The CEO must sell the loss-making DMT plant to focus on textiles and cash in on the company's brand value.

By R. Sriram

Love me or hate me--but don't ignore me. For the 28 years that the 55-year-old Nusli Wadia has been the CEO of Bombay Dyeing & Manufacturing Co. (Bombay Dyeing), he has steered the Rs 861-crore textiles major through numerous shifts in strategy, unsuccessful takeover bids (Union Carbide in 1994, AEC in 1995), and, of course, controversy. Be it his role as point-man for Ratan Tata, the CEO of the House of Tatas, or his battles with the Ambanis of Reliance Industries Ltd (RIL), Wadia has the reputation of being a feisty fighter. A CEO you ignore only at your own peril.

Unlike wife Maureen Wadia's magazine, Gladrags, however, no longer are Wadia's companies on the visibility charts. Flagship Bombay Dyeing slipped from No. 103 in 1998 to No. 151 on the BT-500 this year. And the textile and di-methyl terephthalate (DMT)-major's scrip is languishing at Rs 50--down from the heady days of 1994-95, when it touched a high of Rs 450! "There is absolutely no (investor) interest in some of these companies," states a recent report by HSBC Securities, which dropped Bombay Dyeing from its list of India's Top 100 companies this year. In contrast, Wadia's one-time arch-rival, RIL, is continents ahead, at No. 3 on the BT-500.

Not surprisingly, Wadia wants to jettison the cause of Bombay Dyeing's slow death in the 1990s: its 180,000 tonnes per annum (TPA) DMT plant at Patalganga (Maharashtra). While Wadia was not available for comment, BT learns that JM Morgan Stanley received the mandate to sell this loss-making petrochemicals venture 6 months ago. Which may, finally, mark the end of Wadia's megaplans to integrate backward (into the refining of building-blocks like paraxylene) or forward (into the spinning of synthetic fibres).

In fact, Bombay Dyeing initiated talks last year with the German chemicals major, Degussa AG, but differences over pricing prevented the deal from being finalised. That the sale of the plant is taking so much time must be worrying Wadia. A company barely in the black in 1998-99--it reported net profits of Rs 7.86 crore after 2 successive years of losses--Bombay Dyeing seems to be, finally, fed up with coping with the downward spiral in petrochemical prices.

And, as the company enters its 121st year, the sale of the DMT plant fits in with Wadia's new agenda: transform the dowdy dowager into an up-market textiles company. He wants to change from a mere fabrics-producer to a brand-driven company, marketing value-added downstream products. While this intent is no secret--in 1997, Wadia hired the consultancy company, Warwick Management Group (WMG), to restructure his textiles business--the nuts-and-bolts of the strategy are now only being screwed on.

THE OLD CHEMISTRY. A star-performer just 4 years ago, Bombay Dyeing--which neither has a refinery nor a plant to spin fibres--must take part of the rap for the DMT division's poor performance. Its one-off attempt at backward integration not only squeezed its margins, the reliance on imports of paraxylene left the company vulnerable to the vagaries of the global market. Moreover, Wadia built up the unit's capacity: from an unviable 60,000 tpa in 1985 to a massive 180,000 tpa, making it not only the largest producer in the country, but also among the world's Top 20.

Spurred by the global crash in prices and the falling duties on DMT, Bombay Dyeing has had to regularly slash prices. From over Rs 50,000 per tonne in 1994-95, the domestic price of DMT is ruling at Rs 25,000 per tonne today. More worrying is ril's 1-million tpa capacity of Purified Terephthalic Acid (PTA), a substitute for DMT. After all, the price-difference between the two, once over Rs 10,000 per tonne, has narrowed to Rs 2,000 per tonne now. And Bombay Dyeing has started losing customers, some to PTA, others to the recession.

Says V. Ramanan, 41, Director (Research), BNP Prime Peregrine Research: "DMT has become a marginal business except for small companies, or for those with batch-process plants. And their customers are either sick or are getting taken over." For instance, Bombay Dyeing's major customers--Parasrampuria Synthetics, Orkay Industries, Petrofils et al--have turned sick. Another regular, Raymond Synthetics, piled up accumulated losses of Rs 40 crore in 1998-99 while Century Enka--the third-largest producer of polyester in the country--is shifting to PTA.

