Manipal University's New Course of Action

Ranjan Pai first met Mohandas Pai in the late 1990s at the Infosys campus in Electronic City, Bangalore. Ranjan’s father Ramdas Pai was impressed by the bright chief financial officer (CFO) of a promising IT company and wanted his son to meet him. At first Ranjan didn’t quite take to him. But on his father’s insistence, kept in touch with Mohandas. “Every time I’d meet Mohan, he would give me 10 ideas and it was very stressful. He was always so charged. But slowly it started growing on me,” says Ranjan. A friendship bloomed between them and Mohandas decided that when he left Infosys, he would work with Ranjan and Ramdas.

Ranjan is the grandchild of T.M.A. Pai, who founded India’s first private medical college, Kasturba Medical College (KMC), in 1953. KMC spawned the 600-acre Manipal University (MU) where at present, 23,000 students pursue courses in close to 20 professional streams. Under Ramdas, and now Ranjan, MU has expanded to Nepal, Dubai, Malaysia and Antigua. The father-son duo also run 11 hospitals in south India.

With opportunities in healthcare and education booming, Ranjan believes that these two sectors are poised for growth. But there are some challenging issues. One, both are massively capital-intensive businesses. Two, they are tightly regulated by the government. And three, both businesses have long gestation periods.

And despite its international footprint, the Manipal group has not grown much outside its southern home base in India. In the healthcare business, it is much smaller than Apollo and Fortis.

There is another bigger issue — one of reputation. The Manipal brand name is synonymous with education as well as capitation. For decades, students and parents have thought of Manipal as a last resort where, if a child is unable to make it on merit, he/she can always get a seat by paying a higher fee. But this is no longer the case.

In the 1950s, Manipal was the first university to introduce the capitation fee system, where the higher fee paid by students helped fund the university’s infrastructure. As a private university, Manipal did not have any other option. “In India, unlike the West, there is no system of endowments, which are necessary to fund universities, so my grandfather had to ask students to contribute for it,” says Ranjan.

Later, Ramdas created another practice called ‘twinning’ that created two slabs of fees. NRI (non-resident Indian) and foreign students paid a higher fee and that in turn subsidised the fee for Indian students. For example, Malaysian students pursuing a MBBS degree from Melaka Medical College (MMC), a joint venture between Manipal University and the Malaysian government, spend the first two and a half years of the programme in Manipal, and return to Malaysia to complete the rest of the term. Besides the higher fee from the Malaysian students, MU also gets a few crores  in royalty each year from MMC  for the use of its name for the degree.

“It was a brilliant idea. Before this, Malaysian students were going to the UK and Australia to get a MBBS degree. Now, they can send three students for the cost of one to Manipal. It’s a win-win situation for everyone,” says K. Ramnarayan, vice-chancellor, Manipal University.

However, though these strategies financed the university, it also ended up smearing its name. From 1993, when Manipal acquired a deemed university status, the capitation fee system was removed. Admissions are now strictly based on a candidate’s performance in the entrance test.

At MU, there are stories of how Ramdas refused to admit even his own son at KMC because he couldn’t make the cut off. (Ranjan studied the first two years of his MBBS at Davengere, before getting transferred to KMC.) Ramdas says his wife and brothers did not speak to him for days after that. “Ramdas Pai is a stickler for rules and no matter who is calling he will refuse to grant admission out of turn. So, we have told him to turn off incoming calls on his mobile during admissions’ time,” says H.S. Ballal, pro-chancellor, Manipal University.

The ultimate endorsement comes from Mohandas who says, “After 17 years at Infosys, I had many job offers, but I turned them down. Dr. Pai [Ramdas] reminds me of [Narayana] Murthy. Both are institution builders.”

Friends say that for many years Ranjan has waited for someone like Mohandas who knows how to build global businesses of scale. In 2010, the Pais invited Mohandas to become the non-executive chairman of Manipal Universal Learning (MUL). “At some point, we will take MUL (valued currently at $1 billion) public, and we wanted someone with Mohan’s credentials on the Board. He is independent and I know that he won’t listen to anyone, whether I own 100 percent of the company or not,” says Ranjan.

Expansion Plans
The immediate priority for both is to kick-start the university project in India. Over the next three years, they plan to set up five universities in different parts of the country. By their 10th year, each of these universities will have 25,000 students graduating from them. The new universities will focus on inter-disciplinary courses, and allow engineering students to choose minors in design and humanities. The first such university, Manipal University, Jaipur, started functioning in July on a temporary campus.

The second university will come up in Bangalore, for which the government has already allotted land. Ranjan and Mohandas recently met with Naveen Patnaik in Orissa and the third university is likely to come up in this state. The other two locations are still undecided. Pai estimates that they will need Rs. 150 crore to start each university. The total cost, by the 10th year, could run into Rs. 500 crore for each university.

There is a direct correlation between higher education and a country’s GDP growth. According to strategic research firm Parthenon, in 2008, India had 13.8 million students enrolled in colleges. To match our GDP growth of 8-9 percent, we will need to take that number to 21.5 million by 2014. “That means adding 1.3 million additional seats every year, which means an annual capital expenditure of Rs. 13,000 crore. It is not possible for the government alone to meet this gap,” says Abhinav Mittal, senior principal, Parthenon.

