How unconditional warmth has endured Daruvala and Mistry families in engineering venture together

Owned by two Parsi business families, with its fourth generation just being inducted, the storied Sterling and Wilson is now at an inflexion point. The 90-year-old engineering firm has only two shareholders. The Mistry family of the Shapoorji Pallonji group holds 67%, while the Daruvala family led by managing director Khurshed owns 33%. The company has been managed by the Daruvala family through “several troughs and crests,” with 48-year-old Khurshed leading it for almost two decades and to its recent success. The Daruvalas — the Mistrys lend support — have painstakingly done the heavy lifting to get on the fast track.

Sterling and Wilson managing director Khurshed Daruvala with mother Zarine, chairperson, and daughter Delna, who’s in training
Sterling and Wilson managing director Khurshed Daruvala with mother Zarine, chairperson, and daughter Delna, who’s in training

The families’ association dates back to 1927, when Meherwan Daruwala founded Wilson Electric Works, a small contractor in Meadows Street, Mumbai. Across the street, another Parsi businessman, Shapoorji Pallonji Mistry Sr of the eponymously-named construction firm was laying the foundation for his family business and Bombay’s heritage structures. Folklore has it that a faulty appliance — people say Mistry’s domestic iron — was repaired, much to his satisfaction, by Daruwala and with it evolved a longlasting friendship between the two.

Their sons, Yazdi Daruvala and Pallonji Mistry, only strengthened this bond. Pallonji understood the importance of having an electrical contractor as a partner for his civil contracting business and acquired 51% in Wilson Electricals. Thus the name Sterling, a Mistry investment firm, was added as a prefix.

Their partnership saw them win prestigious contracts for building Taj Mahal Hotel and World Trade Centre at Cuffe Parade. The Daruwalas did electrical contracting work for all SP Group projects.

Yazdi took over reins in 1973 and enlisted wife Zarine, mother of his three children, to help out with the book-keeping. Family ties were close and Pallonji, amused by his friend’s decision, is said to have sent an accountant from SP Group to teach her the basics daily till she mastered it.

Zarine now chairs Sterling and Wilson. During the same halcyon days of the early 70s, Pallonji, father of Shapur and Cyrus, crossed the Arabian Sea to Oman to build the Sultan Qaboos Palace.

In 1994, Khurshed Daruvala completed his chartered accountancy and joined Sterling and Wilson Property Development, 51% held by Shapur and 49% by Yazdi. They started with the development of Sterling Seaface, but the business was mired in litigation on the back of Coastal Regulation Zone laws.

The Daruvala family, who were of more modest means, lost considerable money in the venture but the Mistrys took the losses into their books. Legend has it, they did not ask for a increase in the stake.

Such gestures continued across generations. The Mistry family again provided an interest-free loan in 2002, when Khurshed’s siblings wanted to sell their stake. Khurshed paid up in four years.

Future beckons
But the future is still more compelling. Sterling and Wilson’s growth engine is clearly its solar engineering, procurement and construction (EPC) business, started in 2011. It will contribute 65-70% of the group’s turnover in 2017-18.

“We are India’s largest solar EPC contractor for three years now. Globally too, outside the US and China, the company is the biggest in this business,” Khurshed told ET. The company’s flagship project this year is the largest solar EPC contract in Abu Dhabi — 1.1 GW.

Khurshed has steered Sterling and Wilson by diversifying geographically. With its subsidiaries, it clocked a turnover of Rs 6,000 crore in 2016-17 and is cruising to finish 2017-18 with a top line of Rs 10,000 crore, Daruvala told ET. His headquarters in the glass-fronted Universal Majestic is abuzz with foreign delegates, expansion and refurbishing. Khurshed reveals an internal target —doubling the turnover to Rs 20,000 crore by March 2020.

For a self-confessed go-karting buff, Khurshed is a conservative at heart. He is careful of taking the debt route — `600 crore on the books — to grow and plans to be debt free by March 2018.

Khurshed reminisces how revenues stood at Rs 7 crore in 1997-98. The big expansion began in 2002 when the company set up offices in the Indian metros, diversifying into air-conditioning, plumbing and fire-fighting to grow organically. It had earned a name in electrical contracting and by 2006-07, it took the inorganic route.

“Contracting business is really a people’s business,” says Daruvala, indicating that acquiring businesses in the sector is fraught with integration challenges. He prefers smaller-sized acquisitions.

2He acquired sub-station business PSC Engineers in 2009, where the promoter, a former executive of Crompton Greaves, wanted to retire after ensuring the company is in safe hands. PSC had a revenue of `20 crore, which ratcheted up to a turnover of Rs 600 crore in 2016-17.

