Mumbai: Bombay Dyeing and Manufacturing Co. Ltd, which has lost one third of its stock value this year, is scripting a three-pronged turnaround strategy—to reduce dependence on its real estate vertical for cash, tap the mass market for textiles, and reduce its debt by half in two-three years.
“The biggest issue for the group since 2008 was generating cash. This was partially set off by revenues earned from the real estate division,” Durgesh Mehta, joint managing director and chief financial officer at Bombay Dyeing, said in a recent interview.
“After addressing that, the immediate focus was to stop losing money in other verticals such as textiles and polyester staple fibre (PSF) manufacturing facility,” he said.
Bombay Dyeing returned to a profit of Rs18.42 crore in 2009-10 after posting a loss of Rs194.62 crore in the previous fiscal year, hit by the global financial slowdown. In fiscal 2011, its profit improved slightly to Rs21.39 crore.
In 2008, Bombay Dyeing’s real estate business contributed 30% to its total revenue; textiles brought in 20% and PSF, 50%. Mehta wants textiles to account for 30% of the company’s total revenue in the next two years, and to reduce real estate’s contribution to 20%.
“Textile business is going to be the main thrust,” said Mehta, who joined the company in 2008. “Earlier, Bombay Dyeing was perceived as top-end of the market, which has only 5% under organized home textile market. Now, we have decided that we have to be in the other side of spectrum to tap unorganized side of market. We are broadening our range to low-price segment.”
Experts are wary of the plan.
Sridhar Ramachandran, director at distress debt resolution advisory firm Brescon Corporate Advisors, said Bombay Dyeing, established in 1879 by the Wadia family, has failed to capitalize on its legacy in the textile industry.
“As long as Bombay Dyeing is restricting itself with retail and outsourcing key functions, it is tough for the company to achieve materialistic changes,” said Ramachandran, who has spent 21 years handling general, finance and turnaround management in textile industries across Asia and Africa.
The company has to “get back to basics and should enter into full-fledged textile cycle including fabric, weaving and spinning. More importantly, it should also get into technical textile vertical,” he said.
Arvind Singhal, chairman at retail consultancy Technopak Advisors Pvt. Ltd, said increasing focus on the textile business will be an “uphill task” for Bombay Dyeing because of competition, “though there is ample opportunities in the Indian textile sector”. Singhal said companies such as Alok Industries Ltd, Welspun Group and Trident Group have done well in the bed and bath linen segment, where Bombay Dyeing is strong.
“These companies have developed strong market with a good portfolio of export and domestic products... Bombay Dyeing has to catch up with these strong competitors as the company was more focused in to other business verticals such as real estate till now,” Singhal said.
The company is undeterred.
Debashis Poddar, chief executive of Bombay Dyeing’s textile division, said his company has started widening its reach by tying up with retail chains such as Big Bazaar, Lifestyle, Shoppers Stop and D-mart.
Bombay Dyeing products are now available in at least 2,000 outlets and are aimed at all sections of customers, with prices ranging between Rs300 and Rs10,000, he said.
Mehta said Bombay Dyeing is adopting the strategy of consumer goods companies.
“We will take cues from Britannia that tapped the mass market by introducing Parle and Tiger brand biscuits. We have inducted Vinita Bali of Britannia into our board to get consumer insight,” said Mehta, who was formerly with the country’s largest consumer goods company by sales, Hindustan Unilever Ltd. “All this will be done without diluting our brand.”
Britannia Industries Ltd, also a Wadia group company, sells biscuits and dairy products across consumer sections. Bali heads the company as its managing director.
As for borrowings, Bombay Dyeing wants to lower its debt to about Rs600 crore in two-three years. Its debt increased to Rs1,800 crore in March 2010 from about Rs1,600 crore two years earlier. But “the debt was brought down to Rs1,200 crore (in March 2011) partly because (of) the revenue from PSF business and remaining from real estate revenues. Servicing debt will not be a major issue considering the cash flow is improving,” Mehta said. “With the market prices of fibre improving, we are fetching good prices for PSF business, that is running in 100% capacity.”
On Sunday, PTI reported that the Competition Commission of India has admitted a complaint that charges Bombay Dyeing and other large polyester makers with allegedly abusing their dominant market positions to dictate prices and sale terms to smaller companies.
Bombay Dyeing shares shed 6.42% on the Bombay Stock Exchange, ending trading at Rs347.85 on Monday. The benchmark Sensex index fell 2.04% to 17,506.63.