The Success Story of Anand Mahindra: We currently have fallen in love with his tweets on Twitter. Anand Mahindra keeps sharing advice, extending help, and also dog posts. Apart from making Twitter India fall in love with him, what are his business achievements? In this article, we cover Anand Mahindra’s success story. Keep Reading!
The Mahindra History
Anand Gopal Mahindra was born into the third generation of the industrialist family toHarish and Indira Mahindra. He is the grandson of the co-founder of Mahindra & Mahindra (M&M), Jagdish Chandra Mahindra.
Initially known as Muhammad & Mahindra, the company was founded for steel trading in 1945. Unfortunately due to the partition their partner M. G. Muhammad decided to emigrate to Pakistan and later even went on to become its first finance minister.
This prompted the brothers Harikrishnan and Jayakrishnan to change the name of the company to Mahindra & Mahindra. The brothers saw an opportunity in manufacturing Jeep and partnered with Willys Overland who had also produced the vehicle for WW2. The company came to be well known as a jeep and truck producer.
But how did M&M go from producing jeeps to operating in aerospace, finance, insurance, agribusiness, components, defense, energy, construction equipment, farm equipment, leisure, hospitality, industrial equipment, information technology, logistics, real estate, and retail? Phew! That was a long list!
The answer to this question is Anand Mahindra.
Anand Mahindra joins Mahindra & Mahindra
After receiving a degree in architecture and an MBA from the Harvard Business School, Anand Mahindra decided to return to India to work for M&M. A fun fact not known to many he and Bill Gates were classmates at Harvard. The company was then run by his uncle Keshub Mahindra.
As a Harvard graduate and part of the Mahindra family, Anand found an easy way into the company but everything was uphill from here. He joined Mahindra Ugine Steel Company (MUSCO) in 1981 as an Executive Assistant.
Here Anand played an important role in the MUSCO’s expansion into the real estate and hospitality sector. Anand Mahindra worked his way up the ladder and was appointed as the President and Deputy Managing Director in 1989.
Challenges Faced By Anand Mahindra
Bharat Doshi recalls that his boss probably faced one of his biggest challenges when the 36-year-old Anand Mahindra was sent to work at M&Ms Kandivali factory in 1991. Mahindra met with striking workers who had surrounded his office and wouldn’t stop at anything. His response may surprise you as he made it clear to the mob which could turn violent that unless the workers got back to work and increased productivity there would be no Diwali bonus.
This was necessary for the company as 1991 stood for liberalization or in other words increased opportunity and competition. Doshi the Group Chief Financial Officer noticed that post this the productivity gains of the company rose from 50 to 150%.
Building a car from scratch in India was a challenge as the Mahindra Group lacked the technology and the management expertise. To achieve this they decided to enter into a joint venture with Ford but sadly the Escort car failed once it hit the market.
Although the car flopped what came next would define M&M’s legacy in the Indian markets. Anand Mahindra, now the Managing Director, decided to lead the company into once again producing a vehicle but this time without a joint venture. This would seem like a suicide mission for a company whose product had just failed even after working with Ford.
Using the same team of 300 that had worked on the Escort and hiring talents like Pawan Goenka, Mahindra decided to build the vehicle from scratch.
The result of this gamble is what we today know as the Scorpio. The SUV took the markets by storm and what is even more surprising is that it was created with a project cost of Rs. 550 crore. This was a tenth of the cost it would take any other large manufacturer to create it.
Scorpio was a hit and was even exported to western Europe and Africa in the years to come. The SUV was so successful that it even captured a 36% Market share in the utility vehicle segment. In comparison, Tata only had a 4.9% market share. The SUV also set the stage for other MUVs and SUVs launched by the company like the Xylo and XUV5OO.
Anand Mahindra’s Success Story – Rebranding Mahindra
By 2009 M&M was part of the top business names in India. It was during this period that Anand Mahindra met with Scott Goodson. Goodson’s observation found that even though the managers at Mahindra felt that they were working for a higher purpose this aim was still not crystal clear among them.
Mahindra’s core purpose at the time was to prove that Indians are second to none. But after several acquisitions in Germany, Korea, and China this purpose would not relate to everyone within the company. Instead of sitting on their laurels, Mahindra understood that it was time to adapt. After months of research, the slogan “Rise” was adopted.
Acquisitions
If one takes a look at the history of M&M it would be easy to point out that the company has relied to some extent upon growing inorganically. These include successful acquisitions like Swaraj Tractors, Reva Electric Car Company, Satyam Computer Services, Peugeot Motorcycles, Ssangyong Motors, and Pininfarina S.P.A.
Anand Mahindra Philanthropy
What could be possibly Anand Mahindra’s biggest achievement is the Nanhi Kali project which he started in 2009. The NGO supports education for underprivileged girls in India.
Over the last 2 decades, the project has happily reached out to over 3,30,000 underprivileged girls.
Closing Thoughts
Anand Mahindra stepped down as the executive chairman and became non-executive chairman of Mahindra & Mahindra in April 2020. His legacy with Mahindra still grows as the company is now one of the biggest names in India. Under his leadership, the revenues of the company grew over 60 times from Rs. 1,520 crores in 1991 to Rs. 96,241 crores in 2020. What more proof does one need?
That’s it for this article! Let us know what you think of Anand Mahindra’s Success story in the comments below.
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
ITC Diversification’s Reasons Explained: The Ambani’s, Tata’s, Wadia’s all seem to have taken a keen interest in the Indian FMCG sector. In this article, we take a look at why India’s most famous tobacco company entered the FMCG sector. Keep Reading to find out the reasons for ITC diversification into the FMCG industry.
What is the History of ITC?
The ITC we know today was founded by the British-owned company Imperial Tobacco Company (ITC) in 1910. As the name suggested the company was set up to expand its tobacco business in India. It was set up in Calcutta. For many years ITC was known to be a white company employing British-Cambridge graduates into their management roles.
It was only after 1969 when Ajit Narain Haksar became its first chairman that its name was changed to an Indian Tobacco Company. It was finally changed to ITC in 1974. But Indian shareholding within the company began increasing way back in 1954 and it was the government and its related entities investing in the company over the years which made it Indian in nature.
Today, various state-owned insurance companies coupled with other government banks hold a 28.5% stake. The British company Imperial Tobacco Company whose name was later changed to British-American Tobacco Company still holds a 29.4% stake in the company.
It may come as a surprise to some today when they find out that ITC is primarily in the cigarette business. This is because ITC has diversified into products like noodles, atta, juice, biscuits, chips, books, hotels, etc. This diversification however is not an attempt for a sudden escape from the cigarette industry but began way back in 1970.
Today ITC is an umbrella group that offers services and products in multiple industries. The major being cigarettes and FMCG.
But one may ask when one out of four Indians uses tobacco products then what was the need for ITC to diversify?
Among the various industries present in India where survival has become the toughest, the tobacco industry definitely tops the list. All with good intentions too. When ITC was first set up in India tobacco could be seen as a ‘need’ available for everyone.
But research over the years has brought to light the harmful effects of smoking. This in turn prompted the government to take action. The restrictions that have been put in place to minimize the harmful effects of smoking have been ever increasing since the revelation was made.
These started out as increasing awareness among Indians to increasing taxes. Then to banning advertisements and currently using the product itself to advertise its harmful effects.
Countries like the US, China, Japan, and those in the Middle East and Europe still do not have the stringent laws that are in place in India against the sale of tobacco products.
Speaking about companies diversifying Mr. Sunil Alagh, former Managing Director of Britannia Industries says that “Companies think of diversifying into new categories and products typically because growth in the core business is slowing down or with the intention of leveraging their existing brand equity. Diversification into new products and categories could be one of the ways to generate growth.”
Added troubled for ITC
Similarly for ITC, seeing the government place roadblocks on the growth of its product would force the company to finds a way out. This way out was FMCG. In addition to this, the roadblocks placed by the government have evolved to become competition for the company.
According to Sanjiv Puri, the Chairman and MD of ITC the impact of excise duties on the product had gone up 118% since 2012-13. Despite the efforts being successful in discouraging local cigarettes. It unfortunately has boosted illegal foreign cigarettes coming into the country through the border. This is done in order to avoid taxes. These activities further affect the legal cigarette industry.
