Gcmmf-amul

Strategic Management

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 cooperative 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

• Milk procurement grew from 250 litres per day in 1946 to 4 million litres per day in 1999

ORGANIZATION STRUCTURE LEVEL

State Federatio n

District

Village

MEMBE RS

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

•Price paid to village cooperative societies

•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, bread-spread, cheese, sweets, ghee, curd products, condensed milk, ice-cream, milk drinks & confectionery

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 •Opportunities Value in quality & price New product development ••Trained graduates from reputed •Increase in export of institutes product range •Favourable changes in tastes and disposable income of consumers •Penetration into areas where SHGs etc have not

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

Ratio

1993-1994

0.07%

1994-1995

0.12%

1995-1996

0.60%

1996-1997

0.50%

1997-1998

0.45%

1998-1999

0.59%

PROFITABILITY RATIOS • ASSET TURNOVER RATIO – Sales/Total Assets Year

Ratio

1993-1994

4.124

1994-1995

5.13

1995-1996

5.246

1996-1997

4.97

1997-1998

7.27

1998-1999

9

PROFITABILITY RATIOS • ROI/ROA – Return on Sales/Asset Turnover Year

Ratio

1993-1994

0.288

1994-1995

0.62

1995-1996

3.12

1996-1997

2.485

1997-1998

3.27

1998-1999

5.31

PROFITABILITY RATIOS • RETURN ON EQUITY – PAT/Shareholder’s Equity Year

Ratio

1993-1994

0.11

1994-1995

0.17

1995-1996

1.02

1996-1997

0.6

1997-1998

0.424

1998-1999

0.6506

LIQUIDITY RATIOS • CURRENT RATIO – Current Assets/Current Liabilities Year

Ratio

1993-1994

1.04

1994-1995

1.23

1995-1996

1.01

1996-1997

1.06

1997-1998

1.22

1998-1999

1.36

LIQUIDITY RATIOS • QUICK RATIO – Quick Assets/Current Liabilities Year

Ratio

1993-1994

0.53

1994-1995

0.52

1995-1996

0.55

1996-1997

0.45

1997-1998

0.46

1998-1999

0.64

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

Year

Ratio

Days

1993-1994

18.43

1.95

1994-1995

54.1

6.6

1995-1996

40.72

8.8

1996-1997

61.54

5.8

1997-1998 114.04

3.1

1998-1999 124.18

2.9

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

Year

Ratio

Days

19931994

12.94

26.78

19941995

16

21.51

19951996

17.15

19.89

19961997

12.14

28.1

19971998

17.04

20.08

1998-

25.26

13.59

SOLVENCY RATIOS • DEBT to EQUITY RATIO – (Secured Loans + Unsecured Loans)/Total Equity Year

Ratio

1993-1994

8.89

1994-1995

10.26

1995-1996

6.99

1996-1997

4.49

1997-1998

2.93

1998-1999

3.04

SOLVENCY RATIOS • INTEREST COVERAGE RATIO – PBIT/Interest Expenses Year

Ratio

1993-1994

1.17

1994-1995

1.16

1995-1996

2.15

1996-1997

2.18

1997-1998

2.49

1998-1999

2.91

PROCESSED FRUITS & VEGETABLES INDUSTRY: SWOT ANALYSIS STRENGTHS

WEAKNESSES

•Large section of population in

•Legal and political interference

agriculture ensures availability of

•High investments and working

raw material

capital required •Quality control and testing not

•High priority status for agro-

comparable to international

processing given by the central

standards

Government

•Vested interests of intermediaries reduce supply chain efficiency

•Focus on technology to better

•Seasonality of raw material require

yields

ensuring supply through other means

•Cost synergy to players

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:

 Intense Competition-Sustaining is difficult among existing big players  Legal barriers  High capital investment in initial years  Entry barriers are high •

Threat of Substitutes:

 Variety in processed foods is high  Local players offer low-priced substitutes •

Rivalry Among Competitors

 Highly Competitive: Presence of and competition from regional, national and international players; visibility a must

PROCESSED FRUITS AND VEGETABLES: PORTER’S FIVE FORCES •

Bargaining Power of Buyers:

 Tendency of established local, national and international entrants to foray into the market  Tendency of established retailers to introduce their own brands  Variety seeking behaviour due to choices; loyalty very low  Hence, power is high •

Bargaining Power of Suppliers:

 Prone to seasonal fluctuations  Power is low as dependence on limited buyers for revenue

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 Problems of marked-up commercials in every stage of procurement has been alleviated by GCMMF before

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