Business Strategy for FertilizerIndustry: Term Assignment                       Submission by:                       Mrina...
ContentsA.      INTRODUCTION ................................................................................................
A. INTRODUCTIONThe purpose of this assignment is to understand the business strategy formulation process forcompanies agai...
available to the end-users (farmers) at affordable prices for proper agriculture growth anddevelopment.With high investmen...
Rivalry: LOW       It is a highly government regulated industry       Pricing subsidies provided by government       Pr...
F. GENERATING A STRATEGIC FACTORS ANALYSIS SUMMARY MATRIXThe SFAS matrix will be constructed by creating an EFAS and IFAS ...
G.1. EXTERNAL FACTORS ANALYSIS SUMMARYIt scores the abilities of the companies to take advantage of the opportunities and ...
G.2. INTERNAL FACTORS ANALYSIS SUMMARYIt scores the abilities of the companies to take capitalize on the strengths and ove...
G.3. STRATEGIC FACTORS ANALYSIS SUMMARY>> Coromandel Fertilizers Limited:      Strategies                     Weights   Ra...
G.4. GENERATING ALTERNATIVE STRATEGIES BY USING A TOWS MATRIX>> Coromandel Fertilizers Limited:                           ...
>> National Fertilizers Limited:                                   Strength                              Weakness         ...
G. STRATEGIES FOR THE PLAYERSBased on the results of the TOWS matrix constructed for the companies, the following strategi...
H. CONCLUSIONThrough this term assignment, we have attempted to use the understanding of environmental,industrial, situati...
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Fertilizer Industry

  1. 1. Business Strategy for FertilizerIndustry: Term Assignment Submission by: Mrinal Mardia Neha Jakhotia Nidhi Sachdeva Pooja Gupta Prateek Khosla
  2. 2. ContentsA. INTRODUCTION ............................................................................................................................. 2B. FERTILIZER INDUSTRY: DESCRIPTION ..................................................................................... 2C. FERTILIZER INDUSTRY IN INDIA ................................................................................................. 2 C.1. INDUSTRY OVERVIEW .............................................................................................................. 2 C.2. KEY SUCCESS FACTORS ......................................................................................................... 3D. PORTER’S 5 FORCES ANALYSIS ................................................................................................ 3E. KEY PLAYERS................................................................................................................................ 4F. GENERATING A STRATEGIC FACTORS ANALYSIS SUMMARY MATRIX ................................ 5 G.1. EXTERNAL FACTORS ANALYSIS SUMMARY ......................................................................... 6 G.2. INTERNAL FACTORS ANALYSIS SUMMARY .......................................................................... 7 G.3. STRATEGIC FACTORS ANALYSIS SUMMARY ....................................................................... 8 G.4. GENERATING ALTERNATIVE STRATEGIES BY USING A TOWS MATRIX........................... 9G. STRATEGIES FOR THE PLAYERS ............................................................................................. 11H. CONCLUSION .............................................................................................................................. 12I. SOURCES OF INFORMATION .................................................................................................... 12
  3. 3. A. INTRODUCTIONThe purpose of this assignment is to understand the business strategy formulation process forcompanies against the backdrop of a chosen industry by undertaking a situational analysis for thesame.In this assignment, the environmental and organisational information has been analysed using variousanalytical approaches and the SFAS matrix technique. Strategic options have been generated usingthe TOWS matrix and business strategies have been suggested for the corporations of the industry.The industry chosen for this assignment is the Fertilizer industry in the context of Indian scenario.B. FERTILIZER INDUSTRY: DESCRIPTIONTo begin with, fertilizers are essential plant nutrients important for obtaining optimal yield and qualityof the cultivated crop. After each harvest of crop, the soil needs replenishment of these nutrientswhich primarily are nitrogen, phosphorus and potassium; denoted by N P and K respectively.Nitrogenous fertilizers are applied for high growth, development, yield, and colour of plants.Phosphatic fertilizers are applied for root development, seed germination, and for countering theacidic effect of urea.Potassic fertilizers provide protection against germs and diseases to the crops.C. FERTILIZER INDUSTRY IN INDIA rdIndia is the 3 largest producer and consumer of fertilizers in the world. The fertilizer industrycontributes to 40-50% of agricultural productivity, and with India being a primarily agrarian economythis industry holds prime importance in the