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BPL: Switching to a new track

BPL: Switching to a new track

Author | exchange4media News Service | Saturday, Aug 07,2004 8:23 AM

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BPL: Switching to a new track

Even as the ink over the deal between Sanyo Electric Company and BPL slowly dries, a host of questions are being raised. Just a fortnight back, the two signed an agreement under which Sanyo will infuse fresh funds of Rs 500 crore into the debt burdened BPL Ltd through a 50:50 joint venture for colour televisions.

The key issues now: Will this mean a new lease of life for the one-time Number One brand in the CTV segment and leader in frost free refrigerators? Given the changed market conditions where multinationals like Samsung and LG have firmly established their presence, will BPL be able to wrest back marketshare? Will it be able to pump in amounts needed to make itself heard above the babel of high volume advertising that the Korean rivals are indulging it? Where will funds come in for the company to be able to release new models every three months or so — now a norm in the industry? Finally, the nagging doubt that is at the back of everyone’s mind. How far will this new money be able to help the company wipe out its debt of Rs 1,240 crore?

Renewed Vigour

As an indicative answer, Ajit Nambiar, chairman of the new venture says that BPL has been unable to feed the market adequately over the last two years, the Sanyo venture should give it access to “adequate product/ marketing support, and newest technologies worldwide.

The company is betting on the goodwill that it believes is still there in the market along with its primary strengths: product quality, a value-for-money proposition and a presence across market segments. According to Mr Nambiar, these will form the core of its renewed marketing strategy.

The good news from the marketplace also seems to be that the brand (which should be back in October, hitting the festival season) still seems to command considerable equity in the market, going by the enthusiastic welcome by the trade and dealers. Dealers swear by the quality of BPL products and services. “BPL is still a brand to reckon with, despite LG, Samsung and Haier getting a foothold in India,” sources said.

It was one of “India’s best brands” according to Mr Ashok Kumar of Prakash Electric Company, Udipi, one of the largest BPL dealers in Karnataka. Mr Kumar is confident that the company will make a comeback in “one-and-a-half to two years time, and even predicts a 10 percent market share for the company.

The same sentiment is shared by some other industry sources. “Even today, with no advertising, no new models, and stiff competition in the market, the company manages to sell 30-40,000 units per month,” they point out as a testimony to the loyalty to the brand as well as the quality of people in the company who have managed to sell, despite problems.

Competition, however is less optimistic, though it could be wishful thinking on their part. “It may do well only in the semi urban and rural areas, but not in metros” reasons competitor LG’s Zonal manager, Karnataka, Mr C K Sashikumar. Customers have got used to superior quality MNC products and services and are starting to demand that, according to him. In an environment where players are oudoing each other and coming out with new models every three months, a one time investment of Rs 3-400 crore may just not be enough, he believes. LG has nothing to fear he feels. According to him, BPL “may only eat into the share of the smaller players”.

Revival Plan

The proceeds from the sale of the CTV facility will go towards part financing the debt, which will remain with BPL Ltd. “The key to revival of our group companies is the successful refinancing to reduce fixed cost structure as well as the cost of finance,” Mr Nambiar says.

BPL Ltd’s debt restructuring is being led by ICICI for a consortium of institutional lenders, who hold 30 percent stake in the company. Finally BPL may have to rebuild its human resources strength, a lot of which was lost during the companys period of inactivity and uncertainty. “All the good people have left,” sources say. For Sanyo, the entry into the Indian market comes a little late, long after Korean giants such as LG and Samsung have firmly established roots in India. Elaborating on the significance of the joint vnture, Mr Nambiar told Financial

Express that BPL would “also be able to access Sanyo products and trade in them in the future.” BPL’s losses as of March 2003 stood at Rs 214.5 crore. Intense competition and an unfavourable environment for manufacturing (where costs made it more attractive to import than manufacture here) contributed to mounting losses. The market for CTVs slowed down in 2002, and severe undercutting led to lower price realisations.

Working capital had become the biggest problem. The cost of running the business had become very high and the company was left with a huge manpower. “Indian companies which built manufacturing infrastructure in the early 1990s financed in rupee borrowings at the then high costs of capital (saw) higher fixed cost structure vis-a-vis foreign brands that have enjoyed the benefits of no infrastructure and lower costs of capital today,” says Mr Nambiar, explaining the bad times. What is unsaid is the role of company’s diversification into new and unrelated areas which created a block in the flow of funds, sources said.

The company invested in areas such as power generation, telecom, wireless, soft energy batteries. “A lot of money was sunk into areas like power, but returns were not seen,” sources say. Debts started rising from 2001 and 50 percent of the company’s profits went into servicing debts. In 2002, the company saw losses in the refrigerator division (which was proposed to be closed in 2003) and appliances. In 2002, when a creditor MN Dastur filed a complaint, the properties of the Nambiar family were attached by the court.

Under the debt restructuring planned in 2003, the company had decided on four business areas—consumer electronics, soft energy, medical equipment and software and component business. It also started to contract manufacture for giants like Haier to tide over the crisis. Today, CTVs alone may not be enough for BPL to make a comeback, sources say. A consumer goods company stands a better chance in the market from the distribution point of view oly if it offers the entire range of products. BPL has also hinted that Sanyo may invest in other product lines later. With the entry of multinationals, the CTV market today is fragmented among all the large players which means that even if the numbers come, BPL may never see the kind of market share it did at its peak. But at least, the current moves may have ensured that it still remains a brand in the marketplace.

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