However, ITC is not the only player in the tobacco industry diversifying into FMCG. Even the DS Group has recently entered into a joint venture with Lotte Company Ltd. of Japan. The Joint venture will now be manufacturing confectionery, gum, candy, and ice creams.
Sanjiv Puri however states that the government introducing stringent laws is not the main reason for ITC diversifying into FMCG. “ Diversification reasons are beyond that. ITC’s core proposition is to invest in areas that contribute to nation-building. We are able to make a meaningful contribution to society in all sectors that we are present.”
ITC Diversification – How successful has ITC been?
For the first quarter ending June 30th of 2020 ITC still owed 74% of its profits to the sale of cigarettes. The year before that ITC owed 80% of its profits to the sale of cigarettes. This is despite FMCG still making over 50% of ITC’s revenue. This shows that despite ITC effectively reducing the revenue dependence on its tobacco arm it still has a long long way to go increase its profit share.
Closing Thoughts
In this article, we discussed ITC diversification into the FMCG industry. Although it may not seem so the company has had an internal tussle for power which almost destroyed the company in the 90s. The government entities have stopped BAT from turning the company into a purely tobacco-based company.
BAT has in the past tried to increase its holdings within the company. These however were countered by the state-owned entities. Their efforts however were foiled forever since 2010, when the government banned all FDI’s into Indian tobacco companies.
This move by the government was seen as going out of its way to back ITC and keep the company in Indian hands. The government also faced added criticism in 2019 when it banned the safer alternative to smoking. All the while holding a stake in ITC.
This however raises the question of whether these moves by the ITC management of diversification and nationalism are in the best interest of the shareholders. Will the company perform better if the two arms are split to focus on their separate markets. ITC into tobacco and the demerged company focussing only on FMCG.
Let us know what you think of ITC as shareholders in the comments section. Happy Investing!
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
DMart Business Model Explained: “One must not open any store within a 1km radius of DMart”. This is a common saying in the retail industry to avoid direct competition with DMart. So what makes DMart so special to customers or so threatening to its competition. What are the strategies that have catapulted the retail chain to where stands today? Keep reading to find out.
DMart’s Growth Story
The success story of DMart is owed to its investor and trader turned entrepreneur ‘Radhakishan Damani,’ Now you know what the D stands for in DMart.
Founded in 2002, the DMart retail chain is owned by Avenue Supermarts. It started off with only two stores in the state of Maharashtra and today boasts 220 stores and 225 DMart Ready stores across 11 states and 1 union territory. DMart was also one of the few companies whose shares were listed at almost a 114% premium post its IPO.
Although DMart may fall short in terms of the number of stores it makes up for it in profitability. To put things in perspective in the FY 2014-15 Dmart booked profits of Rs. 211 crores beating both Reliance Retail and Future Retail which earned Rs. 159 crores and Rs. 153 crores.
Just a few days back you may have heard of DMart becoming an Rs. 2 trillion company. So …
What is DMart’s Business Model?
1. Product Mix
Have you ever examined the categories of products that are available in DMart? You would notice that they only sell those that fall in the category of Foods, Non-foods and General Merchandise, Apparel and other daily products. One may find this bizarre as retail chains also expand their product offerings to electronics, jewellery etc.
DMart has done this to ensure that the products they sell are in demand throughout the year. Thus maintaining consistency in sales and lower shelf life. This also meets their targeted low and middle-class’s daily household needs.
Being influenced by Walmarts in the late 90s Damani made it clear that they must follow the principles laid down by Sam Walton. Damani along with other promoters even walked other stores at the time to gain an understanding of what customers put in their trolleys and what not.
In addition to this DMart has also realised the importance of recognizing diversity in different states. DMart has identified this factor and tailored its product line to meet these expectations of consumers of the states it operates in. In order to achieve this DMart increased its dependency on local suppliers in each region. This further helps them achieve their targets instead of having a centralized model.
Although DMart sources its products locally they avoid private labels by directly connecting with the manufacturers. Although this gives customers limited options in comparison to other chains, they still are those of known brands which sell.
2. Brick and Mortar Stores – DMart Business Model
DMart may be one of the very few retail chains that actually owns the stores that they operate in. Yes, this is also something Damani has identified and adopted from Walmart. 90% of the stores are owned directly by DMart and the remaining are mostly taken on a 30-year lease. DMart so far has spent over Rs. 23 billion to buy their own land and stores.
One may think of this as retail suicide due to the huge cost involved in owning a store instead of renting. This however has helped DMart save a huge amount of money in the long term which otherwise would be paid as rent. It also saves them from the huge rents that other retailers bear in shopping malls.
This also ensures that the retail chain grows organically and only when they have the resources to do so making it stronger financially. This also provides them with a silver lining in the long term as the property value also increases in the long term.
3. Strategic Locations and Designs
DMart has always tried to avoid malls and their inflated rents like a plague. Hence it chooses its locations in residential areas strategically. These decisions are further taking their targeted low and middle-class’s into consideration. Most of their stores are in the suburbs of metros, tier II & tier III cities. Their store size is set based on the density of the targeted customers around it.
If you enter a DMart store you would notice that DMart has decided to keep their stores simply. This has further saved up on costs that would otherwise be spent on expensive interior designs. This means that every individual who enters the store is a customer unlike those in malls taking an evening stroll. This makes DMart’s main competitors the local Kiranas who receive similar types of customers.
3. Relationship with Suppliers
At the end of the day, it is DMarts relationship with its suppliers which sets its miles apart from any other retail chain. All retail businesses operate on credit.
DMart clears its credit payments on the 11th day itself and always maintains assured payment in about 15 days. Other players work on a 60 day credit period. This further helps them negotiate their products at a cheaper price from the suppliers.
4. Discounted Products – DMart Business Model
All the strategies we’ve seen above finally lead to Dmarts ultimate strategy for Indian markets which is discounts. DMart offers its products at a 6-7 % lower price than other retail chains and at times 10% off MRP. This further attracts the low and middle-class’s to their stores.
Costs saved on inflated rent, designs, good relationships with suppliers are ultimately carried onto their customers. This allows them to maintain a loyal customer base as their customers already know that their desired products are available at cheaper rates at DMart. This even gives them an added advantage over local kiranas.
In Closing
You may have observed that all the money saved through various strategies implemented were carried onto the customers further catapulting them to success. But another proponent that helped DMart was Damani’s investor mindset.
Being a value investor Damani gave importance to the long term view. In hindsight, none of the strategies would have worked if they weren’t diligently applied over the long term.
That’s all for this post. We hope the article was able to explain the DMart business model Let us know if you that Dmart has the potential to be crowned as India’s retail king. Happy Holi!
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
List of Biggest Bankruptcies in India: Bankruptcies although a regular occurrence in the global business world is considered a taboo topic in India. Promoters would rather hide the fact that a company is going bankrupt and would instead create a facade of success. Understanding this government was forced to introduce the Insolvency & Bankruptcy Code.
This reform undertaken by the Modi government would allow creditors/lenders of a business can approach the National Company Law Tribunal (NCLT) when they have given up on receiving any of the loan amounts from the company. They would then be able to recover some amount through the sale of the company or its assets through bids to others.
Dewan Housing Finance Ltd. (DHFL) is a non-banking financial company that was established in the year 1984 by Rajesh Kumar Wadhawan. The company was set up in order to assist the lower and middle-income groups to avail housing finance in India’s tier 2 and tier 3 cities. DHFL was the 2nd housing finance company to be set up after HDFC.
The company performed well for over 3 decades maintaining good growth and even acquiring companies like Deutsche Postbank Home Finance. The company also took on slum development and slum rehabilitation projects in Maharashtra.
These projects and several others were financed through debt raised by the company. This orchestrated development of DHFL was however cut short after Cobrapost, a group of journalists published an expose on DHFL on 29 January 2019.
According to the expose DHFL had diverted the Rs. 31,000 crores from the loans they had taken to various shell companies for the personal gains of its promoters which included Kapil Wadhawan, Aruna Wadhawan and Dheeraj Wadhawan.
