Vol. 3 :: No. 3 February, 2001 (Magh-Falgun)

Corporate

Expanding Golchha

In the news very often, the Golchha Organisation may claim to be the most widely talked about business house in Nepal. Despite having the most diversified portfolio of business ventures, this oldest business house involved in industrial sector has not stopped its expansion spree.

  Second, the upcoming family members need to be given jobs. Diwakar Golchha, a nephew of Hulas Chand and also one of the three Vice-Chairmen of the Organisation, puts forward a third reason for the compulsion to diversify. "It is for balance," he says, adding, "This keeps you in balance even when the market situation in one or two of the businesses becomes adverse".

One may find no reason to disagree with him. Golchha Organisation recently survived the adverse market condition in the sugar and paper industry in which it is heavily involved. The business that kept the group floating was steel. Its unit Hulas Steel is one of the largest industrial units of the country in terms of turnover. Lok Manya Golchha, a Vice-Chairman of the organisation, and elder brother of Diwakar, points out that the Organisation is the leader in all of the major sectors of its involvement, be it in sugar, steel, jute or paper. Though he declines to divulge the actual figures for the units separately, he says that his is an Organisation with an annual turnover of 10 billion rupees.

Already diversified into myriad fields - sugar to banking, biscuits to GCI sheets and paper - the Organisation also has the distinction of being the only automobile producer of the country (Hulas Sherpa brand of utility vehicles). Recently it also went into electrical vehicles by promoting EVCO, a company that is fabricating electricity powered SAFA tempos. And Diwakar Golchha indicates that perhaps the Organisation will go to next to hydropower generation. "At present, we are studying a number of proposals in this sector", he says. Echoing the views of his elder cousin, Shekhar Golchha declares that his organisation is rapidly continuing to diversify and expand. "I would say that at present every unit of our Organisation is either going for expansion or for diversification".

To take the example of units headed by Shekhar himself, he informs that the colour TV unit is being totally automated and diversified into manufacturing of other home-appliances. In terms of growth rates, he claims that all the units he is heading have been achieving "aggressive growth rates, much more than market growth rates." He claims of an at least 50% growth rate in CTVs, and says he is looking for at least 30% growth in motorcycle sales.

However, the Organisation is reluctant to go into hotel, airline, tobacco and liquor, says Hulas Chand. The reason is the religious philosophy of the family. Being followers of Jainism, the members of Golchha family do not want to go into these sectors because these businesses are associated with trading in meat and alcohol.

Having said that, the Golchhas are producing industrial alcohol and are now trying to produce dehydrated alcohol called ethanol which can be mixed with petroleum to run vehicles. This will reduce the country’s expenditure on import of petroleum fuel, and the high octane content in ethanol helps it is argued. Though not a new technology, ethanol was not considered to be feasible for production in Nepal so far. Molasses, the raw material from which ethanol is extracted, was not being produced in big volume here till a few years back. Moreover, ethanol is used in unleaded petrol, but Nepal was using leaded petrol. Both of these conditions have now changed.

While more than half a dozen modern sugar mills and almost equal number of Khandsari sugar mills (of open pan sulphatation process) are operating in Nepal producing molasses as the by-product, two of them (Shree Ram Sugar Mills and Eastern Sugar Mills) are associated with Golchha Organisation. Though the former was being managed by another promoter (Sharda Group), its management is now taken over by the Shree Ram Sugar Mills. With that strength the Mills can assure of a continuous supply of ethanol. Moreover, ethanol can also be produced from grain starch, paper waste and food processing wastes. Golchha has its strength in all these respects.

What the Organisation is now waiting for is a go ahead signal from the Nepal Oil Corporation (NOC), the state enterprise that has monopoly on supply of petroleum fuel in the country. As per the proposal, NOC has to make additional investment of a few million rupees to set up the facility to mix ethanol with petrol. Though still under consideration of a government committee, the proposal is expected to be cleared soon, according to Golchha Organisation directors. On its part, Golchha Organisation also needs to make an additional investment of approximately RS. 60 million through Shree Ram Sugar Mills.

Chamber-like Management

Though appearing to be operating in the style of a holding company, Golchha Organisation is not a holding company, says Hulas Chand. "It is more like a Chamber of Commerce, with the units under it as its members. It has no fund of its own, and exercises only a moral control over the member units". The shareholder in the units is another unit of the Organisation, generally Hansaraj Hulaschand & Co. (P) Ltd. (HHCPL), and not the family members. HHCPL is regarded as the flagship company of the Organisation. However, in some cases, the shares may also be in the names of other companies of the Organisation.

Thus the Organisation looks like a family council working as an advisory body for the units under the Organisation. However it includes one outsider, Gyan Chand Dugar, among the three Vice-Chairmen. But Dugar is not considered to be an outsider by the family as he is Hulas Chand’s nephew (son of one of his sisters). Like any other business family of Nepal, Golchha Organisation is still without a succession plan.