economy.Agriculture in India contributes to 16% of GDP and employs about 58% of Indian population. It alsocontributes to 10% of India’s export earnings and is a major contributor to India’s economicdevelopment.In the context of this scenario, it is important that this sector sees high and sustainable growth, andthe factors affecting agricultural growth are – higher productivity, direct/indirect subsidies, competitivepricing in each stage of value chain, and focus on quality of production inputs, techniques andfertilization process. Each of the above mentioned factors is directly or indirectly affected by thefertilizers industry and hence this industry has strong drivers.The following outlines the key statistics related to the industry and the key success factors for it.C.1. INDUSTRY OVERVIEWThe industry is a highly capital and energy intensive industry and India has a total installed capacity of18 MTPA (million tonnes per annum) for N and P fertilizers nutrients while their consumption is 28MTPA. The nutrients are processed into formation of the fertilizer products like Urea, DAP, SSP,MOP, etc.; which is consumed at 57 MTPA against a production capacity of 42 MTPA.It is clearly evident that India is short on its capacities and is highly dependent on import of input,intermediaries and final fertilizer products to meet its growing demands. It imports almost 40-45% ofits total requirement valued at USD 6.9 billion or INR 315 billion. Also, the natural gas required as keyinput for manufacture of urea, the most widely consumed fertilizer in India, is partly imported due toavailability constraints in the country.Also, the industry is highly regulated in terms of pricing, distribution and movement of fertilizers andthe Government provides subsidy to fertilizer companies in order to ensure that the fertilizers are
  4. 4. available to the end-users (farmers) at affordable prices for proper agriculture growth anddevelopment.With high investment costs, subsidised prices, high costs of production, very high capacity utilisationand heavy import costs, the industry is characterised by low profit margins especially for the publicsector enterprises which run the older plants which manufacture urea.C.2. KEY SUCCESS FACTORSBased on the detailed understanding and analysis of the industry, the following key success factorswere identified:  Agriculture demand and prices  Monsoon showers  Raw material – availability and prices  Investment for capacity expansion  Government subsidies and other regulationsD. PORTER’S 5 FORCES ANALYSISA Porter’s 5 forces analysis was also conducted to further scan the environment and the followingwas obtained:Threat of New Entrants: LOW:  High capital investment with high cost and low returns  Difficult to acquire govt. approval for gas allocation  Shortage of natural gas in India  Production of DAP costly; 65% of requirement is imported  Delays in subsidy payments leads to troubles in management of fundsBargaining Power of Suppliers: HIGH:  Fertilizers industry is a captive market in India  Very limited number of suppliers  High prices of inputs and less diversity of inputs  Raw materials are scarce being natural resources  Heavy dependence on imports for meeting requirements of inputs / intermediaries / productsBargaining Power of Buyers: LOW:  High demand for agriculture products leads to high requirements for fertilizer products  Nutrients level deplete in soil with each harvest of crop; forcing demand for fertilizers, else deficiency of nutrients reduces crop yield  High demand of fertilizers with relatively low productivity per unit of fertilizer consumed; leading to higher demand  Low productivity of substitutes  Lack of product differentiationThreat of Substitutes: MEDIUM:  Bio fertilizers, organic fertilizers, manures, vermi-compost may serve as substitutes  Natural fertilizers are not as effective as chemical fertilizers  Animal manure is not suitable for commercial production
  5. 5. Rivalry: LOW  It is a highly government regulated industry  Pricing subsidies provided by government  Private players are trying to improve supply chain through retail network  Industry is witnessing already high capacity utilization; players are not suffering from under- utilized capacities, hence rivalry is low  Uniform prices across industry leads to indirect mutual co-operationE. KEY PLAYERSThe fertilizers industry operates in public, private and co-operative sectors with major urea productioncapacity owned by public and co-operative units, and phosphatic production capacity owned byprivate players.In the public sector, National Fertilizers Limited (NFL) is the largest player with 3.2 MTPA productioncapacity of urea fertilizers. In the private sector, Coromandel Fertilizers Limited (CFL) is the largestplayer with 3.3 MTPA production capacity of phosphatic fertilizers. Indian Farmers FertiliserCooperative Limited (IFFCO) is the largest co-operative player with 3.7 MTPA of urea and 2.7 ofphosphatic production capacity.For the purpose of developing the SFAS and TOWS matrix and analysing the companies of thefertilizers industry, National Fertilizers Limited (NFL) and Coromandel Fertilizers Limited (CFL) havebeen selected, one from the public sector and private sector each.
