This story appears in the December 30, 2018 issue of Forbes Asia. Subscribe to Forbes Asia
In 1999 - two years after joining his family cement business in Delhi, Puneet Dalmia proposed a $140 million expansion plan – with all the gusto of a management grad with a gold medal from the premier Indian Institute of Management in Bangalore.
His father Yadu Hari Dalmia, who was running the cement outfit, didn’t mince words.
“He told me – “you have no credibility. I cannot put so much money behind you,” recalls Puneet, who also has an engineering degree from the Indian Institute of Technology in Delhi.
Instead, Papa Dalmia gave his son $500,000 of his own money and asked him to prove his mettle. Puneet co-founded a startup with a friend from IIT – netting funding from domestic private-equity major ChrysCapital.The startup was a job search site which he ran for a few years and then sold to global jobs outfit monster.com for $9 million.
In 2004, Puneet re-joined the Dalmia Bharat Group – with interests in cement, sugar, power and refractories - and revived the proposal for cement expansion. “We had to build scale,” says Puneet, now 46. “We were not even relevant in our businesses.”
This time around his father backed him and he spearheaded two rounds of expansions for $500 million. Over the course of the next 14 years, the cement company grew from 1.2 million tons to 25 million tons – both through expansions and acquisitions- even as revenues rose from $60 million to $1.3 billion. This catapulted it to the number 4 spot in the Indian cement industry.
Puneet brought in professionals to run the group and carved the cement, sugar, power and refractory businesses into separate units. In a bid to usher in fresh ideas, he hired across multiple segments from paints to consumer goods to telecom. He shook up the old order and although many older employees started leaving in the early years, Puneet persisted.
In 2010, he roped in private equity giant KKR to invest in the business. Under KKR’s tutelage the cement business went in for rapid expansion –taking over companies in eastern and north-eastern India.(KKR exited in 2017 after nearly quadrupling its investment.)
The group is now mopping up distressed cement assets – under the new insolvency law. It’s already snapped up Murli Industries in Maharashtra and Kalyanpur Cement in Bihar. (Binani Cement – which the Dalmias bid for – went to rival Kumar Birla’s Ultratech Cement in November after a legal battle.)
It’s looking to grow to 37 million tons in the next three years and has launched a $791 million capacity expansion plan – even as raw material prices are starting to soften and cement prices are beginning to rise.
The 79-year-old Dalmia group – inherited from late founder Jaidayal Dalmia - is run by two generations. The second gen is represented by Jai Hari Dalmia, 73, and Yadu Hari Dalmia, 71, - the fourth and sixth brothers from a set of seven brothers in the storied Dalmia clan. (The other five brothers parted ways at different points in time.) The third generation is represented by Jai Hari Dalmia’s son Gautam, 50, who has a masters in electrical and electronics engineering from Columbia University and runs the $350 million (fiscal 2018) sugar business and Yadu Hari Dalmia’s son Puneet.
The four Dalmias across the two generations – who are all managing directors at the group - are part of a family council that makes joint strategic decisions. There are two members outside the family who also sit on the council – M.V. Subbiah, former chairman of the south Indian conglomerate Murugappa Group, and S. Gurumurthy, who is a part-time governor at the Reserve Bank of India.
The Dalmias, with a combined net worth of $1.8 billion, have a written constitution which lays down a set of 40 business decisions with clear demarcations on who has the final say on a certain decision. For instance, when it comes to debt Yadu Hari Dalmia has the deciding vote. Similarly when it’s strategy Puneet gets the vote; when it’s family compensation it’s Jai Hari Dalmia while Gautam has the last word when a business needs to be shut down. Only two of the 40 decisions require absolute consensus – equity dilution below 51 percent and sale of promoter shares. The ownership is divided strictly down the middle between the two families and professional CEOs handle all of the operational roles.
Puneet and his wife, Avantika, have also done courses from the International Institute for Management Development in Switzerland to understand the dynamics of family businesses.
“A family is a socialist ecosystem while business is a capitalist ecosystem,” explains Puneet.“In a family, the values are love, equality, loyalty and trust but in a business it’s meritocracy, growth and performance. If these two ecosystems collide it can explode. But if you can take the best of both worlds it can be an enabling platform.”
For instance, in 2008 just when the global economic crisis hit, the group was on the verge of launching a $1 billion expansion project –with $700 million in debt.
Yadu Hari Dalmia asked Puneet to pull the plug on the project.
“We paid the syndication fee but we didn’t use the loan,” says Puneet, who cited it as an example of how the younger generation had benefited from the wisdom of the previous generation, which had navigated a different India.
Puneet believes that a lot of the values of the business are imbibed from the way the third-gen Dalmias were raised – amid a ton of cousins from seven families. Hand-me-downs were the norm and carpooling was a must. They all went to the same school in Delhi.
"Every morning before going to school, we had to take the blessings of all the elders in the joint family by falling at their feet,"says Puneet.
Puneet says that while the joint family system taught him all about the pecking order, the real lesson came during his initial stint at Dalmiapuram in the southern Indian state of Tamil Nadu. When he went there in 1997, he approved $150,000 for landscaping and beautification without the approval of the CEO of the business.
“There was dust in the plant and mounds of clinker and cement. It was ugly. So I took it upon myself to do this,” he says.
The CEO was livid. And he had a different perspective: Wouldn’t workers feel that money is better spent on their bonuses than on landscaping and water fountains?
“It taught me the importance of a wider buy-in,” recalls Puneet.
And that’s something the previous generation was skilled at because of the times that they lived in.
The two brothers - Jai Hari Dalmia, who has a masters in electrical engineering from the University of Illinois and Yadu Hari Dalmia, who’s a chartered accountant - joined the family business in 1970. They were faced with an India strangled by license Raj.
“That was an era of complete control by the government,” says Jai Hari Dalmia. “Prices of all major inputs - fuel, power, wages as well as products - were completely controlled. Sales and distribution were also controlled. And funding for any project was available only from public sector institutions.”
Eventually, the duo diversified into sugar in the mid 1990s - putting up a plant in the northern Indian state of Uttar Pradesh. Then the next gen joined the group.
“Their arrival gave a completely new impetus to the growth, “ says Yadu Hari Dalmia. “Both the cement and sugar businesses are now considered as one of the most efficiently run in their respective industries.”
But as the business heads into its next phase, there are more challenges to watch out for.
As Puneet puts it: “Cement is a sector which hasn’t been disrupted by technology yet. I really worry about whether someone in a garage is building the next Amazon of construction.”
