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
1974 2308540.19 10.6 lakhs 6.5 lakhs 17.1 lakhs 598540
1975 2492144.53 10.6 lakhs 7.0 lakhs 17.6 lakhs 732144
1976 2682081.21 10.6 lakhs 7.5 lakhs 18.1 lakhs 872081
1977 2884869.52 10.6 lakhs 8.0 lakhs 18.6 lakhs 1024869
1978 3087824.94 10.6 lakhs 8.5 lakhs 19.1 lakhs 1177824
1979 3303407.08 10.6 lakhs 9.0 lakhs 19.6 lakhs 1343407
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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