Podcast | The business of Family – The Kirloskars

The preconceptions about success and failure often dissipate in the face of case studies of businesses based on real challenges and triumphs. The kind we have been bringing to you in the previous MoneyControl podcasts. These stories are about home grown conglomerates that began from a scratch and adapted to the shifting sands of political and economic climates.

I am Rakesh and today, you are going to hear one such story of another one of such empires, the Kirloskar Group. Currently, the group is headquartered in Pune, Maharashtra and exports to over 70 countries, over most of Africa, Southeast Asia and Europe.

A quick internet research will give you the facts but we want to give you the context of how the flagship and holding company, Kirloskar Brothers Ltd became a case study for success.

Today, the company is India's largest maker of pumps and valves. And also has gone on to undertake construction projects through its subsidiary Kirloskar Construction And Engineers Ltd. The company produces and we quote from information we found on multiple public domains, "engines, Centrifugal Pumps, compressors, screw & centrifugal chillers, lathes and electrical equipments like electric motors, transformers and generators."

But let us begin at the very beginning

Laxmanrao Kirloskar, the founder of the Kirloskar Industries was born on 20th June, 1869, in a village, Gurlahosur in Belgaum District. He began his career as a school teacher and later on, opened, believe it or not, a cycle repair shop in Belgaum. He dreamt of vaster, unrestricted skies and the workshop could not contain his ambition.

Most great adventures begin at the heart of some kind of conflict and it so happened that the Municipality of Belgaum ordered Kirloskar to vacate the area where his workshop was located because a new suburb was coming up in that space. By then the idea of starting a factory had begun to solidify in the pioneer's head and along with the idea came a helping hand out of the blue. The Ruler of Aundh, impressed with him, offered him a loan and Laxmanrao planted his entrepreneurial dream in a virtual waste land close to a railway station.

Legend goes that when Laxmanrao Kirloskar first arrived at the site that was to host his future dreams, he was faced by 32 arid acres overgrown with cacti and overrun with reptiles. But his dream was bigger than the odds and he put together a team of 25 workers, welcomed their families as well and what began as modest factory blossomed into the Kirloskar empire and the Kirloskarvadi township, the second oldest in the country.

The story of the inspiration behind Kirloskarvadi is also interesting. Laxmanrao had read about idyllic industrial townships in Europe and America where communities of workers thrived and when he laid the foundation of Kirloskar Brothers Limited factory in 1910, the establishment of the dream township was inevitable.

But he didn't do it alone and Ramuanna, Laxmanrao’s brother, oversaw the administration of the township. Laxmanrao had an eye for dormant potential and he proved that with the unconventional choices he made. One Shamburao Jambhekar worked as an engineer, K.K.Kulkarni, an academic drop out took over as the manager and treasurer, and another drop out, Anantrao Phalnikar dabbled successfully with on site engineering jobs. In an almost cinematic tradition of V Shantaram whose film ‘Do Aankhen Barah Haath’ would years later speak of rehabilitating convicts, Laxmanrao hired two convicted dacoits, to guard Kirloskarvadi!

Setting up a burgeoning business despite practical problems was not the only challenge. It took over two years to convince farmers habituated to wooden ploughs to switch to the iron ploughs made in the Kirloskar factory. The iron ploughs were the first breakout successes of the business and were created by Laxmanrao with the unflinching conviction that agricultural implements adaptive to the Indian topography were the way forward.

He also saw that industrial revolution in a country like India could not remain isolated from the social realities of the time and carried out advocacy against superstitions and the deep rooted problem of untouchability, starting with his township where such exclusionary practices were banned.

Yet, challenges continued to stalk his journey as when during World War I, from 1914 to 1918, the supply of iron totally stopped, putting a spanner in all industrial activity. Interestingly, as always fate took his side and the Maharaja of Solapur in southeast Maharashtra sold the Kirloskar bothers his cannons so that they could be melted down and used to make iron ploughs!