Cobrapost also alleged that DHFL had made crores worth of donations to political parties possibly to keep them shielded. For eg. Rs. 14,282 crores worth of loans were diverted to these shell companies under slum development rehabilitation.
In addition, the Bharatiya Janta Party too received donations worth Rs. 20 crores. What earlier seemed like a well-orchestrated growth of DHFL now seemed like a well-orchestrated scam.
DHFL Responds
Initially, the company denied these claims and Indian credit rating agencies reaffirmed their high safety rating for DHFL. However, the actions of the company spoke otherwise. They began selling a number of businesses to pay their debt. Later in 2019, DHFL defaulted in its bond payments and Rs 900 crore worth of interest payments. This forced the credit rating agencies to act. By now the stock price fell by over 97%.
Due to their defaults, the RBI was forced to supersede the board of DHFL and began processing a resolution for DHFL under the Insolvency and Bankruptcy Code. DHFL would soon also be taken to NCLT. Investigations taking place in the background revealed further disturbing news.
Investigations following the trail of money had tracked it to Sunblink real estate in 2010. This led them to gangster Iqbal Mirchi an accomplice of Dawood Ibrahim. By December 2019 DHFL was stuck in bankruptcy courts for defaulting on Rs 90,000 crores of debt, and their promoters were jailed on money laundering charges. Meanwhile, the RBI had approved the DHFL takeover by the Piramal Group.
2. Bhushan Power and Steel – US$6.9 billion
Bhushan Power & Steel Ltd. (BPSL) was founded in 1970 and went on to become one of the top steel manufacturing companies in the country. Between 2007 and 2014 the company met most of its expansion needs through loans. These loans were used for meeting working capital requirements, purchase of plant and machinery, and other expansion related activities. This caused the company to raise over Rs. 47,204 crores from 33 banks and other institutions.
Despite this, the company maintained good growth and reasonable profits. This would have meant that at least the loans were being put to good use. BPSL however kept continuously missing payment deadlines.
In April 2019 the CBI began investigating into the company and it was later revealed that the money was diverted to 200 shell companies. This caused the banks to suffer from huge NPA’s forcing the company into National Company Law Tribunal (NCLT). BPSL was eventually auctioned off to JSW Steel who offered an Rs. 19,700 crore repayment proposal. This meant that banks lost out on 60% of their loan amount.
3. Essar Steel (US$6.9 billion) – Biggest Bankruptcies in India
Essar Steel was part of the Essar group which was set up in 1969 and is owned by the Ruia family. The company first fell into the debt trap in 2002 where it underwent Corporate Debt Restructuring for a debt of Rs. 2,800 crore. Luckily for Essar, the company survived and was back on track by 2006.
Essar once again took on its ambitious growth plans. Sadly these plans were hampered due to delay in environmental approvals and the non-availability of natural gas. By 2015 Essar was once again caught in a debt trap, but this time amounting to Rs 42,000 crore. The plans to rescue the company were met with plummeting commodity prices.
In June 2017, Essar was named among the list of 12 stressed accounts submitted by RBI that would have to undergo insolvency action under the IBC. Following this, the company was put under the National Company Law Tribunal (NCLT). Essar Steel was put up for auction and later acquired jointly by ArcelorMittal and Japan’s Nippon Steel. The company was renamed ArcelorMittal Nippon Steel India (AM/NS India).
Lanco Infra was founded in 1986 by Lagadapati Amarappa Naidu and his nephew Lagadapati Rajagopal who also was a member of the Lok Sabha. The Company’s growth in its initial year was unmatched as it received several large contracts primarily in construction.
Soon the company also entered other areas like power generation, transportation, solar energy, coal mining etc. By 2010 Lanco was among the fastest growing in the world. It was also India’s first Independent Power Producers and also its largest private power provider.
Following the several policy reversals put in place in 2012 by the UPA government which were otherwise encouraged by them affected Lanco’s business drastically. According to India Energy Exchange, the monthly average merchant power tariffs in January 2012 were at around ₹ 3 per unit, down from a high of ₹ 10.78 per unit in April 2009.
Lanco’s revenue’s soon reduced which also made it difficult for the company to raise debt from banks. Due to its poor financials by March 2017, 60% of their expenses were interest payments.
In June 2017 Lanco Infra was named among the list of 12 stressed accounts submitted by RBI that would have to undergo insolvency action under the IBC. Once the largest infrastructure companies in India Lanco now faced insolvency proceedings by the NCLT.
5. Bhushan Steel (US$6.2 billion) – Biggest Bankruptcies in India
Bhushan Steel was founded in 1987 when Brij Bhushan Singal and his sons bought a steel factory in Sahibabad. The family quickly grew the business by including sophisticated Japanese machinery in their operations to manufacture steel.
What further accelerated their growth was the budding Indian automobile industry which began to take form in the country. This aided Bhushan Steel’s growth and allowed them to acquire clients like Maruti Suzuki, Mahindra and Mahindra, and Tata Motors. Its Client base further allowed Bhushan Steel to acquire loans which they used for their expansion needs.
However, the dream run took a turn for the worst post the 2008 financial crisis when Bhushan Steel the commodity prices began to fall. Bhushan Steel already had been burdened by debt exceeding Rs. 11,000 crores.
By 2012 the prices of steel had fallen to $300 from their heights of $1265 in 2008. This affected the steel industry as a whole but the companies were still able to avail loans as both the banks and Bhushan were optimistic that the prices would soon pick up.
Banks had extended almost Rs. 18,000 crores in fresh loans on this bet. But the good times never came. Although the company kept growing, it could not keep up with the debt as it was ₹31,839 crore, 3.5 times its equity. The company soon fell short of its debt repayment obligations.
Bhushan Steel too was named among the 12 stressed accounts list submitted by RBI that would have to undergo insolvency action under the IBC. In 2019 the company was merged with Tata Steel and is today known as Tata Steel BSL Limited.
Reliance Communications (RCom) is today known to be Anil Ambani’s biggest failure. But Rcom once used to be one of the fiercest competitors. Anil Ambani had received RCom following the split of assets between the Ambani brothers after the death of their father.
One of the first mistakes that the company made was opting for CDMA early on over the other alternative i.e. GSM. This was a bad bet as GSM technology developed leaving CDMA behind.
Anil Ambani however was quick to realise this and began investing in the 3G and GSM technology. This followed by an aggressive pricing strategy where he offered services often 60% cheaper than other telecom companies. This worked in his favour as RCom was India’s 2nd largest telecom provider in 2008. But by now RCom had already shelled out Rs 8,500 crore to buy 3G spectrum in over 13 circles. Trouble began brewing for RCom as it was caught amidst the 2G scam storm.
The 2G scam had enabled almost 14 players in the industry which further skimmed profit margins. RCom slowly began losing its market share and stood 4th in the telecom sector by 2014.
The final nail in Rcom’s coffin was the entry of Jio in Indian markets who also began providing free data services. By 2017 Rcom’s debt had ballooned to Rs 43,000 crore from Rs 25,000 crore in 2010. Estimates have shown that nearly half of the company’s debt was for buying spectrum. RCom stopped its operations in 2017 and began selling its assets to pay off its debt. The company was then sent to NCLT and Anil Ambani still faces trial over its dues.
Founded in 1986, Alok Industries was one of India’s leading textile manufacturers for world-class garments. The company maintained good growth and profitability.
One of the first mistakes by Alok Industries was borrowing Rs. 10,000 crores for their expansion needs in 2004. The worst part was that Alok chose to use this to open new plants instead of enhancing or using their existing plant to full capacity. What Alok didn’t watch out for was the possibility of a fall in demand in the industry. These factors saw Alok’s asset turnover worsen in addition to low demand they also fell prey to cut-throat competition.
Another one of Alok’s mistakes was entering the real estate market in 2007. It acquired properties in Lower Parel, Mumbai. The real estate market was adversely affected by post the 2008 financial crisis.
