May 02 2015 : The Economic Times (Mumbai)
A LANDMARK FOR SUCCESS
KETAN THAKKAR & ARIJIT BARMAN MUMBAI
Sanjay Thakker broke free from legacies of the trade to create one of the largest networks of profitable auto dealerships nationally with 36 outlets across five states. Now, he has bagged the first private equity investment the country has seen in this space Over a family dinner at home with his wife and kids Aparajita and Aryaman, Sanjay Thakker finally made up his mind. Always an out lier in business, he was again ready to step into something that none of his peers ever dreamed of. He was set to rope in a foreign investor that too a marque private equity player -into his family jewel.
Over 17 years, Thakker's auto dealership chain Landmark has become one of the largest networks nationally with 36 outlets in five states. More importantly , unlike most of his peers who are married to a single brand, he partners four. Three of them Honda, Volkswagen and Mercedes-Benz also happen to be the biggest brands in the trade around the world. And if that were not enough it's a debt-free operation that he runs. Each of his franchisees makes money , and together they clocked Rs 1,500 crore in sales in FY15.
“I am generally a dissatisfied man. Every day I believe we need improvement,“ says Thakker, 49, the unassuming chairman of Landmark Group sitting in his basement office in Mumbai's midtown Worli. “In my office there is a poster of a man running and it says there is no finish line... That's my mantra in life,“ he says.
And so it was decided. Landmark will rope in TPG one of the world's biggest private equity investors for a $25 million investment and a minority stake in his company .Manish Chokhani, chairman of TPG Growth in India and a batchmate at Sydenham College, has been pursuing Thakker and after almost a year of discussions, it was time to sign on the dotted line for the next phase of growth.
TPG Growth is the middle market and growth equity investment platform of TPG, with more than $7 billion in assets under management and committed capital. It has offices in the US, China, India and Singapore. TPG Growth's current and past investments include Uber, Airbnb, Box and SurveyMonkey , among others.
“They bring in credibility and we are getting exposed to global best practices...Already they are helping us to focus on efficiency of capital usage,“ Thakker adds. “We have national aspirations and the south is the obvious next market for us. With TPG on board, we can break into that market.“
TPG is investing in Landmark when more than half of the organised automotive dealerships in the country are bleeding due to sluggish sales. The sector remains largely unorganised, sub-scale and scattered. For most, it's a real estate play, not retail. “From builders to diamond merchants, people have entered this space for all the wrong reasons,“ quipped an industry executive.
It's starkly different elsewhere. Wall Street's blue-blooded investor gurus like George Soros, pin-striped global PE players and even tech trailblazers Bill Gates love to bankroll auto dealers, but in the US and China, standalone car dealership chains are multi-billion dollar, scaled operations.
Last October, billionaire Warren Buffet agreed to buy Van Tuyl Group, the largest privately held car dealership with 78 locations in 10 states and $9 billion in revenue and rename it Berkshire Hathaway Automotive, betting that the sector will consolidate. Berkshire was the largest privately held entity in the US. In China, TPG has invested in China Grand Auto -the largest automotive chain in the world with over 500 touch points and 5 lakh cars of annual sales.
The annual, 2.5 million car market in India was the logical next frontier, even though options were limited. Landmark, though among the largest, sold only 15,000 vehicles in the previous financial year. In a fragmented market with over 2,500 dealers, scale and a like-minded entrepreneur were difficult to come by .
“The macro factors were obviously attractive. With 25 million cars for 1.2 billion people, India is where China was a decade ago,“ says Vish Narain, TPG Growth's India country head. “We had looked at a few others in India but eventually settled for Landmark. He is very different from the others and has managed to build a set-up which retains the entrepreneurial DNA but is professionally managed.“
Besides being profitable, Thakker breaks the typecast in many ways.
His company is run professionally, with ownership and management kept separate, a rarity among Indian automotive dealerships, where it is common to see large families managing them. There are no family members among the executives, except his sister-in-law, an architect who leads the inhouse design team for new projects. “This was the only way I could have created a scalable business,“ reasons Thakker.
This single-handedly helped Thakker to scale up the Honda dealership that he started with a friend in 1998 and later bought out.He expanded to Surat, Rajkot, Mehsana and Jamnagar and is in talks with Honda to go beyond Gujarat.
The Honda case study was attractive enough for Volkswagen, which gave Thakker the entire responsibility of the state of Gujarat. Soon, Mercedes-Benz entrusted him with turning around some of its loss-making outlets. Today, with a team of 2,500 people, Landmark operates five Honda dealerships in Gujarat and seven each for Volkswagen, Mercedes-Benz and Ashok Leyland's commercial vehicles across Gujarat, Madhya Pradesh, Maharashtra and West Bengal. Since 2014, he has broken into Mumbai and Delhi. In the next phase, he is targeting strategic, cash-rich, tier-2 cities.
Landmark is totally decentralised. Sales consultants or managers on shop floors have gone on to lead brands or branches within the company and some have even become shareholders. Thakker is proud that there is an almost zero-attrition rate at the senior level. “When I started out in auto sales, I was 32. I made it a point to hire fresh talent and they were not older than me,“ recalls Thakker, who chose to break with his family's small textile, agri-commodity, real-estate and shipping businesses.
It's worked beyond a doubt. During the Gujarat riots in 2002, his Ahmedabad showroom and office were completely gutted by a mob. Yet, the very next day, Thakker found his team had installed a makeshift tent outside along with a `we are open' signboard.
“His decentralised business model works very well and unlike many in the automotive business, he is very dispassionate,“ says a senior executive of a car company who has worked with Thakker.
Landmark is asset light it does not own the real estate but takes them on lease even if rentals keep rising. Most dealers today run their shops despite making losses, hoping that the appreciation in real estate will help in the long run. “We have structured this business as a retail operation and want to make money after paying market rent.Today, we are sitting on 6.5 lakh sq feet of space. Clearly , if I have to buy, it would come at a huge cost,“ says Thakker.
Landmark is also the fifth-largest insurance broking firm in the country , with over 2.5 lakh policy holders as customers. “There is not much money to be made by just selling a car. One has to offer the entire basket of products. From after-sales service to insurance and financing,“ says Narain.
“Today, we sell insurance to only 25% of our auto clients -75% are not our cars,“ adds Thakker. “We collected Rs 300 crore of premium last year.“ From auto, it has diversified into health and life insurance.
Thakker has had his own share of missteps as well, including his attempt at the used-car business and investing in a commercial vehicle business, which led his business to bleed. “I am not a person who wants glory ,I just want to see that hard business sense prevails,“ comes his parting shot.
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