Ckb Case Study for B-school

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Document type

Date

CONFIDENTIAL AND PROPRIETARY

StratQ

Case Study Competition

September 2013

CONFIDENTIAL AND PROPRIETARY



1

StratQ

It was a warm April day in New Delhi, and Mr. Ramesh Sharma, CEO of Orient Electricals,looked out at the blazing sun from the comfort of his board room. The quarterly meeting for

Q1, 2013 had just concluded, and Ramesh was extremely pleased with the commitment anddedication shown by his leadership team.

Ramesh had joined Orient Electricals 18 months ago. In this short period, he had invested inbuilding the leadership team’s capabilities and growth aspirations. The company reported a

strong performance in 2012, with good top-line and bottom-line numbers. Revenues for theyear stood at $200mn. The team had now begun to dream big and had set itself ambitiousgoals for 2013-14 and beyond. As Ramesh looked out of the window, he began to thinkabout the future of Orient Electricals, and how they would go about achieving these goals.

Orient’s goals are clear – to become the top player in the fans market while doublingprofitability and appealing to sections of society that have so far been out of reach. Thecompany wants to grow its revenues to US $1bn by the year 2018 and become a marketleader in electricals across all divisions.

Growth plan

In the third week of April 2013, Ramesh and his team met for an in-depth session wherethey discussed the organization’s future strategy to meet these goals. They had also

presented the same to the Chairperson of the Group, Mr. CK Birla, and had his consent toaggressively go after these goals.

Ramesh and his leadership team had to work on numerous aspects of the business. On thesales and marketing side, they had to strengthen the brand, distribution channels, salesnetwork and put in place a responsive after-sales service. At the same time, they needed tostreamline manufacturing facilities and leverage cost advantages through smarter supply

chain management. This was to ensure that the growth story is intact across all threedivisions.

After several discussions, they decided to work with a team of consultants from NIC (NewIdea Consultants) and went to them with a problem statement.

As a part of this team of consultants, you have to work on the problem statement givenbelow and make a presentation of maximum 10 slides to Ramesh and his team.

Strategy meeting

Orient Electrical Growth Strategy



2

Problem statement

Orient Electricals wants to multiply its top line in 5 years while

increasing its bottom line keeping strategic priorities in mind

Achieve market leadership in fans andimprove profitability?

What levers should Orient Electricals pull to

1

Enter the LED lighting business?2

List of Exhibits

An overview of the CK Birla Group and Orient Electricals1

Turnover of Orient Electricals2

Orient’s presence in the lighting business 3

Growth in fans market4

Current distribution strategy5

Demand and scope in International markets6

Orient Fan’s domestic footprint 7

Brand-wise Domestic Retail Network snapshot8

Bill of Materials: Sample9



3

Exhibit 1: Overview of the CK Birla Group and

Orient Electricals (1/2)

The CK Birla Group is a diversified conglomerate with interests spanning industriessuch as Cement, Consumer Electricals, Precision Bearings, Heavy Engineering

Products, Paper, Building Products, Automobiles, Auto Components, Healthcare,Education and ITES. The Group has 10 businesses across five continents with over

20,000 employees. With a combined turnover of over USD 1.6 billion and aglobal manufacturing and service footprint, the CK Birla Group stands today atthe forefront in delivering exceptional quality, lasting value and excellence to itsstakeholders.

The Group believes in giving back to society. Guided by its philanthropic legacy theCK Birla Group upholds human values at every stage of its business process – empowering the local communities through education, health care initiatives andsocial infrastructure development.

Orient Electricals, an integral part of the CK Birla Group, was established over 60years ago. It is the largest manufacturer and exporter of fans in India. It is a

household name in the Indian consumer electrical market. In 2012, Orientmanufactured 8 million fans of which 1 million were exported. The company isknown for innovation and high product quality. To accelerate its growth Orient hasentered into two new businesses in the last 3 years: Consumer Appliances andLighting. M.S. Dhoni, Captain of India’s cricket team is the brand ambassador.

The vast product suite of Orient is tailored to different lifestyle needs for aircirculation. Orient manufactures a range of fans which includes ceiling fans, tablefans, wall-mounted Fans, stand fans, exhaust fans and multi-utility fans. All the

products are an outcome of extensive research and development.

Orient Fans has seen much recognition in the past. The company has alwaysemphasized on unceasing research & development for better customer experienceand enhanced comfort. For instance, its PSPO technology, developed for fans in the‘1990’-s, provides more cool air to every corner of a room. Today, this patented pathbreaking technology has raised the bar in the industry and continues to be amilestone achievement in the industry.

