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Q & A with Manjit Rajain Executive Chairman of Mortice Limited (LON:MORT)

Mortice Limited (LON:MORT) Executive Chairman Manjit Rajain caught up with DirectorsTalk for an exclusive interview to discuss the background of their company, their debt free nature and plans to acquire a new company

 

Q1: Mortice Limited is a company that not many UK investors are too familiar with at the moment so could you give us a bit of background about how the group got started and what it does?

A1: I started this group 20 years back. The original plan was to not be a businessman, I wanted to be a service officer which I was. So I served my first 7 and half years of my career in the army, in the Calvary in fact, and then I went on to join the police which was my father’s career. I served in the police in Kashmir for years from 1994, I’m sure you are aware that Kashmir is a terrorist-infested area of India. I then decided to become a businessman and with my background in the army and the police, I thought the one thing that I probably know better than everything else is security so I started in 1995 by setting up a security company, which is called Peregrine Guarding which this month celebrated its 20th birthday.

This company, fortunately for us, did exceedingly well and today we are either the second or third largest security and guarding company in India, covering all aspects of security; physical man guarding, executive protection, security auditing service, canine squad etc. This company today services all 1500 clients using about 45,000 people, I now that’s a large number of people and we have about 67 offices across the length and breadth of India and we have a presence in every state and every union territory in India. Once this company was successfully decided to diversify, to do that we decided that there would be some common things between all our businesses. There were 2 common things between all of our businesses, the first one was since we were a people company, we handled a lot of people, and all our businesses must be people-related and the second one was that our businesses must be service businesses since we were running a service business. With this background we decided in 2008 to set up a facility and property management company. So a couple of things we decided to do a little differently, first of course we piggy-backed our facility management company on the back of the infrastructure of the guarding company, second we decided to cross-sell into the clients of the guarding company so that would give us an advantage and third, as we were a pure guarding company, a security company, we decided that we must get serious professionals to run this business for us so that we build up capability. Also a brand new facility management company would not have the track record so we decided to go and cherry-pick from all over the world to find the finest professionals to run this business for us so that we have a track record on the back of those people. We shopped around and we hired about 16 people who we thought were the best in the business at that time all over Asia. The company at that day was headed by CEO called Andrew Barker who in India is known as the father of facility management business, in fact he set up 3 of our competitors in India. This business became operational towards the end of 2008 or early 2009 and today this company, Tenon Property Services seems to be, dependant on which study you look at, either the third or the fourth largest in India which manages about 85,000 million square feet of space and servicing some very big multi-nationals like Goldman Sachs and many more.

In 2008, we also decided we needed money to build up this new business, as you would appreciate a security company does not need much CAPEX but a facility management company, because the contracts are long and there’s a lot of recruitment involved, needs some capex. So we came to London and listed ourselves at the Alternative Investment Market (AIM) of the London stock exchange in May 2008, not the best of times but we prepared before that and couldn’t back off. We used part of that money to set up Tenon and fund it and with a part of that money, we also decided to go and acquire a mechanical electrical engineering services company called Rotopower, it was a small boutique M and E services company which serviced most of our competitors so we actually took that company off the table so the competitors couldn’t use it until we got our own capability. In the last 4 plus years that we’ve owned it, it has grown by over 350% so we’ve had some success there.

Over the last few years, we’ve also been expanding our footprint over Asia so we set up a joint venture in Saudi Arabia which has just got its approval from the Saudi government to start operating which is a pretty tough thing because in the last 2 years, only 3 companies have got licences to operate. About 3 years back, we set up a facility and property management company in Sri Lanka which is now quite successful, it’s doing well. This is the background.

 

Q2: So it sounds like basically in the last 20 years whatever business you’ve started has flourished and it’s not been dependant on the economy either, it’s just been your management and organisation of what you’ve been doing which seems to have been the key to your success. In terms of the audience here, your focus on the UK, how is that developing and how do you see it developing over the next couple of years?

A2: Yes. To answer the first part, we have been lucky and we’ve really worked hard to ensure that we grew, in fact the company has been growing by 20% over the past 5 or 6 years. Surprisingly, all the years that we have been in existence, we’ve always been profitable, we’ve always grown 20-25% but you also have to appreciate one thing whether it’s security or facility management business, there’s one common thread through the businesses, they’re boom-bust businesses so whether the economy goes up or down these businesses typically carry on doing well. Our board has decided that on a strategy, we want to now take the first step of coming into a mature economy. The intention behind that is that we are now present in the developing world where we have very high growth and high margins. In comparison, a developed market would have low margins and lower growth.

 

Q3: Most companies over here want to go to emerging markets in order to improve margins, what’s the logic going the other way?

A3: We already have the margins so we’re now trying to now get the capabilities. So by coming into a developed economy, we are hoping to pay back on to the qualitative part of the business so better processes, better systems, better capabilities of running the same business due to the experience that would be present in a mature market.

 

Q4: So greater efficiencies basically?

A4: Absolutely. That’s the whole idea.

 

Q5: And those methods would translate back to say the Indian market or the emerging market?

A5: Absolutely, so what we’re trying to put together is a business in a mature and developed market which has better processes, better systems, more efficiencies and better technology probably and club it with a developing market business which has higher margins and higher growth.

 

Q6: And would you be looking to acquire businesses in the UK which are related or could be related to what you already have?

A6: We would not try to change the model of the business but yes, we would like to have that much of our model in place here we bring in a security company and a facility management company, bring them together and have similar combination as we provide in other markets.

 

Q7: I think you’ve said to me before that you’re a relatively debt-free company. That’s not necessarily that fashionable in the current environment with interest rates so low, you can borrow up to the eyeballs and people are doing that, presumably they’re assuming interest rates will not go up. In terms of that position, you are in a strong position, what’s your view on taking on debt or using that to acquire other companies?

A7: Right now in all of our 20 years of existence, we have remained a zero-debt company, we’ve never taken a loan or a long term debt ever. We do enjoy a few facilities which we would typically call the working capital facilities because we need to pay our people on a particular day or our clients pay a week late so to bridge that gap we do have some facilities but that’s not really debt in the true sense of the word. In India and in most of Asia, I’m sure you’re aware of the interest rates are very high so that has also been one of the reasons we have tried to remain a low debt or zero debt company. The intention in the developing market is with this background, our group as such is very debt free, this is probably the right time to go into the developed market, try to acquire a company and take some debt on so there is an intention of taking debt on.