32

Travancore Cochin
Chemicals Ltd

By Pradip N Khandwalla

T ravancore Cochin Chemicals (TCC), a Kerala-based producer of caustic soda and

other chemicals, was promoted as a joint sector enterprise in the fifties. The
company underwent several reasonably successful phases of expansion and diversifica-
tion, but ran into losses in the early seventies. There were frequent changes of chief
executives, and recessionary conditions in the company's markets. In 1978 a profes-
sional manager was appointed as chief executive who initiated several management
and other changes. In three years the sales doubled. The loss-making unit broke even
by 1979-80 and thereafter the company continued to earn reasonable profits.
TCC operated in a competitive industry. Its products were not differentiated and its
markets were fairly volatile. Excess capacity led to buyers' market conditions. TCC's
national market share in caustic soda, its major product, was less than 10 per cent
Production efficiency was the key to the success ofTCC.

COMPANY HISTORY

The Travancore Cochin Chemicals Limited (TCC), presently a Kerala Government

company, was established in 1950 through the pioneering efforts of Messrs Seshasayee
Brothers Travancore Ltd. It was first conceived of as an adjunct to the Fertilisers and
Chemicals Travancore Ltd (FACT), which was also managed by Seshasayee Brothers
at that time. The idea of setting up a caustic soda unit had been in the air as early as
1947, but could not come to fruition due to paucity of funds. The then Travancore Cochin
This case was included in "Effective Turnaround of Sick Enterprises (Indian Experiences): Text and
Cases" published by the Commonwealth Secretariat in 1989. Reproduced with Commonwealth
Secretariat's permission.