Consistent losses and increasing debt further worsened Alok’s position. In June 2017 Lanco Infra was named among the list of 12 stressed accounts submitted by RBI that would have to undergo insolvency action under the IBC. Alok Industries had Rs.30,000 crores worth dues to be paid to its creditors. Reliance and JM Financial Asset Reconstruction Company won the bid for the company with a plan of Rs. 5000 crores.
Jet Airways was the country’s largest and longest-serving private airline. Founded in 1992, the airline was the first to fly a fleet of Boeing 737-400 aircraft. At its peak, it even carried out 650 flights a day. When Jet failed many wondered if it was even possible for any airline to operate profitably in the Indian market. This was because Jet had followed Kingfisher’s failure. Jet too was prey to the airline industry.
One of the major reasons for the Jets failure was the huge fuel expenses to be borne by the airline. Generally, 40% of the airline’s expenses are fuel. When aviation fuel gets expensive this is not always carried forward to the customers. This is because no player holds enough market share to influence the price. This in turn reduces the airlines’ profit margin due to competition.
In addition to this Jet suffered from depreciating rupee. This affects international airlines as they have to now pay more in dollars to other countries as rent, maintenance fees, and refuelling costs to international airports. The Rupee was also known as Asia’s worst-performing currency.
These factors eventually led to the Jets failure.
In Closing
It makes it hard to believe at first that such huge bankruptcies have taken place. But looking back they also offer valuable lessons for businesses. A common theme occurring through all of them has been the ‘Debt’. If used correctly it may aid the growth of the business or face the same fate as the companies above.
That’s all for these biggest bankruptcies in India post, let us know in the comments what you think about the IBC and companies going bankrupt. Happy Holi!
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
HDFC Bank Case Study and analysis 2021: In this article, we will look into the fundamentals of HDFC Bank, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of HDFC Bank, Michael Porter’s 5 Force Analysis, followed by looking into HDFC Bank’s key financials. We hope you will find the HDFC Bank case study helpful.
Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice. Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.
About HDFC Bank and its Business Model
Incorporated in 1994, HDFC Bank is one of the earliest private sector banks to get approval from RBI in this segment. HDFC Bank has a pan India presence with over 5400+ banking outlets in 2800+ cities, having a wide base of more than 56 million customers and all its branches interlinked on an online real-time basis.
HDFC Limited is the promoter of the company, which was established in 1977. HDFC Bank came up with its 50 crore-IPO in March 1996, receiving 55 times subscription. Currently, HDFC Bank is the largest bank in India in terms of market capitalization (Nearly Rs 8.8 Lac Cr.). HDFC Securities and HDB Financial Services are the subsidiary companies of the bank.
HDFC Bank primarily provides the following services:
There are 12 PSU banks, 22 Private sector banks, 1485 urban cooperative banks, 56 regional rural banks, 46 foreign banks and 96,000 rural cooperative banks in India. The total number of ATMs in India has constantly seen a rise and there are 209,110 ATMs in India as of August 2020, which are expected to further grow to 407,000 by the end of 2021.
In the last four years, bank credit recorded a growth of 3.57% CAGR, surging to $1698.97 billion as of FY20. At the same time, deposits rose with a CAGR of 13.93% reaching $1.93trillion by FY20. However, the growth in total deposits to GDB has fallen to 7.9% in FY20 owing to pandemic crises, which was above 9% before it.
Due to strong economic activity and growth, rising salaries, and easier access to credit, the credit demand has surged resulting in the Credit to GDP ratio advancing to 56%. However, it is still far less than the developed economies of the world. Even in China, it is revolving around 150 to 200%.
As of FY20, India’s Retail lending to GDP ratio is 18%, whereas in developed economies (US, UK) it varies between 70% – 80%).
Michael Porter’s 5 Force Analysis of HDFC Bank
1. Rivalry Amongst Competitors
The banking sector has evolved very rapidly in the past few years with technology coming in, and now it is not only limited to depositing and lending but various categories of loans and advances, digital services, insurance schemes, cards, broking services, etc.; hence, the banks face stiff competition from its rivals.
2. A Threat by Substitutes
For services like mutual funds, investments, insurances, categorized loans, etc., banks are not the only option these days because a lot of niche players have put their foot in the specialized category, surging the threat by substitutes for the banks.
Another threat for the traditional banks is NEO Banks. The Neo Banks are virtual banks that operate online, are completely digital, and have a minimum physical presence.
3. Barriers to Entry
Banks run in a highly regulated sector. Strict regulatory norms, huge initial capital requirements and winning the trust of people make it very tough for new players to come out as a national level bank in India. However, if a company enters as a niche player, there are relatively fewer entry barriers.
With RBI approving the functioning of new small finance banks, payment banks and entry of foreign banks, the competition has further intensified in the Indian banking sector.
4. Bargaining Power of Suppliers
The only supply which banks need is capital and they have four sources for the capital supply viz. deposits from customers, mortgage securities, loans, and loans from financial institutions. Customer deposits enjoy higher bargaining power as it is totally dependent on income and availability of options.
Financial Institutions need to hedge inflation, and banks are liable to the rules and regulations of the RBI which makes them a safer bet; hence, they have less bargaining power.
5. Bargaining Power of Customers
In modern days, customers not only expect proper banking but also the quality and faster services. With the advent of digitalization and the entry of new private banks and foreign banks, the bargaining power of customers has increased a lot.
In terms of lending, creditworthy borrowers enjoy a high level of bargaining power as there is a large availability of banks and NBFCs which are ready to offer attractive loans and services at low switching and other costs.
HDFC Bank Case Study – SWOT Analysis
Now, moving forward in our HDFC Bank case study, we will perform the SWOT analysis.
1. Strengths
Currently, HDFC Bank is the leader in the retail loan segment (personal, car and home loans) and credit card business, increasing its market share each year
The HDFC tag has become a sign of trust in the people as HDFC has come out as a pioneer not only in banking, but loans, insurances, mutual funds, AMC and brokerage.
HDFC Bank has always been an institution of its words as it has, without fail, delivered its guidance and this has created a strong brand loyalty in the market for them.
HDFC Bank has very well leveraged the technology to help its profitability, only 34% transaction via Internet Banking in 2010 to 95% transaction in 2020.
2. Weaknesses
HDFC bank doesn’t have a significant rural presence as compared to its peers. Since its inception, it has focused mainly on high-end clients. However, the focus is shifting in the recent period as nearly 50% of its branches are now in semi-urban and rural areas.
3. Opportunities
The average age of the Indian population is around 28 years and more than 65% of the population is below 35, with increasing disposable income and rising urbanization, the demand for retail loans is expected to increase. HDFC Bank, being a leader in retail lending, can make the best out of this opportunity.
With modernization in farming and a rise in rural and semi-urban disposable income, consumer spending is expected to rise. HDFC Bank can increase its market share in these segments by grabbing this opportunity. Currently, the bank has only 21% of the branches in rural areas.
4. Threats
A lot of niche players have set up their strong branches in respective segments, which has shown stiff competition and has shrined the market share and profit margin for the company. Example – Gold Loans, Mutual Funds, Brokerage, etc.
In-Vehicle Financing (which is HDFC Bank’s major source of lending income), most of the leading vehicle companies are providing the same service, which is a threat to the bank’s business.
HDFC Bank has set high standards in corporate governance since its inception.
Right from sticking to their words to proper book writing, HDFC has never compromised with the banking standards, and all the credit goes to Mr. Aditya Puri, the man behind HDFC Bank, who took the bank to such great heights that today its market capitalization is more than that of Goldman Sachs and Morgan Stanley of the US.
In 2020, after 26 years of service, he retired from his position in the bank and passed on the baton of Managing Director to Mr. Shasidhar Jagadishan. He joined the bank as a Manager in the finance function in 1996 and with an experience of over 29 years in banking, Jagadishan has led various segments of the sector in the past.
Financial Analysis of HDFC Bank
48% of the total revenue for HDFC bank comes from Retail Banking, followed by Wholesale Banking (27%), Treasury (12%), and 13% of the total comes from other sources.
Industries receive a maximum share of loans issued by HDFC bank, which is 31.7%, followed by Personal Loans and Services both at a 28.7% share of the total. Only 10.9% of the total loans are issued to Agricultural and allied activities.
