Your Strategic Path to new endeavors Presenting to: Vivek Nirmal, Joint managing Director of Prabhat Montreal, January 5, 2016
Driving Question 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 1/5/2017 2
Solution Preview Recommended Strategy 1 80:20 Sales mix for customers in Tier 1 cities 2 Implementation Actions Leverage large-scale customers Penetrate the South-Indian market Contract suppliers Targeted Outcome 3 Increase revenues of 32 percent in 5 years 1/5/2017 3
Agenda Analysis of Status Quo Strategy Development Recommended Implementation Actions Future Outlook Conclusion 1/5/2017 4
Prabhat 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 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 Business Model based on buying raw milk and sell milk product 1/5/2017 5
Prabhat 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 Actions IPO in 2015 Pilot projects or B2C market Increase of capacities Pricing 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 Decreasing profits due to going into the retail market 1/5/2017 6
The B2C Diary Market Structure Downstream 50% self-consumption Milk contractors Diary farms Very small Highly fragmented Competitors MNCs 6% Local companies Cooperatives GCMMF Own kiosks Quasi-governmental Highly competitive Upstream Unorganized Street vendors Kirana stores Organized Supermarkets Cash n Carry 12-14 mil. Retailers Highly fragmented 1/5/2017 7
Liquid 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 1/5/2017 8
Possibilities in the B2B Market Tourism Northern India Faster growth potential due to higher volumes Less partners to maintain with Better potential in B2B market 1/5/2017 9
Challenges 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 300 250 200 150 100 50 Working capital (in ten million rupees) 0 2015 2016 1/5/2017 10
Revenues are Increasing while Profits are Declining due to higher expenses for B2C market In ten million rupees 1400 In % 3 In ten million rupees 1400 1200 2.5 1200 1000 800 600 400 200 2 1.5 1 0.5 1000 800 600 400 B2C 30% B2B 70% 0 2015 2016 Revenues Profit Margin 0 200 0 Profits need to be improved in order to satisfy shareholders. 1/5/2017 11
IPO in 2015 increased equity In ten million rupees 800 700 600 146.23 500 400 300 200 100 238.53 235.41 523.41 0 2015 2016 Equity Debt For further investment, long-term capital could be raised. 1/5/2017 12
Agenda Analysis of Status Quo Strategy Development Recommended Implementation Actions Future Outlook Conclusion 1/5/2017 13
Prabhat Dairys Goal Is the 50:50 B2B and B2C Sales Mix a feasible goal? 1/5/2017 14
B2B Definition: Business to business Focus on food service segment, restaurants, hotel chains and caterers 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 1/5/2017 15
B2C Definition: Business to customer Sell products to small stores (Kirana) 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 1/5/2017 16
B2B vs. B2C Prabhat Dairy 1-2 units 1000 units 1-2 units Prabhat Dairy 1-2 units Customer 1-2 units 1/5/2017 17
Critical Success Factors Criteria B2B B2C Production facilities Associated Costs Distribution channels Growth potential 1/5/2017 18
Critical Success Factors Criteria B2B B2C Production facilities Associated Costs Distribution channels Growth potential Sales Mix of 80:20 1/5/2017 19
Strategy 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 1/5/2017 20
Critical Success Factors Criteria Tier 1 Tier 2 & 3 Distribution Channels Associated Costs Competition Growth potential 1/5/2017 21
Critical Success Factors Criteria Tier 1 Tier 2 & 3 Distribution Channels Associated Costs Competition Growth potential 1/5/2017 22
Contingency Plan & Mitigation Impact 1 2 1. Changing price payment structure of cooperatives Supply contracts with farmer Offer variety of support 2. Increasing competitors in B2B market Offer better conditions for best customers Long-term contracts with B2B customers Probability 1/5/2017 23
Contingency Plan & Mitigation Impact 1 2 1. Changing price payment structure of cooperatives Supply contracts with farmer Offer variety of support 2. Increasing competitors in B2B market Offer better conditions for best customers Long-term contracts with B2B customers Probability 1/5/2017 24
Agenda Analysis of Status Quo Strategy Development Recommended Implementation Actions Future Outlook Conclusion 1/5/2017 25
Capacity 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 1/5/2017 26
Focus on customers who procure in bulk-orders Unorganized Sector Kirana stores Key Facts Bulk-orders ensure better planning in your operations Food Retail Organized Sector Supermarkets Hypermarkets Cash N Carry Gourmet Stores Improved planning ensures better inventory management Decrease in Working Capital A focus on large scale customers ensures better planning for operations and decrease in working capital 1/5/2017 27
Sales 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 Panaji (Goa) Hotels Resorts Restaurants Maharashatra 250 sales people 80 Bangalore and Chennai 40 Panaji Chennai 130 for other current Hotels region Resorts Bangalore Restaurants Chain Retail Stores Deploy your sales people into different sales regions 1/5/2017 28
Contract 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 1/5/2017 29
Implementation Roadmap Supply Chain Improvement Contract suppliers Cut-down on stores Operations Improvement Find potential facility Find potential machinery Purchase new facility Implement Sales Strategy Deploy Sales people Find potential targets Jan 2017 Feb 2017 Mar 2017 Apr 2017 Costs (Rupees) 1 billion 14.79 billion* 2 billion *(5% of fixed assets) 1/5/2017 30
Agenda Analysis of Status Quo Strategy Development Recommended Implementation Actions Future Outlook Conclusion 1/5/2017 31
Future Outlook Recently Decrease inventory 23 15 Decrease receivables 76 35 Turn around fixed-to-current assets relationship Plan 44:56 60:40 1/5/2017 32
Assumptions Growth in revenues 2017 & 2018: 5% 2019 & 2020: 7% 2021: 10% 1/5/2017 33
Future Outlook (in ten million rupees) 1800 300 1600 1400 250 1200 200 1000 800 150 600 100 400 200 50 0 2017 2018 2019 2020 2021 0 Revenues Profit after tax 1/5/2017 34
Future Outlook 18 16 Profit margin (in %) 14 12 10 8 6 4 2 0 2017 2018 2019 2020 2021 Profit margin 1/5/2017 35
Agenda Analysis of Status Quo Strategy Development Recommended Implementation Actions Future Outlook Conclusion 1/5/2017 36
Conclusion 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 1/5/2017 37