•••
336 Managerial Dilemmas
Government came to the firm's assistance and work on the project was taken up in 1949.
The project was thus initiated by a partnership concern known by the name Travancore
and Mettur Chemicals, the partners being the FACT Ltd, and Mettur Chemical and
Industrial Corporation, Mettur, both belonging to the Seshasayee group.
Plans to start commercial production in 1952 could not be implemented, mainly due
to financial difficulties. There was assistance from the state government, and a public
limited company was registered under the name and style, of Travancore Cochin
Chemicals Ltd, with the state government contributing a major share ofthe equity. It
was also agreed by the shareholders - FACT, Mettur Chemical, and the state govern-
ment-that Messers Seshasayee Brothers Travancore Ltd, would work as managing
agents for a period of ten years from the date of the agreement.
Production on a commercial basis commenced in January, 1954. The plant then had
a production capacity of 20 metric tonnes of caustic soda per day and an equivalent
quantity of chlorine. The TCC was the first ever unit in India to employ the Mercury
Cell Process to manufacture high purity rayon-grade caustic soda. Prior to the setting
up of this unit, the country's requirement of caustic soda was met through imports. In
1956, a continuous caustic soda fusion plant with a capacity to fuse 20 MT of caustic
soda lye per day was installed, thus facilitating the transportation and marketing of
this chemical to far off places. To meet the demands of the newly set up DDT plant of
the Hindustan Insecticides Ltd, a chlorine liquefaction plant was added in 1958.In 1960,
production of caustic soda was raised to 30 MT per day.
On August 15, 1960, on the expiry of the period of agreement with the managing
agents, the Kerala Government took over the management of the company. At around
the same time the Government of India nationalised FACT Ltd. Both TCC and FACT
have their manufacturing facilities located at Udyogamandal, near Cochin.
The TCC went ahead with successive capacity expansions. The second stage expan-
sion, undertaken during 1960 to 1963, increased the capacity ofthe caustic soda unit to
40 MT per day. During this phase, the company also added a sodium hydrosulphate
plant with a rated capacity of 3 MT per day. The third stage expansion, from 1963 to
1967 with spill-overs continuing until 1970, consisted ofthe installation of an additional
caustic soda plant with a capacity of60 MT per day. The phase included the connission-
ing of a plant to manufacture (for the first time in India) iron-free sodium sulphide, with
a rated capacity of 4 MT per day. The fourth phase, which the company took up during
the period 1972 through 1975, consisted of additions of: (a) a 100 MT per day caustic
soda plant; (b) a 15 MT per day liquid sulphur dioxide plant; and (c) addition of some
balancing equipment to increase production of sodium sulphide from 1,000 tpa to 2,100
tpa. The plant and equipment for this phase of expansion were supplied by a German
engineering firm, Mis Friendrich Uhde GmbH.
The 1972 scheme which was originally expected to cost Rs 99.5 million, was to be
financed by additional issue of share capital ofRs 11.5 million, rupee term loans ofRs 73
million, and internal cash accruals of Rs 15 million. Subsequently, the company re-
ported an over-run of Rs 51 million, as also a shortfall in the cash accruals by Rs 9
million, necessitating additional requirement of funds to the extent of Rs 60 million.
 Travancore Cochin Chemicals Ltd 337
This was met by additional share capital of Rs 20 million and additional term loans of
Rs 40 million.
While the caustic soda/chlorine and sodium sulphate plants of phase four expansion
were completed and commissioned by 1975, there was considerable delay in the
completion ofthe sulphurdioxide plant. Originally slated to be completed by 1975 itself,
there was an over-run of nine years for the commissioning of this plant. The main
reasons for the delay were reportedly (i) revision and delay in design and engineering,
and delay in placing orders; and (ii) considerable delay by suppliers of the critical
equipment on account of technical problems and labour trouble at their plant. Even
though the plant was slated to be commissioned by April 1984 and commercial produc-
tion was to commence from July 1984, as of end 1984 the plant was yet to be
commissioned.
The company incurred losses after 1972 mainly on account of slump in demand from
industries consuming caustic soda, uneconomic prices, and unfavourable sales terms.
Tee's accumulated losses as on March 31,1979 amounted to Rs 79 million, as against
the paid up capital of Rs 63.5 million. As a result, the company defaulted in payment
of interest, instalments to the financial institutions and banks.
During 1967 to 1978, Tee experienced frequent changes in top management-there
were ten chief executives, all belonging to the Indian Administrative Service. During
this period, there was sometimes vacuum at the top, with no managing director available
to set and execute the top management policy. There was no continuity of management
style or policy. The morale ofthe managerial staff was very low and, by early 1978, there
was reportedly an atmosphere of decay and desolation in the organisation. Production
could not be continued for want of raw materials, including common salt, due to loss.of
credibility with the suppliers. The financial strain on the company was very debilitating;
it was becoming difficult even to pay the wages regularly. The manufacturing facilities
were in a state of decay due to lack of maintenance and upkeep of the equipment.
Production was erratic and of poor quality due to poor cost consciousness and quality
awareness. The middle managers were not really worried about the loss of production
since they were convinced that every ton produced added to the loss ofthe company and,
hence, it was as well if production was maintained.
Tee's markets began shrinking, and even vanishing, at around the same time. The
climate of unsteady and erratic production, with little attention to quality, prompted
the traditional customers, anxious to ensure steady supply of materials of standard
quality, to turn to other suppliers.
Alarmed by the continuing crisis of management, with problems and grievances
remaining unresolved, four employees and workers' unions wrote a joint letter to the
Kerala industries minister on April 10, 1978 during a plant shutdown for want of the
basic raw material 'common salt'. The letter appealed for immediate ministerial inter-
vention: "Nearly 1,000 employees are directly depending on this factory to maintain
their families and if the present situation is allowed to continue for a long period, we
are afraid, all ofthem will have to wander for employment elsewhere in the near future".
 Travancore Cochin Chemicals Lid 339
FINANCIAL PERFORMANCE OF TCC

Table 32.1 provides a comparison of the profitability of Tee and the chemical and
petrochemicals industry in India. In the two years 1976-77 and 1977-78, Tee lost
heavily on sales, while the industry earned healthy margins. After 1978-79 the company
consistently earned much higher margins on sales than the industry. It, therefore,
appears that the company's poor performance prior to 1978-79 was due to internal
rather than external factors, and its excellent performance after 1978-79 was also due
primarily to internal, managerial factors. The company seems to have started earning
normal profits after 1978-79.