HDFC Bank has a 31.3% market share in credit card transactions, showing a growth of 0.23% from the previous fiscal year, which makes it the market leader, followed by SBI.
HDFC Bank is the market leader in large corporate Banking and Mid-Size Corporate Banking with 75% and 60% share respectively.
In Mobile Banking Transaction, the market share of HDFC bank is 11.8%, which has seen a degrowth of 0.66% in the current fiscal year.
With each year, HDFC Bank has shown increasing net profit, which makes the 1-year profit growth (24.57%) greater than both 3-year CAGR (21.75%) and 5-year CAGR (20.78%).
Capital Adequacy Ratio, which is a very important figure for any bank stands at 18.52% for HDFC Bank.
As of Sept 2020 HDFC, is at the second position in bank advances with a 10.1% market share, which has shown a rise from 9.25% a year ago. SBI tops this list with a 22.8% market share, Bank of Baroda is at the third spot with a 6.68% share, followed by Kotak Mahindra Bank (6.35%).
HDFC Bank is again at the second spot in the market share of Bank deposits with 8.6%. SBI leads with a nearly 24.57% market share. PNB holds 7.5% of the market share in this category, coming out as the third followed by Bank of Baroda with 6.89%.
HDFC Bank Financial Ratios
1. Profitability Ratios
As of FY20, the net profit margin for the bank stands at 22.87%, which has seen a continuous rise for the last 4 fiscal years. This a very positive sign for the bank’s profitability.
The Net Interest Margin (NIM) has been fluctuating from the range of 3.85% to 4.05% in the last 5 fiscal years. Currently, it stands at 3.82% as of FY20.
Since FY16, there has been a constant fall in RoE, right from the high of 18.26% to 16.4% as of FY20.
RoA has been more or less constant for the company, currently at 1.89%, which is a very positive sign.
2. Operational Ratios
Gross NPA for the bank has fallen from FY19 (1.36) to 1.26, which a positive sign for the company. A similar improvement is also visible in the Net NPA, currently standing at 0.36.
The CASA ratio for the bank is 42.23%, which has been seeing a continuous fall since FY17 (48.03%). However, there has been a spike rise in FY17 as in FY16, it was 43.25 and in FY18, again came to the almost same level of 43.5.
In FY19, Advance Growth witnessed a massive spike from 18.71 level in FY18 rising to 24.47%. However, in FY20, it again fell nearly 4 points, coming down to 21.27%.
Promoters hold 26% shares in the bank, which has been almost at the same level for the last many quarters. In the December quarter a years ago, the promoter holding was 26.18%. The marginal fall is only due to Aditya Puri retiring and selling few shares for his post-retirement finance, which he stated.
FIIs own 39.95% shareholding in the bank, which has been increasing for years in every quarter. HDFC bank has been a darling share in the investor community.
21.70% of shares are owned by DIIs as of December Quarter 2020. Although it is less than the SeptQ2020(22.90%), it is still far above the year-ago quarter (21.07).
Public holding in HDFC bank is 12.95% as of Dec Q2020, which has tanked from the year-ago quarter (14.83%) as FIIs increasing their share, which is evident from the rising share prices.
Closing Thoughts
In this article, we tried to perform a quick HDFC Bankcase study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about HDFC Bank.
What do you think about HDFC Bank fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing!
HUL Case Study and analysis 2021: Hindustan Unilever Limited (HUL) is India’s biggest fast-moving consumer goods company. In this article, we will look into the fundamentals of HUL, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of HUL, Michael Porter’s 5 Force Analysis, followed by looking into HUL key financials. We hope you will find the Hindustan Unilever Limited (HUL) case study helpful.
Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice. Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.
About HUL and its Business Model
With a legacy of over 80 years, Hindustan Unilever Limited (HUL) is India’s biggest fast-moving consumer goods company. Actually, the very first product of the company was launched in 1888 named Sunlight Soap. In 1931 Unilever set up its subsidiary in India and in 1956, its subsidiaries consolidated to form Hindustan Leer Limited.
In 2007, the name was renamed Hindustan Unilever Limited. In 2013, the parent company Unilever increased the market stake in HUL to 67% and in 2018, the market cap of HUL passed $50bn.
HUL primarily has three divisions:
Home Care
Beauty and Personal Care
Food and Refreshment
Hindustan Unilever has a pan India access and it is found that more than 9 out of 10 households in India use a brand of HUL. Currently, the company has 14 brands in 44 different categories including Skin Cleansing, Tea, Deodrants, HFD, etc. Famous Brands like Surf Excel, Rin, Wheel, Vaseline, Pepsodent, Clinic Plus are included in the portfolio of the company.
On April 1, 2020, HUL also acquired leading brands like Horlicks and Boost. The company has 21,000 employees working under it with 31 factories, more than 1150 suppliers, and the products are available at more than 8million outlets in India.
HUL Case Study – Industry Analysis
FMCG sector is the fourth largest sector in India, which has surged from 840 Billion USD in 2017 to 1.1 Trillion USD in FY20 and is expected to grow at 10% a year. Personal Care and Household dominates with 50% of FMCG sales in India. Rapid urbanisation, increasing disposable incomes and better lifestyles have been the main growth drivers for the FMCG sector.
55% of the sales come from the urban segment, however, for the last few years, it has witnessed faster growth in the rural segment as compared to the urban segment. In rural India, the sector grew at 10.6% in the Q3 FY20, majorly due to better agricultural output.
It is expected that the rural FMCG market will rise to USD 220 billion by the end of 2025, at the same time, the market share of the unorganised market is expected to fall rapidly.
Michael Porter’s 5 Force Analysis of HUL
1. Rivalry Amongst Competitors
FMCG industry is a very competitive one with many brands available, and new products coming in each quarter make innovation very important. FMCG business is highly dependent on advertisement and companies spent a big percentage on it.
The switching costs for the customers are very low in this sector as the product differentiation is moderately low, which intensifies the competition.
2. A Threat by Substitutes
Substitute in the FMCG sector is highly dependent on the particular product. For example, it is way easier to find Colgate toothpaste at a local shop than a homemade organic dentifrice. On the other hand, the substitute product for biscuits is rusk which is easily available. Since switching costs are very less, the threat of substitutes is relatively on the higher side.
3. Barriers to Entry
Barriers to entry in the FMCG sector are far less as compared to the others. FMCG business is majorly dependent on brand identification and this can be developed with unique qualities, logo, advertisement; basically, proper market strategy.
The distribution network is very large and branched in the FMCG sector, which further eases out barriers of entry.
4. Bargaining Power of Suppliers
In FMCG business, companies have long term business with the suppliers, which helps them to negotiate the price. Moreover, the number of suppliers is ample; hence, decreasing the bargaining power of suppliers. However, companies need to make sure that they are getting the supplies at the cheapest possible prices as the industry is a high-volume, low-margin business.
5. Bargaining Power of Customers
Factors like a high number of similar product companies available, very low switching costs and similar products available at similar quality and in almost the same price range increase the bargaining power of customers. The only thing that can make them stay is brand loyalty for a product.
HUL Case Study – SWOT Analysis
Now, moving forward in our HUL case study, we will perform the SWOT analysis.
1. Strengths
HUL has a strong brand equity and a large legacy as it is a very old and well-rooted company with a variety of popular brands and products.
The company has its presence across the length and breadth of India with over 8 million+ retail stores where its products are available.
2. Weaknesses
HUL runs in a very competitive environment and there are highly established and rising companies that are little product-focused and hence, eat up the market share of the company.
HUL currently doesn’t have any ayurvedic or natural products in their portfolio, which is a negative aspect of the company as the current population’s trend is shifting to herbal products and many focused companies are making the best use of it.
3. Opportunities
With increasing disposable incomes, education and youth population, the FMCG sector in rural and semi-urban areas is expected to grow very rapidly as compared to urban areas. The company can use this very well as it already has a brand image and a wide chain of distributors.
The company can use its healthy cash reserve position and brand image legacy to acquire various products to diversify its portfolio.
4. Threats
HUL runs in a highly competitive environment, with 100% FDI allowed by the Govt. of India and new multinational companies setting their feet, the company faces a high threat from its competitors.
