Description
It explains Industry Trends of oleo chemicals , PEST Analysis of oleo chemicals industry, Competitor Analysis, SWOT analysis, Company Description, General Information about the company, it's Finance performance, SWOT analysis and Various Strategies employed.
ANALYSIS OF GODREJ INDUSTRIES LTD. Godrej Industries Limited (GIL) is part of the Godrej group. It is one of the leading business groups in India and is in the businesses of Oleochemicals, surfactants, finance & investments and estate management. It has substantial investments in several industries including oil palm plantation, property development, animal feeds and agro-products, personal, care poultry and household care, confectionery, etc. It’s a public limited Company and is listed on BSE & NSE. Godrej Industries ltd. is India’s largest manufacturer of oleo chemicals. Also Godrej’ Nature’s Basket is a retail venture under Godrej Industries ltd. It also has its share in many industries such as Godrej consumer products, Godrej Agrovet, Godrej Properties, etc. Oleo chemical Industry Analysis: 1) Industry trend: The global industry of basic oleo chemicals is changing at a dramatic pace. While in Europe, US and Japan, the production of fatty acids and fatty alcohols remains constant or is even decreasing, South East Asian countries, with their strong raw material base, are expanding with world scale plants and increasing rapidly their global market share. In glycerin sector, even Europe is showing good signs of growth. It can be expected in South East Asian countries, that the existing producers of basic oleo chemicals will gradually direct their future growth to the development of derivates of fatty acids, fatty alcohols, methyl esters and glycerin. Trend in India is much better than the developed countries. With the world on the path of recovery, the demand of oleo chemicals is increasing. Also the domestic demand is increasing with development. Indian Oleo chemical market is expected to grow at around 6.8%. Domestic demand within Pacific and East Asia region is expected to continue its domination in the Asia Pacific region till 2013. Strong internal demand in China and India which drives the inter region trading will further propel East Asian and Pacific growth rates. Also the abundance of raw materials is an advantage for India. The major players producing oleo chemicals in India are Godrej, Reliance, VVF Ltd., Reliance, Rayalseema, Nirma Ltd., Foods Fats & Fertilizers., Rhodia Chemicals Ltd., & Sunshine Industries. These organizations have modern plans equipped with latest technology and also with excellent techno backup. But due to strong growth in Asian countries and sluggish growth in these countries major companies such as Uniliver ltd, Henkel, etc have already exited this market. Also a new trend to use palm oil as raw materials is increasing nowadays. Palm oil production increasing since 2000 and also it being derived from food grains makes it cheaper. Also as it is derived from food grains it doesn’t require much processing and it is a perennial crop. Thus it is rapidly replacing tallow oil and seed oil. But use of palm oil has one disadvantage. Palm oil production cannot be high continuously as palm oil requires time to recover after a good harvest. Also palm oil lacks in brand image.
The trend now followed by the industry is to go for many derivatives such as betaine, etc. Research to find cheaper products and replacement for non renewable resources. The trend largely depends on the lifestyle of people and their choice of product (i.e. animal oil and fats or vegetable oil and fats or palm oils, etc).
2) PEST analysis: • Political Factors: This Industry uses raw materials available from nature. Thus it has to follow many environmental regulations. Also it has to take care that residues produced don’t harm the environment. Indian companies like Godrej export its products to many countries. Thus they have to abide by international regulations. Also the companies have to follow safety regulations as the products might be harmful to employee and people living nearby. There are anti dumping rules for alcohols which also have to be followed. In India companies have to pay tax such as excise, sales, etc. which often add up to 21%. This is very high compared to other Asian countries. Indian government has withdrawn Fringe benefit tax which has helped this industry. • Economic Factors: This industry is expected to grow at a rate of 3.8% globally and around 6% in Asian countries. The industry very much depends on monetary policies as high interest rates affects the investment in the company. Exchange rates also affect this industry as few raw materials are imported and also the chemicals are exported. In this industry, excise duty and sales tax has to be paid. Rate of depreciation of plant & machinery is relatively high as compared to other companies. The current stage of the business cycle of this industry is of restructuring as the world is recovering from meltdown this industry is restructuring for better future. The industry also has to invest more in waste management as these waste products can’t be dumped in environment. • Social Factors: With the growth in population need of chemicals is increasing. Also increase in crude oil price many industries are switching to oleo chemicals. The chemical produced may also be harmful to labor involved. Thus proper safety measures have to be adopted. Also the waste produced can be harmful to nature. Thus proper waste management is required. Change in lifestyle is also an important factor. i.e. people switching from animal oils and fats to vegetable oils and fats. • Technological Factors: This industry requires huge investment in research. As some of the raw materials are exhaustible, some are not easily available. Thus research in field such as new substitutes for raw material, increase in efficiency, reduction in waste and recycling of waste, etc. The current production of palm oil is around 47 MT. It is expected that in 2012 we would require 75-76 MT. Thus we have to come up with technology which can produce a growth of 3 MT/year./
Energy use and cost is the major contributor to the expenses. Thus methods to reduce this cost are to be researched. There have been new inventions in this industry such as more use of palm oil, methyl ester, etc. With the growth in the industry the suppliers of technologies has increased. For eg. Many suppliers of fatty alcohol technology. To increase the profits many derivatives are being produced. For eg derivatives of glycerine such as betaine. 3) Competitors: The toughest competitors of Godrej industries are ASEAN companies. The reason for this is growth in the Asian market, increase in demand and abundance of raw materials. One of the largest competitors of Godrej Industries is IOI Oleochemical Industries. It is one of the largest palm oil producers. It is involved in oleochemaicals manufacturing and manufacturing specialty oils and fats. The company started in 1980 with the name of Acidchem. In 1981 it bought the shares of Palmco Holdings Berhad. In 1997 Palmco became the official company of IOI Company Berhad. It changed its name to IOI oleochemicals from Palmco Holdings Berhad in 2003 to better represent its membership in IOI group. It was IOI that pioneered the palm based Oleochemical industry. It was the first to set Oleochemical plant that produces exclusively palm based chemicals. Its plant is located in Prai, Penang. The main products manufactured are fatty acids, glycerine, fatty esters and soap noodles. Annual capacity: Fatty acids: 360000 MT Soap noodles: 7500 MT This facility is one of the largest single-location vertically located palm oil refineries. With huge investment in research and development, technology and logistics they supply premium quality products to over 60 countries. Market share: 10% It has a dedicated group of people who keep in touch with modernization in the technology so that it can upgrade its technology and improve the quality of their products. Products: It supplies various products with various packaging options such as: • Distilled fatty acids • Distilled palm fatty acids • Lauric acid • Stearic acid • Natural glycerine There are also various packaging options available such as 185 Kg, 25 Kg, etc.