Comparative Profitability ofTCC and 68 Chemicals and Petrochemical Companies

NOP* to Sales % NOP to Capital Employed**

TCC Chern.Cos TCC Chem.Cos

1976-77 -19.3 14.0*** -7.2 22.4

1977-78 -17.1 14.6*** -6.7 24.1
1978-79 4.7 15.6 2.2 22.2
1979-80 17.3 14.9 11.0 21.8
1980-81 18.7 12.6 14.7 18.4
1981-82 23.6 11.8 21.9 18.8
1982-83 19.2 10.8 17.3 16.9

* Net Operating Profit (profit after depreciation but before interest and taxes)
** The item 'miscellaneous expenditue and losses' has been deducted to derive capital em-
ployed.
*** Annual reports of Travancore Cochin Chemicals and Financial Performance of Companies,
ICICI Portfolio 1982-83 and 1978-79 (Bombay: Industrial Credit and Investment Corporation,
1984 and 1980); 1982-83 portfolio for industry data for 1978-79 to 1982-83 and 1978-79 portfo-
lio for 1976-77 and 1977-78 industry data. The 1978-79 to 1982-83 industry data are for 73
chemical and petrochemical companies, while the 1976-77 and 1977-78 data are for 75 compa-
nies.

Table 32.2 presents some pertinent financial data on Tee of recent years. Sales
stagnated during 1976-78 and rose rapidly thereafter until 1981-82. Very heavy losses
in 1976-78 were halved in 1978-79 and eliminated in 1979-80. Thereafter profits rose
rapidly during 1980-82, and declined somewhat in 1982-83. By 1980-81 the sharehold-
ers' funds, which earner were deeply negative, had practically come to scratch, and rose
to Rs 51 million by the end ofthe 1982-83. The company had clearly been successfully
turned around.
338 Managerial Dilemmas
As a result of the continuing crisis, TCC was steadily making a loss of around Rs 25
million annually and this led the industries minister to make a statement in 1978 that
it would be better to close the company and give wages to all the employees!
To pull the company out of the woods and put it on the path to recovery, the state
government, by the middle of 1978, began scouting around for a suitable professional
manager for the position of the chief executive. Quite a few who were approached were
not willing to stake their reputation or career. It was in this context that the industries
minister got some references about Mr T N Menon, then working as financial controller
and administration manager with a metallurgical firm, and called him for a discussion
about TCC. In the ensuing discussions, Mr Menon told the industries minister he was
prepared to take over the TCC assignment on the following conditions:
(i) He would join as Chairman and Managing Director
(ii) He would have complete freedom of action without political interference
regarding the internal affairs of the company. He on his part would ensure
that state policies were scrupulously adhered to.
The ,industries minister assured Mr Menon complete freedom of action without
political interference, and expressed his concern about the morass ofproblems TCC was
deeply entangled in by mid-1978. To pull the company out of the rut was going to be a
great achievement and there was great concern in the state government about the state
of the premier public enterprise and pioneer manufacturer of basic chemicals.
Mr T N Menon accepted the offer and joined as Chairman and Managing Director on
August 16, 1978. He initiated vigorous actions on several fronts. As a result, sales
doubled between 1978-79 and 1981-82, and a loss of Rs 13 million in 1978-79 was
converted into a profit ofRs 27 million in 1981-82.
Compared to 1981-82, there was a fall in sales and profit during 1982-83 due to the
shutdown of the company for two months for want of power supply, and also cuts on
power consumption during the rest of the ten-month period. There was also a labour
strike in March 1983. The power cut worsened during 1983-84, and as of end 1984,the
prospects of 1983-84 seemed worse than for 1982-83.
By March 1983, TCC had an authorised capital ofRs 80 million and issued capital of
Rs 66 million. It had an installed annual capacity of 59,400 MT of caustic soda, 2,100
MT of sodium hydrosulphate, 2,100 MT ofsodium sulphate, and 4,500 MTliquid sulphur
dioxide. In the country as a whole the installed capacity for caustic soda was ofthe order
of 1.1 million tons while the demand for this product, oflate, had stagnated at around
6 million tons. Consequently, many ofthe chemical companies, including TCC, were not
operating at full capacity. Due to depressed market conditions, TCC was operating at
only about 50 per cent to 60 per cent of its installed capacity.
340 Managerial Dilemmas
SICKNESS AND MANAGEMENT OF TURNAROUND

