HMT Watches Sickness Case Study PDF

International Journal of Pure and Applied Mathematics Volume 119 No. 7 2018, 1263-1273 ISSN: 1311-8080 (printed version); ISSN: 1314-3395 (on-line version) url: http://www.ijpam.eu Special Issue...

International Journal of Pure and Applied Mathematics Volume 119 No. 7 2018, 1263-1273 ISSN: 1311-8080 (printed version); ISSN: 1314-3395 (on-line version) url: http://www.ijpam.eu Special Issue ijpam.eu TIME KEEPERS OF THE NATIONS HAS TIMED OUT: A STUDY ON SICKNESS IN HMT WATCHES Dr. G. Sunitha Durgaprasad Navulla Asst. Professor Research Scholar School of Management School of Management National Institute of Technology Warangal, NIT Warangal, Telangana, India Telangana, India, 9666450766 Mail id: [email protected] ABSTRACT India is a developing country which has not reached its milestone as a developed country according to our planning commission till now. Many prevailing reasons exists to speak about this gap why India has been still a developing country. Majority of the reasons contributes to illiteracy, corruption, regional commotion, income inequality and another reason is industrial sickness. Actually Indian economy is segregated into three sectors, they are Agriculture sector back bone of Indian economy which is also known as primary sector, Industrial sector as secondary sector and Service sector as territory sector,and these are inter- dependent on each other. Industrial sickness degrades the industrial growth in the economy. The problem of sickness has been increasing every year in large proportion due to lack of good corporate governance. The growth and magnitude of industrial sickness is dangerous issue not only for the present scenarios but also for future ahead in India. There are many reasons for a company to become sick. In this regard HMT Watches Ltd. has taken as a reference to explain the sickness in business world in this study. It highlights profitability and financial position of HMT watches limited and the reasons of sickness/closure of the company. Key Words:Development, Economy, Finance, Profitability, Public Company, Sickness etc. 1. Introduction A state-possessed endeavor in India is known as a Public Sector Undertaking (PSU) or a Public Sector Enterprise. These organizations are owned by the union government of India, or one of the many state or regional governments, or both. The organization stock should be majority share claimed by the government to be a PSU. PSUs divided into Central Public Sector Enterprises (CPSEs), State Level Public Enterprises (SLPEs). CPSEs are organizations in which the immediate holding of the Central Government or different CPSEs is at least 51%. They are managed by the Ministry of Heavy Industries and Public Enterprises. At the 1 1263 International Journal of Pure and Applied Mathematics Special Issue point when India accomplished freedom in 1947, India was an agricultural nation with a low industrial base. The national policy was supportive of fast industrialization of the economy which was viewed as the way to economic advancement, enhancing the standard of living and economic sovereignty. Building upon the Bombay Plan, which noticed the necessity of government mediation and direction, the main Industrial Policy Resolution announced in 1948 set down wide forms of the technique of industrial improvement. The Planning Commission was constituted in March 1950 and the Industrial (Development and Regulation) Act was instituted in 1951 with the target of engaging the administration to find a way to control industrial development. PM Jawaharlal Nehru introduced an economic policy in view of import substitution industrialization and pushed a mixed economy. He trusted that the foundation of the essential and heavy industry was required to the improvement and modernization of the Indian economy. India's second five-year plan (1956–60) and the Industrial Policy Resolution of 1956 established the development of PSEs to meet Nehru's national industrialization strategy. Indian statistical analyst Prasanta Chandra Mahalanobis was instrumental to its formulation, which was in this way named the Feldman–Mahalanobis Model. The significant thought for the setting up of PSUs was to speed up the development of core areas of the economy; to serve the infrastructural needs of deliberately vital sectors, and to create income as well as employment, to advance basic improvement as far as social gain and to furnish commercial surplus with which to fund for further economic development. A huge number of “sick units” were taken control from the private sector. Government of India has established 320 CPSEs (excluding seven insurance companies) with an investment of Rs.11,71,844 crores up to march 2016 and the net profits from these companies are Rs. 1,15,767 crores. Out of which 65 companies registered at BIFR to declare them as sick. It is a huge number with large amount of losses with Rs. 51,670 crores during 2015-16. The reasons for sickness in all these companies are differ from one to another however some common problems for sickness are usage of old and obsolete plant and machinery, low capacity utilization, low efficiency, excess of human resource, lack of innovative business plans, poor debt-equity structure, high interest rates and debt burden, stiff rivalry, reliance on government orders, resource crunch and input high prices. With globalization, liberalization of the economy, numerous CPSEs that did not develop quick lost ground to privately owned businesses. According to the Indian Companies Act Section 2(57) of 2013 defined that Central Public Sector Enterprise is considered sick when it meets the any one of the following