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Strategic Analysis of Abrasives Industry

Submitted to:
Prof. Anshuman Tripathy

Submitted by:
Group-I
Abhineet Sudhendra
Sambit Mishra
Saurabh Arora

UM14003
UM14048
UM14051

Contents
1

Executive Summary............................................................................................................................................................... 4

Industry Overview.................................................................................................................................................................. 5
2.1

Nature and Size of the Industry....................................................................................................................................... 5

2.2

Key Growth drivers for the industry................................................................................................................................. 6

2.3

Identification of Critical Success Factors (CSF)................................................................................................................ 6

2.4

Market Analysis based on CSFs....................................................................................................................................... 7

2.5

Industry Benchmarks....................................................................................................................................................... 7

2.6

PESTEL Analysis............................................................................................................................................................. 12

2.7

Porters Five Forces Analysis.......................................................................................................................................... 13

2.8

Strategic Group Mapping............................................................................................................................................... 13

2.9

Competitive Landscape................................................................................................................................................. 13

2.10 Market Segmentation.................................................................................................................................................... 14


2.11 Buying Criteria Analysis of the Industry......................................................................................................................... 14
2.12 Key trends and future developments............................................................................................................................. 15
3

Company Overview.............................................................................................................................................................. 16
3.1

Company background.................................................................................................................................................... 16

3.2

Timeline with key milestones and their strategic impact............................................................................................... 16

3.3

Vision, Mission, Goals, and Strategic Themes................................................................................................................ 16

3.4

Key Product and Service Portfolio.................................................................................................................................. 16

3.5

Core Competencies of the firm...................................................................................................................................... 16

3.6

Business Model of the organization............................................................................................................................... 16

3.7

3rd Generation Balanced Scorecard (Amalgamation of 1st Generation BSC and Activity System Map)........................19

3.8

SWOT Analysis............................................................................................................................................................... 19

3.9

Competitor Analysis (identify competitors)................................................................................................................... 19

3.9.1

Based on Critical Success factors............................................................................................................................ 19

3.9.2

Based on Financial indicators.................................................................................................................................. 19

Future Growth Strategy for the organization........................................................................................................................ 20


4.1

Portfolio Analysis........................................................................................................................................................... 20

4.1.1

Based on BCG Matrix............................................................................................................................................... 20

4.2

Companys Strategic Roadmap for future...................................................................................................................... 20

4.3

Product Market Investment Strategy............................................................................................................................. 21

4.4

Re-imagining the Organization with the transformed business model or Use-case based on SMAC and IOE................21

1 Executive Summary
Guidelines

The executive summary should provide a brief overview of the organization and the industry in which it
operates. It should also illustrate the results of the analysis made in the report. It should provide the
future growth prospects in the industry for the organization. It should also highlight on the strategy for
any organization to gain competitive advantage in this industry.

2 Industry Overview
2.1 Nature and Size of the Industry
Guidelines

Brief Description of the industry segment or sub segment


History and Evolution of the Industry
Position of Industry depending on Industry Life Cycle (Introduction, Growth, maturity, decline)
Size (% of National GDP) of the industry

History and Evolution of the industry

The origin of abrasive industry is traced back to the year 1954 when Carborundum
Universal Ltd (CUMI) was incorporated in the year 1954 as a joint venture between
Carborundum company, USA, Universal Grinding Wheel company, UK and Murugappa
Group, India. There were other small players like Ajax Products Pvt ltd. present at that
time other than that most of the abrasive requirements were fulfilled by imports. The
company ventured both into the coated and bonded abrasive by acquiring Ajax
Products Pvt Ltd. (1964) and setting up plant at at Thiruvottiyur in Chennai and bauxite
mining in Bhatia.
The other major player in this sector Grindwell Norton Ltd. (GNO) came into being when
a technical collaboration in 1967 between Grindwell and the then world leader in
abrasives Norton Company, USA, grew into a financial collaboration in 1971. It started
its manufacturing in Mora, near Mumbai and gradually spread to other areas. The
growth in the abrasive industry attracted investments from other players and Orient
Abrasives was set up in 1974, in technical collaboration with Karborundum, Bentueky,
Czechoslovakia by the Rajgarhia group of industries as a venture to manufacture
Calcined and Fused Alumina products.
CUMI further enhanced its presence in the abrasive industry by acquiring (1991) the
Khataus stake in Wendt (India) Limited (WIL), a Joint Venture between Wendt
GmbH and The House of Khataus. Since then WIL has been a 40 - 40 Joint Venture

between Wendt GmbH and CUMI. The public holds the balance 20% equity.
The industry has seen a growth of 2-3 % annually from the year 2000 to the present
day, but the percentage is expected to touch 8-10% in the coming days [1].

