R. G. Chandramogan, many ‘Hats On’ Man
Starting from the little doer of a small ice candy facility, the big-time Chandramogan (71) has gradually maneuvered Hatsun Agro Products (HAP) to shape it to become the largest dairy company in private sector in India. Not stopping at any level, the Baron is all set to expand the boundaries of his business beyond states.
As humble as he is, cites, “Everybody around me knows that I am good with numbers,” says the chairman and managing director of Chennai-based Hatsun Agro Products. “All my life I have been fascinated by numbers. There was a time when I used to remember phone numbers before mobile phones came by”, adds Chandramogan.
Talking to his close associates remember the baron as a genius where the mathematical calculation is concerned. HAP owner is almost like a human-computer accurate to the last decimal. “Many of us need calculators to do the math,” says H. Ramachandran, the chief financial officer of Hatsun Agro Products. “But with Chandramogan, all the figures and calculations are in his head.”
Failing in mathematics subject helped him to come face to face with destiny years back. Fifty years back, Chandramogan couldn’t make up for his mathematics papers while appearing for his pre-university course (PUC). He attempted it once again a year later, but within a few minutes, he saw himself walking out of the examination hall.
“My mind was in turmoil while appearing for those papers,” Chandramogan recalls. With disturbing thoughts about his family’s deteriorating fortunes where his father’s small provisional store was on the brink of closedown. “That’s when I knew I had to chart my path,” he added.
Later after a year or so, with Rs. 13,000 a simple money borrowed from his father, Chandramogan set up an ice cream candies factory to kick start his fortune. After efforts unmatched, today, Chandramogan is worth $1.3 billion, making him India’s 100th richest person. With this position, Forbes India has penned R.G. Chandramogan as the 100th richest person on its Forbes India Rich List. HAP to this date, has made giant leaps in the Indian dairy industry and made the company the country’s largest private dairy company by sales.
According to the billionaire, Hatsun, a play on ‘Hot Sun’, exports its products to not less than 38 countries around the globe, The US, the Middle East, and South Asian markets in particular. Within Indian limits, HAP’s focus mainly remains around the southern Indian market, and here it controls nearly 17 percent of all the sales of milk and over 40 percent of the ice cream market.
“We are dominant in southern India,” informed Chandramogan. “Today, the turnover we make in 30 minutes is equal to what we used to make in the first 10 years of our business. Hatsun Agro Products was set up in 1970 with just four employees in a rental facility in Chennai, with capital raised from selling the family’s ancestral property. Today, the company has a market capitalization in excess of Rs. 13,000 crore, with revenues clocking over Rs. 5,300 crore. We went from being a small company to a medium one and then to a big one,” Chandramogan stated. “Now we are in the middle of a transition into a large company.”
No easy path to touch billions
There is no easy path to success and Chandramogan’s entry into the Rich List hasn’t been an exceptional one.
Born into an underprivileged family in the not-so-popular village of Thiruthangal in southern Tamil Nadu, Chandramogan was aware at heart that he wanted to be an entrepreneur. “In my village, most of the successful people were businessmen and we were not exposed to successful people with a career in the corporate the world in those days.”
Though there were few ancestral properties owned by the family, there wasn’t much income to sustain the household in the rain-drought village. Hence, the migration from Thiruthangal to Madras (Chennai) was decided. Moving to Madras in 1956, Chandramogan’s father set up a provisional store near the Chennai Central Station. But this too did not last long as Chandramogan recalls that his father was of a philanthropic mindset and his interest was in social work. So by 1968, the family wrapped up the business and went back to their hometown Thiruthangal.
Not giving up on his son, Chandramogan’s father had ambitious plans for him. He wanted Chandramogan to complete his studies and settle in the United States. “I argued with him, that I would join his business, which was closing, and work out a way,” Chandramogan stated. “He was staunchly against it and probably didn’t trust me. One thing I was sure of was that he wouldn’t be able to sponsor my ticket to the US. So there was no point in pursuing that dream. Every father has an ambition for his child, and mine did too, without the resources”.
Somehow soon, Chandramogan got admission to St. Xavier’s College in Palayamkottai for his PUC, bringing a setback in mathematics. “I was an outstanding student, but this particular turmoil hadn’t helped,” added Chandramogan saddened over his father’s collapsing business. “In my village, not many people go for college education, and it was more common for people to start a business.”
Chandramogan’s father located a job for him at a timber depot as a post of apprentice in Viluppuram, which is about 160 km from Chennai. “With a salary of Rs. 65, I worked there for a year, and then came back to Chennai,” said Chandramogan. It was here that was the turning point of his life where he decided he would focus on becoming an entrepreneur. “To accommodate the son, who wasn’t up to his expectations, my father sold our ancestral land for Rs. 13, 000,” Chandramogan said. This amount of Rs.13, 000 became his base capital, while his father believed the money was deemed lost.
