Solid Plastics India Limited (SPIL)

Business Case Analysis

Team members: (Group 4 / Sec B)

Ravi Ranjan 081

Anjali Chinchanikar 056

Varun Rai 096

Brajesh Kumar Anupam 059

Company Background Started in 1993. Collaborative JV between SPL(Germany) and Founder MP Based in Kolkata and started business in Hyderabad in 1996.

SPL-USA – 33% shares. Share capital – 50 mn Long term loan provided by SPL USA – 10 mn Promoter stake – 67% i.e. 34 mn. Total secured loans – 30 mn. Accumulated losses – Rs 30 mn

Financial Structure:

Main Equipments

Press Multipurpose lathes Shapers Cutters Grinders Gears

Processes

Plastic Moulding Oil furnace opn Light m/c shop opn Plastic granulation

Products – UHMP ( Ultra High Molecular Weight Plastics)

Type of Product Catalogue Usage/ Industry

1. Gears, round bars, pump casings etc General Engg. purposes

2. Filtration components, wear elements Water filtration system

3.Coil and coil processing components Cold rolling steel industry

4. Fender facings Harbor and port operations

5. Bottling, conveyor and packaging Bottling, conveyor and packaging

7. Kind of bulk materials Bauxite, coal, grains etc

6. Bulk Material handling equipments Steel and power plants

Product characteristics for paper industry

Due to high molecular weight, the product had following competitive advantages

Durability Wear resistant Low coefficient of friction have excellent sliding

properties because of its homogeneous and washy surface

Reduced maintenance due to reduced shutdowns.

In spite of initial high prices, advantages put together made UHMP very competitive

Competitive Scenario

50

3035

60

0

10

20

30

40

50

60

70

ChinarKolkata

KapoorKanpur

KrishnaBanglore

SPILHyderabad

Sales in 2003 millions

1m x 4.5 m 1.2m x 4.5 m 1m x 1.5 m 1m x 2 mDimensions

Broad product mix: Long plates for Lining

Facts• Globally 40 % business of UHMP - from liner business.• Price of SPIL liners – 110 /kg.• Price by Krishna Bangalore – 75 /kg.• High cost due to smaller size of press.• Present sale of liner – 5 tons/month.

Broad product mix: Std wear and tear components

Facts• Could be made either through machining or even cast

directly in press with the help of dies.• Sold as repeat purchases. Example – packing rings

for railways and trolley wheels for push carts.• Railways required 20000 pieces/year.• Through molding process, the trolley wheels could be

sold at Rs 52 to Rs 82 per wheel with an contribution of Rs 20/ per wheel.

Broad product mix: Extruded square bars

Facts• Against a sale price of 300/kg, competitor was selling

at 150/kg.• Sold to large numbers of distributors, fabricators as

well as to the end customers.• Similar to rounds and bars product sold by steel plant.

Distribution of orders : Size vs Value

24

20 1918

9

54

00

4

7

15

18 19

29

7

0

5

10

15

20

25

30

35

0-5000 5000-10000

10000-20000

20000-50000

50000-100000

100000-200000

200000-500000

500000-1000000

% of orders % in value

81 % of orders having only 26 % of values

Distribution of customers

33 3318 10 6

81

152

22

183

10

50

100

150

200

Bottlingand

conveying

Paper Liners GeneralEngg

Railways

% o

f rev

% of total revenue No. of customers

Issues : Marketing the customized products for a large base of

customers. Small orders.

Value added products – Bottle, conveyor and Gen Engg equipment

Commodity product: Liners and paper industry

Railway business

Messy, dirty and painful but unavoidable. Being supplied at Rs 100 per piece

against the manufacturing cost of Rs 180 per piece.

Investment of 1 Mn required in small presses and dies to reduce the manufacturing cost to Rs 60 per piece.

Sales per customer

Market segments %Valuein mn customers

Sales per customer

Bottling and conveyor 33 20 81 0.25

General Engg 10 6 183 0.03

Railways 6 4 1 4.00

Total Value added 49 30 265 0.11

 

Papers 33 20 152 0.13

Liners for mining and mat handling eq. 18 11 22 0.50

Total Commodity 51 31 174 0.18

Commodity vs Value addedCommodity or semi finished Value added or fabricated

Price sensitive Less price sensitive

Undifferentiated Differentiated

Application well established Application varies

Fewer customers Large number of customers

High cost of entry Low cost of entry

Run 24 hrs/day long runs Short production runs

Low cost production critical Quick quotes important

Low manpower, high automation Good estimation required

Production orientation Market / customer oriented

Efficiency critical Service critical

Good cost control Innovative

Commodity vs Value addedCommodity or semi finished Value added or fabricated

Strong in procedures Design capability

Less flexible Highly flexible

Big is beautiful Small is beautiful

Raw material buying is critical Pricing is critical

Low margin per unit High margin per unit

Suits professional mgmt style Suits entrepreneurial style

Saleswise dealer distribution

23%

13%

20% 20%

23%

0%

5%

10%

15%

20%

25%

>1.5 mn 1mn-5mn 1mn <.01 mn No business

% of dealers

Satisfaction and Feedback of Dealers

87 7 6.85 6.7

6.25 6.1 6.1 6 65.56 5.5 5.5 5.25

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SWOT analysisStrength Good Product quality

