Flat sales and plunging profits at Duncans Industries mean that the G.P. Goenka group can no longer put off the restructuring of its diversified flagship.

By Debojyoti Chatterjeel

Gouri Prasad Goenka is in the think mode these days. The younger brother of Rama Prasad Goenka has a decision to make. One that could well determine the fate of the Rs 1,200-crore Duncans Industries Ltd (DIL), the flagship of his Rs 2,500-crore group. And, it's a split decision to boot. ''In a world that is changing at the click of a button, any company will necessarily have to change as well. Not just to grow but to survive,'' says Goenka. The result: management guru and London Business School professor, Sumantra Ghosal, has been roped in to lead a Duncans restructuring team comprising Goenka and his Senior Managing Director Bhaskar Banerjee and P.K. Kaul, another director on the board.

At the heart of Ghosal's brief is the demerger of DIL's tea and fertiliser businesses. Sounds simple. But it is anything but that. Simply because, for one, DIL has been trying to take a decision on this very issue for the last four years or so. ''Tea contributes nearly 75 per cent of DIL's total business, with the remaining 25 per cent coming from fertiliser. What we have to decide is whether demerging will provide impetus to both businesses separately or not,'' says Bhaskar Banerjee. He, along with Kaul, has started work on the restructuring programme, which will finally be vetted by the four-member committee.

What has triggered this whole exercise is DIL's performance in 1999-2000 and, by all indications, even this year. While the company's sales rose by around 8 per cent the previous year, net profits nearly halved from Rs 60.23 crore to Rs 31.94 crore. The culprit, the company says, was poor price realisation in both tea and fertilisers. This year it is slightly better. But Goenka says that one year taught him an important lesson that may be by demerging the divisions DIL will pull the stops on the two businesses. ''Moreover,'' says Goenka, ''tea is being forced to subsidise the fertiliser business-something we can ill-afford.''

The Comeback Trail

In fact, it is this that prompted the group to get down to do some serious thinking. The first item on the agenda is identifying the non-performing assets in the company, and retiring expensive debts. The value of such assets is somewhere in the region of Rs 250 crore and DIL will have to meet the liability from its own reserves. Goenka has already started discussions with financial institutions like the IDBI, ICICI, and IFCI on rescheduling the loans taken by the company and its various associates.

An analyst at JM Morgan Stanley points out that some of the moves initiated by the group during the last couple of years should help in the demerger. For example, Accenture (formerly Andersen Consulting) in 1998 worked out a restructuring plan for DIL's tea and fertiliser businesses, which function more or less as separate business units. The fertiliser business has also undergone a major energy saving exercise in 1998-99. The revamping of the Panki, Uttar Pradesh, facility has made the 8 lakh tonne urea plant more energy efficient. Simultaneously, DIL is trying to push fertiliser consumption (and of its own brand, Chand Chhap) by strengthening its dealer network and conducting sales promotion across key markets. Fertiliser offtake has been sluggish despite import restrictions.

Branding will also be the key to growth in DIL's tea business. Currently, the company produces 17 million kgs of tea a year, translating into Rs 900 crore in revenue. In 1999-2000, the top-end of the branded tea market declined by a precipitous 15 per cent, DIL was able to actually grow, thanks to its prized Runglee Rungliot brand. Goodricke Tea's Managing Director, K. David, points out: ''Duncans is constrained by a lack of growth in its non-premium packet tea-brands.'' In response, DIL plans to increase the franchise of two of its other brands, Double Diamond and Shakti, to become a major player in the packet tea segment. ''We are also looking at the possibility of exporting to some rich middle eastern markets,'' says Banerjee.

The Big Picture

The restructuring of DIL is not the only point on Goenka's agenda, even though the company accounts for almost half of the group turnover. ''The market capitalisation of the group as a whole continues to be a matter of concern,'' admits Goenka. DIL apart, the group has Consolidated Fibres (makes PFY), Stone India (brake linings), Star Papers, Herdillia Chemicals (organic chemicals), and National Rayon, among others. And one of the ways Goenka plans to kick off their upward journey is by reducing group's majority holdings in these companies. On the one hand, it will bring in fresh funds. And on the other, it will free the group to look at new businesses. ''Since much of these holdings are through group companies anyway, it makes sense to unlock their resources,'' says an analyst at JM Morgan Stanley.

Much like the other group companies, DIL is also contemplating reorganising its eight subsidiaries. Companies like Andhra Cement are pretty big. For that to happen, DIL will have to work out a position in which the subsidiaries do not prove a drain on resources, but actually contribute to the wealth-creation exercise within DIL. ''The process of identifying the correct method of restructuring has just begun, and we hope to come out with a concrete plan before the end of this fiscal,'' says Banerjee.

There is just one question, though. Will Gouri Prasad Goenka make the high jump? From the looks of it, the 56-year-old FICCI senior does seem ready to make an effort. But whether or not he actually soars over the bar is anybody's guess.

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