Risk Taking in Business to 70x Your Revenue with Akhilesh Bhargava
In our third episode, we speak to Akhilesh Bhargava, the Managing Director of AVI Global Plast and Director at Date With Ocean Foundation.
In 22 years, Akhilesh grew his business from Rs. 3 crores to Rs. 210 crores in revenue but this journey came with a lot of risk. We speak to Akhilesh about the lessons he has learnt about risk through this long journey - his investments in a nightclub that went bust, his investments in equipment in his own business that nearly drowned the company in debt, and finally the success that he has seen over the past few years as his business has flourished.
AVI Global Plast's Website
Akhilesh Bhargava's LinkedIn
You grew your business by 70x over these 20 years, from 3crs ($0.5 million) in revenue to 210crs ($30 million). What do you think were the key milestones that took you to those 70x revenues?
Akhilesh: When things around you are bad, I’m at my best. When everybody is saying that the world and things have gone bad, the economy is not good, etc. — I am at my best. I start writing my problems down. And then I say, “Okay, now let’s break it up into small pieces and let’s try and fix them.” I think this one simple approach has really helped me battle out the real lows of life.
I got caught up very badly in the 2008 Lehmann crisis. I had committed an expansion of ~40 crores in 2008 and at that time our business size was 40 crores. Without having the capital backing my investment, I went and paid my advance. I started the construction of the new project and then came the Lehmann crisis — everything tanked and it was especially bad for us because everything was imported. The dollar was 40 and it moved to 51- 52 at that point of time and then all the costs from the construction material etc., everything went up like crazy.
I was banking with Citibank and State Bank of India at that point of time. Right before the crisis hit, both banks that were willing to fund me for 30 crores out of the 40 crores. And then the crisis hit, and Citibank said, “I’m not giving you the money, everything is frozen.” I was in a bad shape. SBI came and said, “Fine, we I’ll give you all the money you need. Just leave Citibank and come to us.” It was like the best day of my life. I thought, “Dude I’m coming, whatever it may be, doesn’t matter” because our initial strategy of using two banks and not to depend on one was over. Let’s just go with the flow.
At that time everybody was crying when raw material prices were hitting new lows. For example example one raw material which we were importing was $1,400 a tonne and then the prices crashed to $550. I immediately bought 3,000 tonnes and then those prices jumped back to $700. We covered up all the losses we were making during that time by buying when no one else was buying. We didn’t lose any money that year.
The same thing happened during COVID — when crude crashed and crude went negative, all our polymer prices went negative. I just want to say that I exactly replicated the same thing and everything bounced back. We are actually doing much better than what we did last year.
How did you make this revenue jump over the years, what kind of new initiatives did you take to make that happen?
Akhilesh: By 2010 something very disruptive happened. The market started looking at an alternative material which is called BD, the one which we use for bottles. In one year, three of our major customers which comprise of 50% of our sales, suddenly moved to alternate materials. And we were completely stranded at that point of time. This was in 2011–12.
We stopped making money then because we grew so fast that we built a lot of overheads. By 2013, we weren’t making money and it was getting me stressed out because I thought we would be losing more and more business. Three more players with huge capacities as big as us entered the market.
At that point of time, I took a big risk. I went to Europe and bought a line where we could convert waste to end products in PET. I took that decision of investing 10 crores when we weren’t making profits. But somehow, through some friends, family, unsecured loans, we started putting it together.
Now, new product, new technology, we had some insane amount of learnings ahead of us. It took us two years to establish that technology and most of the time, we were just converters; we said that we wanted to go upstream and be a value added product. So, around 2014–15, we invested in technology to make packaging for fruits and vegetables. At that point of time, I again went and invested 6–7 crores and bought technology from Turkey. I thought I’ll buy the biggest machine because that one product is being imported into India and will have the lowest cost, not realizing that you can’t get into a new line of business with completely high end capacity.
You need to start something smaller and then grow it, but I did the other way around. It took us two years to learn again. From 2013 to 2017, we didn’t make money. We were super leveraged. We were barely making money enough to survive. I had to think how would I manage school, my kids had to go to the US, as like it didn’t know whether I’ll be able to make enough money to even send them to for studies to the US. That was a very troubled time for me because we had over leveraged like crazy.
But then everything started coming together. We learned, we improved, we increased efficiencies, we changed people from whom we were not getting deliverables and then all of that created the shift. In fruits and vegetables, we were able to sell products between 200 to 250 rupees a kilo and since we were starting from scraps, our raw material was at 50 rupees. Basically over those few years we completely changed what we do.
We just kept investing to build up entry barriers to competitors, access different markets globally, and enter into new products. We went insane with our investments and there was whole turnaround from being a 7–8% EBITDA company to being a 14% EBITDA company andthis transformation happened in just four years. The journey was from packaging for garments to packaging for pharmaceuticals, to packaging for fruits and vegetables and food items.
You self-disrupted yourself multiple times in the journey where you said, “Hey, whatever I was doing earlier, this is not the future. Let me go out and bring new technologies, invest in new technology so that I’m ahead of the curve.”
Do you feel that building excess capacity is one of the reasons why you have grown to the extent that you have or do you wish that you had done it slower so that you would not have to go through the some of the stress that you went through?
Akhilesh: The learning curve on larger capacity is longer and is more costly. I think if you have a shorter learning curve, you can easily expand, get ahead of the learning curve and know that your cash positive with that one particular investment. So, if I were to do it again, I would say that I would go for a smaller capacity and then quickly jump. Basically start small, take a smaller risk and then slowly build up the capacity.
I think the other key thing is how well do you know your markets and how confident you are of your market. Because if it is a new product, new geography, then it is very different. But if it is the same product which you are expanding, then you can take a bigger risk. For example, we invested in two lines, which have a capacity of 500 kilos per hour. If you were to ask me what I would do now, I would say 2,000 kilos per hour, one line. You might put five times the money, but you would put it and forget it. But I couldn’t have taken this decision going back in time when I didn’t know the market. I think the driver is how well you know your market and how confident you are about it. There is no right answer for anyone, everybody will have their own journey around taking risks and building manufacturing capacity.