The company is highly dependent on raw material prices. Inflation can shrink the margins for the company as it runs in a sector that is a high-volume, low-margin one.
Population’s shift to organic and healthy products can help some unorganized and small companies to increase their market share, which can be a threat to HUL.
There are 9 members in the board of directors committee of the company, out of which 6 are Independent Directors including one female member.
Mr Sanjiv Mehta has been serving as the Chairman and Managing Director of the company since 2018. Chartered Accountant by degree, Sanjiv Mehta is also the President of Unilever South Asia(Pakistan, Bangladesh, Sri Lanka and Nepal). In 2019, he was awarded the “Business Leader of The Year” award by the All India Management Association.
Mr Willem Uijen is the Executive Director, Supply Chain of Hindustan Unilever Limited. He has been with the company since 1999 and was a part of various demographical projects of the company, especially in Latin America. In January 2020, he joined his current position.
Financial Analysis of HUL
44% of the company’s revenue comes from Beauty and Personal Care, followed by Home Care (34%). Foods & Refreshment contributes 19% and only 3% comes from others.
In terms of Operating profit, Beauty and Personal care products contribute the maximum (55%), 29% comes from Home Care, 14% and 3% from Foods and others respectively.
The company has a 54% market share in the Skin Care Segment, which makes it the market leader. In Dishwashing Detergents, 55% of the market share is dominated by the company. 47% and 37% is the respective market share which company owns in Shampoo and Personal Care Segment.
As of Sept’20, the company spent 9.79% on advertisements as a % of total sales, which has shown a good rise from 7.46 of June’20.
Net Profit Margin for the company is 14.77% as of FY20, which has surged from 13.59% as that of FY19. Current NPM is the highest of that in the last 5 financial years and the 3 Yrs. Avg. Net Profit Margin is 14.26%. Source: Trade Brains Portal]
In FY20, HUL showed a Revenue Growth of 1.2% from the previous FY. 3-year CAGR is 6.16%, which means that in recent years, the revenue growth has been subdued. A similar trend is visible from Net Profit Growth, 1-year CAGR is 11.46% whereas 3-year CAGR (14.66%) is higher.
The company has a very healthy and consistent cash flow from Operating Activities. Outflow in cash flow from financing activities surged in FY20 as the company paid a higher dividend than the previous year.
HUL Case Study Financial Ratios
1. Profitability Ratios
EBITA Margin for the company has been increasing for the last 5 financial years except for FY19, in which it witnessed a small dip from 20.7 to 19.91. As of FY20, EBITDA Margin is 21.54%.
Hindustan Unilever has the premium RoE of 84.15 (FY20), and a consistent rise in the same has been visible for the last 4 years. The 3 years avg RoE is 79.76%.
The company enjoys 3-digit RoCE, which is very well respected by the market and a similar rising trend is visible in RoCE as that of RoE. As of FY20, RoCE is 114.67% and the Avg ROCE for 3 years is 110.16%.
2. Leverage Ratios
As of FY20, Quick Ratio and Current Ratio for the company are 1.02 and 1.32 respectively, which indicated its good liquidity position. These levels have been more or less the same for the last 5 financial years, which is a positive sign for the company.
HUL is a 100% debt-free company and its Interest Coverage Ratio is 48.69% as of FY20. Although this level is very good currently, it was 261.73 in FY19.
3. Efficiency Ratios
Currently, the asset turnover ratio for the company is 2.4, which is slightly lower than the previous year but this figure has been almost constant in the recent financial years.
The inventory turnover ratio witnessed a continuous rise from FY16 (12.04%) to FY19(17.53%), which later dipped to 17.18 in FY20 due to virus outbreak disruptions.
The number of receivable days has decreased (12.79% in FY19 to 11.83% in FY20) and the number of payable days has increased (90.77% in FY19 to 92.86% in FY20), indicating the company’s increased bargaining power over the buyers and suppliers.
Shareholding Pattern of HUL
Promoters own 61.9% of the company as of December quarter 2020. Although it has been the same for the last 3 quarters, a fall was seen from the level of 67.18% in March 2020. The best part is that promoters do not pledge a single share.
FIIs hold 14.92% of shares of the company as of December 2020, which has surged from the level of 12.32% in the same period the previous year.
DIIs own nearly 10.72% shares of the company, which was around 6.68% a year back. Both FIIs and DIIs have increased their shareholding in the previous years.
Public shareholding has witnessed a fall in the recent quarters, from the level of 14.95% in Jun2020 to 12.46% in Dec 2020.
Closing Thoughts
In this article, we tried to perform a quick Hindustan Unilever Limited (HUL) case study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about HUL.
What do you think about HUL fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing!
Infosys Case Study and analysis 2021: In this article, we will look into the fundamentals of Infosys, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of Infosys, Michael Porter’s 5 Force Analysis, followed by looking into Infosys key financials. We hope you will find the Infosys case study helpful.
Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice. Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.
About Infosys and its Business Model
In 1981, Narayana Murthy with a team of six members incorporated Infosys in Pune with an initial capital of just $250 and within the very first year itself, they locked in the deal with Data Basics Corporation of New York.
The theme of the organization is “Sustainable and Resilient” and since its inception, the company has been delivering sustainable solutions. Currently, the company is heavily investing in digital platforms like Data Analysis, Agile Technology, Artificial Technology, Cloud Infrastructure, etc.
Infosys primarily provides the following products and services :
IT Services (Application Services, IMS, SOA Services, Infrastructure Services, etc.)
Engineering Services (Product Engineering, Manufacturing Process, IT Strategies, etc.)
BPO Services (Business Platforms, Human Resource Outsourcing, Order Management, etc.)
Product and Platforms (Finacle, Infosys ActiveDesk, Infosys Mconnect)
As of FY20, the company has a client base of 1411, which has shown a growth of CAGR 6.62% in the last 4 years. Infosys BPO, Infosys Consulting, Infosys Australia, Infosys China and Infosys Mexico are the subsidiary companies of Infosys. It also has its offices in the top cities of the world like Singapore, New York, Tokyo, Shanghai, etc.
Infosys Case Study – Industry Analysis
As of FY20, the IT-BPM industry of India is worth USD 191 billion, which has been growing 7.7% y-o-y and by 2025, it is estimated to reach USD 350 billion. The Digital Segment has seen rapid growth in recent years and is expected to cover around 38% revenue of the entire industry. As of FY20, 147 billion USD was contributed by the export revenue and the domestic revenue was at US$40 billion. Indian IT industry exports to more than 80 countries across the world with over 1000 global delivery centres. IT sector of India attracts the second largest FDI inflows as per the report by the Department for Promotion of Industry and Internal Trade. Currently, India leads the world in sourcing destinations with 75% of global digital talent present in the nation. As per NITI Aayog, by 2035, Artificial Intelligence can boost the nation’s annual growth rate by 1.3%. Currently, the IT industry of India contributes 7.7% to the country’s GDP and is expected to increase its contribution to 10% by 2025. With the growth of AI, Data Analytics and IoT, the demand of India’s cloud market is expected to reach USD 7.1 billion by the end of 2022, signifying a triple fold jump.
Michael Porter’s 5 Force Analysis of Infosys
1. Rivalry Amongst Competitors
IT Industry is a very competitive one with every leading company providing almost similar solutions. Moreover, the competition is not only limited to the nation itself but beyond the boundaries, too as many countries like China are working briskly to provide technologically advanced services at a cheaper cost.
2. A Threat by Substitutes
With the world getting greatly dependent on technology, there is almost no substitute for it. In the case of ITeS and BPO segments, the companies can still develop their IT department. However, this trend has witnessed a continuous fall as companies feel that it is better to outsource and focus on their core business rather than investing in the IT department.
3. Barriers to Entry
As the IT industry is hugely capital intensive and with rich talent in the digital space, the barriers to entry in the IT Industry are not very high. With the government also extending its help to new tech startups, the competition in this industry is increasing.
As technology is changing every second, new companies have to focus on innovation because outdated technology gets no importance, which requires a regular flow of skill and cash. However, some focused niche-based startups can eat up a huge market share of the existing companies. For example, AI, IoT, etc.
