itc e chaupal

ITC E-CHOUPAL:-ITS IMPACT ON FARMERS

A project of STRW

Submitted in partial fulfillment of the

Requirements for the award of the

Post-Graduate Diploma in Management

Submitted By:

Rishabh Agarwal, Roll No: 09244

Vikas Darbari, Roll No: 09237

Submitted to

Dr. Tapan Kumar Nayak

INSTITUTE OF MANAGEMENT STUDIES

LAL QUAN, GHAZIABAD – 201 009

March- 2010

1

DECLARATION

We hereby declare that all information and data provided in this

report are collected from secondary source and are true to the best of

our knowledge

Signature of Students:-

Rishabh Agarwal(09244)

Vikas Darbari(09237)

2

INSTITUTE OF MANAGEMENT STUDIES,

GHAZIABAD

CERTIFICATE

This is to certify that this report contains bonafide work of Rishabh

Agarwal, Vikas Darbari during Term III, session 2009-2011 for the

subject STRW.

DATE: Signature of Faculty

3

ACKNOWLEDGEMENTS

It is our immense pleasure to present the report on

ITC E-CHOUPAL:-ITS IMPACT ON FARMERS

Here we would like to express our deep sense of gratitude to our

Respected faculty

Dr. Tapan Kumar Nayak

For his timely guidance, valuable support and encouragement at

every step of preparing this report. We would also like to thank our

lecturers, faculty members and all those persons who have directly or

indirectly helped us in providing the books and amenities which have

helped in development of this report, without such help this report

would not have been possible.

4

Table of content

Chapter Name Page no.

Introduction 8

Literature Review 10

Justification of the study 14

Objective 15

Abstract 17

Introduction to company profile 18

E – choupal business model 21

Benefits & challenges 24

Financial analysis 30

Impact on decision making 42

Conclusion 45

Limitations 46

Bibliography 47

5

LIST OF TABLES

Table Name Page no.

1. Conventional transaction Vs e-choupal 22

2. e-choupal at glance 25

3. Mean value of benefits 43

6

LIST OF FIGURES

Figure Name Page no.

1. working capital 30

2.Current ratio 31

3. Liquidity ratio 32

4. Absolute Cash ratio 32

5. Inventory days 33

6. Debt equity ratio 34

7. Interest coverage ratio 35

8. PBIT sales ratio 36

9. PAT to sales 36

10. Earning per share 37

11. Dividend per share 37

12. Price earning ratio 38

13. Market captilization 39

14. Price book ratio 39

7

Chapter 1

Introduction

Agriculture is the backbone of Indian economy producing 23 percent of GDP, and employs 66 percent of workforce. Because of the green revolu-tion, India’s agricultural productivity has improves to the point that it is both self-sufficient and a net exporter of a variety of food grains, yet most Indian farmers have remained poor. The causes include remnants of scarcity-era regulation and an agricultural system based on small, ineffi-cient land holdings. The other constraints are weak infrastructure, numer-ous intermediaries, excessive dependence on the monsoon variation be-tween different agro-climate zones, and many others. The unfortunate re-sult is inconsistent quality and uncompetitive prices, making it difficult for the farmers to sell his produce in the world market. ITC’s trail-blazing answer to these problem is the - e-choupal initiative; the single largest in-formation technology-based intervention by a corporate entity in rural In-dia that is transforming the Indian farmer into progressive knowledge-seeking netizens. Enriching the knowledge of farmers & elevating them to a new order of empowerment. ITC aims to confer the power of expert knowledge on even the smallest individual farmer enhancing its competi-tiveness in the global market.

The traditional model

Indian farmers rely on Department of Agriculture, govt. universities, in-surance companies etc. for various inputs such as weather, modern and scientific farming practices and insurance cover. Farmers approach input retailers who source them from wholesalers who are in direct contact with manufacturers. After harvest, farmers bring these produce to mandis; in small multiple lots throughout the year, where beans are auctioned to the traders and agents of the processing companies in an open outcry method. The government facilitate fair price discovery and enable aggregation of goods, regulate these market yards. Successful bidders then bed the beans, weigh them, pay part cash to the farmers, and transport the cargo to the processing units.

But with every intermediary the cost of produce increases to the proces-sor as intermediary adds his profit margin to the cost although the farmers get the lowest price and margin in the whole chain.

8

e-choupal

e-choupal is a Hindi word which means – “Village meeting place”. e-choupal is a virtual market place where farmers can transact directly with a processor and can realize better price for their produce. e-choupal makes use of the; physical transmission capabilities of current intermedi-aries & aggregation, logistics, counter-party risk and bridge financing. In June 2000, ITC Limited launched e-choupal in India and now e-choupal has become the largest Internet based intervention in rural India.e-choupal aims to provide farmers ready access to crop specific real-time information to improve the farmer’s decision making ability thereby help-ing them to better align their farm output to the projected demand in In-dian market. e-choupal, the Web-based initiative of ITC’s IBD, offers the farmer all information about products and services they need to enhance farm productivity improve farm-gate price realization and cut transaction costs. Farmers can access the latest local and global information on weather, scientific farming practices and market prices at the village itself through the web portal in Indian languages – Hindi, Marathi, Kannada and Telegu. e-choupal also facilitates the supply of high quality farm in-puts as well as purchases of produce at the farmer’s doorstep.

e-choupal and the traditional model

The main attraction of e-choupal is that it connects large and small pro-ducer and users and eliminates the need of middlemen (who are essential in traditional market).e-choupal is a virtual market that brings together vendors and customers. Geographical distance no longer restricts partici-pation of farmers. The main hurdle of traditional market is that informa-tion asymmetry is inherent in the market where as e-choupal provides for transparent transaction. The transaction time at the ITC hub is less than at the mandi i.e. 2 or 3 hours where as 1-2 days in mandi. Some more points are:-

Customer cenric and not dependent on intermediaries. Capable of being used for many commodities & multiple transac-

tions.

Easily scalable once it is verified.

Uses local talent and local people to develop local leaders.

Uses all the existing institutions and legal frameworks.

Scientific way of inspection, testing and weighing.

