"We just don't know it yet, but we are capable of great things and I see great potential for our country"; Interview with Moti Lal Dugar

”The constraints we talk about are only in our heads. Being a developing country, we’re psychologically structured to think small but if we look at the number we are capable of generating more than 2000 MW of electricity by Nepali private sector only through the funding of Commercial banks.”

Born and raised in Biratnagar, Moti Lal Dugar, at the age of 72 still carries the vigor of a 30 year old. Every day coming to office, he wants to explore each opportunities that comes his way. Belonging to an era when having a third pair of school shorts was a luxury, M. Dugar has come a long way gathering experiences, opportunities and tons of lessons. When asked how hard it was to come all this way, he says “It was fun, lot of fun. We never took our work as something we HAD to do, rather it was something we WANTED to do.

“I’m a conventional man, my entire life I’ve been guided by the philosophy that one should not stretch beyond the length of his bed. Over ambitiousness can hurt not only the person himself/herself but others around him/her too.”

Moving on from the heritage business of Dugar group which was concentrated on Agricultural based business, MV Dugar Group has put its hands on variety of business. Their portfolio currently comprises:

Companies represented by Dugar Group

1. John Deere
2. Royal Enfield
3. Mahindra commercial vehicles
4. Leica Geosystems
5. JCB Tools
6. Mine Master
7. HYVA India
8. Piaggio two wheelers
9. Kirloskar power tiller

Industrial and trading units

1. Dugar Brother & Sons Pvt. Ltd
2. Nasa Hydropower Pvt. Ltd
3. Number Himalaya Pvt. Ltd
4. Pan Himalaya Energy Pvt. Ltd
5. Global Hydro Power Associate Pvt. Ltd
6. Sumo construction and engineering Pvt. Ltd
7. Vivek Automobiles Pvt. Ltd
8. Dugar brothers and sons
9. Dugar Automobiles Pvt. Ltd
10. Dugar Auto Clinic Pvt. Ltd
11. Chandanbala International
12. Gurans Engineers Pvt. Ltd
13. Kohinoor Cold Storage Pvt. Ltd
14. Sunrise Properties Pvt. Ltd

Given such varied involvement of MV Dugar Group, Mr. Moti Lal Dugar, The Executive Chairman has gathered a lot of experiences in varied industries. In this back drop, Rachit Agrawal and Aakriti Thakali from Sharesansar visited Mr. Motilal Dugar to talk about the past, the present and his anticipation of the future. The excerpts of the interview are:

The history of Dugar group goes back to 134 years. Being the third generation of this group, was it an easy ride because of the strong foundation or was it an even harder path to tread because you had to keep up with the historical standards?

We started from 1884 AD, it’s a family group and private company. I joined the business when I was 18. The system back then was focused more on “seeing is believing” kind of thought. So we were studying and simultaneously working too.

On 2046/47 BS we separated our ways, however later I reunited with my elder brother Tola Ram Dugar. After his demise, my nephew is looking after TM Dugar group and I’m looking after MV Dugar Group. So it might seem hard but we did everything very casually.

To reach this height, you might’ve made a lot of sacrifices on the way. Did it in any way affect your personal life?

Not sacrifices actually, there were struggles, but I enjoyed them all the way. We did everything very casually. We didn’t go through extreme stress but we did do a lot of hard work. I never felt it as a burden, even now at this age don’t feel that way. We let everything fall into its place in time. I never worked 16 hours a day. Actually all of us, four brothers, have a habit of taking a nap after lunch and we still do that. My eldest brother, Tola Ram Dugar, too used to take nap after lunch till the day he passed away. So to sum up, this has been a rather smooth and disciplined journey.

In your opinion what brings maturity – age or experience?

No question, Experience.

Among all the ventures MV Dugar has undertaken, which do you feel the closest to your heart?

All the companies currently under MV Dugar are the ones I’ve personally pursued and because of this fact I feel all of them close to my heart. However if I had to choose one, that would be the automobile dealership. Currently we are the authorized distributor of Royal Enfield, Piaggio, John Deere, Mahindra, Kirloskar, Mine master, JCB Tools and Hyva India.  

I decided to quit all the past ventures like the Agricultural business and import business and continued this automobile business. It has been almost 47 years now in this sector and we look forward to the days to come. Then we entered in Banking through Sunrise Bank and then 6 months later we entered life insurance sector through Gurans life insurance. Both of these companies are publicly listed.

