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A Business Plan
On
Raahat Ltd.Raahat Ltd.
Submitted as an Internship Project Report
In partial fulfillment of the requirements for the
Award of degree of Master of Business Administration
2009 – 2011
Submitted By Guided ByMs. Chinki Gupta Mr. L.K.Tyagi
BHARATI VIDYAPEETH DEEMED UNIVERSITY INSTITUTE OF MANAGEMENT & RESEARCH, NEW DELHI
An ISO 9001:2008 Certified InstituteNAAC Accredited Grade “A” University
CRISIL Grading – MBA Programme
A * - National LevelA ** - State Level
1
Certificate of Originality
This is to certify that the Business Plan entitled “Raahat Ltd.”
Submitted to Bharati Vidyapeeth Deemed University Institute of
Management & Research, New Delhi in partial fulfillment of the
requirement for the award of the degree of MBA is an original
work carried out by Ms. Chinki Gupta under the guidance of Mr.
L.K.Tyagi The matter embodied in this project is a genuine work done
by Ms. Chinki Gupta to the best of my knowledge and belief and has
been submitted neither to this University nor to any other University
for the fulfillment of the requirement of the course of study.
Ms. Chinki Gupta Mr. L.K.Tyagi
Lecturer
2
Certificate
This is to certify that the Business Plan titled “Raahat Ltd.” is an academic work done by “Chinki Gupta” under the guidance of Mr. L.K.Tyagi submitted in the partial fulfillment of the requirement for the award of the Degree of MBA from “Bharati Vidyapeeth Deemed University, Pune”. The authenticity of the Business plan will be verified by the viva examiner which includes the verification of data the contents therein and may be rejected due to non-fulfillment of quality standards.
Prof (Dr.) Sachin S. Vernekar(Director)
Acknowledgement
3
No small task however can be completed without proper guidance and encouragement. It gives me great pleasure to excess my deep sense of gratitude and reverence to every person who directly or indirectly has helped to create a congenial atmosphere for successful completion of this b-plan. I would like to extend my sincere thanks to Mr. L.K.Tyagi, my project guide for his guidance and support throughout my process of b-plan. His calm demeanor and willingness to teach has been a great help in successful completion of my b-plan. My learning has been immeasurable and working under him was a great experience. My heartfelt thanks are also towards the mentor, without his continuous help and enthusiasm the b-plan would not have been materialized in the present form.Finally, I also wish to thank the Dr. Sachin Vernekar, Director, Bharati Vidyapeeth Institute of Management &Research, New Delhi for making this experience of making b-plan possible. The learning from this experience has been immense and would be cherished throughout life.
Ms. Chinki Gupta
Preface
4
Someone has rightly said that practical knowledge is far better than classroom teaching. During the course of this b-plan I actually realized how true it is when I analyzed the real world of this b-plan enabled us to know about the financial activities in the real world of starting new businesses.
My b-plan is titled “Raahat Ltd.”. The report contains at first, the brief introduction about the company. The third and fourth chapter contains products and services, Industry analysis respectively, and then the Marketing strategy followed by HR, operations plan and financial plan.
Ms. Chinki Gupta
5
TABLE OF CONTENTSS. No Topic Page No
1 About Raahat Ltd. 8
1.1 Objectives
1.2 Mission
1.3 Key Success Factors
2 Company Summary 14
2.1 Business
2.2 Company Ownership
2.3 Company Locations and facilities
2.4 Plant locations
3 Products and services 18
4 Industry analysis 20
4.1 Market Analysis Summary
4.2 Market Segmentation
4.3.1 Market Segment Analysis
4.4 Industry Growth Rate
4.4.1 Industry Participants
4.4.2 Distribution Pattern
4.5 Market Research
4.5.1 Strengths – Iodex
4.5.2 Weakness - Iodex
4.5.3 Strengths - Moov
4.5.4 Weakness- Moov
4.6 Need gaps
6
4.7 Ideal Product
S. No Topic Page No
5 Associations with the brand 32
5.1 Iodex
5.2 Moov
5.3 Key Differentiating Factors
6 Marketing Strategy 346.1 Product Mix
6.2 Risks Associated
6.2.1 Competitor risk
6.2.2 Customer expectation
management risks
6.2.3 Performance gap risk
6.2.4 Commodity price risk
6.2.5 Brand erosion risk
6.3 Legal and environmental issues
7 Human Resource 38
8 Operations 38
9 Financial Plan 39
9.1 Key Financial Indicators
9.2 Financing of the Project
9.3 Break even Analysis
9.4 Projected Profit and Loss
7.4 Projected Cashflow
7
CHAPTER 1
RAAHAT LTD.
