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Duncans Industries Ltd. Presents its second Annual Corporate Review as a reaffirmation of the process of transparency in corporate communications. Intended to supplement statutory imformation furnished to sharehoders as a metter of course, the review has been so structured as to reach out to all stakeholders who value the company’s progress and well being.
For Duncans Industries Limited, 1998-99 has been immensely satisfying. Not becauseit joined the elite fraternity of Indian Companies with its annual turnover in excess of rs. 1000 crores . That would have happened in any event. The previous year’s turnover itself was Rs. 938 crores. Satisfaction evolved from both core operating businesses giving a most creditable account of themselves and in th process improving profits despite the general recession in the entire operating enviroment. The ultimate yardstick
lies in neither turnover nor profits though important
they may be. It lies in the innate strengths of the
Company – the confidence that the Company has the
capacity to overcome hurdles placed in its way and
flourish.
Sustained Improvement The Division, during the
year, continued its three-pronged approach to success by
finetuning operational methodologies, enhancing best
maintenance practices and further rejuvenating the
marketing network. The results were indeed remarkable.
Stellar performances were yet again registered under all
major operating parameters whether production,
despatches, sales or plant utilisation efficiencies.
With the Panki facility
having achieved peak or near peak production performance,
the focus now lies in optimising profitability by
lowering cost of production. Energy conservation is high
on the agenda of measures being underatken to reduce
production costs and this area is being looked at with
vigour. But this apart, the overall approach to cost
reduction has been made holistic. With the assistance of
external agencies like ECOSCAN, Tata Energy Research
Institute ("TERI") and Andersen Consulting, a
thorough review was conducted during the year on all
significant cost drivers in the Division. Attention
areashaving been identified and demarcated through this
exercise, the Division is now focussing on the activities
in question with a view to making them cost efficient.
The Fertisiler Division derives tremendous satisfaction from the strong brand equity that its brand of "Chand Chhap" urea has built over the years. "Chand Chhap" is a virtual household name in the rural markets of the Division’s command area. The brand has been painstakingly nurtured by an excellent quality product, attractive packaging, reliability in supplies, extensive promotion and superior customer service. The "Chand Chacha" mascot has further developed the "Chand Chhap" brand equity by heightening brand recall. The target consumer – the farmer – identifies himself with the brand mascot in everyday rural life with the "Chand Chacha" perceived as playing a formidable role in farmers’ upliftment and prosperity. The Division takes care
to consolidate farmer relationships through extensive
field promotion achieves highlighting its brand
strenghts. Crop campaigns, dealer training, farmer
gatherings, field demonstrations and sponsorships of
fairs are an integral part of the brand strenghtening
discipline. It is these qualities that will enable the
Division ride competitive pressures in its quest for
augmenting profitability. The fact that the
Division’s sale volumes were on a new high during
the year despite an acknowledged urea oversupply
situation in the country, is ample evidence of the
fundamental strengths of the "Chand Chhap"
brand.
For the fertiliser
industry as a whole the pricing policy remains an area of
significant concern. The reactions of the industry to the
recommendations of the High Powered Fertisiler Pricing
Policy Review Committee which submitted its report in
April, 1998 were unenthusiastic. Equally, the Central
Government’s views on the subsidy question has so
far been somewhat ambivalent and the 1999 Government
White Paper on Merit and Non Merit Subsidies have not
materially helped matters . Withdrawal of the retention
pricing scheme of phosphatic fertilisers some years back,
for instance, was not found to be benefecial to all
concerned in overall terms with prices moving upto
unprecedented levels. Subsidy on these fertilisers has
been since restored. The company would like t think that
the new Government would take a dispassionate view of the
entire subject for the betterment of all concerned.
Given that self sufficiency in food grain production is a major priority for the country, expanding food grain production to sustain the increasing population would only be possible by significantly raising agricultural productivity. A major input for augmenting agricultural productivity would be the increased and efficient use of chemical fertilisers. The per hectare
consumption of fertilisers in India is only about 85 kg
per hectare as against, say, a 250 kg per hectare
consumption in the people’s Republic of China. The
possibility of substantially stepping up fertiliser usage
would, therefore, be a major concern for both the
Government and the Industry. In such a scenario, The
Fertiliser Division cannot be fully alive to meet the
future challenges and maintain brand leadership in a
growing market.