The industrial stagnation and high inflation ofthe early seventies hit the company hard.
The company's machinery got rundown due to poor maintenance, and there was a great
delay in commissioning the liquid sulphur dioxide plant. The company operated largely
under buyers' market conditions. Its woes were greatly compounded by top management
discontinuity and lack of managerial professionalism in top management. Between 1967
and 1978 some ten !AS officers, mostly unschooled in industrial management, were
seconded, one after another, to the company as managing directors. Mr Menon, who
joined this by now state-owned enterprise as managing director in 1978, was not only
able to keep political and bureaucratic interference at bay, but brought about many
changes that turned around the company:

Figures in million of rupees

76-77 77-78 78-79 79-80 80-81 81-82 82-83

Sales 60.0 58.5 73.8 102.6 128.9 157.1 148.2

Gross profit
(Profit before
depreciation,
into & taxes) 8.1 5.1 18.3 31.9 38.4 52.5 44.2
Net operating
profit (Profit
after deprecia-
tion but before
into & taxes) -11.6 -10.0 3.5 17.7 24.1 37.1 28.5
Net profit -26.7 -25.9 -13.4 0.5 13.0 27.1 22.6
Capital
employed* 160.1 148.5 158.3 160.7 164.0 174.9 165.2
Shareholders'
funds 24.2 -1.7 -15.1 -14.6 -1.6 27.9 50.6
Net operating
profit to sales % -19.3 -17.1 4.7 17.3 18.7 23.6 19.2
Net operating
profit to capital
-7.2 -6.7 2.2 11.0 14.7 21.9 17.3
employed %

* After deducting 'miscellaneous expenditure and losses'.

Source: Annual reports of the company.
 Travancore Cochin Chemicals LId 341
1. As soon as he joined as the chief executive, Mr T N Menon initiated the process
of continuing communication with the managers and workers. The letters to
the managers were in English while Malayalam was used for the bulletins to
the workers. The very first bulletin dated August 16, 1978, addressed to all
the employees, provided an outline ofthe company's policies and the problems
it was facing. It also sought employees' suggestions for improving the perform-
ance ofTCC. The written communication was followed by the Chief Executive
meeting managers and union office bearers separately and jointly to enable
them to ventilate their feelings. Thus, channels of communication were opened
up and they helped in building up a culture offree and frank discussion.
2. The chief executive did a quick SWOT (strengths, weaknesses, opportunities,
and threats) analysis and identified the following key result areas for concen-
tration:

(a) Management development and training

(b) Improvement of plant operations
(c) Maintenance Management
(d) Financial discipline and cost control
(e) Improvement in industrial relations
(f) Improvement in marketing
(g) Materials management
3. A senior manager who was found to be corrupt was removed from service, and
the action was successfully defended by the company up to the high court. This
had a salutary effect on the morale ofthe entire organisation and the workers
were convinced ofthe seriousness ofthe new chief executive's attempt to revive
the organization. There was an improvement in business ethics. Later, a senior
executive found not to be competent in leading his team was persuaded to leave
TCC. This action also dramatised the emphasis on competence and perform-
ance the new chief executive was seeking.
4. Mr T N Menon continued issuing educative circulars to his managerial col-
leagues on a whole range of issues, beginning with the 'responsibilities of
managers'. Over a period of time these circulars touched upon topics such as
organizational effectiveness, transactional analysis, result-orientation, budg-
eting, planning, etc. These circulars were widely discussed among managers.
5. Capsule training programmes in management subjects, inter-personal rela-
tions, team effectiveness and other behavioural aspects were arranged for all
the managers including the chief executive. These programmes created a freer
and more frank atmosphere conducive to mutually supportive relations.
6. By his own behaviour, the chief executive repeatedly set an example for
punctuality, promptness in taking decisions, meeting performance demands
342 Managerial Dilemmas

by agreed time schedules, integrity, resistance to political interference, intol-

