Copyright 2016, Forbesindia.com

The Wrapper Tycoon

From underdog to India’s No.1 aluminium foil maker, Sudip Dutta has always played his game with audacity. Now he plans his global foray


Nobody could have noticed the spark of entrepreneurship in the 16-year-old who stepped out of the train that reached Mumbai from Durgapur one day in 1988. Sudip Dutta checked into India’s financial capital as the sole breadwinner for his family after the successive deaths of his father and elder brother. He had just traded his dream of college education for the promise of economic opportunity in the big city. 

Back in his hometown, he had the choice to either pull a tricycle rickshaw or wait at a restaurant, but his friends pushed him to go to the land of dreams where his cine idol Amitabh Bachchan had made his mark as an underdog many times on reel, and in real life.

“I could have stayed back in my hometown Durgapur, a small city with small ambitions,” says Dutta. “But from my childhood, I have been very ambitious and from the family experience, I understood the value of money.”

Today, he sits across a huge table in a plush room on the top floor of Ess Dee House, the corporate office of the Rs. 500 crore business he has built over two decades. His hair is parted from the middle, reminiscent of the trademark Bachchan style in movies like Deewar and Trishul. Dutta also resembles the star in height and the manner in which he holds his cigarette. Doubtless, he feels like a superhero.

Dutta had got his first break in Mumbai at a tiny pouching unit where he worked as a packer, loader and a delivery boy. It was just a 12-person operation and was making losses. But for him, it was an opportunity to learn the business inside out. It went on like that until the summer of 1991, when the owners announced they were going to sell out. Dutta moved in with his unique offer. He would pay his entire savings — all of Rs. 16,000 — and buy out the unit with the promise that any profit for the first two years would go to the original owners.

While that event set him up in business, it was his second acquisition 17 years later that would make packaging industry veterans sit up and take notice. More than a century old — it was the first to roll foils in Asia, way back in 1936 — India Foils is a well-known but loss-making company. Metals and mining major Vedanta Group, which has a turnover that is 60 times that of Ess Dee, bought it from the Khaitan group and tried to turn it around but failed. Even the turnaround reputation of Vedanta’s maverick founder Anil Agarwal and his deep pockets didn’t help.

So, the fragmented packaging industry was surprised when Sudip Dutta bought India Foils from Vedanta for Rs. 130 crore in November last year. If the venerable Agarwal could not fix things at India Foils, how could Dutta? “Dutta was relatively unknown and his Ess Dee Aluminium  was a small company, even a tad smaller than India Foils. Ess Dee has a capacity of 18,000 tonnes of foil a year, while India Foils’ could make 1,000 tons more. So not many were convinced,” says a senior executive from a financial institution that once advised Ess Dee. More importantly, there were doubts about his ability to handle the touchy labour issues at the company that had its units around Kolkata, the hotbed of communism.

But for Dutta, the acquisition of India Foils was a calculated move. He had been eyeing expansion, but there was hardly any organised player for him to buy out. He had been watching India Foils several years and knew its problems. Dutta felt Vedanta had tried to radically change the profile of the company which led to complications. He knew he had no such need. He just wanted the company so that he could become the biggest foil maker in the country.

Within six months of acquiring India Foils, Dutta relisted the company on Bombay Stock Exchange and later reopened one of the three units in Kolkata and started selling its products. Earlier this year, the foil maker’s profit and loss account, in the red for the past nine years, turned positive at the EBITDA (earnings before interest, tax, depreciation and amortisation) level. “I do not have to prove anything to anyone but to myself. I had my eyes on India Foils since 1999, ever since the Khaitan group revealed its intention to sell the company. But I was waiting for my time,” says the 37 year-old who once worked on a daily wage of Rs. 15.

India Foils is yet not profitable at the net level (in fact, it dragged down Ess Dee’s consolidated profits last year by Rs. 25 crore). But its losses have come down from over Rs. 1 crore in the first quarter to Rs. 22 lakh in the quarter ended September. With the second unit of India Foils set to open by early next year, now even the pessimists have begun to believe India Foils is on its way to be in black. So what is Dutta doing?

The entrepreneur got that one thing right that had made his first acquisition successful – he knew his prey inside out. Since 1999, as he nurtured his company, Dutta had kept an eye on what was happening at rival India Foils. By 2004, Dutta had set up his first foil rolling mill in Daman and had crossed Rs. 100 crore in revenues. He had created a niche for himself among pharmaceuticals companies like Pfizer, GlaxoSmithline and Novartis. His rise was acknowledged by the competition. Indal, then a unit of Hindalco Industries, stopped supplying him with the basic raw material as the A.V. Birla company itself was in the packaging business. Dutta quickly started sourcing the material from an overseas company.

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At India Foils though, things were not going right. Debt stood at over Rs. 200 crore and the company refused to get back to profitability. A few of its executives left and  joined Ess Dee. They fed him with
the details.