4. Bargaining Power of Suppliers
India is rich in skilled IT labor, having more than 75% of the global digital talent, that too at a very cheap cost. Moreover, the business is not concentrated on a limited group and the work is distributed over many divisions, which decreases the bargaining power of suppliers.
5. Bargaining Power of Customers
Bargaining power in the case of customers is a two-way variable. At first, customers enjoy a very high bargaining power as there are various companies providing quality solutions but when they get installed with the products, the increasing switching costs result in a fall in bargaining power for them. As the company gets dependent on the IT partner for all future updates and technological developments, the bargaining power of customers decreases.
Infosys Case Study – SWOT Analysis
Now, moving forward in our Infosys case study, we will perform the SWOT analysis.
1. Strengths
The company has a wonderful brand value and is one of the pioneers in the IT sector as it has been providing end-to-end world-class business solutions consistently. The company enjoys a huge cash reserve with one of the finest corporate governances.
Since its inception, the company has been highly focusing on innovation and strengthening its roots in the new technologies especially AI, IoT, etc.
2. Weaknesses
Even though the company has made a strong presence worldwide, it still lags in making its dominance within the boundaries of the nation.
Nearly 85% of the business is concentrated in North America and few countries of Europe, which makes the business prone to unwanted volatilities and uneven growth.
The company is not efficiently focusing on growing economies that are seeing a massive development into technology.
As the company is one of the biggest mass recruiters of the nation, it faces a high rate of attrition. This means a lot of employees leave the company for better pay and job, which deteriorates the company’s image.
3. Opportunities
Infosys can focus on the emerging economies of the world as the demand for technology will rise hugely there and it can acquire a big market share in those countries coming out as their market leader in the future.
As the company has a huge pile of cash in its reserve, it can use it in R&D for the latest technologies, developing world-class products and entering new segments. For example, cloud-based solutions.
With the government’s major focus on the digitalization of its undertakings, Infosys can play an important role in the same. Especially in the BFSI sector where Infosys has done a terrific job in the past.
4. Threats
As most of the company’s revenue is earned in dollars and euros, it imposes a currency risk on the earnings of the company.
Infosys faces stiff competition from its competitors. Well-established companies like TCS, Accenture, etc. eat up the market share. Moreover, intense competition leads to a contraction in margins and a force to invest in the latest technologies.
Nandan Nilekani, who co-founded the company with Narayana Murthy, is the current chairman of the board for Infosys. IITian by degree, he was awarded Padma Bhusan in 2006 and held numerous awards in the corporate world.
Salil Parekh is the Chief Executive Officer and Managing Director of the company, who has more than three decades of experience in the IT services industry. In Jan 2014, Mr Pravin Rao joined the board of the company and he is the COO and Whole-time Director of the same.
Kiran Mazumdar-Shaw, who is also the chairperson and MD of Biocon Limited, is the Lead Independent Director of the company. There are a total of 4 Independent Directors on the board.
Financial Analysis of Infosys
Financial Services contribute the maximum for the company (32%), followed by Retail (16.4%). Both Energy Utilities and Communication contribute 12.6% in the total revenue of the company, 9.9% by Manufacturing. Life Sciences and Hi-Tech contribute 6.3% and 7.5% respectively.
60.5% of the company’s business is from North America, followed by Europe which contributes 24.1%. Only 2.5% of the total business is based in India and 12.9% comes from the rest of the world.
The company has a 4% software testing services segment market share.
As of Mar’20, the company spends 0.91% on R&D as a % of total sales which is falling with every quarter. In Dec’20, Constant Currency Growth in the BFSI sector almost doubled to 12% from the level of 6.2% in the same period the previous year.
As of FY20, the Net Profit Margin for the company is 18.33%, which has been continuously falling for the last few years, especially from the level of 22.83% in FY18. However, the 3-year average stands at 19.93%.
3 Year CAGR Revenue Growth for the company is 9.85% which is almost the same as the last year’s data (9.82%). However, Net Profit Growth has shown a great rise, as in FY20, it was at 7.73% and 3 Yrs CAGR for the same is 4.95%.
The company has one of the finest cash flow statements. Cash Flow from Operating Activities has been rising tremendously year after year and so is the outflow in cash flow in financial services; hence, the company pays a good dividend every year from the cash they receive.
Infosys Financial Ratios
1. Profitability Ratios
In FY 2016, EBITA Margin for the company was 27.28% and from this level, it has fallen continuously year by year. As of FY20, EBITDA Margin is at 23.96%
Return on Equity for the company has shown a rise in the recent few financial years. As of FY17, RoE for the company was 22.03% which has shown a rise to the level of 25.62% in FY20. The 3 Yr. average RoE for the company is 24.50%.
An almost similar trend can also be noticed in RoCE, it has risen from the level of 30.57% in FY17 to 34.01% in FY20. The 3 Yr. average RoCE for the company is 32.26%.
2. Leverage Ratios
Quick Ratio and Current Ratio for the company is far above the threshold levels of 2.62% each, which is a very positive sign for the company’s liquidity position.
Infosys enjoys a debt-free status and has an Interest Coverage Ratio of 130.45.
The Asset Turnover Ratio for the company is 1.04 as of FY20, which showed an improvement from the level of 0.87 in FY17. This can also be deduced from the increased RoE in the same period as NPM growth is muted for that period.
Receivable days for Infosys have increased from the level of 61.74% in FY19 to 66.96% in FY20, indicating the buyers’ bargaining power. Payable days for the company have also increased from the level of 8.9% in FY19 to 15.03% in FY20, which shows the company’s bargaining power over the suppliers.
12.95% shares are owned by the promoters of the company without any pledging of shares, which has been more or less constant from the previous few quarters.
FIIs have slightly increased their shareholding from the level of 30.47 in June 2020 Q to 32.26% in the latest quarter.
As of Dec 2020 quarter, DIIs own 23.75% of the company, which has come down from the level of 25.42% in June 2020 Q.
13.78% shareholding is by the public, which has been almost constant for the last few quarters. Also, 17.26% of owners are others who have shown a similar trend.
Closing Thoughts
In this article, we tried to perform a quick Infosys case study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about Infosys.
What do you think about Infosys fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing!
Asian Paints’ Case Study and analysis 2021: Asian Paints is the largest and leading Indian paint company. In this article, we will look into the fundamentals of Asian Paints, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of Asian Paints, Michael Porter’s 5 Force Analysis, followed by looking into Asian Paints’ key financials. We hope you will find the Asian Paints’ case study helpful.
Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice. Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.
About Asian Paints and its Business Model
Asian Paints is India’s 1st largest, Asia’s 3rd largest and the world’s 9th largest paint company. It has been setting a high standard of operational efficiency, management, world-class innovation and technological vision for the last 7 years.
The paint industry is divided mainly into two segments viz. Decorative and Industry. The Decorative segment includes household paints (interior wall finishes, exterior wall finishes, enamels and wood finishes) and is undeniably dominated by Asian Paints in India. The Industry segment includes industrial paints, automotive coatings, OEM paints, powder coatings etc., in which Asian Paints comes at 3rd place after Kensai Nerolac and Akzo Nobel.
The decorative segment is less technology-dependent due to which some unorganized players also eat up a small fraction of the market share. However, the industry segment is highly technology-dependent and entirely have organized players.
Asian Paints holds a global presence by operating in 15 different countries and owning 26 paint manufacturing plants across the globe. In India, it has a robust distribution network of suppliers. To improve its margins and operational efficiency, the company chose dealers over distributors.
Currently, the company has 70,000+ shopkeepers across the nation. It has also been enhancing its dealers for the past 40 years. Asian Paints has a phenomenal supply chain as it carries out around 2.5 – 3 lakh deliveries per day and its trucks visit the dealers around 4 times a day.
Asian Paints’ Industry Analysis
The paint industry runs parallel to the GDP and economy. Considered as discretionary spending, as the GDP increases so does the spending capacity of the people. In the past, this industry has seen double-digit growth in terms of both, value and volume, and this is why it has always traded at premium valuations in emerging economies.