Raahat Ltd. will manufacture and market a pain relieving ointment
for people in the age group of 25-45 years in SEC A2, B1, B2 and
C. The trade name "Happy Ointex" will serve as brand name and
identity name for the product. The product is intended to help
prevent pain from muscular pains, joint pains, sprains and
backaches. In India, due to increasing stressful lifestyle, there are
an increasing number of people who suffer from such pains.
Especially in the 25-45 yrs segment this is a result of day-to-day
physical activities. In other cases these may be chronic in nature.
In 25-45 yrs segment these pains are milder in nature. These can
be cured by self-medication. Their population at present is
estimated to be 152 million .Out of this 47% of the consumers
resort to self-medication depending on their trusted cures i.e.
ointments available in the market place. At present there are many
players in the, market catering to these consumers. Most popular
ones among these are the age old Iodex and Moov.
This business plan is part of our regular business planning
process. We revise this plan semi-annually.
8
In the next full year we intend to produce and market initial
product. No sales have occurred to date.
Management predicts sales exceeding 17160 case would help the
company break even in the second year of its operation . The
company will start earning profits at the end of the second year.
Our keys to success and critical factors for the next year are, in order of importance: Initial product production on first one size.
Test marketing and basic research to determine product
acceptance.
9
1.1 OBJECTIVES
Raahat Ltd. has set a modest goal for year one sales will be
8348 cases the projected sales for the sub sequent years
would be 22869 and 36913 cases for the years to follow
The targeted minimums when achieved will bring us close to
overall break even the second year and thus would provide a
platform for limited business expansion in year there of the
business.
Costs will be controlled to maintain projected margins at
these modest sales levels. If sales exceed these
goals,additional production and stepped-up marketing
activity can be implemented quickly, although additional
capital will be required on short notice in order to fully
implement growth. On the safe side, some sales may be
missed in order to gear up for year two.
10
1.2 MISSION
We as in the past would be conducting our business in an
ethical way and in doing so would look forward to a
sustainable economic development.
We would also strive to maintain a friendly, fair and creative
work environment, which respects ideas, hard work, and the
dignity and worth of the individual.
We intend to make quality, tested products and to make
sufficient profit to generate a fair return for our investors.
We intend to grow the business and to establish our brand
as a product leader and innovator in its segment in a fraction
of 3 years.
11
1.3 KEYS TO SUCCESS
The keys to success for Raahat Ltd. are:
Product Quality: The quality control department will do stringent
quality check . Suppliers will also be required to fulfil the minimum
quality standards as per TQM of all components. Research has
also shown that over product is at least better than 2 times than
the Raahat product available in the market.
Marketing: Once quality product is available, the success of the
Happy Ointex ointment will rest wholly in the marketing
department. The Happy Ointex is a new product and consumers
must be educated on the product benefits so that the consumers
themselves can decide upon the fact that which product is better
than the existing products. The product being an generic product
and the major off takes would take place from the chemist shops
and the retailers the company will be spending lot on the
advertising side so as to ensure that the product comes into the
awareness set of the consumers and at the same time create a
need for the product. The product would be made available to the
target audience by the existing Raahat India distribution network,
which has deeper penetration and thus would ensure the
availability of the product.
Management: While there is a temptation to grow a business
exponentially, it is critical that Raahat Ltd. concentrate first on
proving product saleability within certain price points, margin
requirements, distribution channels, and establish consumer
12
acceptance. Once these answers are found, then controlled
expansion (which requires increased production and investment in
inventory) can be executed with confidence.
