Gujarat Co-Operative Milk Marketing Federation
GROUP MEMBERS:Budhaditya Banerjee
Sourabh DhariwalTarun Daga
Uma Balakrishnan
Strategic Management
AGENDA• The Origin of Amul• Organization Structure• Distribution & Cold Storage Network• Markets Catered To• GCMMF- SWOT Analysis• Ratio Analysis
– Profitability Ratios– Liquidity Ratios– Solvency Ratios
• Processed Food & Vegetables Industry– SWOT Analysis– Porter’s Five Forces
• The Way Forward
THE ORIGIN OF AMUL• Originated in Kaira to counter exploitation by Polson’s Dairy (Anand)
• Dr. Verghese Kurien was instrumental in spearheading the co-operative and Operation Flood to immense success
• Run as a collection and selling agent with complete involvement and decision-making of farmers
• Cash settlement to milk suppliers to ensure ready money
• Services provided:– Veterinary Care– Fine Cattle Feed– Education on Animal Husbandry– Facilities for Artificial Insemination
• Milk procurement grew from 250 litres per day in 1946 to 4 million litres per day in 1999
ORGANIZATION STRUCTURE
District level Chairpersons, Registrar of
Co-operatives, NDDB Representative, Technical
Expert, CEO
Chairpersons of Village Dairy Co-operative Societies, BOD, MD
Milk Producers, Managing Committee
State Federation
District
Village
DECISION-MAKING
•Membership•Price paid to milk suppliers
•Price paid to village co-operative societies
•Price paid to district unions (fixed across unions)•Product mix and quantity
LEVEL MEMBERS
DISTRIBUTION & COLD STORAGE NETWORK
• Chillers in proximity of villages
• Prompt transport to district facilities for further dispatch to consumers/ processing units
• Chilled trucks to transport processed products
• Delivery to local chillers by insulated rail tankers and chilled trucks
• Refrigerators and freezers with retailers and departmental stores to retain freshness
MARKETS CATERED TO
• Objective: Tries to reach every Indian consumer through a basic food i.e. milk, and its products
• Diversification: Products which serve myriad palates and needs
• Products: Milk, milk powder, bread-spread, cheese, sweets, ghee, curd products, condensed milk, ice-cream, milk drinks & confectionery
SWOT ANALYSIS- GCMMFStrengths•Modernization of traditional milk production•Robust distribution chain•Extensive cold storage system•Trust of producers & consumers both•Provision of services to cattle farmers•Presence in all milk product ranges•Value in quality & price•Trained graduates from reputed institutes
Weaknesses•Bound by dated legislation•Less control over milch yield•Cannot accommodate transport delays (perishables)•Dependence on poor infrastructure for supply (roads, electricity etc)
Opportunities•New product development•Increase in export of product range•Favourable changes in tastes and disposable income of consumers•Penetration into areas where SHGs etc have not entered•Capturing the segment which is tilting towards branded products
Threats•Unorganized players•Other dairy co-operative societies•Risk of contamination throughout channel•Competitors are companies, not bound by inherent obligations of co-operatives
PROFITABILITY RATIOS
• RETURN ON SALES– (Profit after Tax/Sales)*100
Year Ratio
1993-1994 0.07%
1994-1995 0.12%
1995-1996 0.60%
1996-1997 0.50%
1997-1998 0.45%
1998-1999 0.59%
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
Series1
PROFITABILITY RATIOS
• ASSET TURNOVER RATIO– Sales/Total Assets
Year Ratio
1993-1994 4.124
1994-1995 5.13
1995-1996 5.246
1996-1997 4.97
1997-1998 7.27
1998-1999 9
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0
1
2
3
4
5
6
7
8
9
10
Times
Times
PROFITABILITY RATIOS
• ROI/ROA– Return on Sales/Asset Turnover
Year Ratio
1993-1994 0.288
1994-1995 0.62
1995-1996 3.12
1996-1997 2.485
1997-1998 3.27
1998-1999 5.31
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0
1
2
3
4
5
6
Times
Times
PROFITABILITY RATIOS
• RETURN ON EQUITY– PAT/Shareholder’s Equity
Year Ratio
1993-1994 0.11
1994-1995 0.17
1995-1996 1.02
1996-1997 0.6
1997-1998 0.424
1998-1999 0.6506
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0
0.2
0.4
0.6
0.8
1
1.2
Times
Times
LIQUIDITY RATIOS
• CURRENT RATIO– Current Assets/Current Liabilities
Year Ratio
1993-1994 1.04
1994-1995 1.23
1995-1996 1.01
1996-1997 1.06
1997-1998 1.22
1998-1999 1.36
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Times
Times
LIQUIDITY RATIOS
• QUICK RATIO– Quick Assets/Current Liabilities
Year Ratio
1993-1994 0.53
1994-1995 0.52
1995-1996 0.55
1996-1997 0.45
1997-1998 0.46
1998-1999 0.64
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Times
Times
LIQUIDITY RATIOS• DEBTOR TURNOVER RATIO
– Net Sales/Average Debtor, Average Debtor/(Sales/360)
Year Ratio Days
1993-1994 18.43 1.95
1994-1995 54.1 6.6
1995-1996 40.72 8.8
1996-1997 61.54 5.8
1997-1998 114.04 3.1
1998-1999 124.18 2.9
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0
20
40
60
80
100
120
140
Times
Times
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0123456789
10
Days
Days
LIQUIDITY RATIOS• INVENTORY TURNOVER RATIO
