From succeeding an iconic CEO to convincing sceptical investors, the head of one of India’s largest PE funds discusses her early challenges and plans
Vishakha Mulye faced the toughest interviews of her career after she was appointed managing director and CEO. The interviewers were representatives of some of the top global investors who wanted to figure out whether they could trust her to grow their investments, write Shyamal Majumdarand Reghu Balakrishnan.
The interviews were a part of what is known as the “key man” clause that allows investors in a private equity (PE) fund to refuse to honour investment commitments if important members of a fund’s management team leave. The questions Mulye faced must have been extra sharp, because she had just succeeded the high-profile Renuka Ramnath who steered ICICI Venture (I-Venture), one of India’s largest PE firms, for over eight years before quitting in a huff.
To make matters tougher, Mulye was parachuted from ICICI’s general insurance subsidiary to take charge of the group’s private equity arm in April 2009 at a time when the firm was raising money for an $800 million second fund and the overseas markets were in turmoil. Then she had the task of rebuilding a team that was weakened by the exit of at least four senior executives.
Exactly two years later, Mulye , sidesteps our questions on the huge burden of expectations when she took charge, and says she wants I-Venture – which currently has assets under management of over $2 billion – to go much beyond PE and become a leading alternative asset management company, managing funds across asset classes including PE, real estate, mezzanine, infrastructure and so on. Some more diversified funds are currently under development.
Since she’s always on the wing, Mulye doesn’t have the time to follow the standard “Lunch with BS”format of choosing a restaurant for us to host her. Instead, she’s invited us and we are in the spacious dining room – the décor could give any five-star hotel a run for its money – on the fourth floor of I-Venture’s headquarters in Mumbai. The stewards serve watermelon juice and vegetable soup. Mulye is a generous host – the starters range from chicken and paneer tikka to grilled pomfret – but she doesn’t seem to be particularly interested in the food and leaves the soup and starters almost untouched. The main course is again a lavish spread – chicken biriyani, roti, dal and sundry vegetable dishes – and is served at lightning speed. Mulye takes only a few small bites of roti withdal.
The 44-year-old mother of two says she understood investors’ initial concerns. Though most domestic investors knew her well because of her frequent interactions with them during her ICICI Bank days (a chartered accountant by training, she was the bank’s chief financial officer for a while), large overseas investors didn’t know her well that time.
But the initial days of uncertainty are over and Mulye is back to doing what she does best. I-Venture is now in the middle of raising $750 million for an infrastructure fund, for which $150 million has already been raised from the domestic market. Mulye says large and long-term investors are happy to commit funds, because the product is such that the drawdown normally takes place over five years, so everybody knows that the entire money won’t be called in today.
The firm has also launched a small real estate fund with a target of $200 million – entirely domestic – to invest mainly in the residential space in large cities. The trend, she says, is that banks are continuing to invest in this asset class and there is a very good appetite from high net worth individuals.
She chooses to attribute all her success to parent ICICI Bank. “If large overseas investors supported me initially, it was not because of me, but I-Venture’s parentage,” Mulye says. Her gratitude to the bank that she joined as project officer in 1993 is evident throughout our conversation. Examples: “Mr Kamath (ICICI Bank Chairman) taught us how to think like an entrepreneur”; “Chanda (Kochhar, ICICI Bank MD & CEO) is just fantastic — she knows how to empower people” and so on.
That must be music to her bosses’ ears. For, the general perception that had developed during the last couple of years of Ramnath’s tenure was that the PE firm was drifting away from the mother-ship. Mulye doesn’t comment on the issue specifically, but says she will do all she can to ensure investors and employees that ICICI Bank’s shoulder is behind the I-Venture wheel. All this while maintaining an arm’s length distance, which is important given that the relationship between a bank and its PE arm is always sensitive from a regulatory perspective.
What also helped in her new job was the expertise she acquired while leading landmark fund-raising deals like ICICI Bank’s $5 billion equity offering in 2007, and the first hybrid capital issuance by an Indian bank in 2006.
Mulye shrugs off the impression that I-Venture is handling too many portfolios and couldn’t focus on each of them. “We are very active in investments as well as exits. Our first fund, which got an extension, will be exited completely by October this year. And 25 to 30 portfolio investments are quite decent as far as a large institution like ours is considered,” she says.
