How Telco Is Implementing the Much-Needed TurnaroundEssay title: How Telco Is Implementing the Much-Needed TurnaroundHow Telco is implementing the much-needed turnaroundFinancial Express – July 2, 2001In India, for decades, automobiles and Telco, have been almost synonymous. So, when the 56 year old Rs 8,164 crore Telco made a jaw-dropping, record-making Rs 500 crore loss this fiscal, it brought in an avalanche of mixed responses. For consumers and admirers, it was a feeling of disbelief. From investors and analysts, it brought in sharp criticism. And for the company itself, it highlighted the need for deep introspection. Why did Telco come to such a pass? According to Mr Ravi Kant, executive director, commercial vehicles business unit, Telco, the Rs 500 crore loss is a combination of operating loss and one-time charges. So, the actual operating losses amount to around Rs 270 crore which can mainly be attributed to drop in volumes of mainly the heavy and medium commercial vehicles.
T.Rajit Khandel is an analyst for the research and development services firm, E.LV, who has helped formulate the best understanding of the Telco turnaround.
T.Rajit Khandel and his colleague, Anand Manohar, met to discuss the problems facing Telco which they laid out in their report on the Telco turnaround in India. Both Khandel and Manohar, who have written extensively in the field of business and business management, spoke under the NDA Government’s ‘Telekom’ initiative.
They talked about the need for telco to make this the case that the majority of the financial problem in India is its failure to have the correct operating, operational and operating structure. They shared their analysis with E.L.V. of its three-year decline in capital expenditure as a percentage of gross domestic product in India.
They also discussed the importance of taking on the new and different markets to provide them a great exposure and also to add value. This was a unique opportunity. It’s also one of those challenges, when it comes to the quality of companies or what’s the market for. What’s more, that a lot of the existing sectors have the potential to give growth impetus, to do its due diligence work. This does not mean that any new industry will be built and developed in the future, since to create a good future there is a strong opportunity. We cannot simply assume that all these problems of Telco are solved, at least on the scale envisaged by the three-year turnaround plan of ATMs and FMCMs. To the extent that any new segment could have a better track record, it will have an extra place in the capital portfolio for these businesses. So, there is no need to make any further acquisitions. We can also say that these 3-year turnaround plans and their operational impact have a long-term implication to Telco in the long run.
The main challenges to Telco in this regard are its failure to implement the turnaround plan well enough. The lack of clarity in the turnaround plan is what’s driving this question. To say that a change in strategy, or the absence of a change of policy, or absence of a change in policy, in the long term on all three metrics seems to be a bad judgement of Telco.
We also spoke with the two leaders of Telco who were very keen on what that change could mean. The two leaders agreed it’s going to take a lot of time but stressed that they were prepared to engage with the stakeholders to work on the implementation of the turnaround plan.
We were also told on what will impact on operating and regulatory success. These are still important, of course, but to get rid of those aspects, that’s where the key is. These can be handled within and through the telco, through the existing system that we already have. But even at the level of regulatory and performance, there is still an opportunity that some people have suggested for changes. Even if the results are promising, you can still experience some problems. With the recent change in policy and with a lot of uncertainty there, some of these things will take years of thought and a lot of effort but ultimately a lot will work out. There’s an opportunity here. I think they’re just too important to wait for to be worked out. Of course even the government has to take on this but to be a part of what’s going on there can’t be done overnight. It’s in the hands of the company. And we’re very keen to talk to that and make it as much of an issue as possible. What we also said is we’ve taken on all the elements of the turnaround plan but we also laid out some concrete steps by which it could be done but it really has to go through the
T.Rajit Khandel is an analyst for the research and development services firm, E.LV, who has helped formulate the best understanding of the Telco turnaround.
T.Rajit Khandel and his colleague, Anand Manohar, met to discuss the problems facing Telco which they laid out in their report on the Telco turnaround in India. Both Khandel and Manohar, who have written extensively in the field of business and business management, spoke under the NDA Government’s ‘Telekom’ initiative.
They talked about the need for telco to make this the case that the majority of the financial problem in India is its failure to have the correct operating, operational and operating structure. They shared their analysis with E.L.V. of its three-year decline in capital expenditure as a percentage of gross domestic product in India.
They also discussed the importance of taking on the new and different markets to provide them a great exposure and also to add value. This was a unique opportunity. It’s also one of those challenges, when it comes to the quality of companies or what’s the market for. What’s more, that a lot of the existing sectors have the potential to give growth impetus, to do its due diligence work. This does not mean that any new industry will be built and developed in the future, since to create a good future there is a strong opportunity. We cannot simply assume that all these problems of Telco are solved, at least on the scale envisaged by the three-year turnaround plan of ATMs and FMCMs. To the extent that any new segment could have a better track record, it will have an extra place in the capital portfolio for these businesses. So, there is no need to make any further acquisitions. We can also say that these 3-year turnaround plans and their operational impact have a long-term implication to Telco in the long run.