The packaging for glycerine products is of 270 kg. Partnerships and acquisitions: It emerged as the world’s largest Oleochemical producer following its acquisition Pan Century edible oils and Pan Century oleochemicals in 2007. It entered a 40% joint venture with Peter Greven of Germany to form Peter Greven Asia Ltd. 4) SWOT analysis of the Oleochemical industry: • Strengths: Use of palm oil as a raw material provides various advantages. It is a versatile material which can be used to manufacture edible as well as non-edible products. Due to growth in the industry huge investment is done in R&D. The price of palm oil is also attractive thereby reducing the overall price. Infrastructure is also well developed in ASEAN. Strong infrastructure base helps the industry to innovate in its n\manufacturing and increase its efficiency. • Weakness: There have been many instances of conflicts between producers and refiners. This is affecting the supply of the products. Palm oil lacks in product image. Palm oil is sold mainly on its price. It is used as a substitute of vegetables, etc. Since it has little or no image it becomes easy for anti tropical oil campaigners to dampen the image of palm oil. Lack of information to develop best practice for the industry. There are very few benchmarks to compare. Supply of palm oil cannot be high every successive year as they require time to recover after a good harvest. • Opportunities: Increase in world population is the major opportunity for this sector. The consumption is expected to increase from 6 MT in 2012 to 9MT in 2020. The growth of emerging countries is fuelling the development of a variety of end-user industries including personal care and pharmaceuticals. Also the demand for key ingredients such as fatty acids and fatty alcohol is expected to increase in Southeast Asia. Increase in demand of lauric acid is also an opportunity for this industry. This wide availability of raw materials, abundant supply of vegetable-based raw materials such as palm and coconut oil, could be the driving force for this industry. Change in lifestyle of people i.e. shifting from animal oils to vegetable oils will help this industry to grow. • Threats: Excess use of palm oil in the industry has caused the vegetable oil industry to label their oils and fats to stall the progress of palm oil industry. Increase in competition is making this industry very aggressive. Companies come up with new strategies such as price cutting, quality labeling, etc which can pose a threat to the industry. Also high palm oil production in 2012 can pose a threat to the industry as palm oil requires time to recover after high production. Thus there can be problems in palm oil supply in future. Also this industry is affected by
government policies. Change in environment regulations can affect this company and escalate the cost involved in this company.
