The Rs 184-crore company comes to terms with the loss of its CEO and wipes out the red ink
In the heart of New Delhis Connaught Place theres a very quiet office opening into a terrace garden. It used to be the heart of a Rs 184.50 crore company, but today it has no occupants and no visitors. Just the guard in Pasupati Acrylon Limited tiptoes in to switch on the lights in the morning and switch them off before leaving in the evening. The room has been left as it was on July 31, 1997, when Mukesh Jain, managing director of Pasupati Acrylon Limited, committed suicide. Some say his financial losses drove him to it. It might not be true at all. But today, the heirs to his company have wiped out those accumulated losses.
Strange. Mukesh left such a strong system in place, that despite his absence there is no vacuum. His legacy a strong organisational structure has ensured that we havent floundered, says S C Malik, director, finance, Pasupati Acrylon Limited. Mukesh Jain who has a son and daughter aged 9 and 11 respectively, also left no doubt as to who should be his natural successor. Media-shy Vineet Jain was taken under his uncles wing in 1989 at the age of 21. Fresh out of a B-school in London, Vineet was posted to Kashipur, Uttar Pradesh when the plant was still on the drawing board. Later, Mukesh Jain brought his nephew to the corporate office in Connaught Place and made him a joint managing director.
Today, Vineet is at the helm of affairs, says Mukeshs younger brother, Vijay Kumar Jain, CMD, Pasupati Fabrics Ltd and a director on the board of Pasupati Acrylon Limited. He knows his job Mukesh groomed him as both a technical and marketing man. He has a good head for figures. And can motivate people, adds Malik.
Ironically, in 1990, when Pasupati made its acrylic foray with a 18,000 tonne per annum (tpa) plant in Kashipur, it seemed well set to prosper. Domestic demand at 55,000 tpa was considerably higher than the 44,000 tpa being produced at home. And a 150 per cent custom duty on acrylic fibre shielded the only two local producers, the Rs 3,864 crore Indian Petrochemicals Corporation Ltd (IPCL) and the Rs 1,200 crore JK Synthetics. But by 1993, Indian Acrylic and RPG Enterprise-promoted Consolidated Fibres & Chemicals Limited had entered the market too, each with a 12,000 tpa capacity.
With the resultant glut leading to rampant price undercutting, SC Malik recalls: The domestic players were selling acrylic fibre at Rs 68 per kg when the average cost of production was Rs 72. Pasupatis bottomline was quick to cave in: compared to net profits of Rs 5.38 crore in 1992-93, the company made net losses of Rs 6.46 crore in 1993-94.
In the next two years, Pasupatis bottomline took a bigger hit as global prices of acrylonitrile (ACN) spiralled. In 1995-96, ACN, a critical raw material for producing acrylic fibre peaked at $1,527 a tonne (Rs 49 per kg). As Indias only producer of ACN, IPCLs captive production (25,000 tonne) and consumption gave it a cost advantage. All the other acrylic fibre companies made huge losses.
In 1995-96, with the Rs 1,000 crore acrylic fibre industry in the doldrums, Mukesh Jains company was reeling under losses of Rs 16 crore on sales of Rs 162 crore. In 1996-97, Jain reduced accumulated losses of Rs 4 crore on a turnover of Rs 183 crore by keeping costs down. This year we have wiped out those carry forward losses of Rs 3.92 crore, says Malik. Pasupatis half-yearly results show a gross profit of Rs 10.22 crore and a net profit of Rs 5.12 crore.
Admits Malik: It was a tough time. But it taught us a lot of things. Fortune has also favoured Pasupatis revival. The company has had a lot of help from external factors. The single most important factor is the return of their input prices to old levels, says textile consultant Ramesh Logani, vice president, RLS Woolworth. Global prices of ACN have fallen appreciably since the last quarter of 1997. Today, ACN costs Rs 28 per kg as opposed to an average price of Rs 49 per kg in 1996.
Another factor that has helped the domestic acrylic fibre industry is the governments move to impose anti-dumping duty on fibre from Thailand, Korea and the United States. Today, at Rs 88 per kg, there is a three rupee differential between the domestic price and landed price of imported acrylic fibre. In 1996, imports of roughly 15,000 tonne of acrylic fibre almost killed the domestic industry. With the imposition of anti-dumping duty since last year, the performance of the industry has looked up. It will improve further, predicts Logani.
Meanwhile, Pasupati has done its bit too. Its capacity utilisation has risen to 100 per cent, up from 89 per cent in the corresponding period last year. Pasupati has a technical collaboration with Snia BPD of Italy and uses the latest wet spun technology. By April 1998, production at the Kashipur plant is expected to touch 20,000 tonne, making Pasupati the third largest player in the industry after IPCL and Indian Acrylic (28,000 tpa). Pasupati is selling acrylic fibre at Rs 88 per kg, which yields comfortable margins since the estimated cost of production is Rs 80 per kg.
With acrylic fibre a cheap substitute for wool emerging as a substitute for polyester and even cotton, Saloni Nangia, consultant, KSA Technopak Pvt Ltd (India), says, Acrylic fibre is becoming popular with users looking for a cost-effective substitute.
At present, 50 per cent of Pasupatis output goes to the hosiery units in Ludhiana. We send 700 tonne of acrylic fibre a month to Punjab, while sari manufacturers in Uttar Pradesh pick up nearly 300 tonne. We also have a strong demand from sports-knit wear companies, says Malik. This year, Pasupatis sales turnover is expected to touch Rs 200 crore reflecting the comfortable 12 per cent annual growth in the demand for acrylic fibre.
The installed capacity for acrylic fibre in the country is 1,14,000 tpa. But there is going to be a shortfall in supply because the demand is expected to rise by 92,000 tpa by the year 2000, says Nangia. Capacity expansion will depend on market conditions. At the moment we want to consolidate our position, says a cautious Malik.
There is now talk, in fact, of forward integration. Now that 29-year-old Vineet Jain has reigned in the losses, he hopes to set up a Rs 100 crore project in Goa to manufacture acrylic blankets for the export market.