9

*======*======*

Chapter 2

LITERATURE REVIEW

Since ITC e-choupal is the project started by ITC in the recent year so

not much research is done on this in India.

The FIRST article “ICT for Rural Community Development” by Ekanath Khatiwada brings out the significance of the role of Information and Communication Technology as an effective tool for empowering the rural masses. According to the author, there is a clear link between ICTs and community empowerment. Information needs of the community need to be assessed; content and software applications should be developed with the continuous involvement and feedback from the community through their capacity building; and special emphasis should be placed on its ac-cess to women and poor people. The article presents some of the steps adopted for technology development and transfer in rural community.

The SECOND article “Information and Communication Technologies (ICT) and Sustainable Development” by Amrita Singh highlights that ad-vances in ICT have made it possible to consider a business model for pro-liferating information nodes through India in a manner that is financially viable and therefore sustainable. The article dwells upon the significance of ICT as a key factor at both macro and micro levels in the process of globalization. Further, the article has discussed TARAhaat, an ICT enter-prise focusing on the needs of village communities which were set up by the development alternative group. It examines the different activities and achievements of TARAhaat.

The THIRD article “The Role of e-Panchayats” by B P Gupta, is about e-Panchayat’s role in reducing poverty, creating selling and distribution ef-ficiencies. Through electronic-panchayats farmers can gain better knowl-edge about agricultural inputs, dairy development and promoting educa-tion in rural India. Cooperative societies can be made stronger with the help of e-panchayats. The article examines that e-governance could result in better knowledge of inputs in terms of knowledge of seeds, knowledge of new fertilizers, better management of irrigation facilities, and in-creased use of modern farm equipment, weather forecasting and sowing seeds. In dairy development the e-panchayats can boost the spread of the latest information about advances in dairy farming practices. The signifi-cance of e-panchayats is the crux of this article.

10

The FOURTH article “Developing IT Networks in Rural India” co-au-thored by P Vijaya Kumar, N Appa Rao and L Pratap Reddy expresses the need for maximizing rural earnings and improving work environment and sustainability. The focus of this article is on the role of information networks in catering to the specific needs of the rural population. Major areas concerned under the study are rural education and development, ru-ral economy development and rural health and nutrition development.

The FIFTH article “Communication and Information Technology in Lit-eracy for Rural Development” by B S Vasudeva Rao examines the poten-tial use of information and communication technology in rural education. In this context, the article examines how certain forms of ICT can diffuse information faster than other channels of communication. The communi-cation methods used in non-formal education are also highlighted. The ar-ticle examines various strategies to implement ICT in rural literacy cam-paigns such as review of existing ICT methods, providing proper orienta-tion to field functionaries of ICT about the local conditions, existing re-sources, socio-education-cultural background of the target groups and many more. In the concluding part the author draws the inference that be-fore introducing any new communication technology in the rural develop-ment and mass campaign programme, people should be made aware of it and educated.

The SIXTH article “Rural Entrepreneur Development Programme in In-formation and Communication Technology (REDPRINT)” by Ramasub-ramanian O B focuses on the driving factors of ICT programmes in rural parts of India. The rural ICT entrepreneur is either a kiosk operator or a dealer or sub-dealer in ICT consumables or a franchisee for monitoring the business of a larger corporate where he is the least beneficiary or a paid employee. The most successful rural ICT enterprises are those man-aged by Indian Tobacco Company (ITC) and Hindustan Lever Limited (HLL). Rural Entrepreneur development programme in information and communication technology suggests an approach where the rural entre-preneur is viewed with more respect. Such an approach would help build a long-term confidence, trust and ultimately sustain rural ICT business.

The SEVENTH article “Effect of Mobile Telephony on Empowering Ru-ral Communities in Developing Countries” by Chaitali Sinha, argues that mobile phones are quickly becoming affordable, useful and accessible tools for many poor and rural communities around the world. That would create economic opportunities and also strengthen social networks. Fur-ther, this article discusses the motivation and nature of increased prolifer-

11

ation of mobile handsets among poorer rural communities in developing countries. The high cost of providing wired communication facilities cou-pled with relatively low levels of purchasing power, is tantamount to high levels of demand being undeserved with low level of telecommunications service. The author concludes by stating that mobile telephony offers an attractive solution to many poor individuals and communities due to its general accessibility, collective ownership and flexible payment options

The EIGTH article, “Wiring Sub-Saharan Africa for Development” by Tokunbo Ojo is an experience of Sub-Saharan Africa in the context of tele-center usage in rural sector. The first part of the article focuses on the Telecentre projects sponsored by various international organizations in Sub-Saharan region. The second part of the article gives an account of In-ternational Development Research Centre (IDRC) established telecentre project in Nakaseke (a rural area in Uganda, east Africa) Multipurpose community telecentre. The author concludes that, Nakaseke tele-centres are meant to close the inequality in terms of age, gender, educational qualification and socio-economic status.

The NINETH article “Rural Schools as Regional Centres of e-learning and the Management of Digital Knowledge: The Case of Newfoundland and Labrador” is by Ken Stevens. It focuses on small schools in rural Canadian communities which have had a special role in the development of e-learning and the management of digital knowledge within custom-ized electronic educational structures. This article examines the e-learn-ing centers in two rural areas of Canada: Newfoundland and Labrador. It has clearly shown that the introduction of e-learning has changed the na-ture of education in rural Newfoundland and Labrador in two important aspects. The first aspect is that, rural e-learning has opened the opportu-nity to study on-line for rural student communities and secondly, the pos-sibility of enrollment in advanced placement (AP) courses has increased in rural parts of Canada. This great success made the government of Canada extend the same strategy to other parts of rural Canada. The new type of education in rural Newfoundland and Labrador has emerged as an open model and challenges the closed model of schooling by questioning the need for appointing teachers in schools.

The TENTH article “Impact of the Insertion of Modern Information and Communication Technologies in Brazilian Rural Communities” is co-au-thored by Marco A Figueiredo, Mauro A Câmara and Roberta E Sabin. It describes “Gems of the Earth”, a rural community telecentre project cur-rently in development, in a poor rural region of Brazil. The study ana-lyzes the impact of the telecenters on the lives of rural communities. This article also provides usage statistics of online knowledge bank, which

12

was created to be integrated in cyberspace, the efforts of the communities and the network management organization. The Gems of the Earth methodology was designed to allow communities to first realize the po-tential of ICT to bring them economic and social development. Once the community is convinced of the telecentre potential, the Gems of the earth network works with them to build a telecentre and provide for its mainte-nance.

