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Extensive Coverage of Balmer Lawrie in Business India, January Edition

Extensive Coverage of Balmer Lawrie in Business India, January Edition






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    Extensive Coverage of Balmer Lawrie in Business India, January Edition Extensive Coverage of Balmer Lawrie in Business India, January Edition Document Transcript

    • u 70 u January 20, 2013 Business India u the maga zine of the cor por ate wor ldCorporate Reports A year back, the Kolkata-based public sector Balmer Lawrie and Co Limited unveiled plans for a 50-acre logistics hub at Dankuni at the eastern junction of the Golden Quadrilateral National Highway at the outskirts of Kolkata city. Now, “all our efforts with the Bengal state gov- ernment for the land clearances hav- ing failed, we have abandoned the project,” says chairman and manag- ing director Viren Sinha. In contrast, Andhra Pradesh has breathed fresh life into the `170 crore Balmer Lawrie investments in a multi-modal logis- tics hub in partnership with Visakha- patnam Port Trust. The hub comprises road/port/rail-connected container freight station (cfs), warehouses, cold chain facilities, as well as a truck park spread over 50 acres. It will be open by beginning 2015. “We expect Union shipping ministry’s approval shortly,” says, Sinha. Visakhapatnam port traffic is growing 25 per cent year on year, says Niraj Gupta, director, service busi- ness. “Kolkata Port Trust has given us some land for modern warehous- ing to integrate our operations, but the scale is not as good as we would have liked it to be. Kolkata and Hal- dia port traffic has become less reli- able over the years, because of silting in the river and freight growth rates are not the best in the country,” Gupta adds. Balmer Lawrie already has cfs facilities in Mumbai, Chennai and Kolkata, handling 180,000 teu (20 ft equivalent unit). Half of this is in Navi Mum- bai port, with Chennai and Kolkata sharing the rest. These three facilities are under expan- sion, through an investment of `40 crore. While the facility at Mum- bai has expanded to 26 acres (from 20 acres), Chennai has gone up to 17 acres (from 10 acres) and Kolkata to 16.5 acres (from 10 acres). The work is going on in improving all ware- housing facilities. Balmer Lawrie also has an inland logistics unit in Coimbatore and the growth in the coming years of Chen- nai is expected to be greater than Kolkata, the company’s traditional home base. Balmer Lawrie already Aiming growth Balmer Lawrie aims at a larger slice of the logistics pie, while planning to spin off barrel manufacturing Photos:SajalBose Sinha at the barrel unit. May spin off the barrel business
    • u 71 u January 20, 2013 Business India u the maga zine of the cor por ate wor ld Corporate Reports has other major business units in Chennai and this could be impor- tant for the company’s future. It also has an ailing subsidiary Transafe (the plants of which are in Coimbatore and Kharagpur) with Balmer Lawrie Van Leer, which man- ufactures and handles non-standard containers used on Indian roads. The company plans to gradually shift to railway containers, because the coun- try lacks container handling facili- ties for truck traffic. Balmer Lawrie’s clutch of logistics-related businesses contributes `460 crore to the com- pany annual turnover. Balmer Lawrie is also the largest organised steel barrel manufacturer in India. It has a strong Chennai- based jv with Van Leer of Holland for the manufacture of plastic bar- rels and steel drum closures. There is a proposal to spin off the barrel busi- ness in the next two years, which the board has been pursuing with the ministry for some time. This will unlock the enterprise value of the business and enable the division to tap the various opportunities in industrial packaging – both in steel and plastic. The usage of plastic drum is grow- ing in the country and can offer integrated packaging solution to customers. The company is in talks with the ministry, which may lead to the inclusion of Van Leer, the world leader in steel drums, in the projects. The ministry is likely to form a com- mittee soon to look into the issue, but the management is tight lipped about it at the moment. Capacity increase Balmer Lawrie produces up to 4 mil- lion barrels a year, worth `488 crore, in its six plants at Mumbai, Chen- nai, Kolkata, Asoti, Silvassa and Chit- tor. Their capacities range from 165 litres to 210 litres and they are used in lubricants, chemicals, paints, bitu- men and food industries. “We make the drum thin, flexible or rigid, depending on the need, and because of our superior technology, we have 45 per cent of the national market share,” says Anand Dayal, director, manufacturing. The new Navi Mumbai barrel plant, being set