Overview of Orient Electricals



4

Exhibit 1: Overview of the CK Birla Group and

Orient Electricals (2/2)

As a leading manufacturer of fans in India, Orient Fans has a robust infrastructure. Itmanufactures fans at dedicated, state-of-the-art facilities in Kolkata and Faridabad.Both facilities are equipped with cutting-edge technology and machinery to offerinnovative and quality products. The company’s manufacturing capabilities are

enhanced by a strong process-driven environment. The Quality ManagementSystems at both locations are certified by Det Norske Veritas (DNV) as per ISO9001: 2000. The factory at Faridabad is ISO 14001: 2004 certified for itsenvironment management system. Six Sigma practices at both manufacturing unitsensure defects are kept to the minimum.

Manufacturing facilities for fans

▪ Biggest own manufacturing in India – over 8 million fans

▪ Largest exporter of fans from India for over a decade

▪ No. 2 position in total fan sales in India and No. 1 position in total fan sales in

many states within India▪ Network of 4,000 dealers and 80,000 retailers in India

▪ One of the largest distributed brands in India.

▪ Preferred supplier in government stores (CSD) and listed in govt. contracts

▪ 20 per cent market share in India with ceiling fan share above 21%

▪ Over 350 model variants

Orient Electricals has also recently forayed into the appliances and lighting business

Industry benchmarks for Orient Fans



Orient Electricals currently stands at an annual

turnover of ~ USD 152 Mn

5OURCE: Orient Electricals, Finance Department

xx Achieved CAGR AppliancesLightingFans

21

15

10

10

9

FY 09 FY 11FY 10

123

153

FY 13

52

126

71

557

81

107

FY 12

10997

2

342%

44%

24%



Domestic Fans market dynamics and Orient’s position

6OURCE: IFMA 2013, Company analysis

Total annual production

Million Units per annum

CAGR

(2008-13)Percent

Market production growth

11%

16%

12%

Orient Sales pattern

Economy

17%

Decorative

18%

Base

44%

Portable

18%

Exhaust

3%

Total Sales FY 12-13

8 Million Unitsper annum

▪ Price Realization: MEDIUM

▪ Contribution: 20-25%

▪ Price Realization: LOW


7.06.3 6.8

15.9

21.4

26.726.5

28.4

4.93.3

16.6

28.4

FY10

36.9

3.2 2.4

FY11

2.1

FY09

21.2

1.53.1

FY08

20.8

1.6

FY12

35.237.8

FY13

2.6

Base Economy/ Exhaust

▪ Price Realization: HIGH

▪ Contribution: >30%

▪ Price Realization: MEDIUM


Decorative Portable

Exhaust

TPW

Ceiling

% share to total salexx



Orient’s position in organised domestic fans market

7

Market share of organised market, FY 13 vs. FY 12

Percent

13

10

16

1920

22

1113

14

1820

24

1 Orient 2 3 4 Others

12

10

15

18

2223

10

1214

18

23

25

Others432Orient1

Total Ceiling fans

1110

19

26

14

20

1112

15

22

18

21

32Orient1 Others4

26

14

18

13

9

2022

1717

12

8

24

Others432Orient1

TPW fans Exhaust fans

Organised fans market accounts for ~70% of the total fans market

FY’ 12-13FY’ 11-12



Bill of Materials: Sample

8

Name of the Component Quantity Ball Bearing 112/6201 100 PC Ball Bearing 115/6202 100 PC Condensor 2.25 Mfd (+2+7) 100 PC Blade Sets 48"Alum.180 DiaWh. 100 SET D/Rod Pipe 260Mm CrystalWhite 100 PC Canopy Sets 100 SET Decorating Cup 100 PC Condensor Clamp (Ppcp) 100 PC Bearing Washer 0.8X15X27 Mm 100 PC Nylon Grease Ret Washer 100 PC Damping Washer Red Fibre 300 PC Preloding Spring . 100 PC Hanger Arm AsslyKit(Sq.Type)New 100 PC Wsaher Spring 3/16" /2 Ba 900 PC Washer Tooth 4 Ba U/P 300 PC Screw Ph.Hd 4Ba X 3/8" 400 PC Screw Ph.Hd 2Bax1/2 Zinc Pas 600 PC Screw Ph. 2Bax 1 1/2 Pl 300 PC Stator-48 New Breeze 100 PC No.St./Np/Gc-48"S/Cool 100 SET Painted Top Cover5.75"Wh.(180) 100 PC

Name of the Component Quantity Alchromed Aluminium B/C 48"(180 Dia) 100 PC Painted Rotor-48 Civil