Under Mulye, the company has made some great exits as well. For example, it made a part-exit recently from its investment in engineering services company VA Tech Wabag. The PE fund has sold 10 per cent out of its remaining 14.6 per cent in the company earning 7.5x gross returns.
On her investment strategy, Mulye says she is bullish on the “recession-proof” Indian consumer growth space, with special focus on food, education and healthcare”. She is obviously putting her money where her mouth is. Among the recent investments are Star Health Insurance and TeamLease Services, a leading manpower solution company. On healthcare, I-Venture has already set up a holding company, I Ven Medicare, to manage its investments in four healthcare and hospital chains spread across the country.
Mulye isn’t keen to talk about I-Venture’s investments in failed retailer Subhiksha during her predecessor’s regime. The issue led to an open war with Premji Invest boss Azim Premji accusing I-Venture of leading him up the garden path. I-Ventures has since written-off the investment. Mulye would only say that it’s not possible to guarantee returns all the time.
As dessert is served – fresh fruit and ice cream – Mulye says one of her main challenges is to re-shape the organisation so that it remains entrepreneurial and innovative. “Hierarchies don’t matter in a business like ours,” Mulye says, adding one of the things she never misses out is the Monday meeting where all senior people are present to discuss, debate and share information on industrial sectors . “These meetings have no specific agenda, but the unwritten rule is each of the members present must have at least one new point to share. The rule has helped us to keep our eyes and ears open,” she says.
All this has meant extraordinary hard work and the occasional “guilt feeling” of not being able to spend enough time with her children. “I haven’t been able to escape the predicament of all working mothers, but at the end of the day, one has to strike a balance, since work is something that gives me an identity,” Mulye says. She remembers how just before she went on six-month maternity leave seven years ago, Kamath (then managing director) told her to come back refreshed because the bank has decided to make her the CFO and would keep the seat vacant for her. Mulye came back to work in four months.
But she has decided to make two compromises: one, Sundays are solely reserved for her children and, two, she plans her overseas trips scrupulously. For example, whenever she goes to New York – which is quite frequently – Mulye takes Air India’s direct flight at 12.30 a m so that she can reach her destination early morning New York time.
After a day of back-to-back meetings, she is on the flight back to Mumbai the same night. “Though I am away for three days, it’s actually one day because of the time difference,” Mulye says, adding “it’s physically stressful, but that’s the only way to have the best of both worlds.”
At any rate, her “interviewers” would be happy with that kind of meticulous planning.
The temp staffing industry, which is growing at 17% quarter on quarter, according to a TeamLease report, will soon have a new champion. Some of the biggest executive recruitment firms will, this May, form a lobby to demand changes in labour laws and more acceptance for an industry where 95% of the workforce is unorganised. A TeamLease survey says the temporary staffing industry has a workforce of 90 million and barely 6% (or about five lakh) of the industry is 'organised'.
The manufacturing, IT, services, infrastructure and hospitality sectors are some of the largest employers of temporary staff in the country. Although still in the preliminary stages, eight members are already on the lobby's board, including representatives from staffing agencies like Mafoi Randstad, TeamLease, Kelly Services , Adecco India, Manpower India and GI Staffing Services. Members of this core team have already had three meetings, which included interactions with the labour ministry on the objectives of the yet-to-be-named body.
The team is also looking to the International Confederation of Private Employment Agencies (CIETT), which promotes better regulatory policies, flexibility in global staffing market and legislation, for help. And though staffing firms are keeping mum about this development till they go public in May, industry experts say the new lobbying body will be affiliated to CIETT, whose website mentions a recent meeting between it and the heads of Indian staffing firms.
"The visit included a debriefing on the regulatory environment for the development of private employment agencies in India, and discussion on an optimal regulatory framework," the website says. "The trip also focused on capacity building, covering data-gathering and research , membership policy and membership fee systems, as well as public affairs and lobbying." In fact, the website says the Indian staffing federation's application will be presented before the CIETT general assembly in May. Since firms like Randstad, Manpower and Adecco are already part of CIETT globally, their Indian counterparts hope the proposed affiliation will be a smooth one.
