How Syed Safawi Scripted Viom Networks' Turnaround

Image: Amit Verma

To cut costs, Syed Safawi replaced diesel gensets with renewable energy options at a third of Viom’s tower sites

An extreme risk-taker, a chronic optimist or a smart strategist? The jury was out on Syed Safawi when he joined Viom Networks, the country’s fourth-largest telecom tower company, as its CEO.

Consider the timing. It was May 2012, just three months after the Supreme Court, taking cognisance of the Comptroller and Auditor General of India’s concerns over the allotment process, cancelled 122 telecom licences issued by former minister A Raja. Among the 16 companies affected was Tata Teleservices, one of the several Viom clients entangled in this imbroglio; it also was—and continues to be—Viom’s majority shareholder.

“In one shot, almost 30 percent of our topline was shaved off,” says Safawi. The loss of revenue was a heavy blow to Viom which was already struggling with a debt of Rs 8,300 crore; it had been borrowing heavily to meet its annual interest cost of Rs 900 crore. Further, the company had ended financial year 2012 with a loss of Rs 350 crore. Amidst these financial troubles, it was dealing with a smear on its reputation, too. In 2011, Viom’s former company secretary Arun Bansal had alleged that the Kanorias, who were stakeholders, had diverted Rs 300 crore from the firm to “private institutions”.

Viom was formed after the merger of the tower businesses of Tata Teleservices and Quippo Telecom. The Tata firm holds a 54 percent stake; Quippo’s holding company Srei Infrastructure, owned by the Kolkata-based Kanoria family, has 18.5 percent and management rights; the rest is divided among a group of investors—IDFC Private Equity, SBI Macquarie, Oman Investment Fund and GIC of Singapore.

It is self-evident why many of Safawi’s well-wishers advised him against the move. But, as it turns out, he knew exactly what he was getting into.

Cut to late April 2014, when Forbes India met Safawi at his office in Gurgaon. There were no worry lines furrowing his forehead; instead, the smiling CEO was eagerly awaiting a company offsite in Kerala where 60 of his senior-most colleagues would join him to map Viom’s future strategy. A humdrum exercise in most organisations, such an initiative was not even a distant dream when Safawi had taken over at Viom.

“At that point, you could be a pessimist and say that this is the end. Or, the other way to look at it was to say that this is as bad as it can get. Every industry and economy has a cycle and things turn around,” says Safawi, who was executive director at Bharti Airtel and headed the wireless business for Reliance Communications after a long stint with beverage giant Coca-Cola India.

He chose to believe. And the turnaround came soon. Viom Networks announced its maiden profit—of Rs 80 crore—in FY2013. Detractors called it a flash in the pan. It wasn’t. While the topline has remained sluggish at Rs 5,000 crore, Viom’s net profit crossed the Rs 100 crore-mark in FY2014. Its debt, too, has reduced by Rs 1,500 crore.

Shareholders are relieved. One of them, SBI Macquarie, had invested Rs 1,400-crore for an 11 percent stake in 2010. “The sector was in its initial stage. Viom had gained scale and was in a good position to capitalise on the industry’s growth in the future,” says Suresh Goyal, CEO of the infrastructure-focussed private equity fund.

The events of 2012 could have proved him wrong, but Viom has weathered the storm well. “The company has become leaner and [more] efficient in processes and systems and in its response to the market… the team around Safawi has done well,” says Goyal.

His colleague on Viom’s board, Sunil Kanoria, also the vice chairman of Srei Infrastructure, is even thankful for the “blow” felt by the telecom sector. “It was actually a boon in disguise as it forced the sector to rectify its mistakes,” he says. Umang Das, chief mentor at Viom (performing an advisory role), adds, “Cancellation of 122 licenses in 2012 changed the paradigm for all tower companies, as also for Viom Networks. We had to reinvent ourselves.”

Image: Amit Verma

Men at arms:(From left) Sudhir Prasad, Sunil Maxwell Massey, Shirish Maniar, Syed Safawi

Kanoria, who had taken over as Viom’s managing director in December 2011 when the then CEO Arun Kapur resigned, had run the show till Safawi came in. And he knows a thing or two about what went wrong.

For most of the last decade, the Indian telecom industry, currently the second-largest in the world (after China) with 900 million subscribers, demanded aggressive expansion from its service providers. To boot, stiff competition was driving telecom operators to new markets, and tower companies had to keep pace by creating the infrastructure. “Many added towers without having enough tenants,” says Kanoria. They started piling up debt which, in turn, became perceived as a norm. As Viom’s CFO Shirish Maniar puts it, “Profit was a dirty word in the sector.”

Viom had a similar growth trajectory. In 2011 alone, it added 15,000 towers. It is the fourth-largest tower company in the country behind Indus Tower (promoted jointly by Bharti Airtel, Vodafone and Idea Cellular), the state-owned Bharat Sanchar Nigam and Reliance Infratel.

Each tower site had its own requirements: An air-conditioner as well as a diesel generation set (to be used when power from state grids went off). If a genset broke down, Viom executives couldn’t afford to wait to repair it (as shutting down a tower for more than seven minutes in a month would set off the penalty clause with its clients) so they would immediately buy new ones. By 2012, 7,000 diesel gensets were lying idle with Viom.

