The Thalaiva At Murugappa Group

WHAT'S THE BEST WAY to get to know your customer — up, close and personal? Travel, sleep, eat, and bathe just like the customer does! That’s what Vellayan Subbiah did when he was at the helm of Cholamandalam Investment & Finance (CIFC), the second-largest shadow banker by market value. It was in February 2016, the 54-year-old son of patriarch, M.V. Subbiah, of Murugappa Group, hopped onto a customer’s truck for a better understanding of how the business worked. “I realised that I didn’t actually know what one of my customers did from the time they woke up to when they went to sleep at night, and it was important for me to understand that,” says Subbiah in the less than 3-minute video that encapsulates the 50-hour travel from Delhi to Mumbai. The journey was a shared experience. The trio — Subbiah, driver and helper — ate together, used the same facilities, and bathed in the open at roadside dhabas. Enroute, Subbiah also experienced first-hand how truckers’ penchant for retreaded tyres resulted in slower speeds to avoid potential tyre bursts!

While the road trip was an eye-opener, Subbiah’s journey at Cholamandalam Finance was nothing short of enduring. In fact, around 2009, the financial services arm of the Murugappa Group was in disarray after its partnership with Singapore-based DBS Bank was struggling with its foray into personal and consumer finance. Come August 2010, Subbiah, an IIT Madras alumnus, took on the mantle of the MD and orchestrated a turnaround that not just saw the company make a comeback as the leading vehicle financier, even total income and profits compounded at 25% and 42.87%, till Subbiah stepped down in 2017. The stock now trades at a premium to competition — 6.85x 12-month trailing price-to-book compared to 1.99x for Mahindra Financial and 2.99x for Sundaram Finance.

After turning around the fortunes of Chola, Subbiah has been, since August 2018, shaping the growth trajectory of another group company, Tube Investments of India (TII) — as MD till 2022, and now as the executive vice-chairman.

The ₹15,000 crore-plus diversified engineering company, which has compounded sales and PAT at 47.25% and 46.11% over FY20-FY23, has three main verticals — engineering, metal formed products, and industrial chains, but 70% of its revenue comes from the automotive industry. To insulate itself from the cyclicality of the auto sector, the company has put in place a three-pillar strategy. The strategic concept involves organic growth in existing businesses (TI-1), a VC-style approach to medium-term growth (TI-2), which includes the foray into full 3-W electric manufacturing and optic lens, and (TI-3) inorganic growth of acquiring companies and turning them around. The acquisition of debt-ridden CG Power and Industrial Solutions for ₹800 crore in FY21 was a game changer and a key element of the T3 strategy. CG Power, which became net-debt free within a year, saw its revenues more than double from ₹3,075 crore in FY21 to ₹7,040 crore in FY23, even as it swung from a loss of ₹1,323 crore (FY20) to a profit of ₹1,295 crore in FY21 and ₹956 crore in FY23.

The company’s EV business is driven by TI Clean Mobility, which has made two acquisitions — Cellestial eMobility, the first Indian company to launch 55HP e-tractor and IPLTech Electric Private, a company manufacturing electric-medium and heavy-duty commercial vehicle. Currently, TII has an annual capacity to make 19,000 units of e-3w, 25,000 tractors, and 2.500 e-trucks. To ramp up the EV business, the parent along with PE fund, Multiples Alternate Asset Management, and other co-investors invested ₹1,950 crore in TI Clean Mobility. An additional ₹1,050 crore fund-raise is also in the works.

With a discerning eye, Subbiah is seeking out newer opportunities. “We derived a bunch of filters that allowed us to look at businesses that we think are going to have secular growth in India over the next 20 to 25 years… There are a set of white spaces that have not been filled. Those spaces probably are manufacturing, which forms just 14% of India’s GDP,” Subbiah told analysts post TII’s Q1 FY24 results. For instance, the foray into medical consumables and devices sector — through the acquisition of Lotus Surgical and the contract development and manufacturing organisation (CDMO) businesses — comes against the backdrop of a sector that has historically been reliant on imports. Recognising the burgeoning need for domestic growth, Subbiah expects his company seizing market share and pioneering indigenisation in a sector poised for transformation. Foreseeing government infrastructure spending, TII is expanding its capex on large diameter tubes with an estimated value of ₹140 crore and expects to generate a revenue of ₹400 crore. The company has also made a small foray into optical lens or vision products for automotive and other industries. In the initial phase, an existing plant has already been set up for a capacity of half a million lenses a month. The industrial power, or T3 business, is delivering strong double-digit growth and holds 45% of the overall revenue pie. “Most of our businesses are focused on first getting an established position in the domestic market and following that up with export opportunities,” Subbiah told analysts.

It’s not surprising that Subbiah’s unique leadership attributes are what prompted one of his closest friends, Ashish Bharat Ram of SRF, to get him on board in 2022 as chairman of the multi-speciality chemicals company. “I have known him for 50 years. We went to school together in Chennai. What I admire about his leadership style is that he believes in hiring the right talent, empowering his team, and allowing them the freedom to execute and deliver successful outcomes. His ability to think creatively and critically to solve complex problems and make informed decisions has helped him stay ahead of the competition,” says the 54-year-old.

In the world of business, where rapid advancements and immediate returns often dominate the conversation, Subbiah is among the few entrepreneurs who perceive growth as an intricate tapestry — woven with the threads of vision and strategy. He understands that nurturing growth requires patience — an antithesis to the marathon mindset on the Street fixated on quarterly sprints. That philosophy comes through when Subbiah reiterates his thoughts to analysts harking on quarterly milestones for the EV business: “The new business is very difficult to put on quarterly pressure … I do not want to get into that habit of forecasting.”

That learning — to transcend short-term goals for a longer-term good — is precisely why Ram values Subbiah’s association. “He has always provided me with a clear sense of what I should or shouldn’t do and I think of him as my most trusted sounding board,” says Ram. In 2016, when SRF was building its packaging films business, the management got a lot of push-back from the investor community regarding the prospects of this business. “Do what is best for the company, do it the right way and eventually the investors’ will come around and buy into your story,” was Subbiah’s million-dollar advice. “The growth of SRF’s packaging films business is testimony to one of the many occasions when I gained from his sound counsel and foresight,” acknowledges Ram.

In pursuit of growth Subbiah, though, adheres to a steadfast principle: debt must be a manageable burden, ensuring that it never surpasses two times the annual free cash flow — a threshold designed to maintain financial stability. He has achieved that by equally mastering the art of strategic partnerships to mitigate the capital burden on his company. “We are very focused on both capital allocation and capital efficiency, which is why for the surgicals business we partnered with Premji Invest to reduce the capital outlay. For the EV business, we partnered with Multiples to reduce the potential capital burden,” Subbiah explained analysts over the call.

Just as Chola, Subbiah’s magic is visible in TII — the company’s market value has compounded by 72.74% from over ₹4,000 crore in 2018 to over ₹64,000 crore now, even as the multiples (TTM) have rerated from 30x to over 66x. Such a performance by Subbiah is best encapsulated by superstar Rajnikanth’s epic line: “En vazhi, thani vazhi (My way is my own).”