Marquee consultants enlisted for unification and restructuring of 107-year-old brand which aims to triple its net worth.
Marquee consultants - E&Y and AT Kearney have been mandated to restructure the businesses so that the 107-year-old brand’s net worth can be estimated as a combined entity, which could put its valuation at three times the current figure, said a person privy to the developments.
The end goal is to consolidate the group into a larger entity as the internal brand positioning aims to have TVS under every bonnet. Talking about how the strategy came about, an insider aware of the restructuring said, “Today, one in every two vehicles in India can boast of an auto component made under the aegis of the TVS Group. The stakeholders want this percentage to go up in the next five years. The idea being mooted is to consolidate and transform the group into the largest automotive giant.”
The group is a large Indian player, which has the potential to capitalise on the domestic market, especially as India is set to emerge as the largest auto market in the next five to 10 years.
TVS & Sons comprises four families, which are being represented by one or two prominent family members. With the entry of the third generation (grandsons, grand-daughters) wanting to pursue their individual dreams, the 48,000-plus employee group has opted for this route.
The group itself has 60 entities, of which 23 are listed. Post restructuring, the 30-odd entities may get consolidated in the attempt to project it as a single brand. This way newer businesses being developed under these independent companies, need not look for approval from the parent company. This is a way to cut down on red tape within the organisational processes involved in such situations, said an industry observer.
However, there are still some challenges that need to be addressed. Some entities in the group have been reliant on the brand’s glory and have not scaled up as per expectations. There is no unified foundry or machine shop or machine tool facilities for the group. A key point for concern is that not all members of the third generation are on the same page.
“Over time, each branch of the family would have identified the line of business to pursue and it may be difficult to have one set of family members, representing the nodal company Board, to govern all this. The need to have more independence in terms of management, finance and governance, may have been the rationale of opting for such a brand consolidation approach. The common link is TVS, with each of them pursuing their own business paths,” said V Ranganathan, a tax expert, who was formerly with a big four consulting company.
People in the know say, if agreed, the holding company may get a royalty of about 2 to 3 per cent, when the TVS brand is used by any member, who either runs a business or uses the brand to launch a new venture. It is learnt that if a 25 per cent threshold is enforced for royalty payment to TVS & Sons, its applicability remains to be seen with respect to TVS Motor and associate companies as they are promoted by Sundaram Clayton and not directly by TVS & Sons. Also, it remains to be seen if the royalty payment will cover Wheels India, in which Sundaram Finance has a holding.
Going public on the cards?
Amid speculation of TVS Logistics going public, the question of use of brand name once again comes into focus. From an informal arrangement to having to factor in the royalty pay-out, questions may arise from investors as to the rationale of using the TVS brand and whether it was a perpetual arrangement.
In the case of TVS Logistics, the importance of brand ownership may be critical when the company decides to go public. The conglomerate leveraging the brand over three generations, has stood the test of time but public investors, private equity or institutional investors are used to different governance structures globally. In such a situation, the reason for a rebranding exercise is crucial, opine experts.
TVS brand has been historically with the parent company, established first in the group and all the subsidiaries and off-springs of the main company like TVS-M, Lucas TVS, TVS Logistics, derive the right to use the brand from the parent company. It may have been licensed for a nominal consideration as legally permissible. This is the reason behind sub-families of the group being able to embark on their own ventures without much funding support from the nodal company in Madurai.