So despite the ebb and flow of fortune, Laxmanrao Kirloskar, continued to do the spade work and grew a considerable harvest and his son Shantanurao Laxmanrao Kirloskar went on to play a key role in the success and development of the company that recorded one of the highest growth rates in history, with over 32,401% growth of assets from 1950 to 1991!

We now begin the next chapter of the Kirloskar saga where the lead player is Shantanurao Laxmanrao Kirloskar

Shantanurao Laxmanrao Kirloskar, the eldest Kirloskar son was born on 28 May 1903 and grew up wanting to stretch the boundaries of the business.

To be able to do that, he earned a Bachelor of Science degree in Mechanical Engineering from MIT in Massachusetts, U.S.. He was incidentally among the first Indians to graduate from MIT.

Kirloskar was a dreamer and an envelope pusher like his father and wanted to go global even though pre independence India was as arid for entrepreneurial aspirations as the land his father had built his business on. He visualised a country free from the burden of colonialism – a country that would need economic self sufficiency as much as military prowess. He visualised India as an economic superpower and in his lifetime, did all he could to achieve this dream.

In 1965, he was awarded Padma Bhushan for his contribution to trade and industry.

But a long journey had preceded this achievement. It was post the chaos of World War II particularly, that the Kirloskar Group helmed by Shantanurao Laxmanrao's vision grew rapidly. In 1946, he established Kirloskar Electric Company and Kirloskar Oil Engines Limited at Bangalore and Pune, respectively.

He is credited with pioneering the manufacture of diesel engines indigenously but the beginning of this enterprise was almost as challenging as when his father had struggled to relocate and establish his business.

Gone were the days of patronising rulers and this India was overrun with red tape and after a long stint of push and pull, Shantanurao Kirloskar got enough land to establish Kirloskar Oil Engines Ltd. (KOEL). This was nearly 12 months after an agreement had been signed between the Kirloskars and Associated British Oil Engines Export Ltd. of UK. So yes, the first tentative attempts at overseas partnerships had begun too.

This collaboration, incidentally, was the first of its kind in India. And so, as we told you before, KOEL factory was established in 1946, and soon after, we saw the birth of India's very first vertical high-speed engine. In a way, Kirloskars were becoming habituated to coming up with many firsts. In 1974, in cooperation with Deutz-Fahr of Germany, Kirloskar began manufacturing tractors though they have since stopped tractor production.

Today KOEL also offers engines operating on alternative fuels such as biodiesel, natural gas, biogas and straight vegetable oil (SVO). Their generating sets are branded as KOEL Green Gensets.

When new possibilities beckon, the Kirloskars heed them

It is this ability to think of new possibilities where none existed before and acting upon inspiration in the face of challenges that has made them today a 1.20 billion US Dollars engineering conglomeratecomprising 8 major companies. They reached this point after more than a century of pioneering cutting edge initiatives, products and turnkey services in sectors like power, construction, mining, agriculture,civic utility systems, transport, oil and gas and environment protection.

In 1988, Rajiv Gandhi, the then Prime Minister of India released a commemorative stamp marking the Kirloskar Group's 100th anniversary.

Understanding the need for world class managerial talent, in 1991, the Kirloskars founded the Institute of Advanced Management Studies (KIAMS) to train their own inhouse talent and in 1995, the training institute threw open its doors to aspiring managers all over the country.

As the company's profile grew, its span of activities also grew, as did possibilities of controversy as when in March 2007 Kirloskar Brothers Ltd created the world’s largest irrigation project or the Sardar Sarovar Dam project at the behest of the Gujarat Government.

But there were other activities that drew relatively less attention, as when Kirloskar Brothers made canned motor pumps for pumping heavy water deployed at Indian Nuclear Power Plants.

Not many people know either that Kirloskar Brothers Ltd is one of the first pump companies to have an all women operated and managed manufacturing plant at Coimbatore, Tamil Nadu.