This approach was not viable. The board of Viom Networks, which includes Tata Sons’ Finance Director Ishaat Hussain, wanted a pair of fresh eyes to overhaul the business. “Viom needed a CEO with great leadership skills to not only drive strategy and provide direction to the business but to also help focus the team on delivery and execution. The CEO needed to be the healer and the hunter in a tough environment,” says Das.
Enter Safawi.

In the corridors of Viom, the CEO is considered a tough taskmaster. But Safawi is also affable and converses freely. This combination—of firmness at work and open-mindedness towards ideas—has helped Safawi turn around or, as he puts it, “transform” Viom.

His initial focus was to conserve cash. “We stopped borrowing; each expense had to be cleared by the CEO and, wherever possible, expenses were cut,” says Maniar. Then, to improve efficiency, Safawi brought in Sudhir Prasad, who was the CEO of another tower company, Tower Vision India, as chief operating officer (COO). First up, the duo changed the way Viom bought its towers.

Each tower company tries to maximise tenants (telecom companies) per tower—the capacity is usually four customers. A tower typically starts making profits after it takes on its second or third tenant. Aware that “more than half” of the towers had only one tenant, “we wanted our towers to make profits from its first tenant itself,” says Prasad. For this, the set-up cost had to reduce. Working with their vendors, they created an ultra-light tower, which consumed less steel, concrete and electrical materials. It also needed power back-ups of lower capacity. A “traditional” tower costs up to Rs 20 lakh; these amounted to almost 50 percent less. “These towers can be upgraded when the second or third tenant comes in,” adds Prasad.
 
Safawi wanted to fix Viom’s highest expense basket—energy, which costs the company and its customers Rs 2,000 crore a year. While Viom is responsible for creating the infrastructure around a tower (including the base station that enables mobile telephony), its tenants foot the diesel bills. Maintenance expenses are borne by Viom. These include costs of executives dedicated to the genset as well as that of security guards. Viom has replaced diesel gensets with renewable energy options such as solar in one-third of its sites. “We plan to expand this to half of our sites by this year-end,” says Prasad.

The company has also incentivised fuel contracts with its tenants to save costs. Earlier, Viom would just “pass through” the fuel costs to customers so there was no incentive to save. This led to diesel theft. To rectify this, it has established a fixed cost contract with its tenants, irrespective of the actual fuel costs.

Prasad’s operations team has also created the concept of a master vendor who will take care of a site’s security and maintenance. The energy SBU (created after Safawi came in) is working on two software platforms that will help monitor fuel usage and help in real-time response during emergencies.

These initiatives are not exclusive to Viom, but this obsession to save costs has proved fruitful—it cut down costs by Rs 100 crore in FY2014.

Organisationally, Safawi has ensured that employees are aware of the changes in the company. From cost-cutting to reduction in the workforce from 2,300 to 1,400, every important decision has been made by Safawi with lines open to the rank and file. “There is regular communication through various platforms, including town halls at least once a quarter,” says Sunil Massey, head of human resources and business excellence.

When Safawi joined the company, he told his people to tighten their belts and asked them to come to the office at least two Saturdays a month. After things improved over the last two years, he announced increments and bonuses.

Complacency, however, is not a luxury that Viom can afford. A burgeoning market looms large and that will mean even more challenges.

With telecom operators becoming healthier, big investments are likely to flow into the sector. This will entail further infrastructure creation. “Spectrum in India is fragmented and expensive. Recent spectrum allocations have been in higher frequency bands which require more sites for coverage. We believe this will compel operators to continue to invest in network sites to drive voice and data growth,” says Kunal Vora of BNP Paribas in his 2013 report.

While Viom has the highest tenancy at 2.2 per tower (industry leader Indus has 1.9 and Reliance 1.84), it may not be best-placed to take advantage of the emerging opportunities. Its biggest client Tata Teleservices, which accounts for 40 percent of its tenancy, is not in the pink of health with a net loss of Rs 658 crore in FY2013. And industry giants—Airtel, Vodafone and Idea Cellular—have their own tower units.

Encouragingly, though, Viom has signed up with Reliance Jio for the latter’s 4G rollout in the country. Prasad, who was instrumental in clinching the deal, claims it is worth “Rs 4,000-5,000 crore for Viom over the years”.

But Safawi knows it is not enough. Data usage among mobile users will increase business for Viom but, he is also focussed on emerging businesses. “We are developing our capability in providing integrated telecom services solutions,” he says.

Late last year, the company bagged a deal to provide wi-fi and “internet-related services” to Chennai International Airport.
 
The success of these initiatives will decide the effectiveness of Safawi’s next steps. “After putting a pause on investments in the last two years, we are gearing up to spend on adding towers. This will entail an investment of at least Rs 900 crore in the next two years,” he says. He is looking to raise “growth capital” of Rs 1,500 crore. The Viom board has appointed Credit Suisse, Citi and STJ Advisors to evaluate the best options, which might include an international listing.

Most of the shareholders, including Srei’s Kanorias and Tata Teleservices, plan to cash-in part or whole of their equity. SBI Macquarie’s Goyal says the fund will take a decision once Viom decides on the route.

Kanoria accepts that if he gets the “right valuation”, he is willing to even completely exit the company. But, he says, “As a group we are in the infrastructure sector and would like to retain a stake.”

As for Safawi, he is looking for that last hurrah—and a little longevity. “I have changed 13 houses in my career and have found my anchor in Viom and Gurgaon (where he lives).”