100 PC

Painted F/Cover-48 S Cool W 100 PC C.B Rings92 Mm 100 PC Outer For Motor 48"Civil180 34 PC C.B.Box F 48 S/Cool(180MmBody) 100 PC Flaps /Filler Packing 48"Civil Big 34 PC Poly.Bag 12.5X12.5"X120G 0.57 KG Clear Plasic Tap 2" X1000 Mtr 53 M Clear Plasic Tap 1.1/2 X 1000 Mtr 67 M P.P. Strip 9 Mm X 0.5Mm PSPO 73 M Thermo Packing 48"C/Fan F(180 Mm Ø) 100 PC Despatch Serial No Sticker 34 PC Sticker Paper Crystal White Dlx. 400 PC Nut M.S.2 Ba 100 PC P.P Strap 9 X 0.5 Mm (Orient)Virgin 87 M Screw Ph. 4Bax3/8 With Flange 100 PC MRP Sticker For Motor 48"Summer Cool 100 PC Flaps /Filler Packing 48” CivilSmall 34 PC MRP Sticker For Outer 48"Summer Cool 34 PC Sticker For Month & Year 100 PC

Bill of Materials is made for a 100 pc Finished Product requirement



International markets: Demands and scope

9OURCE: UN Comtrade 2010, interviews

Million units

World market for fan import 20101

Metal blade ceilingWooden blade ceilingPortable fans

18-26

21-25

11-16

33-40

AsiaEuropeNorth America

Africa Oceania MiddleEast

6-10

Total

2-3.5

3-4 ~0.1

22-27

2-30.2-0.4

5-6

1.5-2.50.3-0.5

2.5-3.5

90-110

0.2-0.32-3.5

4.5-5.50.3-0.5

0.152-30

1.2-2

South America

▪ Huge presence in Middle East, Asia and Africa

▪ Currently doing business in~30 countries

▪ Largest Exporter within theIndian Fan Manufacturers, withan 80 % market share

Strengths

▪ Portable Fans pricing weakcompared to Chinese

competition

▪ Plastic blade fans couldsubstitute wooden blade fans,but technology not yet in India

Head Winds

Orient’s market presence

No Yes No Yes No Yes No



Orient Fan’s domestic footprint: Overall market share

of ~20%

1

Region-wise Market share versus growth last year

20

20

161410

24

23

24220

18

17 South

North

East

Growth over LY%

West

Market share %

1812 26

0

21

19

22



Fans: Brand-wise Domestic Retail Network snapshot

xx Orient Position

North

Competitor 4

Competitor 1

Competitor 3

Orient

Competitor 2

#3Total of 1.59 Lac

Outlets Reported

#4#5

#3#1

#2

#5

#4

#2

#1

#3

#5

#4

#1

#3 #5#2

#1

#3

#4#2

▪ Total universe of retail outlets has increased from 1.33 lacs in 2008

to 1.59 Lacs in 2012

▪ Orient retail network grew from ~44,000 to ~80,000 outlets

▪ Similar growth has been shown by other brands as well

▪ Thus showing an increase in multi-brand culture in the retail outlets

East

West South

Pan

India

OURCE: Francis Kanoi census study of Retails outlets of 2012



Retail/ trade channel: The “Indirect” approach

1

80,000 retail

points for

customers

4,000 billing

points from

distributors

16

distributors

25

depots

Orient fansdepots

Distributors

BigRetailers

2,500

Wholesalers1,200

Retailers

Redistribu-tion dealers

300Retailers

80,000include 2,500Big retailers

While the ground sales force is maintained by

the distributors, a 16-member Orient sales

team oversees overall operation



1

Orient’s presence in the Lighting business

▪ Lighting industry in India currently stands at 9500 Crs.

▪ Growth in FY 13-14 expected at 8-10%

▪ CFLs, LEDs and Integrated Lighting |System solutions will bethe key drivers

▪ FTL (Fluorescent tube light) and GLS segments show lowgrowth trends, owing to increased usage of CFLs and LEDlighting systems in the consumer segments

▪ LEDs and High Wattage CFLs seeing a heavily growingdemand in the Industrial segments as well

▪ GLS and FTLs sustenance is owed to increased penetration inthe rural markets, however the margins incurred in thesesegments is negligible

▪ For Orient, the CFL segment accounts to nearly 80% of the

total revenues

▪ LEDs are expected to grow at a CAGR of 40% in the next 5years and are expected to gain nearly 40% of the total marketsize. According to Frost and Sullivan the LED lighting market isvalued at 1000 crores today and estimated to grow at +/- 40%CAGR over the next 10 years

▪ Orient’s retail universe currently stands at 70,000 retail countersacross India

▪ Threats currently standing against these high priced decorativelighting options are the rising dollar prices, combined withincreasing interest rates which will affect margins



Orient Lighting’s domestic footprint

Orient’s region-wise market share vs. growth

120

SouthWest

East

North

Market share, %

8

7

6

4

3

0

Growth over LY, %

262414 22201816

5

Lighting industry: Key players and market positions

Market Shares, %

45

6

12

20

Others(Unorganizedsector included)

7

Orient Competitor 5

3Competitor 4

Competitor 37

Competitor 2

Competitor 1

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