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Paranjoy Guha Thakurta

ECIL: A public sector success story

ECIL was able to achieve a turnaround in three years which is nothing short of spectacular, says Paranjoy Guha Thakurta.

It has become fashionable in certain circles to deride anything and everything that pertains to India's public sector.

When there is something positive to be said about a public sector undertaking, such news tends to be relegated to the background.

The recent experience of the Hyderabad-based Electronics Corporation of India Limited shatters quite a few myths about the so-called slothful and inefficient manner in which PSUs are supposed to function.

After earning profits for six years in a row, ECIL incurred losses in 1997-98 basically on account of its inability to face intense competition from multinational corporations and private Indian companies.

The PSU's problems worsened the following year after the Atal Bihari Vajpayee government conducted nuclear tests in May 1998.

This was on account of the fact that the company manufactured a number of products used by the country's defence services and nuclear establishment.

ECIL was placed on the 'entities list' by the United States Department of Commerce that meant a complete embargo on the company undertaking any imports from the US.

The American action was accompanied by similar moves initiated by the governments of several other Western nations and Japan.

The PSU then stepped up its research efforts and came up with indigenous substitutes for electronic items used for military purposes - in certain cases, the local products turned out to be superior than the imported equipment after extensive field trials had been conducted.

(The Indian Navy has certified that a particular critical sub-system developed by ECIL is better than the original American product.)

The economic sanctions affected ECIL's supplies not only in the strategic sector but in commercial market segments as well, including the market for telecommunications products.

The company could not import sub-systems as well as computer software and hardware used in the production of telecommunications equipment.

ECIL could locate alternate sources of supply of some of these components and sub-systems but costs went up, as did the length of the procurement cycle.

The company consequently not only lost its reputation among customers - its vendor rating in the telecom sector came down -- but also had to cough up substantial amounts as liquidated damages for delays in fulfilling its contractual obligations.

It was hardly surprising then that ECIL's bottomline took a big hit. The company incurred a loss of around Rs 60 crore (Rs 600 million) in 1998-99, its net worth was eroded and it was referred to the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies Act.

It was also not unexpected that employee morale sunk, lack of liquidity became an acute problem, customers started cancelling orders, suppliers stopped extending credit and bankers threatened to reduce their exposure to ECIL.

The management decided to seek the advice of certain 'reputed' consultants who painted a rather gloomy picture of the company's future.

Though the Department of Atomic Energy extended solid support to the company, certain babus belonging to the great Bharat sarkar started wondering if extending financial assistance to ECIL would be tantamount to throwing good money after bad.

The company decided to try and help itself by starting a whole host of initiatives not usually associated with the culture of a public sector organisation.

As far as employees were concerned, the management decided to become transparent and communicated all outstanding problems to them.

Participative management became not just a buzzword but was actually practiced at all levels in the company. Talented performers were empowered.

The ECIL top brass was able to use the energies of the employees' union and the officers' association to alter the defeatist attitude that had set in among sections of the staff. Strange as it may sound, especially for an Indian PSU, workers were actually motivated to achieve better results.

The management then imbibed the virtues of financial discipline by a policy of 'collect and spend.' The process of collecting receivables was improved. Inventory levels were strictly monitored and controlled.

Suppliers were paid 'back-to-back' as soon as funds were collected from customers. At the same time, special attention was paid to customer needs through regular personal interaction.

Operations were made uniform by minimising the traditional fourth quarter 'peaking' - this was achieved by systematic month-by-month tracking of performance parameters.

ECIL then started developing closer business relationships, even with some of its PSU rivals such as Bharat Electronics Limited, Indian Telephone Industries and the Ordnance Factories Board.

The company signed a memorandum of association with the Nuclear Power Corporation of India Limited.

It developed a strong relationship with the Election Commission of India by supplying electronic voting machines.

ECIL was successful in building bridges with key government officials in the ministry of defence. It strengthened its partnerships with the Defence Research and Development Organisation and the Bhaba Atomic Research Centre.

It also formulated schemes to attract talent from universities.

Finally, the company went in for a voluntary retirement scheme that saw ECIL's total employee strength shrinking from 6,800 at the end of March 1999 to 5,750 three years later.

If all the above-mentioned strategies appear to have been lifted straight out of a management textbook, the fact is simply that ECIL was able to achieve a turnaround in three years that was nothing short of spectacular.

Between 1998-99 and 2001-02, the company's turnover went up from Rs 250 crore (Rs 2.50 billion) to Rs 683 crore (Rs 6.83 billion) and net worth zoomed from a pathetic Rs 7 crore (Rs 70 million) to Rs 142 crore (Rs 1.42 billion).

From a loss of Rs 60 crore (Rs 600 million) in 1998-99, ECIL broke even the following year and earned profits of Rs 12 crore (Rs 120 million) in 2000-01. Profits jumped more than six-fold to Rs 79 crore (Rs 790 million) the year after.

The company's net working capital requirement in the three years following 1998-99 shrunk from Rs 188 crore (Rs 1.88 billion) to Rs 85 crore (Rs 850 million), while its outstanding loans crashed from Rs 220 crore (Rs 2.20 billion) to nil.

Simultaneously, inventory levels (measured in terms of days of production) came down from 177 days to 87 days.

Value addition per one rupee paid as salary went up from Rs 1.06 to Rs 2 even after wage revision. Employee cost, which had stood at 42 per cent of turnover before wages were increased, came down significantly to 24 per cent thereafter.

That's not all. Orders and letters of intent on hand jumped more than three times in three years from Rs 286 crore (Rs 2.86 billion) to Rs 1,000 crore (Rs 10 billion).

ECIL's credit rating was upgraded by the State Bank of India from 'SB7' to 'SB3' and CRISIL gave it a rating of 'P1+.'

Importantly, the company was able to completely liquidate its outstanding statutory obligations in three years - it had gratuity arrears of Rs 16 crore (Rs 160 million) and provident fund arrears of Rs 7.4 crore (Rs 74 million) at the end of March 1999.

ECIL's customer satisfaction index shot up from 62 in 1999-2000 to 93 in 2001-02. Its memorandum of understanding (MoU) rating with the Union government went up from 'fair' in 1998-99 to 'good' the following year and 'excellent' the year after that.

Slowly but surely, various awards started coming its way. Recognition came from the government (ministry of communications and information technology) as well as non-government organisations (like the Institution of Electronics and Telecommunications Engineers and the Indian Institution of Industrial Engineering).

At present, all of ECIL's manufacturing divisions have received quality certification from the International Standards Organisation. The company claims its electronic fuses are comparable to the best in the world.

Currently ECIL has a 'self-certification' facility for its radio communication products - this is supposed to indicate that customers are confident about the company's quality assurance systems and procedures.

As mentioned at the outset, most journalists are sceptical about good news. As is often remarked, good news is no news; bad news is good news!

Many newspersons - including this correspondent - are wary about publicising the achievements of an organisation. We in this profession do not like to be seen playing the role of public relations officers and advertising agencies.

Nevertheless, at a time when there is much misplaced euphoria about the potential benefits of privatisation and a corresponding tendency to play down the positive features of PSUs, the story of ECIL's turnaround is worth recounting.

Hopefully, praise will not lead to complacency and the company will be able to continue improving its performance as India's key public sector organisation in the area of strategic electronics.

Date posted: September 17, 2014Last modified: September 17, 2014Posted byParanjoy Guha Thakurta