Ex-Maruti Man Jagdish Khattar Aims High with Carnation
Image: Amit Verma
s the managing director of Maruti Udyog, Jagdish Khattar had proved his detractors wrong, and how.
An Indian Administrative Services officer, he had joined Maruti in 1993, and had become its managing director in 1999. Between 2000 and 2008, the company’s revenues more than doubled—Rs 9,000 crore to about Rs 22,000 crore—while profits rose more than five times, from Rs 330 crore to Rs 1,730 crore. Industry experts predicted that Maruti would have a tough time against global majors like General Motors, Ford, Fiat and Honda. But Khattar proved them wrong.
It is yet to be seen if Khattar can prove his detractors wrong, once again, with his four-and-a-half-year-old venture Carnation.
On January 3, 2008, 66-year-old Khattar turned entrepreneur, and started Carnation Auto. Although the initial idea was that of a multi-brand car showroom, over the past four years, Carnation’s business proposition has undergone multiple changes. And Khattar remains far from success: With a turnover of just over Rs 130 crore, the company is yet to make any profit. In fact, with a turnover of about Rs 81 crore in FY2011, it recorded a loss of Rs 52 crore.
A critical cog in Khattar’s efforts to make Carnation a success is the speed at which he can decide on a clear business proposition for it. From being a multi-brand dealership for new cars, it got into the business of multi-brand car service. Now, Carnation has ventured into selling used cars, and wants to sell accessories and insurance as well.
But what exactly does Khattar want Carnation to be?
From his recent moves, it can be said that he wants Carnation to deal in and service cars that are no longer covered by the manufacturer’s warranty. He wants a share of every rupee a car owner spends when his car is no longer new.
While success is still not guaranteed, this business plan gives Carnation a better shot at it.
Under One Roof
At present, someone looking to buy a used car goes to Mahindra First Choice or Maruti True Value, or a local player like Popular Cars or Sah & Sanghi in Mumbai and TS Mahalingam in Chennai. For servicing the car, owners look to neighbourhood garages, whose rates are lower than the authorised outlets of manufacturers. And when he wants to sell his car, he either goes back to a used car dealer, or sells it on his own.
All these are usually unrelated transactions.
Khattar is aiming to aggregate all these needs of a car owner under one brand. But what is the size of the market that he is looking at?
Say, for instance, if a million new cars were sold in India in 2010, by 2012 none of them would be covered by the manufacturers’ warranty. Of these, 65 percent (6.5 lakh cars) would not return to the manufacturer’s authorised service centres, and enter the unorganised market for services and repairs. Khattar wants at least 10 percent of this market.
PE investors Premji Invest and IFC Ventures had invested Rs 104 crore in Carnation in 2008, and Gaja Capital Partners invested Rs 84 crore in 2012.
Khattar’s current business model increases the chances of cross-selling services, and reduces competition with car manufacturers. Globally, car companies are not comfortable with the idea of a multi-brand showroom.
In a move favouring consumers, the European Union passed a legislation called the ‘block exemption’ rule, allowing multi-brand car sales and services within the EU in 2003.
But manufacturers remain averse to the idea for two reasons: Complexities arising out of allowing various brands—including rivals—to be sold in the same showroom; and the fact that they do not make huge margins on sales.
A far greater source of profit is after-sales services. A 2003 McKinsey report found that net profits from spare parts sales, service contracts, financing and insurance subsidise new car sales; after-sales business accounts for almost 60 percent of gross profits.
Inch Deep, Mile Wide
Now that Khattar has moved away from his original idea of a multi-brand dealership for new cars—and is therefore not in direct competition with manufacturers—car companies might be a little more accommodating.
A walk around Carnation’s workshop in Kurla, Mumbai, puts this into perspective: An Audi A4 is being painted in the paint booth; a Mahindra Xylo is undergoing serious repairs after having met with an accident; a Fiat Premier Padmini (more than 20 years old) is undergoing complete restoration; three Honda vehicles are in queue, along with a Mitusbishi Cedia (whose parts are not stocked even by authorised dealers) and about 15 other vehicles from different manufacturers.