It’s a failure to wait until the bank is taking over: BCG executives
Mumbai: Lars Faeste, senior partner and managing director, Boston Consulting Company, Copenhagen, and Amit Ganeriwalla, partner and managing director, BCG India are working with some of the troubled companies identified for bad loan resolution. The duo are hopeful of some of them getting back on track in the next 12-24 months. Edited excerpts from an interview:
Can you tell us about the companies and sectors you are working with in India for finding turnaround solutions?
Faeste: We are engaged in a number of sectors in India like steel, infrastructure and utility. These are heavily indebted sectors where they have seen market decline in prices and all of a sudden there is a need for operational turnaround—a need to take out costs and right size the organization. These are tough medicines that may have not been taken for sometime.
Ganeriwalla: We are also working with some companies who are still not under the (bankruptcy) process but knocking on the door, so pre-bankruptcy process. We are also working with investors—strategic and financial investors. We are helping them think through this investment, understand what is the right resolution for them, at what levels of debt or investment does it make sense for them to come in. This will all be playing out over the next few weeks. The good part is that one way or the other, it is a good process to get the money rolling back into the system.
You have advocated a contrarian view—if it ain’t broke, fix it anyway. Are firms willing to rework a winning team and/or process?
Faeste: The strongest managers we see today are the ones that are paranoid and looking for what can happen and they do things even when there is no problem. It’s a failure to wait until the bank is taking over.
Which are the sectors seeing the most disruption now?
Faeste: Globally, it’s retail. But we don’t see that as much here. In the US or Europe, there is no retailer that is not in serious trouble. It’s not only because of omni-channel, but also because of new formats like discount formats. Retail is a bit specific to the country. In India, retail is still nascent and consumer spending has been growing. In the US and Europe, consumer spending is not growing. Here, the cake is getting bigger.
Another sector seeing huge disruption is utilities. In Europe, we have built huge wind and solar energy capacities for 30% and we still have the conventional power and that is distressed. Here in India it’s the steel problem, the infrastructure problem. In parts of Europe and even in India, there are banks that are distressed or have a sick balance sheet.
How do you see the troubled companies identified by RBI getting back on track?
Ganeriwalla: We are hoping that over the next few weeks and months, these resolutions will take place. Realistically, what we are saying is that, these plans get approved, haircuts get taken and the resolution plan gets done. There will be some capital infusion and debt restructuring. The assets need to start to perform well to pay back their lenders. So, there is a period of consolidation and focus on business efficiency. This will be a period of 12-24 months before which it is brought back to health.
Are Indian companies displaying the required paranoia to survive and change?
Faeste: Indian executives are, in general, ambitious and bullish. They are able to dream big. What I am worried about is that many of the promotors are still owners and there is a lot of heart. Sometimes, when there is a lot of heart, there is the lack of decisiveness and speed, the ability to turn things upside down and rethink it is missing. You might have got accustomed to certain way of thinking about the business. So, there can be some bureaucracy and traditional way of thinking that sets in.
Is the worst behind us?
Faeste: The worst is not behind us. I have been working for a company and every year for the last five years, we have been hearing that the worst is behind us, but it’s only getting worse all the time. The speed of change has increased in the last 25 years that I have been in the business. Yet, there is no bad industry; it’s only bad leaders because you can beat the odds and shape the future.
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