A senior official from Manpower Services India, however, said the lobby would be an independent body. "The temporary staffing industry needs more recognition ," he said, on condition of anonymity . "It is will not just hire people at the grassroots, but also bring on board senior officials." A cumbersome licensing process makes it difficult for companies to employ temp staffers. For example, if a company has to hire employees on contract, the staffing vendor and principal employer have to go through multiple licensing processes. "Organisations need a lot of labour law clearances before they can outsource work to India that requires temp staffers , even for short periods, as a result of which investments get diverted.
From working hours to the number of shifts, all of it regulated by different labour acts," says Rituparna Chakraborty , co-founder of TeamLease. "A lot of business is dependent on these regulatory frameworks , and making them complicated makes companies rely more on mom-and-pop shops, which then go on to perpetuating the unorganised nature of the sector," Chakraborty adds. EBalaji, CEO of Mafoi Randstad, confirming his firm's participation in the lobby, says: "It will be like a CII or Nasscom." He adds that the staffing industry in India will benefit from changes in the labour laws. Most staffing firms draw 70% of their sales — and about 50% of their net revenue — from temporary staffing, so regulatory issues are likely to affect them.
An absence of staffing records and people on the payrolls also means employees receive their salary in cash or in the form of a cheque sent directly to their bank account, but do not have the safety net of provident fund, gratuity, and leave policies. Since they do not receive appointment letters, pay slips or the Form 16, getting loans from banks — or even proving they are employed, should the need arise — becomes an arduous and risky matter. Then there are those who are hired only on weekends, and are more for getting money in hand rather than having tax deductions . Having some regulation regarding employees like this is important, especially since they are usually hired through smaller staffing agencies.
The matter is further complicated by the fact that when the staffing vendor fails to follow norms or does something unethical , it is the principal employer, the company, which is likely to get pulled up. This also makes companies think twice before hiring temporary employees. "There have been many cases where the agency shut shop without paying employees, despite taking recruitment fees from companies. We will address this issue as well," says Chakraborty. Jacob Samuel, executive director at GI Staffing Services also confirms that he would be a part of the core committee of the soonto-be-formed lobbying body.
Having a separate lobbying body also brings into focus the work done by the existing body, the Executive Recruiters Association (ERA). Indeed, some recruitment firms feel the ERA has been too tardy for their liking , although others disagree. Despite being active for many years, the ERA is largely seen as a body that is fragmented in approach and activity, since it has to contend with temporary and permanent staffers, as well executive search firms. "The ERA has made no definite movement to improve the situation for temporary staffing firms," says another senior Mafoi Randstad official .
According to Chakraborty, TeamLease stopped being an active member of the ERA a couple of years ago. "There are multiple stakeholders in the ERA. So if work is done to improve the staffing firms' situation, the people in the search firms feel neglected," says the CEO of one of the leading search firms in India. The lobbying body is, however, not expected to work out a thumb rule about the recruitment fee structure. This is to prevent cartelisation that is illegal, but staffing firms were encouraged to think of a minimum threshold of recruitment fees by the ERA last year.
Sudhakar Balakrishnan, CEO & MD of Adecco India said his firm would be a part of the group, but would push to keep pricing out of bounds since every staffing firm wants to discuss its pricing norms independently, without disclosing it to others. Following the reduction in recruitment fees by some players , pricing has become a bone of contention in the industry where many agencies have been forced to give up clients because of the demand for reduced service fees. Not just temporary staffers, but search firms also see the point in this.
"In India labour laws are not very friendly towards temporary staffers," says Shiv Agrawal, CEO of the search firm ABC Consultants . "That does not help MNCs who want to hire on a cyclical basis , and therefore reduces employability ." Although reports say about 75,000 temporary jobs were created in India last year, compared with three lakh in the US, there is still room to grow. According to Manish Sabharwal , chairman of TeamLease Services , studies have shown that in the US, 90% of unemployment has been reduced because of temporary staffing. Similar changes are required in India, in, say, the Industrial Act and the Contract Labour Act, to accommodate growth.