Including setting up a movie theatre and exporting dehydrated onions, Chandramogan shortlisted about seven prospective businesses where he could try his skills on but there were budget constraints, he explained. “One has to look for a business that suits the capital. Beggars cannot be choosers.” So at the age of 21, he zeroed in to set up a small ice candy factory on a rental space of 250-sq ft in Royapuram along with four employees in 1970.
The factory could produce around 10,000 ice candies every day. The ice candies were sold by the name of the ‘Arun’ brand in Chennai. Arun which means Arunodayam, in Tamil its means “Sunrays”. At night time the factory would shelter Chandramogan for resting.
Thinking on back days, Chandramogan recounts that there were some 40,000 companies selling ice candies across India. The candies were sold on pushcarts by vendors, and Tamil Nadu alone had around 3,000 such factories. “I wanted to prosper. I found there was no way I was going to [always] sell ice candy to vendors,” he says. “I decided to move into the league of the biggies.”
“In those days, the ice cream industry in Tamil Nadu was dominated by Dasaprakash Ice Cream, followed by Mumbai-based Joy Ice Cream and Kwality Ice Cream, owned by Hindustan Unilever. To beat them, I need to have enormous financial influence” said he.
“We were the wrong people at the wrong time in the wrong market,” he says. “But having come into it, we started adapting and made a lot of sacrifices, to become the largest dairy company in the southern part of India”.
With a handful of capital, the young lad of 21 had massive plans but funds were a worry. The ice cream market in Tamil Nadu comprised five major categories. These included shops and supermarkets, hotels, wedding parties, colleges, and ships that would come into Chennai jetty. “Of this, the shops, hotels, and wedding industries were largely dominated by the big players. The first three businesses were capital-intensive. We needed deep freezers, supply credit and customers also looked for a brand. We didn’t have the muscle power or money. Even if we put in freezers, no customer was willing to buy my brand,” addressed Chandramogan.
All these businesses accounted for almost 90 percent of the ice cream industry in Chennai. The remaining 10 percent were the colleges and ships. “The college messes were run by secretaries, who were 18 to 20-year-olds. I was around that age,” Chandramogan says. It gave an edge toward all things and also helped as they were looking for reliable partners, with dependable supplies and good quality of products.
This gave a huge leap and opened up a big market. Soon Arun began plowing back the money into ramping up technology and machinery. “The investment was huge and we got a technocrat to manage the factory,” says Chandramogan. “Then we began to penetrate the college market while the big companies were looking at these colleges as small customers.”
The same was true for the ships that docked at the Chennai jetty. “As far as they were concerned, if the taste was acceptable, and the delivery was prompt, they were willing to buy,” he says. “Suddenly, of the 10 percent market, we started holding a 90 percent share.”
Rocketing the Sales
The next few years witnessed the company remaining stagnant until they started an ice cream parlour in Chennai in 1978. Later they decided to venture into small towns and rural markets. “The ice cream market was confined to big cities because the ice cream was still consumed mainly by the urban population. We thought, why not try the outstation market.”
Over the next few years, the company ventured into towns such as Erode, Tuticorin, Tirunelveli, Salem, and Kumbakonam. The company also developed a franchise model, with owners being asked to invest in the machinery, including deep freezers to store the ice creams that would be brought from Chennai. The franchisees were also given an exclusive territory. “All this while the three big players didn’t know the rural market,” Chandramogan says. “They dominated Chennai with their brands, we went to this market, and it started growing.”
By 1984, he said, “Arun Ice Creams was the largest manufacturer of ice cream in Tamil Nadu and began to invest heavily in developing its Chennai market. “We became number one in Chennai in 1987. Soon, it also expanded to Kerala, Tamil Nadu, and Andhra Pradesh, making it one of the largest in the South Indian market”.
This also meant investing heavily in technology. “We never shied away from investing in technology,” said Chandramogan. “We were highly leveraged then, and I used to joke that I was only a glorified employee of the banks because our debt-equity was around 1:5. But we kept using the money to invest in state-of-the-art technologies. While we borrowed from banks, we were never to borrow from suppliers”, announced Chandramogan.
Later, in 1995, the company decided to foray into the dairy business by launching the ‘Arokya’ brand of milk in Salem, Tamil Nadu. The company already had a manufacturing facility in Salem and was procuring milk for ice cream for it. But again the dairy business was dominated by cooperatives backed by the state government.
“It was considered a service industry to people,” voiced Chandramogan. “The cooperatives were able to have a much lower price compared to private companies. They were running a non-profitable business.