*======*======*

13

Chapter 3

JUSTIFICATION OF THE STUDY

ITC e-choupal is one of the step taken by the ITC so as to support farmers of INDIA to not only grow the crops but also assist them in selling the yield. Since in India most of the population is indulge in the farming and 70% of them are not having adequate knowledge of various condn. Re-lated to the crop.

And since ITC e-choupal is the newly step taken by the ITC so most of the farmers and the person related to agricultural industry does not know about this so we in this report are trying to cover whole functioning of ITC e-choupal with the benefits and the challenges faced by the ITC in implementing this and together with this the financial analysis of the ITC and also how the decision taking ability of the farmers have changed with the help of ITC e-choupal

*======*======*

14

Chapter 4

OBJECTIVE

The objectives of our study are:-

1. Understanding e-Choupal concept which, implement in practical market by ITC Ltd

2. Understand all activities as well as challenges, problems and solu-tions and various roll act in e-Chaupal.

3. To study the impact of ITC’s e-choupals on Decision making Abil-ity of Farmers Related to Agricultural Practices.

*======*======*

15

Chapter 5

ABSTRACT

In this report we tried to find what is the basic model of the Itc e-choupal, how it work and what is the impact of e-choupal on the decision taking ability of the farmer related to the crops. In this report we saw how there was a traditional system because of which the complete cost of the yield were not given to the farmers and they were in the debts for long time. And not only this the other information regarding weather conditions, new technologies, new fertilizers, other important data which can help them for the growth for not only crop but also the growth of the farmers.

There are benefits of the e-choupal which are enjoyed by the farmers. But there are many challenges which are faced by the ITC regarding the installment of the system, resistance from the middle man is also one of the challenge faced by the ITC because the commission of the middle man which they were getting by buying the crop of the farmer at low cost and selling them in the market at high cost. There are many other problem faced by the ITC like teaching farmer how to operate computer and internet.

The electricity and net access which are not there in the villages which also create hindrance to the work of ITC. The different ratio of the finances are also calculated by us which shows how there is increase in the profitability of the ITC.

The share price or the different ratio also helps us to determine the liquidity of the company and the comparison of the company with the competitors.

ITC in conjunction with local farmers created the e-choupal system that is acting as a catalyst in rural transformation by providing access to latest information of the agro sector, developing local leadership and creating a profitable distribution. It helps in alleviating rural isolation, improves productivity and income, create transparency for farmers - which im-proves the economic condition of rural areas. This paper tries to identify the problem of mandi, need of e-choupal and challenges in development

16

of e-choupal and derives with various conclusion and suggestions in ‘fu-ture strategy’ from initial finding and discusses direction for further in-vestigation.

They have also made their websites in different – different languages so that the farmers can easily access them and the software installed is also very user friendly. The step taken by ITC also made this company a company which is thinking not only for the profit of the company but also for helping the people of INDIA and specially the farmers of INDIA which constitute a lot to the society and to the economy of the country di-rectly or indirectly.

*======*======*

17

Chapter - 6

INTRODUCTION-COMPANY PROFILE

ITC is one of India's foremost private sector companies with a market capitalization of nearly US $ 18 billion and a turnover of over US $ 5.1 Billion. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by BusinessWorld and among India's Most Valuable Companies by Business Today.ITC ranks among India's `10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times.ITC also ranks among Asia's 50 best performing companies compiled by Business Week. ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products.

ITC's diversified status originates from its corporate strategy aimed at creating multiple drivers of growth anchored on its time-tested core competencies: unmatched distribution reach, superior brand-building capabilities, effective supply chain management and acknowledged service skills.Over time, the strategic forays into new businesses are expected to garner a significant share of these emerging high-growth markets in India.ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade). The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance its competitiveness by empowering Indian farmers through the power of the Internet. This transformational strategy, which has already become the subject matter of a case study at Harvard Business School, is expected to progressively create for ITC a huge rural distribution infrastructure, significantly enhancing the Company's marketing reach.

ITC was the first company in India to voluntarily seek a corporate governance rating.ITC employs over 24,000 people at more than 60 locations across India. The Company continuously endeavors to enhance its wealth generating capabilities in a globalizing

18

environment to consistently reward more than 3,75,000 shareholders, fulfill the aspirations of its stakeholders and meet societal expectations.

BCG Matrix

STARS

HotelsPaperboards/ Packaging.Agri business

QUESTION MARK

FMCG- Others

COWS

FMCG-CigarettesDOGS

Maybe ITC Infotech.

SWOT ANALYSIS

ITC is one of India's biggest and best-known private sector companies. In fact it is one of the World's most high profile consumer operations. Its businesses and brands are focused almost entirely on the Indian markets, and despite being most well-known for its tobacco brands such as Gold Flake, the business is now diversifying into new FMCG (Fast Moving Consumer Goods) brands in a number of market sectors.

Strengths

ITC leveraged it traditional businesses to develop new brands for new segments. For example, ITC used its experience of transporting and distributing tobacco products to remote and distant parts of India to the advantage of its FMCG products.

Weaknesses

19

The company's original business was traded in tobacco. ITC stands for Imperial Tobacco Company of India Limited. It is interesting that a business that is now so involved in branding continues to use its original name, despite the negative connection of tobacco with poor health and premature death. To fund its cash guzzling FMCG start-up, the company is still dependant upon its tobacco revenues. Cigarettes account for 47 per cent of the company's turnover, and that in itself is responsible for 80% of its profits. So there is an argument that ITC's move into FMCG (Fast Moving Consumer Goods) is being subsidised by its tobacco operations. Its Gold Flake tobacco brand is the largest FMCG brand in India - and this single brand alone hold 70% of the tobacco market.

Opportunities

ITC is moving into new and emerging sectors including Information Technology, supporting business solutions.