13
CHAPTER 2
COMPANY SUMMARY
2.1 Business
Raahat is India’s premier ayurvedic products company. Sales
include manufactured (61%) and traded goods (39%). Raahat has
a wide distribution network of over 5500 distributors and a retail
reach of 1300000 outlets. Popular brands are health tonic
Chyawanprash, Hajmola digestive tablets & candy, Lal Dant
Manjan, Raahat Amla hair oil. Vatika became the fifth largest
brand of Raahat in FY99, recording a strong 54% yoy growth
during the year.
Turnover from top five Raahat brands is as follows
Rs mn FY99 FY98 % yoy
Raahat Amla hair oil 1409 1408 0.0
Lal Dant Manjan 1137 1201 (5.4)
Chyawanprash 1051 944 11.4
Hajmola 492 443 11.0
Vatika hair oil 472 307 54.0
Others 4587 3810 20.4
Total sales 9148 8114 12.7
14
Raahat in a major restructure initiative has revamped its core
businesses as under:
Day to day management has been overtaken by a group of
professional managers. The promoters have been confining
themselves to strategic decision-making
The company has streamlined operations and implemented
corrections in supply chain. The marketing strategy has been
revised from trade push to consumer pull, thereby reducing spend
on trade schemes and higher investments in brand building.
Businesses such as Herbal intermediates, Merchant Exports and
Genetic Pharmaceuticals (Rs130mn in FY99 against Rs440mn in
FY98) have been discontinued
Trade margin rationalization has been undertaken in
Chyawanprash and Hajmola brands leading to improved
profitability of these brands.
The Real and the Homemade range of products have been hived
off to a 100% subsidiary Raahat Foods Limited wef April ‘99.
2.2 Company Ownership
The company is owned by 4 people who are professionally sound
in their respective fields. The directors have not been involved in
any kind of unfair trade practices in the past and have a good
character
15
The owners are
1. Gautam Miglani who has 15 years of experience in I.T
industry and has served as the vice president of Polaris
Software
2. Anurag Rana has 24 years of experience in various FMCG
companies. He has worked as General Manager in HLL and
was the vice president marketing at Britannia
3. Chinki Gupta has 22 years of experience in the financial
sector .She had been in the board of directors of companies
like Associates, PNB Gilts and was the vice president
finance at Dabur India limited and ICICI.
4. Chinki Gupta has 20 years of experience in various
organisations in the field of HRM. She had been the vice
president HRD at Dabur India Limited, Indian Airlines
2.3 Company Locations and Facilities
A company head office is presently situated at Kaithal, Haryana
136027. The company has branch offices in all the major
metropolitan cities.. This corporate office space is big office, which
is spread in nine floors, and all the department are situated the
office. The company has 7 factories in India all of them situated in
the industrial areas. The major production units are in Kaithal,
Delhi, Kerala etc .The company has a system of having mother
depots and service depots which store the finished goods.
16
2.5 Plant locations
Kaithal, Delhi, Kerala, Raahat’s 100% EOU manufactures hair oils,
cosmetics, herbal tooth paste, glucose and honey. An integrated
facility has been designed at Kerala to produce ayurvedic
veterinary products. The new Kerala plant has 5 years tax holiday.
17
CHAPTER 3
PRODUCTS AND SERVICES
Hair care products: Raahat Amla hair oil is one of the leading
brands with around 28% market share in the perfumed hair oil
segment. The Vatika brand recorded an impressive growth in
FY99. Raahat has also successfully extended the brand equity of
Vatika hair oil to Vatika Henna Cream Conditioning shampoo with
herbal ingredient and has garnered significant market share in
urban markets.
Oral care products: Raahat ’s red tooth powder, Lal Dant Manjan
is the leading coloured tooth powder brand. Sales in FY99
recorded a sharp 19% yoy decline in volumes, with a shift in
consumption towards white toothpowder, which are marketed
aggressively by MNC players.
Healthcare products: Raahat ‘s leading healthcare brands
include herbal Tonics – Chyawanprash and Restora, Digestives
Pudin Hara and Hajmola tablets and candy, Hingoli, Laxative
Nature Cure (Psyllium husk), baby care products Janam Ghunti,
Lal Tail and Gripe Water and Madhuvanni cough syrup and
lozenges. In value terms the brand recorded 11.4% yoy growth.