criteria. i) Companies net worth is negative ii) “Companies Act, Section 2 1264 International Journal of Pure and Applied Mathematics Special Issue 253 of 2013 the “company is assessed as sick on a demand of the secured creditors of an organization with 50% or more of its payable amount of debt under the following conditions a) Company has failed to pay back its debt within a duration of 30 days of the service of the notice of demand b) it has failed to compound the debt to the reasonable satisfaction of the creditors.” At the same time company can be treated as incipient sick CPSEs “when the company net worth is less than 50% of its paid up capital in any financial year. As well as it incurs consecutively losses for three years. And company can be treated as weak when its operational profits decline by more than its average of 10% in the previous 3 years and its income from other sources greater than its profit before tax as well as if the company’s trade receivables and inventories are more than 50% of the net worth of the CPSEs”. Various researcher mentioned about the industrial sickness in their work which are as follows 2. Review of Literature: Industrial sickness may be raised because of many reasons. Gary Pursell (1990) explained that it will be done in two ways. They are primary sickness and secondary sickness. It includes government policies and demand and supply with price levels. But M. S Narayana (1994) explained that four major elements are the reasons for the sickness in the companies. They are mismanagement, government policies, labour problems, time and cost overruns. Prof. Amol O Kachhwah (2014) also explained about the causes of sickness in small scale companies and remedies for sickness in his article. These reasons are internal and external. Identification of sickness in the initial stage will give easiness to treat it. If sickness reaches advance stage, it will is difficult to cure and hard to make it normal. Many researchers mentioned these reasons separately like FayzaChowdhary(2012). Hedetermined the reasons after taking the opinion from the employees of Jammu & Kashmir Industries Ltd. He found that financial reasons are the most important reason considered by the respondents on industrial sickness. A.K.M. SolaymanHoque& S.K. Biswas (2013) mentioned that major elements of sickness is poor management decision and improper application of funds in the operations. ButMumtaj Ali Junejo, ChandanlalRohra&GhulamMurtazMaitlo (2007)felt that many companies are suffering from various problems which make them sick. Reasons are shortage of suitable raw materials, selection of old type of technology, heavy competition, lack of finance facilities and lack of organized producers and poor marketing strategies. Dr. Navaneeta Singh (2011) mentioned that Sickness in Companies is an organic process which 3 1265 International Journal of Pure and Applied Mathematics Special Issue does not burst in overnight. It will take some times. Dr. Krishna AwatarGoyal (2010) explained that identification of sickness at early stage is very important. Many tools are available for predicting the insolvency position of the company. AshokeMondal and Dilip Roy took ratios and statisticsas an important predictor for sickness. It means that earning power and capital structure are important predictors of corporate distress. When companies come under sick many strategies are there. According to the Kenneth W. Jones (1976) explained in his article about sick industries and its revival programs. Merge scheme helpful sick units become healthy. The merger of sick units with healthy units is expected to result in professional management. The implication of merger scheme may turn out to be significant and may result in structural changes in the industrial scene. Ramachandra K.S. (2001) also explained that reviving of Enterprises in various aspects like management training, providing technology, skilled labour, export promotion and giving financial aid is important for the nation’s economic growth. As per the above literature reviews we can say that sickness is a major problem that arise in the company depending upon the many factors. These factors may be changed from company to company depends on the industry and economic conditions of the country. At the same time sickness spreads all the industries including public limited companies, private companies, Government companies(Including central and state) as well as small, medium and large scale also. 3. Objectives of the Study: The development and magnitude of sickness in the industry is a hazardous issue, for the current circumstance as well as in the future also. There are many reasons that could have made an organization wind up simply wiped out and the reasons could be inner or outside or a combination of both. In this regard, this study aims to analyze the sickness in HMT Watches Limited Company as well as long with the reasons. 4. Research Methodology: In this present study an attempt has made completely based on secondary source like Central Government Reports, RBI Annual reports, different kinds of text books, newspapers, journals, various websites, HMT Ltd. Company reports and website. 