TTK PRESTIGE LTDWHISTLING ITS WAY TO THE TOPhellip

SUBMITTED TO

DR HIMANI SHARMA

BY

PSRANJIT (27)BINU KUMAR (33)SRINIVAS ACHARYA (41)RIBHU MAHAJAN (44)VINEET GOEL (60)SRIJIT CHATTERJEE (61)

1

INDEX

SL No DETAILS PAGE No

1) EXECUTIVE SUMMARY 3

2) INTRODUCTION 7

3) MAJOR PROBLEM 18 IDENTIFICATION

4) SITUATIONAL ANALYSIS

a) GRAND STRATEGIES 24

b) GENERIC 26

c) PORTFOLIO 30

d) PORTERrsquoS 5 FORCES MODEL 38

e) PESTLE 43

f) CAP 44

g) SWOT 49

h) VALUE CHAIN ANALYSIS 46

i) SOLUTIONSTATEGIES ALTERNATIVES 53

5) CONCLUSION 55

6) REFRENCES 56

EXECUTIVE SUMMARY

2

TTK PRESTIGE LTD

A TTK Group Chennai based company TTK prestige is one of the leading players in the domestic kitchen appliances industry Its product portfolio spans from domestic cooking vessels to electrical appliances and has recently forayed into modular kitchen designing TTKrsquos products include pressure cookers non-stick cookware electrical appliances amp gas stoves all of which command high brand recall and a price premium over competitors

bull The companyrsquos topline has grown at 150+ CAGR over the last 5 years Profitability also improved and grew by 30+ over the same time period The strategy for maintaining growth and improving profitability has been product innovation brand building and financial prudence

bull The company has over the years evolved from being a mere pressure cooker product brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company grow faster than the industry while branded industry itself will grow at 5-6

bull The pressure cooker industry which has a penetration of mere 30-35 in India has a lot of scope of growth with increased availability of LPG amp piped natural gas in the next few years While the non-stick cookware segment will grow on the back of replacement demand urbanization and growing health consciousness in cooking styles

bull We believe the macro demographic trends in India will drive the growth of the kitchen appliance industry per se The companyrsquos vision for new business opportunities such

3

as modular kitchens and its product innovation provides good business visibility for the company

Mainstay Pressure Cooker Segment Growing at a Stable Rate

bull Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-agrave-vis inner lid cookers

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market

bull The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

bull Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

bull TTKrsquos strategy in this segment has been to innovate and give the user a better product experience TTK has introduced both aluminum and stainless steel cookers the latter of which has given boost to the overall average realization

4

bull TTKrsquos product innovation superior quality and product technology has always enabled it to command a superior price realization over its peers Prestige cookers are targeted towards middle class and the upper middle class and enjoy a 3-5 price premium over other branded manufacturers

De-Risking Business by focusing on the Non-Stick Cookware Range

bull In a bid to de-risk its business from single product dependence TTK forayed into the cookware segment Over the years TTK has emerged as the market leader in the non-stick segment It was only recently in FY07 when the company was flushed with demand and hence operated at 200+ capacity utilization TTK increased itrsquos capacity from 500000 units to 1800000 units in FY08 TTK competes primarily with local and regional players such as Premier in this segment

bull Growing urbanization health consciousness in cooking styles of customers and the segments unique ability for bulky sales (majority consumers do not buy a single pan but a set of non-stick items) will help TTK to grow at a healthy rate The life cycle for the non-stick cookware is 2-3 years hence giving rise to a large replacement market Hence we expect the cookware segment to grow at a CAGR of 15-17 for the next 2-3 years

