Oil stained this textile group red

It’s been a depressing fall for the Arvind Mafatlal group, worth Rs 2,400 crore in 1994. Those were the days when its ambitions had soared beyond textile business to include petrochemicals and financial services. They even set up India’s first petrochem plant, the National Organic Chemical Industries (NOCIL) in Thane. It’s now shut, a victim of a costly business decision and competition from Reliance Industries.

No one seems to accuse the Mafatlals of dishonesty, just wrong judgements, tactical mistakes and the inability to ride out a textile recession. Still, at the end of the day, the result is the same: frustrated lenders, depressed investors and sacked workers.

‘‘We recovered some of our dues by taking over their real estate,’’ says an ICICI official. But others aren’t so lucky. ‘‘We’ve been waiting for them to sell off their real estate. It’s not happening,’’ says the representative of another bank that financed the group.

Mafatlal Industries, the flagship and once one of India’s best textile companies, was declared sick in September 2000. ‘‘A consensus was reached on the draft rehabilitation scheme, which has now been approved by the BIFR,’’ says a fax from the company.

The group needs massive surgery. Otherwise, it might not be around to celebrate its 100th anniversary in 2005. The Arvind Mafatlal group holds vast tracts of prime real estate in South Mumbai: Mafatlal House, Mafatlal Centre and Mafatlal Chambers are Mumbai landmarks. It also owns land at Mazgaon near Mumbai’s dock lands.

This real estate is worth crores, and it’s no wonder despairing banks hope to recover at least some money if this land is ever sold. Today’s defaulters were the epitome of Indian enterprise as the 20th century broke over colonial India. The Mafatlals moved from trading in textiles to set up their first textile mill in Ahmedabad in 1905. This was the start of Mafatlal Industries.

Over the decades, they worked hard and diversified, joining the ranks of India’s first families of business. In 1979 the group was split among three brothers: Arvind, Yogendra and Rasesh. Prosperity was theirs for the taking through the 1980s. In the end, a single mistake was the launching pad to their troubles.

HOW THEY TOOK THE MONEY

When economic liberalisation dawned in 1991, the Arvind Mafatlal group had a remarkable advantage over first-time entrepreneurs: pedigree, experience and lots of cash in the bank.

These should have been killer advantages. But the Mafatlals, like some traditional business families, simply could not withstand the winds of increased competition. In the end they were too ponderous for an era that required businesses to be nimble.

It didn’t seem that way when bankers enthusiastically loaned money to the Mafatlals for their slew of diversifications during the 1980s. The looms were humming along and NOCIL was the vehicle to realise the group’s petrochemical dreams. It all began to sour when the Mafatlals had differences with NOCIL’s joint owners, the Royal Dutch/ Shell group.

Irreconcilable differences forced the Mafatlals to buy out Shell’s stake at nearly Rs 1,000 a share. It was at this time that the Mafatlals borrowed heavily from the banks.

Still, NOCIL continued well enough until 1997. But then performance plunged as the Ambanis and their state-of-the-art petrochemicals plants ran them ragged. NOCIL tech was dated and that meant high operating costs. With its high interest burden, NOCIL began making cash loses. NOCIL reported a Rs 112 crore loss in 2000-01; the company has lost Rs 270 crore over the last three years. Only smaller rubber chemicals and plastic products units are running today.

The Mafatlals pumped in Rs 700 crore but NOCIL never recovered. ‘‘Their strategy in acquiring Shell’s stake went wrong,’’ says an official of a financial institution. That wasn’t the only misadventure though. Mafatlal Industries tied up with Burlington for a state-of-the-art denim manufacturing unit. The US giant collapsed last year and filed for bankruptcy.

The fall of the Mafatlals also left frustrated investors at Mafatlal Finance. The company made a public issue at a premium of Rs 40 in October 1994, but now it quotes at around Rs 1.30. Its subsidiary Mafatlal Securities, which once handled broking and investment activities of the group, once planned to float a mutual fund. It never happened. The company defaulted on fixed deposits too.

AND HOW THEY GOT AWAY

The total liabilities of the Mafatlal Industries and NOCIL alone are close to Rs 1,200 crore. The group has defaulted to almost all of India’s major financial institutions. It’s unlikely much of that money is coming back in a hurry.

Mafatlal Industries posted a whopping Rs 326 crore loss in September 1999, while its net worth for the period was just Rs 268 crore. The breather from the banks came from the well-worn source: the BIFR. Like so many others, they knew they wouldn’t have to pay up as long as BIFR worked out their revival package. Many are usually sweet deals with interest waivers and moratoriums on payment.

The Mafatlals say the BIFR scheme for their company is ready. ‘‘After extensive deliberations with the banks and FIs, government agencies, some at the behest of IDBI, the operation agency, and a couple of hearings before BIFR, a consensus was reached on the draft rehabilitation scheme,’’ says a company statement.

Earlier this year NOCIL received permission from the labour commissioner to shut down its petrochemicals division in Thane. After this 578 employees lost their jobs. ‘‘Despite our financial difficulties, NOCIL carried out its petrochemical operations to continue employment of its 1,300 workers until April, even though it was losing Rs 10 crore every month,’’ said NOCIL Vice Chairman N.M. Dhuldhoya two months ago. ‘‘If we had continued operations, workers’ dues could have been negatively impacted.’’