CASE STUDY Last year, Ajay Oswal became the CEO of the 50-year-old family-managed textiles company, Oswal Cotton Industries Lid, at the age of 30. His heart was now pumping to the thrill of a turnaround. "Still relishing the number?" asked the CFO, Sadashiv Godbole, referring to OCIL's Quarter 1 results for 2008, which showed a Rs. 2.5 crore profit against a Rs. 21 crore loss for the same quarter of 2007. "We're back in business," said Godbole, sinking into the upholstery. Godbole was a 20-year OCIL veteran and he had signed up Ajai's father Prem Chand Oswal, who'd started the firm in 1958, in Ludhianviake cotton textiles. Cotton sheets, shirtings, cambric and mazril were the products that the firm produced and marketed during the early years, and it seemed like only yesterday that the firm went public-before getting into synthetic fibre and also steel. By the late 1990s, the OCIL tapestry, once richly interwoven with natural, synthetic and silver threads, had started fraying. First, the polyester division became a drag, and then, steel as competitive dynamics started changing.In of Tyron moxa in te By 2006, OCIL had got to what then seemed like a point of no return. Debt had-mounted to a staggering Rs. 1,300 crore, almost equivalent to the group turnover. Financial institutions threatened to pull the plug on the company, and the pink papers went to town with obituaries on OCIL. The diversification was unnatural to start with, said critics. In his time, Prem Chand Oswal, cotton loyalist himself, used to respond philosophically, arguing that so long as people were iscoming of what was natural and what was man-made, and the business was not deceiving anyone, there was no cause for worry. But Ajay Oswal had only hard options left. Painful as it was, he had to restructure the soup. The uncompetitive polyester division was sold off to the Bansal group for Rs. 810 crore. "thancial institutions got a chunk of preference shares, At the end of it all, OCIL came out lean, and still weak with the residual debt of Rs, 730 crore. in spite of all that, young Oswal had defied the impending bankrupty, and managed to haul Lout of the red, "'Ask Vishwanath to see me," Oswal told his secretary. Godbole knew what Head?" coming-three way brainstorming session with Vishwanath Pradhan, the Group Marketing-LIM Cases "Terrific results", began Pradhan, on entering the office "To be frank, I did not expect our cost-saving efforts to show results so soon." Oswal could see that this top executive had been excited by OCIL's showing. But he was keen on knowing what his best minds ought of OCIL's future. "We all know that this recovery was due to three factors : the staff optimisation drive, coupled with aggressive technology implementation in the plants; the performance of our textiles division, which was mainly due to the 25 per cent slump in cotton prices; and the successful diversification of the filament division into lucrative thermoplastic and engineering grade nylon. My question is : where do we go from here?" Cost-cutting couldn't be a perpetual strategy, nor could expect cotton prices to remain low forever. Pradhan spoke: "I think it's time we decided what OCIL is. I don't think we can continue being a textiles-nylon-steel player, and compete with the market leaders." "Be direct", said Godbole. "I'm talking about steel," said Pradhan, "We'll never be a steel major, so why are we making steel?" "You must be joking", interjected Godbole. "Our debt is off the danger mark, and if only you'd read the balance sheet carefully, you'd have noticed that the steel division was our productivity topper. Besides, we'll never fetch a half-decent price for it". Pradhan responded: "I still think we should stick with cloth fibre and cloth, that's it, but integrate the business either backward or forward. Backward routes are blocked by heavy competition in polyester-it's a scale-of-operations game. That leaves cotton farming, which could be complicated. But forward? Shouldn't we redouble our efforts in getting closer to the consumer? It's almost an axiom now. The link closest to the consumer sits on the fattest margins." "What's wrong with OCIL as a consumer brand?" asked Oswal. "Nothing, it's just that textiles aren't what people talk about any more, even if we have product distinction. They talk about Fashion Weeks and all that, and those are the actual brands young people have in mind. Value addition has moved forward, from cloth to the design-that's where we should be headed as well." "We're a high-volume industrial group", said Godbole, "not a boutique for the urban elite." "Well", retorted Pradhan, "I meant a mass-market initiative. The market's cotton versus synthetic balance affects our bottomline directly, and we have a big stake in tomorrow's clothing trends-we should be out there, shaping them. Cotton's a winner,, so long as consumers tie discerning and see clothing as a means of communication rather than a shield against the elements." "We have no control over that", said Godbole. Oswal looked unmoved by either of them. "Now let me suggest something," said the CE "I understand you guys are keen on some radical strategies. But let's realise that we're barev out of the woods yet".Godbole and Pradhan recognised the tone of voice the young chief had spoken with. Some soul-speak was on its way. "I think we should begin with the basics," Oswal began, leaving his seat and walking up the window overlooking the beautiful garden. "First of all, we should infuse some much-wanted capital into the textiles and filament divisions. Let's replace old looms. On the front-end, let's go after exports, big time. We mustn't miss the 2010 world trade opportunity, and the natural versus synthetic trends are clearer in the high-margin western markets. Cotton wins",. "Great", muttered Pradhan, turning to Godbole. "Now if only we had that much required capital to infuse." "I think we have", smiled back Godbole. "We have been current for the last one-and-a-half years with all our financiers. I have it covered." "Setting the priorities is the first task. I have just spelt out a survival strategy. Something we must do. But what we need next is a clincher. Something that will tell our shareholders that OCIL is on the path of growth. I Suggest we break up now and reassemble on Monday with an imaginative plan on everybody's mind." Questions (i) Examine the various emerging opportunities before OCIL. (ii) Should OCIL go in for forward integration? Why or why not? (iii) Should it dump its steel business? Why or why not? (iv) Would you advise OCIL to define its strategic intent? Why or why not? 3