In quest of a better harvest

Papiya De

THE WAY AHEAD: Rallis India CEO Rajeev Dubey

Like most of its counterparts in the Tata Group, agrochemicals major Rallis India brought little cheer to its shareholders during the annual general meeting. On September 10, its 73-year-old chairman Freddie Mehta left no stone unturned in his attempts to assure them that the company was trying to rectify all that went wrong in the year 2000-01. As a first step, the company has brought in a young CEO with a single mandate: turn around Rallis.

For 48-year-old CEO Rajeev Dubey, the task is not as simple as it might sound. He has taken over Rallis not only in a year when the company has turned in a Rs 33 crore loss, but also one that has been deemed the worst in the past two decades in terms of agricultural yield.

It would then not be an exaggeration to say that the year 2000-01 was a disaster for Rallis, considering it went from a Rs 24.6 crore profit in 1999-00 to post-tax losses of Rs 25.6 crore in 2000-01. The company had deployed its resources based upon a certain expectation of demand and price. On account of a poor
agricultural yield, the demand was much below expectations, hence return on capital was equally poor.

Industry woes
It’s true that most agrochemicals companies, especially those who make generic agrochemicals, did not do well last year. “It is true that our sales were lower, our prices unremunerative and loans very high. Part of the reason for these high loans were huge outstandings. That is a reflection of the market forces,” admits Mr Dubey. All these put together combined to make last year a bad year. The company had to absorb a net loss of Rs 14 crore, Rs 33 crore of actual losses countered by Rs 19 crore of positives from sales of pharma division and real estate. By May 2000, the first two months of the last fiscal, the company had already registered losses to the tune of Rs 22 crore, which substantially improved over the rest of the year, but did not manage to negate the losses made in the first few months.

Turnaround blueprint
To pull itself out of this mess the company has chalked out an elaborate game plan. The turnaround blueprint reads like this: sharpening business and product portfolios, improving cash management, introduction of new products, reducing costs throughout the value chain and strengthening controls and business processes.

“It’s a bit too early to claim that we have turned around, a turnaround is something which has to be seen over a period of time,’’ says Mr Dubey. However, numbers elucidate that for the last three quarters in a row, without considering any extraordinary income, the company has been making profits. And what’s more, the difference between the first six months of this year compared with last year is quite sizeable, somewhere between Rs 17 crore and Rs 20 crore. And if extraordinary income is added on to those figures it would look even better at around Rs 46 to Rs 47 crore. Operating profit margins have also improved from 0.6 per cent in the first quarter of 2000-01 to 4.6 per cent in the corresponding quarter this year.

To begin with, the company has appointed four management consultancies to help reengineer its business processes. Accenture has been hired to enhance productivity at the shopfloor and improve supply-chain management. Renoir Consultancy have been brought in specifically to strengthen sales and distribution channels across India. For, Eicher Consultancy Services the job is to advise on organisational restructuring model and help in human-resource related activities. With its help the company has launched HR initiatives like implementation of the performance management system, enhanced internal communications and brought about certain changes in management techniques and models. Tata Strategic Management Group (TSMG) has been working with Rallis on long-term strategy development. It has helped the company identify its core areas, ie, pesticides and fertilisers and has advised Rallis to focus on higher margin products.

Password profitability
“We have a sharper focus on our product line with a greater emphasis on the bottom line than on the topline. There is a distinct move to improve the business processes and improve cash management but introduction of new products will be critical to our success,” says Mr Dubey. Analysts feel that the company will have to invest in introducing new products, in R&D to combat competition. Agrees Mr Dubey, “We certainly have to find out the untapped needs of the customer and which of these requirements can be profitably converted into products or services by Rallis. We are looking at an average capital expenditure of Rs 18 or 19 crore per annum on R&D which is roughly equal to the depreciation.”

In fact, the company has decided to concentrate on high margin products and get out of unprofitable businesses. One of the most crucial decisions was to stop trading in imported bulk fertiliser, which contributed to nearly Rs 190 crore in the Rs 1,400 crore in 1999-00.
With a consolidation of the Indian arms of multinational companies — Rhone Poulenc and Agrevo combining to form Aventis Corp, BASF with Cyanamid Agro and Monsanto with its group companies, the MNCs have a more diverse product portfolio on offer. However, Rallis has an enviable marketing and distribution network with 4000 dealers and 30,000 retailers across the country. The company is now trying to streamline and rationalise depots and dealers. In addition to its distributing strengths Rallis has chalked out an alternative strategy to compete with MNCs. “There are a lot of niche segments which might not be economically viable for an MNC to cater to, and we have to quickly identify those areas and service it,” says Mr Dubey.

Greener pastures
Not surprisingly, the company’s sales over the last 5 years reflect that the company is not as dependent on cotton as it used to be
earlier. Rallis will be moving to produce like paddy and vegetables, where competition is not cut-throat. Similarly, among markets Andhra Pradesh, Maharashtra, Karnataka and Punjab in relative terms will be less important and parts of eastern India, Jharkhand, Chattisgarh, eastern UP and Bihar will assume more importance than it did earlier.

Other than entering into new markets and getting into new crops, the company is also looking at seeds and biotech as potential growth areas. “In seeds we could look at both organic growth as well as acquisitions,” says Mr Dubey. Currently, seeds contribute to only 6 to 7 per cent of the turnover. “Till now we were an agri-input supplier, now we are looking at the entire agricultural value chain. We are now seeing the value chain between the farm and the consumer and we are trying to figure out which part of the value chain Rallis can enter into and create value for the farmer, for the customer and for Rallis itself,” says Mr Dubey.

The company has undertaken four pilot projects in farm management to understand market dynamics and economics. The Rallis Kisan Kendras will try to help farmers right from supplying inputs, to arranging funds to supplying their produce to various retailers.
What Mr Dubey also admits is that the company is in talks with a number of potential strategic alliance partners. Refusing to divulge any names Mr Dubey said: “We are scouting for alliances both in sales and marketing as well as in R&D, some of them will be long term and some are short term.”

Future plans apart, the company has also undertaken a major cleaning up act. The company has embarked upon a financial restructuring spread over a 18-month period whereby it plans to replace high cost debts with low cost ones and also retire debts. “We have brought down the the debt burden by about Rs 70 crore and reduced our interest burden but a lot is yet to be done,” says Mr Dubey. The interest burden has fallen substantially from Rs 15.1 crore in the first quarter of 2000-01 to Rs 7.2 crore in the corresponding quarter this year. The company had used the proceeds from its sale of the pharma division and its property in
Chennai to retire debts. Rallis had earlier sold its pharma division to Shreya Impex. With its recent deal with Tata Consultancy Service, whereby it will sell its property at Andheri in Mumbai at a whopping Rs 133 crore, will improve the cash situation further, and Rallis is probably going to use part of it to retire debts and the rest to fund its entry into biotech.

The company is also rationalising its manpower. It introduced a voluntary retirement scheme (VRS) to trim the flab. The company has also merged its subsidiary companies Ralchem, Sankhya Garments, Rallis Finance & Investments, Rallis Hybrid Seeds and Rallis Farm Management Services with the parent company. This will enhance operational synergies, eliminate competition and increase bargaining power, resulting in cost reduction. The other non-operating subsidiary Siris India will be referred to the Board of Industrial and Financial Restructuring (BIFR).

The plans seem perfect on pen and paper. However, what differentiates a good plan from a bad one is its mode of execution. Now, it needs to be seen how Mr Dubey along with his new management team will implement these plans to bring about an effective chemical change in Rallis.