Threats

The obvious threat is from competition, both domestic and international. The laws of economics dictate that if competitors see that there is a solid profit to be made in an emerging consumer society that ultimately new products and services will be made available. Western companies will see India as an exciting opportunity for themselves to find new market segments for their own offerings.

ITC's opportunities are likely to be opportunities for other companies as well. Therefore the dynamic of competition will alter in the medium-term. Then ITC will need to decide whether being a diversified conglomerate is the most competitive strategic formation for a secure future.

Competitors

In India, three major cigarette players dominate the market, primarily ITC with 72% market share, Godfrey Phillips with 12% and VST with 8% share of the market.

20

*======*======*

Chapter-7

e-Choupal Business model

The e-choupal business model

The model is centred on a network of e-choupal, information centres equipped with computer connected to the Internet, locating in rural farm-ing villages. e-choupal serves as choupal (gathering place) and an e-com-merce hub. A local farmer acting as a Sanchalak (coordinator) runs the e-choupal and the computer usually is located in the sanchalak’s home. ITC also incorporated a local commission agent known as the Samyojak (col-laborator), into the system as the provider of logistical support.

The critical element of the e-choupal system and the key to managing the geographical and cultural breath of ITC’s network by recruiting a local farmer is the sanchalak. Sanchalak create trust in society and all infra-structure set up is made in his house. Sanchalak receives commission for every transaction processed through the e-choupal and also benefited from increased social status that accompanies the position – a significant advantage in rural Indian life. Sanchalak act as public officer in

ITC project. Sanchalak also aggregates farmers input as well as purchase orders. Sanchalak undergoes training of basic computer usage, basic busi-ness skills, quality inspection of crop product training etc. The samyojak or cooperating commisssion agents also play important role. He earn in-come by providing logistical services that substitute for the lack of rural infrastructure by providing information and market signals on trading transaction. Samyojak is involved in ongoing operation of e-choupal sys-tem, allowing them revenue streams through providing services such as management of cash, bagging & labour at procurement hubs, handling of mandi paperwork as licensed principals for the retail transaction of the e-choupal.

21

ITC has plans to saturate the sector in which it works with e-choupals, such that a farmer has to travel no more than 5kms. The company expects each e-choupal to serve about

Conventional transaction vs. e-choupal

Cost Conventional Market

e-choupal

Trolley Freight 100 NIL

Filling & Weighing 70 NIL

Labour Khadi Karai 50 NIL

Handling loss 50 NIL

Sub total 270 NIL

Processor Incurs - Commission Agent

100 50

Cost of Bag 75 NIL

Labour (Stitching & loading) 35 NIL

Labour at factory (Unloading) 35 35

Freight to factory 250 100

Transit Losses 10 NIL

Sub Total 505 185

Grand Total 775 185

As percent of produce value 8 percent 2 percent

The e-choupal system

The previous day’s mandi closing price is used to determine the bench-mark Fair Average Quality (FAQ) price at the e-choupal, which is static for a given day. The information of mandi price is communicated through

22

e-choupal portal. If and when connection fails, sanchalak calls an ITC field representative. To initiate a sale the farmer brings a sample of his produce to the e-choupal. The sanchalak performs the quality test in the farmer’s presence & must justify any deduction to the farmer. These sim-ple checks and balances ensure transparency in a process where quality testing and pricing happens at multiple levels. If the farmer chooses to sell his produce to ITC, the sanchalak gives him a note capturing his name, his village, quality test report, approx. quantity and conditional price. The farmer takes the note from sanchalak and proceeds with his crop to the nearest ITC procurement hub. Some procurement hubs are simply ITC’s factories that also act as collection points.

ITC’s goal is to have a processing centre with a 30 to 40 kms radius of each farmer. At the ITC hub, a sample of the farmer’s produce is taken and set aside for laboratory test. Laboratory testing of the sample for oil content is performed after the sale & does not alter the price. The reason for this is that farmers having historically being exploited are not immedi-ately willing to trust a laboratory test. After such inspection, the farmer’s cart is weighed on an electronic weighbridge, first with the produce and then without produce. The difference is used to determine the weights of his produce. After weighing, the farmer collects his payment in full at the payment counter. The farmer is also reimbursed for transporting his crop to the procurement hub.

Every stage of the process is accompanied by appropriate documentation. The farmer is given copy of lab reports, agreed rates and receipts for his record. Sanyojaks, who are adept at handling large amount of cash, are entrusted with the responsibility of payment except at procurement cen-tres. Samyojaks also handle much of the hub logistics, including labour management at hub, bagging, storage mgmt., transportation from hub to factors and handling mandi paperwork for the crops procured at the hub and for all this he is paid a 0.5 percent commission.

*======*======*

23

Chapter :- 8

BENEFITS AND CHALLENGES FACED BY E-CHOUPAL

Benefits of e-choupal

“A quiet digital revolution is reshaping the lives of farmers in remote In-dian villages.”

e-choupal delivers real-time information and customized knowledge to farmer’s decision making ability, securing better quality & price. The e-choupal initiative also creates a direct marketing channel, eliminating wasteful intermediation and multiple handling, thus reducing transaction cost and making logistics efficient.

Digital transformation - ITC began e-choupal with Soya grower in the villages of M.P. e-choupal tried to change the stereotype image of farmers of bullock cart. Farmers now log on to the site through internet kiosks to order high quality input, get information on best farming practices, prevailing market prices for their crops at home and abroad for the weather forecast all in the local language. The e-choupal site is also helping the farmers discover the best price of their quality at the village itself. The site also provides farmers with specialized knowledge for customizing their produce to the right consumer segments. The new storage and handling system pre-serves the identity of different varieties right through the ‘farm gate to dinner plate’ supply chain. Thus, encouraging the farmers to raise their quality standards and attract higher price.

Credit and Insurance - Farmers’ low income and difficulty in ac-cessing credit limits the capacity to pursue opportunities within and outside the agriculture sector. ITC e-choupal proposes the solution of this problem by making partnership with financial institutions. e-choupal provide various types of loans like non-cash loans for farm inputs, loans to sanchalak (sanchalak can better manage credit risk & have better access to farmers), direct loans to farmers based

24

on sanchalak recommendation, Insurance & risk management ser-vices etc.

