May 06, 2015
Thoughts! – Altacit Global’s E-Newsletter
Welcome to the 4th edition of Altacit Global’s Newsletter, in this edition we feature Ajit Chordia, Managing Director of Khivraj Group.
“We started from the era of pre-liberalisation and have operated in different periods since then,” says Ajit Chordia, Managing Director of Khivraj Group, recalling the genesis of the Rs. 500 crore organisation. The group was founded in 1961 as a company that would deal with automobile, especially the very sturdy Ambassador from Hindustan Motors. This was a natural move for the Chordia family as it was in the business of money lending and hire purchase financing. “During the early years, there was no great focus on marketing as that was the era of shortages. The market was bureaucratic and cars were sold based on quotas and allotments,” says Chordia. However, the market changed soon after he took over the reins of the company in the late 80s. When Ambassador as a product started to get stale, Chordia took a bold decision of shifting from Hindustan Motors to Maruti Suzuki. He entered this market when the shortages were over and the markets had opened up. Production had increased and there was abundance of supply of vehicles.
Chordia found a paradigm shift after moving to Maruti, as the margin on sale of a car was not much at all. This introduced the group to a totally different approach to marketing and for the first time the company was introduced to after sales service. Along with it came its own set of woes.– By Poornima Kavlekar
Getting a new lease of life!
For Ajit Chordia, Managing Director, Khivraj Group and President of CREDAI, the rebirth of the group in 1996 and the growth thereafter has been an enriching experience. His entry into the real estate sector through Olympia has been one of the best moves he has made. He now plans to expand the Olympia business further into Hyderabad and New Delhi and improve its current markets – Chennai, Bengaluru and Kolkata.
Along with a change in approach to business (of Khivraj) came the need to transform the team as well. But, the transformation did seem like a tough task and under the guidance of the law firm, the leaders decided to retire the existing team (under the retirement settlement scheme), and set up a new team. “Our lawyer said, if you believe that what you are doing is right, then hold on to it under any circumstances,” recalls Chordia. He was also guided by the philosophy followed by a Bajaj family member, which was – rather than bleeding to death over a period of time, it is better to die today. “So, if you are losing money in business, don’t continue to run the business as there is no point in bleeding to death,” states Chordia, as a matter-of-factly. Thus, in 1999-2000, the group went through a great turmoil where some of its managers were assaulted by the employees and settlements did not take place.
The company then started afresh in 1999 with a new set of people and, 19 years since then, Chordia has had a very enriching journey – moving from the era of shortages to the era of plenty; from profiting by sales to profiting by service.
The business of Auto
“In the auto business, I can make money only by retention and not by sale of car,” says Chordia. He continues, “If a customer is dissatisfied and does not come back, then I lose more money.” A customer typically goes back to the dealer for free services, accident repairs, upgradation of the car and so on. With a dealer marking of just around Rs. 15,000 on a car, these businesses depend largely on value added services like insurance, sale of accessories and loans, to profit from operations.
Chordia believes that they were fortunate to have moved over to Maruti at the right time. The company was progressive and were able to bring in best practices which the industry needed. The company also took over the Honda dealership in 2008-09.
Taking the next big step
The next turning point for Chordia was in 2002, when his brother joined the business. On recommendation from his legal mentor, Chordia hired a HR professional who ran a program for role and position clarification and helped them identify their roles clearly. In fact, this exercise also helped them realise that there was a lot of redundancy and lack of clarity in many roles in the organisation. “The best part was, they found that my brother and I were crossing each other’s roles. They concluded that the presence or absence of one person makes no difference to the organisation,” recalls Chordia.
Then, Chordia decided to look at new initiatives and froze on real estate. His family had investments in real estate and expertise in developing commercial property. He set up Olympia Tech Park, his first commercial project in 2003. While the plan was to sell and make money, Techpark turned into a rental model.
Speaking about his commercial model, Chordia narrates. “Back then, no one in Chennai was looking at commercial real estate. Even today, no Chennai developer is focussed on commercial real estate. Everyone is under stress. Thankfully, we entered the business a little ahead of time, thus we had lesser problems.”