Investing in setting up In-house Kitchenware (Electrical Appliances) Factory in Uttarakhand

bull Electric kitchenware is the companyrsquos third business segment and has been growing much more aggressively than the other segment This segment includes all types of electric kitchen appliances such as mixer toaster chimneys etc The companyrsquos strategy is mainly to offer complete range of kitchen appliances while encashing on its existing retail network setup amp existing brand which symbolizes quality reliability and safety for all kitchen products for a housewife

bull The finished products of this segment are primarily outsourced at present The growing demand for TTKrsquos electric kitchen appliances has enabled this segment to grow much faster On the back volume growth the company plans to set up its own unit in Uttarakhand at a cost of INR 11 crs This will enable TTK to control outsourcing cost monitor quality and at the same time aggressively penetrate this segment It is important to note that the contribution of this segment to topline has gone up in the last one-year from 13 to 17 We expect its contribution to go up to 20 once the new plant is commissioned by at the end of this fiscal

Evaluation and Outlook

5

bull The company has over the years evolved from being a mere pressure cooker brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company to grow faster than the industry

bull The pressure cooker industry which has a penetration of mere 36 in India has a lot of scope of growth While the non-stick cookware segment will grow on the back of rising urbanization amp growing health conscious trends We believe the macro demographic trends in India will definitely drive the growth of the kitchen appliance industry

bull TTK is one of the leading players in the Indian kitchen appliances industry The company has seen topline growth of more than 20 over the last 5 years with profitability also improving The companyrsquos increased profitability are set to improve its cashflows as the company is almost debt-free

bull Company expect topline amp bottomline to grow in the range of 15-17+ for the next 2-3 years Margins are set to improve on the back of product mix insourcing of electrical appliances and lower interest cost At the current CMP (Current Market Price) of INR 29565- the stock trades at 91x and 81x its FY10E amp FY11E EPS of INR 325 and INR 365

Company Profile

Corporate Office6

11th Floor Brigade Towers

35 Brigade Road

Bangalore - 560 025

Karnataka

Website wwwttkprestigecom

Chariman T T Jagannathan

Business Group TTK

A TTK Group Chennai based company TTK prestige is one of the leading players in the domestic kitchen appliances industry Itrsquos product portfolio spans from domestic cooking vessels to electrical appliances and has recently forayed into modular kitchen designing TTKrsquos products include pressure cookers non-stick cookware electrical appliances amp gas stoves all of which command high brand recall and a price premium over competitors

The company has transformed its distribution model by launching exclusive retail outlets known as lsquoSmart Kitchensrsquo The company is well placed to capitalise on the consumption boom led by the demographic shift towards nuclear families in India

The companyrsquos topline has grown at 150+ CAGR over the last 5 years Profitability also improved and grew by 30+ over the same time period The strategy for maintaining growth and improving profitability has been product innovation brand building and financial prudence

The company has over the years evolved from being a mere pressure cooker product brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company grow faster than the industry while branded industry itself will grow at 5-6

The pressure cooker industry which has a penetration of mere 30-35 in India has a lot of scope of growth with increased availability of LPG amp piped natural gas in the next few years While the non-stick cookware segment will grow on the back of replacement demand urbanization and growing health consciousness in cooking styles We believe the macro demographic trends in India will drive the growth of the kitchen appliance industry per se The companyrsquos vision for new business opportunities such as modular kitchens and its product innovation provides good business visibility for the company Hence we initiate coverage on the company with a ldquoBUYrdquo recommendation

7

KEY TRIGGERS

Increasing urbanization demographics to spur demand

Increasing urbanisation and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances Shrinking household sizes due to nuclearisation coupled with higher incomes are expected to drive demand for household products including kitchenware

Innovation diversification to boost market share

TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Retail foray to increase visibility penetration

The company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY09

COMPANY BACKGROUND

TTK Prestige is a leading player in the pressure cooker market in India It commenced manufacturing in 1959 with technical support from the Prestige Group UK

8

The company deals in pressure cookers non-stick cookware gas stoves and domestic kitchen appliances under the brand name Prestige It sells pressure cookers in the US under Indian-owned brand Manttra through a wholly owned subsidiary Manttra Inc USA It also has tie-ups with leading overseas retail chains like Macyrsquos Target Kohl Walmart K-mart and SearsLong synonymous with pressure cookers the company is now repositioning itself as a lsquototal kitchen solutionsrsquo provider It commenced production at its new Coimbatore plant in April 2006 and is also setting up a plant in Uttaranchal which is likely to be operational in FY10 It also has manufacturing facilities in Bangalore and Hosur It is in the process of decommissioning the Bangalore plant by the end of current financial year

