TT Jagannathan, who took over his grandfather's TTK Group, has seen his company through ups and downs, pulled it out of bankruptcy and made TTK Prestige cookers a household name in India. But this was not without hurdles. When he first entered the office of the only profit-making business in the group, no one would talk to him.
In Intelligent Fanatics of India, authors Rohith Potti and Pooja Bhula document the story of this business tycoon along with the journeys of six other carefully chosen entrepreneurs from the country who have built businesses that dominate and endure.
Bhula is a Mumbai-based journalist who has contributed to works such as Jack Canfield's bestselling series, Chicken Soup for the Soul and is currently engaged in writing about subjects ranging from business to culture and lifestyle. At Intelligent Fanatics, she works as an analyst along with co-author Rohith Potti, a Bangalore-based value investor.
The following is an excerpt reproduced from Intelligent Fanatics of India that narrates some of the challenges Jagannathan faced in his early days as managing director of the TTK Group.
TTK Prestige was the pressure cooker business of the group, and it began as a joint venture between the TTK Group and Prestige UK in 1955. Machines and technology were imported from the United Kingdom and the Prestige brand was licensed from Prestige UK. In 1959, the first pressure cookers were produced in India. This was the only profit-making business in the group when Jagannathan took over, and it eventually became the platform for most of Jagannathan’s brilliant innovations. It also was the business where Jagannathan would spend his remaining career.
When Jagannathan arrived to take over the only profitable business in the TTK Group, in the mid-1970s, he was in for a rude shock: security would not allow him to enter the factory. The profits generated by TTK Prestige were used to support the group’s loss-making businesses. The employees resented this, and Jagannathan’s arrival worried them, as they thought he would ruin the business. He had to request the help of the police to enter the factory and, once he entered, it was clear to him that the employees did not want him as their managing director. Rather than establishing his authority as the owner, he decided not to sit on the managing director’s seat until his employees approved it. He decided to respect their wishes and occupied a smaller desk. In his first month, no one talked to him.
His first chance to prove his mettle came when the factory had to stop production. Those were the days of the License Raj in India, when industries were heavily controlled by the government. In the case of aluminum, the key raw material for pressure cookers, there was an aluminum controller who made allotments to various industries based on the representation given by the respective industries. Due to a misrepresentation, TTK Prestige was receiving way too little raw material and the machines were idle. At this juncture, the employees approached Jagannathan, who went to Delhi and spent three months there before he could meet with the controller. He eventually got enough supply for the factory to start production, and this won him respect from his employees. Nonetheless, it took him two more years of working hard right alongside them before the employees asked him to occupy the managing director’s chair.
Saving the Business from Potential Extinction
Once the aluminum curbs were removed, TTK Prestige began selling its product in the North as well. During the course of his interaction with various dealers in the North, Jagannathan came across a dangerous problem that could have led to the extinction of the business.
We found that we were not selling outside the South. . . . So I decided to find out what was going wrong. I traveled to Uttar Pradesh extensively and discovered that our pressure cookers were known to burst. And a pressure cooker bursting is dangerous and could even kill. I went to one of our dealers in Lucknow and he showed me his store—he had dozens of Prestige pressure cookers that burst. So we were losing market share because of the reputation “Don’t buy Prestige; it will burst.” I couldn’t believe that we made pressure cookers that burst. We were very good at manufacturing, no question about that. So something else had to be the reason.
So when I analyzed the reason I found out that it was because customers were buying spurious spare safety plugs. The safety device was made of a tin–bismuth alloy, which is very expensive. So the spurious guys used to make it with pure aluminum, which won’t melt. And so when the weight valve gets blocked, the pressure cooker bursts, and the Prestige pressure cooker bursts very violently. And so people were just off pressure cookers. And the company would have gone bankrupt if people knew that.
And so, I put on my thinking cap and, after working on it for a month, came up with what is today called a gasket release system, or GRS. It is just a hole in the lid. But the hole in the lid, what it does, it does not depend upon the safety plug or secondary safety. The gasket comes out through the hole in the lid and releases the pressure if it exceeds the cooking pressure.
As is true of many great inventions, the idea for GRS came to Jagannathan when he was in the bathroom. In the same episode, we can find the rare quality of long-term thinking and learning from others’ mistakes. He did not patent his invention. The reason?
It was in fact not a good idea to patent it, for two reasons. One is that, in the US, it used to happen; the pressure cooker used to burst. So the US market went away from pressure cookers. That is something I wanted to avoid in India. And India is the largest market in pressure cookers in the world today—fifteen million pieces. If we allowed pressure cookers to burst, it would not have happened. That was one—I did not want pressure cookers to get a bad reputation. The second is, if a pressure cooker burst anywhere, everybody thought it was Prestige. So I had to avoid that consequence also. So we gave up the idea of patenting it.
