On A Slippery Road

Ten years ago, Dunlop along with Colgate, Bata and Philips, was among the most popular brands in the country. In the tyre industry, it had virtually become a generic name and the company, in the mid-eighties, controlled 30 per cent of Indias tyre market . Cut to 1996-97. Dunlop is nowhere among the top five tyre manufacturers. With a market share of less than 5 per cent, its brand equity has almost entirely eroded.

For most of this period, Dunlop has been controlled and managed by the Dubai-based non-resident Indian Manohar Rajaram Chhabria. Briefly a part of the RP Goenka group of companies, Chhabria wrested management control in 1988, in one of the swiftest hostile raids corporate India had ever witnessed. At the time, Dunlop ruled the Indian tyre market.

Today, Dunlop is cash strapped. Banks and financial institutions are unwilling to lend and it has had to dip into its own kitty for its rising working capital requirements. Funds are also the most important hurdle in any recovery plan that the company would have to resort to for climbing out of the present mess. And Dunlops unions and several of its executives pin the blame for Dunlops present predicament on Manu Chhabria.

In Chhabrias shadow

A question that the present crisis raises is how far the 44 per cent stakeholder Chhabria, who has owned the brand for the last eight years, is responsible for Dunlops woes. The company has seen four different managing directors come and go over the last six years. It was only the rebel Murli Dhar Shukla, who joined in August 1993, who has been able to stick to the company for considerable period of time. All have left over differences with Chhabria

People are not Dunlops only problem. Its capacity utilisation is down to around 30 per cent and has had to pull out of high volume segments of the tyre market. For instance, the company used to be a significant player in truck tyres but hardly has any presence here any more. The emphasis today is on industrial rubber products, high-margin aero tyres and radial automobile tyres which are low-volume, high-margin pockets. This was a conscious strategy on the part of the Shukla-led management to make the best of limited financial resources but may have cost the company dear as it lost its focus in the mass market.

The executive management as well as the unions reasoning is that the chairmans reputation is keeping financial institutions and banks from lending to the company. Dunlops banking consortium has turned down several pleas by the company to treble its working capital limit from the present level of Rs 32 crore. Industrial Finance Corporation of India is believed to have taken an in-principle decision not to fund the Rs 800 crore steel radial project in Gujarat in technical collaboration with Italian major Pirelli.

This, claim the banking consortium members, is entirely due to Chhabrias profile. Over the last three years, several of his Indian group companies, namely Orson, Nihon and Genelec, have failed to repay debts. To add to this, unions of group companies like the flagship Shaw Wallace and Mather & Platt, have alleged siphoning of funds by the non-resident Indian. Law enforcement agencies are probing into alleged Foreign Exchange Regulation Act violations to the tune of Rs 70 crore and concealment of income of around Rs 80 crore.

Meanwhile, cost of inputs have shot up over the last three years. The price of natural rubber and carbon black have doubled in the last one year. And, Dunlop has had to fund its increasing working capital requirement entirely through internal accruals, bruising the bottomline every year.

So, severe financial constraint will hold back any sort of expansion or plan to stay afloat. After allegations of siphoning off funds, institutional shareholders are believed to be gearing up to keep a closer tab on the company and, in particular the end use of funds. The unions are also demanding that Chhabria put in Rs 50 crore to come out of the funds crunch as financial institutions or banks are unlikely to review their stance. Union members claim: If anything is wrong with Dunlop, it is Chhabrias shadow over the company. Without him, the company will again find itself in its golden days.

Putting up a fight

Equally intriguing has been the role played by the Dunlop managing director, Murli Dhar Shukla. His coup hinged entirely on the support of the institutional nominees on the Dunlop board, as well as other non-executive directors, who chose not to aid him, finally. Shukla even sought the support of the unions. Certain close associates of Shukla said that he could not bear to see his efforts go to vain just because of Chhabrias reputation. But, corporate grapevine has it that Shukla was merely the front man of another business house with major interest in tyre.

But a question that has been raised by corporate observers is whether Chhabrias control over the company with even 44 per cent of the equity was complete? Chhabria by his own admission has alleged that the latest half-yearly financial results have been tampered with to inflate the bottomline. He has asked for a government sponsored audit, which some feel, is a ploy to improve his tarnished image. Dunlops consortium lenders are also planning a special audit in view of the surprising performance.

In 1995-96, Dunlop registered a Rs 39 crore net profit after selling prime real estate properties in Mumbai and Chennai for Rs 170 crore. The properties were sold to a wholly-owned subsidiary Dunlop Properties Ltd. Dunlop insiders say that the tyre major has not yet been paid a single penny, establishing allegations by certain quarters within Dunlop that the entire act was a window-dressing effort. Was it on Chhabrias insistence or was it Shuklas gameplan to impress bankers and institutional lenders?

The crystal ball

Without support from banks and financial institutions, Chhabria will have to infuse funds himself. He had been wanting to raise his stake in the company to 51 per cent but the institutional shareholders turned down a proposed preferential allotment to Chhabria. But at this stage, this could have a three-pronged advantage: first, the cash strapped Dunlop will get the much-needed funds which it probably cant get from elsewhere. Second, Chhabria will be able to establish he is really committed to the company and that after the mess in Shaw Wallace does not want out. Finally, with the Dunlop scrip nearly touching its 52-week low almost throughout the last six months, Chhabria will have to shell out far less than otherwise.

Equally important is whether the strategies of the Shukla-led management will continue. Shukla had been negotiating with Dunlop, UK and Dunlop, France, for technology arrangements for relaunching Dunlopillo and car seating systems. The company had also received a major order from the Queensland Port Authority which could be a major money spinner for the industrial rubber products division. Shukla also played an important role in turning around the 60 per cent Dunlop-owned Falcon Tyres, the largest two wheeler manufacturer in the country. It was also planning to make a foray into radial tyres, technology to be supplied by Dunlop itself.

Dunlops bankers say that production of tyres has now become minimal, but the industrial rubber products (IRP) division is doing well. So will Chhabria try to position Dunlop as an integrated rubber manufacturer emphasizing on value-added IRP and aero-tyres and be a leader in its own carved out niche? As some Dunlop watchers point out: Doesnt he have enough on his hands already? So will he decide to wash his hands off Dunlop?

The million-dollar question now is whether Chhabria is eager enough to prove his commitment. He has not attended the annual general meeting in August, and neither was he present for the board meetings since then. But he has started off well by trying to allay the fears of the Dunlop employees through a letter last week.

For the next six months or so, Jumbo group sources say that Dunlop will be run by an three-member, interim management committee - PJ Rao, executive director of Shaw Wallace, TS Shettigar, director, finance of Jumbo International Holdings and Komal Chhabria Wazir, Manu Chhabrias daughter. This is also going to be a critical period as the financial institutions, with 33 per cent stake, are expected to force a stand on the company. And as the power struggle intensifies, the companys problems continue to mount.