The financial crisis posed a diversified set of challenges and learnings across the many companies that make up the group. While CESC Ltd and the power business overall was not affected by the slowdown, others like Phillips Carbon Black Ltd (PCBL) were, and required proactive measures. But it is important to differentiate between what a company or a group does in response to normal business pressures and a response structured to cope with a global crisis. And that is exactly what I wish to point out.
CESC was not affected by the slowdown on the operational side because demand for power in the Kolkata-Howrah area we serve was above expectations and, in fact, rose by around 100mw to a 1,600mw peak in the 2009 calendar year. The meltdown presented an opportunity on the projects side. At meetings in Delhi, I met power equipment manufacturers who were facing cancelled orders and had been impacted by the slowdown.
This we decided to convert to our advantage. Instead of sticking to our scheduled equipment delivery orders, we negotiated with suppliers like Bhel to fast track the erection and commissioning of our 250-mw third unit at the Budge Budge power plant.
It was a challenging proposition?we presented a formula that would help CESC commission its power facility faster, seizing the opportunity presented by the slowdown.
It would mean savings in time and savings in finance charges because we could settle the LCs and other instruments that were in place on the project financing side. For the suppliers, it was a good though unconventional plan?they had to work at double speed to deliver equipment, but as they had few orders in had, they did not complain. The logistics plan had to be completely reworked and also the work required at the site on our part.
This entire project management exercise was put through a major mid-course correction and we ended up with a project that was completed in a record time of 28 months and saved over Rs 100 crore because of the time saved. The lesson we learnt was that the slowdown was a good time to grow.
Similarly, the maiden project of CESC Properties–a 700,000 sq ft mall in Kolkata?was completely renegotiated to bring down the project cost by 15-16% and get in the right type of partners. How? The big names that we wanted to design and build the mall had been impacted by cancelled orders and were one of the few in the market to offer business. It meant lower costs for us and welcome business for our partners.
At PCBL, the problem was a sharp drop in demand and unsustainable prices. In response, the company put in place very strong controls on raw materials and delivered only against secure orders. But, more importantly, it continued with its plan for expansion of capacity and rapidly commissioned its carbon black and power plant in Gujarat. Investment in co-generation power plants to raise capacity to 75mw is on track and so is the plan to become the sixth-largest carbon black producer in the world.
At Spencer?s, we responded to the challenge by deciding once and for all that we would focus on large-format stores (our Hypers) and, in parallel, launch smaller specialty stores offering ranges like ?gourmet? or ?fish-n-meat?. We reworked the formats and took measures to bring down costs by Rs 100 crore in one fiscal. But I feel these were due to business pressures more than learnings from the slowdown.
The lesson, in conclusion, was to use the opportunity presented by the slowdown to fast track projects and seize advantage of your position of a buyer in a seller?s market.
Invest in assets that were overpriced earlier and exploit the commodity and products down-cycle to buy on the cheap, eliminate delays and set up the outfit for the future.
And finally, overcome the uncertainty that happens in any slowdown by standing up to adversity with a clear plan to face it, share this with stakeholders in the business and get them on your side. A company has to be seen as a venture that is not afraid to convert turbulent times into opportunities and more than at any other time say, ?We are here to stay, and win, and we have to do it together.?