up with an invest- ment of `100 crore, will increase capacity by another 30 per cent by 2014. The modern plant will run with just 20 workers, as against 150 in older plants. “Western region accounts for 65 per cent of barrels in India,” says Sinha. “And the company is the major supplier for the lubricants indus- try. The multi-locational benefit and well-accepted quality standards make Balmer Lawrie a preferred supplier,” says Satish Gupta, managing direc- tor, Agarwal Packaging, a Pune-based barrel manufacturer. The business demands plants in many locations, because barrels are voluminous and cost more to transport. In April this year, the government Anand Dayal: thrust on the retail sector Financials (` crore) 2012 2011 2010 2009 2008 2012 2011 2010 2009 2008 Income PBT PAT 1,776 1,751 2,148 2,450 1,571 130 152 153 181 190 101 117 121 138 87 Revenue break-up 2012 (` crore)2012 (` crore) Others* 66 Chemicals 54 Tours & Travels 928 Logistics 460 Greases & Lubricants 454 Industrial packaging 488 *Others includes `2 crore from tea business Shareholding pattern Government 62% Public 24% Bank & FIs 14%
    • u 72 u January 20, 2013 Business India u the maga zine of the cor por ate wor ldCorporate Reports has issued a notification stating that all barrel procurement by govern- ment institutions, including psus, has to be from msmes, in an effort to boost the sector, which automati- cally disqualifies Balmer Lawrie from putting up any more tenders to gov- ernment-owned oil companies. “We have successfully broken away from our dependency on the government contract line in barrel business,” says Sinha, reacting to the notification. “Today, only 20 per cent of our rev- enue in barrel division comes from government contracts, as against 80 per cent five years back. So, this move will not have a major impact on our revenues. Also, we will strengthen our marketing efforts to gain more share in private sector.” Dayal con- curs. “Quality is a major param- eter for the oil companies. How can a small manufacturer control quality,whichneedsbiginvestment?” he asks. Balmer Lawrie’s Balmerol brand of grease and lubricants has 3 per cent of national market share and con- tributes `455 crore to the revenue. It has four blending plants in Kolk- ata, Chennai, Mumbai and Silvassa, which produce 45,000 tonnes of it per annum. Balmerol is strong in steel, mining, railways, defence and auto- mobiles industries, which account for 70 per cent of its market. There are moves to ramp up retail and con- tract supply sectors – especially, the automotive retail sector which com- prises 65 per cent of all lubricant use in the country. Balmerol competes with market leader Castrol (with 24 per cent), as well as Veedol, Pennzoil and Shell, besides large oil companies like Indian Oil, bp and hp. The company also has changed the packaging colour and logo of the brand. There is a wide variation in grease and the product is decep- tively simple looking. “Formulating is a key skill and we have a long- standing state of the art application research lab,” says Dayal. Another 20,000 tpa capacity is being added to the Silvassa plant at an investment of `35 crore and is expected to start production any day now. Its 60-year- old 20,000 tpa Kolkata plant on Hide Road in the port area, is likely to be curtailed and moved out to a fresh location, because of environ- mental laws and the need for space to expand. Similarly, the 6,000 tpa Mumbai plant in the Sewri area will also be shut down, due to environ- mental concerns and the production shifted to nearby Silvassa. The com- pany plans to sell the land in Sewri. Balmer Lawrie is a Category i mini-ratna, with an ‘excellent’ MoU performance – a rating given by the government to encourage better per- formance at public sector units and give them relative freedom from the government. It gives the psu some liberty to make independent invest- ment decisions – of up to `500 crore, or equal to company’s net worth, whichever is less. The MoU is an agreement made by the company management with the government on the annual performance expected from the company. Share of burdens “Most of Balmer Lawrie’s business units are operating in the matured market segment, with relatively lower margins. Despite a consistently Gupta at a cfs. Logistics is the principal driver of the company’s profit Balmer Lawrie, a partner- ship firm, was established in 1867 by two Scotsmen – Stephen George Balmer and Alexander Lawrie – for tea trading, tea blending, ship- ping and forwarding. The four-storied office building, which is also the present hq, was built in 1909. And, in 1924, the partnership was converted into a private lim- ited company, only to become a public limited company in 1936. Next year (1937), Balmer Lawrie entered into the manufacturing arena, when it set up its first grease plant at Kolkata. In 1968, Duncan Broth- ers acquired the company. But, in 1969, when managing agency system was abolished in the country, Balmer lawrie lost the managing rights of over 40 tea gardens. In 1972, the management divested their stake in favour of Indo- Burma Petroleum Com- pany Ltd (ibp). The company became a subsidiary of ibp, when the oil companies were nationalised in the same year. And, when ibp merged with Indian Oil in 2002, the share of Balmer Lawrie held by ibp was transferred to Balmer Lawrie Investments Limited, a shell company. Continuing with a diverse clutch of businesses, and operating out of its heritage Genesis and after
