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Prabhat Crossover Plan Presenting as a team of PBS consultants to Vivek and Sarang Nirmal Team PBS consultants Fernando Santos Harsha Bhatia Sara Da Silva Vitor Ferreira
Prabhat Crossover PlanPresenting as a team of PBS consultants to Vivek and Sarang Nirmal
Team PBS consultants
Fernando Santos
Harsha Bhatia
Sara Da Silva
Vitor Ferreira
Agenda
Key Issues
Analysis
Alternatives
Recommendations
Financials
Plan and Risks
Summary
Our challenge today is
Given that Prabhat is one of the most profitable diary companies in the B2B segment in India, How can you crossover to B2C segment and be profitable
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
What are your key issues?
Competition from Co-operatives
Decreasing Working capital Distribution challenges Low brand awareness
Analysis
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Prabhat is one of the leading Diary company in India
B2C (30%)
B2B (70%)Third-Party (35%)
Farmers (65%) Collecting points (450)
Chilling centes (15) Milk coolers (80)
Facilities (2 unit/1.5M liters per day
Prabhat is based in Maharashtra region of India with 1.5 million litres of milk processing capacity
Prabhat owns all aspects in the Diary industry value chain – adds a competitive advantage
Prabhat has a higher presence in B2B market especially with its condensed milk product
Prabhat has a product mix of 50% polypack milk and 20% value added diary products
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Macro-view of the Indian Market
Government regulations and creation of Co-operatives in Diary Industry
Liberalization of Indian Economy
Majority vegetarian and religious population of India where cow is considered as God
India has tropical climate, especially in Maharashtra with heavy rainfall and summers
Regulations in floor prices, high government percentage - 77% of retail – this causes profit margins to go low
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Diary IndustryDiary is food staple in the FMCG category which cannot be substituted easily
There is high competitive rivalry
India comprises of 7% of the world supply – 131 billion L/yr – There is a pent up demand with a growth potential of 10%
India is low on organized retail
Diary Industry in India is 4-quadrant
012345
Threat ofnew entrants
Threat ofsubstitution
CompetitiveRivalry
SupplyDemand India
China
US
Large
Small
Personal Consumption Mass Distribution
Co-opsMNCs
PrabhatSmall Rural
0%10%20%30%40%50%60%70%80%90%
India China Taiwan US
Organized retail
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
How does your target market look like?India on the world
map
World India
Target region
Northern and Centralstates
Other part
Target segments
Rural Urban
India has the second highest population in the world with 1.25 billion people
.6 billion people reside in the northern and central states
.16 billion reside in the urban areas of the target region
0
10
20
30
2008 2020 2030
High Income
High Income
0
10
20
30
40
50
2008 2020 2030
Population in Urban Areas
Population in Urban AreasIndian demographic is becoming younger, richer and more urban
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
The diary consumers in India can be segmented as
Rural
• Value natural form of the produce
• Prefer to produce diary and diary products for their own consumption
• No access to supermarkets
Tier 2 and 3 Urban
• Increasing nuclear families with increasing working women
• Value cost and freshness • Prefer to have milk
delivered to home from the local diaries
• Limited access to retail outlets and big brands
Big Cities
• Dual income families• Value convenience• Prefer quality and
accessibility to diaries, would pay more to purchase more healthy substitutes for milk
• Have high exposure and preference for global brands
Tier 2 and 3 city consumers are more likely to value Prabhat products
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Prabhat faces high competition
Supply of milk in India is distributed
MNCs like Nestle and Danone are investing locally
Private and Domestic firms like GCMMF, Amul and other co-opsoccupy 80% of the market share10-15% price advantage
Small farmers produce 80% of the milkown < 2 cows with low production capacity and no mechanization25% of farmers are unorganized
Production
Pric
e
Co-op
Prabhat
MNCs
Prabhat has high pricing advantage
Consumption
Farmer Cooperatives Multinational Hand to hand
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
To sum up the analysisS
Pricing advantage by owning the supply chain
W
Branding and Retail Marketing
Decreasing working capital
O
Decreasing average age and increasing urban population in Tier 2-3 cities
T
Growing milk co-operative societies
Recommendations
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
The key issues are
Competition from Co-operatives
Decreasing Working capital Distribution challenges Low brand awareness
Given that Prabhat is one of the most profitable diary companies in the B2B segment in India, How can you crossover to B2C segment and be profitable
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Which should be Prabhat’s expansion strategy?
