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WHAT'S happened to that old middle-class stand-by Bata? Has the influx of brands like Reebok, Adidas and Nike into post-liberalisation India sounded the death knell? Has a change of strategy diversify from low-price products to woo upmarket consumers irrevocably backfired? Given the losses the company has accrued in the last couple of years, one would think so. But a new management, under media phobic Managing Director Keith Weston, set on turning things around and quietly reversing loss-making decisions.

In 1995 Bata India was reeling with a loss of Rs 42.16 crore (Rs 58.56 crore if other income is discounted). Help came for company patriarch T.J. Bata with a $10 mil lion (Rs 34.50 crore) interest-free loan. This loan has now been converted into equity whereby the parent company continues hold 51 per cent of Bata India's equity.

Bata's debacle stems from the elusive Ind ian middle class not conforming to company's gameplan. During the past few years Bata's marketing team decided to turn away from its bread-and-butter, low-priced, high-volume products to attract upmarket consumers with a range of European collections like Adidas, Hush Puppies and Marie Claire. The strategy flopped as the expected demand for these expensive shoes did not materialise and Bata lost its marketshare to the new entrants and the unorganised sector. Its total marketshare dipped from about 14 per cent in the mid-'80s to below 10 per cent in 1996.

 In spite of this erosion in market-share, Bata continues to be the largest shoe seller in India, enjoying one of the highest brand recalls. However, according to company insiders, the Bata management has failed to pay a dividend from 1992, apart from 1993 when it made a profit due to a relaxation in excise duties. It will also skip dividend in 1997, according to projections. The return on equity and earnings per share during this period has also been poor, and negative during 1992 and 1995.

But things may be changing. After Weston took over in March 1995, the company began its hard climb back to its former eminence. Weston dismantled the marketing strategy of his two predecessors. He returned to low-priced, high-volume shoes—Bata's strength over the past six decades. He ensured that the three million high-priced, slow-moving shoes choking the retail stores and warehouses were disposed of.

While his predecessors, Vijay Lamba and P.K. Dutt, were media friendly and believed in heavy advertising, Weston has cut Bata's ad budget to the bone. A loner, Weston is suspicious of the press and is keeping Bata out of the limelight.

But Weston's strategy has worked so far and Bata is on the path of recovery, though there are still many snares. The recovery started in the second half of 1995. While the losses during the first half were Rs 41.14 crore, it was reduced to Rs 17.24 crore during the second half. In spite of this partial recovery, 1995 was a year of disaster, with Rs 35.15 crore being eroded from the company's reserves and surplus to reduce the Rs 40.27 crore loss. Bata is still carrying forward a substantial loss of Rs 5.12 crore.

The anaemic Bata finances received a cash transfusion of Rs 77.14 crore in January 1997 through a rights issue with a premium of Rs 20. Bata utilised these funds to reduce its borrowings of Rs 192.30 crore—with an interest burden of Rs 18.8 crore in 1995—to Rs 161.70 crore. A saving of Rs 38.60 crore. The balance of the issue will also be used to reduce debt and save interest.

The flip side is that as a result of the rights issue, Bata's equity has almost doubled to Rs 51.43 crore from Rs 25.71 crore and the company will have to increase its profits to service this expanded equity. After the issue, the share premium account has more than doubled but this has to be offset by the Rs 37 crore reserve used in 1995 to make up the losses partially. Bata is also carrying a Rs 5 crore loss. But the share premium reserves cannot be utilised either to pay dividends or write off this loss.

A risk factor in the offer document mentions the under-utilisation of installed capacity. The company admits that its capacity utilisation was only 66 per cent. And there are complaints about a poor distribution system. Another problem area is exports. The Rs 10 crore Export Oriented Unit set up in 1995 in Hosur, Tamil Nadu, has been performing poorly.

But thanks to Weston's initiatives, the mood in Bata is upbeat and he has the confidence of employees at all levels. But that is not to understate the fact that Bata will have to increase its marketshare considerably to be able to service its expanded equity base. And to win back the middle class.