Gcmmf-amul

S tra te g ic M a n a g e m e n t

Gujarat Co-Operative Milk Marketing Federation

GROUP MEMBERS: Budhaditya Banerjee Sourabh Dhariwal Tarun Daga Uma Balakrishnan

AGENDA • • • • • •

The Origin of Amul Organization Structure Distribution & Cold Storage Network Markets Catered To GCMMF- SWOT Analysis Ratio Analysis – Profitability Ratios – Liquidity Ratios – Solvency Ratios

• Processed Food & Vegetables Industry – SWOT Analysis – Porter’s Five Forces

• The Way Forward

THE ORIGIN OF AMUL • Originated in Kaira to counter exploitation by Polson’s Dairy (Anand) 

• Dr. Verghese Kurien was instrumental in spearheading the co-operative and Operation Flood to immense success 

• Run as a collection and selling agent with complete involvement and decision-making of farmers 

• Cash settlement to milk suppliers to ensure ready money 

• Services provided: – – – –

Veterinary Care Fine Cattle Feed Education on Animal Husbandry Facilities for Artificial Insemination

ORGANIZATION STRUCTURE LEVEL

MEMBERS

DECISION - MAKING

S ta te Fe d e ra tio n

Price paid to district unions (fixed across unions) Product mix and quantity

D istrict

Price paid to village co-operative societies

V illa g e

Membership Price paid to milk suppliers

DISTRIBUTION & COLD STORAGE NETWORK • Chillers in proximity of villages

• • Prompt transport to district facilities for further dispatch to consumers/ processing units

• • Chilled trucks to transport processed products

• • Delivery to local chillers by insulated rail tankers and chilled trucks

• • Refrigerators and freezers with retailers and departmental stores to retain freshness

MARKETS CATERED TO • Objective: Tries to reach every Indian consumer through a basic food i.e. milk, and its products

• • Diversification: Products which serve myriad palates and needs

• • Products: Milk, milk powder, breadspread, cheese, sweets, ghee, curd products, condensed milk, ice-cream,

SWOT ANALYSIS- GCMMF Strengths Modernization of traditional milk production Robust distribution chain Extensive cold storage system Trust of producers & consumers both Provision of services to cattle farmers Presence in all milk product ranges Value in quality & price Trained graduates from reputed institutes Opportunities New product development Increase in export of product range Favourable changes in tastes and disposable income of consumers Penetration into areas where SHGs etc have not entered Capturing the segment which is tilting towards branded products

Weaknesses Bound by dated legislation Less control over milch yield Cannot accommodate transport delays (perishables) Dependence on poor infrastructure for supply (roads, electricity etc)

Threats Unorganized players Other dairy co-operative societies Risk of contamination throughout channel Competitors are companies, not bound by inherent obligations of co-operatives

PROFITABILITY RATIOS • RETURN ON SALES – (Profit after Tax/Sales)*100 Year 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999

Ratio 0.07% 0.12% 0.60% 0.50% 0.45% 0.59%

PROFITABILITY RATIOS • ASSET TURNOVER RATIO – Sales/Total Assets Year 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999

Ratio 4.124 5.13 5.246 4.97 7.27 9

PROFITABILITY RATIOS • ROI/ROA – Return on Sales/Asset Turnover Year 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999

Ratio 0.288 0.62 3.12 2.485 3.27 5.31

PROFITABILITY RATIOS • RETURN ON EQUITY – PAT/Shareholder’s Equity Year 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999

Ratio 0.11 0.17 1.02 0.6 0.424 0.6506

LIQUIDITY RATIOS • CURRENT RATIO – Current Assets/Current Liabilities Year 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999

Ratio 1.04 1.23 1.01 1.06 1.22 1.36

LIQUIDITY RATIOS • QUICK RATIO – Quick Assets/Current Liabilities Year 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999

Ratio 0.53 0.52 0.55 0.45 0.46 0.64

LIQUIDITY RATIOS • DEBTOR TURNOVER RATIO – Net Sales/Average Debtor, Average Debtor/ (Sales/360)

Year 19931994 19941995 19951996 19961997 19971998 19981999

Ratio 18.43 54.1 40.72 61.54 114.04 124.18

Days 1.95 6.6 8.8 5.8 3.1 2.9

LIQUIDITY RATIOS • INVENTORY TURNOVER RATIO – COGS/Average Inventory, Average Inventory/ (Sales/360)

