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How IIPM's Arindam Chaudhuri built the Rs 533 crorebusiness15 Mar, 2013, 08.34AM IST, The writer has posted comments on this article John Samuel Raja D John SamuelRaja D ,ET Bureau

Please go to the Internet and fill it up. If you say Arindam Chaudhuri is ugly and has a bad sense ofdressing, I will not say anything. But if you say anything to harm my business, then I will sue you," ragedChaudhuri on a recent CNN-IBN show, defending his penchant to file court cases against people andpublications critiquing his management institute and operating style, and having those articles blocked onthe Internet. The business that he is trying to protect, through means that are derided by believers of freespeech, generated revenues of Rs 533 crore in 2010-11, mainly from his management institute, IndianInstitute of Planning & Management (IIPM). John Samuel Raja D dives deep into regulatory filings byChaudhuri's companies to unravel eight facts about his businesses.

They Pay 1% of Rs 533 cr Revenues in Tax

Chaudhuri has four main businesses: management educat ion, consult ing, human resources andmedia. Each is housed in a separate company. In 2010-11, the latest available publicly, these fourcompanies earned revenues of Rs 533 crore.

It s educat ion arm, which of fers management courses that are not recognised by the government ,is the biggest of the four, with revenues of Rs 349 crore in 2010-11. In a recent TV interview,uploaded on the IIPM website, Chaudhuri says the inst itute admits 3,500 students each year.

Arindam Chaudhuri's response to ET Questions: 'We don't plan to seek any approval f romany regulator'

A recent IIPM ad says it s course fee is between Rs 14.75 lakh and Rs 18.75 lakh. In the last twoyears, revenues of the educat ion arm have grown at 32% a year. Yet , on revenues of Rs 533 crore,the group posted a net loss of Rs 4 lakh, af ter paying less than Rs 5 crore as income tax. Apossible explanat ion for this lies in two t rait s endemic to it s operat ing style: big cost heads andmany t ransact ions between group companies.

IIPM Spends More on Ads than DLF

The IIPM ad template is large and f lashy, full of claims and the larger-than-lif e presence ofChaudhuri. His website describes him as an "economist , management guru, author, speaker andt ransformat ional leader", who charges $100,000 (Rs 55 lakh) for a speaking engagement of 90minutes. In the past few years, several IIPM claims on t ie-ups with foreign universit ies and jobplacements have been proven unt rue. At t imes, an examinat ion of those claims or mediareportage have become part of court cases f iled by IIPM or it s associates in places far f rom it sbase of New Delhi—Silchar in Assam, Dehradun in Ut tarakhand and Gwalior in Madhya Pradesh.

The books of the educat ion arm show that , in 2008-09, it spent Rs 120.5 crore of it s Rs 202 crorerevenues on ads. Further, it spent Rs 16.6 crore to pay it s educators under, as per Chaudhuri, threeheads: salary (Rs 9.4 crore), professional charges (Rs 2.5 crore) and facult y remunerat ion (Rs 4.7crore). In other words, for every rupee it spent on salary in 2008-09, IIPM directed Rs 7.2 into ads."There are far too many indust ries globally with that high market ing budgets in comparison tosalaries," says Chaudhuri.

In 2009-10, though, IIPM's ad spend halved to Rs 54 crore, while it s payments to educators shot upfour-fold to Rs 65.7 crore (Chaudhuri says it was above Rs 85 crore).

Seen another way, as a percentage of revenues, IIPM's ad spend of 60% in 2008-09 was higherthan all the companies in the BSE-500 index; according to Capitaline data, Mahindra Holidays andResortsBSE 0.45 % was the highest , at 24.7%, while FMCG majors like Hindustan UnileverBSE 0.49% were at 11.4% and Colgate-PalmoliveBSE -0.27 % at 14.7%.

Even in absolute ad spends, only 38 companies f rom the BSE-500 were ahead of IIPM. At Rs 120.5crore, it s stated ad spend lef t behind some of India Inc's biggest advert isers like DLFBSE -4.20 %,Axis BankBSE -0.90 %, RaymondBSE -3.01 % and Gitanjali GemsBSE -1.38 %. Some of IIPM's adspends would have gone to group's publicat ions, which raises the issue of how they were priced(more on this in Point 4).

They Transact a Lot Among Themselves

Placement of ads in group publicat ions is one of the many kinds of t ransact ions between groupcompanies. The educat ion arm, the group's cash cow, is a major source of revenue for it s sisterf irms. For example, in 2010-11, the educat ion arm paid Rs 37.6 crore to the consult ing arm,Planman Consult ing—Rs 31 crore for services received and Rs 6.6 crore as rent .

For Planman Consult ing, which claims to have done work for the who's who of India Inc, these twot ransact ions accounted for 84% of it s Rs 45.8 crore turnover. That year, it was the most prof itablecompany in the group, post ing a net prof it of Rs 7.8 crore on a net margin of 17%.