    • u 73 u January 20, 2013 Business India u the maga zine of the cor por ate wor ld Corporate Reports strong liquidity position and highly conservative capital structure (nil debt equity ratio as on 30 Septem- ber 2012), Balmer Lawrie has not ventured into any major expansion or acquisition during the last few years. The company’s prospect lies in its ability to identify lucrative busi- ness segments and diversify through the organic or inorganic route,” says Sourav Chatterji, assistant general manager, care (Credit Analysis & Research), which has rated Balmer Lawrie at aa+. Balmer Lawrie has its share of bur- dens too. Its oldest tea business has been running up losses for some time now and is likely to be phased out in the next one year. “Balmer Lawrie was a prominent managing agency in the country and had major controling stake  on tea estates in Assam  . The company was one of the key mem- bers of India Tea Association (ita) till 1970’s.  As stated in record, the last ita chairman from Balmer Lawrie Company was in 1964.” recalls ita secretary general Monojit Dasgupta. Gradually since 1980 Balmer Law- rie tea business started fading as the focus of the company shifted to other diverse business activities. At pres- ent they are non significant in tea, Dasgupta adds. The tea division has a small blending plant and its two brands of packaged tea – Tarang and Balmer Lawrie, The Tea – do not have any significant market presence. The company’s strong travel agency busi- ness also faces some overwhelm- ing challenges in a changing online world. Balmer Lawrie is India’s old- est iata-accredited travel agency, with a tally of `928 crore in billing. However, with internet travel book- ing and shrinking agency margins, its profit before tax is just `11 crore. Also, the unit has been plagued by a large outstanding of over `80 crore - mainly from public sector firms and the government, which forms 95 per cent of its business. Balmer Lawrie will need to exam- ine its options in this business unit and either re-work the business model or shift it out. However, the management believes that the advent of fdi into the aviation sector is also likely to see the entry of low-cost car- riers operating in the country, which will make air ticket prices cheaper and competitive. This will increase traffic flow and business volume. Cheaper air travel is also expected lift the restriction on air travel move- ments by government employees, which were introduced as part of austerity measures. Balmer Lawrie has been at the receiving end of some government Sahoo: strategising to trim labour cost Balmer Lawrie’s Joint venture Company Stake Operations Balmer Lawrie 40% Plastic drum Van Leer containers & steel drum clousers Transafe 50% Container leasing, Services warehousing & manufacturer of special purpose containers AVI-OIL India 25% Aviation lubricants Balmer Lawrie 49% Packaging media. (UAE) LLC Steel & plastic containers, cans tin etc. PT-BL Indonesia 50% Grease & lubricant office building in downtown bbd Bagh in Kolkata, Balmer Lawrie kept its bottomline in the black through the last 144 years. “The company, which has seen fewer upheavals, despite being a sundry hold- ing of the Union ministry for oil & gas, has kept its bal- ance sheet in good health,” says finance director Prabal Basu. The government holds 62 per cent of Balmer Lawrie, while 24 per cent is held by the public and the rest, with bank and fis. The company’s annual sales have touched `2,450 crore, with a net profit of `138 crore. The stock price has moved from `453 in Decem- ber 2011 to touch a 52-week high of `709 in Novem- ber 2012, on a `10 share. Currently, the share price is hovering at `650, keeping up with the bse Sensex. The company’s turnover for the September quarter went up by 20 per cent to `635 crore, as against `531 crore during the corresponding previous quarter. “The new capac- ity addition and the market- ing initiatives will improve company’s growth,” says Basu. “We expect to achieve a turnover of `3,500 crore by 2015”. The company’s manage- ment has been fairly stable, with only two chairmen in last five years. S.K. Mukherjee, who retired one year back, is believed to have been con- servative, with the company hardly going for any expan- sion during his tenure. u
