Dunlop Rolls Into The Sick Bay

March 31, 1997: Dunlop India, the Rs 600-crore Manohar Rajaram Chhabria-controlled tyre major, declares a gross profit of Rs 33.19 crore, almost half the figure of Rs 68.79 crore the previous fiscal.

September 30, 1997: Dunlop registers a first-half net loss of Rs 19.20 crore, the first sign of red ink since 1986.

January 14, 1998: Dunlop is referred to the Board for Industrial and Financial Reconstruction (BIFR).

When the first shift reported for work at the sprawling Sahaganj complex on February 7, there was almost no shock at the terse notice that was pasted on the gates and headlined: Suspension of work at Sahaganj.

 

Two days later, even as the West Bengal government ordered a revocation of the suspension order, the company posted a similar notice at its Ambattur factory in Tamil Nadu.

By February 16, when news of the BIFR referral was finally made public, there was little surprise in corporate circles either. From the late eighties, when the tyre major started steadily losing market share, Dunlop seemed headed only one way.

But the signs of trouble had emerged long before the new year. Through last year, in several letters to the state government, the two unions at Sahaganj, Dunlops major production unit on the outskirts of Calcutta, had hinted as much. Production, they said, had dropped from 60 per cent of total capacity in January last year to 20 per cent in November. Workers have been unpaid for over three months.

Dunlops immediate problem was a working capital crunch. Shaken by almost constant instability at the top and the companys diminishing presence in the marketplace, its consortium of bankers refused to entertain all requests for a hike in the working capital limits, frozen at a woefully inadequate Rs 38 crore for its Rs 600 crore a year business.

The disagreements over working capital limits date back to 1995. In October of that year, the consortium agreed to increase working capital limits to Rs 93 crore, but did not disburse the amount. A few months ago consortium leader ANZ Grindlays walked out, reportedly disgruntled with the persistent crisis at the tyre major.

At the root of the managements problems was its inability to prune a workforce of 7,700, which translates into a total wage bill of Rs 6 crore a month. A senior executive in Dunlop says it is the excess workforce that has kept the company from becoming economically viable. In fact, the conversion cost of 1 kg of rubber at Dunlop is Rs 15.50, more than three times the cost for its competitors. The excess manpower involved in production is one of the key reasons for such high costs, he says.

But efforts to reduce the workforce at Dunlop have always been confrontationist. And this is the argument that the management has set out in its suspension letter: The Management regrets to inform all concerned that inspite [sic] of persuasion and repeated requests...the situation in and around the factory remains very tensed [sic], highly charged in view of the provocative actions of the said two Unions.

The burden of the managements argument has been that the two Dunlop unions have wrongfully restrained and wrongfully confined senior executives through gheraos and road blockades.

Despite the earlier aggression, the BIFR referral now seems to have put the unions at a loss. There is, of course, some indignation. What I fail to understand is why the management tried to suppress this fact, says Samar Chakraborti, joint general secretary of the Congress-affiliated Indian National Trade Union Congress (Intuc). Adds Ashoke Pal of the CITU-affiliated Sahaganj union: We want to know if the labour department knew of this. If they did, then why did they not inform us?

But union members are clearly beginning to lose hope. Says Subrata Mukherjee, Intuc president: It will be a great loss to the company if the BIFR accepts Dunlop. In that case, without the permission of the board, we will not be able to do anything.

One question that is still being debated in Dunlop is whether the company really needed to be referred to the BIFR, which has not yet come to a decision on whether to accept the company or not. The unions have also shown their dissatisfaction with the inability of both the state and central governments to prevent the companys situation from worsening. They claim that repeated requests to the government for intervention have been ignored.

Management appeals have been given similar treatment. In mid-1997, the management had informed the state government that if the financial crisis persisted, with all appeals to lending institutions and the government failing, the company would have difficulties in the days to come to meet statutory payments, even wage bills.

In some ways, Dunlops working capital woes and labour problems are a reflection of a larger management issue of chronic instability at the top. In January last year, Dunlop attracted attention for differences between Murli Dhar Shukla, then managing director, and chairman M R Chhabria, which ended in Shuklas resignation.

Shuklas exit was another episode in a ten-year tradition in the Chhabria-controlled company. While M L Capoor lasted the longest, from 1988 to 1992, S N Srivastava was managing director from 1992 to 1993, Samir Ghosh, formerly of ITC, lasted only in 1993, and Kumar Malhotra steered the company from 1994 to 1996. Malhotra was succeeded by Shukla who held office from 1996 to 1997.

With Shukla gone, Chhabria placed a three-member interim panel to head the company. The panel comprised Chhabrias daughter Komal Wazir, M H Godhwani and P J Rao, who has now been appointed managing director.

Former senior executives say the troubles at the top have distracted the management from the crucial task of investing in new technology. One of the few areas in which Dunlop could boast of an edge over competition was in the production of aero tyres. But this did not even account for 2 per cent of its total turnover.

Everyone lived in a fools paradise, believing that the name Dunlop alone will sell, says a former Dunlop employee associated with the Sahaganj unit.

This and worker-management tensions led to further complications for the tyre major. Former employees say union trouble has been a permanent fixture at Dunlop. In 1988, the year when the RPG group walked out of the company following differences with Chhabria, leaving the Chhabrias in complete control, the workers had gone on a 100-day strike.

Dunlops other major problem was that its main production unit at Sahaganj was also increasingly becoming a liability in terms of location. Rubber had to be bought from Kochi, and rubber chemicals and nylon from western India. Thereafter, the finished product had to be moved back to Kochi and Ahmedabad, the major markets. This cumbersome process resulted in a loss of both money and time.

Despite the lack of surprise at Dunlops fate, there is some regret for a company that dominated the tyre industry for decades. The death of Sahaganj symbolises the end of an era. From being the manufacturers of the widest range of tyres and a name synonymous with success, it is now on the verge of collapse, says an old Dunlop hand ruefully.

Certainly for the companys employees and the stark faces at Sahaganj, hope is a distant dream. And as the political powers get busy with the elections, and parties flock the Sahaganj gate to get themselves photographed by the media, the truth for the workers has begun to dawn. Factory gates are easy to shut, but it will take superhuman effort to reopen them.