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(A)
As a medium to long term strategy, Mr. Aggarwal could consider the following
options. These are in addition to some immediate steps that are required to tide
over the financial crisis at hand.
Diversification into buying fruits directly from growers, storing and then
selling the same – there seems to be considerable money in the system as
the produce passes through 3 to 4 different hands before reaching to the
final customer.
There is probability of success for this model, if the profits are shared on
some reasonable basis with the growers bridging the market and price
information gap on their part.
Increase deep freezer capacity over the next few years and reduce the GC
and CA cold storage facility capacity.
Enter into strategic alliance with few other cold storage operators for co-
operation and mutual support to counter the tactic used by some competitor
of ‘complete lot orders only’. Under this alliance, IPCSL could pass on the
general cold storage business not requiring CA or GS technology coming its
way to these alliance members and in return they could direct customers
having superior or long term storage needs to IPCSL.
Business Restructuring:
Mr. Aggarwal needs to reconsider the present organizational structure. The
proposed diversification buying fruits directly from growers, storing and then
selling the same would require additional workforce. After assessing the
present marketing personnel, hiring people with requisite skills to tap
segments like food processing industry and educating the commission agents
and wholesalers would be necessary.
Slashing operating cost is important and cost benefit analysis of all major
items of expense and overhead should be done to identify and actualize cost
reduction potential.
Diversification into buying fruits directly from growers, storing and then
selling the same – there seems to be considerable money in the system as
the produce passes through 3 to 4 different hands before reaching to the
final customer.
The Capex and revenue model for storage business and office rental business
seems to be reasonable. The office rental business would contribute additional INR
6.6 million from additional space rented and help to boost the cash inflow.
A healthy gross profit ratio (projected) of above 50% from 2007 – 08 onwards lends
credence to this model.
Enterprise Valuation for raising fresh equity:
Based on EBITDA multiple, following valuation emerge for IPCSL. This could be used
as a benchmark for raising fresh equity from a Private Equity investor (as the
company’s projected revenue in 2008 -09 being Rs 5.1 crore, IPO wouldn’t be
feasible).
1198.5
Enterprise Value ( Equity + Debt) 384.47 6 2106.07