On Christmas Eve this year, four large families – the Jains, Damanis, Chhedas and the Ajmeras – boarded planes from three different Indian cities to Manama, the capital of Bahrain. The total headcount of 51, spanning age-groups of 3 years to 74 – assembled at the swanky Ritz Carlton Resort, to attend their ‘annual family council meeting.’
Apart from the jovial get together, the highlight of the council meeting, was a talk by management guru Radhakrishnan Pillai, author of the book Corporate Chanakya. The meeting hall with close to 60 people in audience sat rapt, as Pillai thundered: “If you have a will it is very easy. If you have excuses you never start.”
Seventy-four-year-old Sugalchand Jain, who sat at the middle of the first row, pondered over Pillai’s statement. Did he not have the will?
Of course, he did, the septuagenarian assured himself.
The undisputed king of India’s lottery business still has the same hunger as he did 48 years ago, wandering across Chennai’s Triplicane, pedaling his bicycle on a muggy morning to sell 100 tickets of Haryana Lotteries – a rupee for a ticket, bearing a prize money of Rs 1 lakh.
Jain along with the three partner families of his, with bases in different metros have amassed a fortune playing the lottery. But never believes in gambling away their values. Even holidays are as a collective.
The turn of the wheel
Growing up in Chennai was fun for young Sugalchand, son of Nathmal, a small Rajasthani pawn broker. In the company of friends who only spoke Tamil and called each other macha, occasional matinee shows, a few hours in school and evenings at his father’s pawn shop – life could not have been better for a youngster living in ‘free India’ of the 50s. The young boy was not much in favour of his father’s pawn business though. Those late night knocks on his house door, by those who are in dire need of money, rattled him many a time. The needy would pledge whatever they had (clothes, utensils, a cycle and on rare occasions some pieces of gold) and his father would shell out the money after much haggling.
“We were never unfair to our customers… We always paid and treated them fairly, but pledgers were never happy. I was never happy doing pawn business,” Sugalchand Jain, chairman-emeritus of Sugal & Damani, opens up. His memories still vivid.
The morbid aversion to pawn business drove young Sugalchand to trying his luck in other businesses – first a corporation contractor, then a jewellery retailer, an LIC agent, a road survey instrument seller and a collection scheme manager (where Rs 10 is collected from 100 people for 10 months, and at term a ‘Enicar’ brand watch is handed over to all subscribers).
In 1969, Sugal decided to try his luck by buying a lottery – a one-rupee Kerala lottery ticket, with a promise to pay Rs 1 lakh as prize money. He had to stand in a long queue to buy the ticket. Sugal was not lucky enough to win the prize money, but a great business idea came upon him. A few months later, after much consideration and market research, he shelled out Rs 100 to a lottery agent to buy 100 tickets of Haryana lottery. The next day, at 7 in the morning, he kicked out the resting stand of his bicycle and sped down the lane to sell the 100 tickets.
“I sold all the tickets in 2 – 3 days, and also earned a 20-rupee commission,” Sugalchand recollects. “This business was far better than my father’s, where the monthly commission on Rs 100 loaned was Rs 2. I decided to stay put… my next assignment was to sell 200 tickets, then 500, then 5000… now we sell crores of lottery tickets. We’re the main sellers for six lottery issuing states,” the pride unmistakable in his voice.
The business of odds
Sugal & Damani (S&D) is one of the largest marketers of state government-issued lotteries in India. They claim to have over 75% market share in online lottery business, over 20,000 point-of-sale terminals across lottery-friendly states and 15 million transactions per day. At the draw of last fiscal, S&D posted a turnover of Rs 15,800 crore and profit after tax of nearly Rs 250 crore, as told to ET by S&D management.
“S&D have perfected the art of selling lotteries,” feels Jaydev Mody , chairman of Delta Corp, the country’s casino king. “Their younger generation is very focused, and are doing things very differently. The family manpower will help them grow their business.”
“They run a very clean business and that helps when you’re in lottery business since it still suffers from serious negative public perception,” adds Manoj Sethi, Director, Golden Play, a gaming company.
But like all businesses, volatility is a challenge The first few months of this fiscal for example were good but since the implementation of GST, lottery business has been badly hit. “We may not have great numbers this year,” admits Prasan Jain, MD, S&D, the second generation in the business. Prasan is also the son of group partriarch.
The face value of a lottery pot is divided into two parts – the prize money and the operators’ margin. As per current GST structure, interstate sale of lotteries attracts 28% tax while intrastate sales attract a 12% levy. Making it worse, lottery operators are required to pay GST on the face value of the lottery, which also includes the prize money. This shaves off a large portion of lottery sellers earnings, operators opine.
“28% GST on interstate sales is killing us literally. We cannot sustain if we sell lotteries of a particular state, in that state only,” says Kamlesh Vijay, Group CEO, S&D. “If we were to sell Goa tickets in Goa only or Sikkim tickets in Sikkim only, we’ll not be able to even raise the funds required by the government. Lotteries are better sold in states with larger population base,” he explains threadbare.
