Balaji Wafers at the crossroads: Grow solo or with an external investor?

27 Aug,2013

By Kala Vijayaraghavan & Lijee Philip

 

In a sentimental outpouring reminiscent of the generational divide among the promoters of Bajaj Auto over choices for its two-wheeler business, Chandu Virani, the man who led the charge to build Balaji Wafers into a Rs 1,000-crore snacks brand, has expressed reservations on the plans of the next generation of his family to bring in an external investor and a professional management.

 

“It is my old-fashioned view. I am not convinced yet that any multinational will take care of the Balaji brand the way we do,” the 56-year-old Mr Virani said, two days after a Bloomberg news report that PepsiCo, the world’s largest snack-food company, was among the suitors for the Rajkot-based company.

 

Earlier this month, Balaji confirmed it had appointed advisory services firm EY to raise “growth capital investment” and was in talks with PE investors.

 

According to Mr Virani, founder and managing director of Balaji, the decision to hire EY was that of his two nephews and son, who took charge of the business between 2000 and 2006. “The company is in a good place today and I am not sure there is a need to scale up,” he says. “Yet, I will not oppose the plan if it goes ahead. Maybe I am completely wrong.”

 

Public airing of a difference of opinion between generations, in cordial circumstances, is a rarity in family-run Indian businesses. The best-known instance in recent years is that of Rahul Bajaj, the patriarch of Bajaj Auto, disagreeing with his son, Rajiv, on creating independent brands (like Boxer and Pulsar) and driving out of the scooters business. “I feel bad, I feel hurt,” Rahul Bajaj said in a 2009 television interview to NDTV on exiting the scooters business that symbolised much more than a two-wheeler and gave the iconic tagline, Hamara Bajaj.

 

To which, Rajiv, seated next to him, responded: “I care less for a solution from emotions, I believe more in the magic of logic.” A similar difference – between holding on to a hoary past and letting go to create a new future – hangs over current conversations at Balaji Wafers.

 

“Balaji is my life today,” says Mr Virani, who is staunchly opposed to selling the business. According to Keyur Virani, his nephew who is currently in charge of the business and is reportedly leading the investor negotiations, the family prefers PE investors as they will bring in a professional management. “Growth is important. We also need to look outside and have a sense of how the global market is evolving,” he says.

 

“But it is not that we are handing over charge to someone else. We will be involved in running the business.” Last week, Reuters reported that Balaji was talking to PE funds, including Blackstone Group and Actis, to raise $100-125 million (Rs 650-750 crore).

 

Terming it a “practical decision”, Keyur says: “Ultimately, a brand has to grow, and that may prove to be its downfall. But, at the same time, we will abide by Chandubhai’s view about not chasing growth so blindly that we are unable to handle it well or sustain it.”

 

According to Rajiv Bajaj, MD of Bajaj Auto, in a family business, 20% weightage should go to the family and 80% to the business. “If we strive to ensure the business is doing well, the family will invariably be happy,” he said. “But if, instead, we seek to ensure that the family is happy, it’s no guarantee that the business will do well.” In a rapidly evolving market, he adds, each generation needs to adapt itself to circumstances that differ significantly from those faced by their predecessors.

 

Family-business consultant Raju Swamy says Balaji Wafers has to focus on growth for the family’s sake. “If there is work in the family business for only three and there are six more, it leads to conflicts,” says Swamy, founder of Promag Consulting. “A small business may not be able to accommodate all of them. What the next generation is therefore seeking is natural.”

 

Balaji was set up in 1992 by Chandu and his three brothers: Meghji, Bhiku and Kanu. But its seeds were sown between 1974 and 1982, when the brothers supplied potato wafers and namkeens to Astron cinema hall a school in Rajkot. In 1982, they started making potato wafers at their house in the same city. In 1992, they set up an automated production unit and started Balaji Wafers, named after a family deity, Bal Hanuman.

 

The next generation started joining the business after 2000. Today, besides Keyur (33), who is the son of Bhiku, there is Mihir (29, also the son of Bhiku) and Pranay (29, son of Chandu). While these three focus on marketing, expansion and R&D, Virani spends a few hours every day visiting plants, talking to suppliers and dealers, and checking product quality.

 

According to Mr Virani, Balaji Wafers currently has an annual turnover of about Rs 1,000 crore. The company’s products – wafers and namkeens – are priced about 40% below established national brands. Its presence is mostly in Gujarat, MP, Rajasthan, Maharashtra and Goa, where it is estimated to have a 65% share of the organised market.

 

“Balaji Wafers enjoys a great brand equity due to three factors: affordability, availability and consumer focus,” says Jagdeep Kapoor chairman of Samsika Marketing Consultants. “It has transcended a difficult category in foods, competing with PepsiCo’s Lays and ITC’s Bingo. It has evolved bottom up and has tremendous scope to grow.” Mr Kapoor feels the company will be challenged while scaling up, and going from local to regional to national. “They have to grow state by state, in phases,” he says. “It is better to be a regional king than a national beggar.”

 

Mr Virani professes to a dim understanding of the modern way of deal-making. “I am not bothered with investment decisions or making money,” he says. “Stock market listing, etc., is all paper wealth. How one grows from the roots by taking everybody along is true success.” His big concern is that Balaji’s partners – dealers, retailers and suppliers – may be affected if a new investor comes in. Mr Virani talks of the close ties with this set.

 

Rajiv Bajaj feels that if the older generation gives way to the younger, a middle path is the best. “The older generation must provide the younger lot with a meaningful opportunity; and the younger generation must earn their position through performance.” “Ultimately, both must acknowledge that free markets value meritocracy, not aristocracy.”

 

Source:The Economic Times

Copyright © 2013, Bennett, Coleman & Co. Ltd. All Rights Reserved

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