Cloud In The Silver Lining

ALL of them had been expecting bad news. But few of the senior executives who filed in for a meeting with Lalit Mohan Thapar recently could have anticipated the ferocity of the austerity measures that the chief of the Rs 1,511- crore Ballarpur Industries Ltd ( BILT ) unveiled for them.

The writing, said Thapar, was on the wall, and harsh times would require harsh measures. About 1,500 people working in the various divisions of the Thapar flagship were given three months to find another job. All senior BILT executives’ wages were frozen, and no performance- linked bonuses either this year. Indeed, the cuts went deeper than that. No free car parking, no executive lunches, no business class travel.

And Thapar and his two nephews, Gautam and Vikram, were taking a 50 per cent   salary cut for 1997- 98.

"Times are hard. You have to tackle wasteful expenditure and if there are too many people doing too little work, you have to pull them out," says Debasis Mitra, group vice- president, BILT . But, he says, the company has promised all the employees who have been given marching orders help in rewriting their resumes, making phone calls and even putting them in touch with headhunters. This may, however, be not enough for the retrenched employees, not due to lack of effort from BILT ’s side, but because the Indian corporate world, unlike say the US one, is still new to the concept of retrenchments and may well shy away from recruiting executives who have been handed pink slips.

The mood in Thapar House, the company’s Delhi headquarters, is sombre. The ironic silver lining is that it won’t be so for too long: except for the offices of the three Thapars and a skeletal staff, the rest of the building is being rented out. BILT expects to make Rs 18 crore from it annually.

Teh austerity measures are, however, only a small part of the radical restructuring plan that BILT is implementing. With decentralisation the new mantra, BILT is being structured along independent units with the corporate group at the core. While the diversified groups will run individual operations, the corporate group will concentrate on enhancing shareholder value and setting policy frameworks and operating standards in terms of returns on capital employed.

The business units are being moved out of Thapar House and relocated where the production units are. The paper division is thus moving to Faridabad near Delhi, chemicals to Hyderabad and foods and agribusiness to Bangalore. "The idea is that everybody, each process and each function must add value not to top management comfort or control systems but to the bottomline," says Mitra.

The targets BILT has set itself are stiff: 25 per cent gross yields on capital deployed in each business, failing which the business will be shut down. The company has already decided to close down its leather units in the north, its chemical engineering consultancy business, its export- import and commodities divisions in Delhi, Bangalore, Bhopal and Yamunanagar. The group has withdrawn from the Nylon 6,6 project with Du Pont. It’s got out of the edible oil business and closed down the Mumbai edition of its newspaper, The Pioneer

In a strategy to monetise its assets, get better technology and skill sets, BILT is also hiving off several of its divisions into joint ventures. First it hived off its glass division as a joint venture with US- based Owens. Now it is hiving off AAC Bricks into a new company with a majority stake to another foreign technical collaborator. The paper sack unit is likely to be next in line.

At the core of the restructuring drive, says the company, is the logic of core competency. BILT has lived life for so long like any other company born and grown to strength during the Licence Raj, getting into any business for which it could wangle a licence from the Government. Consequently, its interests sprawled in many— often incompatible and unrelated— directions, and turned it into an anachronism in today’s liberalised and far more competitive world of Indian business.

SO what are BILT ’s core competencies? Process engineering and assembly- line manufacturing, says the company. And from now on it will stick to businesses which involve these abilities: paper, pulp, chemicals. Plus a few others where it spies opportunities and no formidable competition. "Paper and chemicals are businesses that differentiate us from competitors and where we have the skill sets to be able to add value to customers. The other area is food- processing and media where we might not have strengths, but which are virgin industries with tremendous potential before the TNC s are allowed in. These areas give us expandibility," says Mitra.

So, while BILT turns away from several businesses it feels it’s not equipped to excel in, expansion remains the keyword in the paper, chemicals and food processing businesses. The company has charted out a Rs 500- crore expansion plan to hike its paper capacity and earmarked 90 per cent of all capital expenditure in the next two years to this division. It has initiated a modernisation programme that aims to reduce imported pulp consumption and maintenance costs and produce better quality paper.

But the question is will all this belt- tightening and cost- cutting enable BILT to generate the funds it so badly needs for expansion? For profitability is definitely not a problem according to BILT ’s balance sheet; in 1995- 96, the company registered a 63 per ears woefully short of working capital: that is, cash. It has been borrowing heavily in the inter- corporate market. "For a company of their size and standing, short- term borrowing of Rs 50 crore to Rs 55 crore a month raised a lot of apprehension about the company’s health," says a financial analyst.

The group’s expansion plans were earlier put on hold as a promised Rs 175 crore loan from financial institutions and another Rs 140 crore by way of foreign currency loans came through six months behind schedule. Indeed, several observers believe that the drastic restructuring is something that BILT ’s lenders insisted on before they signed the cheques. To add to the company’s problems, the paper and chemicals scenario has not been looking as robust this year as earlier. The 1996 Budget made paper imports cheaper, hitting domestic companies. The downtrend is likely to continue, say experts, and squeeze BILT ’s margins.

Profitability at the company’s chemical business has also been hit. Its marketshare of both phosphoric acid and bromine has declined, the latter by as much as 50 per cent while caustic soda remains stagnant. The market value of the company’s investments— both trade and non- trade— is down. The company has been making losses in many of its subsidiary investments like The Pioneer and JG Containers. Add to this persistent rumours that all is not well between L. M. Thapar and his nephews.

So can all the belt- tightening rid BILT of its blues? "These are just cosmetic changes. Stopping of lunches or free car parking is not going to generate the Rs 200 crore- Rs 300 crore shortfall in the funds needed for expansion. If the Thapars are serious, they should dispose of the fancy guest houses and sprawling bungalows used as residential properties by the family. That’s not the most ideal use of company assets," says a market source. "And slashing the salaries of the Thapars is purely a symbolic gesture. What difference is that going to make to their lifestyles?" "The family power struggle has made it difficult for professionals to function in the company. Even chief operating officer Hemant Luthra left a few months ago," says a former BILT employee. "The austerity measures are a kneejerk reaction by a management not geared to face a downturn in business. In announcing these measures, the Thapars obviously did not weigh their interest burden vis- a vis wage burden. Otherwise they would have tackled that first, instead of announcing their tight- fistedness so merrily to the world at large," says another observer. The Thapars deserve credit for so boldly acknowledging the changes in the business environment and restructuring. They possibly deserve less credit for their choice of restructuring strategy.

THAPAR"S PROBLEMS