Key Consumers of this industry and


their changing needs

[1] Technology in Indian Bonded and Coated Abrasives Industry, Department of


Science and Industrial Research, Ministry of Science and Technology
(http://www.dsir.gov.in/reports/techreps/tsr145.pdf).
Automotive industries, manufacturing industries, aerospace industries and
construction industries are the primary users of abrasives materials. Niche
segments like chemical, mechanical, polishing, electronics, and the photovoltaic
industry, use abrasives for wafer slicing and cutting.[1] Other key consumers of
this industry comprise of the large domestic steel producers and mini steel
plants like SAIL, Tata Iron and Steel Company, Lloyd Steel, Essar Steel and the
Jindal Group. Grinding wheel manufacturers and Refractory manufacturers like
Tata Refractories, OCL India, Orissa Industries, etc also serve as consumers to
the industry. Iron and steel industries, fabrication industries, bearing industries,
auto and auto ancillary industry, machine tool industries, cutting tool industries,
razor blade industries, marble and granite industry are some other key
consumers to abrasives industry.[2]
[1] http://www.bccresearch.com/pressroom/avm/global-market-abrasives-reach-

Stage in the Industry Life cycle

$43.8-billion-2017
[2]http://www.dsir.gov.in/reports/techreps/tsr145.pdf
The domestic market in India has seen moderate growth with no appreciable
signs of improvement. While the world GDP was forecasted to grow by 3% [1]
approx globally in 2013-14, the world-wide abrasives market was forecasted to
have a CAGR of 4.6% in 2014. The abrasive materials industry is substantially
strong at the moment having fully recovered from the economic downturn. Also,
considering the growth the key consumers of this industry are having at this
point of time, we can easily conclude that the abrasive materials industry is at

the growth stage of the industry life cycle with an expected annual growth of
4.6% well over 1.5-2% during the economic downturn.[2] The Indian Abrasives
industry is controlled by a few large players like Carborundum, Grindwell
Norton, Orient Abrasives, etc with a very large number of relatively smaller
players narrowing down their portfolio to select products. India has gradually
started to become a focus market for major global players resulting in intense
rivalry among the competitors. The industry has seen a steady growth rate of
about 2-3% in the last few years and the growth is expected to be at 8-10%
annually.
[1]http://www.indexmundi.com/world/gdp_real_growth_rate.html
[2]http://www.bccresearch.com/pressroom/avm/global-market-abrasives-reach-$43.8billion-2017
Total Available Market Size (National
and Global)

[3]http://www.dsir.gov.in/reports/techreps/tsr145.pdf
The world market for the two major types of abrasive materials, i.e. Bonded and
Coated abrasives is estimated at Rs. 4500 crores and Rs. 6000 crores
respectively. The players in contention are Norton, Baystate and 3M from the
USA, Tyrolit and Treibacher from Austria, and Noritake from Japan. The total size
of bonded abrasive materials market is estimated to be about Rs. 190 crores
approximately in value. The Coated abrasives market has a total size estimated
at about Rs. 110 crores approximately in value.
[1]http://www.dsir.gov.in/reports/techreps/tsr145.pdf
[2]http://www.bccresearch.com/pressroom/avm/global-market-abrasives-reach-$43.8billion-2017

Total Serviceable Market Size (National


and Global)

Carborundum, Grindwell Norton, Orient Abrasives cater to a large range of


different products and have a presence in almost all the segments of the

industry. These companies account for almost 70% of the abrasives market[1]
[1]http://www.dsir.gov.in/reports/techreps/tsr145.pdf

2.2 Key Growth drivers for the Industry


Key Growth drivers

Expansion in markets of
furniture, automotive and
jewellery
Growth in Auto OEM,
fabrication and flooring
industries
Developing countries markets
will drive demand for
abrasives.

