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From shoes to ceramics: Liberty moves on
Sangeeta Singh | October 15, 2005
From leather to ceramics -- is there a link? You wouldn't think so, but Adarsh Gupta, executive director, Liberty Group, believes that all manufacturing activities are somewhat similar; since both ceramics and shoes cater to the lifestyle segment there is a common thread, he says.
Liberty has got into the production of ceramic sanitaryware with trial production out last month. The first batch will be rolled out anytime now.
What goes behind the decision to go into sanitaryware? Is it a derisking proposition as Liberty's footwear segment is facing massive competition from foreign players, as also from those in the disorganised sector?
Gupta says it's just a diversification move since the promoters' family is expanding and it's better to chart out new ventures.
Liberty's sanitaryware unit in Neemrana (Rajasthan) started with an investment of Rs 50 crore (500 million), 50 per cent of which is through internal accruals.
"Since Liberty Shoes is a cash-rich company and we are expecting a net profit of Rs 20 crore (Rs 200 million) in 2005-06, the promoters decided to start a new project," says Gupta. The rest has come through a term loan from the Corporation Bank.
To be sold under the brand name Liberty Whiteware, which will sell washbasins, WC commodes, bidets, shower trays and ceramic accessories to begin with, the group has entered the Rs 700 crore (Rs 7 billion) ceramics sanitaryware market in technical collaboration with SACMI Imola of Italy.
According to Gupta, Liberty zeroed in on SACMI because it is one of the biggest ceramicware companies in the world, with a presence in 28 countries.
It also invests nearly 5 per cent of its turnover on R&D. The arrangement is that of technology transfer. "What we have bought from SACMI is design of the plant, complete know-how and plant and machinery," says Gupta. With a one-time fee to SACMI of Rs 15 crore (Rs 150 million), Gupta has worked out his economics well.
"This arrangement is better than having an ongoing tie-up where 5-10 per cent of sales goes into royalty payment itself. That's the kind of net profit one makes," he says.
And what is the homework that Liberty has done for fetching a good marketshare, what with at least three dominant players -- HSIL, EID Parry and Cera -- and any number of smaller players already present? "Well, firstly we are looking to be present in the premium segment where competition is not stiff. Then, we will produce higher-end products which other established players are outsourcing," says Gupta.
Rivals, however, are not impressed. "Will Liberty have the kind of sales to manufacture high-end products as well? If you ask me, it does not make economic sense. One will have to see what kind of dent Liberty makes in an already crowded market," says a rival.
As for Liberty, its confidence comes from the fact that in the Rs 700 crore domestic market, around one-third is that of the organised sector and which is growing over 15 per cent. "The industry demand-supply gap is expected to increase to 98,000 MT by 2007," he adds.
In the first phase extending to nine months, Gupta says 2,00,000 pieces will be out, and 5,00,000 pieces by June 2006. The footwear industry has seen a major churn in the last five years and many new entrants -- both foreign and domestic -- have invaded the market. Liberty certainly has faced the brunt of this.
Besides, its exports business has suffered, especially in the CIS countries. Gupta admits doing business in some of the countries is not easy. "A lot of them want to do business on credit, which is a difficult proposition," he says.
The next logical step for the Guptas was, therefore, that of diversification. And growing family members to steer different businesses have further facilitated the diversification spree. Liberty has also joined hands with Pantaloon to have large format retail outlets, which will showcase different leather products from Liberty.
In the ceramic sanitaryware business though, Liberty has a clear-cut investment plan. It plans to invest another Rs 50 crore (Rs 500 million) in the next stage -- a lot will depend on how the company markets its products and what is the kind of advertising it wants to go in for.
Especially because some of its earlier initiatives in footwear did not pay off. For instance, it planned a slew of sprawling Revolution stores all over the country a couple of years ago.
They are hardly visible now. Gupta admits there were execution and niggling problems but the company is resolving them.
However, in the ceramic business, he wants to be more professional from day one. "I want this to be a flat organisation as far as promoters are concerned. Again, the responsibility for both success and lacunae should be collective and not individualistic," he adds.
Does he suggest he and his older brother, Adesh Gupta be co-chief executives in the new business? Is he showing traces of rebellion?
These questions should be answered once the new business shapes up.