GODREJ INDUSTRY LIMITED ANALYSIS: Company Description: Godrej Industries has the reputation of being India's leading manufacturer of oleochemicals. It makes more than a hundred chemicals which are in use in two dozen industries. It also manufactures vanaspati, edible oils and bakery fats. Besides, it has its operations in real estate. It is a member of the Godrej Group. It was established in 1897 and has since grown with great pace. It is now a US $ 1.875 bn conglomerate. The company was initially called Godrej Soaps. On March 31, 2001 the consumer products division got de-merged into Godrej Consumer Products and Godrej Industries. Now there were 2 separate corporate entities: Godrej Consumer Products and Godrej Industries. Godrej Industries also runs 4 divisions — Corporate Finance, Corporate HR, Corporate Audit and Assurance and Research and Development. These divisions operate on behalf of complete Godrej group. The share of the GIL in various companies is as shown below: • Own business: Chemicals, Estate Management, Finance & Investment, Retail (Godrej Nature’s Basket). • Shareholding ? Godrej Nature’s Basket- 100% It’s a retail venture under Godrej Industries Ltd. It is India's foremost retail destination for beverages and fine and gourmet foods from across the world. It was established in 2005 as a single fresh food store. Currently it has today chain of premium Gourmet Stores strategically located at high street locations in Delhi/NCR, Mumbai, Hyderabad, Pune and Bangalore. ? Godrej Agrovet-75.2% o Golden Feed Products- 100% o Godrej seeds & Genetics Ltd- 100% It was initially a division of Godrej Soaps Ltd. It was reformed in 1971 to focus on the agricultural sector. With its innovative offerings in the form of agrochemicals, animal feed, oil palm plantations and poultry over the years, this division has been able to develop a close relationship with farmers. ? Godrej Consumer Products- 21.2%
It is a major player in the Indian FMCG market. It has a huge portfolio of products in the form of personal, hair, and household & fabric care segments. It has three state-of-art manufacturing facilities at Malanpur (MP), Guwahati (Assam) and Baddi (HP). The employee base of this division is 950 people across these industrial plants. ? Godrej Hershey- 43.4% o Nutrine Confectionary- 100% It is one of the most respected business conglomerates established in 2006. Its prime focus is on the food division. The range of products Godrej Hershey involves number of popular products in the segment of Non Carbonated Beverages, Confectionery, Packet Team, Cooking Aids and Edible Oil. ? Godrej Properties- 61.5% It was established in 1990. The aim of the company was to provide ultra-modern townships to customers at affordable prices. It follows a simple philosophy of providing exemplary service making optimal use of available resources. Company details: It is the largest oleochemical manufacturer of India. It was found in 1963. But its existence as Godrej Industries Ltd. happened in March, 2001 after Godrej Soaps demerged into Godrej Consumer Products and Godrej Industries. Headquarters: Mumbai, Maharashtra Board of Directors: Audit Committee:
Compensation Committee:
Shareholders Committee:
Management Committee:
K.K. Dastur (Chairman) S.A. Ahmadullah K.N. Petigara S.A. Ahmadullah (Chairman) A.B. Choudhury K.N. Petigara N.B. Godrej A.B. Godrej (Chairman) T.A. Dubash M. Eipe A.B. Godrej (Chairman) N.B. Godrej T.A. Dubash M. Eipe
Factories: There are in all 3 factories 1) Vikhroli, Mumbai 2) Valia, Gujarat 3) Wadala, Mumbai The company also has 3 branches in: 1) Delhi 2) Kolkata 3) London Shareholding in the company: i) Public shareholdingii)
66,390,718 20.90% Promoters and Promoter group (non encumbered) - 251,234,174 79.10%
Industry Structure and Developments As several developed nations struggling to come out of the economic crisis, the center of gravity has been shifting towards developing economies. While the overall economic outlook for India continues to be strong, GDP growth rate has moderated in recent quarters with FY 2012 growth projected at 6.5% as compared to 8.4% in FY 2011. Segment wise growth: • 2.5 per cent growth in agriculture and allied activities compared to 7.0% in FY11 • 3.6 per cent in industry compared to 6.8% in FY11 • 8.8 per cent in services as compared to 9.2 per cent in Fy11. Global uncertainties, increased volatility in commodity prices and equity markets combined with slow progress on reforms has impacted economic growth, but the opportunity for India remains tremendous. Restoring confidence in the economy through reforms and good governance will be a key step and will boost production and consumption, enhancing investor confidence and reviving growth. Oleo chemicals sector: Oleo chemicals are used in a variety of applications including personal care (hair care, skin care, oral care, and cosmetics), home care (laundry detergents) and pharmaceuticals. Increase in India’s GDP/capita has led to a strong growth in the personal and home care market. Additionally, the significant size of the global personal and home care ingredients markets also represents a potential opportunity. The current environment has however, seen fluctuating raw material costs (i.e. palm and vegetable oil) which impact the oleo chemicals businesses.
Agriculture sector: This is the largest employer in India, benefitted from favorable monsoons in FY 2012. The FY 2013 Union Budget has increased the allocation to the sector by 18% to enhance agriculture growth and back programs which have led to record food grain production in FY12. In the past years, the government has provided the agriculture sector a boost, by giving benefits such as funding enablers for facilitating productivity increase, strengthening agridistribution and storage as well as providing additional access to credit for farmers. The animal feed industry in India is evolving towards being a more organized sector with multinational feed millers also entering the market. The industry’s growth and potential are supported by the fact that India is among the largest livestock producing countries and that the feed industry has been traditionally comprised of home mixers. Real estate sector: This sector witnessed a tough year in FY 2012. After reaching a peak in prices as a result of increased construction costs and anticipated demand, residential absorption rates fell significantly across many cities, while rentals for commercial projects remained stagnant. Availability of affordable financing is a key driver for consumer demand and high interest rates combined with high inflation in the last fiscal year have been a deterrent. Regulatory changes also resulted in project delays across the real estate sector. Going forward, overall demand and need for housing in India continues to be strong particularly due to rapid urbanization and migration.
