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Pharma and Fast Food Fuel the Jubilant Bhartia Group

This article is more than 10 years old.

This story appears in the November 4, 2012 issue of Forbes Asia. Subscribe to Forbes Asia

BY SARITHA RAI

When the first outlet of Domino's Pizza, India's largest fast-food chain, opened two years ago in Patna, a small city in the underdeveloped Bihar state of northern India, customers arrived from the hinterland in farm tractors to try its affordable offerings like the 35-rupee ($0.65) Pizza Mania. Patrons lined up outside for months, fostering two other Domino's outlets in Patna.

On a balmy afternoon in India's capital, New Delhi, recently banker Arun Chauhan and a friend joined raucous students, chattering housewives and cozy couples at the Dunkin' Donuts store in the swank DLF Place Mall. "This is a cool hangout," stated Chauhan, 24, surveying the orange-and-pink-themed interiors. "So tempting for people like me who love sugary treats."

Jubilant FoodWorks brought the Domino's chain to the country in 1996, when Indians still faltered over the word "pizza." Part of the $3 billion Jubilant Bhartia Group in New Delhi's Noida suburb, it has worked on urban Indians to think of pizza at daal chawal (staple lentils and rice) time and lately to replace the gulab jamun (a gooey Indian dessert) with doughnuts.

Jubilant Bhartia Group's founding brothers, Shyam, 59, and Hari Bhartia, 55, have business interests that run a wide gamut of sectors--eats are just an appetizer--through a combination of four listed and a few other private entities. The pair rises to No. 44 on this year's India rich list, with an estimated wealth of $1.38 billion.

See our list of India's 100 Richest.

Turning India into the world's fastest-growing pizza market has been no easy journey, the Bhartias say. "We positioned the pizza as exotic but at the same time familiar," says Shyam. "At our outlets kids savored the pepperoni or double-cheese-topped pizzas while their grandparents, who had never eaten a pizza, reached for paneer [local cheese] or tandoori chicken toppings." They've stuck with it through a 2010 IPO, even as big minority investor JPMorgan Chase bailed out.

Having cornered half the pizza market in Asia's third-largest economy, Jubilant is trying for an encore with Dunkin' Donuts. "Older Indians can try the mango or roasted coconut doughnuts at our doughnut stores while youngsters can pick the chocolate-frosted ones," Shyam says.

It's testimony to the pair's intensity that both remain on top of fast food even as their group is more heavily oriented to pharmaceuticals, in Jubilant Life Sciences, and active as well in oil and gas, polymers, fertilizers, retail, auto dealerships and aerospace consulting.

Pradeep Kar, chairman of Bangalore IT company Microland and a friend of Hari Bhartia, has watched Jubilant over two decades. "The brothers have transformed a conventional, old-economy business [initially, commodity chemicals] into a successful group by having a perspective on what drives India. Not many people could have pulled that off."

The $212 million-in-revenues Jubilant FoodWorks has plenty of competition in India's fast-food market (including cafe chains), which Edelweiss Capital's Abneesh Roy estimates at $1.2 billion in size and expanding at 30% annually. New names are piling into the cities, where the likes of McDonald's and Pizza Hut are building rapidly on existing footholds.

But Jubilant FoodWorks has been fastest out of the gate--its nearest competitor, McDonald's, has half the number of outlets. Jubilant's 500 units have carpeted 110 Indian cities in the decade and a half since Domino's first appeared in New Dehli. It uses catchy taglines like Khushiyon ki home delivery (Hindi for "We home deliver happiness") and 30 minutes nahi toh free ("30 minutes or free") in a country where the pizza man has the reputation of arriving more promptly than an emergency ambulance.

When the Bhartias initially tied up with Domino's of Ann Arbor, Michigan on the recommendation of a friend who held other foreign licenses, they were neophytes. "We had no idea how to run a pizza chain," recalls Hari, a vegetarian like his brother. "All we knew was, wherever in the world we traveled, we could get vegetarian pizzas delivered."

There were growing pains every way you sliced it, down to the sauce and cheese, but Jubilant enjoyed a social insight. Television in India was changing, adding channels that would vastly boost the audience. "We were excited by the possibility that we could deliver to people's homes as they watched their favorite TV shows," says Shyam. "Our tagline was 'Hungry, kya?' The pizza could adapt to the palate of the young or old, vegetarians or nonvegetarians, and be eaten as a snack or a meal."

The results? Jubilant FoodWorks' compounded annual growth in the last five years exceeds 50% and average same-store increases beat 25% even as rivals report in the single digits, says CEO Ajay Kaul. The company made this year's Best Under A Billion roster of smaller enterprises in FORBES ASIA. "Our Indian growth has no parallels in the food industry anywhere in the world," brags Kaul.

And so, despite gloomy economic talk lately in India, Kaul has boosted his target for new pizza outlets to 100 from 90 in fiscal 2013 and aims to have 100 Dunkin' Donuts (4 currently) stores in the next five years. It plans to open 30 Domino's in neighboring Sri Lanka after a debut a year ago.

However, even with 57% ownership of FoodWorks, the Bhartias cannot just roll in that dough. They have the other businesses, including $892 million-in-revenues Life Sciences, a contract research/manufacturing outfit for Big Pharma. This biggest Jubilant arm is closest to what their late father, Mohan Lal Bhartia, steered his sons into.