Rationale

Abrasives needed to process the surfaces of furniture, automobiles and


jewellery polishing

Fabrication, auto components and flooring also require abrasive


treatment

Development requires tremendous growth in infrastructure, implying


automobiles, fabrication, flooring and furniture (in housing)

2.3 Identification of Critical Success Factors (CSF)


Critical Success Factor identified

Rationale

CSF 1: Index of Industrial Production


(IIP)

Abrasive products serve various industries of mining, and manufacturing, all of


which are captured by IIP, making it a key CSF. In IIP, 75% weightage given to
manufacturing and 14.16% to mining.

CSF 2 : New Market


Offerings/Innovations

Ability of the industry to meet the ever changing demands of the manufacturing
industry is a key factor determining the success of an industry. Various

innovations like zirconia grains, fine grit rubber bonded for centre-less
applications enhance the product offerings.
CSF 3 : Peoples Training &
Development

Talent management and Employee engagement are integral to the success of


any organisation. Different techniques like TPM are introduced to enhance
engagement & machine utilization.

2.4 Market Analysis based on CSFs


Region

CSF 1

Global
North
South
East
India

West
North-East
Central
Note: Use data for the year 2013-14

2.5 Industry Benchmarks


Size of industry:

CSF 2

CSF 3

CSF 4

Category

Industry Level
(National)

Activity Ratios

Liquidity Ratios

Solvency Ratios

Indicator

Industry Average of Top 5 Firms or


players serving 75-80% of the market
201112

201213

201314

Market Size

2476.4

2611.06

2607.03

Size as % of
GDP

0.029%

0.028%

Inventory
turnover

6.299

Receivables
turnover

2014-15
(till Q3)

Market Leader
201112

2012-13

201314

2014-15
(till Q3)

2621.05

925.288

1125.373

1100.89
2

1148.6

0.025%

0.025%

0.011%

0.011%

0.012%

0.011%

5.867

5.811

5.454

6.72

6.00

6.12

6.17

NA

NA

NA

NA

NA

NA

NA

NA

Payables
turnover

NA

NA

NA

NA

NA

NA

NA

NA

Asset
turnover

1.539

1.560

1.574

1.494

1.27

1.51

1.47

1.42

Current ratio

1.94

1.62

1.725

2.147

0.74

1.34

1.19

1.51

Quick ratio

1.009

0.862

0.871

1.103

1.22

0.99

1.11

1.55

Cash ratio

0.271

0.192

0.141

0.238

0.043

0.077

0.033

0.059

Debt-toassets ratio

0.224

0.106

0.067

0.088

0.302

0.132

0.102

0.139

Debt-tocapital ratio

5.479

2.486

1.655

2.374

12.164

5.164

4.126

6.29

Debt-to-

0.288

0.118

0.072

0.096

0.43

0.15

0.11

0.16

Category

Indicator

Industry Average of Top 5 Firms or


players serving 75-80% of the market
201112

201213

201314

Market Leader

2014-15
(till Q3)

201112

2012-13

201314

2014-15
(till Q3)

equity ratio

Profitability Ratios

Valuation Ratios or

Interest
coverage
ratio

15.71

18.378

16.478

20.978

7.81

11.01

7.6

8.92

Profit After
Tax(INR
Crore)

282.26

284.64

202.10

142.68

146.67

74.53

72.78

NA

Operating
profit
margin(INR
Crore)

467.65

480.40

396.47

295.8

219.89

152.83

145.04

NA

Net profit
margin(INR
Crore)

282.26

284.64

202.10

142.68

146.67

74.53

72.78

NA

Return on
assets (ROA)

13.25

13.21

9.01

7.72

13.64

15.12

7.40

NA

Return on
equity (ROE)

25.69

22.1

14.34

11.65

26.11

25.30

11.33

NA

Price to
Earnings
(P/E)

15.83

17.96

26.94

NA

19.93

29.85

37.68

NA

-82.70

-289.72

NA

NA

-40.53

-1188.00

NA

NA

PEG Ratio =
(P/E Ratio) /

Category

Indicator

Industry Average of Top 5 Firms or


players serving 75-80% of the market
201112

Price Ratios

201213

201314

2014-15
(till Q3)