It is the first kitchen appliances company in India to receive the ISO 90012000 certification and to be certified by all international standards which include the British Standards BIS-India UL-USA AFNOR ndash France DLF ndash Germany PATH ndash US ENERSOL ndash Australia and PEDCE certification by TUV Germany

Superbrands India Private Ltd an independent company engaged in valuation of brands declared Prestige a lsquoSuperbrandrsquo in the kitchen appliances category in 2009

INVESTMENT RATIONALE

THE MAINSTAY PRESSURE COOKER SEGMENT TO GROW AT A STABLE RATE

Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-a-vis inner lid cookers

9

The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid marketThe branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

(I) Increasing urbanisation demographics to spur demand

Increasing urbanization has led to the traditional Indian joint-family system breaking down Nuclear families are becoming the norm in cities and towns and the number of people comprising a household has been gradually decreasing This has resulted in an increased demand for additional homes This coupled with growing incomes and rising aspirations of the middle class has led to an increase in demand for household products including kitchen appliances

10

The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy This has meant a steady migration of people from rural to urban areas in search of employment opportunities In a typical rural-urban migration either an individual or a nuclear unit of a larger family (husband wife and children) shift to a town or city This increasing urbanisation is creating incremental demand for residential housing and related products Further more women are also entering the workforce This means they need to be able to complete their cooking in a short time For the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable

According to the 2001 census the number of people classified as urban has increased from 17 of the population in 1951 to 278 in 2001 The figure is expected to increase further to

11

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

INDEX

SL No DETAILS PAGE No

1) EXECUTIVE SUMMARY 3

2) INTRODUCTION 7

3) MAJOR PROBLEM 18 IDENTIFICATION

4) SITUATIONAL ANALYSIS

a) GRAND STRATEGIES 24

b) GENERIC 26

c) PORTFOLIO 30

d) PORTERrsquoS 5 FORCES MODEL 38

e) PESTLE 43

f) CAP 44

g) SWOT 49

h) VALUE CHAIN ANALYSIS 46

i) SOLUTIONSTATEGIES ALTERNATIVES 53

5) CONCLUSION 55

6) REFRENCES 56

EXECUTIVE SUMMARY

2

TTK PRESTIGE LTD

A TTK Group Chennai based company TTK prestige is one of the leading players in the domestic kitchen appliances industry Its product portfolio spans from domestic cooking vessels to electrical appliances and has recently forayed into modular kitchen designing TTKrsquos products include pressure cookers non-stick cookware electrical appliances amp gas stoves all of which command high brand recall and a price premium over competitors

bull The companyrsquos topline has grown at 150+ CAGR over the last 5 years Profitability also improved and grew by 30+ over the same time period The strategy for maintaining growth and improving profitability has been product innovation brand building and financial prudence

bull The company has over the years evolved from being a mere pressure cooker product brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company grow faster than the industry while branded industry itself will grow at 5-6

bull The pressure cooker industry which has a penetration of mere 30-35 in India has a lot of scope of growth with increased availability of LPG amp piped natural gas in the next few years While the non-stick cookware segment will grow on the back of replacement demand urbanization and growing health consciousness in cooking styles

bull We believe the macro demographic trends in India will drive the growth of the kitchen appliance industry per se The companyrsquos vision for new business opportunities such

3

as modular kitchens and its product innovation provides good business visibility for the company

Mainstay Pressure Cooker Segment Growing at a Stable Rate

bull Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-agrave-vis inner lid cookers

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market

bull The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

bull Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

bull TTKrsquos strategy in this segment has been to innovate and give the user a better product experience TTK has introduced both aluminum and stainless steel cookers the latter of which has given boost to the overall average realization