Sterling took up more commercial and industrial contracts, as residential projects were time-consuming. In 2007-08, it had mechanical, electrical and plumbing contracts from 20 hotels. “We do fewer hotels now,” Daruvala says.

Profit matrix
Daruvala is sure of his numbers. “We manage to keep capital employed very low in our business,” he says, on how he manages to keep his balance sheet light. “We focus on only one matrix. It is a return on capital employed (RoCE). In our organisation, we live and breathe RoCE.” When prodded, Daruvala says RoCE is healthy, despite EPC being challenging business.

While profit margins will be in the low single digits, Daruvala says capital employed is over 40%. “That’s the matrix we look at. On the financial side, we are doing better than our peers.” According to him, the business model he has created should not be blocking any money in the business.

The decision to keep a tight leash on costs and capital was after Sterling’s cataclysmic spiral into the red in three consecutive years, 2011-13. “It was the trigger to fix things. In 2013, we took a call for changing the business model,” he explains. “You won’t find an organisation that will do everything we are doing.”

Sterling and Wilson is now entrenched as an EPC solar contractor and is eyeing wind energy. It is also in the business of setting up data centres, the most recent being the disaster site for National Stock Exchange in Chennai and for NSDL in Bangalore. The company is the second-largest Indian diesel generator set manufacturer.

At Universal Majestic, an entry strategy for energy storage solutions is being fine-tuned, with Khurshed not ruling out even industrial and commercial battery manufacture, if it makes sense. He bets on renewables and energy storage to take away the entire energy market in next 20 years. “It is a no-brainer. We are poised to capitalise on this. This kind of span, no direct competitor has in their portfolio.”

Daruvala admits that the transmission line business is the missing piece of the puzzle. “All our businesses — solar, gas power plant et al — require some amount of transmission work to be done. Sterling is yet to take a call on whether the entry into contracting for transmission lines should be organic or through acquisition. We definitely want to be a large player in transmission in the next 4-5 years.”

Ties that still bind
Asked about Pallon’s entry on to Sterling and Wilson’s board and growth — it is still second to SP Group’s construction business in terms of revenue — Khurshed praises his partner. That’s the uniqueness of the Mistry-Daruvala partnership.

With their being only one other shareholder apart from him, Khurshed says he has the freedom to think long-term. “I don’t have to worry about one quarter, two or three quarters, or even a year.”

“Their (SP Group’s) style of operations is fantastic. Whatever support you need, you get. There is zero interference,” he avers. For 45 years, the Daruvalas have run the company independently, from a management perspective. “The combination is fantastic for us. It is very rare,” he says.

While Sterling and Wilson has expanded dramatically, parent SP Group has also grown, he says. “It helps us become a large international EPC player and helps us take long-term strategic decisions.”

A person tracking the company closely says Sterling and Wilson has benefited immensely from the SP Group. “They (SP) have a global presence, which also helps leverage Sterling Wilson quickly. So when we move to various markets in the Middle East and Africa, SP which has a presence is there to support.”

With Sterling and Wilson being a global EPC company from India, SP Group can leverage its strengths as well as vice versa. “From 2008 to 2010-12, when the market crashed, we lost more then we made in the last decade or two,” says Khurshed, candid about unstinting support from the Mistrys during the bad years. “The profile has changed dramatically from FY15 to FY17. I think we’ve seen the worst that could happen to Sterling and Wilson and right now, we’re in our purple patch.”

An SP Group executive later agrees, saying,“The future is much brighter because of the new energy segment that the group has entered. It’s super exciting to be Sterling and Wilson at this point in time.”

Another generation
Still, the promoters keep a low profile. The Mistry family itself has been a silent partner and until last year, did not even have a member on the board. Shapur Mistry’s son Pallon joined the Sterling and Wilson board only last year. Khurshed’s daughter Delna has joined the company some four months ago, apprenticing under her father. She plans to train for two years before she pursues an MBA in the US.

As the interaction draws to a close, this correspondent asks Khurshed about his son Jehan’s progress in the FIA Formula 3 championship. His update comes with evident pride. As Jehan gains his spurs, he is perhaps India’s only hope on the horizon to take on the Hamiltons, Verstappens and Vettels of the Formula One championship.

The love for speed is in the blood, but with a rider. Khurshed, who introduced his son to go-karting at Acres Club, Chembur, many years ago, is careful about avoiding downcycles in business.

Going at top speed safely is an art that you gain through experience and Khurshed Daruvala has no dearth of that.

Published on Economic Times