SEPT. 15, 2002
 Cover Story
 BT Event
 Personal Finance
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Q&A: Douglas Nielson
Douglas Nielson, Chief Country Officer, Deutsche Bank, India, speaks to BT Online on what the bank has in mind for India, particularly its plans in the asset management arena. Equity research, as Nielson says, will emerge as a key differentiating factor in this business, and that's exactly what Deutsche is working on.

Long Bond Is Back
The government is bringing back the 30-year bond. Will insurers be the only takers?

More Net Specials
Business Today,  September 1, 2002
The Case Of Sustaining Recovery
Should GCL dump its steel business and forward-integrate? Samir Thapar of JCT, Rajan Chhibba of KSA-Technopak, and B. Hyma of Arvind Brands discuss.

It was 12 years since Anurag Galgotia had breached the green ribbon to qualify for the finals of the 100-metres dash in the national inter-univ athletic meet. He never thought he'd experience the same mix of elation and tension again, and that too, in his business life. Yet, here he was, all of 29, already CEO of his 50-year-old family textiles firm, Galgotia Cotton Looms (GCL), his heart pumping to the thrill of a turnaround.

"Still relishing the numbers?" asked the CFO, Sadashiv Godbole, referring to GCL's q1 results for 2002, which showed a Rs 1.5 crore profit against a Rs 21 crore loss for the same quarter of 2001. "We're back in business," said Godbole, sinking into the upholstery.

Nearly twice Galgotia's age, Godbole was a 20-year GCL veteran. He had signed up with Anurag's father Kishorilal Galgotia, who'd started the firm in 1952, in Ludhiana, to make cotton textiles. Cotton sheets, shirtings, cambric, and mazril were the first products, and it seemed like only yesterday that the firm went public-before getting into synthetic fibre and even steel.

By the early 1990s, the GCL tapestry, once richly interwoven with natural, synthetic and steel threads, had started fraying. First, the polyester division became a drag, and then, steel-as competitive dynamics started changing.

By 1998, GCL had got to what then seemed like a point of no return. Debt had mounted to a staggering Rs 1,300 crore, almost equivalent to the group turnover. Financial institutions threatened to pull the plug on the company, and the pink papers went to town with obituaries on GCL.

The diversification was unnatural to start with, said critics. In his time, Galgotia Sr., a cotton loyalist himself, used to respond philosophically, arguing that so long as people were discerning of what was natural and what was man-made, and the business was not deceiving anyone, there was no cause for worry.

"We have big stake in tomorrow's clothing trends—and we should be out there, shaping them"

Galgotia Jr., who'd just returned from Wharton, had only hard options left. Painful as it was, he had to restructure the group. The uncompetitive polyester division was sold off to the Keshwani group for Rs 620 crore. Financial institutions got a chunk of preference shares. At the end of it all, GCL came out lean, mean and still weak-with residual debt of Rs 510 crore.

In spite of all that, young Galgotia had defied the doomsayers, and managed to haul GCL out of the red. "Ask Vishesh to see me," Galgotia told his secretary. Godbole knew what was coming. A three-way brainstorming session with Vishesh Pradhan, the Group Marketing Head. Galgotia preferred such informal sessions to pretentious board-room antics.

"Terrific results," began Pradhan, on entering the corner office "To be frank, I did not expect our cost-saving efforts to show results so soon."

Galgotia could see that his top honchos had been motivated by GCL's showing. But he was keen on knowing what his best minds thought of GCL's future. "We all know that this recovery was due to three factors: the staff optimisation drive, coupled with aggressive technology implementation in the plants; the performance of our textiles division, which was mainly due to the 25 per cent slump in cotton prices; and the successful diversification of the filament division into lucrative thermoplastic and engineering grade nylon. My question is: where do we go from here?"

Cost-cutting couldn't be a perpetual strategy, nor could GCL expect cotton prices to remain low forever. Pradhan spoke: "I think it's time we decided what GCL is. I don't think we can continue being a textiles-nylon-steel player, and still work wonders."

"Be direct," said Godbole.

"I'm talking about steel," said Pradhan, "We'll never be a steel major, so why are we making steel?"

"You must be joking," interjected Godbole. "Our debt is off the danger mark, and if only you'd read the balance sheet carefully, you'd have noticed that the steel division was our productivity topper. Besides, we'll never fetch a half-decent price for it."

Pradhan cleared his throat for a response: "I still think we should stick with cloth fibre and cloth, that's it, but integrate the business either backward or forward. Backward routes are blocked by heavy competition in polyester-it's a scale-of-operations game. That leaves cotton farming, which could be complicated. But forward? Shouldn't we redouble our efforts in getting closer to the consumer? It's almost an axiom now. The link closest to the consumer sits on the fattest margins."

"What's wrong with GCL as a consumer brand?" asked Galgotia.

"Nothing, it's just that textiles aren't what people talk about anymore, even if we have product distinction. They talk about Fashion Weeks and all that, and those are the actual brands young people have in mind. Value-addition has moved forward, from cloth to the design-that's where we should be headed as well."

"We're a high-volume industrial group," said Godbole, "not a boutique for the urban brat-pack."

"Well," retorted Pradhan, "I meant a mass-market initiative. The market's cotton versus synthetic balance affects our bottomline directly, and we have a big stake in tomorrow's clothing trends-we should be out there, shaping them. Cotton's a winner, so long as consumers turn discerning and see clothing as a means of communication rather than a shield against the elements."

"We have no power over that," said Godbole.

Galgotia looked unmoved by either of them. "Now, let me suggest something," said the CEO, "I understand you guys are keen on some radical strategies. But let's realise that we're barely out of the woods yet."

The group fell silent. Godbole and Pradhan recognised the tone of voice the young chief had spoken with. Some soul-speak was on its way. "I think we should begin with the basics," Galgotia began, leaving his seat and walking up to the window overlooking the crowded central Delhi market. "First of all, we should infuse some much-wanted capital into the textile and filament divisions. Let's replace old looms. On the front-end, let's go after exports, big time. We mustn't miss the 2005 world trade opportunity, and the natural versus synthetic trends are clearer in the high-margin western markets. Cotton wins."

"Great," muttered Pradhan, turning to Godbole. "Now if only we had that much-wanted capital to infuse."

"I think we have," smiled back Godbole. "We have been current for the last one-and-a-half years with all our financiers. I have it covered"

"Getting the priorities set is the first task. I have just spelt out a survival strategy. Something we must do. But what we need next is a clincher. Something that will tell our shareholders that GCL is game for the long haul. I suggest we break up and reassemble on Monday with an imaginative plan on everybody's mind."

Galgotia turned around and gazed at the horizon. He'd given himself another green ribbon. But were Pradhan's ideas the ones that would propel him to it?

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