Sunday, July 27, 2008

Scrap yard to Success....

Jitendra Singh with son Lokendra


This serial entrepreneur went through a roller-coaster ride in a career spanning three-and-a-half decades and learnt some survival lessons on the way

STEEL ingots, magnets, flowers and film-making — these disparate interests hardly hold a connection for most of us. But for Jitendra Singh, they mark the turning points of a long entrepreneurial journey that began in the early 1970s and continues to this day. In these years, Mr Singh says, he tasted success and failure in good measure and each experience left him with rich experience and lessons in business leadership.

It all started on a tour to Japan in 1968. Young Jitendra had gone there along with his father, whose metal scrap business had a few customers in the land of the rising sun. A nationwide strike had given this engineering student an impromptu vacation and he used that to stay and learn his first lessons in business from Japanese workmen.

“There was a cluster of furnaces in Japan’s Kansai region (known as a steel hub). India’s steel industry had never seen that kind of growth. I realised that there was space in India to set up similar facilities, especially when we were just developing and I predicted huge demand for steel,” says Mr Singh. He found a willing venture capitalist in his father and the family applied for government licences to make steel ingots in the country.

Indian Steel Corporation (ISC), the Singh family’s new firm, obtained three licences and by 1973, had set up two plants at Kolkata and Mumbai, each with 12 tonne arc furnaces. Industrial units making small steel items were the customers and soon, the business started gaining ground. Demand was growing and Mr Singh decided it was time to scale up capacities.

The first hurdle came in the form of high interest rates. The proposal was not only turned down by many banks, but the high cost of borrowing made it unaffordable for the family to take loans for expansion. But Mr Singh had resolved to expand capacity five times and looked for options.

“That’s the second thing that one should do to cement a new business; expand. Unlike now, it was tough to raise money back then. Assistance from banks was hard to come by, so we thought of going for a public offering,” says Mr Singh. Inspired by the highly successful IPO from Reliance and Dhirubhai Ambani’s daring vision, Jitendra Singh went to the capital markets to raise Rs 1 crore.

The IPO brought in the money, the expansion was completed and the steel ingots business found a growing market. Revenues increased consistently for a decade. But Mr Singh got a severe jolt, when his father died in 1982. He took help from his uncles and managed the company, though ownership issues and a family split would ensue later.

In 1985, ISC got into engineering. In the metal scrap business, the company used heavy magnets that would aggregate the material and release them into a waiting furnace. Many engineering, capital goods and steel units had similar needs and Jitendra decided to start manufacturing industrial magnets.

“We have been repairing our own magnets, which weigh anything between 5 to 10 tonne. We had collaboration with a UK company. With the manufacturing sector growing in the country, we sensed an opportunity in the business,” says Mr Singh. The initiative clicked. Within a couple of years, revenue reached as high as Rs 75 crore (Rs 300 crore at today’s prices, says Mr Singh).

Thus, Mr Singh had established a reputation for getting into businesses where he had no prior experience and learning on the job. “As an entrepreneur, one needs to keep diversifying so that all the revenues are not dependent on one business,” the veteran explains.

In 1992, his uncles also passed away and the business was split. He and his brothers got the Mumbai side of the business, with operations in Khopoli and Bhandup near the metropolis. However, this meant a sudden drop in revenues. “We adapted,” Mr Singh recalls. ISC tapped the demand for magnets across the subcontinent. A Bangladesh office and a factory in Malaysia were soon opened. This move helped stabilise revenues, but Mr Singh felt more diversification was needed to overcome the hard times.

That is when the fragrance of flowers attracted him. Mr Singh set up an export-oriented floriculture unit in the mid 1990s. “We set up a joint venture with an Israeli company. It was not that difficult to get into the business in India and we saw a high demand for flowers in the export market. But within a short time, high duty rates imposed by the EU made the business non-viable and we closed shop,” says Mr Singh.

More bad news was in store. Beginning 1997, the global steel industry entered one of its worst phases. Steel prices fell and the Asian financial crisis made bank loans hard to come by. “We somehow continued operations till 2003, but had to shut shop after that. We didn’t have the financial support to go for backward and forward integration, which could have saved the business,” says Mr Singh. Revenues had shrunk to new lows and the business had to be reinvented.

“Now, we wanted to get into businesses where margins are better to withstand any recession,” says Mr Singh. But he was now joined by his son Lokendra, who not only understood the family business but was clued into opportunities emerging in modern times. “In our ingots business, the difference between production and selling costs was slim. So the margins were low. A recession would wipe out the profits at one go,” says Lokendra. The father-son duo zeroed in on three sectors for diversification; media, pharmaceuticals and food & hospitality.

The first piece of good news came from the flowers business. A changing lifestyle and rising middle class incomes made India a hot, growing market for flowers. Jitendra was quick to revive his floriculture business. The Khopoli unit, which had filled with the grating noise of metal scraps business for decades, was now handling tender flowers.

At that time, a movie-maker friend visited Singh’s unit in Bhandup and happened to see the backyard warehouse where metal parts had been stored. He asked for the space for a few days, so that he could film parts of his film there. Mr Singh agreed. At the shooting, film star Raj Babbar, who had also known the Singhs previously, remarked the warehouse was an ideal place for a regular studio. It did not take much to get the serial entrepreneur making plans for a new venture; an investment of Rs 3lakh for a rental studio for films and television soaps.

“We had a lot of empty space at our Bhandup-based facility. Earlier this year, we set up the 8,000 sq ft studio. Within two months, we have been reporting 100% occupancy,” he says. He wants to add another 5,000 sq ft to the facility soon.

Among other plans, he is eyeing project engineering, building on his magnets business. “Today, we have 80% share in India’s magnets market,” claims Mr Singh. At Rs 30 crore, the company might be far removed from its days of glory, but Mr Singh is hopeful. “The steel industry is in for a long-term boom...I don’t have any turnover targets. I only hope to go step-by-step, learn from every step you take, forward or backward.”

These days, Mr Singh often takes visitors to show off his star-studded ex-warehouse floor, where a movie or a TV soap is being shot. And he refuses to draw curtains down on his entrepreneurial dreams that have sustained his long journey from a scrap yard.

Article Resource:
Author: Prince Mathews Thomas is the Chief Editor in the The Economic Times, Mumbai and the article appeared in one of their successful columns on Entrepreneurship/Start-ups called "Starship Enterprise".

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