Local leadership development - ITC uses involvement of farmers in content creation helps to easily customize the information as per the local requirements. Participation of local farmers ensures provi-sion of adequate and decipherable information to e-choupal, which can be employed into the farming, or pricing of the produce. The increased participation in e-choupal develops local leadership qual-ity in farmers. The farmers get attracted towards e-choupal due to increased profits, added services that he could get, saving in time and the ability to use e-choupal for many transactions. e-choupal delivers relevant technologies in the hands of the farmers, which can improve the economic condition of the entire village. e-choupal is one of the very few ICT projects in India that has effec-tively utilized e-commerce transactions for poverty alleviation. ICT also reduced the number of middlemen between producers and consumers. Now, simple technology solutions are available to cre-ate networks in rural areas, which can function as virtual market-places.

e-choupal at a glance

States covered 9 States [M.P., Haryana, Uttaranchal, Karnataka, A.P., U.P., Maharashtra, Rajasthan and Kerala]

Village covered 36,000

e-choupal info kiosks 6,400

Empowered e-farmers 3.5 million

Other benefits to farmers

Farmers are reimbursed for transport to the procurement hub of e-choupal.

The transaction time at the ITC hub is also much faster than mandi.

ITC has given recognition to integral partner in the supply process & not mere as agricultural producer and thus elevating the level of respect of

25

farmers. Similarly providing shaded seating area while waiting for their paperwork shows ITC really care for farmers.

Cost and revenue Stream

e-choupal has been successful. It has reduced the cost of procurement and the cost of transit and the material handling cost. Procurement transaction costs are reduced from the industry standard of 8 percent (farmers incurs 3 percent and the processor incurs 5 percent) to 2 percent (with farmer saving all his 3 percent, and the processor ITC – saving 3 percent).

The total cost incurred on the initiatives so far has been Rs.50 million (Rs.35 million as capital cost towards computers and other hardware at the kiosks as well as central servers and Rs.15 million revenue expendi-ture incurred towards portal development, people overhead etc.). But ITC has gain benefit Rs. 20 million, which is the equivalent of full investment on 40 percent of the Choupals (Kiosks). In terms of future revenue, the outflow is 52.1 million in 2001-02 which reduces to 3.90 million in 2005-2006 and for 2006-07 is estimated as 2.70 million. Where as inflow in 2001-02 is 15.3 million where as 65.0 million in 2005-2006 and esti-mated as 85.0 million in 2006-2007. The internal rate of return (IRR) on the project works out to be 21.55 percent.

In the mandi system, there was a mark up of 7-8 percent on the price of soybean from the farm gate to the factory gate of this mark-up 2.5 percent was born by the farmer while 5 percent was borne by ITC with e-choupal, ITC cost are down to 2.5 percent. In absolute terms, both the farmers and ITC save about $ 6 per metric ton.

Challenges

As the power is usually available for only a few hours a day at on a spo-radic schedule, the e-choupal computer cannot always be accessed when information is needed. Phase imbalances leads to damage of equipments. Telecommunication infrastructure in villages is poor. Telephone ex-change also have limited battery backup. In addition, there is no local support staff to maintain or troubleshoot telephone exchanges. The sup-port team is also short-staffed.

Other challenges are: -

26

Illiteracy about computer in rural areas as well as rural population has low trust on electronic system.

Selection of an educated, intelligent, reliable and matured person as a sanchalak.

Improper knowledge about rural market.

Vicious circle of intermediaries (Adatiya & Brokers).

Improper and complex user interface on e-choupal.

Lack of rules and regulation related to electronic choupal.

Mistrust about inspection, testing and weighing of produce on cen-tres.

ITC’s example show the key role of IT in providing and maintaining by a corporation, but used by local farmers – to bring transparency, to increase access to information, and to catalyze rural transformation, while en-abling efficiencies and low cost distribution that make the system prof-itable and sustainable . Critical factors in the apparent success of the ven-ture are ITC’s extensive knowledge of agriculture, the effort ITC has made to retain many aspects to the existing production system, including retaining the integral importance of local partners. ITC e-choupal is com-mitted to transparency and respect and fairness towards farmers as well as local partners.

The author is currently working as Assistant Professor in an MBA college in Pune (NIFEM). She is an M.Phil - University topper from DAVV, In-dore, MP and is currently pursuing her PhD on e-Governance under the guidance of Prof. (Dr.) Pankaj Trivedi.

The eChoupal advantage

ITC's eChoupal project is a winner—for farmers who get better remuneration and for the company that's assured quality inputs for its business

Imagine an illiterate farmer in a remote village in Madhya Pradesh sitting at a desktop wired up to the WWW through a small VSAT link, powered by a tiny power generator by the side, and surfing away to glory downloading invaluable information about weather forecasts and sowing trends.

27

Imagine farmers checking prices for soya beans at the nearest government-run market, or even on an international commodities exchange. “A few years ago such a scenario would have seemed outlandish but today it’s a reality,” says V V R Babu, CIO, ITC (eChoupal Project).

IT for the Masses

The eChoupal project covers over 35,000 villages in Madhya Pradesh, Uttar Pradesh, Maharashtra, Karnataka, Andhra Pradesh, Rajasthan, Haryana and Uttaranchal providing millions of farmers with critical information on farming. The Choupal services are being delivered by over 6,000 Sanchalaks and over 17,000 Upa Sanchalaks to these remotest areas.

Multiple Benefits

Farmers can look at weather forecasts, order fertiliser and herbicide, and consult an agronomist by e-mail when their crops turn yellow. At some eChoupals they can even buy life insurance, apply for loans and also check their children’s exam results.

While much has been written about the social benefits of ITC’s eChoupal, the matter of the fact is that the project was conceptualised with a pure business focus to create farmer communities in villages to facilitate sourcing of high-quality farm produce for the company’s fast growing agribusiness.

Better Payment

In IT parlance, eChoupal is an intelligent blend of applications like CRM and supply chain management. For instance, by helping the farmer identify and control his inputs and farming practices, and by paying more for better quality, ITC has been able to preserve the source and improve the quality of produce.

