StratQ

Case Study Document typeCompetition

Date

September 2013
CONFIDENTIAL AND PROPRIETARY

CONFIDENTIAL AND PROPRIETARY

StratQ
Orient Electrical Growth Strategy 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 and dedication shown by his leadership team. Ramesh had joined Orient Electricals 18 months ago. In this short period, he had invested in building the leadership teams capabilities and growth aspirations. The company reported a strong performance in 2012, with good top-line and bottom-line numbers. Revenues for the year stood at $200mn. The team had now begun to dream big and had set itself ambitious goals for 2013-14 and beyond. As Ramesh looked out of the window, he began to think about the future of Orient Electricals, and how they would go about achieving these goals. Growth plan Orients goals are clear to become the top player in the fans market while doubling profitability and appealing to sections of society that have so far been out of reach. The company wants to grow its revenues to US $1bn by the year 2018 and become a market leader in electricals across all divisions. Strategy meeting In the third week of April 2013, Ramesh and his team met for an in-depth session where they discussed the organizations 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 to aggressively go after these goals. Ramesh and his leadership team had to work on numerous aspects of the business. On the sales and marketing side, they had to strengthen the brand, distribution channels, sales network and put in place a responsive after-sales service. At the same time, they needed to streamline manufacturing facilities and leverage cost advantages through smarter supply chain management. This was to ensure that the growth story is intact across all three divisions. After several discussions, they decided to work with a team of consultants from NIC (New Idea 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 given below and make a presentation of maximum 10 slides to Ramesh and his team.

Problem statement
Orient Electricals wants to multiply its top line in 5 years while increasing its bottom line keeping strategic priorities in mind What levers should Orient Electricals pull to 1 Achieve market leadership in fans and improve profitability? 2 Enter the LED lighting business?

List of Exhibits 1 2 3 4 5 6 An overview of the CK Birla Group and Orient Electricals Turnover of Orient Electricals Orients presence in the lighting business Growth in fans market Current distribution strategy Demand and scope in International markets Orient Fans domestic footprint Brand-wise Domestic Retail Network snapshot Bill of Materials: Sample

7
8 9

Exhibit 1: Overview of the CK Birla Group and Orient Electricals (1/2)

The CK Birla Group is a diversified conglomerate with interests spanning industries such 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 a

global manufacturing and service footprint, the CK Birla Group stands today at the forefront in delivering exceptional quality, lasting value and excellence to its stakeholders.
The Group believes in giving back to society. Guided by its philanthropic legacy the CK Birla Group upholds human values at every stage of its business process empowering the local communities through education, health care initiatives and social infrastructure development.

Overview of Orient Electricals

Orient Electricals, an integral part of the CK Birla Group, was established over 60 years 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, Orient manufactured 8 million fans of which 1 million were exported. The company is known for innovation and high product quality. To accelerate its growth Orient has entered into two new businesses in the last 3 years: Consumer Appliances and Lighting. M.S. Dhoni, Captain of Indias cricket team is the brand ambassador. The vast product suite of Orient is tailored to different lifestyle needs for air circulation. Orient manufactures a range of fans which includes ceiling fans, table fans, 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 always emphasized on unceasing research & development for better customer experience and 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 path breaking technology has raised the bar in the industry and continues to be a milestone achievement in the industry.

Exhibit 1: Overview of the CK Birla Group and Orient Electricals (2/2)

Manufacturing facilities for fans
As a leading manufacturer of fans in India, Orient Fans has a robust infrastructure. It manufactures fans at dedicated, state-of-the-art facilities in Kolkata and Faridabad. Both facilities are equipped with cutting-edge technology and machinery to offer innovative and quality products. The companys manufacturing capabilities are enhanced by a strong process-driven environment. The Quality Management Systems at both locations are certified by Det Norske Veritas (DNV) as per ISO 9001: 2000. The factory at Faridabad is ISO 14001: 2004 certified for its environment management system. Six Sigma practices at both manufacturing units ensure defects are kept to the minimum.

Industry benchmarks for Orient 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.

Orient Electricals currently stands at an annual turnover of ~ USD 152 Mn

Fans Lighting Appliances
xx

Achieved CAGR

153 9 126 2 15
21

342% 44%

107 10 81 10 57 5 71 52 97

109

123

24%

FY 09

FY 10

FY 11

FY 12

FY 13

SOURCE: Orient Electricals, Finance Department

Domestic Fans market dynamics and Orients position

xx Market production growth Total annual production Million Units per annum
Ceiling TPW Exhaust % share to total sales

Orient Sales pattern CAGR (2008-13) Percent Total Sales FY 12-13 8 Million Units per annum Economy