5. Profile of the Company: 4 1266 International Journal of Pure and Applied Mathematics Special Issue HMT Company was incorporated in 1953 as a machine tool manufacturing company by the Government of India.It has concentrated on many areas like tractors, machine tools, die casting and plastic processing machinery and bearings as well as watches. The company got strengthened through successful technology absorption for its all products with worldwide renowned manufacturers’ collaboration and continues in house research and development activities. It has 18 manufacturing units. HMT had set up a watch manufacturing unit in collaboration with M/s citizen watch company, Japan located in Bangulore in 1961. The first Prime Minister of India was released the first batch wrist watches which was manufactured at this factory. HMT Janata is a most popular hand wound watch. Other famous watches are HMT Pilot, HMT Jhalak, HMT Sonata, HMT Braille. Table: 1 HMT Watches Plants in various places in India S.No Factory Location Year of Products Establishment 1 Banglore Plant-I 1961 Automatic Day Date Watches, Quartz Watches, Braille Watches, Ana-Digi Watch 2 Banglore Plant-II 1972 Automatic Day Date Watches, Floral Clocks, Solar Clocks, International clocks and tower clocks. 3 Srinagar Plant-III 1972 Ladies Hand Wound Watches Automatic Day Date Watches Quartz Analog Watches 4 Tumkur, Karnataka 1978 Quartz Analog Watches- Manufacture and Assembly 5 Rani Bagh 1985 Gents Hand Wound Watches (HWW) Quartz Analog Watches (QAW) Sources: HMT Watches Company Website HMT Watches, having more than 100 million satisfied clients, is a commonly recognized name in the nation and appreciates a good Brand Equity. The total manpower strength of the company is 2126.Whereas it has huge losses from last one decade and the company financial position is very weak. 6. Profitability Analysis of HMT Watches: Table No:2 Profitability and Net Worth of the HMT Watches Limited. (Rs. In laksh) Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Revenue 5574 3631 2660 9894 7186 2132 1723 2141 1672 1999 EBIT -7429 -8102 -7309 -314 -11405 -5816 -6401 -5774 -12576 -6716 Interest 3863 5379 6144 7269 8161 8864 9982 11061 12798 15688 EBT -11292 -13481 -13453 -7583 -19566 -14680 -16383 -16865 -25374 -22404 5 1267 International Journal of Pure and Applied Mathematics Special Issue Taxation -- -- -- 22 15 15 17 -- -- -- EAT -11292 -13481 -13453 -7600 -19581 -14695 -16405 -16835 -25374 -22404 Net -41391 -53865 -65780 -71557 -81595 -96063 -112405 -129240 -157614 -170000 Worth Sources: HMT Watches Financial Reports Figure 1: Profitability Position of HMT Watches Ltd. 15000 10000 5000 0 -5000 2002-032003-042004-052005-062006-072007-082008-092009-102010-112011-12 -10000 -15000 -20000 -25000 -30000 Revenue EAT The above table 2 is represented the earnings after taxes of HMT watches limited from 2002- 03 to 2011-12. It found many things in the last ten years of the study period i.e. the earnings of the company have fluctuated in negative side for entire time period of the study. Interest on loan also increased in a fast manner in all years. It is Rs. 38.63 crores in 2002-03 to Rs.156.88 crores in 2011-12. This loss is a heavy burden on its total revenue. The above figure 1 also represents the sales/revenue and its profit/earnings. The sales revenue had many fluctuation and losses of the company also very high in all the ten years of study period. Table:3 Various Ratios of HMT Watches Limited Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Current 0.58 0.55 0.51 0.46 0.53 0.39 0.3 0.25 0.21 0.28 Ratio Return on -203.81 -121.83 -117 -4.17 -143.31 -63.41 -51.98 -39.02 -71.86 -42.50 Capital Debt Equity -0.82 -0.99 -0.90 -0.88 -0.91 -0.88 -0.87 -0.87 -0.87 -0.89 Ratio Per Capital 1.94 1.21 1.08 1.01 1.75 0.71 0.66 0.53 0.62 0.84 Sales Net Profit Ratio -202.58 -371.27 -505.75 -183.95 -272.48 -689.25 -952.11 -786.31 -1517.58 -1120.76 Sources: Company Financial Reports As per the above table 3, the company profitability and financial position has mentioned in terms of current ratio, debt equity, and return on equity as well as net profit ratio. Current ratio is a ratio which represents a liquidity ratio that measures the ability to pay short term 6 1268 International Journal of Pure and Applied Mathematics Special Issue obligations and pay back company’s liabilities. The ideal ratio is 2:1 but the HMT watches current ratio is absolutely worst in all the years. The liquidity position is in very worst and it leads to dangerous situations in the company due to low level of working capital. The return on capital is also negative in all the ten years and the debt equity position must be 2:1 and the company’s solvency position is continuously decrease in nature from 2002-03 to 2011-12 i.e. in negative always according to financial statements of the company. The company liquidity position, solvency and profitability position is very weak in all the years. Many reasons are prevailing for the weak position in the financial position of the company. 7. Causes of failure: Iconic watch brand of most Indian grew up wearing has shut down. The company incurred losses from 2000 which has been unable to generate adequate fund to pay wages and salaries to employees. It has suffered from losses with many reasons as they are follows 7.1 Technology up-gradation: Technology is dynamic in nature always which create many opportunities in the competitive world. HMT produced mechanical watches and unable to upgrade its technology. It failed to observe the changing phase in the rush as competition started to push Quartz Analog Watches. Lack of up-gradation in technology led to lose some market share. 7.2 Failure to focus on Customer needs: HMT failed to identify the pulse of its customers even though they were commissioned with consistent marketing research and thorough access of dynamic customer needs. HMT quartz was make to be a prime item and focused to the modern Indian young people. As quartz high price product which implied that it was to be unaffordable by middle class people. Sales came down and the company reduced its price from Rs. 1000 to Rs. 800 and making promotion campaign highlights its youthfulness but it failed to attract the target customers. 