The project was built using .NET. The first implementation of a Soya Choupal took eight months but later extensions like the Aqua Choupal for aquamarine farmers took between six and eight weeks.

28

Today eChoupal is a flexible, easy to deploy solution. ITC Infotech provided an in-house team of 25 to 30 people in the initial stage and this gradually came down to around 20 people, and finally a five-member team to maintain the project.

The portfolio of commodities sourced has been vastly expanded to include maize, barley, sorghum, and pulses, and the sourcing cycle is extended almost around the year. In the commodities market, these two factors are helping ITC create a definite competitive advantage.

The Problems

“Initially we thought that we would work with DoT to upgrade rural telephone exchanges. The department was proactive in upgrading many rural exchanges to electronic ones. After 15 months we found that the experience was not satisfactory,” explained Babu.

Power cuts in rural areas can run for eight to 10 hours. ITC even went so far as to provide gensets at a few locations hoping to spur DoT to doing the same. It didn’t work out and in 2001 ITC shifted its focus to using Ku Band VSATs. Power remained a problem and it was solved by using solar panels.

The EChoupal Roadmap

ITC now plans to leverage its eChoupal infrastructure to sell third-party products, provide rural market research services, and in the social sector, to provide services like health advisories and enable e-governance.

ITC eChoupal has embarked in on providing best of the class retailing and shopping experiences to the rural consumers by building retail shopping complexes that provide integrated facilities under one roof. Under the brand ‘Choupal Sagar,’ these shopping complexes house—a procurement centre, retail store, food court, farmer facility centre and healthcare clinic.

In healthcare services, a pilot project has been launched along with leading corporate healthcare service providers, to extend reliable and quality healthcare services to the remotest villages. Several health camps conducted during the pilots are encouraging and the project is in the midst of scaling up to other locations.

29

ITC eChoupal is currently piloting delivery of quality education services to the rural areas leveraging the physical and digital infrastructure developed for commodities sourcing and consumer retail services.

*======*======*

Chapter-9

FINANCIAL ANALYSIS

Ratio Analysis

A) Liquidity Analysis

Working Capital: Higher the current assets of a company and lower the current liabilities, greater is the working capital. A larger chunk of working capital can be used to fund the long term liabilities of the company and therefore, the larger the working capital, the better it is for the company.

The following table gives the working capital of the three companies under consideration for the three year period.

Figure 1

30

Working Capital

-15000.00

-10000.00

-5000.00

0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

2004-05 2005-06 2006-07

Year

Working Capital (In Rs. Million)

ITC Marico HLL

It is evident that ITC is by far the best company (among the three) in terms of building up its net current assets. The company is increasingly using its short term funds to pay for the long term liabilities. HLL on the other hand is deteriorating in quality and is gradually getting overburdened by increasing pressures due to a negative working capital.

Current Ratio:

The reason why the ratio increases mainly is because of a more than proportionate increase of the Current Assets when compared to the Current Liabilities.

The graph below shows the comparison of ITC vis-à-vis the other two competitors chosen in the market. We observe that in the year 2004-5, Marico had the best Current Ratio but gradually, with a rapid growth in the current assets of ITC, it has come at par with the leaders with the falling trend in the industry (as shown by the other two companies) in the sector.

Figure 2

Current Ratio

1.15

1.431.55

2.02

1.56

1.82

0.950.73 0.75

0.00

0.50

1.00

1.50

2.00

2.50

2004-05 2005-06 2006-07

Year

Ratio

ITC Marico HLL

31

Liquidity Ratio:

Also, when compared to the companies, while the current ratio for Marico and ITC converges, the gap is more or less the same for liquidity ratio. This implies that the company as been maintaining a huge amount of inventories (unlike Marico, whose inventory amount is almost constant) that form a part of the company’s current assets. The graph below defines the analysis presented here.

Figure 3

Liquid Ratio

0.43

0.64 0.67

1.08

0.89

1.13

0.55

0.4 0.41

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2004-05 2005-06 2006-07

Year

Ratio

ITC Marico HLL

Absolute Cash Ratio:

Marico reflects a phenomenal growth in possessing liquid assets to finance its current liabilities. Though, it is to be noted that ITC too shows a more than 100% increase in the absolute ratio. The company is catching up with the leader (among the three) and is therefore on a good growth path.

Figure 4

32

Absolute Cash Ratio

0.25

0.48 0.51

0.70.61

0.98

0.42

0.28 0.31

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2004-05 2005-06 2006-07

Year

Ratio

ITC Marico HLL

Inventory days:

The following graph gives a comparative performance of the company in the sector. Both HLL an ITC have experienced a fall in the inventory days due to larger sales and larger cost of the goods sold. Also, both companies have maintained a larger and larger stock of inventories over the three year period, every subsequent year. Marico on the other hand has shown more that a 50% increase in sales in the three tear frame but has still maintained almost the same amount of inventories every year for its operations.

Figure 5

Inventory Days

39346.70

25430.80

31154.30

230.49177.07132.79

191.51

175.94

170.71

0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

35000.00

40000.00

45000.00

2004-05 2005-06 2006-07

Year

In Rs. Million

160.00

165.00

170.00

175.00

180.00

185.00

190.00

195.00

Inventory Days

Inventories COGS per day Inventory Days

33

B) Solvency Analysis

Debt-Equity Ratio:

Across the industry, it has been observed that there is a similar sort of a mix and match. While HLL funds its operations from lower and lower loans every year, Marico feels that a tradeoff between usage of capital and usage of loans needs to be done. Increasingly, the latter is funding its operations through more and more debt, possibly because of a lesser cost of the same.

The graph below interprets the results written above.

Figure 6

34

Debt-Equity Ratio

0.01870.03090.0158

1.3046

0.9165

0.3030

0.02670.0247

0.7030

0.0000

0.2000

0.4000

0.6000

0.8000

1.0000

1.2000

1.4000

2004-05 2005-06 2006-07

Year

Debt-Equity Ratio

ITC Marico HLL

Interest Coverage Ratio:

ITC Limited is by far the biggest “gainer” in terms of the interest coverage ratio. While HLL also intends to be a self funded company by letting off its loans from the open market, ITC follows somewhat the same strategy thereby leading to an increment in the Interest coverage for both. Also, while the increase in the interest coverage for HLL is about 1287%, the ITC Group shows a fabulous 1772% increment in the interest coverage ratio in three years. On the other hand, Marico Limited uses more and more debt to fund its operation resulting in a lower interest coverage ratio when compared to oneself two years back!