  6. 6. F. GENERATING A STRATEGIC FACTORS ANALYSIS SUMMARY MATRIXThe SFAS matrix will be constructed by creating an EFAS and IFAS matrix using the opportunitiesand threats for the external factors and the strengths and weaknesses for the internal factors. Each ofthe above will be weighted and ranked in the context of the selected companies, and then theweighted score for the companies would be calculated.The following strengths, weaknesses, opportunities and threats have been identified for thecompanies, and have been rated for the matrices.FACTORS WEIGHTSOpportunitiesGaps between demand and supply 0.12New JVs and consolidations 0.07De-regulation 0.10Fast growing population 0.08Investment in R&D 0.07End to End Solutions 0.05Brand Consciousness 0.05 TOTAL 0.54ThreatsUncertainty of government policies 0.10Shortage of feedstock/ government approval 0.12Large scale imports 0.05Delays in subsidy payments 0.05Proximity to feedstock 0.07Change in Technology-plant as well as chemicals 0.07 TOTAL 0.46StrengthsDealer network 0.20Joint Ventures 0.10Tie-ups with key raw material suppliers 0.10R&D Facility 0.05Dedicated technical and managerial workforce 0.05 TOTAL 0.50WeaknessesOld plants/ infrastructure 0.20Dependence on imports 0.05High requirement of Natural Gas 0.15Dependence on subsidies 0.10 TOTAL 0.50
  7. 7. G.1. EXTERNAL FACTORS ANALYSIS SUMMARYIt scores the abilities of the companies to take advantage of the opportunities and avoid the threatsposed by the external factors based on the current situation.>> Coromandel Fertilizers Limited: Weight Rating Wtd. Comments ScoreOPPORTUNITIESGaps between demand and supply 0.12 4 0.48 Is better equipped for capital expansionNew JVs and consolidations 0.07 5 0.35 Company is more activeDe-regulation 0.10 4 0.40 Will have an upper-handFast growing population 0.08 4 0.32 Dependency on agriculture is highInvestment in R&D 0.07 4 0.28 Has invested a lot in R&DEnd to End Solutions 0.05 4 0.20 Educating the farmersBrand Consciousness 0.05 5 0.25 Has built brand imageTHREATSUncertainty of government policies 0.10 4 0.40 Have not much of a sayShortage of feedstock/ government 0.12 3 0.36 Uncertainties due to priorityapproval allocation of natural gasLarge scale imports 0.05 3 0.15 Bulk OrderDelays in subsidy payments 0.05 4 0.20 Always on timeProximity to feedstock 0.07 4 0.28 Decision as per ROIChange in Technology-plant as 0.07 5 0.35 Well ahead in technologywell as chemicals implementationTotal 1.00 4.02>> National Fertilizers Limited: Weigh Rating Wtd. Comments t ScoreOPPORTUNITIESGap between demand and supply 0.12 3 0.36 Needs CAPEX ExpansionNew JVs and Consolidation 0.07 2 0.14 Requires GOI permissionDe-regulation 0.10 2 0.20 Not very competitiveFast growing population 0.08 3 0.24 Dependency on agricultureInvestment in R&D 0.07 3 0.21 Is in the process of InvestingEnd to End solutions 0.05 4 0.20 Yet in planning stageBrand consciousness 0.05 3 0.15 Is now trying to build a brand imageTHREATSUncertainty of government policies 0.10 5 0.50 Has an upper hand in GOI policiesShortage of feedstock/ government 0.12 4 0.48 Priority allocation givenapprovalLarge scale imports 0.05 4 0.2 Economies of scaleDelays in subsidy payments 0.05 3 0.15 Are not paid on timeProximity to feedstock 0.07 3 0.21 Decision as per socio-economic policiesChanges in technology- plant as 0.07 3 0.21 Laggardswell as chemicalsTotal 1.00 3.25
  8. 8. G.2. INTERNAL FACTORS ANALYSIS SUMMARYIt scores the abilities of the companies to take capitalize on the strengths and overcome theweaknesses of the internal factors based on the current situation.>> Coromandel Fertilizers Limited: Weight Rating Wtd. Comments ScoreSTRENGTHSDealer network 0.20 4 0.80 Strong dealer network allows fast saleJoint Ventures 0.10 4 0.40 JVs with resource rich countries for P & K fertilizersTie-ups with key raw material 0.10 4 0.40 Already established tie-ups for urgentsuppliers need of raw materialsR&D Facility 0.05 5 0.25 High investment in R&D at Vishakapatnam for rock phosphate, increasing throughputDedicated technical and 0.05 3 0.15 Strong brand image and retail networkmanagerial workforce with dedicated workforceWEAKNESSESOld plants/ infrastructure 0.20 5 1.00 Unlike PSUs, Coromandel has new facilitiesDependence on imports 0.05 2 0.10 Raw materials for phosphate fertilizers and potash fertilizers are in scarce in the countryHigh requirement of Natural 0.15 4 0.60 Low volumes in Urea, low requirement ofGas natural gasDependence on subsidies 0.10 4 0.40 profitability in non-urea output companies is less dependent on subsidy by GOITotal 1.00 4.10>> National Fertilizers Limited: Weigh Rating Wtd. Comments t