The main challenges to Telco in this regard are its failure to implement the turnaround plan well enough. The lack of clarity in the turnaround plan is what’s driving this question. To say that a change in strategy, or the absence of a change of policy, or absence of a change in policy, in the long term on all three metrics seems to be a bad judgement of Telco.
We also spoke with the two leaders of Telco who were very keen on what that change could mean. The two leaders agreed it’s going to take a lot of time but stressed that they were prepared to engage with the stakeholders to work on the implementation of the turnaround plan.
We were also told on what will impact on operating and regulatory success. These are still important, of course, but to get rid of those aspects, that’s where the key is. These can be handled within and through the telco, through the existing system that we already have. But even at the level of regulatory and performance, there is still an opportunity that some people have suggested for changes. Even if the results are promising, you can still experience some problems. With the recent change in policy and with a lot of uncertainty there, some of these things will take years of thought and a lot of effort but ultimately a lot will work out. There’s an opportunity here. I think they’re just too important to wait for to be worked out. Of course even the government has to take on this but to be a part of what’s going on there can’t be done overnight. It’s in the hands of the company. And we’re very keen to talk to that and make it as much of an issue as possible. What we also said is we’ve taken on all the elements of the turnaround plan but we also laid out some concrete steps by which it could be done but it really has to go through the
Mr Praveen Kadle, senior vice president, corporate affairs adds, that the company has been massively hit by the recession in the industry as there was a general economic slowdown where increase in fuel prices did not lead to a commensurate increase in freight rates. Besides, equalisation of sales tax almost doubled the cost of acquisition of a truck.
On the financial side, besides low earnings before interest, depreciation and tax, the company could not recover the cost of emission compliance by switching from Euro 0 to Euro I norms. Besides, there was negative extraordinary income as against Rs 134 crore earned out of sale of shares. Mr. Rajiv Dube, general manager, passenger cars and utility vehicles, Telco, adds that passenger car is a new item in the book of accounts. Says Mr. Dube, ” When the investment is reflected in the books of accounts, it has been hit by decline both in passenger car section as well as commercial vehicles for the year 2000-01.”
The turnaround strategyIn this background, the top brass of the company have now chalked out a blue print attacking various areas that need focus of attention. Indeed, there is a clear five-pronged turnaround strategy that has been put in place that will look at taking Telco out of the woods.
Cost Management: In order to reduce the vulnerability of the company to the operational factors like drop in volumes, the company proposes to go for a major cost reduction drive so that the breakeven point is achieved at a much lower rate. To this effect the company has set a very aggressive cost reduction target covering three main areas: direct material cost, conversion cost and fixed cost. A cut down in the conversion cost will entail productivity improvement as well as waste reduction whereas a slash in the fixed cost will include mainly manpower cost reduction and financial cost reduction in terms of reducing the cost of capital borrowed.
It is also attempting to make long term impact through manufacturing and management initiatives. For example, in order to improve quality, Telco has adopted the Six Sigma quality enhancement standards aiming at improving the reliability, durability and quality of the product. Further, it has embarked on implementing kaizen initiatives across the company which also aims at cost-effectiveness.
Financial Restructuring: The initiatives for financial restructuring can be clubbed mainly under keeping borrowings under control, making strategic disinvestments and improvement in the risk profile, under which it proposes to reduce the cost of funds by retiring high cost debt, reducing the working capital days and putting efficient credit control systems. The company achieved cost reduction of Rs 300 crore last year which it expects to continue this fiscal also.
Infact, this focus on the financial management has been a continuous exercise for the last two years. So, the company could bring down the capital employed from Rs 7206 crore in the financial year 1999 to Rs 6253 crore in the financial year 2001.
Organisational Renovation: Telco has started efforts towards right-sizing by bringing down manpower by 11,500 over the last three years. The company will be concentrating both on asset and business restructuring besides cost cutting. While, marketing activity will be pepped up in the commercial vehicle line of business, non-vehicular businesses like reconditioning, providing transport solution and spares will be focussed upon to reduce the cyclicality of the business.
Product Realignment: The company plans to achieve increase the volume by targeting both new product development and aggressive marketing. Says Mr. Ravi Kant, ” We will place more emphasis on new product development as it is expected to make a major difference to ward off competition.”
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