Voltas Ltd.: From Turnaround to the 'Big Bang'
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Case Code: BSTR225 Case Length: 21 Pages Period: 1996-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.400 Organization: Voltas Ltd. Industry: Consumer Electronics Countries: India Themes: Diversification, Turnaround |
Abstract Case Intro 1 Case Intro 2 Excerpts
"With the restructuring well in place and a robust order book position, the company has confidence that a strong growth trajectory will be maintained as we go forward. The focus on streamlining processes, cost and financial management has also helped in the growth of profitability."
- M M Miyajiwala, Executive Vice President (Finance) and CFO, Voltas Ltd., in 2006.
"Two factors were hindering the growth of the industry (air-conditioning): initial and recurring costs. No other company thought of breaking the price barrier; our idea has paid off."
- K. J. Jawa, Vice President (Operations), Voltas Ltd., in 2004.
Introduction
In March 2006, Voltas Ltd. (Voltas), a part of the Tata Group and a major player in the Indian air conditioner (AC) market, announced plans to invest about Rs. 200 million in brand-building and another Rs. 60 million in expanding its distribution network in the retail AC market for the year 2006-2007. With this investment, the company aimed to capture a 20% market share in the Indian retail AC market by fiscal 2007. It also announced plans to start production of ACs at its new plant at Pantnagar in Uttaranchal, a location which allowed the company to claim some tax exemptions. Voltas, established in 1954, initially marketed imported products5 and provided engineering services. In the 1960s, it started manufacturing air-conditioning and refrigeration equipment. Gradually, it became a leading player in the Indian AC market. Even in the refrigeration market the company did reasonably well.
Anticipating high growth in the retail refrigerator market, Voltas invested heavily in the business between 1994 and 1997. However, in 1996-97, the market shrank by around 9%. Also, Voltas had diversified into several unrelated businesses like pesticides, furniture, granites,6 etc., in the period. By the mid 1990s, the management of these businesses proved to be difficult and some of them became a drag on the balance sheet. These factors led to Voltas registering its first loss in 1996-97. Subsequently, Voltas embarked on a major restructuring exercise. It was decided that the company would concentrate primarily on its air-conditioning and engineering businesses. Some of its unrelated businesses were sold off. The company also reduced its manpower. These measures proved successful in making the company profitable again. After the successful turnaround, the company tried to improve its operating margins which had contracted owing to intense competition. For this, it began an exercise to identify avenues for future growth in its businesses. The company identified electromechanical projects and the retail AC market as potential growth drivers.
In 2001, Voltas began focusing on large electromechanical projects in overseas markets. In the same year, Voltas also formulated the 'Big Bang' strategy aimed at becoming the market leader in the retail AC segment by 2004. Voltas' strategy of concentrating on businesses where it had proven strengths helped it to improve profitability and register high growth levels. By 2006, the company was second in the retail AC market and its electromechanical division was the fastest growing and the highest revenue earning division in the company. The company's other divisions like chemical trading and engineering products and services - textile machinery, mining and construction, machine tools, material handling (forklift trucks), were also doing well. Overall, the company was in a position to benefit from the huge opportunities that were coming its way and it expected future growth rates to remain high...
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