erance of indiscipline, and fair and quick redressal of grievances. Meetings
were made serious and result-oriented affairs, and the accountability for action
was fixed on individual managers to implement the decisions according to
agreed time schedules. In the initial stages, this being a new experience for
the managers, the chief executive frequently had to pull up some, or closely
follow up on their actions. In due course, 'keeping promises' became part ofthe
organisational culture.
7. Overall strategic plans for the company were discussed in open meetings of
top managers to give them a broad picture ofwhere the organisation stood and
where it planned to go. This created not only an awareness in them of
corporate-level matters but also a sense of involvement. The organisation was
reshuffled to make the best use of available talent.
8. Traditionally, all recruits in the technical wings used to enter the company
service through the Public Service Commission, as the latter recruited junior
engineers. The quality ofpersonnel supplied by the Public Service Commission
was considered inadequate for a high technology company like TCC. Hence, a
system of open recruitment for the 'executive trainee' scheme was introduced.
Formal training for the executive trainees was introduced. The minimal
recruitment qualifications for workmen were upgraded to SSLC and IT!.
9. Being an old organisation, the senior executives were in their early and
mid-fifties and were quietly awaiting retirement. Hence job enrichment ofthe
third level of executives (i.e. middle and junior level) was carried out, with
career and succession plans in mind. These executives were encouraged to go
out and acquire qualifications such as MBA, Masters in Engineering, etc.
Later, career and succession plans were worked out for these executives, and
were implemented.
10. Plant-I, the old Krebe plant, as well as the auxilliary and peripheral equip-
ment, were in a dilapidated state, with a majority of cells in a corroded
condition. Plant modernisation was taken up, with a little help from the state
government and largely through internally generated funds. The plant there-
after ran efficiently.
11. Plant-II, the new Uhde Plant, had been operating in a slipshod manner due
to poor maintenance, with only halfthe cells working. A crash programme was
developed to rectify problems and run the plant efficiently.
12. Plant-III consisted ofthe caustic soda fusion plant, sodium sulphide plant and
hydro sulphate plant. Due to poor market conditions and acute competition,
the hydro sulphate plant was working at a negligible level and the workmen
were idle most of the time. The production in this plant was stopped, and
workmen reallocated to other units. Exercising such flexibility was
 Travancore Cochin Chemicals Ltd 343
unprecedented in TCC, and managers were surprised that the unions yielded
without any resistance.
The caustic fusion plant, where it was very important to maintain high
capacity utilisation (by fusing surplus lye into solid flakes) was in a rundown
condition, with intermittent breakdowns and low capacity output. Because of
technical problems and negligent handling, the bags in which flakes were
packed were coming out dirty and unattractive to look at; consequently, there
was poor off-take of this product in the market. The technical problems were
rectified, and problems of casual labour, involved in these operations were
sorted out through negotiations. The plant was now able to handle 60 tons of
flakes per day, as against 30 tons previously. Machine stitching of bags was
introduced. As a result, TCC was able to register among customers a favour-
able impression for its flakes, on par with those of Standard Alkalies, the
market leader.
13. The technical director, who was not able to handle problems, was replaced by
an executive from outside. The new Executive Director (Technical) was invited
to join the organisation in 1980 from a nearby public sector chemical plant.
14. It was found that capacity utilisation was substantially affected by extremely
poor, fire-fighting type maintenance. Each plant manager was supposed to be
responsible for the operations and maintenance of his plant. Consequently,
maintenance received only a casual, ad hoc attention, resulting in frequent
breakdowns. Standby equipment in critical areas was not kept in readiness.
Mr T N Menon called in a consultant to review the company's maintenance
management practices, to reorganise the set-up and train the engineers in
modern maintenance engineering methods. The consultant conducted detailed
studies and training programmes for the engineers, and made proposals for
the revamping ofthe maintenance function in the organisation. The proposals,
with some modifications, were implemented. There was resistance from the
TCC Engineers Forum and representations were made in 1980 to Kerala's
minister of industries against such changes. After discussions with Mr Menon,
the industries minister refused to intervene and, thereafter, the new mainte-
nance organisation started functioning smoothly.
15. Subsequently, furnace oil consumption was considerably reduced. By 1984, a
project for the use of surplus hydrogen as fuel for caustic fusion was under
implementation. A master plan to reduce industrial pollution, considerably
and protect the environment, was also under implementation.