Market Leader
201112

2012-13

201314

2014-15
(till Q3)

Projected
Annual
Growth in
Earnings per
Share
Price to Cash
Flow

17.02

13.09

18.90

NA

22.01

18.89

27.99

NA

Price to Book
(P/B)

3.32

2.35

2.70

NA

4.59

3.25

3.74

NA

Price to Sales

1.93

1.62

1.93

NA

2.60

2.02

2.39

NA

Dividend
Yield

0.02

0.02

0.02

NA

0.01

0.01

0.01

NA

28.84

31.04

37.99

NA

25.55

31.44

32.23

NA

Enterprise
value (EV is
market
capitalisation
plus debt
minus cash)/
EBITDA

9.07

9.02

11.90

NA

11.99

13.42

17.35

NA

Staff

NA

NA

NA

NA

NA

NA

NA

NA

Dividend Payout Ratio Net


Profit

Category

Indicator

Industry Average of Top 5 Firms or


players serving 75-80% of the market
2014-15
(till Q3)

Market Leader

201112

201213

201314

201112

2012-13

201314

2014-15
(till Q3)

Staff Cost/
Salary as
percentage
of Sales

4.17

3.79

4.64

NA

2.98

3.10

3.93

NA

Operating
Expenses as
percentage
of Sales

59.02

59.77

59.98

NA

91.90

93.68

93.72

NA

Depreciation
as
percentage
of Sales

3.88

3.95

3.88

NA

3.59

3.59

3.39

NA

Fixed Assets
to Sales
Revenue

26.05

26.67

26.40

NA

26.22

25.32

24.78

NA

Advertising
as
percentage
of Sales

17.74

17.27

17.94

NA

14.65

14.13

15.19

NA

Turnover or
Industry
Attrition Rate

Competitive Ratios

http://www.moneycontrol.com/stocks/marketinfo/netsales/bse/abrasives.html
http://financials.morningstar.com/ratios/r.html?t=504879&region=ind&culture=en-US

2.6 PESTEL Analysis


Category
Political

Economic

Social

Technological

Environmental

Legal

Description

Key factors for analysis

Rationale

2.7 Porters Five Forces Analysis


Porters Five Forces

Description

Key factors for analysis

Buyer Power

Supplier Power

Existing Competition

Threat to new
entrants

Total No of firms (Listed as well


as Unlisted)
No of large firms

Entry/ Exit barriers and costs

Threat to substitutes

Effect of
Complementors

2.8 Strategic Group Mapping


2.9 Competitive Landscape

Value propositions ( Low Cost, Differentiation, Niche)


Competitive Strength Assessment (Normal and Weighted)

Rationale

2.10 Market Segmentation


Key Products and/or Services

Regions

2.11 Buying Criteria Analysis of the Industry


Parameter

Details

End-user Segments

Significance Attached (Low,


Medium, High)

Ex

It is the loan duration over


which the borrower has to
repay the loan.

Individual Customers

High

Loan Term for Banking Sector


Loans

SMEs
Corporate

High
High

Impact of buying criteria on consumer choices


Listing of key buying criteria for different consumer segments

The impact of the buying criteria is graded on the basis of the intensity and duration of their impact on the current market
landscape. The magnitude of the impact has been categorized as described below:

Low - Negligible or no impact on the market landscape


Medium - Medium-level impact on the market
High - Very high impact with radical influence on the growth of the market

2.12 Key trends and future developments


Key Trend

Impact on Industry (Low, Medium, High)

Trend
Trend
Trend
Trend

examples

1
2
3
4

Analysis of Trends with High Impact and High Certainty to be carried out
Impact on strategies or business models to be highlighted

Certainty of Impact (Low probability,


medium probability, high probability)

3 Company Overview
3.1
3.2
3.3
3.4
3.5
3.6

Company background
Timeline with key milestones and their strategic impact
Vision, Mission, Goals, and Strategic Themes
Key Product and Service Portfolio
Core Competencies of the firm
Business Model of the organization

Key Partners

Key
Activities

Value
Propositions

Who are our Key Partners?


