Business Analysis and Development of Aluminium Extrusions manufacturing company

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Business Analysis and Development of Aluminium Extrusions manufacturing company

  1. 1. Ishan Rohit PGDM Finance 2009-11 IMT Ghaziabad ABC Aluminium Company Pvt. Ltd.
  2. 2.  Established in 1992  Distributor of HINDALCO Aluminium Extrusions  Started a factory to manufacture Aluminium doors, windows and ladders in 2007  Factory forms part of XXX ALU SYSTEMS PVT. LTD.  In house designing facility  Collaboration with Italian companies for technology transfer
  3. 3.  Enterprise Resource Planning  To analyze the effectiveness of the ERP implementation started in 2007 and around 75 percent complete till date.  Marketing  To analyze the reasons behind low retail sales of Aluminium furniture from the Aluminium gallery situated at Navyug Market, Ghaziabad.  To design an advertising strategy for ABC’s products.  Finance  To explore different methods of raising finance for the company’s expansion in the market (in operations and marketing)
  4. 4. Indent •Raise purchase requisition In Quotation •Quotes offered by Vendors Approval •Approve the requisition Generate •Generate the Purchase Order
  5. 5. Enquiry • Customer details • Product Enquiry details Quotation • Customer details • Sales Price offered Sales Order • Ordering details • Discounts offered (if any)
  6. 6. Application Function New Group To be displayed as a part of Asset, Liability, Revenues or Expenses New Ledger New customer/vendor accounts Journal Voucher Transactions not covered under Purchase and Sales applications Receipt – Payment Payments in the form of Cash/Bank Cash are recorded Contra Voucher Transfer of funds between cash/bank cash of different bank accounts
  7. 7.  Phased implementation  Customization of the ERP according to business processes  Over-budgeted by 50-100 %  No ERP consultant hired by the company  ERP has increased sales and employee productivity
  8. 8. 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 HR Marketing/Sales IT Finance
  9. 9. The reporting has become easy. The applications are easy to understand. There does not exist any visibility across all departments. The ERP cannot handle unexpected issues. All are unhappy with the speed and reliability of the software.
  10. 10.  Enterprise Resource Planning  To analyze the effectiveness of the ERP implementation started in 2007 and around 75 percent complete till date.  Marketing  To analyze the reasons behind low retail sales of Aluminium furniture from the Aluminium gallery situated at Navyug Market, Ghaziabad.  To design an advertising strategy for ABC’s products.  Finance  To explore different methods of raising finance for the company’s expansion in the market (in operations and marketing)
  11. 11. Sample Residents of NCR Respondents 21, all in age group 20-30 Method Internet questionnaire Null Hypothesis There is no relation between material preference and attribute preference of a furniture Description Questions on different furniture material followed by attribute specific questions on Aluminium furniture
  12. 12. Iron/Steel Wood Glass Iron/Steel Wood Aluminium Iron/Steel Wood Aluminium Degradable Fibre China Wood Style Colour Durability Portability Customization Material preference Material preferred with Glass Environmentally safer Attribute preference
  13. 13. Chi-Square Tests Value df Asymp. Sig. Pearson Chi-Square 19.720 12 .073 Linear-by-Linear Association 5.423 1 .020 N of Valid Cases 21 • On the test for the relation between material and attribute -> The significance level is .073 • Hence on 90 % confidence interval, material and attribute display significant relation. • Preference -> Wood and Attribute -> Style frequency is more than expected count. • Aluminium’s anti-corrosive property is not known by many respondents. Mean score = 2.29 out of 5 (max). Thus Aluminium as a commodity need to be marketed.
  14. 14.  Main products – Aluminium doors, windows and ladders  Differentiated products – Alu wood products, Energy saving products (most likely to be advertised)  Targets – Business customers, affluent retail customers  Market – National Capital Region  Expenses – Preferable at Rs. 50,000 per month. In any case, not more than Rs. 75,000 per month
  15. 15.  OOH Media (India) Pvt. Ltd - broadcast ads & content by strategically placing High Definition LCD/Plasma screens across India  1050 screens across 198 locations in National Capital Region  Rationale - Provides segmentation by flexi-casting (different ads for different locations) - Targeting by displaying ads in TV screens situated in right locations (like Kingfisher buses, Subway restaurants, Max hospital etc.) - Better measurability of impact by collaboration with the agency - OOH provides in-house creative team to prepare ads
  16. 16. Locations Address Network Clusters No of Screens Live Exposure per week Footfalls Kingfisher First Coach Airport Business Network Kingfisher buses 4 2280 54156 Kingfisher Coach Airport Business Network Kingfisher buses 12 6840 12600 Olympia Gym GK 1 Leisure Network Gymnasiums 6 1260 2400 Statesman House CP new delhi Business Network Commercial buildings 3 1080 18000 Rohit House Connaught Place New Delhi Business Network Commercial buildings 2 840 8750 Subway GK1 Market Leisure Network Restaurant 1 217 TBC Subway GK2 Market Leisure Network Restaurant 1 217 TBC Max Hospital Peetampura Delhi Business Network Hospital 5 2100 TBC DCM Building Barakhamba road CP Business Network Commercial buildings 2 660 TBC 36 15494 95906
