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How to Make a Bundle in India

The South Asia Business Association and the Entrepreneurship Club invited Sunil Bharti Mittal, Founder, Chairman and Group Managing Director of Bharti Enterprises, India’s leading private sector telecom company, to give a talk at HBS on January 26th. Using his own story as an example, Mr. Mittal gave valuable insights into the nature of entrepreneurship and the increasingly positive outlook for entrepreneurs in India.

Mr. Mittal graduated from college in the Indian state of Punjab, in 1976, at the tender age of 18. But, like many of us, he couldn’t figure out what to do. As he explained, “I became an entrepreneur by choice, but also because I did not have the chance to get a job that I liked after graduating.” After some false starts, he started a company which became India’s largest importer of electricity generators.

However, one fine day, in 1982, the government came out with a ruling in favor of domestic manufacturers which barred the import of generators. Overnight, Mr. Mittal’s business disappeared.

In the process of deciding what to do next, Mr. Mittal happened to travel to Taiwan and chanced upon a Taiwanese manufacturer of push-button telephones. He entered into a joint venture with this company and started assembling and later also manufacturing push-button telephones, answering machines and faxes in India.

His telephone business was still going smoothly, when in 1993 Sunil Mittal competed for and won a license to provide mobile phone services in the city of Delhi. No one had thought that he stood a chance, because the cost of the license was over $100 million, and the entire turnover of his company at that time was only around $10 million! But he did win the license and Bharti Enterprises was thus born.

Fast forward from 1993 to today: Bharti has emerged both as India’s largest mobile phone operator, with over six million subscribers, and as India’s largest private sector telecom operator with services in fixed line, mobile, long-distance, data and Internet services. In between, Mr. Mittal managed to raise over $1.3 billion in funding from a variety of sources, including $292 million in private equity from Warburg Pincus, which represents the group’s largest investment outside the U.S. A successful IPO followed and allowed his investors to all exit profitably. Mr. Mittal urged even Warburg Pincus to exit but the group has decided not to, as they foresee a bright future for their investment.

From a company with revenues of $10 million in 1994, Bharti is now approaching USD $1.2 billion in revenue and $5 billion in market capitalization, which makes Bharti India’s ninth largest company in terms of market capitalization and makes Sunil Mittal a billionaire with about 36% of the company’s equity. For a first-generation entrepreneur, who graduated from Punjab University, who dove into business at age 18, and who failed at a number of businesses over 15 years, this was a long way to have come.

And it doesn’t end here – Bharti is doubling customers and tripling the number of minutes carried on its network every year, as India’s mobile market grows subscribers at the rate of about 2.5 million a month. The market, meanwhile, is expected to grow from 30 million subscribers today to over 100 million by the end of 2007.

This spectacular growth is partly driven by the inexpensive pricing structure for mobile services in India. The line rental charge is only $3 per month and call charges range from two to three cents per minute. Despite high churn rates, the four biggest mobile phone service providers still manage to generate a profit from such pricing.

Mr. Mittal contrasted this to AT&T in the US: “AT&T has 21 million subscribers and average revenues per user that we dream of, and they still manage to lose money!” According to him, there are several inefficiencies in AT&T’s operations which account for this, including handset subsidies, higher sales commissions and larger marketing costs.

These inefficiencies are characteristic of other American telecom firms as well and Mr. Mittal talked about either Bharti or China Mobile entering the US market with a radically different, lower cost business model, which could potentially change the face of the telecom industry here.

Mr. Mittal then elaborated on the positive outlook for entrepreneurs in India, pointing out that the Indian economy was poised for growth whereas many developed nations were hitting the plateau on the growth curve. He cited the case of Germany, where 65-70% of the wealth is in the hands of people over 65 years old and so growth businesses are limited to healthcare, insurance and some travel. As another example, he mentioned Japan, whose population is expected to shrink by a quarter over the next 100 years. In stark contrast to this, he said, India is booming. There are over 60 million vehicles in India (the most reliable data on consumption), and using this as a proxy, the consuming middle class is anywhere from 250-300 million people. And the GDP is growing at a healthy 8%. Coupled with increasing liberalization and economic reforms, these factors have resulted in a plethora of opportunities in the Indian economy.

The one area of concern, he said, is physical infrastructure, such as roads, ports and airports, which needs to grow at a fast enough pace to sustain a growing economy spread over a vast geographical area. But even this, he continued, is being tackled rapidly both by the government and private enterprise. Mr. Mittal went so far as to say that India would be involved in the careers of almost every HBS grad in the future, whether as a market or as a place to invest.

Mr. Mittal then went on to give advice to budding entrepreneurs who want to set up a business involving India. He recommended that they pick an “asset-light, people-heavy” business that takes advantage of India’s skilled workforce, whether in Business Process Outsourcing, IT-enabled services or biotechnology. This piece of advice was expected.

However, he also made a more unexpected suggestion: that entrepreneurs explore agriculture to identify business opportunities. India is a massive producer of a number of agricultural products, but there is very little value addition that goes into this process. Inspired by the example of the Netherlands, Mr. Mittal thinks that there are large opportunities in food processing, cold storage, warehousing and any other similar activity that goes beyond simply growing produce.

A dynamic entrepreneur passionate about the idea of India, Mr. Mittal was inspirational to listen to and provided much food for thought for all entrepreneurs, no matter which industry or region interested them.

February 2, 2004
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