Power venture, factory fire weigh Otobi down

An apparent misstep and a mishap like factory fire almost brought a household name in Bangladesh's furniture sector to its knees. Otobi now struggles for survival.          
Sources said the well-known furniture brand set its foot in a new field -- rental power -- hoping for hot bucks, but it backfired.
And in what came as an irony of fate, a devastating fire burnt down its main furniture plant in Savar.
Otobi, established by famed artist Nitun Kundu, started getting weaker after it had ventured into a new field: rental power business.
Once pioneer in brand-furniture sector of the country, the company ultimately became a losing concern.
After investing around Tk 9 billion in two rental power plants under Quantum Power System, Otobi had to pay around Tk 630-million in fines to Power Development Board for failing to produce electricity on schedule and in contracted amount. The AB Bank Ltd has substantial exposure in syndicated as well as bilateral loans.    
According to company-insiders, Otobi Furniture Limited has been losing its credibility after the power-plan business failure since 2010.
They said the company had not manufactured furniture of new designs and variations since then-and sales declined significantly also.
The prevailing financial problem has already necessitated the company to trim its manpower considerably, they said, adding that the company's current business-expansion plan has also been put on hold.
Acknowledging the financial downturn, Managing Director of Otobi Furniture Animesh Kundu said: "Yes, the losses that we have incurred following our involvement in power- sector business have kept our overall furniture business under pressure."
The company MD, however, expressed the hope that they would overcome the current situation within few months.  
Mr Kundu said Quantum Power System recently extended its contract with PDB to generate electricity from heavy fuel oils.
The fresh production would start in March/April next year.
To make things worse for the company, a devastating fire in Otobi's Savar factory in April last year handed it a loss of around Tk 320 million.
Giving an account of the damage caused by the fire, Mr Kundu said the gutted factories were not rebuilt and the key factory was recently shut down. The closure rendered around 900 people jobless.
Otobi has not been able to overcome the losses incurred from fire incidents over a year's time.
"We are still languishing in losses caused by the fire and claim to insurance for compensation is yet to be settled," he said.
Moreover, the company has not got a bank loan of Tk 170 million to recoup the losses.
"I hope we would get both insurance claim and bank loan very soon," he said on a note of optimism about a turnaround.
Mr Kundu, an economics graduate from Cornell University, NY, the USA, took over his company after the death of his father, Nitun Kundu.
During visits to a number of Otobi Furniture showrooms, the situation with the sales of furniture appeared to be frustrating.
Even discount offers have failed to attract customers to Otobi showrooms, a salesman told the FE correspondent.
In contrast, many new furniture brands have recently flourished and expanded market in the country.
Did the new competitors put Otobi in pressure? Mr Kundu thinks Otobi is still the best among the bunch on the market.
Despite the downside constraints, the company boss is hopeful about comeback shortly.  
He said Otobi Furniture Ltd is eyeing development of backward linkage to gradually lessen its import-dependence on basic raw materials.  
Currently, the furniture-maker imports around 80 per cent of basic raw materials.
"We have a plan to reduce the import volume of raw materials by nearly 50 per cent in the near future through expanding our backward linkage," Mr Kundu told the FE at the Otobi head office in Gulshan.
The new plan aims not only to help meet Otobi's growing demand for raw materials but also to help cut production cost, the company's top executive said.  
Otobi is a brainchild of well-known painter-sculptor Nitun Kundu, who founded the firm with only Tk 5,000 as capital in 1975.
The company logged Tk 2.0 billion in turnover in fiscal 2006-07, when Mr Nitun Kundu died in 2006.
Animesh Kundu said it has now 30 per cent share in branding-furniture market of around Tk 13 billion in the country.
The total size of market for branded and non-branded furniture is around Tk 75 billion.
The Managing Director said his aim now is to produce a variety of wooden products to meet demands of all economic classes.
Otobi is now planning to develop its own manufacturing units to produce particle board, medium-density fibre board, plywood, vineyard etc to make those competitive and also meet domestic demand for the furniture sector's raw materials.  
Mr Kundu thinks Bangladesh has a huge potential of exporting furniture. The sector needs only government's policy support, tax waiver, uninterrupted power and gas supply and industrial plots.
"Severe shortage of industrial plots hinders the country's industrial growth. The government should sincerely look into the matter," he said.
Otobi has now 18 own showrooms and 288 dealers across the country.
The furniture leader of Bangladesh has entered foreign markets, but the export volume is not much.
It now exports furniture to India and Middle-Eastern countries.
"Our next target is African countries," said Mr Animesh. At present, about 41,560 enterprises and nearly 2 million skilled and semi-skilled people are engaged in this sector.
On average, 60 per cent of raw materials of furniture sector are imported from different countries.
Of these, timber, wood coating materials, hardware and accessories, world-class fabrics etc are major items imported from abroad.
"The furniture-export volume is worth around Tk 500 million in Bangladesh which is not even 5 per cent of the sector's potential," Mr Animesh figured out.
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