Chaudhuri and his wife, Rajita, who are execut ive directors in Planman Consult ing, drew a totalremunerat ion of Rs 6.96 crore f rom the company that year. (Between them, they cont rol nearly100% shares in 20-odd Indian f irms, some of which have f loated overseas subsidiaries.) Chaudhuridid not specif y what services Planman provided to the educat ion arm. But , on the group's related-party t ransact ions in general, he says: "There is nothing wrong in each and every t ransact ion youhave ment ioned as all are scrut inised by regulatory bodies every year."

An account ing expert , speaking on the condit ion of anonymity, says it 's a common indust rypract ice for the educat ion arm to show losses and group companies that provide services to thiscompany to earn prof it s. "Promoters adopt this to circumvent Indian regulat ion, which prohibit sprof itmaking companies in the educat ion sector," he says. "But f irms that provide services to thecompany that runs the educat ion business are not bound by it ."

In 2010-11, IIPM's educat ion arm, while act ively t ransact ing with group companies, posted a netloss of Rs 2.3 crore on revenues of Rs 349 crore. By comparison, the Indian School of Business(ISB), which has no subsidiaries and no related-party t ransact ions, earned a net surplus of Rs 15.1crore on a turnover of Rs 197.5 crore.

No 'Best-sellers', Yet Rs 40 cr f rom Ads

Planman Media, IIPM's publishing arm, brings out several magazines and journals. Chief amongthem are three magazines: The Sunday Indian, 4Ps Business and Market ing, and Business &Economy (B&E).

Chaudhuri's website says the f irst is published in 14 Indian languages, and describes it as "theworld's largest newsweekly" and "the nat ion's greatest news magazine"; the other two magazinesas "best -sellers".

In 2008-09, the latest year for which f inancials were available for Planman Media, it earnedrevenues of Rs 41.4 crore. Of this, just Rs 1.6 crore came f rom magazine sales. The IIPM websiteclaims The Sunday Indian has a readership of 2 million (which would make it more popular than

India Today and Out look) and B&E has a print run of 110,000 copies (which would be more than anybusiness magazine in India). "We sell 5-6 copies of The Sunday Indian each week, against 40-50copies of India Today and Out look," says a sales representat ive of Bahri Sons, in New Delhi's KhanMarket .

"And 2-4 copies per issue of 4Ps and B&E." Despite low circulat ion revenues, Planman Mediarecorded ad sales of Rs 39.6 crore in 2008-09, amount ing to 96% of it s revenues. The latest issueof The Sunday Indian had 44 edit pages and 19 ad pages (including 10 pages of group ads).Prominent names were missing f rom the list of external advert isers, which included FlowguardPipe and Fit t ings, V Mart , OPTM Healthcare and Hyderabad House.

If IIPM magazines don't sell much, if big external advert isers are not placing ads in them, how muchare these magazines billing IIPM for in-house ads? And, is IIPM using it s magazines arm to reduceprof it s in it s educat ion arm? Chaudhuri did not disclose how much ad revenues of Planman Mediacame f rom group f irms or how these were priced. He says: "All t ransact ions are well within theprovisions of the IT Acts and are regularly scrut inised by authorit ies."

Its Education Business Keeps Moving to a New Skeleton Company

Since 2009, IIPM's educat ion business has moved to a new legal ent it y thrice. There's a pat ternhere. Each t ime, a skeleton company, cont rolled by Arindam and Rajita Chaudhuri, acquires theent it y cont rolling the educat ion business, and the two are eventually merged.

Thus, the educat ion business went f rom being in the Indian Inst itute of Planning and ManagementPvt Ltd to being in the Internat ional Inst itute of Planning and Management Pvt Ltd in September2009. In March 2010, the second change took place. Planman Financial—which said it was aregistered mutual-fund dist ributor and wanted to become a non-banking f inancial company, buthad negligible revenues—bought the Internat ional Inst itute of Planning and Management .

Planman paid Rs 3 crore to buy a business that had revenues of Rs 201 crore and f ixed assets ofRs 171 crore, and debt of Rs 109 crore. "Generally, for unlisted companies, the benchmark is bookvalue of assets or earnings mult iple," says an account ing expert , not want ing to be named. "If theamount paid is less than book value, then it 's undervalued."

Six months later, the two were merged, and Planman took the name of the expiring ent it y. In May2011, it converted it self into a Sect ion 25 company—it cannot dist ribute prof it s to it s shareholders— and renamed it self Center for Vocat ional and Ent repreneurship Studies (CVES).

"These were st rategic decisions to consolidate our group act ivit ies that were being undertakenover the last few years and are as per the provisions of the Companies Act ," says Chaudhuri.