A Force To Reckon With
The companies that will be part of the lobbying body are: Manpower , Mafoi-Randstad , TeamLease, GI Staffing, Kelly Services and Adecco India. The lobby is expected to be announced in May The temporary staffing industry has a workforce of 90 million . Barely 6% (500, 000) of the industry is organised The lobbying body is trying for affiliations from forums like European-based Ciett The demands would be more flexibility, change in labour laws and more recognition Because of complicated processes, companies prefer outsourcing their work to Vietnam, China and the Philippines
The sign-on bonus is back. Sign-on bonuses used to be the perk reserved only for top management employees, and reached the middle-tier employees in 2006-07 when the economy was on a high. Post-recession, hiring is back and so are the bonuses now.
To the uninitiated, a sign-on bonus, also known as a signing bonus or a joining bonus, is a sum paid by a company to a prospective employee as an incentive to sweeten the deal."Sign-on bonuses today are in the range of 8% to 20% of the cost-to-company (CTC). Last year, hiring was just about clambering back into the market and joining bonuses weren't that common," says Ashok Reddy, managing director of TeamLease Services, a staffing firm. "Pre-2008, when the market witnessed a hiring frenzy, sign-on bonuses used to be as high as 50%. We're yet to see that happen now."
Compared to last year, the joining bonus amounts this year are at least 25% higher, says Priya Chetty-Rajagopal, V-P of Stanton Chase, an executive hiring firm. "Some of them are also being offset as stock options now."
In 2006-07 and 2007-08, joining bonuses were offered on a discretionary basis by the company. If you could command a hefty signing bonus, it was a sign from the company that they really wanted you on board.
"Today candidates are demanding a joining bonus and getting it too," says Kamal Karanth, MD of Kelly Services India, a staffing firm. "For mid management roles, the bonus is typically in the range of one to three months of their salary. For senior management, that can climb higher, to maybe even 50% of the annual package."
The sectors that dish out the most attractive joining bonuses are banking, financial services and insurance (BFSI) and IT ITeS. But regardless of the sector, the fattest bonuses are also offered when a company is on the verge on an IPO or an overseas listing. A 'star CEO' and a stellar top management team at this phase can make all the difference to a project as also give a favourable image to investors, so companies offer hefty bonuses to get such candidates on board.
"A sign-on bonus is a golden halo, which is reflection of a buoyant economy. The first such bonus was given in 1983 to John Scully when he was offered the CEO's job in Apple. In India, joining bonuses were big in 1999-2000, before the dotcom bubble burst. Then one heard of them again in 2006-07," says E Balaji, MD of Ma Foi Randstad India. "However, a real bonus is one that is truly jaw dropping -- about 6 months or even one year of CTC. It's an offer the candidate cannot refuse. The rest are just perks."
Temping seeks an enabling ecosystem as business grows
Musharraf Zamiri, 30, a physics graduate and a staffer with a Kolkata-based temping (temporary staffing) firm was placed by his employer with an advertising agency, where he had to maintain electronic billboards. One day, as Zamiri climbed a 30-ft billboard, a car knocked off the ladder, leaving him stranded atop. He called the ad agency for help, but the agency said he was not its employee. The temp company directed him to its headquarters in another city. “Finally, the fire brigade came after five hours,” says Zamiri, who quit the next day.
This rather comic incident exemplifies what ails India’s Rs 5,000 crore-temping industry, which employs about 600,000 people and is adding more at a rapid rate of 20-25 per cent every year. Zamiri’s experience is at the heart of the key question the industry has been trying to answer while rummaging through India’s numerous labour laws: who is a temp? The industry itself has gone into an introspection mode as it enters its 19th year of existence.
But first the raison d’être of the industry, which is best explained through some mean advertising the industry indulged in its early years in the US in the 1960s. Attacking the established management concepts of the time, it said regular employees were “dead wood” and were “choking profitability”. As a solution, temping companies offered staffers on a need basis, offering flexibility and lower costs. It caught on.
The industry was founded by William Russell Kelly in 1946 in the US when he launched the Russell Kelly Office Service offering inventory management, typing and copying services to Detroit’s auto suppliers. As customers got used to the service, he began getting requests to send the staffers to client’s offices. Kelly began sending the machines and a girl hired as a part-time worker for help. It got so popular that the company renamed itself Kelly Girl Services Inc. by 1957, before becoming Kelly Services in 1966. Temping reached its peak in the US by the 1980s (now, though, it is only about 1.7 per cent of the organised workforce). In the US, even some CEOs are temps. In the UK, 3.5 per cent are temp workers.