It also meant that companies foraying into the market had to match pricing, leading to serious losses. Over time, people were shutting down their business, they either had to reduce the quality or the price. All our people too said we should price our product lower than the cooperatives. But I said then we don’t stand a chance of running for long. So we will go for product differentiation”.
While most of the biggies were selling ice cream mage out of toned milk with 3 percent fat, Chandramogan decided to sell milk with 4.5 percent fat. “If we went in without a product differentiator, we would have collapsed. Because the costs weren’t going to match. I was not going to compromise on the quality and reduce the price.” The company launched its milk at the existing rate of `7.50 and, over time, raised it to match the real cost. The whole idea behind selling milk with 4.5 percent fat was also because Chandramogan considered from children’s point of view that it was better for children with the goodness of 4.5 percent milkfat that will benefit the growth of young ones.
Today, a bulk of the company’s sales comes from milk with 4.5 percent and 6 percent fat, while the 3 percent category remains minuscule. Besides, Hatsun began to procure milk directly from farmers. “Again there was opposition, saying it’s an expensive route,” emphasized Chandramogan. “Milk is a perishable commodity. Once you collect, the variable cost will go out of control. Our people said it is foolish. But I insisted on this model. It took some time, but we established our credentials.” It also helped that Arun Ice Creams was a market leader, which meant farmers came on board more easily.
Over the next decade, Hatsun focused more on its dairy business, although it came at the cost of its ice cream business.
Today, Hatsun procures milk through its network of around 10,000 Hatsun Milk Banks. Every farmer has a unique producer code linked to their bank account and is paid once in 10 days. The company also claims to be the world’s first dairy company to develop and use thermal battery-based technology in its Bulk Milk Coolers for chilling milk immediately after procurement.
“We don’t invest in unwanted property, unwanted share investments, etc. All our investment is only into this business. We don’t live a very extravagant life.” It also helped that the company enforced financial discipline, ensuring that all delivery was made against payments. “So, financially we were able to rotate the working capital much better,” Chandramogan declared.
The ice cream business contributes about 11 percent of overall revenue. “The consumer base is bigger in ice creams, but the frequency varies. In the dairy business, it is a 365-day affair,” he stated.
The Unstoppable Strides
Having maximum areas of the South Indian market under its control, Hatsun is gearing up to explore its fielding in the rest of India.
Recently, HAP has set up two manufacturing plants in Maharashtra and has forayed into Odisha too. “We are focusing on expanding in one state at a time while the company operates 20 plants across the country. These include nine milk processing and packaging units, two milk product manufacturing units, and two ice cream manufacturing units, among others.
India is the world’s the largest producer of milk and its dairy industry is worth around `6 lakh crore, according to an Edelweiss report. Only about 20 percent of the market is organized, with milk cooperatives, including Amul, Nandini, and Mother Dairy, dominating the industry.
“There is tremendous opportunity in the dairy sector for Hatsun to grow,” says Nitin Puri, senior president and global head for food and agriculture research at Yes Bank. “Almost two-thirds of the industry is in the unorganized category. With the Covid-19 crisis, there is a massive disruption, particularly in customer preferences for buying milk. Hatsun has managed to crack the sector well, and has managed to build a scalable business.”
A bulk of that, Puri reckons, is also due to Hatsun’s early foray into direct procurement from farmers. “Much before many others forayed into direct procurement, Hatsun engaged with farmers directly. That helped them secure their back-end, and they also kept innovating, such as with the thermal battery-based milk coolers for areas with poor electricity.”
With all the current activities, Chandramogan isn’t ready to hang up his boots anytime soon. “Since 2015, we began to focus on ice creams again,” the billionaire says. “We are now seeing faster growth in the business and we want to grow it further. Among the 40,000 similar ice candy manufacturers who ran a cottage industry in 1970 like us, we are the only ones who made it to the big league in the entire country.
Curious to ask, “Has becoming a billionaire changed anything?” asked.
“All this is notional wealth,” Chandramogan spoke. “I don’t consider myself to be a billionaire. In fact, the only asset I have is a house”.
HAP is both a B2F (Business-to-Farmer) and B2C (Business-to-Consumer) company. More than 95% of the company’s Rs.5,317 crore revenue in FY 2019-20 is from the branded product sales to retail consumers:’Arokya’ milk, ‘Arun Ice creams’, ‘lbaco’, ‘Hatsun’, ‘Oyalo’ and ‘Santosa’ Feed.
Hatsun Agro Product manufactures and markets products that cater to both cooking and consumption like milk, curd, ice creams, dairy whitener, skimmed milk powder, ghee, paneer and lots more. The company’s brands include Arun Ice creams, Arokya Milk, Hatsun Curd, Hatsun Paneer, Hatsun Ghee, Hatsun Dairy Whitener, and Ibaco.