Otobi: Once on top, now in death throes
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MONDAY, JUNE 27, 2022
Otobi: Once on top, now in death throes

Corporates

Abbas Uddin Noyon
25 January, 2020, 10:05 am
Last modified: 25 January, 2020, 01:35 pm

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Otobi: Once on top, now in death throes

Weak leadership and unplanned investments have caused the company to sink while accidents, like factory fires, have hastened its fall

Abbas Uddin Noyon
25 January, 2020, 10:05 am
Last modified: 25 January, 2020, 01:35 pm

Otobi, founded by noted artist Nitun Kundu, monopolised the country's furniture industry even ten years ago. Apart from building up the company in the country over the course of 30 years, he presented it beyond the country's frontiers as an unparalleled Bangladeshi furniture brand.

However, the country's once top furniture brand lost its direction following the death of Nitun Kundu in 2006. Instead of concentrating on its main business, a number of imperfect decisions, including investing in the power sector, have turned Otobi into a dying company in just 10 years.

Otobi's annual turnover stood at Tk250 crore in 2018. Recently, though, its business has been going through a declining trend.

At the same time, the amount of its default loans in banks has stood at Tk937 crore. The number of factories and showrooms has come down to half. Different banks have floated auctions for its head office and a chunk of factory land to realise their default loans.

The company is at risk of closure due to its massive debt burden.

Analysts say weak leadership and unplanned investments have caused the company to sink.

Besides, accidents such as factory fires have hastened the fall of the company, they believe.

Otobi's journey to disaster began in 2011 when its authorities turned to investing in the power sector, leaving behind their main furniture business. The company had to count a fine of Tk200 crore at the beginning of its investment in Quantum Power.

The government slapped the fine on the company for its failure to go into power production within the stipulated time.

Otobi embarked on power business in 2010. Forming the company Quantum Power Generation, Otobi signed deals with the government on setting up two 105megawatt captive power plants. Under the agreement, the company invested Tk800 crore in the two plants with bank loans.

According to sources at the Bangladesh Power Development Board, a deal was signed in February 2010 for a power plant to be set up at Bheramara in Kushtia on a three-year term. Owing to various problems, the plant went into production 218 days behind schedule.

In June 2010, Otobi signed a deal for its second power project at Noapara in Jashore. This plant began power generation 316 days behind schedule.
The company had to pay the Power Development Board a hefty fine for the two plants.

The massive fine in the power projects has pushed the company backward

By Otobi officials

Otobi officials have claimed that the massive fine in the power projects has pushed the company backward.

"Even after the plants came into operation, Quantum Power had to count losses instead of profits due to the hefty fines. As a result, it was not possible for the company to repay the bank loans," said an official.

It is learnt that Otobi has turned into a loan defaulter as it failed to repay the loans after investing in the power projects. Alongside Quantum Power, Otobi was also included in the latest list of 100 loan defaulters as revealed in parliament.

According to information available with the finance ministry, Quantum Power has default loans of Tk818 crore and Otobi has Tk119 crore in different banks. At the beginning of the year, Islami Bank Bangladesh Ltd floated an auction for Otobi's head office to realise its loan the company has defaulted on.

AB Bank floated a separate auction for the company's factory in Shyampur. However, the process relating to both auctions remains stayed following a High Court order.

Apart from the disaster in the power projects, fires at its factories have aggravated the crisis for the company. Two of its factories in Savar's Birulia suffered massive damage caused by devastating fires in April 2014. Valuables worth over Tk50 crore were damaged in the blaze.

The company has not yet resumed production at one of these factories while the other is running on a very limited scale.

An Otobi showroom in Dhaka. Otobi monopolised the country’s furniture industry even ten years ago but a number of imperfect decisions, including investing in the power sector, have now turned Otobi into a dying company. Photo: Salahuddin Ahmed
An Otobi showroom in Dhaka. Otobi monopolised the country’s furniture industry even ten years ago but a number of imperfect decisions, including investing in the power sector, have now turned Otobi into a dying company. Photo: Salahuddin Ahmed

On condition of anonymity, an official who has been working with the Savar factories for 10 years, told The Business Standard, "Before the fire incident, over 2,000 workers used to work at the factory, which is now in operation. The number of workers has now come down to below 1,000."

He further said many senior officials have left the company as it failed to pay their salaries on a regular basis due to its financial crisis.

Investigation has shown that Otobi had a total of four factories in Savar, Mirpur and Shyampur until 2014. Currently, two factories – one in Savar and the other in Shyampur– are in operation.

However, production in the Savar factory is very insignificant against its capacity. Besides, both factories have lost their production capacity due to the deficiency in their instruments.

Meanwhile, the Mirpur factory was closed down amid demonstrations in 2015 after it failed to pay the salaries of its officials due to its loan burden and shortage of working capital. Currently, a different organisation is running its business by leasing the land.

The impact of Otobi's falling production capacity has been visible in the market. Its showrooms and outlets are shutting down one after another following a decline in sales caused by a lack of product diversification. The rate of the company's income tax payment has plummeted alarmingly.

In 2014, Otobi had three factories and seven showrooms under the purview of the Customs, Excise and VAT authorities. Now, the number of factories has come down to just one and showrooms to three due to shrinking business. Revenue collection from the three currently operational showrooms has declined considerably.

Otobi's tax payment rate has declined for the last few years. The company has blamed factory closures and falling business for the situation

By Dr Moinul Khan

Customs, Excise and VAT Commissioner Dr Moinul Khan told The Business Standard, "Otobi's tax payment rate has declined for the last few years. The company has blamed factory closures and falling business for the situation."

Otobi officials said the company experienced working capital shortages after paying a hefty fine even before its power plants went into production. On the other hand, it defaulted on bank loans for repayment failure. As a result, its business shrank.

Otobi started out on its journey in 1975, four years after the liberation of the country. The reputed sculptor Nitun Kundu built it up as the country's top furniture brand. With his persistent efforts and merit, he expanded the company across the country.

Kundu set up four large factories in Dhaka. However, since his death in 2006, the company has been suffering from a crisis of leadership. Otobi gradually lost its glamour due to its investments in the power and readymade garment sectors.

Economy / Top News

Otobi / furniture

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