  17. 17.  Enterprise Resource Planning  To analyze the effectiveness of the ERP implementation started in 2007 and around 75 percent complete till date.  Marketing  To analyze the reasons behind low retail sales of Aluminium furniture from the Aluminium gallery situated at Navyug Market, Ghaziabad.  To design an advertising strategy for ABC’s products.  Finance  To explore different methods of raising finance for the company’s expansion in the market (in operations and marketing)
  18. 18. Financial Ratios 2008-09 2007-08 Current Ratio (times) 1.272 1.30835 Working Capital (in INR) 1503115 526300.4 Quick Ratio (times) 0.029182 0.821209 Asset Turnover Ratio (times) 0.495525 0.076127 Profit Margin% 2.564 8.5312 Inventory Turnover Ratio (times) 1.802071 0.943981 Return on Assets% 1.2705 0.6495 Net Worth (Rs.) 11684131 4858511 OPBDIT (Rs.) 1631996 182536 PBIT/Sales% 9.2022 15.8789 PBIT/Interest (times) 1.487578 2.641411 Total Debt/Net worth (times) 0.882129 1.225125 ROCE% 5.5087 1.3298 RONW% 3.0008 1.7189 NWC/Revenue% 10.7204 53.7083 Creditor turnover (times) 2.47 0.574 Gearing Ratio (times) 1.35 1.6
  19. 19. Supply Excess and any deficit can be imported at low rates of duty. Currently, domestic production comfortably meets domestic requirements. Demand Demand estimated to grow at 6%-8% per annum. Low per capita consumption in India. Barriers to entry Large economies of scale. Consequently, high capital costs. Bargaining power of suppliers Most domestic players operate integrated plants. Bargaining power is limited in case of power purchase, as Government is the only supplier. However, increasing usage of captive power plants (CPP) will help to rationalize power costs to a certain extent in the long-term. Bargaining power of customers Being a commodity, customers enjoy relatively high bargaining power, as prices are determined on demand and supply. Competition Competition is primarily on quality and price, as being a commodity, differentiation is difficult. However, the recent spate of consolidation has reduced the competitive pressure in the industry. Further, increasing value addition to aluminium products has helped some companies protect themselves from the high volatilities witnessed in this industry.
  20. 20.  Highly concentrated industry, 5 major producers  Per capita consumption still low in India, around 1 Kg  India world’s 5th largest producer  Consumption dominated by Power sector (44 %)  HINDALCO biggest player with 39% market share Aluminium production in ‘000 tonnes Aluminium consumption in different industries Source : IBEFSource : IBEF
  21. 21.  Industry Risks  Business Risks  Market Risks  Operational Efficiency  Management Risks  Character  Ability  Capacity  Financial Risks
  22. 22. SMERA CRISIL CRISIL SME Rating Definition SME 1 Highest SME 2 High SME 3 Above Average SME 4 Average SME 5 Below Average SME 6 Inadequate SME 7 Poor SME 8 Default
  23. 23. Key Rating Drivers Risks Competent and qualified promoters Working capital management needs vast improvement (high creditor days, high inventory days) Good business customer base Interest cover is low @ 1.4878 times In-house designing facility Return on Capital Employed low @ 5.5 % Imported technology from European companies Inadequate profitability as shown by the profit margin of only 2.564 % ERP implementation augurs well for operational efficiency Return on Net worth low at 3.00% Good relations with main supplier Less cash in hand (0.029 times)
  24. 24.  Injects long term equity finance which provides a solid capital base for future growth.  Are rewarded by business success and the capital gain.  Provide practical advice and assistance to the company based on past experience with other companies which were in similar situations.  Also has a network of contacts in many areas that can add value to the company.  May be capable of providing additional rounds of funding should it be required to finance growth. CC Hill
  25. 25.  Minimum IPO application size of Rs. 1 lakh.  Companies exempted from eligibility norms like profitability.  If paid up capital > 10 & < 25 Crore, company has the option to get listed on BSE or NSE.  If paid up capital > Rs. 25 Crore, have to be listed on NSE or BSE.  Preparation and submission of financial results on half-yearly basis.  Minimum no. of investors shall be specified for IPO.
  26. 26.  Need to retain employees  Recruit experienced Marketing managers, ERP consultant  Lock-in period can be of 2 years  Need to get listed as early as possible for better valuation  ESOP loans are offered at easy rates by financial institutions  Employees will feel ownership to perform
  27. 27.  ERP needs to bring more value to the company. Business processes must be in sync with the ERP applications.  Aluminium Gallery will be shut down shortly. Marketing through Digital OOH seems a viable option. The company seems optimistic about it.  ABC is hopeful of better financial results (FY 2009- 10). It may approach CRISIL soon. Listing in SME exchange is also an attractive option.

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