Hajmola sales grew by 2% in volume terms and 11% in value
terms. A new 18lavour Hajmola Imli was launched in FY99.
Pharmaceuticals: Over 300 ayurvedic medicines are sold
ethically through ayurvedic practitioners. All ayurvedic products
18
are outside the purview of price control (DPCO). Ayurvedic
specialties recorded 42% yoy growth in FY99.
Food products: Starting with branded honey, Raahat has fast
expanded its product range. Raahat has launched a range of items
viz Lemoneez (lemon juice concentrate), Real fruit juices, a range
of ethnic Indian food like Hommade pastes and sauces (eg of
garlic, ginger, onion etc for Indian style cooking), Capsico chilli
sauce, etc. The company launched Real fruit juices in small packs
to expand consumption. The Hommade product range (Turnover
Rs184mn) has been expanded with launch of new 19lavours like
onion and mustard. The Foods business has been hived off as a
100% subsidiary wef April ‘99. An independent nationwide
distribution set-up is being built up for the foods business.
19
CHAPTER 4
INDUSTRY ANALYSIS
4.1 Market Analysis Summary
Iodex and Moov are the most popular products in this segment
with Iodex recalled by 45% of the population followed by Moov,
which was marginally less at 44%. Iodex also commands highest
market share (46%) in this segment followed by Moov (36%).
Iodex is the market leader in the south and west zone. The east
zone is dominated by Moov and in the north the market is shared
equally by Iodex and Moov.
Market Share of Different Brands
Iodex Moov Iodex
Power
Volini Rest
All India 46 36 3 8 7
North 41 41 3 9 6
East 30 42 2 13 13
West 56 30 2 6 7
South 48 33 5 9 6
Moov has seen maximum growth in West at 19.8 % per annum
followed by South (11.1%) whereas Iodex has encountered
declining growth in all the regions. Overall growth rate of Iodex
20
stands at –16.7%per annum. The Loss of Market of Iodex is
associated with the Market capitalisation of Moov and Volini
Growth rate in volume in percentage
Iodex Moov Iodex
power
Volini
All India -16.7 11.8 .4 14.4
North -27.5 7.2 21.9 12.2
East -16.4 10.2 -38.5 20.5
West -12.5 19.8 -9.8 10.6
South -8.2 11.1 10.7 15.1
In terms of value of sales in the country as a whole Iodex has
marginally grown by 3.1% whereas Moov has grown really fast
with an increase in 29.7%in its sales value. Volini has increased in
terms of value in all the four zones.
Zone wise Performance of Different brands
Iodex Moov Iodex power Volini
All India 3.8 29.7 -4.1 15.4
North -9 24.2 23.3 13.1
East 4.7 27.9 -46 21.6
West 9.5 39.6 -9.9 11.9
21
South 11.5 29.9 2.4 16.1
4.2 Market Segmentation
22
4.3 Target Market Segment Strategy
Sec A2/B, Housewives,
Age Group - 25 - 45 Yrs
Users Of Competitors Product
Those Who Get Backaches Atleast Once / Week
4.3.1 Market Segment Analysis
23
Since the market for backache is increasing on a year to year
basis the company sees the opportunity for it to grow in the sector
on the strengths of its strong brand equity a, distribution network,
product attributes and financial strengths and last not but not the
least able man power to back it up.
4.4 Industry growth rate
Today this is a Rs. 140 crore industry. Major players in this industry are Iodex, Iodex Power, Moov & Volini. Industry is estimated to be growing at the rate of 12%per annum.
Total
Market
Iodex Moov Iodex
Power
Volini Rest
MT MT MT MT MT MT
All India 1282 587 457 37 108 93
North 393 161 163 11 34 24
East 10 55 76 3 24 23
West 416 232 123 9 23 28
South 293 139 95 14 27 17
North (393 MT) and West (416MT) zones account for maximum
consumption of these products.