Given that it is difficult to raise money and create high quality institutions, why would someone like Ranjan Pai be interested in this pursuit? Anand Sudarshan, CEO of MUL, says that these universities are not being set up to grow his business. He says only 5 percent of his revenues come from Indian universities.  

Ranjan’s close friend and co-CEO of Azim Premji Foundation, Anurag Behar, says, “Ranjan is not your usual businessman, fixated by the street or margins, or valuations. He takes long-term bets. Money is not a measure of success for him, there is a larger purpose to his life.”

The Corporate Path
Ranjan’s worldview changed after he went to the US. Awestruck by the scale of businesses in the US, he started to understand the necessity of capital and professionals in growing a business.

But though he carried the Pai surname, he knew that it was going to be difficult for him to change mindsets back home. It was the 1992-93 government decision to cut back on the number of foreign students studying at Manipal to 15 percent that changed things for him. Till that time, Malaysians made up for 50 percent of students at KMC.

The order hit Malaysia hard and the country’s prime minister, Mahathir Mohamad, asked Ramdas to open a medical college in Malaysia. But Ramdas could not invest the money in Malaysia because the Reserve Bank of India did not allow it at that time. Being an Indian citizen, he could not borrow money to invest abroad either. In 1999, Ramdas asked his son, who had a US green card, to set up the medical college in Malaysia.

Ranjan did a great job, setting up a campus in 11 months. “That gave my father confidence that I can do something,” says Ranjan. When he returned to India, it was K.V. Kamath who pushed a reluctant Ramdas to induct Ranjan into the MU board.

However this experience revealed a painful truth. “We cannot expand unless we corporatise. Or we have to be a huge empire like the Tatas or Birlas, or get large endowments, which is not happening,” says H.S. Ballal.

As there was demand for the Manipal brand name in the US and Malaysia, Ranjan decided to form a corporate entity to raise money for its international expansion. He brought all the international campuses under MUL and then raised capital for expansion through private equity (PE).

In healthcare, the group’s flagship hospital in Bangalore was owned by a trust. He bought the hospital from the trust and created a company Manipal Health Enterprises (MHE) to run the business. Last year, Kotak PE pumped in Rs. 110 crore into MHE. In the last five years, Ranjan has raised close to $150 million from IDFC, Premji Invest and Catamaran for MUL, a privately held company providing education services.

However, Ranjan does not enjoy running large companies. He is more comfortable being an investor and letting professionals run the show. In each of their businesses, Ramdas and Ranjan hold a large share through their holding company Manipal Education and Medical Group. A team of professional managers run the day-to-day affairs.

R. Basil, one of the first professionals who came on board from GE, remembers that it took him several months to say yes to the job of CEO of Manipal Hospital. “I was doing well at GE where I had worked for 10 years. Manipal Hospitals was a small venture at that time and I had major apprehensions about shifting. But Dr. Pai and Ranjan assured me that they would give me full freedom. In the beginning, I faced a lot of resistance from the senior doctors and other staff as I tried to change things, but true to their word they did not interfere and backed me completely,” says Basil who left MHE this year to set up his own healthcare venture.

The Odd Couple
Now to take his story to the next level, Ranjan needs Mohandas’s expertise. “He is a force multiplier,” says Ranjan. But there is also a big challenge. Mohandas is aggressive, blunt and in your face. And though he will never admit it, he is also nursing a bruised ego. There is deep anguish within him that despite his long tenure and massive contribution at Infosys, it is only the founders who were credited for its success.

Which is why he is careful at not being tied down with a full time operational role at Manipal or any other organisation again. “They offered me a full time role, but I didn’t want it. I just want to follow my dreams of setting up a string of best-in-class universities. This is perfect for me. I have all the freedom as non-executive chairman and I have all the authority of an executive person,” says Mohandas.

Ranjan, on the other hand, is the complete opposite of Mohandas, gentle, soft-spoken and self-effacing. Ask Mohandas how they handle their differences and he says with a laugh, “Sometimes I can make out that Ranjan didn’t like what I said. He becomes quiet. I wait for a few days and then back off a bit. I have to respect the fact that he is the largest shareholder.”

The power play between them, will to a large extent, determine how the next chapter at Manipal will unfold. The general perception is that Mohandas and Ranjan get along well. “They complement each other. Mohan likes to get into details, while Ranjan steps back,” says Rajen Padukone, CEO, MHE. But both are aware that it is still early days.

“It’s only been a few weeks. We both have to play different roles,” says Ranjan. “Mohan is always in a hurry and doesn’t take no for an answer. That comes from Infosys, which was built on a very high performance culture. But I had to build this place. I have to keep telling him, Mohan, wait, and let things settle down a little bit. You have to give people room, let them grow. He tells me I am too soft and nice with people here. He brings a certain edge, which we really need now. But at the same time, we don’t want to change too much. We don’t want to be Infosys. We both understand that and we will work around it.”