IT WAS 11.30 A.M. On a hot July day in 2015 when Manohar Bidaye pulled into his Goregaon office in his silver Mercedes-Benz just like any other day. He took the elevator to the fifth floor and made his way to the chairman’s cubicle at Zicom Electronic Security Systems’ corporate headquarters. Bidaye, then, propped open his laptop and went straight to an e-mail from Jeff Sheldon, general manager for fire and security at Tyco International’s office in the United Arab Emirates.

It wasn’t good news. A proposed $120 million (Rs 758 crore) deal that involved selling Zicom’s West Asian operations had been put on hold for no obvious reason except instructions from headquarters to hit the brakes on all global acquisitions. Bidaye broke into a cold sweat and buzzed for Pramoud Rao, his managing director. Rao walked in and the look on Bidaye’s face was enough for him to understand that the deal had fallen through. Not only was a lifeline for the company now out of the question, they had another problem on their hands. In an effort to boost their balance sheets before the acquisition, Zicom had undercut the competition by as much as 20% to win multiple service contracts that included the Abu Dhabi Marina City project and IMG’s theme park. Those would now have to be fulfilled at losses.

Both Bidaye and Rao were prepared for it but little did they know that the falling through of the Tyco deal was just the start of a CEO’s worst nightmare. A fire protection and security business built on a contract model they launched in countries in the Gulf region in 2007 had matured over the years, contributing close to 65% of Zicom’s turnover and helping the company grow its revenues to over Rs 1,000 crore. They had thought it would be a solid hedge to the hardware business of CCTVs they had run for around two decades in India. What they hadn’t bargained for was the crash in oil prices that sent the West Asian economy into a tailspin. “We couldn’t control oil prices falling because that wasn’t up to us. I guess the tactical mistake we made was to continue taking orders and contracts which we should have paused for a few months,” says Rao.

It’s a long way from the time in 2015 when Bidaye and Rao were at the helm of a thriving security company classified as a category A contractor and amongst the top four fire-safety players in the region. It was actually time to celebrate when Zicom’s revenue crossed Rs 1,000 crore for the first time. But as their fortunes changed, Rao and his team tried on more than one occasion to bail Zicom out from the region. Zicom operated as a fire safety contractor in the Gulf when oil prices slumped from $140 to $25 and several companies in the region halted their infrastructure projects. In February 2016, there was a discussion for a buyout with the Bahrain-based Kanu Group, an industrial conglomerate. KPMG was part of the diligence team and was representing Zicom to the Bahrainis. Bidaye flew from Mumbai to Dubai and intended to go to Bahrain to discuss the sale of Unisafe Fire Protection, a Zicom subsidiary. The deal could have potentially generated around Rs 600 crore for Zicom.

As Bidaye sat in an Emirates plane, he dialled Ashok Mittal from KPMG and told him he would be in Bahrain soon. Minutes later, as he looked out of the window he saw a few raindrops, which soon turned into a heavy thundershower. Two hours later, when the plane was preparing for takeoff, the captain announced engine malfunction and the flight was cancelled. Bidaye says he had to cancel the meeting and never got fresh dates from the Kanu Group again.

Bad luck or bad planning, either way it would seem that Zicom’s options were starting to run out. The overseas business under water, the domestic business slowed down next. Revenue from the India market shrank from Rs 400 crore to Rs 70 crore because the company couldn’t pony up the cash to buy hardware for its customers. Working capital dried up, with no bank guarantees and 14% interest payments on Rs 700 crore of debt. The stock price on the NSE fell to a low of Rs 20 in September 2017 from Rs 176 in January 2015 .

Inherently, the business of security surveillance has always been rife with challenges, says Parag Agarwal, advisor to Delhi-based security firm MitKat Advisory Services. Even though awareness about security has grown in business and residential communities since the terror attacks in Mumbai in the 1990s and 2008, the business model has always been flawed because it has been run on an operating expenditure vs capital expenditure structure. “It’s essentially the trading of black boxes between vendors and suppliers with endless back-to-back outsourcing agreements and maintenance that’s been handled by someone other than the seller,” he says. It’s not a sustainable model but one Zicom had followed. The company initially bought CCTVs from the U.S. and when volumes picked up, it began sourcing from China. Over the years, it tapped a range of businesses from apartment buildings to ATM networks.