Production The Tea Divison had, for along spell, benchmarked itself on a production potential of 16 million kgs. With the new tea areas of Uttar Dinajpur and Madarihat progressively firming up their supporting role in the overall cropping pattern, benchmarks are being written anew. The gardens accounted for a crop of 16.96 million kgs in 1998-99 and, had it not been for a prolonged drought in th early part of the tea season 1999, a mark of 17 million kgs would have well looked a thing of the past. Indeed, the Tea Division is cruising on exciting times. Average garden yields are well above the all India average . At the Demdima Tea Garden, acquired by the Group in th previous year ( whose crop is presently not aggregated with the Tea Division production ), aggressive development programmes have been launched with emphasis on uprooting and replanting. Nine percent of the mature tea area was uprooted during 1998-99. The high achievement levels have been made possible by strategic investments made by the Division consistently over the years in improving the productivity of manpower, land and equipment in an integrated manner. These investments, including the systematically implemented focused modernisation programmes, together with the thrust on productivity are now yielding meaningful and demonstrable results. For instance, the tea season 1999 has been witness to one of the worst droughts in industry history. In tune with the rest of the industry , the Tea Division also suffered loss in production. Yet, this has now been made up and all indications point to another record production during 1999-2000. Quality Side by side with the emphasis on crop, strenuous efforts have gone into upgrading the quality of produce. Quality consciousness remains the hallmark of Duncans’ operations and the Tea Division has in place a comprehensive quality control system backed by modern testing procedures helping to constantly monitor and fine-tune quality at all levels of production. New Factory The new areas of the
Division, the Terai Land Project in the Uttar Dinajpur
District and the Madarihat Land Project in the Jalpaiguri
District of West Bengal are being methodically nurtured.
The Terai Land Project got its first factory during the
year - a fully automated facility created to cater to the
rapidly increasing crop out-turned by the Project. Both
projects hold out immense profits for the future planted
as they have been with high yielding clones ensuring both
yield and quality.
Excelling under adversity The Packet Tea Industry is in a state of flux. The single biggest contributing factor has been the impost of excise duty and its subsequent withdrawal. The quasi recessionary state of the country’s economy has also contributed in a fairly material fashion in dampening consumer spending. Most Packet Tea players have gone into a tailspin unable to protect volumes in such a scenario.It is a measure of the Company’s intrinsic resilience that the Packet Tea Operations distinguished itself by chalking up a growth even under such arduous circumstances. Brand Equity Runglee Rungliot, the flagship brand of premium Darjeeling tea was launched nationally in spite of a declining consumption level for Darjeeling teas and the prevailing gloom in the packet tea industry. Runglee Rungliot not only enhanced the corporate equity of Duncans but also provided a shot in the arm for the beleaguered Darjeeling tea industry. Double Diamond distinguished itself by registering the highest growth in its category. The brand successfully transcended from a product led position to a position where emotional bonding with consumers becomes its mainstay.The equity that this brand enjoys would be exploited by extending it to newer variants under the brand umbrella. Sargam, the premium polypack brand, was re-engineered in an interesting manner to recognise and acknowledge the skills and expertise of the Indian housewife in transferring and translating the qualities inherent in the product to a satisfying end cup. South India has been witness to far reaching changes in consumer habits in recent years. A recent survey shows that tea consumption stands on an equal footing with coffee consumption in the South. The company has foreseen the shifting sands and had strongly invested in marketing and distributing the premium dust brand No. 1 in the South. Today, the high growth rates being clocked by this brand, is a measure of the effectiveness of the marketing programme. Numerous hot tea shops dotting the countryside offer a huge opportunity for a concerted marketing programme tailored and directed at this segment. This entails modifying product formulations, distribution methods and communication channels. During the current fiscal year, the company will undertake to further reach out to this segment in a significant manner. The brand activity calendar for 1999-2000 re-focuses on brand building and th need to invest in consumer loyalty and brand salience. An intensive and extensive market research plan will help unearth trends in consumer behaviour, consumption patterns, macro-economic and socio-economic factors. This information will be utilised to realign and revamp existing brands and identify untapped segments and those that offer future potential. Quality The Company’s packet tea business has drawn up ambitious plans for the future. Delivering superior quality products will continue to be the focus.the commitment to this end can be measured by the business’ unwavering endeavour to continue safeguarding consumer interests by preserving product excellence even in times of adversity. The business has never fallen prey to the temptation of compromising on quality for short run gains. It is this belief and value that will continue to be the core driving force in the business. Exports The overseas markets of
West Asia, North Africa and the CIS countries also
present opportunities to extend the Packet Tea
Operations’ ambitions beyond the shores of India. Of
this,West Asia with its sizable Indian expatriate
population will be the operations’ maiden venture
into overseas territories .
