Open Sesame, Close Sesame

24 Nov,2012 06:56 IST

Open Sesame, Close Sesame

How Vijay Mallya expanded — and shrunk — his empire by starting, shutting and selling enterprises

Venkatesha Babu


The short — and somewhat simplistic — version of the Vijay Mallya/UB Group business history goes something like this. At the age of 28, Mallya inherited a flourishing liquor empire which was put together by his late father and acknowledged business genius, Vittal Mallya. Vijay Mallya did well enough when he stuck to the liquor business. He made pots of money, which allowed him to live the big life — throwing flamboyant parties full of rich people and beautiful women, collecting race horses and antiques and paintings, owning an Indian Premier League cricket team and an F1 racing outfit, and generally having plenty of fun without having to focus too much on a business that pretty well ran itself.

Then, one day, he decided to set up an airline as a gift for his son on the latter’s 18th birthday. The airline burnt cash like there was no tomorrow. Mallya hocked his liquor company to keep the planes flying. At one point, the airline simply ran aground. And by this time, even his liquor empire was under strain because of the huge debt that he had taken. So, Mallya had to sell off almost half his shares in the liquor flagship to global giant Diageo. In essence, he sold off his family silver — though he defends his decision by saying that the deal is a partnership and he is only embellishing the family silver.

The longer version of the Mallya business story is somewhat more complicated and nuanced. The part about his father being a genius who cobbled together a rich empire is true enough. But it is also true that when the elder Mallya passed away in 1983 at age 58, Vijay Mallya was catapulted to the chairmanship of a group with a fairly eclectic mix of companies. Sure, many of them were liquor companies — distilleries and breweries spread across countries. But there were also other companies Vittal Mallya had picked up along the way — like Kissan (the maker of jams and squashes) and Hindustan Polymers (makers of styrene monomers and polymers, used in plastics and rubber) and Western India Erectors (a construction company).

The liquor empire itself was not very cohesive — it was a motley string of companies bought from different promoters and did not have as many big brands as it has now, though through Vittal Mallya’s foresight many had been picked up during the prohibition era of Janata Party rule in 1977 dirt cheap. When his father died, Vijay Mallya had to contend with satraps who had distinct ideas about how to run their own fiefdoms.

Mallya consolidated his liquor empire, taking many risks. He fought bruising battles with other liquor barons, including the Chhabria brothers, and also global players such as Diageo, SAB and Pernod Ricard (in their various avatars). He took on huge debt, but his empire kept growing, and becoming more profitable.

But Mallya was never just a liquor baron. People who think that Kingfisher was his first unrelated business start-up could not be more mistaken. He flirted with many business ideas, and got into dozens of new and completely unrelated businesses. Some of them were ideas well ahead of their time. Others were emerging industries with great potential. Unfortunately, Mallya did not manage to execute many of his ideas too well. Like Kingfisher Airlines, several of his companies got off to a great start — but started faltering after a point. He exited most of them — some at a hefty profit, others at a loss.

Despite detailed emails and several phone calls, neither Mallya nor key officials of the UB Group met BW or sent in answers to our queries. On the other hand, many of his old associates and former employees provided fascinating details about companies Mallya opened and then shut or sold off or merged.

Despite his current setbacks, Mallya still has a considerable business empire. Our  research shows that he holds 14.9 per cent stake in United Spirits, 37.5 per cent in United Breweries, 30.44 per cent in Mangalore Chemicals and Fertilisers (MCF), 40.74 per cent in UB Engineering, 50 per cent in United National Breweries (South Africa), 35.83 per cent in Kingfisher Airlines, the Mabula Game Reserve in South Africa and a yacht... He might have other assets as well. His current wealth, according to a recent survey by a business magazine, is pegged at $800 million or so — way lower than the $1.6 billion the same magazine had estimated back in 2007.