‘Avoidance’ strategy: Tier 2/3
Business-to-Business
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Which should be Prabhat’s expansion strategy?
Value Market Size Profitability Investment
B2B
B2C
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Which should be Prabhat’s expansion strategy?
Value Market Size Profitability Investment
B2B
B2C
Mix (50/50)
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
The two pillars of growth
Markets Products
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
The two pillars of growth
Markets Products
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Which should be Prabhat’s expansion strategy?
‘Avoidance’ strategy: Tier 2/3
City-by-city assault: Tier 1
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Which should be Prabhat’s expansion strategy?
Market Size Distributionchallenges Competition Brand
Tier 1
Tier 2 / 3
Rural areas
Prabhat needs to strengthen their position within Tier 2 and Tier 3
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
The two pillars of growth
Markets Products
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Market size CAGR% Retail price Margin Market dynamics CompetitionGhee -CurdYougurt -Flavored milkIce cream
Value added dairy products
Introduce yogurt as a value added milk product
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Which should be Prabhat’s expansion strategy?
Product Place Price Promotion
What
Why
How
Expand to offer yogurt products
Adjust offers to the needs from the Indian B2C markets
Procure farmers selling Bufallo milk for dairy products (more adjusted to Indian preferences, higher fat content, more profits for farmers, less cholesterol)Allocate excess production capacity
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Which should be Prabhat’s expansion strategy?
Product Place Price Promotion
What
Why
How
Target urban cities – pune, kolhapur
Population is moving to tier 2 and tier 3 citiesPune has a growing IT infrastructure attracting more people for work
Implement innovative distribution methods Expand project Raftaar beyond the short-life products and packaged milk into the full product offersBypass distributors by increasing workforce of salespeople and chilled vansExpand distribution into smaller kirana stores
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Which should be Prabhat’s expansion strategy?
Product Place Price Promotion
What
Why
How
Price competitively compared to MNCs
They are the only key playersWant to attract people on price because of low brand awareness
Better distribution and more cost effectiveBuffalo milk will allow you to leverage suppliers
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Which should be Prabhat’s expansion strategy?
Product Place Price Promotion
What
Why
How
Women as a targeted segment
Responsible for shoppingCare about family and health
Re-package products and design packages with nutricional value, health benefits, quality of milk
Financials
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
CAPEX
Capital expediture 1 2 3 4 5Production adaption 30New package 10
Total 40 0 0 0 0
YearINR
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
OPEX
Operational expediture 1 2 3 4 5Marketing 50 50 50 50 50HR 2.4 2.7 3.0 3.3 3.6Leasing machinary 15 15 15 15 15
Total 67.41 67.7 67.99 68.28 68.57
YearINR
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
Revenues
Revenues 1 2 3 4 5Operational 45 79 100 124 135Total 45 79 100 124 135
YearINR
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
In summary
1 2 3 4 5Expenses 107.41 67.7 67.99 68.28 68.57Revenues 45 79 100 124 135Cash-flow -62.41 11.3 32.01 55.72 66.43DCF -62.41 10.23124 26.24132 41.35815 44.64412
R. value 1219.794
Year
NPV1274,2
Equity Debt78% 22%15% 6%
C. Taxes 22%
WACC10.4% INR
Plan & Risks
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
What is the implementation plan?
Q1• Increase production for value add products• Recruit and hire sales people
Q2•Hire marketing firm • Create marketing plan
Q3• Recruit sales people• Improve with kirana
Q4• Launch marketing• Start delivering product
Key Issues Analysis Alternatives Recommendations Financials Plan and Risks Summary
What are the risks?
Antagonize distributors by-passing them
Focus on kirana with new product and distributors work in smaller stores
Risk
Prob
abili
ty