Then 10 years ago we made up our mind to enter Hydropower Industry.

Currently, the securities market is heavily dominated by BFIs. The regulators are now preparing procedures for real sector companies to enter the market too. Do you have any company under your venture that you’d like to take public?

We are currently concentrated on the businesses that we already have. We have no intention of entering into other fields like health sector or real estate because there is enough scope in the things that we’re already involved in. So from our portfolio, Sunrise Bank and Gurans life insurance is already listed.

In case of automobiles, the nature of the business is such that it’s not suitable for stock market. Finally in case of hydropower, we intend to enter the market when it is favorable for us. Currently if we were to go public, we’ll only get Rs. 100 per shares but in future if we’re allowed to issue IPO at a premium we’ll be more than happy to go public.

HYDRO-POWER

1. As you mentioned before, you’ve added hydropower into your portfolio now and that too is not a small one. What motivated you to initiate such large scale hydropower project on you own without any partnership? Do you think this sector is lucrative enough?

When I first decided to enter this market, I didn’t just dive head first. We, initially, got license conducted surveys and researches, but because of Maoist insurgency our progress was halted. However later after settlement we looked into it. Entering this industry was the most difficult and risky decision of my life. Everyone suggested me to start with small project and gain experience and then move to larger projects, but I couldn’t agree with them. From the very beginning, my belief is that to be a successful business person you don’t need to be master of everything, you just need to have a business brain and a vision. S/he should be able to know what business is relevant to Nepali market, what business will suit him/her and the family and what is his/her financial capacity. So I looked at it this way, if I start something it should be long-term and my future generation should be able to enjoy it. So my logic was, if I started too small project it won’t be able to survive that long because the smaller the project higher the per MegaWatt cost of production and more susceptible to the natural disasters. If I start a big project then it’ll be fundamentally very strong, both in finance and physical construction. It will be able to withstand the pressures from the growing competition in the market as well it will be able to withstand the natural disaster.

After deciding to go for a big project the second question was Who is going to finance such huge project? We were planning for Likhu 1, 2 and 3 back then. Collectively they will produce 156 MW and will require an investment of Rs 22 arba. That time the commercial banks’ paid up capital wasn’t even Rs. 2 arba and people were skeptical.

Even through all those constraints, by the grace of god, we came through. After that we again had to struggle a lot to sign the PPA (Power Purchase Agreement) because of the confusion regarding rates. The rates that time were for hydropower producing less than 25 MW but all our projects were of above 25. So we had to do a lot of back and forth and finally the rate was established for upto 100 MW. Then finally, we were able to sign the PPA with Nepal Electricity Authority (NEA).

The exciting thing about our project is that they are built to perform in optimum capacity, so they’ll be producing maximum electricity even during the rainy seasons. I believe in near future we will have Indo-Nepal electricity transactions and that time we can sell our excess electricity to India too.

In addition to that, it is also necessary to receive family support. My son, Vivek, was always in favor of entering financial market. Similarly in case of Hydropower, he encouraged me and said that I should do it. This gave me added confidence to pursue such ambitious project. That’s why I think family support plays a huge role too.

2. How much has the development completed?

We are executing 3 projects, for which we’ve allotted 2 years from now. The construction has started, most of the blasts are done so by rainy season we’ll be already inside tunnels. Similarly, the PPA has been signed already and all three projects are expected to be operational from June/July 2020.

So far we’ve completed 85 km of road construction to reach Likhu Hydropower projects in Ramechhap. The road had to be constructed through 20 km of pure forests, which normally would have taken 2 years but we’ve done it in 6 months. This is a very big milestone for us and because of this our confidence level has also gone up. Another milestone for us is, we’ll be constructing 220 KV double-circuit transmission line, which is about 42 km long. Normally people do 132 KV single circuit, but we’ve done 220 KV double-circuit for strong and robust transmission.

Besides this, we have almost completed 45 km 132 KV construction power line from Garjhyang which is being done for the first time in Nepal and will also be used for rural electrification in Likhu area.

3. What is the debt-equity ratio?

Our debt-equity ratio is 75:25.