7.3 Cost control Mechanism: Regular cost auditing mechanism must be installed for cost control in the company otherwise cost overflow can make a profitable company to sick which leads to closure. HMT watches didn’t set up adequate cost control mechanism. Its operating cost has been increasing over many years. It got continuous losses from many years. Loss from 2007-08 to 2010-11 has 7 1269 International Journal of Pure and Applied Mathematics Special Issue increased in increased manner i.e. from 146.95cr to 253.74 cr. The overall liabilities including government loan, payment dues for salaries and other statutory dues amounted is Rs. 694.52 cr. in March 2012. 7.4 Marketing Mix failure in Diversification: As a business leader in market cash your opportunities before competitor do. HMT has diversified with different categories such as stop watches, digital watches, multi-function watches, analog digital watches and alarm clocks as well as overseas market also. It has created many ranges in women watches also. Marketing mix as well as promotion mix activities were unable to capture the market share. Competitors like Titan, Timex, Citizen, Swatchtap the focus of customers during festival seasonsand grab the market share that couldn’t done by the HMT watches. It paid less attention towards packaging style of its products. In 1991-92, when quartz watches had been around for over five years, Titan sold 22.6 lakh quartz analogue watches, while HMT could just sold of 13.76 lakh pieces in a similar classification. Afterward, HMT couldn't stay aware of rivalry from premium brands that were effortlessly available to Indian customers. 7.5 Poor personal Management: The company has to motivate the people towards organization goals from personal goals. Even after hiring adequate managerial personnel as well as facilitating lots of training facilities, there was an absence of talented employees that HMT confronted. Apart from this, a serious problem is team work spirit and creativity in HMT. Underutilization of assets and human resources is another important problem faced by the company. Internal bureaucracy and red-tapism are regular events of PSUs likewise brought about HMT responding slower to its rivals moves. It is running huge losses and lost its position in the competition as well as dominated by many local and global brands. 7.6 Lack of Innovation: HMT watches was not an immense on innovation. It adopted foreign product designs from various markets like Hong Kong and Far East. HMT had very limited designs for customer to choose from. Indeed, even two years after Titan, its greatest rival to-be was launched, HMT still did not launch any new items. Lack of product innovation based on the customer requirements led the company into the losses. 8 1270 International Journal of Pure and Applied Mathematics Special Issue 7.7 Lack of Coordination: Coordination between marketing department and production department is very less in their functions. As a time keeper of the nation it has brand image in the market, customers are ready to purchase it but the stock in not available in the market. Production department is unable to fulfil the stock needs of the market and the company suffered as a result. The company couldn’t forecast the trend about the Quatz watches were going to rule the Indian markets.Insufficient supply and poor coordination between the functionaries of the company made the company sick. 8. Conclusion: HMT attempted to came out from black image with campaigns for new watches but new models had short supply at stores. According to the former CMS N. Ramanujan “Everything was going smoothly for HMT which was a public sector jewel, till 1989-90. It got losses when the production if Srinagar factory had stopped. It had to face working capital shortage as it had to feed around 500 employees without any output. The government did not accept the turnaround plan proposed by the company managing director. HMT continues to accumulate losses. The paucity of working capital, erosion of trade channel and high cost of borrowings affected it worst. The total cost of production stood very high which leads to losses”.HMT Watch Business was restructures as HMT Watches Ltd. Be that as it may, the organization began making losses before soon, after which a revival plan was approved by the BRPSE in 2006. It was unable to cop up with new competitors, technology up gradation, creativity, and various business environment factors. Accumulated losses has been increasing year by year. The company has 1105 employees and it couldn’t pay salaries to them. Internal revival plan was unable to bring the company to its normal position. Cabinet Committee on Economic Affairs, Chaired by Prime Ministry of India announces about the closure of HMT watches in 2017 with the recommendations of Board of Reconstruction of Public Sector Enterprises. All assets and liabilities will be liquidated based on the regulations and it was announced VRS (Voluntary Retirement Scheme) Package to all existing employees according to the pay revision of 2007. The central government was announced Rs. 427.48 crore as an assistance towards this package for all workforce of the company. 9 1271 International Journal of Pure and Applied Mathematics Special Issue References 1. SolaymanHoque A.K.M. and Biswas S.K. (2013). Problems of Sick Industries – Bangladesh Perspective. Journal of Mechanical Engineering. Vol. ME 43, No.2. 2. KachhwahAmol O (2014). Sickness in Small Scale Industries. Global Journal of Multidisciplinary Studies, Volume 3, Issue 5, ISSN: 2348-0459. 3. 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