He took two big risks when it came to the construction business. One, in the year 2003, he had mortgaged everything, include his house, and again in 2009, the market went through a tough phase. “Over the last one year, the markets have been choppy. Cash flow has been a major issue and thankfully, we have been able to leverage our existing assets,” adds Chordia.
In 2003, the Olympia brand also entered the residential sector.
One of the most important differentiators for the brand was its green initiative. Olympia is one of the largest gold rated green buildings in the country and it is associated with Indian Green Building Council. “Since the brand was well established, it proved to be a key marketing differentiator for us,” says Chordia. Currently, Olympia has six to seven projects in Chennai and it has extended the brand to Kolkata and Bengaluru too.
Apart from business interests in auto and real estate, Chordia also has an eye on power generation (as an investment). In fact, he plans enter the solar power space.
Weighing the options
After gaining considerable experience in the real estate business, Chordia is clear that he will not channelise huge sums into the automobile business because the return on investment is low and the effort to reward ratio is not very encouraging. “Our return is only 2 percent on a turnover of more than Rs 500 crore and an investment of a few hundred crore on infrastructure. We have over 1,000 people working and there is Rs. 100 crore worth assets lying idle. So, for now, we are not planning further expansions in the auto business,” says Chordia.
One of the biggest drivers for residential and commercial real estate is the information technology industry. Today, Bengaluru has raced ahead of Chennai in terms of real estate, thanks to its better social infrastructure. It has become 2.5 times the Chennai commercial market. “No one is making fresh investments in IT in Chennai. Even if companies come, there is no one here to deliver. We may be in a very difficult situation next year,” states Chordia. Government initiatives and high land prices are some of the reasons why the market in Chennai is going through a stagnant phase.
In the coming years, Chordia wants to improve the group’s ability to take risks. He is focussing on delegating responsibilities to his peers, brother and co-promoters. “We would also like to be innovative in our development,” declares he.
The company also wants to expand its footprint into different parts of India. It plans to grow in cities like Bengaluru, Kolkata and Chennai. In the next five years, it plans to enter cities such as Hyderabad and New Delhi (NCR). In all these places, it is looking at scaling up its residential business. “While commercial business does have a great demand, we will be in a better position to take risks, in a year. Perhaps in 2016 we will be looking at a good amount of commercial real estate business, may be in the form of shopping mall and IT parks in Chennai, Bengaluru and Kolkata,” concludes Chordia.
The importance of a good law firm
As the business grows, it is best to work with a firm which is system driven and not person driven – this holds good for an architect or a law firm. Presence or absence of one person does not make a difference. As an organisation, we deal with firms now and have a legal assistant deputed to me.
Today, any promoter, be it of a start up or a growth company, prefers to go to a law firm which gives them a bouquet of services, because no one has the time to pursue an individual lawyer for different needs. This change will happen soon in Chennai.
Intellectual Property issues
My family partition took place in the 80s. After that I took over the Chennai business while my cousins took over the Bengaluru business. No one realised that a brand or identity crisis could emerge over a period of time. Crisis set in when my cousins entered the Chennai market with the Khivraj brand, which is common to both of us. I did try to register the brand Khivraj and so did my cousins. Our law firm, Altacit, which advices on IP, adviced us to simply share the brand. They told us that there was no point in fighting this as it could go on for years. They adviced us to enter into an agreement to share the name. Now, Khivraj is the brand for automotive business being shared by me and my cousins.
When it came to Olympia, we became cautious. We register the name and trademark of all our projects. We did have issues where Olympia as a brand was used by a developer in Delhi. Then we moved the court in Chennai and got an injunction against him. Then, they gave an undertaking to drop the name. I am also using Olympia as a brand for motors – Olympia Honda.
Quick to do list for an entrepreneur to work with a law firm
- Must have representation in different parts of the country. It is difficult to find a firm in each city.
- Must have the ability to comprehend both the domestic and international policies.
Role as the CREDAI President
I have an engineering background with a marketing career in the automotives business. And I am very passionate about finance, be it taxation or financial engineering. I am trying to inculcate the best practices among members in three aspects – technology, marketing and finance, which is something the real estate sector lacks.