Currently lotteries are allowed in nine Indian states only – Arunachal Pradesh, Nagaland, Mizoram, Sikkim, Punjab, West Bengal, Goa, Maharashtra and Kerala. The Lottery Regulation Act does not allow private parties to run lottery schemes. Only state governments can issue lotteries to augment their revenues; many states utilize incoming funds to run their public welfare programmes. Corporate entities such as S&D and Playwin market these lottery issuances to common people. In other words, the job of these companies is similar to that of a lead banker in an equity IPO.
According to industry estimates, lotteries are a Rs 50,000-crore business in India. While online lotteries are quite popular in several states, paper lotteries may pip online lottos (in terms of sales volumes) by a few percentage points. West Bengal and Kerala run the most number of paper lotteries in India.
The Lottery Regulation Act-1998 is watershed event in the history of Indian lotteries. Post the enforcement of this Act, several states such as Rajasthan, Tamil Nadu, Madhya Pradesh, Uttar Pradesh, and some time later Karnataka, discontinued their lottery programmes. A few states shut their lottery programmes after social activists raised concerns about people getting addicted to gambling and betting – after tasting minor successes in lotteries.
“Public perception is going against us big-time… the government brackets lottery agents with country liquor bar owners,” laments Prasan. This despite the wider economic rub offs. “The trade provides direct employment to millions. Governments should consider this fact before framing policies,” Kamlesh Vijay chips in.
S&D runs (solely or part distribution) the lottery mandates of Goa, Maharashtra, Punjab, Sikkim, Arunachal Pradesh and Mizoram currently.
The four families
In the late 70s, Sugalchand, then a mid-sized lottery seller, started to manage Arunachal Pradesh Bumper Lottery. Despite putting all his might, Sugalchand was not able to ramp up sales. He realised the need for a strong distribution partner – and that partner turned out to be GN Damani.
Damani belonged to Dhari in Saurashtra, but he learnt ropes of business in Chennai. After a few years of internship with a distant relative, Damani established his own cycle business. A few years later, in 1971, Damani diversified to lottery business. Damani was doing brisk business when Sugalchand contacted him for help.
Damani did not agree to Sugalchand’s initial pitch to take over the distribution of Arunachal bumper. Instead he suggested a partnership. Sugalchand accepted his terms to salvage the lottery issuance. The duo also roped in another partner – Pravin Chheda from Mumbai (a coal and ball-bearings trader, with a small lottery agency) – to market the bumper issue.
The Arunachal experience encouraged the three partners to take up more joint mandates throughout the 80s. In those days, even private establishments and societies raised fund via public issue of lotteries. The trio marketed the lottery issuances of groups such as Bharatiya Vidya Bhavan, Madras Cancer Institute and Mediciti Hospitals Hyderabad. After being together in business for nearly a decade, the trio hammered out a corporate structure to form Sugal & Damani Group in 1990. A few years later, S&D started its Delhi operations. Kishor Ajmera, an acquaintance of Damani, was roped in as partner to steer S&D’s growth in the Northern plains.
“There’s a lot of understanding amongst us… that has kept us together for so long,” says Pravin Chheda, who now heads S&D’s ‘group business board.’ The management headed by Prasan Jain consults with Chheda-led group business board before taking key decisions.
A few years ago, the founders of S&D ceded control and day-to-day management of the group to their second generation. At present, the group has 14 family members managing different business verticals. Apart from lotteries, S&D Group has business interests in real estate (in Chennai & Mumbai), warehousing, IT solutions and ecommerce prepaid cards. In its IT solution vertical, the group sells its proprietary lottery management solutions to several countries in Africa. The group also “co-runs” the Lagos City Lottery of Nigeria with a local partner. The prepaid card business of S&D (called Payworld Utility Services) posted a transaction turnover of Rs 430 crore last fiscal. S&D also runs ‘Khelplay’, a popular card rummy game.
“Over 90% of our revenues come from lottery and gaming business… and we’re almost a zero leverage company,” says Vijay, who joined the company in 1992, and was made a partner of ‘group business board’ in 2010.
The four families are bound by a ‘family constitution’, which dictates the duties, rights and responsibilities of all the family members. “The idea is to keep our families united and our business alive for several centuries to come,” Chheda adds. The family council meeting (that the four families attended in Bahrain) is conducted as part of the family constitution.
“S&D is a very professionally-run group,” says Rahul Tangri, President of Playwin, a competitor of S&D in several lottery-friendly states. “Their clean corporate structure has helped the lottery industry immensely,” Tangri adds.
The lottery industry reveres Sugalchand Jain’s doggedness, a 12th grade dropout.. Once he found his calling, he went back to complete his education and earned a bachelor’s degree in psychology at 55 years. He then went on to complete his masters at 65. Now the patriarch is gunning for a PhD in psychology.
“If you have a will it is very easy. If you have excuses you never start,” he sums up. Chanakya would be happy. If not the real one, the Corporate Chanakya, who took the masterclass would surely be.