Toyota Kirloskar Motor Pvt Ltd is big feather in the cap of the group and is a subsidiary of Toyota Motor Corporation of Japan, for the manufacture and sales of Toyota cars in India. It is currently the 4th largest car maker in India after Maruti Suzuki, Hyundai, and Mahindra.

But as it happens in most sagas, the highs come with the lows.

In 2000, Hindu Business Line reported that the then 75-year-old Kirloskar group, which once had 30 companies under its umbrella, had formally split along family lines.

The trouble began post the passing of Shantanurao Laxmanrao Kirloskar, whose primary vision was to keep the family united. After he passed, Vijay Kirloskar, the eldest among the third generation Kirloskars, was made the chairman of the group. Mr. Vijay Kirloskar happened to be the son of Ravi Kirloskar, the last son of Laxman Rao Kirloskar.

The news report claimed that the election of Mr. Vijay Kirloskar as chairman, “had created resentment among the Pune wing of the Kirloskar group spearheaded by S.L.Kirloskar's grandsons Atul, Sanjay and Rahul.” Vijay Kirloskar had been asked to step down from the post of chairman in what was described as an internal family coup and following this,

all the Kirloskar cousins became chairmen of their own individual companies.

Another version of this story blames the split on the stock market slump that had adversely affected the bottom lines of most of the group's companies.

The much touted joint venture with Toyota also, was not moving ahead because of lack of financial impetus. So this version claims that to solve all of these issues, the family decided to split the business into multiple halves.

In 2009, Mint reported that the three Kirloskar brothers—Sanjay, Atul, Rahul—and their cousin Vikram were restructuring their ownership of the companies they independently managed in the then $2.4 billion Kirloskar group by diluting cross-holdings.

The paper said, "The restructuring of the group—is only the second such in its history since the last one in 2000 when Vijay Kirloskar, uncle of the three brothers and their cousin, parted ways from the group; the settlement saw him taking control of Kirloskar Electric and 15 companies—began earlier this year with KBL and KOEL transferring their investments, largely holdings in other group firms, into separate companies."

The transfers were supposedly meant to give shareholders the choice of owning shares in both manufacturing and investment firms.

The restructuring, Mint reported, signified that the three brothers and their cousin would now directly own shares in the firms they manage, rather than through holding companies. This was done to enable them to take independent decisions on fund-raising, joint ventures and diversification. It would also allow them, said the Mint report to better focus on their businesses, bring clarity to shareholders and create fewer succession issues.

Even though we concede and so did business analysts that such decisions were for the long term peace within the family, the reality was still much different from what the founding fathers would have visualised.

That the peace was not permanent was obvious when in April 2018, another Kirloskar family feud hit the headlines.

The Economic Times reported that a feud between the Kirloskar brothers—Sanjay (60) and Atul (61)—over the construction of a gate at their homestead in Model Colony in January, 2017, and we quote, "had escalated into a fight between the matriarch, 82-year-old Suman Kirloskar, and her younger son, Sanjay, with the former claiming that her son had usurped a 10-crore land parcel at the family’s Lakaki Bungalow." Sanjay was taken to court by his mother, and how the drama will unfold in the near future is anyone's guess.

What can however not be diluted by all this is the entrepreneurial vision that the company, is founded upon and the story of its growth and origins will continue to inspire generations of dreamers struggling to grow their own legacies in a world not yet ready for them.

The next generation makes its own rules

Sanjay Kirloskar, the grandson of Shantanurao Laxmanrao Kirloskar is the current chairman and managing director of Kirloskar Brothers Ltd. He is a graduate from the Illinois Institute of Technology, Chicago.

And the story goes that when this scion of India’s largest Pump & Valve manufacturing company visited Egypt in the 90s, the receptionist was amused at his last name because in Cairo and in most of Egypt, the name Kirloskar stood for a pump much like Xerox stands for a photo copier in many countries.

And that in a nutshell is what the company stands for – solid brand equity. An equity that has survived many vicissitudes and become synonymous with quality. This is a tall order that future generations of Kirloskars would do well to live up to.