ScoreSTRENGTHSDealer network 0.20 3 0.60 Dealer network is not as strongJoint Ventures 0.10 3 0.30 Very less initiatives for JVsTie-ups with key raw material 0.10 4 0.40 Good number of tie-ups with supplierssuppliers for urgent requirementsR&D Facility 0.05 2 0.10 Less investment in R&DDedicated technical and 0.05 4 0.20 High dedicated workforcemanagerial workforceWEAKNESSESOld plants/ infrastructure 0.20 2 0.40 Old plants still being used, reduces efficiency, productivityDependence on imports 0.05 4 0.20 Less dependence as raw material for Urea is easily available in IndiaHigh requirement of Natural 0.15 2 0.30 Urea production requires high amount ofGas Natural Gas as inputDependence on subsidies 0.10 3 0.30 Profit margins are decided by GOI and subsidies are variable to keep stable profitabilityTotal 1.00 2.80
  9. 9. G.3. STRATEGIC FACTORS ANALYSIS SUMMARY>> Coromandel Fertilizers Limited: Strategies Weights Rating Wtd. Comments ScoreS1 Dealers network 0.15 4 0.60 Strong dealer network allows fast saleS2 Joint Ventures 0.15 4 0.60 JVs with resource rich countries for P & K fertilizersW1 Old Plants/ Infrastructure 0.20 4 0.80 Unlike PSUs, Coromandel has new facilitiesW2 Dependence on Natural Gas 0.10 3 0.30 Urea production requires high amount of Natural Gas as inputO1 De-regulation 0.05 3 0.15 Will have an upper-handO2 Fast growing population 0.05 4 0.20 Dependency on agriculture is highT1 Shortage of feedstock 0.15 2 0.30 Priority AllocationT2 Proximity to raw materials 0.10 4 0.40 Decision as per ROIT3 Delay in subsidy payments 0.05 4 0.20 Always on time Total 1.00 3.50>> National Fertilizers Limited: Strategies Weight Rating Wtd. Comments s ScoreS1 Dealers network 0.15 3 0.45 Dealer network is not as strongS2 Joint Ventures 0.15 2 0.30 Very less initiatives for JVsW1 Old Plants/ Infrastructure 0.20 2 0.40 Old plants still being used, reduces efficiency, productivityW2 Dependence on Natural Gas 0.10 3 0.30 Urea production requires high amount of Natural Gas as inputO1 De-regulation 0.05 2 0.10 Not very competitiveO2 Fast growing population 0.05 4 0.20 Dependency on agricultureT1 Shortage of feedstock 0.15 3 0.45 Priority allocation givenT2 Proximity to feedstock 0.10 2 0.20 Decision as per socio-economic policiesT3 Delay in subsidy payments 0.05 3 0.15 Are not paid on time Total 1.00 2.55
  10. 10. G.4. GENERATING ALTERNATIVE STRATEGIES BY USING A TOWS MATRIX>> Coromandel Fertilizers Limited: Strength Weakness • Strategic tie-ups with key raw • Heavy dependence on material suppliers Tunisia for phosphoric acid. • Offers complete range of • Lacks very strong operational agricultural needs of the farmers efficiency • Strong financials of the Company and healthy credit ratingOpportunity O-S strategies O-W Strategies• Huge scope for increase in • Investments to augment • Strong turnaround of Sabero farm productivity capacity and R&D facility of Organics• Crop protection business Vishakhapatnam plant • Reduction of inventory levels.• Export Market • Acquisition of Sabero Organics• Growing demand for enabling expansion of product Specialty Nutrient range and size of market. • Raising working capital finance at competitive interest rates. • New plant, setting up in joint venture for raw material / products requirementsThreat T-S strategies T-W Strategies• Insufficient Rainfall • Currently no tie-ups with • Raise MRPs along while• Reduction in Nutrient based suppliers for P and K nutrients. increasing operational subsidy rates applicable for It should seek even more tie-ups efficiency. 2012-13 with the suppliers. • Backward integration for• Rising international raw • Liaison with Government to better efficiencies material prices. increase MSPs• Rupee Depreciation • Focus on farm mechanization• Delay in payment of fertilizer subsidy
  11. 11. >> National Fertilizers Limited: Strength Weakness • One of the Largest Govt. • Old plant-- CAPEX Fertilizers Company • Low Profitability • Large Distribution base - Dealer • No performance linked Pay Network packages – even at top. • Huge talented employee pool – • Low on JV’s – Products and project exposure R&DOpportunity O-S strategies O-W Strategies• Change of feedstock- FO to • More new ‘Neem’ based product • Push for higher efficiency FG. – create Product Differentiation with new plants – better• Neem Coated Urea- New • Can gain huge profits in margins Product untapped trading segment – • Reforms in GoI pay scheme• Untapped trading opportunity exploit dealer Network –Performance Based- Fiscal - pesticides Deficit• Inflation Favourable GoI • Large scale joint imports – support - Fiscal Deficit Buyer bargain powerThreat T-S strategies T-W Strategies• Only single Nutrient • Invest in Building Phosphate • Invest in JV’s with other large Products – Urea capabilities GoI company – Joint R&D• Deregulation – Cheap • Diversify in opposite climate – • Close old unavailable plants Imports countries – Excite young talent – decrease loss• Monsoon Dependent – High Inventory – Cash Flow Problems• Low NG/ RLNG supply