Temping’s India debut was in 1992 with Chennai-based Ma Foi. As the domestic industry liberalised, temp penetration reached 0.6 per cent in 2010, against India’s 35 million organised workforce. The real opportunity lies in the world’s youngest workforce of 237 million people in the 20-29 years age group, according to Adecco India. Last month, when nearly 900 workers at General Motors’ Vadodara plant went on an indefinite strike, the company turned to temping firms. Work resumed before production was hit.
“When the slowdown happened, several companies had to let go of people. Now that we are seeing a revival, companies want to play it safe by outsourcing several functions to temporary workers,” says Dhirendra Shantilal, senior vice-president of Asia Pacific at Kelly Services, which has been operating in India since 2001.
Post-slowdown, temping companies are seeing a spurt in demand. “We have been signing 20-25 new clients per month for the past six to eight months,” says Sangeeta Lala, vice-president, TeamLease. Besides the big companies, SMEs and service sectors, too, are increasing their temp worker base. For example, telecom, consumer durables, retail, IT/ITeS, transport, healthcare, real estate, construction, etc.
On the back of such demand, global leaders such as Switzerland-based Adecco, Ma Foi Randstad, US-based Kelly Services and Manpower have grown to 106,000, 65,000, 20,000 and 28,000 temps, respectively. Domestic player TeamLease has scaled up to 75,000 temps. But their share of workforce remains low. “Nearly 130 million are temporarily employed in organised and unorganised sectors; more than 99 per cent are in unorganised sectors,” says Manish Sabharwal, chairman of TeamLease.
Adecco India, a subsidiary of the world’s largest temping firm, estimates the staffing market volume to touch 1 million by 2015. Globally, it is a $300-billion industry, and fragmented — the top 10 players account for only 26-28 per cent of the total manpower outsourcing spend.
Cost optimisation is temping’s biggest pull. By employing temps, companies are able to control staff costs by as much as 20 per cent over a period, especially if projects are not finalised.
“We hire temps at short notices to man the front desk in select areas in sales and after-sales services,” says Arvind Saxena, director of marketing and sales at Hyundai Motor India. “They are taken purely for temporary jobs and are not considered for regular engagement. However, if their skill level matches, they are taken in.” TTK Healthcare uses temps for “selling in retail outlets”, says Jagadeesh Rajkumar, HR head of consumer product division.
Dhananjay Bansod, chief people officer at Deloitte India, says, “The larger gain is in meeting sudden demand and to not have people on bench and ruin own cost.” Deloitte India hires temps to serve low-end jobs in IT and in other profiles where there is no recurrent need..
PARALLEL LINES: Harsha U., 24, now works with a logistics company in Bangalore, but was a temp with TeamLease for three years. “Practically, I find no difference between a temp and a permanent job,” he says (Bornali B.)
Staffing and education company TeamLease Services Pvt. Ltd has raised Rs.100 crore from ICICI Venture Funds Management Co. Ltd and existing investor Gaja Capital Partners to fund the expansion of its vocational training business.
TeamLease, focused on the organized temporary staffing market since 2003, entered vocational education by acquiring the Indian Institute of Job Training (IIJT) last year.
It plans to use the capital raised to enhance this business, including a roll-out of more IIJT centres across India, building a corporate training business and for its TeamLease University project, said managing director Ashok Reddy.
IIJT operates more than 150 centres that deliver classroom and satellite training in areas such as finance and accounting, information technology (IT) infrastructure, sales and marketing, retail and soft skills.
TeamLease is setting up a vocational education university in Gujarat to help plug an increasing skills gap in India’s labour force. It will be the country’s first university for vocational education.
“We would increase our footprint with the capital that we have raised,” said Reddy. “We are looking at acquisitions of firms that can complement our current business. We are in talks but nothing has been finalized yet.”
“It’s not just about growth,” said Gopal Jain, managing partner, Gaja Capital, the smaller contributor in this round of fund-raising. “They are innovating as well, the Gujarat university being a point in case.”
Reddy refused to say how much each PE firm has invested but said TeamLease’s original promoters continue to hold a majority stake.
India’s vocational training market is estimated at about $1.6 billion (Rs.7,120 crore) and is growing at 25% a year, according to Research and Markets, a global market research and data firm base in Ireland. Demand for skilled workers across sectors from manufacturing to retail and hospitality is fuelling the market for vocational training institutes, it said in a report on its website.
