How Rahul Bajaj's twin nephews Anurag and Tarang rode into the billionaire's club
12 years ago, both Anurag and Tarang Bajaj ran simple components cos with very few products. Over the years, both have managed to make great leaps forward.
Otherwise, 55-year old Anurang and his identical twin Tarang (nephews of two-wheeler tycoon Rahul Bajaj) are busy running their separate non-competing, auto components businesses — Endurance and Varroc. They may have initially ridden piggyback on their uncle’s sprawling empire but today, they are arguably billionaires in their own right.
Publicly-listed Endurance is in the business of aluminium castings, suspension, transmission and braking products. Varroc, which is planning its IPO, retails in exterior lighting systems, powertrain components, electrical and electronic assemblies and polymer-based products.
Instead of the Bajaj bastion of Pune, both chose to operate out of Aurangabad since the mid-eighties.
The first break did come from uncle Rahul in 1982, who suggested dealership in Pune for Bajaj Scooters at the request of their mother Suman, who is Bajaj’s sister. But “even if there was a waiting list for 10 years for our scooters, Suman wanted no easy ride for her sons. That’s when the idea of components was suggested,” recalls the Bajaj patriarch.
An aluminium castings facility close to the Bajaj Auto facility in Waluj was their first shop floor. It was synergistic. Bajaj was expanding vendor base and, as part of its core strategy, some components were outsourced. The twins stepped in and over time, became a key vendor. In 1990, Tarang, who had by then completed a Master’s degree in business management from Lausanne, Switzerland, set up Varroc.
By then, Rajiv Bajaj had entered the motorcycle business. “At that time, supplier base was fragmented and not very efficient,” says Tarang. “Rajiv has been instrumental in supporting our growth.” The backing came at the right time for the fledgling duo. “While the twins are good examples of risk-taking entrepreneurs, they have been fortunate to get a platform to leverage business and scale outside of the Bajaj group,” says Ashok Taneja, chief executive at Shriram Pistons & Rings (SPR), one of the largest manufacturers of engine aggregates and parts.
Even then, the first decade was very difficult. It was tough to tap customers outside Bajaj without credentials.
“The brothers have clearly shown a healthy hunger for growth. Not only have they expanded their global footprint, but managed acquisitions as well,” says Manoj Kolhatkar, MD of Gabriel India (flagship of the Anand group), another components supplier and a direct competitor of Endurance.
In 2002, after 17 years together, the brothers amicably parted ways in business. “When in charge, one likes to do things his way. No two people think alike. Strategies differ and also management styles. We realised that growth would be better if we worked separately, ” feels Anurang. In retrospect, it was the correct decision.
Endurance clocked revenues of Rs 5,622 crore in the year ended March 31, 2017, largely from its aluminum castings business. Its current market capitalisation is Rs 18,000 crore. It is a complete solutions provider, with three proprietary lines (suspension, braking and transmission). While Bajaj Auto continues to be the largest customer, a significant part of the sales pie comes from Honda Motorcycle & Scooter (HMSI), Royal Enfield, Hero and Yamaha.
In contrast, Varroc had revenues of $1.5 billion (Rs 9,700 crore) in FY17 and is expecting a 10% growth this year. Growing at a CAGR of 20%, it has been investing Rs 600-700 crore annually for the past few years to support its organic growth with an eye to double revenues by 2020-21 to Rs 20,000 crore.
Today, with 37 manufacturing facilities, 12 engineering centres, 13,500 employees and 760 engineering experts in 10 countries, Varroc derives almost 39% of its revenue from the North American market, while India and Europe contribute around 30% and 23% respectively, data from the company’s filings show.
“My sons businesses have evolved by hard work, ingenuity and perseverance. I see a bright future,” says Naresh Chandra, now chairman of Endurance Technologies and Varroc Engineering. He was CMD at Bajaj group’s Kaycee Industries, headquartered in Aurangabad, which supplied electrical switches to Bajaj Auto.
During 1995-96 to 2005-06, Bajaj Auto’s share in Endurance revenue was 95%. It has now come down to around 35% of group turnover. Though still the largest, it is followed by Fiat Chrysler, Honda Motorcycle Scooters, Royal Enfield and Daimler. Similarly Varroc’s business may have increased with Bajaj Auto but its dependence has reduced to just 16%.
“While we relished our sales growth with Bajaj Auto , we realised we now needed to diversify our customer base,” says Anurang. He made his forays into Europe and set up plants close to new customers — Manesar for Honda and Chennai for Hyundai.
“The Bajaj share has gone down because of acquisitions abroad and also with the addition of other customers in India. There has been no strategy on our side to reduce our dependency on Bajaj. Bajaj is still our single largest customer,” says Tarang. Varroc revenues went up to Rs 400 crore in 2006 -07, from Rs 100 crore in 2000, with the addition of two-wheeler customers.
“We work closely with both supply partners for new platforms or components. They are quick to develop new components and solutions,” said B Govindarajan, chief operating officer, Royal Enfield, which started business with them 12 years ago. It sources shock absorbers, casting and clutches from Endurance and polymers and electrical components from Varroc.
Another OEM, HMSI says 12 years ago, both Endurance and Varroc were simple components companies with very few products. Over the years, both have managed to develop multiple technologically-advanced products that are critical for twowheelers, showing their competitive edge and developmental capability, says Anupam Mohindroo, senior vice-president, HMSI. The industry’s leapfrogging from BS4 to BS6 is an opportunity to showcase their capability and competitive edge, he feels.
There have been bumps along the way, the first being the 2008 financial crisis and consequent stretched balance sheet on back of capacity additions and global acquisitions. “It taught me that external events are beyond one’s control,” quips Anurang. “Since then, we do not take anything for granted.. uncertainty is the new normal in industry.”
Varroc is eyeing acquisitions and collaboration in exterior lighting and will also tap hybrids and electric vehicles for its high revenue target. His immediate priority is the opportunities arising out of BS6 emission norms coming up in 2020. “Varroc’s debt-to-equity ratio does not exceed 1:1 and today our debt is lower than 1 to equity,” says Tarang.
For his company, the Visteon lighting business deal in 2012, was a game changer, helping it cross the $1 billion revenue mark. After some big bets that have paid off, Tarang is beefing up the management bandwidth to help drive Varroc to the next level of growth. As part of its growth strategy, Varroc has presence in low-cost locations such as Mexico, Czech Republic, Brazil, China, India and Morocco.
By 2020, it expects increased usage of LED lamps and electronic digital clusters. Tarang is confident that he has many opportunities to drive margins and growth going ahead.
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The children are also entering the business. In 2016, Anurang’s daughter Rhea stepped in when Endurance was planning its IPO. After pursuing Liberal Arts in California and a stint in Bain, Rhea started working at Endurance to improve plants’ operational efficiency. Anurang’s wife Varsha spearheads CSR activities.
Tarang’s elder son Arjun is heading the electrical /electronics business after a two- three year consulting stint.
This gives the brothers time to pursue their passions as well — Anurang starts his day with a jog and gets in for work at 8:30 am. “Travel with the family gives you time with your loved ones and fond memories,” he says. Tarang, whose passion is a collection of 500 lithographs of 19th century India — many hanging on the office walls — says dreams are fulfilled by calculated risk.
Uncle Bajaj has a word of advice — consolidate existing plants and products for at least three years and stay away from acquisitions. He is quick to add though, “They have worked on cost and quality or they would not have shown such growth.”
Bajaj at the introduction or not, the twins have definitely made their story’s conclusion their own.