FINANCIAL PERFORMANCE OF THE COMPANY:
Sales and Profit Particulars Sales Total Income Profit Before Tax Profit after tax 2011-2012 Rs 1438.04 cr Rs 1,563.13 cr Rs 201.05 cr Rs 201.56 cr 2010-2011 Rs 1,112.33 cr Rs 1,254.54 cr Rs 136.01 cr Rs 133.43 cr
Segment wise Performance 1. Segment Revenue Chemicals Estate Finance & Investment Others Total
2. Segment Results(PBIT)
Rs 1,283.60 cr Rs 52.88 cr Rs 215.38 cr Rs 11.27 cr Rs 1,563.13 cr
Rs 1,022.50 Rs 52.87 Rs 166.42 Rs 12.75 Rs 1,254.54
Chemicals Estate Finance & Investment Others Total
Rs 119.88 cr Rs 39.69 cr Rs 215.38 cr Rs (4.00) cr Rs 370.95 cr
Rs 89.42 cr Rs 41.62 cr Rs 155.94 cr Rs (1.62) cr Rs 285.36 cr
As we can see that there is a great improvement in the sales and profit of the company mainly contributed by the chemicals and finance & investment sector. This result can be attributed to increase in domestic consumption and modernization of technology. Also high palm oil production in the current year contributed to this improvement. The realty sector took a hit in the last year due to the slowdown in economy. Less people buying houses and change in government rule regarding land leases and FSI norms has had an impact on this sector. Oleochemical segment: Exports: Rs 560 cr which is 42% of this turnover High increase in demand is the contributor.
Fatty acids:
This sector comprises of comprising stearic acid, oleic acid, as well as specialty fatty acids. It contributed to 39 % of turnover. Cost reduction and market development initiatives have fuelled a growth of 26% in this category. Fatty Alcohol: It contributed 41% to turnover. The sales revenue increased by around 25%. Increase in demand and commodity prices is the reason for this growth. Effective product mix and customer focus was the reason for growth in the market and also increased its share of business with some major multinational companies. This category saw a growth of 39% in revenues from sale to BRIC territories which are fast growing markets and have been identified as focus regions for expansion of the business. Surfactants: Surfactants contributed 16% to the turnover. Sales grew by 21% in value terms as compared to the previous year. The products have been approved by several multinational companies. Glycerin Glycerin accounted for 4% of the turnover of this division. Revenues increased by 23% in view of higher unit price of Glycerin. Being largely a byproduct, additional sales are mostly opportunistic, depending on market conditions. SWOT analysis: Strengths: • It has got wide range of branches within the country. • It has wide range of product line. • It is having better Sales after services. • It has respectable and believable brand name. • Large number of customer base with higher satisfaction. • The company has good international presence in BRICS nations. • The mgmt is trained and efficient with good service centers in all states. Weakness: • The Company does not go for much advertising • Less manpower at sale officer level. • Effective selling schemes such as payment on installments, etc. are not available. • Commodity price risks affect the business relating to raw materials which form the largest portion of the costs of both the Veg. Oil and Chemicals businesses. • Factors including economic and political developments, natural calamities which affect the industrial sector also affect the businesses. Opportunities:
• • •
• •
Specialty products are expected to grow and improve margin and strengthen company’s position. The Estate management business can continue to increase revenues by optimizing the available space usage in the campus. Using the benefits of the location such as assured power supply, infrastructural benefits, and better connectivity. Opportunities in the various by products market. Increase in demand in BRICS nations.
Threats: • Increase in competition in the chemicals margin can take a toll on profit margin. • There could be an over-supply situation in the market due to new capacity additions announced earlier which can put pressure on margins. • The Commodity based businesses can be affected by demand for edible oil, vagaries of the weather, oilseed production, etc. • The Chemicals business growth also depends on the growth of end user industries like detergent, polymer, cosmetic and personal care. • Legislative changes resulting in a change in the duties and levies, taxes, whether local or central, also impact business performance and relative competitiveness of the businesses. Strategies Employed by the company: Godrej Industries is making huge initiatives to Go Green. This vision has been named “Godrej Good & Green”. As part of Good & Green, the Group aspires by 2020, to create a greener India, more employable Indian workforce and innovate for good and green products. The goals of this initiative are: • Training 1 million rural and urban youth. • Achieving carbon neutrality, zero waste, positive water balance. • Reducing energy consumption and making more use of non renewable sources. • 1/3 rd of revenues from Good & Green products. Conservation of energy in future: • Vikhroli plant: ? Vacuum system replaced by new system resulting in savings of Rs 71lacs/annum. ? New triple effect evaporation plant for converting dilute sweet water to crude glycerin. Savings of Rs 180 lacs/annum due to reduction in power consumption. Valia plant: ? Installed multiple effect evaporator at plant for TDS reduction ? Implemented Water recycling techniques
•
In the year 2012-13 Vikhroli factory operations will be shifted to additional Ambernath MIDC. Upgradation of Fat splitting, Sulphonation plant and Hydrogenation technology for reduction in energy consumptions is going to be done. Technology adaptation and innovation: Specific areas under which Research and Development was done include Fatty Alcohol Derivatives & Formulations, Oils and Fatty Acids, Surfactants, Fatty Alcohol, Glycerine,. The benefits of this research initiatives: • Premium quality fatty acids using economy grade raw materials • Understanding the impact of manufacturing and raw material quality process on the quality of the finished goods. • Manufacture of high value pure cut fatty acids, specifically for the polymer, oil field and lubricant industries. • Qualification of specialty surfactants for personal care and oral care products. • Value added derivatives of fatty alcohols so as to enter certain niche markets in India and abroad. Future Plans: • Commercialization of the specialty derivative of Glycerine, so as to enter niche markets in the fields of polymers, personal Care and foods. • Specialty surfactants used in personal care products, pharmaceuticals and textile auxiliaries. They encompass emulsifiers, foam stabilizers, conditioning agents, emollients, viscosifying and pearlizing agents.
doc_618484137.doc
It explains Industry Trends of oleo chemicals , PEST Analysis of oleo chemicals industry, Competitor Analysis, SWOT analysis, Company Description, General Information about the company, it's Finance performance, SWOT analysis and Various Strategies employed.