For the last two years, there has been a constant rise in the market share by organised players. Currently, the ratio is around 70:30 between organised and unorganised players, and with the technological innovation and proper GST implementation, this market share is expected to rise to 85% in the next couple of years.
The paint industry of India is expected to witness a phenomenal rise in the coming years considering India’s latest per capita consumption (of around 4kg) as compared to that of the world (15kg.) This data provides a vast scope for the paint industry to grow in India.
The paint industry is a raw material intensive industry. Especially in the case of India, most of the raw materials are imported from other countries. With the government imposing import bans and promoting the self-reliant mission, the supply is expected to come from within the country in the coming years, which will be a boon to this industry and it will see a tremendous rise in operational margins.
Michael Porter’s 5 Force Analysis of Asian Paints
1. Rivalry Amongst Competitors
The 70% paint industry is dominated by the organized sector which includes 4 companies (Asian Paints, Berger Paints, Kansai Nerolac and Akzo Nobel). As it is a raw material intensive industry, the distribution network plays an important role; hence a very tough competition is observed among the competitors.
2. A Threat by Substitutes
In earlier days, limewash was used as an alternative to paints. However, in the modern era, the trend is entirely getting shifted to paints. Hence, the threat to substitutes is very low.
3. Barriers to Entry
The Industry segment is totally governed by technological developments, which limits the entry of unorganized players owing to the high R&D expenditure.
Established players have a well-developed and trusted distribution system, which will be very difficult for a new entrant to break.
4. Bargaining Power of Suppliers
Paint manufacturing requires more than 300 raw materials, of which the maximum is imported. Titanium oxide, which constitutes 25% of the raw materials, is facing a shortage of supply. 50% of the same is Petro-based products which see high volatility in prices. Hence, the bargaining power of suppliers is very high in the paint industry.
5. Bargaining Power of Customers
With almost similar products offered by 4 different companies of an industry, it becomes price-sensitive; hence, customers enjoy high bargaining power.
The industry segment attracts technologically enhanced companies with a robust supply chain, which is not offered by many; hence, customers do not possess much bargaining power in this segment.
Asian Paints’ SWOT Analysis
Now, moving forward in our Asian Paints case study, we will perform the SWOT analysis.
1. Strengths
Right after setting foot in the paint industry, Asian Paints chose dealers instead of distributors and wholesalers. This decision has turned out to be a boon for the company as the distributors demanded a 20% margin whereas now only 3% margin goes to the suppliers.
Technological Development is the sector where Asian Paints have been investing for decades. Asian Paints bought a supercomputer worth 8 crores in 1970, which is ten years before ISRO did it. It collects almost double the data than its competitors and forecasts the trend with more than 97% accuracy.
2. Weaknesses
The penetration of Asian Paints in the industry segment is far too low, and it faces stiff competition from already strong Kansai Nerolac and Akzo Nobel.
Despite being the 9th largest paint company in the world, the global business of the company is far below average with the exception of Bangladesh, Nepal and UAE.
3. Opportunities
Asian Paints states that they aim to enter the list of top 5 paint companies of the world. This could be achieved by focusing on the emerging economies of the world.
Considering the market share, Asian Paints has an opportunity to increase its market share in the industry segment as it requires world-class technology which the company can very easily afford.
Government policies (like the extension of CLSS), rapid urbanization and easy availability of home loans will increase the demand for paint. With its strong distribution network, innovative products and total home solutions, Asian Paints can be hugely benefitted.
4. Threats
With new players like Indigo Paints and already established players, Asian Paints faces stiff competition. In the global market too, the world-class technologically innovative players dominate the market share.
As most of the raw materials for manufacturing paint are imported, the company may face operational disruption during circumstances like a pandemic, country tensions, etc.
The visionary founder of Asian Paints, Mr Chamaklal Choksi laid the stone of efficient management in the company. From its incorporation to this date, Asian Paints has been setting standards in management qualities, and this is one of the reasons it has been one of the biggest wealth creators of all time in India.
Being a visionary and understanding the importance and future of technology, Mr Choksi bought a supercomputer worth Rs 8 Crores, back in 1970 before ISRO (after 10 years) and IIT Bombay (after 21 years) did, to collect various data, forecast the sales, efficient changes and customer interest. This custom of pure management is still going on in the company.
The newly appointed MD and CEO Mr Amit Syngle owns just 600 shares of the company (the previous one, Mr KBS Anand owned mere 270 shares). The board of Asian Paints enjoys broad expertise and vast experience.
Financial Analysis of Asian Paints
84% of the company’s revenue comes from the decorative segment. In FY20 company launched various value for money emulsions which helped the company to gain more market share.
2% of the company’s revenue is incurred from the Industrial coating Business. The company is a market leader in auto refinish segment and stands at the second position in the OEM segment.
2% of the total revenue constitutes from the home improvement business. Recently, the company is trying to enter complete home solutions like sanity ware, kitchen and living area under the brands ap royal bathrooms.
International Business accounts for 11% of the total revenue generated by the company, and in FY20, the company improved the product value proposition in the key markets like Egypt, Bangladesh, Sri Lanka etc.
42% market share of the Indian Paints Industry is dominated by Asian Paints, which makes it a leader of the industry, followed by Berger Paints (12%), Kansai Nerolac (7%), Akzo Nobel (5%) and Indigo Paints (2%). 33% of the market share is acquired by other small and unorganised players.
Asian Paints beats its competitors in profitability with an NPM of 11.66%. [Berger Paints (10.44%) and Kansai Nerolac (8.75%); Source: Trade Brains Portal]
Although the company has break-even cash flows, it enjoys healthy operating cashflow with a spike of Rs 495.15 crores from FY19 (Rs 99.92 crore) to FY20 (Rs 595.07 crore).
The company has a CFO to PAT (last 5 yrs. average) ratio of 1.03 which is a positive sign for the company’s cash flow position.
Asian Paints’ Financial Ratios
1. Profitability Ratios
Asian Paints has EBITA Margin of 17.83%, which is constantly rising from the last few years and it is the highest among its peers. The recent rise from 16.99% in FY 19 to 17.83% in FY20 is mainly due to falling crude prices.
Asian Paints has been constantly delivering a massive RoE of above 25% for a lot of years. The current RoE stands at 27.79%.
For the FY20 the RoCE is standing at a massive 35.83%. However, there has been a decreasing trend in RoCE for the last couple of years mainly due to increased competition, additional CAPEX and investment for future growth.
Current Ratio for the FY20 is 1.73% for the company, which has seen continuous improvement for the last couple of years. Current Ratio above 1.33% is considered healthy.
The Company is almost debt-free with Debt-to-Equity ratio of a mere 0.04. It means the company is funding additional projects from the equity.
The quick ratio of the company is 0.96 for the latest financial year. Although liquidity has not improved in the last few years, it has maintained a threshold requirement.
Asset turnover Ratio has seen a continuous fall from FY 16(1.83). Currently, the ratio is 1.44%. However, there has been a similar fall for the entire peers of the industry and Asian Paints still has a better figure than the peers.
The inventory turnover Ratio for the FY20 is 7.14%, which is the highest among the peers. However, an entire industry has seen a fall in this ratio from the last few years.
The number of payable days has decreased from the previous fiscal year (52.73 to 50.51), which shows the supplier’s bargaining power over the company, whereas the receivable days are continuously increasing from the last few years indicating stiff competition.
Promoters hold 52.79% of the company with around 10.67% of pledging. Promoter holding has been constant for the last few quarters and pledging of shares has also reduced from 12.53% in December 2019 to 10.67 % in December 2020. Nevertheless, pledging above 10% is an alarming sign.
A constant increasing trend has been seen in the case of FII holding for the last few quarters with a shareholding of 17.24% in September 2019 to 21.13% in the recent quarter.
DIIs own nearly 7.10% of the company. However, a constant decreasing trend has been seen in the DII shareholding in Asian Paints for the last few quarters.
Public Holding has been more or less the same in Asian Paints of around 19-20%.
Closing Thoughts
In this article, we tried to perform a quick Asian Paints’ case study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about Asian Paints.
What do you think about Asain Paint fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing.
