put SRF on the growth path has been proved right, all the more because investment bankers call him occasionally to know more about his company.

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