4

bull TTKrsquos product innovation superior quality and product technology has always enabled it to command a superior price realization over its peers Prestige cookers are targeted towards middle class and the upper middle class and enjoy a 3-5 price premium over other branded manufacturers

De-Risking Business by focusing on the Non-Stick Cookware Range

bull In a bid to de-risk its business from single product dependence TTK forayed into the cookware segment Over the years TTK has emerged as the market leader in the non-stick segment It was only recently in FY07 when the company was flushed with demand and hence operated at 200+ capacity utilization TTK increased itrsquos capacity from 500000 units to 1800000 units in FY08 TTK competes primarily with local and regional players such as Premier in this segment

bull Growing urbanization health consciousness in cooking styles of customers and the segments unique ability for bulky sales (majority consumers do not buy a single pan but a set of non-stick items) will help TTK to grow at a healthy rate The life cycle for the non-stick cookware is 2-3 years hence giving rise to a large replacement market Hence we expect the cookware segment to grow at a CAGR of 15-17 for the next 2-3 years

Investing in setting up In-house Kitchenware (Electrical Appliances) Factory in Uttarakhand

bull Electric kitchenware is the companyrsquos third business segment and has been growing much more aggressively than the other segment This segment includes all types of electric kitchen appliances such as mixer toaster chimneys etc The companyrsquos strategy is mainly to offer complete range of kitchen appliances while encashing on its existing retail network setup amp existing brand which symbolizes quality reliability and safety for all kitchen products for a housewife

bull The finished products of this segment are primarily outsourced at present The growing demand for TTKrsquos electric kitchen appliances has enabled this segment to grow much faster On the back volume growth the company plans to set up its own unit in Uttarakhand at a cost of INR 11 crs This will enable TTK to control outsourcing cost monitor quality and at the same time aggressively penetrate this segment It is important to note that the contribution of this segment to topline has gone up in the last one-year from 13 to 17 We expect its contribution to go up to 20 once the new plant is commissioned by at the end of this fiscal

Evaluation and Outlook

5

bull The company has over the years evolved from being a mere pressure cooker brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company to grow faster than the industry

bull The pressure cooker industry which has a penetration of mere 36 in India has a lot of scope of growth While the non-stick cookware segment will grow on the back of rising urbanization amp growing health conscious trends We believe the macro demographic trends in India will definitely drive the growth of the kitchen appliance industry

bull TTK is one of the leading players in the Indian kitchen appliances industry The company has seen topline growth of more than 20 over the last 5 years with profitability also improving The companyrsquos increased profitability are set to improve its cashflows as the company is almost debt-free

bull Company expect topline amp bottomline to grow in the range of 15-17+ for the next 2-3 years Margins are set to improve on the back of product mix insourcing of electrical appliances and lower interest cost At the current CMP (Current Market Price) of INR 29565- the stock trades at 91x and 81x its FY10E amp FY11E EPS of INR 325 and INR 365

Company Profile

Corporate Office6

11th Floor Brigade Towers

35 Brigade Road

Bangalore - 560 025

Karnataka

Website wwwttkprestigecom

Chariman T T Jagannathan

Business Group TTK

A TTK Group Chennai based company TTK prestige is one of the leading players in the domestic kitchen appliances industry Itrsquos product portfolio spans from domestic cooking vessels to electrical appliances and has recently forayed into modular kitchen designing TTKrsquos products include pressure cookers non-stick cookware electrical appliances amp gas stoves all of which command high brand recall and a price premium over competitors

The company has transformed its distribution model by launching exclusive retail outlets known as lsquoSmart Kitchensrsquo The company is well placed to capitalise on the consumption boom led by the demographic shift towards nuclear families in India

The companyrsquos topline has grown at 150+ CAGR over the last 5 years Profitability also improved and grew by 30+ over the same time period The strategy for maintaining growth and improving profitability has been product innovation brand building and financial prudence

The company has over the years evolved from being a mere pressure cooker product brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company grow faster than the industry while branded industry itself will grow at 5-6