The father hailed from a Marwari trading family and was a dealer out of Kolkata in Rolex watches whose main sales were in steel wire. That latter trade amassed a grubstake for the two sons in a chemicals maker, Vam Organic, that would gain from the remaining license raj in India.

Shyam, a newly trained chartered accountant, relocated to New Delhi in 1979 to start up a factory nearby. Meantime, Hari was completing a chemical engineering degree at the elite Indian Institute of Technology. As he joined the company listed shares, but it was hardly a go-getter.

"Back then you spent less time building your business and more time lobbying in the corridors of Udyog Bhawan [the industry ministry's Delhi headquarters] to procure licenses and get capacity allocations," recalls Shyam, Jubilant Life's chairman and managing director. (Hari, also an M.D., is cochairman.)

In 1991, when the government started liberalizing, the brothers figured they could expand in basic chemicals or move into higher-value work for the drug and chemical industries. Choosing the latter "was the beginning of our transition from chemicals to life sciences," says Hari. In 2001 Vam Organic was renamed Jubilant Organosys, the beginning of today's moniker for the group.

The shift into pharma gained speed when the company, later renamed Jubilant Life Sciences, acquired a U.S. FDA-approved pill-and-capsule plant in the U.S. in the mid-2000s. This $3 million-in-sales operation opened the door to American and European markets. A global market makes possible much bigger installations, like Jubilant's plant in Gujarat state for niacinamide, which treats everything from diabetes to skin flaws. That fully integrated operation is expected to generate $70 million in sales annually over the next few years.

Contract pharma work in India has steadily grown to an $8 billion market, and Jubilant is pushing the field from the factory and into the labs. In the face of wide skepticism, the brothers threw their weight behind India's drug-discovery proposition: innovation at low cost. "India is the only location in the world where you can hire 300 medicinal chemists whom you can train to become productive in two to three years," says Hari. From 150 employees in R&D in 2003, Life Sciences (also listed, with the Bhartias owning half) has scaled to 1,200 in 2012, using genomics and mathematical computing.

Indian pharma generally is moving out of the commoditized generics business and into development of newer molecules, says Ajaykumar Sharma of consultant Frost & Sullivan in Mumbai. It is a risky game as drug development cycles have long gestation times, multinational collaborators require stringent quality, and there are regulatory hurdles in India, he says.

The Bhartias, however, are confident. "In the next five to ten years we will show results by launching drugs with our collaborators," says Hari. Some discoveries are poised to enter clinical trials. Products introduced in the last five years account for 8% of sales currently but will climb to 25% in the next few years.

The U.S. unit has grown to $90 million in sales and the North American operations total 1,500 employees, making sterile injectables and specialty drugs. "What is best done in the U.S., we do there; what is best done in India, we do here," explains Shyam. Today 70% of total sales are foreign, including a sizable China market.

He draws a contrast with the early days at Vam Organics: "These are exciting times, all barriers are down, you are free to do whatever you want, and the only limitations to your business are those you set yourself."

"Whether pharmaceuticals, food retail or energy, we are in sunrise sectors," describes R. Sankaraiah, finance director of the Jubilant Bhartia Group.

Managers who work for them credit the Bhartias with complementary strengths ("commercial and technical wisdom," "thinking type [versus] a quick mind") and the ability to disagree with one another while still advancing the process. "If one brother is told something, one can assume that the other knows--they are very close," says Ajay Khanna, head of the group's strategy and public affairs.

The brothers live in separate mansions in the heart of New Delhi but are known to take family holidays together. The next generation is moving into the group's businesses (see below).

Yet, a blood relation isn't needed to advance. Each unit is headed by a CEO, and all are nonfamily. Some rise from entry levels. Shyam Bang, executive director of life sciences, says after three decades in their employ, "The brothers have a liberal attitude toward dealing with people. Mistakes are forgiven so long as the intentions are good. They waste no time on postmortems."

Units can benefit from being at different stages of development. Currently the retail hypermarkets are expanding rapidly with cash generated in polymers and fertilizers.

The Bhartias can be patient. Take Jubilant Energy, which has moved from support services to global oil exploration and production. Says Bang, "Each next step was measured, investments were made at a reasonable level, decisions never became a burden on the group later, and there was capacity to sustain these investments."

But when it comes to the changing Indian consumer, whether it be pizza and donuts or selling a hot auto brand like Audi, reading the trends right is increasingly vital to Jubilant's growth.

"Today 30% of India is urbanized; in the next 20 years 60% will be urban," says Hari. India's organized food and retail industry has only a 10% market share but is exploding. Economic difficulties of late are a blip, Shyam believes. "The basic India growth story is strong, and many things are happening in India that support the growth of our businesses."

Their Better Halves

The Bhartia spouses are leading names in Indian publishing.

Shobhana Bhartia, married to Shyam, is the widely known chairman and editorial director of listed HT Media, which she took over nearly three decades ago when in her late 20s. She is credited with revitalizing the Hindustan Times newspaper, launched by her grandfather Ghanshyam Das Birla at the behest of Mahatma Gandhi. (The Birlas, with several branches, each with their own industrial empire, are also of Marwari origin.)

Hari Bhartia's spouse, Kavita Bhartia, is a fashion designer who owns Ogaan,

a string of high-end clothing stores stocking Indian fashion. Her Ogaan Publications brings out the Indian editions of Elle and Elle D?cor magazines.

All four Bhartia children are active in many of their parents' businesses. --S.R.