Prabhat Dairy · Prabhat Dairy will see increased returns but also constant growth to become...

Prabhat Dairy Securing future success in the Indian diary market

Presenting to The Prabhat Family, Management Team

Consultants Andreas Lampeitl Ermelinda Nici

Daniel Granath Jenny holmgren

LCG Lund Consulting Group

Goal Become the largest & most prosperous indian Dairy Company

to leave behind for future Prabhat generation to come

Challenge

Secure B2C Growth to become the most profitable diary company with strong growth that can compete

with major domestic & international players

Challenge

Secure B2C Growth to become the most profitable diary company with strong growth that can compete

with major domestic & international players

Recommendation Focus on pre-packaged milk to B2C customers by

Heat Threated Aseptic pre-packaging

Todays Agenda

Analysis

Alternatives

Recommendation

Implementation

Financial

Risks

External Business Environment

Analysis Alternatives Recommendation Implementation Financials Risks

Political

Economical

Social

Technology

Environment

Legal

India 7th largest company in the world • Strong increase in GDP • Food accounts for 51% of total annual expenditures

Rising milk procurement prices from political debate on farmers

Middle class is increasing with dual incomes & urbanisation

Technological development & IT is growing fats in india

Increased focus on sustainability focus

Mandated floor prices affectes farmers retail prices & procurement costs

Urbanization is growing together with IT & Economy, opening up for great growth opportunities

The supply & demand for milk in India

• India is the single largest milk producer in the world (131 Billion liters)

• Dairy products part of most peoples daily meals & demand is steadily growing by 10 % per annum

• India has lightest cow population in the world Supply increase by 7 %

• There is 3 % shortage in Supply & demand growth per annum

• Urban per capita monthly milk expenditure consumption accounted for 187,10 rupees

• Milk production high during winters & low during summers due to seasonality

• Milk surplus is during winter converted into powder milk


Competitors is either large MNCs or fragmented Cooperatives • Cooperatives

• Retails primarily fresh milk

• 18 500 Village Cooperatives & 33 District cooperatives

• Retails in rural small kiosks

• MNCs (Nestle, Danone 7 Mondelez) • High focus on value-added diary products

• Private-domestic players


Scattered and fragmented cooperative market of milk shows market opportunity for a strong brand to gain market share in urban and suburban areas

The Indian milk market is fragmented with competition • Health and sustainability trend in India

- Ghee

- Buffalo Milk

- Condensed Milk

• Price sensitive customers

• Growing economy and demand

For Self-consumption

50%

Unorganised 20%

Organised 24%

MNC 6%

MILK PRODUCTION

Self-consumption stands for the largest share but the customers are price sensitive


Milk price expected to rise 7-8% annually for the upcoming years

• The milk procurement price is sensitive for weather & fodder

• Higher consumption in urban than rural - 187.1 Rs/month - 116.4 Rs/month

MILK VALUE ADDED

PRODUCT MARGINS

Milk has a smaller profit margin but stands for the bulk of consumption

80%

20%

CONSUMPTION OF PRODUCTS

Milk Value added

6%

30%

• Value Added segment has strong competitors


There is room for financial improvement for Prabhat Dairy

The working capital has poses an issue since they now have to hand in 71 days worth of WC instead of only 5

DuPont Analysis Financial ratios 2016

Profit Margin Turnover Ratio Leverage Return on Equity

2,1% 1,75 1,28 4,68%

• Profit after tax is better than competitors’, but has room for improvement

• FMCG industry turnover should be higher, faces an issue with the working capital

Issues:

• Inventory days increased from 17 to 23 days

• Longer payment period from 35 to 76 days


Consumer demographics indicate preference for living in cities & having healthy habits • Decreased infant mortality has lead to median age increased from 26 to 40

• Increased growth & buying power for indian population due to early joining labor force

• Women represent 25% of labor force and generally the decision maker in the household purchasing process

• Milk production surplus during winters are turned into powder milk due to expiration date Shortage of milk during summers (High seasonality)

• Indians prefer fresh milk and not the powder • Increased health & awareness amongst consumers • Increased urban nuclear families (both parents working)


Customer preference for milk & milk shortage demonstrate a gap in the market that can be filled

Milk is turned into powder during winter to manage expiration date


Expiration date Long

Preference High Preference Low

Expiration date Short

Cow Milk

Buffalo Milk

Market Opportunity For Cow Milk

Innovation can tap into the segment of fresh milk even during the summer shortages

Milk is turned into powder during winter to manage expiration date


For whom Customers who wants fresh diary products TODAY AMBITION B2B 70 % B2B 50% B2C 30% B2C 50% In the market of Dairy Products Proven by Increased preference for Prabhat brand Promise High quality dairy products for a good price

Success factors for the Indian Diary market


Marketing & Customer Mindset




Profitability in operations




Profitability in operations

Supply & Distribution

Increase value-added segment to challenge MNCs in the home-market

Current alternatives for the future of Prabhat


1




1

Leverage on India's supply surplus to export milk 2




1


Focus on milk by introducing Heath Treated Aseptic Packaging in supply-chain & work with changing customer mindsets 3


