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Case Study on India Batteries Limited

4 FEB 2009

FROM

Shishir GuptaDeeptodip SenPraveen KumarAnkur Sachdeva

Case Statement

India Batteries Ltd. wants to put a plant for manufacture of lead batteries in India.

Uses of batteries: Diesel/petrol engine driven vehicles like cars, jeeps, buses. Earth moving machines and other material handling equipments. Heavier stationary diesel engines.

Demand for batteries

Demand depends upon Original Equipment (OE) and Replacement Demand (RD)

RD arises because the useful life of battery is limited. OE depends on production of vehicles using them. RD depends on the population of vehicles and replacement rates of

batteries in the vehicles using them. For projecting future domestic demands, the required data:

Present population of vehicles using batteries. Production of vehicles between the dates upto which the forecasts is to be

made Replacement rates of batteries Scrap (mortality) rates of vehicles Export demand and Import supply of batteries

Present/Future Population and Future Production of Vehicles

Vehicles differ with respect to their scrap rate, type of battery required, battery life.

Assumptions:1. Battery Life Some owners replace batteries at certain intervals of time irrespective of

battery needs (old batteries fetch around 13% of their price) Average life of battery in taxi, commercial vehicles, tractor etc. is 1 year Average life of battery in private cars is 2 years

2. Vehicle scrap rates Scrap rate calculated by observing past year’s and current year’s

population and current year’s production Scrap rate for private cars, trucks & buses, defense vehicles, motor cycles

is 2.5%, 4%, 4%, 3% respectively

….contd

3. Other vehicles: Vehicles like fork lift trucks, earth moving equipment, cranes etc.

use batteries Demand for batteries by such vehicles is around 3% of the total

demand.

4. Export Demand: 10% of the domestic demand is exported.

Supply of Batteries Currently 6 units in organized sector producing batteries and

cells. Total production of the organized sector is 10.60 lakhs. Small scale sector also involved in the production of batteries and

cells. The production in small scale sector is expected to rise to 9 lakhs in

’79 from 6 lakhs currently

Calculating Future Population using Scrap rate

Scrap rate calculated by observing past year’s and current year’s population and current year’s production

For Example,Current Population = 1,00,000

Estimated Production in the next year = 12,000

Population at the end of following year = 1,10,000

Scrap rate = 1,00,000 + 12,000 - 1,10,000/1,00,000

= 2%

In Exhibit 1, N = 32,510 , u = 5400 , scrap rate = 4%

Therefore, Projected Future Population = 32,510 + 5400 – (.04)32,510

= 36,610

Questions:

1. Estimate the domestic demand for automative batteries in 1973-79.

Data for 1973( From exhibit 1)

Future Population Battery Required Battery Life Number of Batteries

36610 4 1 146440

27760 2 1 55520

2200 1 1 2200

24220 1 1 24220

85600 1 1 85600

102120 1 1 102120

290750 1 2 145375

44380 1 1 44380

19540 1 1 19540

40640 2 1 81280

87000 1 1 87000

163990 1 1 163990

137450 1 2 68725

52412 1 1 52412

53105 2 1 106210

37463 1 2 18731.5

5363 1 1 5363

15 1 1 15

277776 1 1 277776

Forecasted sales for the given time period (1973 – 79)

Requirement in ’73 = 1882161.5 + (.03)(1882161.5) = 1938626.345

Requirement in ’74 = 2037546.5 + (.03)(2037546.5) = 2098672.9

Requirement in ’75 = 2199598 + (.03)(2199598) = 2265585.94

Requirement in ’76 = 2367238.5 + (.03)(2367238.5) = 2438255.655

Requirement in ’77 = 2546222 + (.03)(2546222) = 2622608.66

Requirement in ’78 = 2725353.5 + (.03)(2725353) = 2807113.59

Requirement in ’79 = 2915628.5 + (.03)(2915628.5) = 3003097.35

Total Demand = 16673749

Also, Total Domestic Demand = Total Demand + Demand from Other Vehicles (3% of total

demand)

= 16673749 + (.03)(16673749)

= 17173961 (approx.)

2. Estimate the total demand for automative batteries in India in 1973 – 79.

As mentioned in the case study, the total demand can be calculated by adding Export demand and subtracting Import Demand (0) from the Domestic demand.

It is also given that the export demand is 10% of domestic demand.

So, Total Demand = Domestic Demand + Export demand - Import

Demand

= 17173961 + 10%(17173961) – (0)

= 18891357

YEAR DOMESTIC DEMAND

(a)

EXPORT

(b)

IMPORT TOTAL DEMAND IN INDIA

(a + b)

1973 1938626.34 193862.634 0 2132488.63

1974 2098672.90 209867.290 0 2308540.19

1975 2265585.94 226558.594 0 2492144.53

1976 2438255.65 243825.565 0 2682081.21

1977 2622608.66 262260.866 0 2884869.52

1978 2807113.59 280711.359 0 3087824.94

1979 3003097.35 300309.735 0 3303407.08

3. Estimate the demand for automative batteries from India Battery Limited 1973 – 79.

Demand from India Battery Ltd. will be the difference of the summation of the production of the Organized sector and small sector and the total demand.

Production from Organized sector = 10.60 lakhs (constant for next 6 years)

Production from small sector is expected to reach 9 lakhs in 1979 from the current level of 6 lakhs in 1973. It can be assumed that there is an uniform increase in production of batteries from this sector @ 50,000 batteries per year.

Year Demand

(a)

Prod. From Org. Sector

(b)

Prod from small sector

(c)

Net Production

(b+c)

Deficient Demand

(a-b+c)

1973 2132488.63 10.6 lakhs 6.0 lakhs 16.6 lakhs 472488







GRAPH SHOWING THE UNIFORM DEMAND FOR INDIA BATTERIES LIMITED

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1973 1974 1975 1976 1977 1978 1979

4. Is demand a constraint for India Batteries Limited? Demand is one of the factors that India Batteries Ltd. has to

keep in mind while putting up a plant. Since the deficient demand is more than the expected installed

capacity of India Batteries Limited, so demand is not a constraint for setting up the plant.

Different Forecasting Models Time-Series Analysis:

Used when changes in Variable show discernable patterns over time, time-series analysis is an alternative method for forecasting

Exponential Smoothing:

Technique of time series forecasting that gives greater weight to more recent observations.

Barometric Forecasting:

This finds second series of data that is corelated with the first. Input Output Analysis:

Technique for sorting out and quantifying sector by sector impacts. Captures not only direct effects but also related impacts.

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