Business Today

Soul Searcher

Bata India is on the mend, but has it left it too late?

By Shamni Pande | Print Edition: July 15, 2007

Just three months ago on April 28, Marcelo Villagran, Managing Director & ceo, Bata India, got official ratification for his efforts. The Nomination, Governance and Compensation Committee met and recommended that his fixed salary be increased with effect from January this year. Shaibal Sinha, Director (Finance) & CFO, Bata India, also found approval for helping the organisation trim costs and put efficient processes in place.

Indeed, Bata India's Rs 62.7 crore losses in 2004 appear a distant memory today. The turnaround began to get reflected in the 2005 numbers itself thanks to some desperate measures that included retrenchment (via retirement schemes and attrition). Some 1,467 left in 2004 itself, and in 2006 another 946 bailed out. The results are there to see. In 2006, the company posted a net profit of Rs 40.15 crore on net sales of Rs 770.20 crore. The good form has spilled over into the current year. Net turnover for the quarter-ended March 2007 has climbed to Rs 183 crore from Rs 167 crore in the previous year's corresponding period and net profit is up to Rs 5.05 crore from Rs 4.4 crore in the March ended quarter of 2006.

"I hate to be associated with all this, but it had to be done," says Villagran who took charge in early 2005 with an unenviable mandate of stabilising a ship that was almost sunk. Villagran is, of course, talking about the massive layoffs he had to resort to. But that was just one prong of the turnaround trick. Wholesale outstandings were reduced from 126 to 45 days, some 70 unviable stores were shuttered, cash-draining stores were reduced to 140 from 400 in 2004, operational expenses were reduced with the help of new logistics, and the average cost on retail store personnel was cut back.

Such cost-saving measures were backed with a change in mindset. Clearly, Bata India had to keep in tune with the market reality. "Bata shops now function seven days a week. We were losing out as many within had no incentive to change, which resulted in our competition gaining ground," admits Villagran. Recently, Bata tied up with retailing chain Shopper's Stop for shop-in-shops across its stores, and with another chain, Lifestyle, for a presence in counters across cities. An alliance with Reliance Retail is also in the works. "There is a proposal from Reliance Retail towards which a letter of intent has been signed, as it is seeking to set up a hypermarket (in non-footwear specialty) at our upcoming Batanagar Township," says Villagran. This 262-acre township in Kolkata is being developed by Riverbank Holdings, a 50:50 joint venture between Bata India and the Calcutta Metropolitan Group.

Bata has also introduced a commissionaire system, wherein Bata will provide space, furniture and products to those wanting to take up the deal who in turn earn a commission on sales and are free to recruit as many people as they require. Bata had 37 stores in 2006 under this new system-called the K-Scheme internally-it hopes to have 70 this year and will open another 100 next year. "We are the largest shoe retailer with 1,100 stores and account for a 35 per cent market share. Yet, we have been handicapped by our inability in the past to work in tune with what consumers want," says Villagran.

Bata India's new-found zest has succeeded in attracting some heavy hitters from industry. P.M. Sinha, a former PepsiCo head honcho, has taken over as Chairman. Others to come on board include Shaibal Sinha in 2005, Rakesh Singh Gautam as Senior Vice President (hr) in 2006 and Manoj Chandra, who took charge last fortnight as head of customer services. Other members of the core team include Enrico Tonolli, Senior Vice President (Merchandising), C.C. Ponnappa, VP-Retail operations (Flagship/City) and Ronjoy Sengupta, VP (Retail operations).

Despite all these measures, market men are still skeptical. That's reflected in the stock price of Bata India, which has gained 98 per cent since 2005, even as the Sensex moved up by 118 per cent. A senior equity analyst, unwilling to be identified, says it's a typical case of too little, too late. There are too many loopholes within the system that are bleeding the company, he says. Even its top management in the recent past has seen rapid change, not affording any stability to its plans (for instance, there were a record three changes in MDs in 2001: W.K. Weston resigned and C. Morzaria was appointed as MD in January 2001; he resigned and was replaced by F. Garcia in October who, in turn, was replaced by S.J. Davies in September 2002. Villagran, so far, has marked roughly the same time as his predecessor and it remains to be seen if he outlasts him significantly). Competitors such as Mirza Tanners are more profitable (Mirza Tanners, for instance, has operating margins of 10.93 per cent as against Bata's 7.41 per cent). In the past, Bata India has often flattered only to deceive. Will this turnaround prove more sustainable?

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