  12. 12. G. STRATEGIES FOR THE PLAYERSBased on the results of the TOWS matrix constructed for the companies, the following strategies arebeing suggested:For Coromandel Fertilizers Limited:  Additional investments to augment capacity and R&D facility of Vishakhapatnam plant  Acquisition of Sabero Organics enabling expansion of product range and size of market  Raising working capital finance at competitive interest rates to enable effective management of costs  Setting up of joint venture for meeting raw material / products requirements with companies in phosphatic resource-rich countries  Strong turnaround of Sabero Organics  Reduction of inventory levels for efficient working capital management and avoiding diseconomies of operational inefficiencies  Currently there are no tie-ups with suppliers for P and K nutrients. It should seek even more tie-ups with the suppliers.  Enter into liaison with Government to increase MSPs  Focus on farm mechanization to improve the crop productivity, and make fertilizers earn more profits for farmers, thereby in-turn increasing the demand for fertilizers.  Raise MRPs along while increasing operational efficiency.  Backward integration for better efficienciesFor National Fertilizers Limited:  More new ‘Neem’ based product in order to create Product Differentiation  Exploit dealer network and strengthen its distribution network to gain huge profits in untapped trading segment  Push for higher efficiency with new plants and earn better margins  Indulge in large scale imports by making joint arrangements of requirements with other plants – create a buyer bargaining power  Invest in enhancing phosphate production competencies and capabilities  Diversify business in countries with opposite climate to reduce uncertainties of climatic conditions  Invest in JV’s with other large public sector companies and enjoy benefits of joint R&D initiatives  Close old unavailable plants, and modernize existing setups to decrease losses from inefficient operations.
  13. 13. H. CONCLUSIONThrough this term assignment, we have attempted to use the understanding of environmental,industrial, situational, organisational analysis to develop strategies for the companies. We have alsoused the tools of business strategy like EFAS, IFAS, SFAS, and TOWS matrix to compare bothcompanies with respect to their strengths, weaknesses, opportunities and threats, and also arrive atthe business strategies.Findings from this assignment on the fertilizers industry using Coromandel Fertilizers Limited andNational Fertilizers Limited, the largest private and public sector players respectively are as follows:The highest opportunity offered to both companies is the existing positive gap between demand andsupply due to fast growing population and high demand for agriculture products.The strongest threat posed is the high shortage of feedstock and dependence on government’sapproval for natural gas allocation.The biggest strength to the companies can prove to be a strong dealer network to improve thedistribution of fertilizer products to areas where demand exists.The deepest weakness lies in the diseconomies arising from the old plants and infrastructure whichhampers the productivity and further reduces the already low returns.The summary of scores for both the players in the EFAS, IFAS and SFAS matrices are as follows: Parameter CFL NFL EFAS 4.02 3.25 IFAS 4.10 2.80 SFAS 3.50 2.55The above scores clearly indicate that Coromandel Fertilizers Limited is best equipped to manageand use the strengths, weaknesses, opportunities and threats posed by the external and internalfactors of the industry. It is scoring much higher than NFL in its ability to manage the strategic factorsalso.An analysis of all the above results has yielded the suggestion of the strategies mentioned in point H.I. SOURCES OF INFORMATIONThe report has been prepared using data, inferences and understanding from:  Planning Commission report - Working group for XII  GoI Ministry of Chemicals & Fertilizers - Department of Fertilizers  Fertilizer Association of India - Fertilizer Scenario 2011  Annual reports and business reports for Coromandel Fertilizers Limited and National Fertilizers Limited ---------------------------------------------------

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