ANALYSIS OF GODREJ INDUSTRIES LTD. Godrej Industries Limited (GIL) is part of the Godrej group. It is one of the leading business groups in India and is in the businesses of Oleochemicals, surfactants, finance & investments and estate management. It has substantial investments in several industries including oil palm plantation, property development, animal feeds and agro-products, personal, care poultry and household care, confectionery, etc. It’s a public limited Company and is listed on BSE & NSE. Godrej Industries ltd. is India’s largest manufacturer of oleo chemicals. Also Godrej’ Nature’s Basket is a retail venture under Godrej Industries ltd. It also has its share in many industries such as Godrej consumer products, Godrej Agrovet, Godrej Properties, etc. Oleo chemical Industry Analysis: 1) Industry trend: The global industry of basic oleo chemicals is changing at a dramatic pace. While in Europe, US and Japan, the production of fatty acids and fatty alcohols remains constant or is even decreasing, South East Asian countries, with their strong raw material base, are expanding with world scale plants and increasing rapidly their global market share. In glycerin sector, even Europe is showing good signs of growth. It can be expected in South East Asian countries, that the existing producers of basic oleo chemicals will gradually direct their future growth to the development of derivates of fatty acids, fatty alcohols, methyl esters and glycerin. Trend in India is much better than the developed countries. With the world on the path of recovery, the demand of oleo chemicals is increasing. Also the domestic demand is increasing with development. Indian Oleo chemical market is expected to grow at around 6.8%. Domestic demand within Pacific and East Asia region is expected to continue its domination in the Asia Pacific region till 2013. Strong internal demand in China and India which drives the inter region trading will further propel East Asian and Pacific growth rates. Also the abundance of raw materials is an advantage for India. The major players producing oleo chemicals in India are Godrej, Reliance, VVF Ltd., Reliance, Rayalseema, Nirma Ltd., Foods Fats & Fertilizers., Rhodia Chemicals Ltd., & Sunshine Industries. These organizations have modern plans equipped with latest technology and also with excellent techno backup. But due to strong growth in Asian countries and sluggish growth in these countries major companies such as Uniliver ltd, Henkel, etc have already exited this market. Also a new trend to use palm oil as raw materials is increasing nowadays. Palm oil production increasing since 2000 and also it being derived from food grains makes it cheaper. Also as it is derived from food grains it doesn’t require much processing and it is a perennial crop. Thus it is rapidly replacing tallow oil and seed oil. But use of palm oil has one disadvantage. Palm oil production cannot be high continuously as palm oil requires time to recover after a good harvest. Also palm oil lacks in brand image.
The trend now followed by the industry is to go for many derivatives such as betaine, etc. Research to find cheaper products and replacement for non renewable resources. The trend largely depends on the lifestyle of people and their choice of product (i.e. animal oil and fats or vegetable oil and fats or palm oils, etc).
2) PEST analysis: • Political Factors: This Industry uses raw materials available from nature. Thus it has to follow many environmental regulations. Also it has to take care that residues produced don’t harm the environment. Indian companies like Godrej export its products to many countries. Thus they have to abide by international regulations. Also the companies have to follow safety regulations as the products might be harmful to employee and people living nearby. There are anti dumping rules for alcohols which also have to be followed. In India companies have to pay tax such as excise, sales, etc. which often add up to 21%. This is very high compared to other Asian countries. Indian government has withdrawn Fringe benefit tax which has helped this industry. • Economic Factors: This industry is expected to grow at a rate of 3.8% globally and around 6% in Asian countries. The industry very much depends on monetary policies as high interest rates affects the investment in the company. Exchange rates also affect this industry as few raw materials are imported and also the chemicals are exported. In this industry, excise duty and sales tax has to be paid. Rate of depreciation of plant & machinery is relatively high as compared to other companies. The current stage of the business cycle of this industry is of restructuring as the world is recovering from meltdown this industry is restructuring for better future. The industry also has to invest more in waste management as these waste products can’t be dumped in environment. • Social Factors: With the growth in population need of chemicals is increasing. Also increase in crude oil price many industries are switching to oleo chemicals. The chemical produced may also be harmful to labor involved. Thus proper safety measures have to be adopted. Also the waste produced can be harmful to nature. Thus proper waste management is required. Change in lifestyle is also an important factor. i.e. people switching from animal oils and fats to vegetable oils and fats. • Technological Factors: This industry requires huge investment in research. As some of the raw materials are exhaustible, some are not easily available. Thus research in field such as new substitutes for raw material, increase in efficiency, reduction in waste and recycling of waste, etc. The current production of palm oil is around 47 MT. It is expected that in 2012 we would require 75-76 MT. Thus we have to come up with technology which can produce a growth of 3 MT/year./
Energy use and cost is the major contributor to the expenses. Thus methods to reduce this cost are to be researched. There have been new inventions in this industry such as more use of palm oil, methyl ester, etc. With the growth in the industry the suppliers of technologies has increased. For eg. Many suppliers of fatty alcohol technology. To increase the profits many derivatives are being produced. For eg derivatives of glycerine such as betaine. 3) Competitors: The toughest competitors of Godrej industries are ASEAN companies. The reason for this is growth in the Asian market, increase in demand and abundance of raw materials. One of the largest competitors of Godrej Industries is IOI Oleochemical Industries. It is one of the largest palm oil producers. It is involved in oleochemaicals manufacturing and manufacturing specialty oils and fats. The company started in 1980 with the name of Acidchem. In 1981 it bought the shares of Palmco Holdings Berhad. In 1997 Palmco became the official company of IOI Company Berhad. It changed its name to IOI oleochemicals from Palmco Holdings Berhad in 2003 to better represent its membership in IOI group. It was IOI that pioneered the palm based Oleochemical industry. It was the first to set Oleochemical plant that produces exclusively palm based chemicals. Its plant is located in Prai, Penang. The main products manufactured are fatty acids, glycerine, fatty esters and soap noodles. Annual capacity: Fatty acids: 360000 MT Soap noodles: 7500 MT This facility is one of the largest single-location vertically located palm oil refineries. With huge investment in research and development, technology and logistics they supply premium quality products to over 60 countries. Market share: 10% It has a dedicated group of people who keep in touch with modernization in the technology so that it can upgrade its technology and improve the quality of their products. Products: It supplies various products with various packaging options such as: • Distilled fatty acids • Distilled palm fatty acids • Lauric acid • Stearic acid • Natural glycerine There are also various packaging options available such as 185 Kg, 25 Kg, etc.