Still the family has so far remained united in business, though the family members are living separate. This is against the background that some business houses in the country that started almost together with, or even later, than the Golchhas have separated not only in their private family life but also in business. With three generations active together at present in the business, Golchha Organisation is now in a challenging phase. With eleven directors in the Organisation including Hulas Chand (aged 65 years) and Hemant Golchha (aged 31 years), the business ideas of the younger and older generations are most likely to be in conflict. But the younger directors of the Organisation are cautious not to express their complaint. They only say that the business vision of the Organisation is a ‘directed’ one, meaning it is a compromise of the eleven directors, both old and young.

While the junior Golchhas like to call their Organisation to be still at the entrepreneurial stage, median-aged Diwakar Golchha thinks it is now in the professionally managed stage (refer to Business Age Vol. 3 No. 1 for what the stages represent). Trying to be more specific, Lok Manya says, the manufacturing units under his Organisation are already in the professionally managed stage, while efforts are being made to take the trading units also to the same stage.

To support his view, Diwakar goes back 25 years when he first started working for the Organisation and says, it was a family run business then. "Now the units under the Organisation have professional management with clear objectives and vision for each unit". Hemant Golchha, Diwakar’s nephew, agrees with his uncle’s opinion in that some units are at professionally managed stage as they have their own management systems in place. But he also thinks that as the Organisation is still looking for new opportunities and new areas for developing the business, and so is still at an entrepreneurial stage. "In fact we are at both of the stages", concludes Hemant, who is presently in the Board of Directors of Eastern Sugar Mills and Shree Ram Sugar Mills.

In terms of the vision also there are differences between the generations. While Diwakar thinks that the Organisation stands for development of agriculture, Hemant thinks it stands for quality product. Perhaps Hemant is hinting at the punch line "Hulas Bhaye Aru Kina Khojne?" (Why go for anything else if Hulas is available?) that the Organisation uses in promoting various products bearing ‘Hulas’ brand (e.g. foodgrains, biscuits, kitchen appliances, metal utensils, CGI sheets etc.). One of the corporate brochures of the Organisation seems to be emphasising on the innovation aspect.

The difference also is visible in the areas of expansion that they think the Organisation should go into. While Hemant promptly names IT, Diwakar mentions hydropower. The Organisation has in fact already started an Internet portal and Internet marketing company though they are still not fully operational.

However, despite the possible differences, there have been no problems so far in the Organisation, points out Lok Manya. And the reason for this, according to him, is that the Organisation has been changing itself to adapt to the needs of the time ever since it was first established by Late Ram Lal Golchha.

In this respect, the Golchhas can be found following a unique system compared to what seems to be the norm across the business houses of Nepal. Nowhere in other business houses can you find a family member of the owner working as a subordinate of an outsider, irrespective of the professional competence of the outsider or the family-member. But it is not so in Golchha units. Hulas Chand’s or Lok Manya’s sons, grandsons or nephews are working as subordinates to professionals who are not the members of the Golchha family.

Golchha and Debt

When the newspapers were smearing Golchha Organisation black during April last year as the largest defaulter of the country’s banking system after partial information from KPMG report on Nepal Bank Ltd. and Rastriya Banijya Bank were leaked to the press, the Organisation had maintained an uneasy silence. Now asked about the reactions, Diwakar Golchha says, "Being the largest business house or group, we may naturally be the largest borrowers. But we are wrongly labelled as the largest defaulters. Nowhere are we stated to be the largest defaulter by the KPMG in its report which the people claim that they are quoting". He also goes on to say that no one conglomerate in the world can claim all its operations doing well simultaneously and paying all their bank dues. "Ups and downs in the business are normal and there may be cash flow problems for some businesses for some time. So, I don’t take these comments seriously", he adds. Now all the companies under Golchha Organisation are doing well or are on a path of steady recovery. "We will never let our units go into liquidation", pledges Hulas Chand and gives examples of how the Organisation has been trying to revive Bhrikuti Paper, Shree Raghupati Jute Mills and, more recently, Eastern Sugar Mills. In case of Eastern Sugar Mills, the managing responsibility was taken previously by Sharda Group. Later Sharda Group shares were taken by Shree Ram Sugar Mills.

"Till date, we are the most important customer of the banking system of the country, including Nepal Bank Ltd. And the bank also knows that in its portfolio, our accounts are among the best", claims Diwakar, one of the grandsons of Late Ram Lal Golchha, the founder of the Organisation and who first taught Nepal Bank Ltd. the L/C business in early 1930s.

Interestingly, Hulas Chand recalls that his business house initially had a philosophy of not taking any loan. But later they changed it because it was not possible to expand business without bank credit.

