Vanraj Tractor case analysis


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Vanraj Tractor case analysis

  1. 1. CASE: Vanraj Mini-Tractors: Is Small Beautiful?Group: The Mighty MarketersMembers: Avanita Somani (32058), Avinash Kumar (32059), Himanshu Bhardwaj (32069) Rohitash Jain (32088), Salman Haider (32089)ANALYSISThe given case is about deciding on the market segment for “Vanraj Mini-Tractors” and thusselecting the most appropriate market segment.The segmentation can be done on the basis ofthe land holding, the type of soil (geographical) and by the type of the crop cultivated. Thefocus states for Vanraj Mini- Tractors are Uttar Pradesh, Madhya Pradesh, Gujarat andMaharashtra. Field trials conducted to check its functionality in black and laterite soils haveprovided satisfactory results so segmentation on type of soil (geographical) doesn’t seemnecessary. To solve the dilemma of choosing the right segment for Vanraj we have done costbenefit analysis from the perspective of small farmers having average land holding size of 1.4hectare. 90% of tractors are bought on credit availed from banks. Due to restriction in creditfrom banks to marginal farmers as their land holdings are less than 3 acres, Vanraj may notbe viable for them. Thus marginal farmers are not part of the target segment. As per case totarget small farmers we need to make them switch from use of bullocks or from the use ofrented tractors to Vanraj.Following table shows the cost benefit analysis of different alternatives for small farmers.Table1:Per Year Bullock (in Rs.) Vanraj(in Rs.) Rent(in Rs.)Initial 27500 190000 0Life span 11 years ( Useful life- 8 8 years - years)Fuel/Fodder cost Fodder cost: Fuel cost= Rent – 17500/year*11/8= 24062 33 liter/acre*2 (@ Rs. 250 /hr) crops/year*Rs For 1 acre – 22 hours 40/liter*3.458(land (2 crops)* size) 22hrs*3.45882 (land = 9129 size)*250(rate)= 38038Maintenance cost 0 2968 (12.5% for 8 0 years)Inter-culturing cost 400 man-hours @ Rs. (Included in Fuel cost) 0 10/hr for 1 Hectare =400*10*3.458/2.47=5600Interest 19000 (@10 % per 0 year)Total cost/year 29662 31097 38038
  2. 2. From the cost benefit analysis we can conclude that using Vanraj tractor provides clearadvantage over using services of rented tractor by a small farmer. When we compare it withthe use of Bullocks the initial cost of Vanraj may be higher but it has many added advantagelike possibilities of alternative uses of Vanraj adding to revenue generation. It would alsoincrease efficiency in agriculture operations. Thus for a small farmer it is a better option toswitch to Vanraj from bullocks as well as from the use of service from a rented tractor.Compared to big tractors Vanraj will be a viable option for small farmers. Currently they arepurchasing big tractors by taking credit from banks but they are not able to meet their breakeven hours of operation due to higher fuel consumption and higher initial cost, this is leadingto higher default rates in cases of tractors purchased on credit. Vanraj with advantages of lowfuel consumption and lower initial cost would cater to their needs.Vanraj can be positioned as a product that will give ownership to small farmers and removetheir dependence on large farmers. This will increase their social status; provide emotionalbenefits along with ensuring timely agriculture operations leading to better yield and income.The big tractors are not utilized to the full capacity and thus are given on rent to the smallfarmers thereby generating an extra income for them. Generally, the small farmers don’t buythe big tractors as they can’t afford to. Instead, they rent these big tractors to serve theirpurpose. This would be the point which we would be serving as an incentive for the smallfamers to buy Vanraj. This would be more like “Not buying a tractor but buyingIndependence”. They would be more autonomous and given the low cost and similar featuresof big tractors, it would aptly serve their purpose.Thus the major objective for M/S Parmal Farmatics should be clearly to target small farmersand capitalize on first mover advantage as there is no branded player catering to needs ofsmall farmers. Requirements of marginal farmers match with small farmers, marginal farmerswill present an opportunity for small farmers to rent out services of Vanraj to them whichwould give additional revenue to small farmers.Vanraj tractor’s added features of better maneuverability and control in farm operations makeit suitable for small operational holdings which are emerging as a result of landfragmentation. Three wheel convertibility and smaller size favor its use in interculturaloperations. Intercultural operations form an important component of Horticulture Farming,thus Vanraj will have acceptance among horticulture farmers. From the case we can see that
  3. 3. Horticulture segment recorded very high growth in the period from 1991-92 to 2001-02 with50% increase of land area under fruits and 39% increase of land area under vegetables.Thus owners of many such farms are Semi-medium, medium and large horticulture farmersand thus will use Vanraj as an additional tractor specialized for intercultural operations. Thusthe company may look to increase its target segment in future to cater the needs of abovesegments of horticulture farmers.Following table shows the comparative benefit analysis of Big and Vanraj tractors for small,semi-medium and medium farmers.Table2:Assumption: Vanraj tractor can be used up to 5 acres of land. Small Semi-medium MediumAverage landholding (inacres) 3.458 7.41 9.88Vanraj Fuel= 33 liters/acre (33*40*7.41*2=19562) (33*40*9.88*2=26083) (33*40*3.458*2=9129)Big Tractor (For 1 acre= 22 hours) (22*4*7.41*40*2=52166) (22*4*9.88*40*2=69555) (Consumption=4 liters/hr) (22*4*3.458*40*2=24344)Interest Excluded Excluded ExcludedIncrementalbenefit 15215.2 32604 43472Recommendation:Vanraj should be targeted for small farmers segment mainly as they provide huge potentialmarket and M/S Pramal should cash on first mover advantage.Semi medium and mediumfarmers should also be considered as they also provide market potential in Horticulture.Horticulture sector presents market potential for Vanraj. It is concentrated only in few stateslike Maharashtra, Gujarat, and Uttar Pradesh and has shown high growth rate.
  4. 4. Annexure 1:From the point of view of M/s Pramal Farmtracs following is the Break-even point of sales:For 1st year:Fixed cost= (12.5+100)/7 = 16.07 lakhsContribution: 16.36 lakhs for 300 tractor= 0.0545 lakhs/tractorBreak even sales = 16.07/0.0545 = 294 tractors(Projected sales are greater than break-even sales)For 2nd yearContribution: 17.44 lakhs for 330 tractors = 0.0528 lakhs/tractorBreak even sales = 16.07/0.0528 = 304 tractors(Projected sales are greater than break-even sales)