Prashant Shivdas Cherian John

Indian Pump Industry

Market
Pumps in India are classified as Centrifugal and positive displacement pumps 1-1.2 Million Pumps were produced in 2009-10 in India Indian market is valued at INR 4000crore Pumps are used in Agriculture, Industries (like chemicals, Papers, Textile ), Energy, Mining and Oil and Gas.

Drivers

Growth in Infrastructure and Power Sectors Export market in more than sixty countries with buyback Waste water management and irrigation projects are being undertaken Agriculture sector have contributed more than 60% in total pump sales.

Indian Pump Industry

Presence of Organized and Unorganized players catering to Agriculture sector MNCs in Pump manufacturing eyeing for Indian Market expect huge competition Few large players (like KSB, Sulzer, Grundfos, Mather & Platt)catering to high end Competition users and industries like power and mining

Challenges

Increase in raw material cost Lack of quality concern between farmers Threat from Chinese and unorganized players

Current Trends

Conferences and Pan India events for Pump Exhibition Foreign players entering in India through JVs or Acquisitions or new Setup Emphasis on technology to manufacture energy efficient and low cost pumps

Indian Pump Industry

Local Assemblers National players CRI, Lubi, Texmo, Shakti, KBL

Local players Unnati, Varna, Oswal, Kiwi etc

Flowwell India
Sales turnover Rs.1500 Crore
Net Profit Rs. 145 Crore Organized player in Pump market Offers Made to Stock pumps for irrigation and

Standard Industrial Application Export accounting for 15% of Sales Channel Sales: 70% Direct Sales: 30%

Problem Statement
Increase Revenue from Direct Segment To Improve margin To reduce dependency on Channel Sales Increase Profitability by analyzing Entry in Made to Order Segment Entry in allied industries like valve manufacturing Provide detailed roadmap to achieve Vision 2014

SWOT Analysis
Strength
FIPLs Reputation

Weakness
Low on Direct Sales

Opportunity
Growth in Infrastructure and Power Sector Made to Order Segment of Pumps

Threats
Huge Competition

Distributor Network and Customer Base

Manufacturing line alterations failed

Shrinking Margins

Presence in South Asian Growing Market

Consistent Growth in Sales

No experience in Power or Mining Sectors

Too much Reliance on Channel Sales

Adjacent Industries Valves, Control Panel

Export business in Asia Pacific region

Sustaining current growth Chinese pump manufacturers entry in Indian market

Porters 5 Forces Valve Market

Threat of New Entrant
Economies of Scale for Pump manufacturers Low cost product from Chinese Manufacturer Attractive growth rate of 9% of Indian market Differentiation in terms of life cycle and quality Government power and irrigation projects High investment cost

Supplier Power
Cast Iron, Steel, Carbon Steel Suppliers Low Foundry capacity due to rising export Switching cost is low Possibility of suppliers forward integration No product differentiation for supplier Industry importance is low

Industry Rivalry
High competition between 5000 valve manufacturers Flowserve, Fouress, KSB, Tyco Valves, Virgo Engineers catering high end user Major threat from Chinese Producers

Buyer Power
Major buyers are oil and gas , energy, irrigation, mining sectors High bargaining power to buyers Presence unorganized market Low price Chinese product availability More than 5000 players in the market Switching cost is low

Threat of Substitute
No substitute for valve Costly affair Low R&D effort in this segment Special valves made as per application requirement

NPV Analysis - Valve Market

Foundry Capacity: Available
Fixed Cost Investment for Additional Setup: Rs.20 Lacs Investment for Technology/R&D: Rs.10 Lacs Training of Sales Team: Rs. 8 Lacs Branding and Marketing of Valves: Rs. 15 Lacs Variable Cost Additional Manpower for Manufacturing : Rs. 12 Lacs Input Material Cost: Rs. 180 Lacs

NPV Analysis - Valve Market

Total Investment in valve: Rs.245 Lacs
Total Sales for First Year: Rs.25 Lacs Growth Rate: 20% YOY Rate of Return on Capital: 25% NPV=-245+ 25*(1+0.2)/(1+0.25)^1+

25*(1+0.2)^2/(1+0.25)^2+ 25*(1+0.2)^3/(1+0.25)^3+ 25*(1+0.2)^4/(1+0.25)^4=-154.6<0

Made to Order
Power Sector, Mining, Industries, Water Application based requirements and needs End to end solution Requirements are met, Quality and fast service Ready to pay premium
Customers Competitors

More than 100 players Experience, Technology, Loyal customer base, Lack of Customer Service, High price Many players fulfilling demand