NEW DIMENSIONS The complex integration of the Company’s businesses in all their dimensions can only be sustained through a state-of-the-art information managemant system. Systematic upgrades are being made from time to time and, by the end of the current accounting year, the systems ought to be operating in an automated environment with each activity within a business dovetailing into the other. Commendable progress has
already been made by the Fertiliser Division in
implementing an ERP package. Progress by the Tea Division
is satisfactory considering that more than fifty
locations require to be networked and brought
"on-line" for steady information flow. This
process of computerising all operations of the Company
will, in a way, be the most significant achievement of
the year.
NOTEWORTHY PROGRESS In the Corporate Review for 1998-99, the Company had identified certain crucial issues which had a significant bearing on future operations. These issues included the high levels of loans and advances to associate and group companies, the increasing burden of interest costs, the lingering excise matters relating to New Tobacco Co. Ltd. and the low level of market capitalisation despite a satisfactory record of profits and dividends. As far as the loans and advances are concerned, the Company has been able to undertake significant legal restructuring schemes during the year. These exercises have actually resulted in the reduction of intra-group loans and advances by rs. 100 crores. Unfortunately, in the other promised areas, namely disinvestment of interest in certain companies and reduction of promoters controlling interest in Duncans, there has not been much progress. Serious efforts are in these directions and it is hoped that concrete results can be presented very soon. On excise matters relating to New Tobacco Co. Ltd. , happily there has been considerable progress. During the year, two significant show cause notices were finally disposed of by availing of the Kar Vivad Samadhan Scheme ( "KVSS") . The ultimate financial burden on the Company in respect of these two notices constituted a very small percentage of the original demand.Two other show cause notices are left to be disposed of and one hopes that the current year will see a satisfactory end to the entire episode. As far as reduction of interest costs is concerned, the Company has made progress in reducing its interests costs on high cost borrowings. However, a substantial reduction in interest cost can be effected only after strategic disinvestment of interest in ceratin companies takes place and, as mentioned earlier , appropriate steps are being taken to achieve this goal. The Company’s market capitalisation continues to be disappointing, although as on date, there has been a marginal revival in keeping with the bouyant trend in the stock market.It is strongly felt that the stock market has considerably undervalued this Company.The only reason one can guess is the effect of some loss making companies in the Group which have cast their shadows on this Company, quite undeservedly. Thus, the up-to-date position on the various strategic issues is a mixed bag. However, the Company is happy that some effective steps have already been taken and the day is not far when these various objectives will be substantially achieved. There is recognition of the need to courageously face up to ground realities, take these challenges head-on and present a transparent picture to shareholders and other interested parties. CORPORATE GOVERNANCE : LAYING THE FOUNDATIONS FOR A HIGH CORPORATE EQUITY As mentined in the previous Corporate Review, the only reliable route for the Company’s survival in the long run is to build for itself a solid foundation in terms of high corporate equity.Duncans recognises this need and the process has already started. The Board, chaired by Mr. G.P.Goenka , has created and Audit Committee exclusively composed of outside non-executive directors and the Institutional nominee. The Audit Committee has been given a free hand to carry out its functions. The Company has an eminent non-executive Board consisting of seven distinguished individuals – Messrs P.K.Kaul , R.K.Bhargava, T.S.Broca, P.R.Neelakantan, Milan Sen, Kemal Siddique and Pankaj Agarawal. Four of them- Messrs Kaul, Bhargava Broca and Siddique – are former civil servants with superlative career records. Mr Kaul is a former Union Cabinet Secretary while Mr Bhargava is a former Union Commerce Secretary and Union Home Secretary. Mr Broca is a former Chairman of Tea Board as also of the Food Corporation of India . Mr Siddique nominated by Temasek Holdings Pvt. Ltd. , an investing arm of the Singapore Government’s roving Ambassador to Denmark, Finland, Norway and Sweden. Mr. P.R.Neelakantan, a noted Chartered Accountant, is a former Chairman of Brooke Bond India Ltd., leading tea and coffee packeteers, which has since merged with Hindustan Lever Ltd.Mr. Milan Sen is a senior industrialist. Mr. Pankaj Agarwal is the Institutional representative on the Board having been nominated by ICICI Ltd. Moreover, the percentage of non-executive directors on the Boardis over 60 percent, which is well above the generally accepted norms. The Company has also in place a scheme of remuneration for these directors. Care is being taken to project all key information to the Board through comnprehensive operating reports. In fact, special emphasis is given on disclosure of exceptional or out-of-the-ordinary events to keep the Board fully in the picture. There is a conscious attempt also to make Board Meetings really useful events and enable the Board to function as a true policy making authority given the fact that its composition ranks amongst the best in the country.
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