Decision Matrix suggests alternative 3 given the success factors


1


Focus on milk by introducing Heath Treated Aseptic Packaging in supply-chain &

work with changing customer mindsets 3

Sub-Optimal

Alarming

Excellent

Excellent

Excellent

Excellent

Alarming

Alarming

Excellent


Profitability Supply &

Distribution


Focus on milk by introducing Heath Treated Aseptic Packaging in supply-chain & work with changing customer mindsets 3

First Mover Advantage


The implementation & our recommendation suggests clear steps to secure B2C milk segment

Marketing Profitability Supply &

Distribution

Agenda - Handle Institutions long working capital issue

Agenda - Secure procurement - Invest in Heath Treatment Aseptic packaging machines - Install ERP System - Build B2C brand & work with changing Consumers habits to buy packaged milk


1. Handle instructions

• Inventory days has increased from 17 to 23 between 2012-2015

• Increased payment period from 35 to 76 days (220%)

Actions possible

• Renegotiate terms to 35 days or renegotiate price to increase margins for the higher working capital (WC) cost

• Factoring

• Stop retailing to institutions

Recommended action: Renegotiate contract with institutional customers to avoid increased WC costs


2. Secure Procurement & viable packaging to satisfy summer shortage & decrease expired product losses

• Invest heavy in machinery • Heath Threated Aseptic packagins

• Heath treatment of milk allows 2-3 years of shelf life

• Function • Fast heated milk that is packaged in a oxygen protected package

• Reason • To serve fresh milk through the entire year & allow longer warehousing

• Place • Strategically placed with proximity to farmers to sustain milks freshness

Be the first company with a strong national brand to serve fresh milk all year round & compete with cooperatives


2. Secure Procurement: ERP system

Maximise sales and supply efficiency

• Investment in product management system

• Overlook of supply and organisation

• Better allocation of distribution


2. Secure Procurement: Supply Chain

Keep supply chain as competitive advantage

• Purchase milk but heat treat in-house

• No sharing of technology

• First-mover advantage


2. Secure Procurement: Distribution

Use own distribution as part of B2C strategy

Urban (T1)

• Own distribution

Suburban (T2)

• Distribution Partner

Rural (T3)

• Distribution Partner

Own trucks because:

- Ability to adapt faster & use ERP system

- Spread brand logo in urban areas


2. Secure Procurement: Marketing B2C

Aggressive marketing to establish consumer milk fast

Strengthen brand

• Fresh all year

• Healthy

• Target women

Promotion

• Traditional media

• Tv, Magazines

• Point of Sale

Customer Acceptance

• Local dietists and Health

promotions


2. Secure Procurement: Marketing strategy

Use a rapid skimming marketing strategy to surround critical area

• Focus on Tier 2 to surround

Tier 2 which will eventually

penetrate Tier 1

• Quick urbanization 40% will

move to urban

Tier 1 Tier 2 Tier 3


Implementation plan

Action 2016 2017 2018 2019 2020

Renegotiation

Heat Treated Aseptic Investment

Trucks

ERP System Purchase Roll-out Evaluation

Marketing Plan Roll-out

Launch heat treated milk


The necessary investments to fuel growth

The working capital has poses an issue since they now have to hand in 71 days worth of WC instead of only 5

Investments Cost Total

Logistics Truck for distribution in urban areas

200 M Rs.

Heat Treated Packaging

Investment in machine

500 M Rs.

Marketing TV advertisement & In-store

80 M Rs.

ERP system Data and information system

80 M Rs. 860 M Rs.

*Logistics and machine to be written of over a 20 year period, annual cost of 35 M total


The heat packaging machine will generate revenue on the winter when there is shortage

The heavy investment will break even in 4,5 years but increase our market shares in milk

• The machine will increase milk revenues w. 20% annually

• Will use full milk capacity

• Sell more milk during winter when shortage

• Longer shelf life

2017E 2018E 2019E 2020E 2021E

Revenue 351 422 506 607 728

COGS 80% 281 337 405 486 583

Gross profit 70 84 101 121 146

-50

0 -43

0 -3

46

-24

5

-12

4

22

2016 2017E 2018E 2019E 2020E 2021E

BREAK EVEN ANALYSIS



Prabhat will increase the return on equity and working capital issue will be mitigated

• Increased total assets

• Increased margins



2,1% 1,75 1,28 4,68%



2,3% 1,5 1,72 5,8%

Before:



Prabhat Dairy will see increased returns but also constant growth to become India’s largest dairy company

• Growth for future expansion

• Investment in utilizing capabilities efficiently

• Marketing for awareness 0

500

1000

1500

2000

2500

2016 2017E 2018E 2019E 2020E 2021E

Prabhat top line growth

10-15%


Risks with the implementation

Risk

1. Longer time for customers to accept new milk

2. Heavy investment in machines & trucks

3. Changing operational systems are complex

Mitigation

1. Work with branding and point of sales

2. Assets can be sold, important to utilize your capabilities today

3. Will take time but will make the organization agile


Expiration date Long

Preference High Preference Low

Expiration date Short

Cow Milk

Buffalo Milk

Market Opportunity For Packaged

Milk

Prabhat Dairy · Prabhat Dairy will see increased returns but also constant growth to become...

Documents

Transcript of Prabhat Dairy · Prabhat Dairy will see increased returns but also constant growth to become...