Rise and Fall of the HMT Watches

Case Synopsis

Hindustan Machine Tools (HMT) was incorporated in 1953 at Bangalore as a Public

Sector Enterprise (PSE). In the year 1961, it has set up a watch manufacturing unit at
Bangalore. Since then it occupied the iconic watch brand status. HMT was successful in
building a very strong brand image in very short duration due its quality and reliability. It
became a sought after gift in several occasions. Mere possession of HMT watch was being
treated as the symbol of social status and was also the matter of pride. HMT ruled Indian
watch market for nearly three decades with 90 percent market share. Entry of Titan in 1984
and introduction of economic reforms in 1991 brought an end to HMT’s monopoly and set the
stage for oligopoly market. Faced with growing dominance of rivals, it went into losses for the
first time in 1994 and since then it never recovered. Several attempts of the Government to
revive HMT Watches Ltd went in vein and the cumulative loss reached to the amount of
Rs.1,600 crore by 2012-13. Considering the huge financial losses the Board for Financial
and Industrial Reconstruction (BFIR) felt that the unit is not capable of revival and
recommended its closure. Acting swiftly on the recommendation of the Board, the Government
has decided to shut down the once unquestionable ruler of the Indian watch market. This case
seeks to overview the growth path of the HMT Watches Ltd and tries to trace out the reasons
for its debacle.

Time to Rule-Demand for HMT

By 1970s, HMT rose to the iconic watch brand status. It became a sought after gift in
weddings, parties, farewells and in such other occasions. Mere possession of HMT
watch was being treated as the symbol of social status and was also the matter of pride.
Being elevated by the initial success, HMT made aggressive movements in the market
with technological upgradation of its unit and in fact, was the first to introduce
automatic quartz watches under the sub-brands Sona and Vijay in 1981, but with little
success. Market analysts observe that it was ahead of time and customers were reluctant to
buy high priced watches. Soon HMT went back to focus on mechanical watches and had
become the market leader in the mechanical watches.

HMT was successful in building a very strong brand image due to the quality and
reliability offered by its products. This brand image saved HMT watches from the
competitions of Hyderabad Allwyn Watches, which entered the watch market in 1981
in collaboration with Seiko of Japan. HMT ruled Indian watch market for three decades
with almost 90 percent market share. It was virtually enjoying monopoly since its
inception till 1991. Consequent upon the enactment of the Foreign Exchange Regulation
Act (FERA), 1973, entry barriers were imposed on foreign brands, leading to legal
protection to the market dominance of HMT. No domestic company was strong enough to
challenge its market supremacy.
 Time to Compete

The first jolt to HMT’s empire came in 1984 when a joint venture between TATA Group
of Companies and Tamil Nadu Industrial Development Corporation (TIDCO)
incorporated Titan Industries Ltd (formerly Titan Watches Ltd). Little later, in 1987 it
launched automatic quartz watches in the same market where HMT failed to impress the
customers. Surprisingly, Titan quartz watches became so popular that in less than three
years of its introduction in the market, Titan could ouster HMT’s market hegemony. In
due course, HMT had to lose market leadership to newly emerged domestic player Titan.
Undoubtedly, entry of Titan was the beginning of the end of the glorious moments of
HMT watches.

The major setback to HMT was in 1986 when 350 of its best engineers left to join Titan
watches. Since then HMT went on to lose market share and sales revenue and even iconic
status to Titan. In 1991 it had 8,000 employees and registered its highest sales revenue-
Rs.300 crore. However, the glory of HMT seemed to be over with the introduction of
economic reforms. Several new domestic as well as foreign players entered to the wrist
watch industry. Foreign watch brands such as Citizen and Casio of Japan, Timex and
Tommy Hilfiger of USA, Gucci, Rolex and Swatch of Switzerland and Armani of Italy
emerged in Indian market and posed deadly competition to HMT. The competition in
the market fostered by structural adjustments in Indian economy uncovered its
complacency.

Time to Lose

Faced with growing dominance of rivals, it went into losses for the first time in 1994.
Since then it never recovered. Table.1 gives insight to growth story of HMT Watches Ltd
in the post 2000-01. The dismal performance of HMT is visibly clear. Its sales revenue
went on to decline from Rs.108.64 crore in 2000-01 to a mere Rs.11.06 crore in
2012-13. More worryingly, even per capita sales revenue of an employee declined
sharply during the same period of time from Rs.0.03 crore toRs. 0.01crore. The loss
incurred by the HMT as reported in its annual report, was Rs.59.18 crore in 2000-
01, while it climbed to a mammoth Rs.242.47 crore by 2012-13. Ever depleting
current assets and mounting liabilities jeopardised its financial position. A paucity of
working capital and erosion of working capital- turnover ratio in HMT have hammered
the last nail to its coffin.

The financial performance of HMT remains unimpressive even in the financial year 2013-
14. It continued to incur loss and the loss is estimated at Rs.233 crore. Its sales revenue slid
further to Rs.7.48 crore, while its watch production was worth only Rs.4.70 crore.
Table‐1. Financial position of HMT Watches
Ltd (figures in Rscrore except *)
Particulars 2000‐01 2004‐05 2008‐09 2012‐13
Sales 108.64 23.54 13.52 11.06
Profit After Tax ‐59.18 ‐134.53 ‐164.05 ‐242.47
Current Assets 201.34 83.76 64.48 53.84
Current Liabilities 111.85 165.06 213.18 833.24
Working Capital 89.49 ‐81.3 ‐148.7 ‐779.39
Working Capital‐Turnover Ratio 1.21 ‐0.29 ‐0.09 ‐0.01
No. of Employees* 4120 2180 2050 1105
Per Capita Sales 0.03 0.01 0.007 0.01
Source: HMT Watches Ltd Annual Reports.

