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The contrarian winner

Last June, the mood in the JK Paper office in Delhi’s Bahadur Shah Zafar Marg was grim. The ripple effects of the global economic meltdown had begun to hurt India Inc and the Rs 1,268-crore JK Paper, like most other companies, was finding the going tough.

delhi Updated: Aug 27, 2009 23:55 IST
Mahua Venkatesh

Last June, the mood in the JK Paper office in Delhi’s Bahadur Shah Zafar Marg was grim. The ripple effects of the global economic meltdown had begun to hurt India Inc and the Rs 1,268-crore JK Paper, like most other companies, was finding the going tough.

Commodity prices had peaked in April, credit had become expensive and demand had all but collapsed.

Managing director Harshpati Singhania, 47, had a fight on his hands.

“Our customers were focusing on correcting their inventory positions (using existing stocks of materials to keep production lines and marketing activities rolling). Consequently they were not buying much,” he says.

The writing on the wall was clear — the Huns were at the gates. It was time to batten down the hatches and prepare for a long haul.

But investors did not like what they saw — the JK Paper stock fell from

Rs 57.20 on January 1, 2008 to a low of Rs 14.12 on March 12, 2009. It has since recovered to above Rs 30.

At several brainstorming sessions with his top management team, Singhania identified the focus areas — managing working capital flows, cutting costs and paying closer attention to employee productivity.

But he also played a contrarian card. Instead of shutting down plants and cutting production, he decided to go full throttle ahead. JK Paper’s two plants, in Orissa and Gujarat, continued to operate at 100 per cent capacity.

How did he manage this in the face of contracting demand?

“We widened our distribution network and reached out to newer customers. Not that we were not doing it earlier, but we realised that this needed to be done with greater focus,” he says.

For example, JK Paper identified packaging boards as a thrust area for rural areas — where the slowdown had a minimal impact — and focused on pushing this material in the heartland.

The company, however, declined to divulge figures for the individual shares, in its overall sales, of paperboards, copier paper and coated paper. The last two are marketed mainly in urban India.

But in another sphere, he did exactly what most others would in a similar situation — look for cash.

“We didn’t approach banks or investors. Instead, we intensified our efforts to collect all our outstanding dues from the market,” says Singhania.

His executives began chasing not only private sector clients, but also large government customers, who are usually notoriously late on all payments.

Result: “We collected crores of rupees that would otherwise have taken months to collect,” says Singhania, who is well known in Delhi for his interest in music and art.

Then, JK Paper expeditiously settled payments disputes that had reached the courts. “We decided to speed up the closure of these cases and this, too, helped us significantly,” he says.

But market conditions remained difficult. So, the company cut prices by 2-3 per cent.

These steps helped it avert any major dip in sales, though its profitability suffered.

JK Paper also took steps to improve employee productivity and reduce its wage bill.

Positions that fell vacant through retirement or resignations were not filled up, “unless they were critically important”. In addition, employees received lower increments for 2008-09. “I, personally took no increment,” he says.

Then, a handful of employees whose performance was found to be below par were asked to leave.

“Performance was key and a few — a very few — were asked to leave as we had to tighten our belt,” Singhania says, adding that he and his senior management team re-evaluated the organisational structure to improve efficiency.

All these steps helped the company stay afloat. Its marketing thrust ensured that sales weren’t impacted much. Net sales remained flat through 2008-09, but higher costs and the lower margins it received from its rural thrust brought profits down to a low of Rs 3.57 crore for the quarter ended December 08, from Rs 7.93 crore in the previous corresponding quarter.

Then, the situation began to turn, albeit slowly, for the better. The global slowdown sent the international price of pulp, the main raw material for the paper industry, crashing — from a high of $770 (Rs 36,960) per tonne in April 2008 to $380 (Rs 18,240) per tonne in September.

JK Paper used this opportunity to build up a massive stockpile of pulp — for later use.

“In the normal course, we buy pulp for two-three months. But following the crash in pulp prices, we bought enough to last us for nine months. This resulted in a huge saving,” says Singhania.

He is convinced that the worst is now behind him. This is also showing up in the numbers. Profits for the quarter ended June, 2009 doubled to Rs 20.16 crore compared to Rs 10.29 crore in the previous corresponding quarter.

Incidentally, Singhania also has interests in the cement and tyre industries, but declined to discuss them as he is not personally involved with them.

Singhania, who took over as president of apex industry association Federation of Indian Chambers of Commerce and Industry (Ficci) earlier this year, is, however, modest about his stewardship of the company during this difficult phase.

“My responsibilities as Ficci president took up quite a lot of my time. So, I must say that my senior management team rose up to the occasion and did a great job of tiding over the crisis,” he says.