Figure 7

Interest Coverage Ratio

1198.16

64.00275.03

8.2920.60

38.15

174.50

84.61

12.580.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1400.00

2004-05 2005-06 2006-07

Year

Interest Coverage Ratio

ITC Marico HLL

35

C) Profitability

PBIT (Operating Income) to Sales:

Other companies in the segment have experienced a similar trend in the ratio defined above. While for Marico, the ratio rose from 7.6% to about 11%, the PBIT figure for HLL is about 14.25% of the Sales. Overall, ITC has the highest return on the investment, if measured by this parameter.

Figure 8

36

PBIT-Sales Ratio

0.1980.200 0.199

0.110

0.0900.076

0.140

0.1320.146

0.000

0.050

0.100

0.150

0.200

0.250

2004-05 2005-06 2006-07

Year

PBIT-Sales Ratio

ITC Marico HLL

PAT to Sales:

Across companies in the industry, the PAT-Sales ratio has shown a trend that hovers around the same value. Companies like HLL and Marico maintain a constant ratio for their company of about 11.1% and 7.2% respectively. This could be because of the increasing tax that the company has to bear with from the second year of consideration.

Figure 9

PAT-Sales Ratio

0.136

0.161

0.135

0.0730.076

0.070

0.115

0.1100.107

0.000

0.020

0.040

0.060

0.080

0.100

0.120

0.140

0.160

0.180

2004-05 2005-06 2006-07

Year

PAT-Sales Ratio

ITC Marico HLL

Earnings per share: (EPS):

The earnings per share of ITC and Marico and ITC have drastically fallen over the last three years. This is because there has been a stock split in both cases that has brought down the face value of the shares in the market resulting thereby in an increment in the number of equity shares available for trade. Therefore, despite an increase in the total earnings offered by the company, the earnings per share fall drastically. On the other hand, the number of shares of HLL in the market remains steady and the earnings (PAT) increases every year. This therefore results in an increment in the earnings when considered in per share terms.

Figure 10

37

EPS

0.0720.883

0.060 1.854

14.979

12.095

6.977

6.153

5.448

0.000

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

2004-05 2005-06 2006-07

Year

EPS

ITC Marico HLL

Dividend per share:

ITC Limited and Marico over the last few years have experienced a huge fall in the dividend distributed per share because of reasons mentioned above. The earnings per share for the third company, HLL, shows an increase in the dividend distributed per share owing to the increasing dividend paid by the management to the shareholders.

Figure 11

DPS

0.0310.3120.026 0.641

6.200

5.350

2.999

2.500

2.500

0.000

1.000

2.000

3.000

4.000

5.000

6.000

7.000

2004-05 2005-06 2006-07

Year

DPS

ITC Marico HLL

D) Market Based Returns

Price-Earning Ratio (PER):

The industry has altogether shown an increase in the Price-Earnings ratio. It is observed that in the last three years, the value of P/E has risen for all the three companies, whether or not the company has gone in for a stock split. Among the three, Marico has experienced the highest increment in the ratio (in absolute terms), after ITC Limited itself. The following graph reflects the trend in the ratio that has been observed in these three companies over the last three years.

38

Figure 12

P/E Ratio

20.957

1.015

32.674 33.063

3.6042.009

31.03832.05626.339

0.000

5.000

10.000

15.000

20.000

25.000

30.000

35.000

2004-05 2005-06 2006-07

Year

P/E Ratio

ITC Marico HLL

Market Capitalization:

Across companies too, the market capitalization has shown a net increase representing a good growth component in the sector and the confidence of the buyers who continue to buy the stocks of such companies. HLL and Marico have consistently shown an increase in the market capitalization for the years under consideration. This is graphically depicted as below.

Figure 13

Market Capitalization

565830.00

334330.00

732070.00

37331.703130.841409.40

477877.36434195.34

315878.48

0.00

100000.00

200000.00

300000.00

400000.00

500000.00

600000.00

700000.00

800000.00

2004-05 2005-06 2006-07

Year

In Rs. Million

ITC Marico HLL

39

Price Book Ratio:

Across companies, ITC Limited rates poorly for the Price Book Ratio. In fact, while Marico shows a stupendous performance for the three years reflecting a 2887% increase in the PB ratio, ITC reports only a meager 26% increase. Also, HLL reports a 16% increment in the ratio, but still manages to hold its position at the second level pushing ITC to the lowest figure in the industry when compared across the other two companies.

Figure 14

PB Ratio

5.264.18

7.87

19.41

1.200.65

17.5518.8315.09

0.00

5.00

10.00

15.00

20.00

25.00

2004-05 2005-06 2006-07

Year

PB Ratio

ITC Marico HLL

Agri business and e-choupal

ITC is India’s second-largest exporter of agricultural commodities and has a significant presence in soya, wheat, rice and marine products. The company is likely to procure about Rs38 bn worth of agricultural com-modities in FY08E, used for exports, domestic trading and in-house con-sumption (split roughly equally). The procurement of certain commodi-ties like soya and wheat has almost entirely moved into the choupal net-work. As ITC deals directly with farmers, it is also in a position to influ-ence the variety and strain of the produce, gradually educating and giving incentives to farmers to move to profitable ones. Gradually, ITC plans to expand the portfolio of products being sourced. Currently, ITC sources 13 commodities (11 bulk dry commodities, coffee and aquaculture). While scaling up the existing business, ITC plans to enter the horticulture mar-ket as well, focusing on a portfolio of 20 vegetables and 10 fruits. This

40

growth in agricultural sourcing should help not only the trading business but also in building cost advantages for the processed foods business. For example, ITC could ITC is likely to procure procure almost 10% of In-dia’s total soya production (15% in the state it operates in, which in turn accounts for over 60% of India’s production), thereby giving ITC consid-erable clout with the trade.

