How Telco Is Implementing the Much-Needed Turnaround

How Telco is implementing the much-needed turnaround

Financial Express - July 2, 2001

In India, for decades, automobiles and Telco, have been almost synonymous. So, when the 56 year old Rs 8,164 crore Telco made a jaw-dropping, record-making Rs 500 crore loss this fiscal, it brought in an avalanche of mixed responses. For consumers and admirers, it was a feeling of disbelief. From investors and analysts, it brought in sharp criticism. And for the company itself, it highlighted the need for deep introspection. Why did Telco come to such a pass? According to Mr Ravi Kant, executive director, commercial vehicles business unit, Telco, the Rs 500 crore loss is a combination of operating loss and one-time charges. So, the actual operating losses amount to around Rs 270 crore which can mainly be attributed to drop in volumes of mainly the heavy and medium commercial vehicles.

Mr Praveen Kadle, senior vice president, corporate affairs adds, that the company has been massively hit by the recession in the industry as there was a general economic slowdown where increase in fuel prices did not lead to a commensurate increase in freight rates. Besides, equalisation of sales tax almost doubled the cost of acquisition of a truck.

On the financial side, besides low earnings before interest, depreciation and tax, the company could not recover the cost of emission compliance by switching from Euro 0 to Euro I norms. Besides, there was negative extraordinary income as against Rs 134 crore earned out of sale of shares. Mr. Rajiv Dube, general manager, passenger cars and utility vehicles, Telco, adds that passenger car is a new item in the book of accounts. Says Mr. Dube, " When the investment is reflected in the books of accounts, it has been hit by decline both in passenger car section as well as commercial vehicles for the year 2000-01."

The turnaround strategy

In this background, the top brass of the company have now chalked out a blue print attacking various areas that need focus of attention. Indeed, there is a clear five-pronged turnaround strategy that has been put in place that will look at taking Telco out of the woods.

Cost Management: In order to reduce the vulnerability of the company to the operational factors like drop in volumes, the company proposes to go for a major cost reduction drive so that the breakeven point is achieved at a much lower rate. To this effect the company has set a very aggressive cost reduction target covering three main areas: direct material cost, conversion cost and fixed cost. A cut down in the conversion cost will entail productivity improvement as well as waste reduction whereas a slash in the fixed cost will include mainly manpower cost reduction and financial cost reduction in terms of reducing the cost of capital borrowed.

It is also attempting to make long term impact through manufacturing and management initiatives. For example, in order to improve quality, Telco has adopted the Six Sigma quality enhancement standards aiming at improving the reliability, durability and quality of the product. Further, it has embarked on implementing kaizen initiatives across the company which also aims at cost-effectiveness.

Financial Restructuring: The initiatives for financial restructuring can be clubbed mainly under keeping borrowings under control, making strategic disinvestments and improvement in the risk profile, under which it proposes to reduce the cost of funds by retiring high cost debt, reducing the working capital days and putting efficient credit control systems. The company achieved cost reduction of Rs 300 crore last year which it expects to continue this fiscal also.

Infact, this focus on the financial management has been a continuous exercise for the last two years. So, the company could bring down the capital employed from Rs 7206 crore in the financial year 1999 to Rs 6253 crore in the financial year 2001.

Organisational Renovation: Telco has started efforts towards right-sizing by bringing down manpower by 11,500 over the last three years. The company will be concentrating both on asset and business restructuring besides cost cutting. While, marketing activity will be pepped up in the commercial vehicle line of business, non-vehicular businesses like reconditioning, providing transport solution and spares will be focussed upon to reduce the cyclicality of the business.

Product Realignment: The company plans to achieve increase the volume by targeting both new product development and aggressive marketing. Says Mr. Ravi Kant, " We will place more emphasis on new product development as it is expected to make a major difference to ward off competition."

In the commercial vehicle segment, the company had already adopted the strategy of new product development by launching two new variants. In the current fiscal, the company has already lined up a whole