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I believe in creating trends: Kalanithi Maran
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Kalanithi Maran, owner of the Sun TV empire, stunned the aviation sector by beating out well-known names in Corporate India to emerge victorious in the race to buy SpiceJet. Mr Maran, whose Sun Network is one of the dominant names in the Indian television entertainment scene, has no experience in aviation. Nor has he partnered with somebody in the aviation business to do the deal. In this interview with ET, he explains the reasons behind his interest in the sector and his plans for SpiceJet. Excerpts:

Currently, you’re running a company with perhaps one of the best profit margins in the media and entertainment space and now you’re getting into a sector where profitability is hard to come by. Why aviation?

I look at the opportunity, at what’s going to happen in the future. Currently, the industry carries four million passengers per month, growing at the rate of 15%. We are seeing the purchasing power percolating to smaller cities. I strongly believe that if you have affordable pricing, you can do mass transportation in India, with infrastructure and new airports also coming up.

But people are sceptical of your entry into this space without past experience or core competency.

I am the chairman of the company, not the CEO. It is the CEO who requires core competency. The chairman requires foresight. I don’t believe in industry’s perception, I believe in creating trends.

When I started satellite television, people laughed at me saying Tamil cannot be in satellite television, it’s too costly. When I started radio, they said television has come, radio is a dead business. When I started DTH, they said there are too many big players. We are now 5.5 million subscribers strong. If I’m going to follow the herd, I’ll be one among the crowd. Let me be clear. All my steps are calculated, I am not going blindly with intuition. I never wanted to do it when oil prices were at $140 per barrel.

What kind of moves can we see on the pricing front? Also, aviation is a loss-making industry. How will you ensure that SpiceJet keeps its head above water?

Right now, SpiceJet and IndiGo are the only two profitable airlines. We picked up one company that is making profits. So it disproves your theory that it’s a loss-making industry. EBITDA for SpiceJet is 19% for FY10. The aviation sector hit rock bottom two years back. Now, it can only go up. That’s how we see it. We have been studying SpiceJet only for three months. Next couple of months, we will consolidate this acquisition.

Do you see your latest venture as a financial investment? How much time will you spend on aviation from now on? Currently, all your time goes to Sun TV. How will you divide you time between aviation and entertainment?

I am not an FII. Whatever business I do, I am an active player. If I wanted to be a financial investor, I would have stayed at 10%. I am not like that. If you see what we’ve done, over a period of three years, we have brought in professionals. We have got one of the best teams for Sun, it is all professionally managed. It is a board-run company.

Do you think your timing is right?

Rather than a full-fledged carrier, we went to Spice at the right time when the promoter (Kansagra family and investor WL Ross) wanted to exit. So, the timing was right. We got 25% less than the market price, so it has to be right. The pricing that I did was the correct price. Lesser than the market price, even if you take a six months’ average. Deal was struck at Rs 47.25 per share.

But did you prefer the acquisition strategy rather than starting a new airline?

Starting from scratch is painful. Spice is a very strong brand up north. And its one of two airlines making profits. Spice has 20 aircraft and now they’ve also applied for international routes — Dhaka and Colombo.

What about your growth targets?

Spice’s current EBITDA margin is 19% and my target would be to take it to 25-30%.

How will you do that?

It will happen through better volumes. Not disruptive, it will be something constructive for my passengers. I am not competing with full-fledged carriers. At least for the next five years, I am not looking at changing the low-cost model. Worldwide, if you see, low-cost carriers are the ones doing well — RyanAir or EasyJet or SouthWest in the US. They are the ones who escaped the recession. So I am going to stick with that.

You already have Raja Vaidyanathan who helped you firm up your aviation plans. Will Spice CEO Sanjay Agarwal continue? Any management changes in the offing?

I am happy with what Spice has got. From what I have learnt, the Spice management has done a great job during the recession. They are doing well. What do you mean my own men? Anybody who is working for me is mine. Sanjay was not the promoter’s man because the ownership was fragmented. And he has done a good job. So, honestly I don’t see any changes I’m going to do with the management. Maybe, a new team will come. Maybe at the marketing level. All this will happen once I consolidate. This year itself, they have plans to take 5-6 aircraft. We may look at more (routes) in the south. Spice actually is less represented in the south.

Any immediate plans to rename the brand?

As of now, that is not going to change. Spice has a very strong name in the north.

Would you consider enhancing your current stake of 57%?

It all depends on the company’s requirements. From what I’ve seen, they don’t need funds. Internal accruals are enough. One of the reasons I picked them is that it is literally a zero-debt company.

What support mechanism do you anticipate from the government?

The industry’s main concern is the removal of the 30% tax that states levy on fuel. Worldwide, airlines are not treated as a luxury the way it is in India. Even in a continent like Europe, the major mode of transportation is aircraft. In third world countries too, in countries in Latin America, the population of aircraft and number of carriers is going up. If you start saying it’s luxury, you’re in trouble. The airline business should be thought of as a mode of transport. If I’m able to convert first-class passengers travelling in train into fliers, you’re looking at a huge potential.

Which other sectors are you looking to invest in?

I’m not going to comment on that. Right now, my focus is only on consolidation of this acquisition. Maybe towards the end of the quarter. We have some plans. Not telecom, its too over-crowded. Not going to comment on others.

Given your political lineage, did you use any connections to firm up your aviation foray?