In the contemporary Indian watch market, Titan, having more than 65 percent share in the
watch market is the biggest player followed by Timex and others such as Citizen,
Sonata etc. At the premier level Tissot, Omega and Rolex are the popular brands. Titan
sells about 7 million wrist watches annually in India. Another prominent competitor
Timex sells nearly 1.2 million watches annually. While the rest of the companies
(including HMT) sell 0.5 million watches annually. Hence from these data it is evident
that after 53 years of its inception HMT watches have almost disappeared from the
market.

Time to Introspect

A look back and overview of the different growth stages of HMT watches provide some
glimpses on the possible causes for its failure. It is widely believed that its failure was
its own doing. HMT was the first to introduce quartz watches in India in the early 1980s
but due to its non-acceptability in the market soon went back again to focus on
mechanical watches. However, Titan, the new born child of watch industry picked up
the automatic quartz watches from where HMT stopped and re- introduced to the market
in 1987 with overwhelming response of the customers. In no time Titan became market
leader of quartz watches and HMT lost out to its own quartz watches.

HMT has suffered also because of poor decision making. It introduced automatic quartz
watches to the market without assessing the customer needs and expectations. It was a
right decision at the wrong time. Later, when Titan entered successfully with quartz
watches, HMT management went ahead with decision to open more
mechanical watch manufacturing units rather than quartz watch units. It was a wrong
decision at the right time.

Another prominent factor leading to its downfall was complacency. As already stated,
enactment of FERA has restricted foreign brands in India. No domestic company
was strong enough to challenge HMT watches either. This absence of competition for
long period of time made HMT lethargic. Consequent upon that, there was no drive for
innovation, product diversification, technological upgradation, quality improvement, cost
reduction etc. Since the entry of Titan quartz watches in 1987 and with the opening of
Indian economy, HMT’s complacency was exposed. Several global giants and domestic
watch makers flooded varieties of watches in Indian market. Being complacent during
the protected era, HMT was not prepared to face the stiff competition of rivals.
BhaskarBhat, Managing Director of Titan’s Ltd rightly makes an observation on the
under-preparation of HMT and its lack of foresightedness. He says HMT failed to
understand that “a watch was no longer a time-keeping machine. It was becoming a
fashion accessory for both men and women. Consumers wanted a well-designed product
to match their style. Aesthetics play an important role in marketing” (quoted in Mahesh
Kulkarni,2014). Insufficient emphasis on research & development and design engineering
has allowed competitors to successfully exploit the lifestyle segmentation.

The growth of HMT in reform era was marred, again, by slow decision making which
is due to red-tapism. Hence, it could not respond quickly to market changes. HMT’s
problems compounded further when the retailers refused to sell its watches due to lower
retail profit margin than the competitors. HMT opened its own retail outlets rather taking
retailers in to confidence, convince them and win their trust. HMT’s retail outlets are not
widely accessible to customers, leading to slowdown in sales.

Time for Action

Deterred by the continuous losses, several attempts were made to revive this PSU. HMT
underwent restructuring in organization and operations in 1998-99. In yet another
attempt HMT Watches Ltd, a business group of HMT Ltd, was converted into a new
subsidiary company. However, these initial revival strategies were mere futile exercise
and continued to incur losses. HMT woke up very late to respond to the challenges of
the competitors. Another revival plan was mooted and it was approved by the Board
for Reconstruction of Public Sector Enterprises (BRPSE) in 2006. But the Ministry of
Finance and Planning Commission did not accept the
revival plan and directed the Company to get the revival plan vetted by a Consultant with
respect to marketing, product diversification and technology. M/s ICRA Management
Consultancy Services Ltd was appointed as a Consultant. Based on the report of the
Consultant the Company prepared the revised revival proposal and also mooted the idea of
joint venture formation.

In a bid to reduce costs and thereby keep the Company alive and viable, the number of
employees has been drastically brought down from 4120 in 2000-01 to 1105 in 2013-14.
Inorder to tide over financial crisis of HMT watches, the Government made repeated
efforts of capital infusion. The budgetary allocation for capital infusion as on March 2012
was Rs.694.52 crore. However, these attempts did not help the Company to raise the
bar. A high degree of political intervention at all levels of the Company also affected its
functioning.

Time to Bid Farewell

As several revival plans couldnot address the problems of HMT watches, it continued to
incur loss and the cumulative losses are estimated to be around Rs. 1,600 crore. This
has made the then UPA Government to refer HMT Watches Ltd to the Board for Financial
and Industrial Reconstruction (BFIR) to look into the matters related to its revival. As the
Company is chronically sick, the Board felt that the unit is not capable of revival and
recommended its closure. Though the Board submitted the report during UPA regime, it
shied away from taking any decision. The newly formed NDA Government has
decided to shut down the once unquestionable ruler of the Indian watch market as
per the recommendations of BFIR. The Government has begun the process of closure
and decided to make a one-time settlement proposal of VRS for 1105 employees. From
now HMT is no longer “keeping time to the nation”.