Vedanta changed the profile of India Foils from being a maker of specialised foils to a feeder unit for BALCO, a Vedanta group company. A caster unit in Hoera, near Kolkata, which converts aluminium ingots into foils, was closed down and foils were instead sourced from BALCO, which also made the same product. One of India Foils’ most profitable market was the neighbouring Bangladesh, but the company left the country.

It also missed market opportunities. Prasenjit Datta, an India Foils veteran and now a director at Ess Dee, says that it failed to move in line with the change in the domestic pharma industry, which was going through regional diversification. But India Foils remained a player limited to the market in east India. Adds Ess Dee’s chief financial officer Rajaram Shanbhag: “The essence in packaging industry is how close you can be to your clients. Pharma industry is very competitive and sometimes we are given just a few hours notice to supply material for a new product launched by them. Moreover, transportation costs can be high if your unit is far off.”  In short, India Foils completely moved out of the industry radar.

With more than 20 other former India Foils senior managers with him, Dutta exactly knew the problems. And he had also found the solution by the time India Foils came under the BIFR (Board for Industrial and Financial Reconstruction) fold in 2005. To make things easier, Dutta made sure that Ess Dee didn’t get the burden of the Rs. 230 crore debt that was on India Foils’ books. Instead, Vedanta Resources agreed to “assume” the debt. “On hindsight, the asking price of Rs. 130 crore came cheap for Ess Dee Aluminium,” says Vijay Dave, analyst at Mumbai-based Sunidi Securities & Finance. Not only that, Ess Dee’s integrated business model suited India Foils, he adds.

Ess Dee Aluminium works on a hub and spoke model, which helps it to cater to most of its clients with a delivery time of six hours. Its unit in Daman and India Foils’ unit Kolkata now serves as the two hubs with rolling mills and caster. These two cater to the printing, coating and laminating units, or spokes, in Vasai, Goa, Baddi and Sikkim. “There are thousands of converters in India, who do the basic printing and coating work. But Dutta had the foresight to integrate his operations and that is helping him now,”
says Bhattacharya.

And while reopening the first of the three units of India Foils in Kolkata, which added 6,000 tonnes to the capacity, Dutta also proved his soft skills by coaxing almost 200 workers to come back to the factory. He is quick to admit, “Being a Bengali has helped.”

At the same time he adds, “I go there and work with them on the shop floor. They know my story, where I come from and how I have grown. I am one of them and they call me dada (elder brother).”

It helps that Dutta has an “elephantine memory,” and remembers many of his workers by name. He has also elicited support from political groups in the area and also from the state administration.

Now armed with India Foils, Dutta is hoping to break into the FMCG, or fast moving consumer goods, packaging sector. Despite bagging its first order from Cadburys and Wrigley’s last year, Ess Dee is yet to completely break into the lucrative sector. It might be able to do so now with India Foils, which used to supply foils to cigarette and contraceptive-making companies.

Another leg-up from India Foils will be the new markets for Ess Dee. “Bangladesh is just a few hours away from Kolkata and with Haldia port nearby, we also plan to enter the South East Asian markets,” says Dutta. He now wants to open the Hoera unit of India Foils which will further integrate his operations and meet about 10 percent of the in-house foil requirement. “This will be a major push for us and will show in our balance sheets in the next financial year,” says Shanbhag. 

Though Ess Dee officials assert India Foils will come out of the BIFR fold by next year, industry analysts think Dutta might need a year more to do that. “Ess Dee has met the targets for India Foils that it had spelt out in the beginning of this year. At the same time, the Kolkata unit needs more investment to open the Hoera plant and much more to open the third unit,” says the executive from the financial institution who was quoted earlier. Dutta had earlier announced investments of up to Rs. 200 crore to revive India Foils and this could add burden on the already Rs. 120 crore debt that the company has piled up, quite significant for a Rs. 500-crore company. Almost half of this debt is working capital loan, reflecting the long payment cycle — almost 150 days — that Ess Dee has to deal with.

Dutta also has international plans. A recent announcement of plans to raise Rs. 500 crore has got the tongues wagging. While the entrepreneur himself is tight-lipped, company officials hint that he wants to follow the same hub and spoke model internationally and could make an acquisition either in Europe or in a nearby region like Turkey that will give him access to the developed markets.

The self-made millionaire is unconcerned about the financial burden, comforted by Ess Dee’s market capitalisation of about Rs. 950 crore. India Foils has a market capitalisation of nearly Rs. 250 crore. And it is not surprising that Dutta is flooded with offers from financial institutions who want to participate in the Rs. 500 crore fund raising exercise. It is a far change from those early days when he had to face “bad language and attitude” from bankers when he had gone for his first loan, of Rs. 40,000, in the early 1990s.

“The bee will only come where the honey is. Then I didn’t have honey, now I have,” says Dutta.