Strengthening of the TTK Prestige Business
Once the danger was averted, the company went on a communications spree to educate its customers. They conducted service camps across the country, which put them in touch with the end users. This was a great marketing and sales strategy, as it made the brand popular and also allowed them to get customers to exchange unsafe cookers for new Prestige cookers at attractive prices. They also came up with an iconic ad: “Jo biwi se kare pyaar, woh Prestige se karey kaise inkaar?” (How can one who loves his wife refuse to buy Prestige?).
This was the first of many innovations to come out of the company over the next couple of decades, but most of them were in the pressure cooking department, with products such as pressure pans, steel cookers, and the like.
In 1992, TTK decided to buy the Prestige brand for India from the UK entity. The company was making investments in technology, products, and distribution, and they remained worried about the possibility that, if they lost the right to use the brand, it all could be for nothing.
The company subsequently went for an initial public offering (IPO) in 1993, with the primary goal of increasing the company’s profile. The IPO was a success, and it helped to further bring down the debt on the books.
Driven by the increasing scale of operations and product range, the company slowly became stronger, and the debt level of the group, which at one point peaked at Rs. 14 crore (about $2 million), came steadily down as Jagannathan used the profits generated by the Prestige business to pay down the debt of other group companies. Jagannathan also led the setup of the group operating committee, which led to restructuring of the group’s businesses to ensure more efficiency in operations and marketing.
It says a great deal about Jagannathan’s integrity and business skills that the TTK Group did not default on a single loan. Nor did they have to restructure any of the group’s loans. All banks and loans were paid in full. By 2002, he had brought the debt down to manageable levels. It took him more than twenty-five years, but the group was finally on a strong footing. But then Murphy’s law happened.
Murphy’s Law states that whatever can go wrong will go wrong. And for Jagannathan and TTK Prestige, just when it seemed like things were going well, a series of disasters due to external and internal factors struck the business again.
The first problem appeared in the US market. Prestige had launched a new brand, Manttra, in the 1990s, to sell cookers in the United States and to tap the Latin American market. Jagannathan drove the Manttra venture personally. The market was quite different from the home market in India, and it took some time to get the initial orders for their product. By the year 2000, exports contributed around 25% of sales. But a series of setbacks meant the company had to shut down the operation at a huge loss.
First, the cookers sold in the United States were customized for that market and, around that time, China was coming up and selling cookers at much cheaper prices. Though Manttra cookers had better features, the change in buying patterns of the big stores, coupled with relatively weaker brand power, meant that Prestige had to sell its inventory at a huge loss in the end. Second, Walmart was decimating other retail stores, which were major customers of Manttra. Third was the September 11, 2001, terror attacks, which caused many customers to go bankrupt.
The second problem was in the domestic market. In 2001, both central and state governments levied duties on organized players, which increased the tax on pressure cookers from 10% to 50%. Overnight, the branded players quickly began losing market share to the unorganized players, due to the now steep differential in prices. This came right at the time when domestic economic conditions were weak as well. At the same time, the company could not curtail production because its wage agreement incentivized workers on units produced. The workers’ union refused to produce less, and thus the company was caught between a rock and a hard place—sharply reducing sales coupled with an increasing wage bill. Credit had to be loosened to encourage dealers to stock goods, which just made the working capital cycle and liquidity position much worse.
The third problem was that a new product bombed. In 2001, TTK Prestige had come out with a revolutionary product called Smart Cooker, with innovative features. Due to a combination of reasons— flagging sales, high confidence in the product, pressure to combat the high duties, and the desire to excite the market—the company decided to do a nationwide release of the product without a test launch. They came out with an aggressive launch and promotion as well—a buytwo-get-one-free offer. A revolutionary product combined with an exciting promotional offer was expected to put TTK Prestige on a different trajectory. But due to a faulty product from a vendor, the pressure cookers would not pressurize. This led to a huge, unprecedented backlash from dealers and consumers.
Around the same time, the company was facing issues in one of its plants, where the workers were constantly striking. This plant was in a high-cost location, and the company was trying to close it.
Driven by all of these factors, sales and profits dropped while debt began increasing once more. Sales declined about 25%, from Rs. 137 crore (about $20 million) in 2000 to Rs. 105 crore ($15 million) in 2003, while debt increased from about Rs. 31 crore ($4.5 million) to about Rs. 80 crore ($11 million) over the same period.
Excerpt taken from Intelligent Fanatics of India by Rohith Potti and Pooja Bhula, with permission from Intelligent Fanatics Publication.
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Updated Date: Dec 23, 2019 11:22:17 IST