Insufficient skilled labour is a major worry in India, the second fastest growing major economy. The country has around 7,500 technical institutes for higher education and only 2,500 polytechnic institutes, according to data available with the All India Council for Technical Education,the technical education regulator.
There is a huge interest among PE firms when it comes to vocational training firms, said Sunil Jain, vice-president, MAPE Advisory Group Pvt. Ltd, an investment bank. Jain leads MAPE’s education deals segment, which is currently working on three education deals, including a school company, a tutorial and a technology firm.
“There are only a few segments in the education space that do not face regulatory hurdles. So, PE firms tend to like vocation training firms,” he said, adding that so far investments in vocational training have mostly been in the space of test preparation and coaching centres for engineering entrance exams.
“Where we will see action now are the non-engineering streams like CA (chartered accountancy) and medical preparation, as most of the big firms in the engineering space have been funded already,” he said.
Mumbai, April 5: TeamLease Services, a staffing solutions and vocational educational services provider, has raised private equity worth Rs 100 from ICICI Ventures and Gaja Capital Partners. The percentage stake picked up by these entities was not disclosed and hence the current valuation of the company is not known.
The investee company is known for providing temporary staffing to corporates across India and also operates in the vocational education segment operating 150 Indian Institute of Job training centres. These centres impart training in five domains namely, finance and accounting, IT infrastructure, Sales and Marketing, Retail, English and Soft Skills.
(This article was published in the Business Line print edition dated April 6, 2011)
New Delhi: Staffing and training firm TeamLease Services today said it has raised Rs 100 crore from ICICI Venture and Gaja Capital Partners.
The two entities have made an equity investment in TeamLease.
"The Rs 100 crore fund will be utilised for both organic and inorganic expansion in the vocational education segment.
"We are looking at acquisition opportunities and also plan to expand our centre networks," TeamLease Managing Director Ashok Reddy said.
However, details of the stake held by ICICI Venture and Gaja Capital were not disclosed.
TeamLease entered the vocational education sector by acquiring the Indian Institute of Job Training (IIJT) in 2010.
In a statement, TeamLease said the capital raised would be deployed for vocational education initiatives, which building a corporate training business and a TeamLease university project.
ICICI Venture CEO Vishakha Mulye said the education and staffing sector in the country is poised for an exciting future.
"We recognise the important role of private capital in the evolution of the sector. We believe that TeamLease and its management team are best positioned to tap this opportunity," Mulye added.
Noting that privatisation of skill development is just reaching a critical mass, Gaja Capital Partners Managing Partner Gopal Jain said TeamLease has demonstrated its ability to leverage its presence in the segment.
TeamLease Services, among the top staffing companies in India, on Tuesday announced that it had completed raising an equity fund of Rs 100 crore to fund the expansion of its vocational education programmes of the company.
This capital was raised from ICICI Venture, one of India’s leading alternative asset management companies, and an existing investor, Gaja Capital Partners.
TeamLease, focused on the organised temporary staffing market since 2003, had entered vocational education by acquiring the Indian Institute of Job Training (IIJT) in 2010. This capital will help complete the acquisition of IIJT. The staffing major has till now spent Rs 50 crore on IIJT. Meanwhile, a part of the money raised will go into acquiring another training company that is into the domains that TeamLease is not present in now.
“We are now looking at organic and inorganic growth. We are looking for a company which will complement us and help us expand into locations where we are not present in the training domain,” said Ashok Reddy, Managing Director of TeamLease Services. TeamLease is in now advanced stages of acquiring a firm.
Meanwhile, the plan for TeamLease University project in Gujarat could reach its logical conclusion once the Assembly passes a bill on the same. The university could see an investment of Rs 20-30 crore over the next two years.
IIJT operates over 150 centres to deliver classroom and satellite training across five domains: finance and accounting, IT Infrastructure, sales and marketing, retail and English/soft skills. The company has also begun work on the TeamLease University that will offer associate degree programmes in the same domains and will start operations later this year after regulatory and legislative approvals. The company is also actively engaged with various state governments through various Public-Private Partnerships. It runs the only PPP Employment Exchange.