Who are our key suppliers?
Which Key Resources are we
acquiring from partners?
Which Key Activities do
partners perform?
What Key Activities do our
Value Propositions require?
Our Distribution Channels?
Customer Relationships?
Revenue streams?
What value do we deliver to
the customer?
Which one of our customers
problems are we helping to
solve?
What bundles of products and
services are we offering to
each Customer Segment?
Which customer needs are we

Motivations for partnerships


Optimization and economy
Reduction of risk and uncertainty
Acquisition of particular resources and activities

Categories
Production
Problem Solving
Platform/Network
Characteristics
Newness
Performance
Customization
Getting the Job Done
Design
Brand/Status
Price
Cost Reduction

satisfying?

Customer
Relationship
s

Customer
Segments

Key
Resources

Channels

What type of relationship


does each of our
Customer Segments expect
us to establish and maintain
with them?
Which ones have we
established?
How are they integrated with
the rest of our business
model?
How costly are they?
For whom are we creating
value?
Who are our most important
customers?
What Key Resources do our
Value Propositions require?
Our Distribution Channels?
Customer Relationships?
Revenue Streams?
Through which Channels do
our Customer Segments want
to be reached?
How are we reaching them
now?
How are our Channels
integrated?
Which ones work best?

Risk Reduction
Accessibility
Convenience/Usability

Mass Market
Niche Market
Segmented
Diversified
Multi-sided Platform
Types of resources
Physical
Intellectual (brand patents, copyrights, data)
Human
Financial
Channel phases
1. Awareness
How do we raise awareness about our companys products and
services?
2. Evaluation
How do we help customers evaluate our organizations Value
Proposition?
3. Purchase

Cost
Structure

Revenue
Streams

Which ones are most costefficient?


How are we integrating them
with customer routines?
What are the most important
costs inherent in our business
model?
Which Key Resources are
most expensive?
Which Key Activities are most
expensive?

For what value are our


customers really willing to
pay?
For what do they currently
pay?
How are they currently
paying?
How would they prefer to
pay?
How much does each
Revenue Stream contribute to
overall revenues?

How do we allow customers to purchase specific products and services?


4. Delivery
How do we deliver a Value Proposition to customers?
5. After sales
How do we provide post-purchase customer support
Is your business more
Cost Driven (leanest cost structure, low price value proposition,
maximum automation, extensive outsourcing)
Value Driven (focused on value creation, premium value proposition)
Sample characteristics
Fixed Costs (salaries, rents, utilities)
Variable costs
Economies of scale
Economies of scope
Types
Asset sale
Usage fee
Subscription Fees
Lending/Renting/Leasing
Licensing
Brokerage fees
Advertising
Fixed pricing
List Price
Product feature dependent
Customer segment
dependent
Volume dependent
Dynamic pricing
Negotiation (bargaining)
Yield Management

Real-time-Market

3.7 3rd Generation Balanced Scorecard (Amalgamation of 1st Generation BSC and Activity System Map)
3.8 SWOT Analysis
3.9 Competitor Analysis (identify competitors)
3.9.1 Based on Critical Success factors
3.9.2 Based on Financial indicators

4 Future Growth Strategy for the organization


4.1 Portfolio Analysis
4.1.1 Based on BCG Matrix

4.2 Companys Strategic Roadmap for future


Near Term (<- 2 years)
Growth Areas
High Level Tasks
Potential Benefits to be
achieved
Rewards
Risks
Key Success Factors

Mid Term (2-5 years)

Long Term (5-10 years)

4.3 Product Market Investment Strategy


Country of
Investment

Category of
Investment

Industry
Reward to
Risk Ratio (A)

Country
Reward to Risk
Ratio (B)

Risk Adjusted
Rewards
( 0.65A +
0.35B)

Product Market
Investment Strategy

Investment
Rationale

Which Industry?

Strategic Alliance?

High Profit?
Potential
Market ?

Which
Product/service?

Mergers/acquisitions?
FDI?

Cost
efficiencies?

Ratio calculations based on reward and risk ratings from Business Monitor International Report March 2014

4.4 Re-imagining the Organization with the transformed business model or Use-case based on SMAC and
IOE

Reimagining
Reimagining
Reimagining
Reimagining
Reimagining

Business Models
Business Processes
Customer Segments
Products & Services
Workplaces

Reimagining Channels