Business Today Net Special

Quiet About Turn

A low profile Elbee Services finds the courage to cut from the past and enters the black. Now it's up to the turnaround CEO Sandip Shah to mint money out of his new focus: the domestic market.

By Angana Bharali

Bespectacled, with quiet unassuming manners, Sandip Shah is not the prototype of a corporate chieftain. Sitting slightly self-consciously in the over sized chair of his Vice-President, Marketing, in the Delhi office of his company, the Chairman and Managing Director of the relatively little known Elbee Services Limited, seems more like a professor than a man who has steered his company back into reckoning. Elbee, the second largest player in the domestic express industry with a market share of 20 per cent, had posted its maiden profit (almost) of Rs 0.50 crore in the first quarter of financial year 2001. This after almost three years of negative earnings, mainly on the back of a strong growth in sales, around 23 per cent. To corporate watchers, the net profit may seem quite miniscule but when combined with other healthy financial ratios, operating profit margin of 10.10 per cent in March 2000 as compared to 5.78, and a return on capital employed at 6.76 as compared to 0 earlier, it is not bad.

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More important, Merrill Lynch, the God of stock market analysts has given the company and its scrip thumbs up sign. In a report published last September, Merrill Lynch says the scrip is trading at a 30 per cent discount to its historical levels. It recommends investors to accumulate in the intermediate and long term. It also expects its net profit to jump to Rs 4.2 crore by the next financial year. No wonder Shah smiles confidently and talks softly about his company's initiative to become the one stop shop for the industry. Be it third-party logistics, domestic air, domestic ground or international courier, his company seems to have one finger in the pie. But it has not been an easy ride.

A macro-economic slowdown together with internal problems had meant that sales had remained flat for almost four years. Admits Shah: "Our bid to run our own cargo aircraft was a financial disaster. We had to write off Rs 17 crore, our entire investment in the aircraft in March 2000." Adds Ashish Nain, the company's Chief Operating Officer: "With the advent of the open air policy, we found that it was much cheaper to buy space in the commercial airlines than to operate our own aircraft." Today, the company is looking for buyers for its three 5.5 tonne Fokker aircraft. But has not been able to so far, even after three months, maybe something to do with the aircraft being Fokkers. Its hub, which is coming up near Hotel Centaur in Sata Cruz in Mumbai, also ran into rough weather. Legal tangle, cost over-runs and what have you, an ample depiction of Murphy's law meant that the project was delayed by more than two years. Today, the first stage is near completion, the company is planning to lease and sell excess space, which it hopes will bring around Rs 60 crore.

The company also made a strategic decision to focus more on the domestic business. Traditionally the international business accounted for almost 60 per cent of revenues. It has come down by about 9 per cent. Says Nain: "It should be less than 40 per cent in around 2 years." It makes sense. International business is high volume and low margin, with Indian companies more or less at the mercy of its foreign partner, whose infrastructure they utilise. Whereas the company with offices in 1,200 locations within the country has more control over its overheads in the domestic business. And this means better margins. Elbee is also trying to focus more on the profitable non-document segment as the document section is becoming increasingly competitive with smaller and regional players undercutting the bigger players. The company is also shedding fat. A business process review by Arthur Anderson has helped the company reduce cost by around 8 per cent. Says Nain: "We have also started focussing more on customer profitability. Sometimes clients promise certain quantity for which they enjoy favourable rates, but they don't keep to their promises. And our margins fall." The express industry in the country with an annual turnover of Rs 14,000 crore is still in its nascent stage, even by Asian standards. The Chinese express industry, for instance, is almost six times as big. But with the industry slated to grow by over 25 per cent, according to an ORG-Marg study, there are umpteen number of players.

But the company is yet to come into the radar screens of the other industry majors. Blue Dart, which is perhaps, the biggest player in the industry with a market share of around 37 per cent, refuses to acknowledge Elbee as its rival. Says Yogesh Dhingra, Managing Director, Blue Dart: ''Elbee is not our main rival. There are many other strong players, First Flight, Gati, and Safe Express among them." Other industry insiders claim that the company is not in too strong a position financially. Its preferential allotment of Rs 37 crore to institutional investors was because of its inability to pay its debts. So will the company be able to leverage on its present performance and become an industry major in the coming years. Too early to say, perhaps, but what will stand the company in good stead is its efforts to evolve into a total logistics management company . Especially through its tie up with Bax Global. A global leader in the logistics supply management. The company's tie ups with UPS, TNT, and recently with DHL India will also be useful. In the meantime, belying his laid back exterior, Shah and his company has moved fast to tap the e-commerce market. It has tied up with 70 portals to manage their total product supply as well as payments. Only time will tell whether the company will become really successful or not.

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