Case Analysis- Mangalore Chemicals and Fertilizers Ltd.

Subject: Strategic Leadership Ravi Roshan, PGDM (E)

Instructor: Prof. Sunil Maheshwari 18PGDM00A001, Date-18/04/19

CASE SUMMARY:

Mangalore Chemicals and Fertilizers Ltd. (MCFL) was initially incorporated as Malabar Chemicals and
Fertilizers Pvt. Ltd. by Dugal group in 1966 to produce Urea using Naphtha. Later the company was renamed
and GOI amended its license to produce Ammonia along with Urea. The commercial production of Urea
started in 1976. When financial performance started declining sharply from late 80s, it was acquired by UB
group along with approval of rehabilitation scheme by Govt. of Karnatka, financial institutions and Banks. But
the rehabilitation scheme could not be fully implemented. MCFL did not receive funds as promised rather
creditors and lenders started pressurizing MCFL management to payback their dues. In 1994, MCFL was
referred to BIFR (Board of industrial and financial reconstruction) as a sick company. The revival of company
was a herculean task. In these challenging circumstances the sudden demise of MD Mr. NB Chandran,
prompted the chairman of UB group to offer the MD post to Mr. DP Mehta, the head of finance of MCFL.

Mr. Mehta had to respond to the offer but he was in a fix to accept the role as it was risky for his
career to undertake MD position of a sick company with so many problems. But at the same time , it was
also an opportunity for Mr. Mehta to undertake one of the most challenging task. The successful revival will
put him in league of few turnaround managers in the managerial world.

ISSUES BEFORE MR. MEHTA AND SUGGESTED PLAN OF ACTION FOR TURNAROUND:

Issues Suggestions
Vacuum at the top-

The managerial capability in the organization was
not adequate as many of the competent
managers at the top had left the organization
due to its worsening financial health, frequent
labor conflicts, low employee morale and
repeated plant stoppages.
Mr. Mehta need to hire experienced managers from
outside to fill the vacuum. The hiring of managers
should be on the basis of their zeal to accept the
challenge of turning around a company. Their
personality traits should be of risk takers.

Hostile external stakeholders-

Dealing with Karnataka Electricity board was a
challenge. KEB wrongly put Rs. 25 million
penalties on account of unauthorized
consumption, while KEB had verbally agreed for
additional power. The other issue of raising bill (
Rs. 9.3 million ) for full Feb 1984, while MCFL had
surrendered the increased demand on 7th Feb
1984
Industrial Relation-
MCFL first try to negotiate with KEB on these two
issues and resolve the matter by asking KEB to cancel
the frivolous penalty and charging correctly for Feb
1984 consumption.
If the negotiation fails, MCFL may adopt legal way to
settle the issue.

Workers’ Union was too strong, aggressive and
undisciplined on account of linkages with
political leaders. Strikes were frequent and of
long durations.
Mr. Mehta have to focus on breaking the link between
politicians and union leaders. Clearly articulating the
consequences of strike and Union action to ultimate
closure of plant to the political authorities may work
as a strategy.
 Case Analysis- Mangalore Chemicals and Fertilizers Ltd.

Subject: Strategic Leadership Ravi Roshan, PGDM (E)

Instructor: Prof. Sunil Maheshwari 18PGDM00A001, Date-18/04/19

Industrial Relation-
Workers’ Union was too strong, aggressive and Mr. Mehta have to focus on breaking the link
undisciplined on account of linkages with political between politicians and union leaders. Clearly
leaders. Strikes were frequent and of long durations. articulating the consequences of strike and Union
action to ultimate closure of plant to the political
authorities may work as a strategy.
Workers overtime-
Workers used to get paid overtime even during Management have to end the “overtime” policy
normal working hours, if they were asked to perform altogether as it is causing a huge burden on MCFL.
any work other than their stipulated tasks. Approx. The resistance from workers side is expected but
25 % of workers earned as much as Rs. 2.5 million management will have to deal this issue strictly. This
per year as overtime wage only. can be done after weakening the Union first as
stated above.
Working capital management- Mr. Mehta will have to negotiate hardly with
suppliers specially with IOC ( Naphtha supplier) and
Company did not have adequate working capital. It build personal trust in order to increase credit
was extremely difficult for MCFL to get funds from period.
any external agency on having been declared sick. Since DAP basic material supplier is already giving
stretched credit supplies, increase in DAP production
could be one way.

Own dealers need to be pushed to pursue strategy to

Capacity utilization-
To earn a satisfactory profit in the industry, plants
needed to achieve more than 80% capacity
utilization. The production process required
continuous and uninterrupted power supply.
The engineers believed they could not produce more
than 85 percent of the rated capacity of the plant, as
the plant was perceived to be old and unreliable.
The major problems was that the managers were not
used to considering all possible options, however
radical they may be.
hasten settling of account receivables by means of
attractive cash discounts and discourage giving
fertilizers on credit.
Taking help of experts, consultants to improve the
capacity utilization. Renovating a few old critical
components.
For uninterrupted power supply alternative power
options could be explored like renewable energy by
installing own

Cost reduction strategies-

The cost reduction options could give Mr. Mehta  Manpower reduction by VRS
additional advantage in improving the financials of  Identifying and selling off redundant assets
company.  Reducing other expenditures