"PTA is preferred to DMT as it is more energy-efficient. A lot of polyester companies have switched over to it," adds V.S. Rama Rao, 42, Manager (Commercial), Century Enka. No wonder the division's turnover has been dipping: from Rs 441.21 crore in 1996-97 to Rs 325.40 crore last year. Even though prices were up in the first quarter, the prices of its feedstock are also rising. In any case, the company will face problems in finding buyers as no polyester capacities are slated to come up over the next 3 years. Which will make it even more difficult for Wadia to find a buyer at a good price.

THE NEW CLOTHES. If Wadia does manage to sell the DMT division, Bombay Dyeing will, once again, be a focused textiles player, which will do its valuations wonders. Despite its reach of 650 outlets and a head-start in developing premium suiting and shirting brands like Vivaldi, the company never quite exploited the opportunity. Now, its textiles business will focus on 3 categories: apparel, home collections, and furnishing products (bed-linen and bath-linen).

Wadia, obviously, hopes to leverage the brand and its domination of these categories as well as transform its retail operations to focus on branded garments. Similarly, in exports--Rs 220 crore in 1998-99--Bombay Dyeing is trying to move away from grey fabrics into value-added products. While it is difficult to find fault with this tack, Wadia is a late entrant in the competitive readymades market, where he faces entrenched players like Arvind Mills and Madura Garments besides Raymond and Grasim Industries.

Again, the fault is all Bombay Dyeing's. It wasted time and energy in high-volume and low-margin items like terry towels and grey fabrics, losing out on an opportunity to position itself as a premium garments-maker. Wadia made 2 mistakes. One, to presume that Bombay Dyeing's brands would sell through its sheer distribution strength. It didn't work. For instance, Madura Garments' shirts brand, Peter `Honest' England, sold 2 million pieces in 1998, and is already a Rs 80-crore brand. By contrast, Bombay Dyeing's Vivaldi sold just 51,000 pieces in the same year.

The second mistake: by focusing on the DMT business and textile exports in the early 1990s, Bombay Dyeing did not take cognisance of the market's potential. While readymades account for just Rs 30 crore of Bombay Dyeing's turnover today, Madura Garments is a Rs 200-crore company, and Arvind Mills' garments division reported sales of Rs 150 crore in 1998-99. "No old styles of marketing will work here. Success in the branded garments business will happen to firms who work on building their brands," declares Fazle A. Naqvi, 35, Director (Marketing), Indus-League Clothing, a former Vice-President (Marketing) of Madura Garments.

No wonder Wadia is trying to make up for lost time. The objective: increase the share of readymades in turnover from 15 to 25 per cent in 3 years. Recently, 2 premium brands--Princeton (shirtings) and Forest Hills (casualwear)--have been launched. Expect more as well as an overhaul of the Vivaldi brand. Admits Prem Mallik, 57, Executive Director (Textiles), Bombay Dyeing: "Bombay Dyeing has great brand recall. We want to cash in on that."

At the same time, Wadia's Operation Beauty will convert Bombay Dyeing's 650 outlets into proper showrooms, selling all its products, but focusing on readymades and home furnishings. Without the advantage of a strong readymades brand--and the disadvantage of proactive competition--Bombay Dyeing will have to fight every inch of the way for shelf- and mind-space. That's why it is boosting its ad-spend from Rs 8.91 crore in 1998-99 to Rs 10 crore in fiscal 2000. Even that may not be enough given that Madura Garments spent Rs 3 crore on just one brand, San Frisco, which it launched recently.

Funds are not a problem. Although its profits have been falling, Bombay Dyeing is cash-rich. For instance, it has Rs 346.50 crore locked up in units of the Unit Trust of India. That said, Bombay Dyeing scores low on most performance parameters. For instance, its interest-costs (Rs 71.35 crore in 1998-99 against Rs 63.53 crore last year) are up, and its ROCE (6.90 against 10.64 per cent in 1996-97) compares unfavourably with the industry average of 15.10 per cent. However, Wadia is making amends. For one, he is trying to change the company's top-down structure, replacing it with more collective decision-making. Still, more fundamental changes are needed: a buyer for the DMT unit, and a market savvy readymades strategy. Otherwise, Wadia can never hope to nurse Bombay Dyeing to life after near-death.

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