The Hindu Business Line : The once-in never-out business of lockers

"Clang, blam," goes the hammer on to the jumper rod, as a mechanic from Godrej breaks open the locker. The lock clicks open. As one official disgorges the contents of the safe, a wad of currency notes, a pair of gold earrings and a few dog-eared documents pop out. Another official makes an inventory of these articles. They are put in a cloth bag, which is then sealed and secured away. The group moves to the next locker.

Actually, breaking open lockers is something that the company, Kothari Safe Deposits Ltd, hates doing. After all, the 70-year-old company is in the business of renting lockers, not destroying them. But sometimes, breaking becomes a business necessity. What to do when customers do not pay their dues and disappear with the key? The only recourse is to appropriate the `deposit', usually, three years' rent paid in advance, and prise open the locker, so that it can be rented to another customer. Sometimes the `deposit' does not cover the cost of re-renting. It costs about Rs 1,250 to replace the lock. Then, there are the lawyers and witnesses to be paid.

But fortunately for the company, such `defaults' are very few, and most customers pay up their dues. No wonder the business boasts of high returns: Paid-up capital Rs 50 lakh, revenues around Rs 2 crore, and net profit Rs 80 lakh. Half of the revenues come from rentals and the other half from investments.

But surprisingly, for a company that has been profitable (though small) for nearly seven decades, expansion plans are being implemented only now. Last month, Kothari Safe Deposits opened its fifth vault at Annanagar, Chennai, nine years after the previous one.

In fact, the company has been expanding operations at the rate of one new vault a decade.

Although, the first vault was opened in 1936 at Armenian Street, George Town (the company was then known as Madras Safe Deposits Ltd), the next one at Nungambakkam came only in 1976.

Then came the one in Purusawalkam in mid-1980s followed by Alwarpet in mid-1990s and, now, in Annanagar last month.

"Maybe we have been too conservative," says Mr P.S. Balasubramanian, one of the company's Directors, "but we want to be doubly sure of business before we commit money."

He points out that this is a `once-in, never out' kind of business. You set up a safe deposit locker, you are with it for life. A bank of lockers within a concrete-steel wall is not exactly an asset you can sell off easily.

"The door alone costs Rs 3 lakh," observes Mr S. Rajagopalan, Chief Manager. But the costly aspect is the walls — 24 inches thick, reinforced with steel rods that are chemically treated so that an acetylene torch cannot cut through. To open a vault can cost about a crore of rupees.

Against this, the rentals could range between Rs 300 and Rs 3,000 a year, depending upon the size of the locker rented and the location of the vault. It takes about a decade to breakeven, but thereafter, it is all profits.

"To a customer, it is cheaper than insurance," says Mr Balasubramanian. And, how can you insure articles like documents and antiques?

Hence there is a demand, despite competition from banks, despite `demat' killing the need for storing share certificates. Kothari Safe Deposits enjoys an average occupancy of 91 per cent.

"Now the time has come for us to break from the past," says Mr Balasubramanian, outlining the company's plans. "One new vault every three years. There is potential for at least five more in Chennai."

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