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March 16, 2009

Belt tightening at BCCL

Contentsutra has an interesting package on the salary cuts at Bennett, Coleman & Co. Ltd (BCCL), India’s richest media company that publishes The Times of India and The Economic Times. It includes a copy of the letter sent by BCCL CEO Ravi Dhariwal to employees announcing salary cuts, an interview with him and an analysis of what went wrong.

From the letter:
Starting May-June last year, the first road bump in the form of newsprint prices hit us. We started paying between 60-70% more for newsprint than we had been paying previously. This depleted our profitability to less than half of what we had enjoyed previously. We saw some of it coming, and took necessary steps to mitigate it as much as possible. Small cover price increase, rationalization of pages, strictly incurring only necessary costs were our focus then. By doing these, we were able to keep ourselves profitable though at a reduced level during the first three months of August, September and October. Actually October was our best month in the history of BCCL in terms of revenue, though our profits were at half the level of what we had originally expected. All because of the higher newsprint costs. At that stage, we thought we will be able to cut more costs and restore the company to its original financial health. Profit is like oxygen – if we don’t have it, the company and its employees eventually suffocate. We needed to ensure a level of profitability which provided enough cash for us invest in future growth. Till October we were confident that we would be able to do so.

The last four months have turned out to be very challenging. Instead of growing like in the previous three months, we saw advertising decline by almost a quarter, and, because over 90% of our revenue comes from advertising revenue, this has been huge barrier for us. I am happy that we took precautionary steps to reduce the costs, but, unhappy that these have not been enough to restore our profitability. I am happy that we have not eroded our competitive position, in fact we have become even better, but unhappy that we have had to borrow money significantly to continue our capacity expansion. I am happy that all our colleagues have risen to the challenge, but unhappy that the challenge seems to be lasting longer than a few months. Frankly, I have not seen anything like this in my working life.

From the interview:
(Our Subsidiaries - TV and Internet) face a different set of challenges. There is no newsprint there. Yes, the ad slowdown is having an impact in some cases. Times Global Broadcasting is a different story. Times Now has been doing so well, it has consistently been the No1 English news channel for the past 36 weeks. There are issues with high distribution costs, but we are working on that as well. We haven’t decided on any such steps at our subsidiaries.

...The nature of the Internet business is such that when you start 10 verticals, only 6 may work. So you have to shut down some of them.

From the analysis:

BCCL is in a bind because of the aggressive expansion it undertook in the past few years and the debt it took on to fuel it—some Rs1,700 crore in a nearly Rs5,000 crore balancesheet (calculation based on the company’s 2007-08 balancesheet plus information from our sources). It’s hard to be critical of that. Expansion into new territories and media segments was the right thing to do then and the company doesn’t have very high debt levels—just that it has traditionally been debt-free. Its projects are executed well and its marketing machinary has proved unbeatable thus far.

...BCCL’s consolidated balancesheet also bears the weight of the London acquisition of Virgin radio and the massive dimunition in value of its Private Treaties portfolio, apart from several subsidiaries that are turning in losses.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in