    • u 74 u January 20, 2013 Business India u the maga zine of the cor por ate wor ldCorporate Reports experiments too. Its Chennai-based leather chemicals division has Cen- tral Leather Research Institute as its technical partner. The management claims it has developed a pioneer- ing chemical - to replace natural fats used in leather tanning with syn- thetic fat liquor, which is cheaper and more durable. The division also has a construc- tion industry chemical plant in Kolk- ata. Although the company reported `54 crore in sales in this segment, it lost almost `2 crore because of a stiff increase in imported raw mate- rial price. Another of its failed ventures is the lpg bottle manufac- turing plant in Kolkata and Mathura, which have been shut down, after the government licences and quota restrictions on these products were removed. Since this business is con- trolled by small-scale sectors which produce at low cost and under-quote price to grab orders, the company could register almost no margins in recent years. Also, the high cost of maintaining zero failure rate had made the business tough to be in for Balmer Lawrie. “We somehow have retained the legacy of managing agency culture, minus its hierarchical structure,” says Sinha. “The strength of the com- pany is its experienced team of peo- ple and their innovation to perform in a competitive world.” Balmer Lawrie has managed its joint ventures well. Van Leer has been its partner for two decades now. The company also has part- nerships with avi Oil (an ioc ven- ture) and Nyco of France for aviation industry lubricants, pt-bl Indonesia for grease and lubricants, and bl-uae (with Sheikh Hasher Maktoum of Dubai) for drums and steel cans. Five jvs including two oversea ventures adds an additional `390 crore on the company’s gross revenue. Business diversity Balmer Lawrie was nationalised in the early 1970s (see box). It was probably taken over more because of political pressures than for business reasons. It was attached to oil minor ibp and left largely to fend for itself. ibp itself has now been amalgamated with Indian Oil and a proposal to sell of Balmer Lawrie has been long-standing. The nda government proposed to do so as part of its privatisation process in 2003, before some political argu- ment stopped it. The upa i manifesto stopped its sale in 2004, under pres- sure from the Trinamool Congress. “In 2003, some private sector bid- ders were looking us up, but the offi- cers’ association felt this would lead to asset stripping and took it up with the ministry. And the move to sell collapsed,” says Anand. Balmer Lawrie has been blessed with the luck of being able to exit businesses – a rarity for a public sec- tor company. It has, at various times since the liberalisation of the Indian economy, closed down its lpg cyl- inder plants (Mathura and Kolkata), grease chemicals manufacturing (Taloja) and a marine freight con- tainer manufacturing (Kochi). “Man- power has been trimmed from 3,400 in 1993-94 to 1,400 today, by offer- ing vrs, merger of functions and outsourcing service areas,” says P.P. Sahoo, director, hrd. Sahoo started hiring more con- tractual labour since early 2000 and has not recruited against retire- ment. In the drum plants in Sil- vassa and Asoti (Faridabad), the line is entirely run by contract workers. Balmer Lawrie’s executive strength is now 475 – half of what it was in 1994. Due to all this, employee costs have been brought down to just 5 per cent of the turnover. Balmer Lawrie has recently started a new initiative called bl force (Balmer Lawrie for Creative Entrepreneurship), where 25 executives under 40 years of age have been tasked to formulate Balmer Lawrie vision 2030, says Sahoo. “It is a public sector company whose business areas are largely in the private sector,” says V.L.V.S.S. Subba Rao, advisor, ifd, ministry for petroleum and natural gas, who is also a member of the company’s gov- erning board. “However, it is able to compete and maintains its market share. Because of its business diver- sity, the company sailed through the recession. And, in the next five years, it expects to grow bigger in logistic operation, including cold chains. To achieve that, it needs to have a sig- nificant presence around the major ports of the country,” Rao adds. The way Balmer Lawrie is going, does it make business sense for it to continue with its headquarters in Kolkata, since a significant por- tion of its assets are based in western and southern India? These units also bring in a major part of the compa- ny’s revenues. And, there are enough local entrepreneurs who would hap- pily lap up the heritage and real estate of the company. u SA J AL B OSE Basu: balance sheet in good health