4.4.1 Industry Participants
24
There are many players in this segment the list shows the various
companies in this segment and their brand names
COMPANY BRAND
Himani Fast Relief
MentholatumPharmaceuticals Deep Heat
Paras Pharma. Moov
Smithkline Iodex
Ranbaxy Volini
Dabur Rheumatil
Sanat Products Nopane
Novartis Voveran
It is expected that Raahat Ltd.. will have a defendable patent
position in its product but that cannot be assured at this time.
4.4.2 Distribution Patterns
The distribution will be carried through the existing Raahat
network. it has been seen that these kind of products sell the most
from chemist shops in the urban areas followed by the grocers.
The rest in sold by the general store and the pan shops whereas in
the rural market the similar products are sold from the chemist
25
shops followed by the pan shops and the rest of the market is
divided between the grocers and the pan shops
26
4.5 Market research
To find the out the strengths and weakness of the competitors an
research was carried out to judge the competitors offering and the
consumers opinion of the product which had given the company a
lead weather to go in for the product or not for the same. This was
done to understand the consumers’ proposition for switching over
from a particular brand. On the basis of these discussions the
individual strengths and weakness of different brands were gauged
27
Iodex users who have shifted to moov sited the following reason in
the favour/ against Iodex
4.5.1 Strengths of Iodex
Avery effective cream
Gives relief to a large extent
Specialist for sprains and bruises
Established brand
4.5.2 Weakness
Stains clothes
Very thick
Smell not pleasant
Seen as outdated as no product modification have been
incorporated
Very sticky
Burning sensation too much
Does not give quick relief
Pain is reinforced after some time
Colour not good
Product form of distribution (want in tube so that it becomes easy
to apply)
28
Does not absorbe easily
Does not give complete relief
4.5.3 Strengths of moov
Very effective
Does not stain
Cooling sensation which depicts that it works
Distributed in tube
Easy to apply
Colour soothing (white symbolises purity)
Less sticky
Gives quick relief in about 15-20 min
Smell is good
Specialist for back
4.5.4 Weakness of Moov
Stings a lot
Very strong
Possibly allopathic
Does not give long lasting relief
Does not spread readily
29
Absorbes after some time
4.6 Need gaps
An ointment that gives complete relief as in completely relief
Assured relief as in the pain should go away
Quick relief as in 10-15 minutes
Should be very less sticky
A little sting
Smell should not be too strong
Easy to apply
Should not spread
Should absorbe spontaneously
4.7 Ideal product
Should start working within minutes
An ointment that gives complete, assured, quick relief
Should be very less sticky
Should not be thick
Easy to apply
Should not smell medicinal
Smell should not be floral-cosmetic risks
30
Smell should not be too strong
Ideally should be white or off white in colour
Should give a cooling sensation
A little sting
Should not harm skin
Should be from a reputed company
Should be economical
No side effects
Should be absorbed readily
Should not spread
31
CHAPTER 5
THE ASSOCIATIONS WITH THE EXISTING
BRANDS
5.1 Iodex
For backaches
Black in colour
For injuries and sprains
Well established
Sticky and stains
Effective
On personification the maximum consumers said that it was a male
and they personified it as Sunil shetty
5.2 MOOV
Specialist for back
Very easy to apply
Not sticky
New but understands the pain better
Heals better than other
32
On personification the maximum consumers said that it was a
female and they personified it as Aishwarya rai
5.3 Key differentiation factors
Unique gel format – spreads easily & fast!
Beautiful white colour – no stains!
Weather proof – does not liquefy even in peak summers.
The ingredients – contains Diclofenac derivatives that have been
clinically proven to give quick relief.
Contains SPA / DPA that help the active ingredients to penetrate
faster.
Instant Relief - starts acting in 2 minutes!!!
The fastest acting pain reliever in the OTC market.
The only ointment that spreads easily and does not stain
These attributes the characteristics of the ideal pain reliever as
mentioned by the consumers and therefore the product can be
said to be developed in a manner that it becomes a delight for the
consumers
33
CHAPTER 6
MARKETING STRATEGY
6.1 Product mix
PRODUCT: White gel. Proven efficacy
PRICE: Rs 14 (Rs 2 /- less than Moov which happens to
be the largest growing brand!!)