However, it wasn’t just the flawed business model of security hardware that proved to be a stumbling block. It was the crash in crude oil prices that really hurt Zicom’s business. Zicom’s subsidiaries, Unisafe and Phoenix, had been built on the back of getting engineering, procurement, and construction (EPC) contracts for providing fire safety services in offices and facilities in the Gulf. As the regional economy suffered, Zicom found itself staring at Rs 200 crore in outstanding sales following customer defaults. Rao and Bidaye used two local law firms to file a battery of cases to recover their dues but had to remit money from the Indian operations to keep both companies afloat. “We had as many as 800 contract employees which we reduced to 400,” Bidaye says. Capital markets didn’t react favourably either. Zicom’s scrip crashed and debt mounted to Rs 700 crore.

Because the security hardware business is a cash hungry one, Zicom’s institutional investors—IDBI, Bank of Baroda, Union Bank of India, and Central Bank of India—clamped down on credit following its dwindling revenues and inability to repay interest on loans. Zicom ended up going into strategic debt restructuring mode in August 2016. Rao says it was the best option available to prevent the company from falling into what banks classify as a non-performing asset on their books. The move meant the promoters had to dilute their holdings from 24% to 10% and the banks converted Rs 90 crore of payments to a 51% stake at Rs 42 per share.

So how did it all go so wrong? The lure of quick contracts in Dubai and Qatar for fire safety projects in part was too tempting to forgo, says Rao. In some measure, it was the right call to make because Zicom did see its operations making quick returns. Perhaps the mistake that he and Bidaye made was not taking the hard call to pull the plug entirely. “We shouldn’t have hesitated in shutting operations down, in retrospect,” Rao says, adding that they held on to the hope that they could revive the business there, oil prices would rebound, and defaulters would eventually pay up, none of which ever happened.

The Rs 6,500 crore security equipment business is a price-sensitive market with competitors like Hikvision, Dahua Technology, CP Plus, ADI, and Autocop all slugging it out for a piece of the pie. A unit that once cost Rs 20,000 now runs for Rs 5,000. Even so, the potential for CCTV cameras isn’t small, says Rahul Upadhyay, founder of Senior Shelf, an e-commerce business that caters to senior citizens. Upadhyay says security is a growing requirement for single senior people whose families are no longer nuclear. He says he gets multiple enquiries for fall alert devices, and systems to monitor the bed-ridden. “It’s the services piece of the security business that could cash in on these needs,” Upadhyay says.

The question is: Is it too late for Zicom to pull out from the free fall it’s in? Industry experts aren’t entirely optimistic. “Brand Zicom still has a lot of traction in the market and though it’s frayed at the edges because the management is tired, it needs fresh legs and young blood to lead the next charge and that’s its only hope,” says Prahlad Kakar, founder of The Prahlad Kakar School of Branding and Entrepreneurship. “Otherwise, it risks sinking into oblivion like the sunset.

But Rao is hopeful: “I know I will come out of this for sure. The way forward for Zicom is to stop taking on large projects and focus on services instead.” By that he means AMCs, or annual maintenance contracts, to maintain systems for clients who have security systems in place. He’s still got a stream of customers that include HSBC, SBI, HDFC, and UltraTech Cement. “What we learned in the last two years, we haven’t learned in the last two decades in our business,” he adds .

It’s a long hard road ahead for Zicom but there is some light at the end of the tunnel, Rao says with the grit of someone who’s been through hard times before. But the transition from hardware to software and services in India will have to be quick, and hard calls will have to be taken around the businesses in the Gulf. Otherwise Zicom may be relegated to the history books as an example for what not to do with a brand.

(The article was originally published in the January 2018 issue of the magazine)