To emphasize the point that the Organisation is not going to let down the shareholders, creditors and other stakeholders, Shekhar Golchha, one of the young directors of the Organisation, says that his business house stands for integrity and socially responsible activities. To illustrate the point, his grandfather Hulas Chand has a memory to relate. The family was in a problem while in India, before coming to Nepal, and the creditors had waived their loans. But later when late Ram Lal Golchha managed to earn some money in Nepal, he went back to the creditors and returned their dues one by one on the advice of his wife Dhapi Devi. And Hulas Chand still recites his mother’s dictum as a Mantra: "Though your creditors might have waived your debt, still if you are later able to repay it, you should regard the old debt as due and repay it."

Heritage

Longer the age, richer the memories. That is true in case of Golchha Organisation as well. Starting with jute trade, the house went for industrial operation soon and helped first to set up Biratnagar Jute Mills and then Shree Raghupati Jute Mills. When the management of Shree Raghupati Jute Mills came into the hands of the Golchhas, that helped the family to gain experience in the management of an industry. Then in an early 1960s Hulas Chand had a chance to go on a world tour under USAID assistance with some other representatives of the Nepali business community. The learnings of the tour resulted in the setting up of the country’s first unit to produce stainless steel utensils. The products were exported to India as well where the brand ‘Hulas’ became very popular.

The business ideas of the Organisation have also changed in stages as the business advanced with time. The example is the idea of taking bank loan. As larger units were felt necessary to be set up, they had to be flexible. So the first automatic rice mill of the country was set up with a bank loan. "Then the next turning point came in the 1980s when we went for foreign collaboration to set up Hulas Steel Industries", recalls Hulas Chand. Though the management of Shree Raghupati Jute Mills was later taken over by the government, Golchha Organisation re-acquired it when the ailing and dilapidated unit was offered for privatisation by the government in 1997. The mill is now owned 65% by Arihant Multifibres in which the Golchhas have 40% stake.

Explaining why they went for jute when they already knew that the jute sector itself was on a declining trend, Diwakar becomes nostalgic and says, "I began my career with jute and it was my grandfather’s dream to get back the mill. So when the opportunity came, we took it". And the developments so far indicate that the Golchhas really deserve the nickname of ‘jutewalla’. Though the production of raw jute in Nepal had been declining, the Golchhas started the mill with imported jute and simultaneously encouraged the Nepali farmers to restart jute cultivation. And the progress report of the Mills says, it has started producing 30 tons per day whereas it was only 15 tons per day before the Golchhas took the mill. Similar is the story with Bhrikuti Pulp and Paper another unit that the Golchhas acquired from the government in the first phase of privatization during early 1990s. To make the factory economical they went on expanding the capacity from 10 ton per day to 88 ton per day. Unfortunately the paper price crashed in the international market. But the Golchhas claim that the situation now has changed as the market has been reviving.

By Business Age Reporter

Thus Came Golchhas to Nepal

Like any other Marwari family, the Golchhas also trace back their genealogical roots to Rajasthan in India. But the last port of call of the Golchhas, whose business in Nepal is now represented by Golchha Organization, was Farbisganj (Bihar) of India.

Late Ram Lal Golchha, the founder of present Golchha Organisation, had come to Farbisganj from Sundarganj (now in Bangladesh). Ram Lal was 16 years old when his father passed away and he found his family heavily indebted, but the creditors were kind to him and waived off the loans. Then Ram Lal worked as employee in a Calcutta firm, but he left the job and went back to Rajasthan. From there he had to move out soon to save his family from the plague epidemic that was raging the area.

In Farbisganj his relatives helped him to set up his business which was in the same field, jute trading, that Ram Lal had learned, while in Bengal, from his father and also from the firm where he worked as an employee. After six years of normal business, Ram Lal suffered heavy losses in early 1920's. So he moved to Dewanganj (in present Sunsari district of Nepal) where he could continue the business with the small capital that was left with him.

From Dewanganj he was driven away soon, not for business reasons but because he drank water from the hands of a person of untouchable caste. Then he moved to Biratnagar of today and started business with Indian Rs. 5000, which was, according to his son Hulas Chand Golchha, equivalent to Rs. 1.2 million of today.

There his business flourished, and he helped in the establishment of Biratnagar Jute Mills. But again misfortunes struck him. His first son died of snakebite, and he himself fell ill for a long time causing his debt to increase. So he asked one friend in Katihar (India) to help by finding him an employment. But the friend lent him money. Though the amount was not much (Hulas Chand says Rs. 10,000), the friend also gave some business tips about how to manage to show that as a big amount. The trick along with the conditions brought about by World War II helped him to make good profits from jute. Biratnagar Jute Mills and all other businesses of Nepal benefited likewise.

Ram Lal then went back with money to Bengal and paid off the old debt that the creditors had waived off long ago.

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