This is a question that I’ve been asked from the day I started my business. Out of 15 years of existence, half the time I have been in Opposition. Either I have been fighting with somebody or the Opposition is in power. In fact, political connections put me in trouble also. Whatever I’ve done, it’s open. If that is the case, then every politicians’ son should have made it big. I am proud of my heritage, my family is in politics, I am not going to say no to that. But that and this is different. I have never been part of the political system.

Source: The Economic Times

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#2
“It’s not one, four airlines have approached me. But, wait. I have to first decide whether I should get into this industry. This industry is like a big-budget film. Either it will be a super hit or end up as a damp squib. I have sought experts to study and suggest me the right option. Even if I decide to get into it, I will do it in my individual capacity.” That is what media baron and Sun TV Network chairman and managing director Kalanithi Maran had told Financial Chronicle a few months back, much before any media reported about his talks with ETA Star Aviation. Having picked up a 37.7 per cent stake in SpiceJet and followed up with an open offer to acquire an additional 20 per cent, the soon-to-turn-45 Maran spoke to D Govardhan in detail, elaborating on his aviation foray. Excerpts:

Why airlines?

Why not? When I planned to enter satellite broadcasting with a focus on regional content, everyone felt it would not sustain. Look how many players and channels are there today. When I looked at radio, people said, ‘radio is dead’. Today the scenario has changed with so many radio stations.

Similarly, when I chose to enter DTH (direct–to-home), people asked whether I will be able to take on the established biggies. Within a short span of time, Sun Direct has become India’s No 2 DTH operator. I do not go into the general perception that people have about an industry. If an industry is good or great, everyone would want to be there. On the contrary, I see an opportunity in an industry and work towards it.

At present, the Indian aviation industry flies on an average four million passengers a month and is growing at 15 per cent per annum. The rising purchasing power is percolating down even to smaller cities. With more airports coming up, if we can price the tickets affordably, we have a greater opportunity.

But the industry has to face many variables that are not under its control. Even billowing ash from a volcano in Iceland can put well laid-out plans of an airline totally off mark?

There are factors beyond anyone’s control, such as recession. The volcanic ash is a one-off thing. In the recent global slowdown; even bigger, full-service players were affected, but low-cost airlines turned around and made profits. Airlines such as Ryanair, South West and AirAsia are some of the examples.

In the Indian context, except for long-haul routes like Chennai-Delhi, one need not focus on things like food and snacks. Instead, it is better to focus on ticket prices and enable more and more people to travel.

Worldwide low-cost airlines have come under the scrutiny of the travelling public and authorities for attempts to cut corners? What kind of product will Barclays be offering?

There may be instances and even incidents. But it is wrong to say that’s how low-cost airlines carry out business. Worldwide there are strong conditions laid out for airlines to operate and no one would love to overlook them and end up on the wrong side of the law.

Factors like highly volatile air turbine fuel prices and increasing airport landing charges have always been seen as negatives for the industry. With India too privatising more and more airports, won’t it be a problem?

Yes, there are factors like higher fuel costs and airports cess and surcharge impacting the airline business. At the same time, the worst days for aviation are over. I do not expect the high oil prices of $160 a barrel to come back to stare at us anytime soon. I am sure the government will be taking a look at that more closely.

At the same time, airlines are seen as luxury in India even now. That should change. Take the case of Europe. Despite the good road and rail connectivity, people prefer air travel. If that can happen in Europe, a small continent, it is more likely to happen in a vast country like India and that’s why I am there.

When did you think of getting into the airline sector?

In the recent global recession and its aftermath, I saw an opportunity there, even though there were reports that several existing players were trying to exit.

I was keen to get into this industry, but at the same time I was not desperate.

You were talking to quiet a few players. While there were reports about ETA Star Aviation and SpiceJet, there were quite a few others, we understand, on your radar, including Kingfisher.

Now that I am with SpiceJet, I do not want to comment or name the players with whom we held talks. Indeed, it’s a fact that we were in talks with a few others. When I decide to buy something, I like to shop around a bit to look at options.

So, what clinched it in favour of SpiceJet?

It is a very tightly run ship, made profits and it is also a near zero debt company. Its Ebidta for financial year 2010 was 19 per cent and it was one of the first to come back to making profit last quarter.

What was the deal value and how much stake you eventually plan to pick up?

As per last Saturday’s deal, I picked up 37.7 per cent stake for around Rs 650 crore. We have now gone in for the open offer and we hopefully will land up with a little over 57 per cent with the total outgo coming to around Rs 900 crore.

Will this lead to any structural and management-level changes in SpiceJet?

The open offer has opened today and the process will take a couple

of weeks. Eventually, when I get to control 57 per cent or more, obviously the board will change. But the management has been doing a good job and I don’t see any reason to make any changes.

Analysts are already talking about a ‘game changer’ entering the Indian aviation industry for the first time. Given your penchant for being Number One in whatever you do, what are your plans for SpiceJet?

Ever since I set my eyes on this industry, I have started studying

it closely. I am not sure if I have said about being number one for every sector that I enter. Any businessman will want to succeed in his business.

As of now, I do not know whether SpiceJet will become number one, but that is what I would aim at. If you ask me, whether I want to become the number one player in terms of number of aircraft owned or in terms of higher profits made, I will prefer the second option.

Why did you not buy it through your listed existing entity, Sun TV Network?

I never planned it that way. Sun TV Network is only a broadcaster and it will stay so for ever. I have not even merged my print business or even the DTH with it. Therefore, the question of linking aviation with it will never arise.

Source: mydigitalfc.com

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