As per a recent Business Standard article
– Of the 67 top listed companies not able
to service interest on their debt during 2016-17 due to inadequate profits, 53
started operations in the post-1980 period when private investment was first liberalized.
This analyses is based on a list of 633 non financial companies that are a part
of the BSE 500, BSE Midcap, or BSE Smallcap industries. The sample further does
not include Software exporters such as TCS, Infosys etc. In all, the 413 companies
set up after 1980 accounted for 51.3% of all corporate debt at the end of the
last financial year.
Now this is a most interesting
observation and research; though I readily admit that we cannot draw many
conclusions from beyond what has been covered in the article {Bibliography
link} – it does kindle a series of fascinating thoughts and inferences that we
can draw from this. The article goes onto state Analysts attribute this to the growth ambition of these companies…. Younger
companies are in the pre-revenue stage… in 2016-17, post 1980 companies
accounted for half of the Gross Block of the top listed non-financial companies,
much higher than their revenue {43.5%} share or their profit {25%} share in [the
financial year] 2016-17.
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| Image Credit : Google Search |
The first question that comes to mind
is straightforward – on what basis or strategy were progressive decisions to
invest in these industries taken by the professionals who took them? Let us shy
away from blame-gaming, and try and learn the lessons from this. This of course
requires a deeper study, which I shall place on my blog in some time – say a
few months; but we can still do some though-experiments and try and fathom a
way forward. Remember, some of the biggest breakthroughs have come from though-experiments,
which is a tried and tested method of strategizing.
Now, I am not calling the initial
decision wrong; I am specific, taking the article words at face value {growth ambition, for example} and calling
it, and asking penetrating questions. We know from the data {as well as from
other experiences, like Telecom for example}, that there is sectoral stress in quite
a few new sectors that have emerged since the early 1990s. Some decisions were
taken to invest in capital; more than that, some decisions on revenue expenditure
were also taken. We need to look at both, in a critical appraisal, starting
from directional decisions of a capital nature going all the way to managerial
perks, staff junkets and other needless expenses. A cursory look at the data shows
the disconnect between profits and indebtedness. We need to understand where we
as a unit went wrong -for all of us are paying the price.
Having worked for over a decade in
new age industries, as well as studied them indepth for much of that time, I
can readily call to question any number of highly debatable expenditure calls. Fine
– you can say hindsight; but can we all learn from this hindsight? Like, for
example, that decision to take an entire company staff abroad – and indulge in
things that went upto a near-nude cabaret dance. That is an acceptable logical
ethical and strategic decision? It fails my understanding how it can be anything
but what it truly represents : overindulgence and wasteful expenditure. Further,
what example and internal company culture are you creating by hosting a near
nude cabaret? Is it conducive to growth? The above is a small example;
extrapolate it to set of company wide practices of needless expenses on various
and sundry items from any expenditure head, and see the nature of the beast. My study leaves me with no doubt- a new industry or a new company should be stingy
and lean, not profligate.
But the deeper question that arises from
this interesting and fabulous study is – the
core decisions taken that involved capital, or large revenue expenses taken
in the name of diversification, competition, and so on. On what basis were they
taken – and how could they have been avoided? A study of this can allow us to
avoid such pitfalls in the future. Take for example a large new division that
was created in an organization I worked in {Well over 10000Cr in Turnover, a new
age company}, that had to be subsequently shut down in a few years. No amount
of fudging the numbers can hide the fact that this was a total waste of money -
money that could have been better used elsewhere and with a far greater impact.
Or the cut throat price war that ensued in three new industries - sinking all.
How hard was it for all of us to put our heads together and strategise a way
out?
These are the decisions I am talking
of; decisions that involved major financial implications – be it capital or be
it revenue decisions. We need to go into each such decision, and learn from them
– not to pick blame. That is where all corporates go wrong; we need to do this so
that we may learn and educate our employees and management on what went wrong,
on how it could have been avoided, and what can we learn from this entire episode
so as to cocreate a far better, more effective decent and performing organization
that has a work-culture that is friendly and conducive while being competitive.
This is what I shall endeavor in subsequent articles on my currently ongoing
Telecom Series. Each industry is unique, each requires specific domain expertise,
and this needs to be done for all such industries…
BIBLIOGRAPHY
80% of Indebted Firms Set up In Reforms Era
BIBLIOGRAPHY
80% of Indebted Firms Set up In Reforms Era
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