Your Strategic Path to new endeavors...Your Strategic Path to new endeavors Presenting to: Vivek...

Ctrl Consulting

Your Strategic Path to new endeavors

Presenting to: Vivek Nirmal, Joint managing Director of Prabhat

Montreal, January 5, 2016

Ctrl ConsultingDriving Question

1/5/2017 Ctrl Consulting 2

Which strategic path to follow for your prospective growth?

Rising milk procurement prices

Profitability of your business model

Declining working capital situation with increasing receivables

Ctrl ConsultingSolution Preview


80:20 Sales mix for customers in Tier 1 cities 1

Leverage large-scale customersPenetrate the South-Indian marketContract suppliers

2

Increase revenues of 32 percent in 5 years3

Recommended Strategy

Implementation Actions

Targeted Outcome

Ctrl ConsultingAgenda

• Analysis of Status Quo

• Strategy Development

• Recommended Implementation Actions

• Future Outlook

• Conclusion


Ctrl ConsultingPrabhat Dairy at a Glance


Products

• Milk products 28%• Polypack milk

• Value-added milk 1%• “Milk magic”• Flavoured milk

• Value-added milk products 71%

• Cheese• Milk powder• Clarified butter

Business Model based on buying raw milk and sell milk product

Channels

• Retailer• Distributers• Direct contracts

Customer

• B2B 70% revenues• Food service • Mondelez• Abbot• Perfetti Van Melle• Fast food chains• MNCs• Local player

• B2C 30% revenues• Organized • Unorganized

Ctrl ConsultingPrabhat’s Way to the Current Situation


Strategy

• Selling value-added dairy products through retail channels

• Goal: 50:50 ratio of B2B and B2C

• Two-pronged distribution strategy

Outcome

• Rising revenues• Rising costs• Decreasing profit• Low utilizing rate:

• 50% polypack milk• 96% milk powder• 71% condensed milk• 20% value-added

products• Increasing working capital

Actions

• IPO in 2015• Pilot projects or B2C

market• Increase of capacities• Pricing strategy

Decreasing profits due to going into the retail market

Ctrl ConsultingThe B2C Diary Market Structure


Downstream

• 50% self-consumption• Milk contractors• Diary farms

• Very small

Highly fragmented

Upstream

• Unorganized• Street vendors• Kirana stores

• Organized• Supermarkets• Cash’n’Carry

• 12-14 mil. Retailers

Highly fragmented

Competitors

• MNCs• Local companies• Cooperatives

• GCMMF• Own kiosks• Quasi-governmental

Highly competitive

6%

Ctrl ConsultingLiquid Milk as the Bread and Butter Business in B2C


Customer Facts

• Milk is traditionally included in the meals

• Higher consumption in the northern of India

• Higher consumption in urban areas (Rs. 187 vs Rs. 116)

• Move to cities• Increasing income and

wealth

Customer Demands

• Creamier milk• Liquid milk 80%• More healthy food

Liquid milk is not your core-competencies

Ctrl ConsultingPossibilities in the B2B Market

• Tourism• Northern India• Faster growth potential due to higher volumes• Less partners to maintain with


Better potential in B2B market

Ctrl ConsultingChallenges ahead

• Inventory days increase from 17 to 23 days

• Institutional customers demand a longer payment period which increased the receivables from 35 to 76 days

• Both had an adverse effect on the working capital

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2015 2016

Working capital (in ten million rupees)


Ctrl Consulting

Revenues are Increasing whileProfits are Declining due to higher expenses for B2C market


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Revenues Profit Margin

In %

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B2B70%

B2C30%

Profits need to be improved in order to satisfy shareholders.

Ctrl ConsultingIPO in 2015 increased equity

235.41

523.41

238.53

146.23

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Equity Debt


For further investment, long-term capital could be raised.





• Future Outlook

• Conclusion


Ctrl ConsultingPrabhat Dairys’ Goal


Is the 50:50 B2B and B2C Sales Mix a feasible goal?