Year 19931994 19941995 19951996 19961997 19971998 19981999

Ratio 12.94 16 17.15 12.14 17.04 25.26

Days 26.78 21.51 19.89 28.1 20.08 13.59

SOLVENCY RATIOS • DEBT to EQUITY RATIO – (Secured Loans + Unsecured Loans)/Total Equity Year 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999

Ratio 8.89 10.26 6.99 4.49 2.93 3.04

SOLVENCY RATIOS • INTEREST COVERAGE RATIO – PBIT/Interest Expenses Year 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999

Ratio 1.17 1.16 2.15 2.18 2.49 2.91

PROCESSED FRUITS & VEGETABLES INDUSTRY: SWOT ANALYSIS STRENGTHS Large section of population in agriculture ensures availability of raw material High priority status for agroprocessing given by the central Government  Focus on technology to better yields  Cost synergy to players diversifying into this field

WEAKNESSES Legal and political interference High investments and working capital required Quality control and testing not comparable to international standards Vested interests of intermediaries reduce supply chain efficiency Seasonality of raw material require ensuring supply through other means

PROCESSED FRUITS & VEGETABLES INDUSTRY: SWOT ANALYSIS

OPPORTUNITIES Setting of SEZ & food parks to encourage development of Greenfield projects Rising income levels and changing consumption patterns  Globalization and export potential  Robust economic growth  Large domestic market not catered to

THREATS Mindset regarding hygiene and affordability  High monetary and social costs of poor packaging and mishandling  Susceptibility to economic fluctuations  Low availability of adequate infrastructural facilities

PROCESSED FRUITS AND VEGETABLES: PORTER’S FIVE FORCES •

Threat of New Entrants: q Intense Competition-Sustaining is difficult among existing big players q Legal barriers q High capital investment in initial years q Entry barriers are high •

Threat of Substitutes: q Variety in processed foods is high q Local players offer low-priced substitutes

•

Rivalry Among Competitors q Highly Competitive: Presence of and competition from regional, national and international players; visibility a must

PROCESSED FRUITS AND VEGETABLES: PORTER’S FIVE FORCES B a rg a in in g Po w e r o f B u ye rs: qTe n d e n cy o f e sta b lish e d lo ca l, n a tio n a la n d in te rn a tio n a le n tra n ts to fo ra y in to th e m a rke t qTe n d e n cy o f e sta b lish e d re ta ile rs to in tro d u ce th e ir o w n b ra n d s qV a rie ty se e kin g b e h a vio u r d u e to ch o ice s; lo ya lty ve ry lo w qH e n ce , p o w e r is h ig h B a rg a in in g Po w e r o f S u p p lie rs: qPro n e to se a so n a lflu ctu a tio n s qPo w e r is lo w a s d e p e n d e n ce o n lim ite d b u ye rs fo r

WHY THEY SHOULD NOT DIVERSIFY • • Profit margins of the company is very low and hence diversifying into new segment will require huge investments which may lead to losses in the initial years to the entire company. • • For a company in an industry which is exposed to perishability, liquidity and working capital plays a very important role. In case of GCMMF the current ratio though improving over the years is not up to the standards. Hence, diversifying may further worsen this ratio. • • The quick ratio of the company is also not favorable.

WHY THEY SHOULD DIVERSIFY • Good asset turnover ratio – Indicates optimum exploitation of resources – Organizations which cater to masses are judged on their ROA. Diversification may not generate high ROI but can certainly have good ROA.

• Excellent debtor turnover ratio – Average days for debt collection is very low – Suggests good relationships with customers which can be harnessed during diversification.

• Inventory turnover ratio suggests efficiency is not a concern. This has gradually improved over time and does not block working capital • GCMMF depends more on savings for new investments. Debt equity ratio has been reduced, which is fair now and raising debt for investment could be easy • Improved interest coverage ratio because of better profitability. GCMMF can pay interests on debts with ease in this situation.

The way forward 

Pilot projects on Gujarat and Maharashtra which are GCMMF strongholds



GCMMF has to look into greener pastures • Increased milk supply poses a challenge having reached saturation • Technological stagnation and poor quality of cattle and livestock 



Completely fitted GCMMF’s plans to break into the western market • Processed fruits and vegetables earn more revenue from exports • Milk is already being exported to many countries 

 

One of the main limitations of this sector has been inefficient food logistics and distribution, one that can be easily mitigated by GCMMF

THANK YOU