Sourcing advantage

ITC has built on its sourcing scale to establish an enabling infrastructure, called e-choupal. ITC’s choupal network gives the company tremendous control over quality and cost of the commodities being bought. Since ITC buys directly from the farmers, it is in a position to track the source of the produce and manage future procurement accordingly. The resultant qual-ity control is likely to enable ITC to have a better control over allocation of the commodity to trade and internal consumption. The traceability should also allow ITC to address food safety concerns and once again provide a value that the customer is willing to pay for. This would, in turn, lead to better realisations for the farmers as well, as ITC would then command a traceability premium. For example, ITC uses different vari-eties of wheat for sale in southern and northern India and has control over the source of the wheat. The direct savings, due to procurement from the choupal network, are about 5%, in our view. The savings are shared be-tween the farmer and the company, which in turn uses the savings to fund the infrastructure investments. The employees who run the network are given incentives through the commission that the network earns on the procurement. The farmer is likely to find it easier to justify switching from the traditional mandis (wholesale market) to choupal as their effec-tive realisation (per tonne) increases significantly and is also paid instan-taneously (the resultant cash disbursement cost is borne by the company). We note that the savings from the elimination of unscrupulous practices (like tampered meters) are likely to be competed away over time, as the mandis install electronic meters (as they have already done in many states). However, the benefits will still be substantial for the farmer to switch to ITC choupal. The savings on disintermediation are likely to be far higher in the case of horticulture. The intermediation cost on perish-able horticulture is estimated to be over 200%, compared to The direct savings, due to procurement from the choupal network, are about 5% The savings are shared between the farmer and the company, which in turn uses the savings to fund the infrastructure investments. The employees who run the network are given incentives through the commission that the network earns on the procurement. The farmer is likely to find it eas-ier to justify switching from the traditional mandis (wholesale market) to

41

choupal as their effective realisation (per tonne) increases significantly and is also paid instantaneously (the resultant cash disbursement cost is borne by the company).

*======*======*

Chapter :-10

IMPACT OF ASSESSMENT OF E-CHOUPAL MODEL OVER

FARMERS

ITC’s e-choupal model is based of co-creation of value. E-Choupal physically consists of a computer with the Internet connection. Farmers selectef from within the the village community are trained and designed as “Sanchalaks” who manage this Internet kiosks. The computer is installed at Sanchalak’s residence. Between sanchalak and ITC there is one more intermediary called Sanyojak which look after 40 – 50 such choupals. The e-choupal provides both tangible

42

and intangible benefits to the farrmrs. Under tangible benefits the farmer with the help of a sanchalak may order varius agricultural inputs (like seeds, fertilizers, and pesticides) and other product like cycle and tractor online . ITC keep 2-3 supplier of each product to ensure fair price and competition . These centres also act as procurement centres and Sanchalak purchases their product at market price , eliminating not only need of traveling to distant Mandi but also the interference of the intermediaries, thus reducing the cost involved in the selling process. The intangible benefits result from getting information regarding weather, advance farming techniques, and other input to boost the per hectare productivity, and to facilitate the flow of such information, ITC has tied up with various agricultural universities.

Mean values of benefits received and ability to take

decision Related to Agricultural Practices presently

and before Associated With ITC.

AGRICULTURAL PRACTICES MEAN

Profitable crop choices 4.47*

4.14

good quality seeds, fertilizers and pesticides4.52*

3.45

Use of modern farm implements 3.77*

43

2.64

Safe storing agriculture produces 4.15*

3.32

Weather Forecast 3.61*

2.48

Expert advice on soil testing 2.42*

1.40

Scientific plant protection method 2.78*

1.63

Getting Agriculture input conveniently4.18*

3.09

Prediction of risk on agricultural practices well 2.59*

in advance 2.03

Exchange/return of the adulterated agricultural inputs2.15*

1.34

Exposure to different field demonstration trainings2.73*

1.61

In order to test whether use of information and support provided by ITC’s Choupal initiative has any impact on Farmer’s decision making process related to improved agricultural practices, comparison has been made between Farmer’s status before and after association with ITC. As evident from the table above , there is statistical improvement in decision making ability of farmers on all aspects of decision making related to farming after association with ITC. Farmer’s decision taking ability has increased greatly due to availabitlity of timely price – related information regarding market price of produce

44

before selling, where as there is very little improvement on What crop to grow? When to plant? And when to harvest?

*======*======*

CONCLUSION:-

The study examine the impact that ICT-enabled system for information

and services delieveries make on their end users. The results clearly

indicate that there is marked improvement in the decisionquality of

associated farmers on all aspects of value chain, right from agricultural

input selection to post – harvest management to final marketing of their

produce. In these days of cutthroat competition, on market trend

45

empowers farmers to make better decisions on all 18 aspects of farming

decision making. By proving solutions to specific queries of the farmers

regarding plant diseases and expert opinion on other problems related to

agriculture, ITC helps them to recognize the root cause of the problem.

Once the problem is identified , ITC helps the farmers by providing

information about the alternative courses of action, and thus an informed

consumer is in better state to evaluate the alternatives and make the

purchase decision.

The results also shows that the e-choupal helps farmers throughout the

production phase of the farming process. The farmers after association

with the e-choupal could take much better care of the crops, be it

scientific plant nutrition or protection method or farming methods

specific to each crop and region.

*======*======*

LIMITATION:-

THE STUDY HAS SOME LIMITATION-

The time factor was one of the limitation because of which more

analytical tools were not been used.

There are several ICT enabled governance systems which share the

common objectives of empowering farmers to make right decision

related to farming practices. The study would have provided more

46

meaningful insight if users of other ICT enabled system were

compared with users of ITC’S E-CHOUPAL.

*======*======*

BIBLOGRAPHY

Web Resources:

http://www.google.co.in/

www.itcportal.com

www. itc portal.com/sets/ echoupal _frameset.htm

http://www.echoupal.com/

47

Books:

•C. R. Kothari ‘Research methodology’, vishwa publication, New Delhi.

N. K. Malhotra ‘ Marketing Research’, pearson publication, Delhi

*======*======*

48