The packaging for glycerine products is of 270 kg. Partnerships and acquisitions: It emerged as the world’s largest Oleochemical producer following its acquisition Pan Century edible oils and Pan Century oleochemicals in 2007. It entered a 40% joint venture with Peter Greven of Germany to form Peter Greven Asia Ltd. 4) SWOT analysis of the Oleochemical industry: • Strengths: Use of palm oil as a raw material provides various advantages. It is a versatile material which can be used to manufacture edible as well as non-edible products. Due to growth in the industry huge investment is done in R&D. The price of palm oil is also attractive thereby reducing the overall price. Infrastructure is also well developed in ASEAN. Strong infrastructure base helps the industry to innovate in its n\manufacturing and increase its efficiency. • Weakness: There have been many instances of conflicts between producers and refiners. This is affecting the supply of the products. Palm oil lacks in product image. Palm oil is sold mainly on its price. It is used as a substitute of vegetables, etc. Since it has little or no image it becomes easy for anti tropical oil campaigners to dampen the image of palm oil. Lack of information to develop best practice for the industry. There are very few benchmarks to compare. Supply of palm oil cannot be high every successive year as they require time to recover after a good harvest. • Opportunities: Increase in world population is the major opportunity for this sector. The consumption is expected to increase from 6 MT in 2012 to 9MT in 2020. The growth of emerging countries is fuelling the development of a variety of end-user industries including personal care and pharmaceuticals. Also the demand for key ingredients such as fatty acids and fatty alcohol is expected to increase in Southeast Asia. Increase in demand of lauric acid is also an opportunity for this industry. This wide availability of raw materials, abundant supply of vegetable-based raw materials such as palm and coconut oil, could be the driving force for this industry. Change in lifestyle of people i.e. shifting from animal oils to vegetable oils will help this industry to grow. • Threats: Excess use of palm oil in the industry has caused the vegetable oil industry to label their oils and fats to stall the progress of palm oil industry. Increase in competition is making this industry very aggressive. Companies come up with new strategies such as price cutting, quality labeling, etc which can pose a threat to the industry. Also high palm oil production in 2012 can pose a threat to the industry as palm oil requires time to recover after high production. Thus there can be problems in palm oil supply in future. Also this industry is affected by
government policies. Change in environment regulations can affect this company and escalate the cost involved in this company.