Ctrl ConsultingB2B


• Business to business• Focus on food service segment, restaurants, hotel chains and caterersDefinition:

Advantages

• Won various supplier awards• Focus on value-added diary products• Strong distribution channels• Dedicated facilities or industrial customers• ISO certification• Presence in only 10 o 36 discrete units

Disadvantages

• Customer demand a longer payment period increasing working capital

Ctrl ConsultingB2C


• Business to customer• Sell products to small stores (Kirana)Definition:

Advantages

• Market growth• Lower pricing strategy than competitors

Disadvantages

• Unorganized retail sector• Complex distribution channels as significant

cost driver• Issue of branding

not your core competence• Products have smaller retail footprint• Fierce competition

Ctrl ConsultingB2B vs. B2C


Prabhat Dairy

Customer

1000 unitsPrabhat Dairy

1-2 units1-2 units

1-2 units

1-2 units

Ctrl ConsultingCritical Success Factors


Criteria B2B B2C

Production facilities

Associated Costs

Distribution channels

Growth potential



Criteria B2B B2C

Production facilities

Associated Costs

Distribution channels

Growth potential

Sales Mix of 80:20

Ctrl ConsultingStrategy for your B2C market


Tier 1

• Large populations• Low distribution costs• Lower pricing strategy than

competitors• Fierce competition

Tier 2&3

• Avoiding competition with big players• First-mover advantage



Criteria Tier 1 Tier 2 & 3

Distribution Channels

Associated Costs

Competition

Growth potential

Ctrl ConsultingContingency Plan & Mitigation


1. Changing price payment structure of cooperatives

Supply contracts with farmerOffer variety of support

2. Increasing competitors in B2B marketOffer better conditions for best

customersLong-term contracts with B2B

customers

Probability

Impact1

2





• Future Outlook

• Conclusion


Ctrl ConsultingCapacity for your successful future operations• Increase Utilization of machinery for a better fix-cost distribution


Utilization(before)

• 50% Polypack milk

• 96% milk powder

• 71% condensed milk

• 20% various value-add products

Counter measures

• Increase capacity for milk powder Market (high demand)

• Penetration ensures better utilization for milk and value add products

Utilization rate (after)

• 75% Polypack milk

• 96% milk powder (+ new facility)

• 90% condensed milk

• 85% various value-add products

Focus on customer who order large amounts of your products

Ctrl ConsultingFocus on customers who procure in bulk-orders


Food Retail

Unorganized Sector

Organized Sector

Kirana stores

Supermarkets

Hypermarkets

Cash ‘N Carry

Gourmet Stores

A focus on large scale customers ensures better planning for operations and decrease in working capital

Key Facts

• Bulk-orders ensure better planning in your operations

• Improved planning ensures better inventory management

• Decrease in Working Capital

Ctrl ConsultingSales Strategy for your B2B and B2C Market


Key Facts

• You are currently operating in 10 of 26 states in India (West and East)

• Expand your business to South India

• Focus on B2B and Chain Retail stores

• Make use of your 250 sales people

Maharashatra

ChennaiPanaji (Goa)HotelsResortsRestaurants Bangalore

HotelsResortsRestaurantsChain Retail Stores

Deploy your sales people into different sales regions

250 sales people80 Bangalore and Chennai40 Panaji130 for other current region

Ctrl ConsultingContract farmers to ensure stable prices• Long-relationship contracts

• Ensure a win for both sides

• Individual support for farmers (if applicable)


Tackle price fluctuation by long-term contract with farmers

Ctrl ConsultingImplementation Roadmap


Supply Chain Improvement Contract suppliersCut-down on stores

Operations ImprovementFind potential facilityFind potential machineryPurchase new facility

Implement Sales StrategyDeploy Sales peopleFind potential targets

Jan 2017 Feb 2017 Mar 2017 Apr 2017 Costs (Rupees)

14.79 billion*

*(5% of fixed assets)

1 billion

2 billion





• Future Outlook

• Conclusion


Ctrl ConsultingFuture Outlook

Recently Plan

Decrease inventory 23 15

Decrease receivables 76 35

Turn around fixed-to-current assets relationship

44:56 60:40


Ctrl ConsultingAssumptions

• Growth in revenues• 2017 & 2018: 5%• 2019 & 2020: 7%• 2021: 10%




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(in ten million rupees)

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Profit margin (in %)

Profit margin






• Future Outlook

• Conclusion


Ctrl ConsultingConclusion


Which strategic path to follow for your prospective growth?

Rising milk procurement prices

Profitability of your business model

Declining working capital situation with increasing receivables

80:20 sales mix

Supply Tier 1 cities

Focus on large scale customers

Penetrate market to South-India

Contract suppliers

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