AUTOMOBILES

1. Royal Enfield is one of the most sought-after bike among biking enthusiast, what is your market share?

We started Royal Enfield from 2002 AD and I had to struggle a lot. I had to do the market research and then create market. Previously in one year we used to only import 50 Royal Enfields, just one truck load. Now last year we sold 6000, so in that way the market has developed. Now my son, Vivek, is looking after the automobiles sector.

As far as market share is concerned, it can’t be easily determined. For example most of our Enfields are 350 cc or 500cc, so in that category they have the highest market share but if we take the entire bike industry of Nepal the percentage is very low. This comparison, however, isn’t the right way to go. You can’t compare Mercedes with Maruti. In this manner we are different.

2. What kind of marketing strategies are you using?

We have a very unique marketing strategy. Even our parent company doesn’t believe in mass advertising, but they believe in rides and events to create a relation with the customers. So every 3 to 4 days we organize rides and events, from here to Nagarkot or Mustang or to any other destination. The activities are going on, and we’ll be conducting around 180 rides and events in one year.

Similarly, we also have Royal Enfield club and Bullet club. This has helped us create a deep relation with the customers and in return our customers are also very loyal and enthusiastic about Royal Enfield. They feel pride to own a Royal Enfield.

Currently we have few dealers, but the parent company has suggested us to open our own showroom. This will help us maintain standard and also despite less return we’ll not diverse our focus.

3. What is the scope of automobile sector in Nepal given such high tax rate?

In my opinion, tax rate is not important, the buying power is more important when it comes to determining the scope of a product in the market. Tax rate for automobiles was always high and they’re increasing it every year. Theoretically yes higher tax rate might seem harmful to the business, but I say the future is good. I believe so because those who want to buy a vehicle, will buy whatever the tax if they have the ability to pay. If there were no tax or very nominal tax then because of the increased traffic there’ll be no where to ride those vehicles.

INSURANCE

1. Gurans Life Insurance has been in operation for about a decade now. However the dividend history to the shareholders isn’t that good, what is your take on it?

Life insurance business, as you know, is very different. It’s mainly dependent on insurance agents and the life of the business plays an important role. We are a relatively new company and 9 more companies have been added, so right now we are middle-aged. So for the older ones, the first-comers advantage is always there as they have the renewal premium, which is profitable.

Similarly, in Life insurance business the first business is not profitable. It incurs more cost than return, then next year if it is renewed, there’s profit but what happens if it’s not renewed. Then we have double loss. In addition to that, the bonus of middle-aged company like ours won’t be as high as the old ones. So it’s not easy for the Board or the staff to change things overnight, the business highly depends on the agent. It’s a long term business, so gradually in longer-run will benefit.

2. What are your plans to meet Rs 2 arba paid up capital requirement as mandated by the regulatory body?

We will do as per the instruction. Currently our paid up capital is around Rs. 60 crores, and the Securities Board has given approval to issue 50% right shares and after that the paid-up capital will reach Rs. 90 crores. I’m not in the Board now, so I don’t know of the plans that’ve been prepared. I’m the chairman of Sunrise Bank and according to the regulatory directives I can’t be in the Board of Gurans Life Insurance, Currently, My son, Vivek, is thechairman of Gurans Life Insurance.

3. How are you taking the competition from newly licensed 9 life insurance companies?

I think this case will be similar to the commercial banks. Initially a lot of banks were given license and then to decrease concentration the paid-up capital was increased. Then, the banks had to face a lot of pressure to meet the requirements. Similarly in this sector too, Beema Samiti gave license to 9 new Insurance companies at once and the market is too small. The competition is not fair, all will suffer in their own way.

BANKING

1. Being the chairman of Sunrise Bank, can you tell us how are you curtailing the current liquidity shortage going on in the market?

Everybody has been focusing on the fact that the liquidity shortage is bad and is affecting our market, but I see good in it too. This shortage is actually a warning sign for the banks and to the government too, that we should lend in a prudent way. Before there was enough money and liquidity was more than enough, so the lending was significantly high and abrupt. At that time people also took loans at 6% or lower, this interest rate was very subdued and compressed. So this is the true picture.

So now government and banks should be more selective and direct their lending towards productive sectors.

The policy of NRB to direct 10% of total lending towards agriculture has started to bear fruits. Previously, we were heavily dependent on India for import of vegetables and fruits which has drastically declined now. Currently, all financial institutions have around Rs 23 kharba loanable funds and till now in hydropower the actual investment is only 3% or 6.9 arba only. Even the Finance Minister himself admitted it on the recently released White Paper.

