Succession Planning: Welspun Group to hive off yarn-spinning business for next generation

MUMBAI: The $3-billion textile-to-steel pipes conglomerate, Welspun Group, is carving out the yarn-spinning business, Welspun Syntex, which will be managed by cofounder Rajesh Mandawewala’s elder son Abhishek, two people familiar with the matter said.
Mandawewala, group managing director, is in the process of purchasing partner and chairman BK Goenka’s stake in Welspun Syntex, they said. This step is part of efforts to ensure separation of ownership and management, while simultaneously planning a smooth succession of the business to the next generation, a spokesperson said.

“This is an effort to create a separate roadmap for Abhishek,” the spokesperson told ET. “It is a proactive action to realise that young people are coming with their own ambitions. How (else) do we create a structure where they can take the business to the new level and at the same time not be in conflict with any of the existing processes?” The three-decade old group hired consultant McKinsey earlier this year to craft Vision 2020, a programme aimed at building a new organisational DNA, where promoters will step away from operational responsibilities to take up a more strategic and nurturing role. To keep up with the spirit of the decision, the promoters do not want Abhishek Mandawewala to take up senior managerial role within the group.

Chairman BK Goenka and MD Rajesh Mandawewala founded the conglomerate from a small town in Maharashtra in 1985. Today, the group gets most of its revenues from selling pipes to global oil companies, and towels and bed sheets in both local and overseas markets. Welspun Syntex posted Rs 835 crore of revenue last fiscal year. Goenka has already stepped down from Syntex’s board and Abhishek Mandawewala took over as a whole time director in August.

The company spokesperson declined to divulge financial terms of the transaction.

Promoters held over 70% of Welspun Syntex stake at the end of September. Based on Monday’s closing stock price of Rs 131.60 on the Bombay Stock Exchange, the company is valued at Rs 516.39 crore. “Ten years ago, it was assumed that sons would join fathers’ business… That isn’t the case anymore with globalisation of businesses and better corporate governance mechanisms,” said Mita Dixit, cofounder and head family business advisory at Equations Management Consulting.

“The younger generation too wants to prove competence before taking up a senior role. Many are leaving family businesses to carve own destinies.” In the new role, 28-year-old Abhishek Mandawewala will be driving strategic initiatives and automation in various processes, and financial tie ups for the company, according to a filing with the Ministry of Corporate Affairs. Prior to the new role, the junior Mandawewala was chief executive of advanced textiles division of the group for a year and half, according to his LinkedIn profile.

Welspun Syntex has also started the process of changing its name to AYM Syntex. Incidentally, the first business the promoters set up in 1985 was Syntex. The arrangement leads to no change in the current promoter shareholding pattern of the group.

Apart from Abhishek, Mandawewala has a younger son, Yash, who is a management trainee at the group. Goenka has two daughters in their twenties. Succession plan for them is still unknown. In the past two years, Welspun has restructured its huge debt by selling non-core assets such as its two ready-tobuild coal-based power projects to the Adani Group for Rs 400 crore and steel unit to JSW Steel for Rs 1,030 crore, to have a healthy leverage ratio. Its net debt to operating profit ratio fell to 0.8 at the end of 2014-15 from 3.3 in fiscal 2013.

Share price of pipe maker Welspun Corp jumped 50% to Rs 104.50 in the past one year, while that of home textile maker Welspun India more than doubled to Rs 796. Its renewable energy business, boasting of India's largest portfolio of solar power plants, is up for sale, ET reported in November.