The Group That Grew Too Big For Its Shoes

She was among the upstarts of the early 1990s who made it big during the capital market boom, says Salil Sharma, an analyst with Kapoor and Co. Another analyst says, The group used a well-known tactic if we go by the share price pattern. Before a new issue the share prices of the group companies would zoom. They perfected the technique of raising new money at high premiums.

Consider this. The opening date of the second Mideast public issue was May 10, 1993. In November 1992, the price of a Mideast share was Rs 66. But it climbed up steadily, hovering at Rs 110 and above through January and February. On March 1, the price soared to Rs 116. After the issue closed, the price began to fall, dropping to Rs 54 by August. Similarly, Mesco Pharma floated a rights issue in March 1995, and in February, the price of Mideast shares touched Rs 174. The decline started in May and by June, the shares were trading around Rs 75. By October, the price had crashed to Rs 56.

 

Market watchers may be right, but their reasoning is hardly adequate to explain the meteoric rise of this once-upon-a-time-cattle farmer into a successful businesswoman. (A self-confessed animal lover, Singh began her entrepreneurial career with a farm in Hapur, but gave it up because she couldnt bear the high mortality rate among cattle.)

There was a time when Mesco was giving Woodland a run for its money in the market for casual leather footwear. As B D Nathani, vice-president, Aeroclub which markets Woodland shoes, recalls: Several companies such as Wasan Shoes and Lumberjack jumped into this segment in 1994. But Mesco was the only company besides Woodland which made an impact through good advertising and franchisee showrooms. Adds Amrit Kiran Singh, area director and vice-president (South Asia), Brown-Forman Beverages Worldwide, who was head of Mescos leather divison four years ago: It was a very satisfying experience. We went about a consumer product launch like a multinational. And we got the same results. It was a good product with good advertising it was a good time.

But the good times did not last long. Rita Singh says: 1996-97 was not good for the footwear industry because of government policies such as reservation of the shoe industry for the small-scale sector and higher import duty on raw materials and components. But an industry analyst says: There are two reasons for the failure of Mesco shoes. First, the product was not available at multibrand stores the customer prefers to look at various brands before choosing. Second, as a group Mesco diversified into many unrelated areas and lost focus. As a result, the product quality came down.

The market size of casual leather footwear is estimated at Rs 250 crore. Woodland accounts for Rs 85 crore, and Mesco is way behind at around Rs 12 crore. Says Nathani: They started with a bang. Now I am very happy that I dont have a competitor!

Mesco is learning the pitfalls of rapid diversification the hard way and the group is now recasting itself to tide over the current liquidity crisis. Industry insiders say that Mesco has switched off production and is outsourcing the minimum quantity required to feed its showrooms. It is selling its tanneries, leather goods and leather garments divisions, hoping to net around Rs 15 crore. The three identified areas of core competence now are steel, aviation and pharmacueticals. Mesco is establishing separate profit centres for each division. The headquarters of what remains of its shoe operations will be shifted to Chennai; the air taxi operator, Mesco Airlines, headed by Natasha Singh will be based in Mumbai; and steel and mining in Bhubaneshwar. This exercise will save us Rs 50 crore, says Singh. Recently, as part of this exercise, Mesco sold its offices in Zamrudpur in New Delhi.

Mesco Pharmaceuticals will restrict itself to selling specialised drugs such as Hepa Merz and Viru Merz in the Indian market. Other drugs developed at its formulations unit in Dehradun will be exported. In 1994, Mesco had announced that it was setting up a Rs 77-crore bulk drugs project at Hapur. The project was to be funded mainly out of a rights issue of Rs 54 crore and private placement of non-convertible debentures worth Rs 20 crore. The rights issue opened in March 1995 and was oversubscribed, but the project is yet to come up. We did not go ahead because of the liquidity problem in the group. Whatever money was raised went into the formulations unit at Dehradun, says Singh.

Mescos restructuring is crucial to its plans because IDBI has asked it to pump in Rs 50 crore as additional equity in MISL. Meanwhile, with general elections around the corner will Rita Singh join in the rough and tumble of politics again? I am not ruling it out, says Singh guardedly, and then hastens to add: But I have to first make sure that Mesco Steel is commissioned and that we are able to pay dividends to shareholders. Can Rita Singh do the impossible again?