Download the latest issue of Business Today Magazine just for Rs.49
Greaves Cotton's journey to profitability

Greaves Cotton's journey to profitability

We addressed myriad challenges such as cost reduction, increasing efficiency and improving margins, changing the way we did business, says Sunil Pahilajani, MD & CEO of Greaves Cotton.

Sunil Pahilajani Sunil Pahilajani
Ours is a company with a rich heritage of more than 150 years of engineering transformation in India. Greaves has demonstrated perseverance, resilience and the ability to respond to a crisis. One such situation was at the turn of this century, when the business was not in the best of shape. More than half its peak net worth during the four preceding years had been eroded. Interest outgo stood at an all-time high. High production and manpower costs had reduced competitiveness.

The company had symptoms of potential sickness. Greaves incurred a loss of Rs 92.61 crore in the financial year 2000/01, which was extended for 18 months.

To overcome the situation, the management decided on a two-pronged restructuring exercise, in terms of business and finance. The business restructuring exercise, which ran through the critical period of 2000 to 2004, had a two-fold objective. The first was to focus on core businesses and exit from non-core ventures (such as the tie-up with SAME Group for tractors and engines), and suspend lossmaking units such as Rajasthan Polymers & Resins Ltd and eventually sell them off. The company also sought to liquidate overseas subsidiaries, rationalise them and divest its stake in companies such as Piaggio Vehicles Pvt Ltd. The second part of the objective was to reduce operating expenses.

High production and manpower costs pushed it into the red
Focused on core business. Cut costs. Sold surplus assets. Moved from stock push to demand pull

Financial restructuring was undertaken during the same period. It resulted in enhanced cash flow and a stronger balance sheet. This included monetising a major portion of its shareholding in Crompton Greaves, the sale of surplus real estate, commercial property and non-core investments, and most importantly switching from the strategy of stock push to demand pull. All this reduced receivables by 44 per cent.

In other words, Greaves strengthened profitability through strategic initiatives that were carried out across the organisation. The focus was on engines and applications, and the infrastructure segment where our expertise lay.

Migration from manual systems to automation led to increased efficiency at lower cost. It also enabled us to adopt modern manufacturing practices such as Lean, Total Quality Management and Total Productive Maintenance, which increased productivity. We invested in R&D to meet stringent emission norms, and explored development of futuristic products.

The results of this major exercise were seen in the next few years In 2003/04, the operating profit or EBIDTA was Rs 87.47 crore and profit after tax was Rs 21.73 crore. The interest outgo declined 17.53 per cent, compared to 2002/03. This transformation was not confined merely to numbers. The way we did business changed. The exercise addressed myriad challenges such as cost reduction, increasing efficiency and improving margins, but all of this could be simplified into one single word: focus.

Today, Greaves Cotton* has transformed itself into an Rs 1,800 crore, multi-product engineering company. This is largely due to our increased focus. Greaves has embarked on a journey of profitability and sustained growth. It is eyeing product portfolio expansion and new customer acquisition. The lessons learnt helped it withstand the economic crisis of 2008.

The author is MD & CEO, Greaves Cotton

*The print version of this story mistakenly identified Greaves Cotton as Crompton Greaves in this instance.

 Stories of other companies that faced tough times and emerged stronger, told by the people who were in the thick of things.
 Nitin Paranjpe on HUL  Himanshu Kapania on IDEA
 Mahendra Mohan Gupta on Jagran Prakashan  Rakesh Jain and Sushil Agarwal on Aditya Birla Nuvo
 Sanjay Lalbhai on Arvind Mills  Peter Mukerjea on Star India
 Sanjiv Goenka on CESC  Bhavarlal H. Jain on Jain Irrigation Systems
 Govind Shrikhande on Shoppers Stop  Sunil Pahilajani on Greaves Cotton
 Anu Aga on Thermax
 Sunil Duggal on Dabur India
 N. Srinivasan on India Cements  Arvind Uppal on Whirlpool

Published on: Jul 17, 2012, 12:00 AM IST
Posted by: Navneeta N, Jul 17, 2012, 12:00 AM IST