Now I’ve done the calculations myself, if the NRB can force them to increase their hydro power lending to 5% this year, 10% next year and 15% the year after that, our own banking institutions will be fully able to finance our hydro power projects. If this trend is implemented, the percentage is also not drastically increased and because of that the banks will have enough time to divert their funds to productive sectors. From these funds only we will be able to produce more than 2000 MW electricity. This calculation is based on current loanable funds figure, this figure will increase every year surely. So why are we making such hue and cry saying we don’t have enough money, Nepali banks aren’t capable of big financing, blah blah blah.

Specifically in hydropower sector, the earning starts only after the fourth year and then after settling the debt the earning to shareholders start flowing only from 10^th year or so. So many times the banks are reluctant to finance hydropower projects considering the longer term of repayment. But I feel against it. Because of the total funds in Nepal, more than 50% or around Rs. 11 kharba loanable funds comes from institutions like Citizen Investment Trust, Employee Provident Fund, Army and Police Fund and the like. And these institutions aren’t going to fly away or withdraw all their money at once. They might switch, but the fund will remain in the system. So, why are they afraid of bank-run? Run on the bank happens through individuals, institutions won’t run on bank usually. Individuals comprise only 50% and 50% is institutions and the lending in Hydro Power sector is only 3% right now. So where is the risk?

For four years or so they’ll have no money, but within another 7 years or so all the installments will be cleared and there will be a room return. Then those returns can be further utilized to make new investments.

2. How much loan has Sunrise Bank diverted to Hydropower sector?

I don’t have the exact figure but it’s definitely more than 3%. Our commitment is more than 6%. It’s the most productive sector for Nepal and also since the PPA rate is already fixed the earnings can be predicted easily.

3. Are you planning to take any foreign loans as NRB has paved the way for it?

Yes, we intend to do it, but the question is who will give. The 75 billion rupees that people expect to enter our country has low probability of becoming true. I think only a handful of banks will be able to get the loan from foreign financial institutions. In case of Sunrise, we don’t have anything definite to say, but we’ll know within 2 months how it turns out.

What are your thoughts regarding the market interest rates? Will it be the same or you expect it to come down?

I think it’ll go little higher, but the demand for loanable funds is going to go up as a lot of development activities are going on. From hotel industry to hydropower to tourism industry, everything is booming. It’s the same story as Bangladesh and Sri Lanka, when they were in this phase their interest rate went as high as 27%. So I think the rate is going to go up in our country too.

Back then when there were only 2 banks in our country, I had even paid 19% to 21% of interest rates and even then we were making money. So of course rates of interest is very important for any country, and higher interest rates are never good for the country. But once the demand is met, after few years the rates will come down to equilibrium.

My thinking is, if we can’t control the rates then we should try to manage the supply of the loanable funds. So now the government is going in the right direction by opening ways for foreign fund.

OVERALL ECONOMY

1. What is your view of the overall economy after the election?

I’m very optimistic for all the sectors hydropower, manufacturing, tourism and all sectors because everyone loves Nepal, the Himalayas and the people. After the election, I can say, the new government has done three great jobs. (1) Scrapping off 22 holidays (2) Breaking the syndicate (virtually as it’s still early to say that it’s completely gone) (3) Opening the way for foreign loans, the path is narrow but it is open.

2. What challenges, being a long-term investor, you think is for current capital market?

I think, if this trend continues then nothing good is going to come from the capital market. However if we’re able to introduce new policies and open up for foreign investors than that could change the picture. This is because, what our market needs now is not players, it needs more money. As of now, the entire market is extremely volatile, just a smidge of rumor creates a huge fluctuation in the index. Given this nature of market, I think serious measures are required and more money needs to be injected into the system.

What is your advice to the new generation to be successful in life?

Nepal is a very good place. If you can work with extraordinary zeal, enthusiasm, honesty and within the system, a bright future awaits you. If you ask me three mantras of success they are: (1) Don’t have unrealistic dreams, stretch within the capacity of your blanket (2) Don’t go with the market fad, find what suits you and your family. Find what falls under your comfort zone and your area of expertise. Be practical. (3) Learn to be complacent and happy. You should enjoy your work. You should love it and then it’ll be all worth it.