The Last Change Saw it Acquire a 'Non-Prof i t' Identity

The third metamorphosis is signif icant . IIPM's educat ion business has gone f rom being a companythat can dist ribute prof it s to one that can't—a pre-condit ion to accreditat ion f rom the Universit yGrants Commission (UGC), the regulator for higher educat ion, and the All India Council forTechnical Educat ion (AICTE), which regulates business schools in India.

Only last month, Chaudhuri had accused UGC, which has released ads saying IIPM is notrecognised by it , and AICTE of corrupt ion. "UGC and AICTE are full of bribeseeking, corruptof f icials where, even at the top, they have a t rack-record of being caught red-handed and beingjailed. The standard of educat ion they have created in the nat ion is shameful, to say the least ," hesaid in a statement issued by IIPM on February 16.

Is Chaudhuri now t rying to comply with government regulat ions to get his B-school recognised? A

Planman Financial resolut ion said this was one of the reasons to convert it self to a Sect ion 25company. But , Chaudhuri says: "As of now, we do not plan to seek any approval f rom anyregulators."

According to Chaudhuri, plans for CVES have since changed, and so has it s role in the group. Theoriginal idea, he adds, was it to of fer management programmes cheaper than the IIPM f lagshipcourses. "It didn't shape up the way we wanted it to," he adds. "For about three years now, I amnot the director of this company and I am not a shareholder for about a year now."

Chaudhuri says CVES now aims to of fer new and af fordable educat ional programmes to cater torural and semi-urban sect ions. He, however, did not specif y where the educat ion arm is nowhoused, though he did say that IIPM is now a "not -for-prof it educat ion society and not acompany".

It Now has T ies with a Recognised B-school

Recent ly, IIPM came out with an ad that invites applicat ions to set up a branch of it s "newinit iat ive" IIMM (IIPM Inst itute of Market ing & Management ), which is pit ched as a low-costalternat ive to IIPM (course fee of Rs 3.75-4.75 lakh). The ad asks f ranchises to invest Rs 5-15crore, in addit ion to inf rast ructure, to set up an IIMM f ranchise and projects a return on investment(RoI) of 24-33% a year.

"We have not acquired IMM," says Chaudhuri, adding that it 's a "st rategic alliance", a descriptoralso used by the website of the Delhi-based Inst itute of Market ing and Management (IMM), whichhas AICTE approval to admit 360 students a year. However, Gaganjit Singh, director general ofIMM, denies any collaborat ion with IIPM or knowledge about this ad.

According to Singh, IIPM has no say in running IMM. "We don't of fer any joint programme with IIPM,"he says. "AICTE regulat ions don't permit us to collaborate with IIPM to of fer any educat ionalprogrammes. The only relat ionship we have with IIPM is that they have rented one f loor in ourcampus.

And last year, we t ied up with IIPM for admissions and placements." IIPM would act as "an agent "to bring students to IMM, and also help in placing students. "IIPM promised us 200 students, butbrought in 40-50. No placement was done," he adds.

It is Facing a Squeeze on the Business Front

Chaudhuri's educat ion business is the cash cow. Choking it will squeeze all his other businesses.There are signs that IIPM is facing a squeeze. Speaking on the condit ion of anonymity, twoemployees of Planman Consult ing and another of IIPM said the staf f had not received salaries forsix months. "IIPM does not have any salary delays whatsoever," says Chaudhuri.

"However, yes, almost every business house is going through challenging t imes as the marketsent iment is not the most excit ing. Certain other vert icals of ours are going through slight lychallenging t imes, but we are conf ident that we will be able to meet all our commitments soonerthan expected."

Many IIPM pass-outs are absorbed in IIPM companies. "Those who do not have f inancial backingeventually resign," says one of the employees of Planman Consult ing. Adds the IIPM employee:"Three years ago, a lot of top companies came for campus recruitment . Now, it 's only the smallcompanies and they hardly hire anybody." ET contacted seven companies listed on the IIPMwebsite as "recent recruiters".

Three responded—Coca-Cola, Essar Group and HSBC—and all three denied part icipat ing incampus placements in IIPM. "While there may have been st ray cases of lateral hiring of IIPM

alumnus in the past , they do not form part of our list of top B-schools f rom which we hire for ourent ry-level management -t rainee programme," says Sujaya Banerjee, chief talent of f icer, EssarGroup. Adds Vikram Tandon, head of HR, HSBC India: "We have not hired f rom IIPM campuses—atleast not in the recent past ."

Meanwhile, IIPM's website st ill list s, for example, Cornell Universit y's School of Indust rial and LaborRelat ions as one of it s internat ional t ie-ups. "The last t ime ILR School provided t raining for IIPMstudents was in 2011," Mary Cat t , assistant director, communicat ions, Cornell Universit y ILR Schooltold ET.

With Shreya Biswas and Martin Thomas

Read the full transcript of Arindam Chaudhuri's response to ET Questions