GODREJ INDUSTRY LIMITED ANALYSIS: Company Description: Godrej Industries has the reputation of being India's leading manufacturer of oleochemicals. It makes more than a hundred chemicals which are in use in two dozen industries. It also manufactures vanaspati, edible oils and bakery fats. Besides, it has its operations in real estate. It is a member of the Godrej Group. It was established in 1897 and has since grown with great pace. It is now a US $ 1.875 bn conglomerate. The company was initially called Godrej Soaps. On March 31, 2001 the consumer products division got de-merged into Godrej Consumer Products and Godrej Industries. Now there were 2 separate corporate entities: Godrej Consumer Products and Godrej Industries. Godrej Industries also runs 4 divisions — Corporate Finance, Corporate HR, Corporate Audit and Assurance and Research and Development. These divisions operate on behalf of complete Godrej group. The share of the GIL in various companies is as shown below: • Own business: Chemicals, Estate Management, Finance & Investment, Retail (Godrej Nature’s Basket). • Shareholding ? Godrej Nature’s Basket- 100% It’s a retail venture under Godrej Industries Ltd. It is India's foremost retail destination for beverages and fine and gourmet foods from across the world. It was established in 2005 as a single fresh food store. Currently it has today chain of premium Gourmet Stores strategically located at high street locations in Delhi/NCR, Mumbai, Hyderabad, Pune and Bangalore. ? Godrej Agrovet-75.2% o Golden Feed Products- 100% o Godrej seeds & Genetics Ltd- 100% It was initially a division of Godrej Soaps Ltd. It was reformed in 1971 to focus on the agricultural sector. With its innovative offerings in the form of agrochemicals, animal feed, oil palm plantations and poultry over the years, this division has been able to develop a close relationship with farmers. ? Godrej Consumer Products- 21.2%
It is a major player in the Indian FMCG market. It has a huge portfolio of products in the form of personal, hair, and household & fabric care segments. It has three state-of-art manufacturing facilities at Malanpur (MP), Guwahati (Assam) and Baddi (HP). The employee base of this division is 950 people across these industrial plants. ? Godrej Hershey- 43.4% o Nutrine Confectionary- 100% It is one of the most respected business conglomerates established in 2006. Its prime focus is on the food division. The range of products Godrej Hershey involves number of popular products in the segment of Non Carbonated Beverages, Confectionery, Packet Team, Cooking Aids and Edible Oil. ? Godrej Properties- 61.5% It was established in 1990. The aim of the company was to provide ultra-modern townships to customers at affordable prices. It follows a simple philosophy of providing exemplary service making optimal use of available resources. Company details: It is the largest oleochemical manufacturer of India. It was found in 1963. But its existence as Godrej Industries Ltd. happened in March, 2001 after Godrej Soaps demerged into Godrej Consumer Products and Godrej Industries. Headquarters: Mumbai, Maharashtra Board of Directors: Audit Committee:
Compensation Committee:
Shareholders Committee:
Management Committee:
K.K. Dastur (Chairman) S.A. Ahmadullah K.N. Petigara S.A. Ahmadullah (Chairman) A.B. Choudhury K.N. Petigara N.B. Godrej A.B. Godrej (Chairman) T.A. Dubash M. Eipe A.B. Godrej (Chairman) N.B. Godrej T.A. Dubash M. Eipe
Factories: There are in all 3 factories 1) Vikhroli, Mumbai 2) Valia, Gujarat 3) Wadala, Mumbai The company also has 3 branches in: 1) Delhi 2) Kolkata 3) London Shareholding in the company: i) Public shareholdingii)
66,390,718 20.90% Promoters and Promoter group (non encumbered) - 251,234,174 79.10%
Industry Structure and Developments As several developed nations struggling to come out of the economic crisis, the center of gravity has been shifting towards developing economies. While the overall economic outlook for India continues to be strong, GDP growth rate has moderated in recent quarters with FY 2012 growth projected at 6.5% as compared to 8.4% in FY 2011. Segment wise growth: • 2.5 per cent growth in agriculture and allied activities compared to 7.0% in FY11 • 3.6 per cent in industry compared to 6.8% in FY11 • 8.8 per cent in services as compared to 9.2 per cent in Fy11. Global uncertainties, increased volatility in commodity prices and equity markets combined with slow progress on reforms has impacted economic growth, but the opportunity for India remains tremendous. Restoring confidence in the economy through reforms and good governance will be a key step and will boost production and consumption, enhancing investor confidence and reviving growth. Oleo chemicals sector: Oleo chemicals are used in a variety of applications including personal care (hair care, skin care, oral care, and cosmetics), home care (laundry detergents) and pharmaceuticals. Increase in India’s GDP/capita has led to a strong growth in the personal and home care market. Additionally, the significant size of the global personal and home care ingredients markets also represents a potential opportunity. The current environment has however, seen fluctuating raw material costs (i.e. palm and vegetable oil) which impact the oleo chemicals businesses.
Agriculture sector: This is the largest employer in India, benefitted from favorable monsoons in FY 2012. The FY 2013 Union Budget has increased the allocation to the sector by 18% to enhance agriculture growth and back programs which have led to record food grain production in FY12. In the past years, the government has provided the agriculture sector a boost, by giving benefits such as funding enablers for facilitating productivity increase, strengthening agridistribution and storage as well as providing additional access to credit for farmers. The animal feed industry in India is evolving towards being a more organized sector with multinational feed millers also entering the market. The industry’s growth and potential are supported by the fact that India is among the largest livestock producing countries and that the feed industry has been traditionally comprised of home mixers. Real estate sector: This sector witnessed a tough year in FY 2012. After reaching a peak in prices as a result of increased construction costs and anticipated demand, residential absorption rates fell significantly across many cities, while rentals for commercial projects remained stagnant. Availability of affordable financing is a key driver for consumer demand and high interest rates combined with high inflation in the last fiscal year have been a deterrent. Regulatory changes also resulted in project delays across the real estate sector. Going forward, overall demand and need for housing in India continues to be strong particularly due to rapid urbanization and migration.