16. The fmancial institutions and banks were unhappy with TCC for not meeting
the interest and instalments due on time. A tripartite meeting was arranged
in 1980 between TCC, the financial institutions and the Kerala Government.
The financial institutions and banks agreed to make a number of concessions,
344 ManagerialDilemmas
including the freezing of accumulated interest aggregating to Rs 58 million,
besides a reduction in the rate of interest on loans. In the same meeting, the
Kerala government agreed to provide certain concessions to TCC, indicating
its seriousness in reviving this enterprise. TCC was granted a concession in
power tariff for four years until 1984 (this was likely to be extended). TCC, in
turn, agreed to pay interest due in time, and instalments on past loans at an
accelerated pace. TCC promptly started paying annual interest and instal-
ments to lending organisations. From 1978-79 to 1983-84, the payments of
principal and interest to the financial institutions amounted to Rs 105million.
This promptness helped TCC regain credibility with the financial institutions.
17. The company did not have proper budgeting systems in 1978. It went in for
regular, on-going budgeting on the basis of an integrated plan of action for
each year, meshing into a five-year perspective plan.
18. Costing and control systems were also streamlined. Each item of cost was
reviewed critically to reduce the cost burden to the barest feasible level,
without affecting production or productivity.
19. Direct periodic communication with workers, through Malayalam bulletins,
was helpful in establishing a free atmosphere for exchanging views between
the management and labour. Adherence to punctuality, discipline, and prompt
compliance with orders was repeatedly insisted upon by the new chief execu-
tive. Since the workers for many years were used to a laissez-faire atmosphere,
there was a spate of disciplinary actions in the beginning. As time went on
there Werefewer and fewer occasions when disciplinary action was needed; in
course of time the workers got used to the new culture.
The unions also got the message in unambiguous terms. They gave up pressure
tactics and learnt to sort out problems through open negotiations across the
table.
For union recognition the company followed a norm of minimum 15 per cent
membership. This considerably reduced the number of unions operating in
TCC.
20. A monthly production incentive scheme was introduced, which made the
workers production-oriented. The annual bonus scheme also was linked to
production volume.
21. Prior to 1978 marketing effort had been on a very low key. The attitude was
"whatever is available anyone can come and take it ifhe wants."
The new chief executive impressed upon his colleagues the critical nature of
the marketing function. "The customer is our business; it is the customer who
gives us employment. We have to manufacture what the customer needs, and
not try to sell what we make." The customer reportedly became an.honoured
 Travancore Cochin Chemicals LId 345
person. Quality complaints were attended to promptly. Supplies became
steady.
22. The company increased the production of profitable products such as caustic
soda and kept the production of relatively unremunerative' products like
sodium sulphide and sodium hydrosulphate at a low level during the early part
of the turnaround.
23. Lye storage capacity was increased to enable the company to cope with
occasional slackness in offtake (which was previously met by production
stoppage); an additional finished goods godownwas constructed to store flakes
and thus avoid emergency sales at distress prices.
24. The company was also successful in capturing new business through pro-active
marketing strategies. It negotiated and concluded lO-year agreements with
Hindustan Paper Corporation Ltd, Vellore, and Kerala Minerals and Metals
Ltd, Quilon, for the supply of their entire requirements of caustic soda,
chlorine, and hydrochloric acid.
Lately, with acute competition in the market, and some of its traditional
customers in deep trouble, TCC was striving to capture a chunk of major
markets such as Bombay.
25. TCC had not had a comprehensive stock taking for almost a decade. Assistance
of an external consultant was availed of to streamline the materials manage-
ment function: through codification, spare parts planning and inventory con-
trol.
These steps stopped accumulation of excess inventory as well as plant shut-
down due to stockout of critical parts.
26. The purchase function also was reorganised. Five-year agreements were
concluded with salt suppliers for ensuring the steady availability of this vital
raw material.

EXTERNAL FACTORS AIDING TURNAROUND

The Kerala government, particularly the industries minister, provided considerable

help to TCC. First, it finally located a highly competent professional manager to head
TCC and gave up its earlier habit of appointing IAS officers as transient managing
directors. Second, it agreed not to interfere in the internal operations ofTCC and kept
its word. It also gave relief in power rates and provided additional finance.
As far as the market is concerned, while TCC did benefit from buoyance in 1978-79,
later on the market for caustic soda, its main product, turned weak with new entrants
creating an excess industry capacity situation. Thus, the turnaround was, by and large,
achieved despite an adverse market situation.