PLACE: Northern and Western India (for the first years)
POSITION: ‘Anti – Moov’
Fast acting, convenient.
PACK: 10gms Lami tube (company plans to lauch the
25 gm and 5 gm tubes in the next year
based on the results of the first year)
6.2 Risks associated
6.2.1 Competitor risk
• Stiff competition from Iodex and Moov
• Difficulty in retaining market share
• Threat from unorganised sector
34
6.2.2 Customer expectation management risks
• Expectations of the customers are not adequately met
• Competitors are more proactive in their approach
• Chances of customer switching arises if desired quality is
not met
6.2.3 Performance gap risk
• Gap in performance level amongst competitors
• In terms of quality, cost, and cycle time performance
Partnering risk
• Finding a suitable partner
• Fear of selection of a wrong partner
6.2.4 Commodity price risk
• Arising due to fluctuations in commodity prices
• Causing lower product margins and trading losses
Product pricing risk
• Substitute products available in lower rates
• Reason may be advancement of technology by mnc’s or
cheaper raw materials used by unorganised sector
35
6.2.5 Brand erosion risk
• Power brands in the line of fire
• Chances of death of the brands
• Brand erosion ultimately is going to affect the profitability
the company
6.3 Legal and environmental issues
While great care has been taken in the preparation of the material,
medicine is a rapidly changing field. As new research and
experience broaden our knowledge, changes in the approach to
diagnosis and therapy become necessary and appropriate.
Recommended dosage, method, and duration of administration, as
well as contraindications to use, evolve over time for all drugs.
Diagnostic and therapeutic choices must always be tailored to the
individual patient's circumstances, and consultation with a
physician should be undertaken before following any of the
treatment strategies suggested in this web site.
Physicians are particularly reminded that consultation with a
specialist in Infectious Diseases may be warranted in complex or
life-threatening situations. Consultation with a knowledgeable
physician or pharmacist is warranted if you are unfamiliar with a
drug or do not have a good understanding of the proper dosage
and possible side effects. Interactions between drugs are also
always possible and are particularly prominent for some of the
36
antifungal agents. Review of the manufacturer's product
information or consultation with a pharamacist is advised if you are
uncertain about the potential drug-drug interactions of an agent.
The results of therapy with any drug can be both positive and
negative in different people depending upon particular facts and
circumstances regarding the person's age, health, medical history,
other drug use and physical condition. The therapies suggested
here will not ensure successful treatment in every situation. In
addition, these therapies are not inclusive of all proper methods of
care, nor does their use preclude use of other methods of care.
Neither Doctor Fungus Corporation, nor its editorial staff, can be
held responsible for errors or for any consequences arising from
the use of the information in this website. Decisions regarding the
propriety of any specific procedure, treatment, or drug dosage
must be made by the patient's physician after consideration of all
of the relevant facts regarding the individual patient.
37
CHAPTER 8
HUMAN RESOURCE
The existing policies of the company would be applicable for the
employees involved in new product development. No new
recruitments is being done for the same.
CHAPTER 9
OPERATIONS
Work would be carried out in one shift involving the existing
employees of the organisations.
38
CHAPTER 7
FINANCIAL PLAN
Raahat Ltd.. desires to finance growth (diversification into the pain
removal industry) through a combination of equity/debt investment
and internally generated cash flow. As the cost of initial tooling
and inventory and marketing costs of establishing a market
presence, the business will be financed primarily by investment in
the early stages and is expected to burn cash . The target of break-
even is in second year.
7.1 Key Financial Indicators
The most important indicator in our case is inventory
turnover . We have to make sure that turnover stays above 5
on all production subsequent to test marketing, or we will be
clogged with inventory.
Collection days are very important. We do not want to let our
average collection days to get above 45 days under any
circumstances. This could cause a serious problem with
cash flow, because working capital will be tight. Retail
distribution entails 30 to 60 day billing cycles . Every effort
will be made to collect on time and to offer billing term
discounts. Even when sales are for cash, this plan assumes
45-day payments on all sales in order to be conservative on
cash flow demands.
