The Hindujas Are In A Heap Of Trouble
The Hinduja brothers--Srichand, Gopichand, Prakash, and Ashok--are among India's best-known expatriates. Based in London and Geneva, they preside over an estimated $15 billion trading and industrial empire that spans four continents. In truth, they're better known for cultivating potentates than running well-managed, transparent companies. But when India opened to foreign investment in 1991, the Hindujas were welcomed home with open arms. They have since invested some $2 billion in businesses as diverse as banking, cable television, explosives, and trucks.
Now the Hindujas, who range from ages 50 to 65, are in the news again--and none of it is good. In mid-January, two of them appeared in a New Delhi court in connection with the 15-year-old corruption scandal involving the Indian army's purchase of howitzers from Sweden's Bofors. If formally charged and convicted of bribery, the brothers could go to prison. Days later, Britain's Northern Ireland Secretary, Peter Mandelson, quit amid revelations that he helped facilitate Srichand Hinduja's application for a British passport. Srichand had contributed some $600,000 to London's Millennium Dome, a project championed by the ruling Labour Party.
The brothers--who wouldn't comment for this story--have said publicly that the court proceedings are preventing them from taking care of business. Maybe, but their listed Indian companies have been in trouble for some time. The Hindujas' propensity for placing more emphasis on political connections than transparent management has contributed to a lackluster performance. In the past year, the brothers' India plays have fallen to all-time lows on Bombay's bourse, dismaying local investors.
FLEEING PARTNERS. Indeed, the Hindujas have a lot of cleaning up to do. In 20 years, truckmaker Ashok Leyland Ltd. has never grown beyond a 20% market share, and its share price is down to $1, from $3.40 a year ago. IndusInd Bank, which the Hindujas launched as India's first private bank in 1994, is also in trouble. Because of lax lending procedures, 6% of its loans are nonperforming. The bank's private investors are getting minuscule returns. Managing Director Karun Maheshwari says he's "tackling the situation," but Bombay analysts say shareholders would be better off putting their money in government securities.
The brothers' New Economy play isn't looking much better. This year they propose to turn Hinduja Finance into a media and communications outfit called Hinduja TMT. It consists of a minor Indian cellular carrier, the former software division of Ashok Leyland, and a majority stake in IMC, India's No. 2 cable provider.
At first, investors bought into the Hinduja name. In 1998, Booz Allen & Hamilton Inc. valued IMC alone at $1.5 billion, prompting Intel Corp. to later buy a 3% stake. Intel, which makes set-top boxes, liked IMC's plans to provide Internet access. But IMC alone faces tough competition, and is losing money. Bombay analysts now value it at $400 million.
Intel is sticking with the Hindujas. "This is a long-term play," says Siddhartha Das, director of Intel Capital India. But other foreign partners are fleeing. Britain's National Power got so tired of awaiting approval for a proposed jointly operated power plant that it is pulling out of India. And European pharmaceutical company Astra Pharma PLC recently bought the Hindujas out of a joint venture to produce drugs.
The problem, say analysts, is that the brothers run their businesses by remote control. Hinduja spokesperson Nina Mamnani insists communication between Indian management and their expat bosses "is excellent." That doesn't explain the steady departure of senior executives. If past patterns hold, the brothers will emerge diminished but unbowed. But they will have taken a lot of unhappy shareholders along for the ride.