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
Excerpts
The Restructuring
The restructuring process began with the formation of a core management team. Each business of the company was first analyzed to determine whether it was viable. For this analysis, Voltas evaluated the business on market size, growth potential, and strength of the competition. Then, it assessed whether the company had the necessary competence to compete successfully against the competition on critical success factors in the particular business. When a business did not fare well in the evaluation, it was identified to be sold. The restructuring exercise also involved the reorganization of Voltas' businesses around their core competencies of air conditioning and engineering - two businesses which, according to company sources, had yielded the most sustainable growth for many years. Another priority for the top management of Voltas was to stabilize the cash flow position of the company. For this, the company's idle assets were either leased or were sold off to help finance the restructuring. For example, in 1998, Voltas sold a part of its unutilized real estate and realized Rs. 560 million...
Identifying Avenues For Growth
The turnaround efforts of the company took three years to bear fruit. From a loss of Rs. 119 million in 1998-99, Voltas recorded an operating profit of Rs. 69 million in 2000. The company offered a dividend of 12 per cent in 2000. Though Voltas' turnaround efforts had begun to show results, it still had to address the issue of low operating margins, which were at less than five per cent. In 2001, there was another change in management with Ashok Soni (Soni) taking over as the managing director of the company...
The Electro-Mechanical Business
Voltas' electromechanical division delivered solutions in several areas. It operated in India as well as in several markets, either independently or through joint ventures. This division had been very successful all through and contributed significantly to the company's profits. Over the years, through its wholly-owned subsidiary, Voltas International Limited (VIL), Voltas had executed a number of electro-mechanical projects at several overseas locations. The unit, which won several awards for its export performance, maintained good relations with several international consultants...
The Unitary Cooling Business
Voltas' other area of focus was the unitary cooling products business consisting of commercial refrigerator business, water cooling business, retail refrigerator business, and most importantly, the room air-conditioning (RAC) business. Voltas had retained one refrigerator manufacturing unit, which continued to manufacture refrigerators for the retail market on contract basis...
The Big Bang Strategy
The Big Bang strategy aimed to revitalize every facet of the AC business - product, channel, systems, service, costs, and brand. The high profit margins that the company had enjoyed until the early 1990s had become a thing of the past, due to the price war unleashed by the MNCs. Therefore, in order to improve margins, Voltas either had to increase prices or reduce costs. While the former was not really an option owing to intense competition, Voltas set out to secure economies of scale. However, this meant that it would have to sell in large volumes. "Volumes became critical for survival. Economies of scale were critical," said Jawa...
Rise to the Top?
Going by market shares, the 'Big Bang' strategy was a success. Within a year of its implementation, the company's ranking in the retail AC market leapfrogged from No.7 to No.2. Voltas' ranking in the water coolers market also rose from No. 3 to No.1 (Refer Table II for trends in the market share of Voltas). From 2001 up till 2005, the company was able to maintain its position in the market...
Retail Refrigerator Business: A Drain On Resources
The retail refrigerator business, a part of the unitary cooling business of Voltas, accounted for most of the division's losses. "In the Unitary Products segment, in the fourth quarter of last year, 2004-05, we had a loss of Rs. 37.4 mn because of the weak performance of the Hyderabad unit. In this unit we used to incur a loss of about Rs. 140-150 mn every year," said MM Miyajiwala (Miyajiwala), executive vice-president (Finance) and CFO, Voltas. After the restructuring, Voltas had retained one refrigeration manufacturing unit at Hyderabad. This unit manufactured refrigerators for other OEMs...
Outlook
As of early 2006, Voltas was expecting to grow in all its businesses . Voltas' unitary cooling business division aimed to cross Rs. 10 billion in sales by 2008. Rising incomes and availability of cheap consumer credit was expected to fuel the demand for ACs in India. The low penetration of ACs indicated that there was immense potential for growth. Voltas was also planning to set up a research center for product development near its new manufacturing facility in Uttaranchal...
Exhibits
Exhibit I: Voltas Revenue Break-Up In Fy06
Exhibit II - Shareholding Pattern At Voltas
Exhibit III - Voltas Business Segments (2006)
Exhibit IV - Employee Rationalization
Exhibit V - Capital Employed At Voltas
Exhibit VI - More Information On Voltas' Business Segments
Exhibit VII - Growth Of Retail Ac Market
Exhibit VIII - Market Share Moving Away From Unorganized Players
Exhibit IX - The 'Acs With Iq' Ad
Exhibit X - Market Shares In The Indian Ac Market
Exhibit XI - 5 Year Financials Of Voltas
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