FINANCIAL PERFORMANCE OF THE COMPANY:
Sales and Profit Particulars Sales Total Income Profit Before Tax Profit after tax 2011-2012 Rs 1438.04 cr Rs 1,563.13 cr Rs 201.05 cr Rs 201.56 cr 2010-2011 Rs 1,112.33 cr Rs 1,254.54 cr Rs 136.01 cr Rs 133.43 cr
Segment wise Performance 1. Segment Revenue Chemicals Estate Finance & Investment Others Total
2. Segment Results(PBIT)
Rs 1,283.60 cr Rs 52.88 cr Rs 215.38 cr Rs 11.27 cr Rs 1,563.13 cr
Rs 1,022.50 Rs 52.87 Rs 166.42 Rs 12.75 Rs 1,254.54
Chemicals Estate Finance & Investment Others Total
Rs 119.88 cr Rs 39.69 cr Rs 215.38 cr Rs (4.00) cr Rs 370.95 cr
Rs 89.42 cr Rs 41.62 cr Rs 155.94 cr Rs (1.62) cr Rs 285.36 cr
As we can see that there is a great improvement in the sales and profit of the company mainly contributed by the chemicals and finance & investment sector. This result can be attributed to increase in domestic consumption and modernization of technology. Also high palm oil production in the current year contributed to this improvement. The realty sector took a hit in the last year due to the slowdown in economy. Less people buying houses and change in government rule regarding land leases and FSI norms has had an impact on this sector. Oleochemical segment: Exports: Rs 560 cr which is 42% of this turnover High increase in demand is the contributor.
Fatty acids:
This sector comprises of comprising stearic acid, oleic acid, as well as specialty fatty acids. It contributed to 39 % of turnover. Cost reduction and market development initiatives have fuelled a growth of 26% in this category. Fatty Alcohol: It contributed 41% to turnover. The sales revenue increased by around 25%. Increase in demand and commodity prices is the reason for this growth. Effective product mix and customer focus was the reason for growth in the market and also increased its share of business with some major multinational companies. This category saw a growth of 39% in revenues from sale to BRIC territories which are fast growing markets and have been identified as focus regions for expansion of the business. Surfactants: Surfactants contributed 16% to the turnover. Sales grew by 21% in value terms as compared to the previous year. The products have been approved by several multinational companies. Glycerin Glycerin accounted for 4% of the turnover of this division. Revenues increased by 23% in view of higher unit price of Glycerin. Being largely a byproduct, additional sales are mostly opportunistic, depending on market conditions. SWOT analysis: Strengths: • It has got wide range of branches within the country. • It has wide range of product line. • It is having better Sales after services. • It has respectable and believable brand name. • Large number of customer base with higher satisfaction. • The company has good international presence in BRICS nations. • The mgmt is trained and efficient with good service centers in all states. Weakness: • The Company does not go for much advertising • Less manpower at sale officer level. • Effective selling schemes such as payment on installments, etc. are not available. • Commodity price risks affect the business relating to raw materials which form the largest portion of the costs of both the Veg. Oil and Chemicals businesses. • Factors including economic and political developments, natural calamities which affect the industrial sector also affect the businesses. Opportunities:
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Specialty products are expected to grow and improve margin and strengthen company’s position. The Estate management business can continue to increase revenues by optimizing the available space usage in the campus. Using the benefits of the location such as assured power supply, infrastructural benefits, and better connectivity. Opportunities in the various by products market. Increase in demand in BRICS nations.
Threats: • Increase in competition in the chemicals margin can take a toll on profit margin. • There could be an over-supply situation in the market due to new capacity additions announced earlier which can put pressure on margins. • The Commodity based businesses can be affected by demand for edible oil, vagaries of the weather, oilseed production, etc. • The Chemicals business growth also depends on the growth of end user industries like detergent, polymer, cosmetic and personal care. • Legislative changes resulting in a change in the duties and levies, taxes, whether local or central, also impact business performance and relative competitiveness of the businesses. Strategies Employed by the company: Godrej Industries is making huge initiatives to Go Green. This vision has been named “Godrej Good & Green”. As part of Good & Green, the Group aspires by 2020, to create a greener India, more employable Indian workforce and innovate for good and green products. The goals of this initiative are: • Training 1 million rural and urban youth. • Achieving carbon neutrality, zero waste, positive water balance. • Reducing energy consumption and making more use of non renewable sources. • 1/3 rd of revenues from Good & Green products. Conservation of energy in future: • Vikhroli plant: ? Vacuum system replaced by new system resulting in savings of Rs 71lacs/annum. ? New triple effect evaporation plant for converting dilute sweet water to crude glycerin. Savings of Rs 180 lacs/annum due to reduction in power consumption. Valia plant: ? Installed multiple effect evaporator at plant for TDS reduction ? Implemented Water recycling techniques
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In the year 2012-13 Vikhroli factory operations will be shifted to additional Ambernath MIDC. Upgradation of Fat splitting, Sulphonation plant and Hydrogenation technology for reduction in energy consumptions is going to be done. Technology adaptation and innovation: Specific areas under which Research and Development was done include Fatty Alcohol Derivatives & Formulations, Oils and Fatty Acids, Surfactants, Fatty Alcohol, Glycerine,. The benefits of this research initiatives: • Premium quality fatty acids using economy grade raw materials • Understanding the impact of manufacturing and raw material quality process on the quality of the finished goods. • Manufacture of high value pure cut fatty acids, specifically for the polymer, oil field and lubricant industries. • Qualification of specialty surfactants for personal care and oral care products. • Value added derivatives of fatty alcohols so as to enter certain niche markets in India and abroad. Future Plans: • Commercialization of the specialty derivative of Glycerine, so as to enter niche markets in the fields of polymers, personal Care and foods. • Specialty surfactants used in personal care products, pharmaceuticals and textile auxiliaries. They encompass emulsifiers, foam stabilizers, conditioning agents, emollients, viscosifying and pearlizing agents.
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