To put Mallya’s business success or failure in perspective, here’s a look at the basic numbers. When he took over as chairman in 1983, his group turnover was estimated to be a few hundred crores, and fairly low net profits. His personal wealth would have been in the range of a few hundred crores. Currently, his group turnover is Rs 30,540 crore, and losses are at Rs 3,414 crore. Even accounting for inflation, and despite all the mis-steps he has taken, Mallya has still added to his father’s empire. On the other hand, that needs to be balanced against the long list of companies he has failed in — or simply opted out of. BW compiled a list of 29 of them — though there may be more that we are not aware of...
1 Got his first Ferrari at the age of 4
2 Was inducted into the UB board at 17, following father’s illness
3 Took control of the UB Group at 28, fighting established satraps
4 Is a Gowd Saraswat Brahmin; grew up in Kolkata and speaks fluent Bengali
5 Kiran Mazumdar Shaw, Biocon CMD, was his childhood friend; her father worked in UB
6 Led Janata Party in Karnataka assembly polls. The party contested all 224 seats, but won none
7 An avid horse racing buff, he runs the Kunigal Stud Farm set up by Tipu Sultan
8 His first wife Sameera was an air hostess with Air India. His present wife Rekha is from Coorg
9 Kingfisher Airlines was touted as an 18th birthday gift to son Sidhartha
10 Deeply religious. All his planes before being inducted into KFA would circumambulate the famed Tirupati temple

In 1986, the King of Good Times was prescient in identifying that an emerging middle class — then mostly comprising government and public sector employees — wanted to experiment with their cuisine by opting for fast food joints. Thus was born India’s first pizza chain called — what else, but — Pizza King, whose first outlet was opened at N Block in Delhi’s Connaught Place. The fast food business was seen as being complementary to the beer business of UB Group. It helped that the group at that time also owned Kissan Foods and Dippy’s (a sauce brand). However, Pizza King never really attained scale and maybe because it was ahead of its time, the food business did not achieve the kind of success that Mallya envisaged. The group exited the business in 1989.

In 1988, when Mallya announced that he was acquiring Berger Paints internationally (which did not include the India operations), he created quite a buzz. It was uncommon in those days for an Indian group to acquire an international company. While the acquisition size today might look small (£13 million), it made a big impact internationally, boosting Mallya’s profile. After high decibel celebrations on acquiring the company, Mallya told Naresh Malhotra, who was then the CFO of the UB Group, “Now that we have brought the company, go raise money to pay for it”; Malhotra recalls the incident with a chuckle. That was quintessential Mallya; he acquired a company and then put together a plan to pay for it. However, Berger proved to be a profitable acquisition, as Mallya over a period of time sold its operations in various countries on a piecemeal basis and by 1996 had exited it profitably for nearly $200 million (over Rs 1,000 crore by today’s valuations).

In 1994, when Ramaswamy Udayar, a liquor baron from Tamil Nadu, launched Golden Eagle Communication (GEC) in what was then a nascent broadcasting industry in the country, it ran into teething troubles. So his fellow liquor baron Mallya magnanimously brought GEC from Udayar and renamed it Vijay TV. In 1999, he sold it to UTV, which two years later sold it to Rupert Murdoch’s Star Network.

UB Mysore Electro Chemicals (MEC) Batteries was another company that started making losses under Mallya. By 1991, Mallya merged UB MEC with Herbertsons and the batteries venture was eventually sold to Kirloskar Group.

This was a business that Mallya inherited from his father. Kissan and Dippy’s were two major brands owned by the processed foods company, which sold jams, ketchup, squash and juice apart from exporting mushrooms. It even had a manufacturing plant in Nepal. In 1994, Mallya sold this company to Brooke Bond India, part of which was owned by Hindustan Lever (now, HUL). While HUL retained the Kissan brand, it dropped Dippy’s.
If you are more than 30 years old, you would remember the advertisements for Rush, Thrill and Trip, the cola, orange and lemon-flavoured carbonated drinks from the UB stable. This company eventually became a part of McDowell (now a part of United Spirits) and UB Group quietly exited this business.

The company, set up in 1985, was the telecom subsidiary of the UB Group, which made and sold EPABX (business telephone) systems and telephones from Ericsson. It became sick and, in 1994, was referred to the Board for Industrial and Financial Reconstruction (BFIR). UB Group exited this joint venture with the Orissa government.

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