Capacity

Costs

Financially good Very less experience in Marketing, manufacturing and R&D SWOT

Fixed cost: R&D/ Technology, Overhauling Production Process, Training of Sales Team Material Cost, Production and labor cost, Credit cost

Sector Outlook for MTO Pumps

Training

Training New Manpower: Rs.3 Crore+4*Rs.10 Crore=Rs.43Crore Success Constant:1 Revenue of 2 years

Sale & Marketing

Acquisition

Subsidiary Acquisition:Rs.2000 Crore over 4 Years>Rs.500Crore/Year Success Constant:25

Revenue of 4 Years
Subsidiary Acquisition:Rs.2000 Crore over 4 Years>Rs.500Crore/Year Success Constant:25 Revenue of 4 Years Cost: Rs.500 Crore over 2 years->Rs.250 Crore/Year Success Constant: 5

Acquisition

Made to Order

Production
Greenfield Development

Revenue for 2 Years

Technology Acquisition

Technology Transfer: Rs. 50 Crore+ Rs.10 Crore(dev) = 60crore Success Cost: 2

R&D

Joint Venture

Royalty: 3% of Total Revenue(Revenue: Rs.4475 Crore, Cost: Rs.134 Crore) Success Constant::5

Develop and Recruit

Development:Rs.20Crore+3 *Rs.4 Crore=Rs.32 Crore Success Constant:1

Analysis Equated Cost (Real Cost/ Success Factor)

Sales & Marketing Training: EC= 43 /1=43 Acquisition: EC=2000/25=80 Production Acquisition: EC=2000/25=80 Greenfield Development: EC=500/5=100 R&D Technology Acquisition: EC=60/2=30 Joint Venture: EC=134/5= 26.8 Develop and Recruit: EC=32/1=32

Direct Sales
B2B
Network Expansion 1. Cost: Rs.30 Crore 2. Margin Improvement: 50%

B2C
Marketing Expenditure 1. Ad Agency: Rs.1 Crore Endorsement 1. Source Attractiveness Theory 2. Meaning Transfer Theory
Print Media Visual Media 1.English Channels: Cost: Rs.25 Crore Viewership: 500 Lac 2. Non-English Channels Cost: Rs.59 Crore Viewership: 800-1000 Lac Celebrity 1. National Cost: Rs.5-6 Crore 2. Regional

Made to Order

1. Vernacular Daily
Cost: Rs.5-10 Crore Readership: 100 Lac 2. National Daily Cost: Rs. 15-20 Crore Readership: 100-120 Lac

3. Multiple Product Endorsements 4. Vampire Effect

Cost: Rs.5 Crore

Roadmap for Mission 2014

Cost=Cost of Ops+ Network Expansion + Brand Building
B2C Revenue Cost profit %Profit 1050.00 910.80 139.20 13.26 1260.00 1133.96 126.04 10.00 1512.00 1357.55 154.45 10.21 1814.40 1473.71 340.69 18.78 2177.28 1652.08 525.20 24.12 B2B MTO Revenue Cost profit %Profit 450.00 357.20 92.80 20.62 835.00 942.55 -107.55 -12.88 1285.50 1181.32 104.19 8.10 1871.15 1491.71 379.44 20.28 2582.50 1868.72 713.77 27.64 4759.78 3520.80 1238.97 26.03 Present 2010-11 2011-12 2012-13 2013-14

Present 2010-11 2011-12 2012-13 2013-14 TOTAL 2014

Cost=Cost of Acquisition+ JV+ Cost of Ops

B2C Revenue Growth

2500.00 2000.00

Revenue in Rs. Crore

1500.00

Revenue
1000.00

Cost

500.00

0.00 2011 2012 2013 2014

Timeline

B2B Revenue Growth

3000.00 2500.00

Revenue in Rs. Crore

2000.00

1500.00

Revenue Cost

1000.00

500.00

0.00 2011 2012 2013 2014

Timeline

Two Year Plan

April-2011
To Sept-2011 October-2011
Finalize acquisition plans Scout for JV Launch of Branding Activity Design and Layout of Showroom Integration (Production and Marketing) Finish JV (R&D Integration) Launch of first 50 Showroom Pan India Brand Ambassador starts Ad campaign Streamlining integration New Product Development Next 25 Showrooms Aggressive Ad campaign Finish Integration Increase Synergy Next 25 Showroom Ad campaign

To
March-2011 April-2012 To Sept-2012 October-2012 To

March-2012

Mitigation Plan
Recession-> Affects MTO Market -> Move Focus to

direct B2C Motor Manufacturing Capacity Deficiency -> Mitigated by acquisition of Chinese Player Brand Building Failure -> Increased Focus on MTO Government Project Delay -> More Focus on Direct Segment

Thank You