36.9

37.8 35.2

17% Decorative

28.4 20.8 21.2

18%

26.7 21.4

26.5

28.4

12%

Base 44% Portable

15.9

16.6 7.0
3.2

3.3 1.6

3.1 1.5

4.9
2.1

6.3
2.4

6.8
2.6

16% 11%

18%
Exhaust 3%

FY08 FY09 FY10 FY11 FY12 FY13

Base

Economy/ Exhaust

Price Realization: MEDIUM Contribution: 20-25%

Decorative

Price Realization: LOW Contribution: 10-15%

Portable

Price Realization: HIGH Contribution: >30%

SOURCE: IFMA 2013, Company analysis

Price Realization: MEDIUM Contribution: 17-22%

6

Orients position in organised domestic fans market

FY 11-12 FY 12-13

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

24 22 20 20 23 19 18 16 14 10 13 13 11

Ceiling fans
25 22 23 18 18 15 14 10 12 12

10

Orient

Others

Orient

Others

TPW fans
26 20 21 14 22 18 19 15 12 11 11 10

Exhaust fans
26 24 20 13 12 9 8 18 17 14 17 22

Orient

Others

Orient

Others

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

Bill of Materials: Sample

Name of the Component Ball Bearing 112/6201 Ball Bearing 115/6202 Condensor 2.25 Mfd (+2+7) Blade Sets Wh. 48"Alum.180 Dia Quantity 100 PC 100 PC 100 PC 100 SET 100 PC 100 SET 100 PC 100 PC Name of the Component Alchromed Aluminium B/C 48" (180 Dia) Painted Rotor-48 Civil Painted F/Cover-48 S Cool W C.B Rings92 Mm Outer For Motor 48"Civil180 C.B.Box F 48 S/Cool(180Mm Body) Flaps /Filler Packing 48"Civil Big Poly.Bag 12.5X12.5"X120G Clear Plasic Tap 2" X1000 Mtr Quantity 100 PC 100 PC 100 PC 100 PC 34 PC 100 PC 34 PC 0.57 KG 53 M

D/Rod Pipe 260Mm Crystal White Canopy Sets Decorating Cup Condensor Clamp (Ppcp)

Bearing Washer 0.8X15X27 Mm

Nylon Grease Ret Washer Damping Washer Red Fibre Preloding Spring . Hanger Arm Assly Kit(Sq.Type)New Wsaher Spring 3/16" /2 Ba Washer Tooth 4 Ba U/P Screw Ph.Hd 4Ba X 3/8" Screw Ph.Hd 2Bax1/2 Zinc Pas Screw Ph. 2Bax 1 1/2 Pl Stator-48 New Breeze No.St./Np/Gc-48"S/Cool Painted Top Cover 5.75"Wh.(180)

100 PC
100 PC 300 PC 100 PC 100 PC 900 PC 300 PC 400 PC 600 PC 300 PC 100 PC 100 SET 100 PC

Clear Plasic Tap 1.1/2 X 1000 Mtr 67 M P.P. Strip 9 Mm X 0.5Mm PSPO Thermo Packing 48"C/Fan F (180 Mm ) Despatch Serial No Sticker 73 M 100 PC 34 PC

Sticker Paper Crystal White Dlx.

Nut M.S.2 Ba P.P Strap 9 X 0.5 Mm (Orient) Virgin Screw Ph. 4Bax3/8 With Flange MRP Sticker For Motor 48" Summer Cool Flaps /Filler Packing 48 Civil Small MRP Sticker For Outer 48" Summer Cool Sticker For Month & Year

400 PC
100 PC 87 M 100 PC 100 PC 34 PC 34 PC 100 PC

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

International markets: Demands and scope

Portable fans Wooden blade ceiling Metal blade ceiling

World market for fan import 20101 Million units

4.5-5.5 2.5-3.5 0.3-0.5 2-3.5 0.2-0.3

21-25 3-4 ~0.1 33-40

22-27 2-3 0.2-0.4

5-6 1.5-2.5 0.3-0.5

0 2-3 1.2-2 0.15

90-110

18-26 11-16 2-3.5 6-10

North Europe Asia America Orients market presence No Strengths No Yes

South Africa America

Oceania Middle East

Total

No

Yes

No

Yes

Head Winds

Huge presence in Middle East,

Asia and Africa

Portable Fans pricing weak

compared to Chinese competition

Currently doing business in

~30 countries

Plastic blade fans could

substitute wooden blade fans, but technology not yet in India

Largest Exporter within the

Indian Fan Manufacturers, with an 80 % market share

SOURCE: UN Comtrade 2010, interviews

Orient Fans domestic footprint: Overall market share of ~20%

Region-wise Market share versus growth last year

Market share % 24 23 22 21 North

20 19
18 17 0

West

South 0 10 12 14 16 18 20

East 22 24 26

Growth over LY %

10

Fans: Brand-wise Domestic Retail Network snapshot

Competitor 4
xx Orient Position

Competitor 2 Competitor 1 Pan India #3 Orient Competitor 3 Total of 1.59 Lac Outlets Reported

#5 North #3

#4 #1 #2 East #4

#5

#1

#2 #5 South #1

#3

#5 #4 West #1

#3

#2

#2

#4 #3

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

SOURCE: Francis Kanoi census study of Retails outlets of 2012

Retail/ trade channel: The Indirect approach

25 depots

16 distributors

4,000 billing points from distributors

80,000 retail points for customers

Big Retailers 2,500

80,000 include 2,500 Big retailers

Orient fans depots

Distributors

Wholesalers 1,200

Retailers

Redistribution dealers 300

Retailers

While the ground sales force is maintained by the distributors, a 16-member Orient sales team oversees overall operation

12

Orients 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 be the key drivers FTL (Fluorescent tube light) and GLS segments show low growth trends, owing to increased usage of CFLs and LED lighting systems in the consumer segments LEDs and High Wattage CFLs seeing a heavily growing demand in the Industrial segments as well GLS and FTLs sustenance is owed to increased penetration in the rural markets, however the margins incurred in these segments 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 5 years and are expected to gain nearly 40% of the total market size. According to Frost and Sullivan the LED lighting market is valued at 1000 crores today and estimated to grow at +/- 40% CAGR over the next 10 years Orients retail universe currently stands at 70,000 retail counters across India Threats currently standing against these high priced decorative lighting options are the rising dollar prices, combined with increasing interest rates which will affect margins

13

Orient Lightings domestic footprint

Orients region-wise market share vs. growth Market share, % 8 7 6 5 4 3 0 0 12 14 16 18 20 22 24 26 Growth over LY, % North South East West

Lighting industry: Key players and market positions Market Shares, % Competitor 1
20

Others (Unorganized sector included) 45

12 Competitor 2

7 7 3 Competitor 4 Orient Competitor 5

6

Competitor 3

14