– COGS/Average Inventory, Average Inventory/(Sales/360)
Year Ratio Days
1993-1994 12.94 26.78
1994-1995 16 21.51
1995-1996 17.15 19.89
1996-1997 12.14 28.1
1997-1998 17.04 20.08
1998-1999 25.26 13.59
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0
5
10
15
20
25
30
Times
Times
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0
5
10
15
20
25
30
Days
Days
SOLVENCY RATIOS
• DEBT to EQUITY RATIO– (Secured Loans + Unsecured Loans)/Total Equity
Year Ratio
1993-1994 8.89
1994-1995 10.26
1995-1996 6.99
1996-1997 4.49
1997-1998 2.93
1998-1999 3.04
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0
2
4
6
8
10
12
Times
Times
SOLVENCY RATIOS
• INTEREST COVERAGE RATIO– PBIT/Interest Expenses
Year Ratio
1993-1994 1.17
1994-1995 1.16
1995-1996 2.15
1996-1997 2.18
1997-1998 2.49
1998-1999 2.91
1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1999 0
0.5
1
1.5
2
2.5
3
3.5
Times
Times
PROCESSED FRUITS & VEGETABLES INDUSTRY:
SWOT ANALYSIS
STRENGTHS
•Large section of population in agriculture
ensures availability of raw material
•High priority status for agro-processing
given by the central Government
•Focus on technology to better yields
•Cost synergy to players diversifying into
this field
WEAKNESSES
•Legal and political interference
•High investments and working capital
required
•Quality control and testing not comparable
to international standards
•Vested interests of intermediaries reduce
supply chain efficiency
•Seasonality of raw material require
ensuring supply through other means
OPPORTUNITIES•Setting of SEZ & food parks to encourage development of Greenfield projects
•Rising income levels and changing consumption patterns
•Globalization and export potential
•Robust economic growth
•Large domestic market not catered to
THREATS• Mindset regarding hygiene and affordability
•High monetary and social costs of poor packaging and mishandling
•Susceptibility to economic fluctuations
•Low availability of adequate infrastructural facilities
PROCESSED FRUITS & VEGETABLES INDUSTRY:
SWOT ANALYSIS
PROCESSED FRUITS AND VEGETABLES:
PORTER’S FIVE FORCES• Threat of New Entrants:
Intense Competition-Sustaining is difficult among existing big players
Legal barriers
High capital investment in initial years
Entry barriers are high
•Threat of Substitutes:
Variety in processed foods is high
Local players offer low-priced substitutes
•Rivalry Among Competitors
Highly Competitive: Presence of and competition from regional,
national and international players; visibility a must
• Bargaining Power of Buyers:
Tendency of established local, national and international
entrants to foray into the market
Tendency of established retailers to introduce their own
brands
Variety seeking behaviour due to choices; loyalty very low
Hence, power is high
•Bargaining Power of Suppliers:
Prone to seasonal fluctuations
Power is low as dependence on limited buyers for revenue
PROCESSED FRUITS AND VEGETABLES:
PORTER’S FIVE FORCES
WHY THEY SHOULD NOT DIVERSIFY
• Profit margins of the company is very low and hence diversifying into new segment will require huge investments which may lead to losses in the initial years to the entire company.
• For a company in an industry which is exposed to perishability, liquidity and working capital plays a very important role. In case of GCMMF the current ratio though improving over the years is not up to the standards. Hence, diversifying may further worsen this ratio.
• The quick ratio of the company is also not favorable.
WHY THEY SHOULD DIVERSIFY
• Good asset turnover ratio– Indicates optimum exploitation of resources– Organizations which cater to masses are judged on their ROA. Diversification
may not generate high ROI but can certainly have good ROA.• Excellent debtor turnover ratio
– Average days for debt collection is very low– Suggests good relationships with customers which can be harnessed during
diversification.• Inventory turnover ratio suggests efficiency is not a concern. This has
gradually improved over time and does not block working capital• GCMMF depends more on savings for new investments. Debt equity ratio
has been reduced, which is fair now and raising debt for investment could be easy
• Improved interest coverage ratio because of better profitability. GCMMF can pay interests on debts with ease in this situation.
The way forward
Pilot projects on Gujarat and Maharashtra which are GCMMF strongholds
GCMMF has to look into greener pastures• Increased milk supply poses a challenge having reached saturation• Technological stagnation and poor quality of cattle and livestock
Completely fitted GCMMF’s plans to break into the western market• Processed fruits and vegetables earn more revenue from exports• Milk is already being exported to many countries
One of the main limitations of this sector has been inefficient food logistics and distribution, one that can be easily mitigated by GCMMF
Problems of marked-up commercials in every stage of procurement has been alleviated by GCMMF before
THANK YOU
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