Camlin battles value-added tax, cheap stationery imports

The Mumbai-based stationery major Camlin has incurred a 20 per cent loss in its business after the imposition of value-added tax (VAT). Further, cheap imports from China and Korea is compounding its woes.

"Pre-VAT, most of our products were duty-free, but post-VAT, we had to pay 12.5 per cent tax on them. Though the government reduced VAT on stationery ink (not for industrial use) to 4 per cent, it was not enough. So, overall VAT has impacted our finances adversely," said Kishor Mokashi, executive assistant to the CMD.

Mokashi said the other reason for the company's consistent losses was cheap consumer stationery imports from China and Korea. "As a result, our core sector stationery business was losing out," he said.

"Our finances just weren't working out. Although our pharmaceuticals arm was showing growth, mainly in the dermatology range, once the government put the MRP-based excise duty into affect, the company's profit margins declined substantially. Moreover, with the new Patent Law (1970), the sustaining power of smaller companies decreased," Dandekar said.

Camlin recently hived off its loss-making pharmaceutical division to Liva Healthcare, a group company which manufactures healthcare products. The stationery major, which started its pharmaceutical operations in 1984, was incurring heavy losses in the business owing to stiff market competition.

During the year ended 31st March, 2005, the company posted a loss of Rs 4.88 crore owing to a severe setback received in the working of its pharmaceutical division. "We decided to discontinue our pharmaceutical marketing operations, as we could not cope up with the cost pressure," said Dilip Dandekar, chairman and managing director.

The unsold stock and all permanent employees of the division have been absorbed by Liva Healthcare. "One of the main reasons behind our discontinuing the pharma operations was the high employee and power costs. We were spending about Rs 500 a day per employee.

This mounted huge cost pressure on the company's budget," Dandekar said.

The company has registered a 6.4 per cent year-on-year decline in gross sales in the first quarter of the current fiscal. Net profit for the quarter too has dropped 29.6 per cent year-on-year to Rs 1.20 crore. On the positive side, Dandekar said there was a huge demand for canvas from art-loving countries such as Italy and France.

So, the company has entered into a 60:40 joint venture (JV) with the UK-based firm ColArt Fine Art and Graphics, a world leader in the colour segment with nearly 60 per cent of the world market. The JV, ColArt Camlin Canvas Pvt Ltd, would manufacture and export canvasses. "With ColArt, we will initially be exporting canvasses to the US. The surplus stock would be sold in India," he said.

Dandekar said the company was also looking to increasing volume of its anti-oxidant range of chemicals.

"But our main focus is going to be on our core sector. This is one of the lessons we learnt from the pharma division closure. The savings from our pharma division will now be used in marketing and advertising of our consumer stationery products. We are very competitive in fine art products and colour products for school children with 70 per cent and around 45-50 per cent market share, respectively," Dandekar said.

The company has a share of 40-45 per cent in the writing material and office stationery market.

In a bid to revamp its business, Camlin has also relocated its manufacturing operations in Andheri (Mumbai) to Tarapur, Taloja and Vasai. It has shifted labour-intensive products to Jammu, Goa and Umbergaon.

Moreover, the company has spent Rs 7.60 crore in implementing voluntary retirement scheme for 178 employees at its Andheri plant.