39
We must maintain gross margins of 70% and hold marketing
costs to 30% of sales in all direct sales channels.
In retail channels gross margins based on wholesale pricing
must be 40% and marketing costs held to 15% of sales.
Volumes must be significant to support these numbers. An
accurate forecast of retail sales potential can only be made
after significant product acceptance by consumers.
Subsequent plan revisions will have a higher degree of
accuracy.
7.2 Financing of the project
We plan to raise Rs.8 crores in initial capital, against Rs. 10
crores as initially planned, remaining 2 crores would be raised as
and when required.
Out of 8 crores that would be spent in the development of the new
product we plan to raise the above money in the following way:
Rs. 2 crores would be utilised from the existing reserves and
surplus with the company (audited balance sheet would be
provided if required).
Rs. 3 crores each would be raised from ICICI and IDBI
respectively.
7.3 Break-even Analysis
The break-even analysis shows that our company has a good
balance of fixed costs and sufficient sales strength to remain
40
healthy. Our break-even point is 17,160 cases, while our sales
forecast for the coming years is as follows:
Particulars 2001-
2002
2002-2003 2003-
2004
2004-2005
Sales (cases of 10
gram bottle) 8348 22869 36913 45421
In the year 2001-2002 a low production will be carried out as this
is the test year and further sales will be carried out depending
upon the acceptability of the product.
Some costs included in the plan may be trimmed if necessary.
Thus, there is room to cut the gap to break-even in year two with
interim plan revision on the cost side, particularly by limiting ad
and promotion expense and some fixed expense. The break even
number of 17,160 units is an extremely conservative break-even
number since it assumes full marketing and media expenditures as
called for by the plan . The initial production run will be to test
market the product that will be 8,348 units.
Break-even Analysis:
Break-even units 17,160
Break-even sales Rs. 2,40,240
Assumptions:
41
Per unit revenue: Rs. 14
Per unit variable cost: Rs. 4.75
Estimated fixed costs: Rs. 765 lakhs
7.4 Projected Profit and Loss
All expenses estimated in this initial plan are considered to be
accurate but not firm. Flexibility is assumed as the plan
progresses through execution. Also, the assumption here is that
we only raise Rs.8, 00,000 in initial capital, whereas the
assumption was to raise Rs. 10,00,000 as initially planned. In the
first year the project would not yield any revenues, as the break-
even would be achieved in second year. This will be considered
very acceptable when considered against the need to spend to
introduce a new product. In fact, it is achievable only since we are
pursuing low-cost existing channels of distribution.
We are thus forecasting a profit inflow from the year 2002-2003.
These are realistic targets.
7.5 Projected Cash Flow
Cash flow in year two, 2002-2003, needs a closer look on a month-
to-month basis. Since this will be entirely a function of actual sales
vs. inventory turns it will be addressed in detail in subsequent plan
revisions. Subsequent revisions of this plan in years two and three
will switch to a full inventory, payables, and receivables model.
42
Fixed costs
Amount in Rs lacs
HEADS 2001
Distribution 30
Tv Ad Spends 500
Radio 20
Production And Research 15
Machinery 200
Total Fixed Cost 765
Variable costs
Amount in Rs
VARIABLE COST
Raw material 1.71
Packing material 1.726
1. Bottle 0.698
2. Cap 0.220
3. Shrink sleeve./ Label 0.260
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4. Carton / Dispenser 0.370
5. Others 0.178
RM+PM 3.436
Conversion cost 0.515
Assessable value 3.951
Excise Duty 0.632
Purchase value 4.584
Freight 0.12
Addl . Sales tax 0.05
Total Variable Cost 4.75
We have not added labour costs and administrative costs, as this
is an irrelevant cost because this is an existing company and we
are using the already employed labour.
44
Product pricing
In Rs. Per unit
10 GMS
M.R.P 14.0
Ptr 11.67
(-) Trade Disc. 1.06
PTS 10.61
(-) Addl. Trade Disc 0.88
Net PTS 9.73
Net PTS 9.73
Total Variable Cost 4.75
Gross Contribution 4.98
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