More than 10 yrs industry experience

Weakness No market segmentationFocus on Short term goals

Threat Threat of substitute Low cost manufacturers in commodity product

Opportunity Regular orders from railwaysIncrease in customized products demand

Dilemma: How to turn around SPIL Options for SPIL

Professional approach

Vs

Entrepreneurial approach

Issues

Lack of Leadership qualities in Mr. MP. Accumulation of loss. Need immediate

turn around strategies. Lack of proper analysis of industry

attractiveness.

Lack of Leadership in Mr. MP – Focus on only short term goals. Opportunistic behavior. No selection of market segment. Lack of subordinate development. Poor listener Focus on sales instead of focusing on

marketing.

Short term turn around strategies

Increasing cash flows by improving operational efficiencies like – reduction in scrap generation, utilization of scrap as a raw material, faster order execution.

Financial restructuring the debt durations. Invest 1 mn for smaller presses and dies to save

cost on railways material. Stop taking small quantity orders. Increase margins on the value added products

in bottle and conveyor equipment.

Scrap generation and its utilization

Price of raw material 75 per kg

Stock of Scrap 600 tons

Value of Scrap 450 lakhs

Accumulated losses – 30 mn

Locked value in Scrap – 45 mn

Long term turn around strategies Selection of Market segments – Focus on high margin

and high market potential industry. Withdraw from Gen Engg where the sales/customer value is very low.

Restructuring the marketing and sales department. Key Account Manager for each key clients based on the value of business.

Rationalization of dealers: 43 % dealers have sales less than .01 mn. Reduce the number of dealers in those areas and increase the dealers where the demand is high. Ex – Mumbai area.

Long term turn around strategies cont…Proper HR policies: Attracting and retaining the talented Managers and

CEOs. Create an environment of innovativeness where every

employee is empowered to take decision at his level.

Branding the Value Added Product: Communicate the advantages of the value added

product so that customer can perceive a difference in SPIL product.

Becoming cost competitive in Commodity market: In Commodity market price is the only differentiator.

Marketing effort: Value added vs commodity

Value Added Commodity

Product Quality High Low

Place Low High

Pricing Low High

Promotion (Advertisement)

Low High

Industry attractiveness analysis

Interpreting Industry Analyses

Munish Thakur 2–28

AttractiveIndustry

High entry barriers

Suppliers and buyers have weak positions

Few threats from substitute products

Moderate rivalry among competitors

High profit potential

Industry attractiveness analysisBottling and conveyor

General Engg

Railways Liners Papers

Threat of new entrants

Low Low High High High

Bargaining power of supplier

High High High High High

Bargaining power of customer

Low Low High High High

Threat of substitution

Low Low Low Low Low

Competition Low Low High High High

Market Attractiveness vs Ability to compete matrix  Ability to compete

Market attractiveness

  High Medium Low

High

Bottling and Conveyor (Invest and grow)

Railways (Risky be cautious)

Medium

Liners

 

Phased withdrawal

Low

Paper

 

Gen Egg (Dog, harvest, disinvest)

Market Potential vs MarginMarket Potential

Margin

Liners

Papers

Railways

Bottle and Conveyors

General Engg.

High

High

Value Added

Commodity

BCG MatrixMarket Potential

High Margin

Liners

Papers Railways

Bottle and Conveyors

General Engg.

Star

WithdrawCash CowCommodity

?

High market potential , high sales/customer value

Branding to create a differentiation in customer’s mind

Summary : Restructuring of SPIL

Operational excellence: Asset utilization, utilization of scrap, product innovation, inventory mgmt, supplier value management etc

Organizational restructuring:

Long term and short term goals, HR policies , empowerment etc

Marketing restructuring:

Selection of market segments, Key account managers for key clients, rationalization of the no. of dealers etc

Thank You

BACK UP

Threat of New Entrants: Barriers to Entry Economies of scale Product differentiation Switching costs Access to distribution channels

Product differentiation Unique products with value

addition and service component

Satisfied Customer

Bargaining Power of Suppliers Supplier bargaining power is high as

Suitable substitute products are not available. Suppliers’ goods are critical to buyers’ marketplace success NOCIL is the only supplier for the resin.

Threat of Substitution Substitution threat is low as

Teflon is a superior substitute to UHMP but it is 15 times costlier.