The pressure cooker industry which has a penetration of mere 30-35 in India has a lot of scope of growth with increased availability of LPG amp piped natural gas in the next few years While the non-stick cookware segment will grow on the back of replacement demand urbanization and growing health consciousness in cooking styles We believe the macro demographic trends in India will drive the growth of the kitchen appliance industry per se The companyrsquos vision for new business opportunities such as modular kitchens and its product innovation provides good business visibility for the company Hence we initiate coverage on the company with a ldquoBUYrdquo recommendation

7

KEY TRIGGERS

Increasing urbanization demographics to spur demand

Increasing urbanisation and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances Shrinking household sizes due to nuclearisation coupled with higher incomes are expected to drive demand for household products including kitchenware

Innovation diversification to boost market share

TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Retail foray to increase visibility penetration

The company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY09

COMPANY BACKGROUND

TTK Prestige is a leading player in the pressure cooker market in India It commenced manufacturing in 1959 with technical support from the Prestige Group UK

8

The company deals in pressure cookers non-stick cookware gas stoves and domestic kitchen appliances under the brand name Prestige It sells pressure cookers in the US under Indian-owned brand Manttra through a wholly owned subsidiary Manttra Inc USA It also has tie-ups with leading overseas retail chains like Macyrsquos Target Kohl Walmart K-mart and SearsLong synonymous with pressure cookers the company is now repositioning itself as a lsquototal kitchen solutionsrsquo provider It commenced production at its new Coimbatore plant in April 2006 and is also setting up a plant in Uttaranchal which is likely to be operational in FY10 It also has manufacturing facilities in Bangalore and Hosur It is in the process of decommissioning the Bangalore plant by the end of current financial year

It is the first kitchen appliances company in India to receive the ISO 90012000 certification and to be certified by all international standards which include the British Standards BIS-India UL-USA AFNOR ndash France DLF ndash Germany PATH ndash US ENERSOL ndash Australia and PEDCE certification by TUV Germany

Superbrands India Private Ltd an independent company engaged in valuation of brands declared Prestige a lsquoSuperbrandrsquo in the kitchen appliances category in 2009

INVESTMENT RATIONALE

THE MAINSTAY PRESSURE COOKER SEGMENT TO GROW AT A STABLE RATE

Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-a-vis inner lid cookers

9

The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid marketThe branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

(I) Increasing urbanisation demographics to spur demand

Increasing urbanization has led to the traditional Indian joint-family system breaking down Nuclear families are becoming the norm in cities and towns and the number of people comprising a household has been gradually decreasing This has resulted in an increased demand for additional homes This coupled with growing incomes and rising aspirations of the middle class has led to an increase in demand for household products including kitchen appliances

10

The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy This has meant a steady migration of people from rural to urban areas in search of employment opportunities In a typical rural-urban migration either an individual or a nuclear unit of a larger family (husband wife and children) shift to a town or city This increasing urbanisation is creating incremental demand for residential housing and related products Further more women are also entering the workforce This means they need to be able to complete their cooking in a short time For the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable

According to the 2001 census the number of people classified as urban has increased from 17 of the population in 1951 to 278 in 2001 The figure is expected to increase further to

11

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

TTK PRESTIGE LTD

A TTK Group Chennai based company TTK prestige is one of the leading players in the domestic kitchen appliances industry Its product portfolio spans from domestic cooking vessels to electrical appliances and has recently forayed into modular kitchen designing TTKrsquos products include pressure cookers non-stick cookware electrical appliances amp gas stoves all of which command high brand recall and a price premium over competitors

bull The companyrsquos topline has grown at 150+ CAGR over the last 5 years Profitability also improved and grew by 30+ over the same time period The strategy for maintaining growth and improving profitability has been product innovation brand building and financial prudence

bull The company has over the years evolved from being a mere pressure cooker product brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company grow faster than the industry while branded industry itself will grow at 5-6

bull The pressure cooker industry which has a penetration of mere 30-35 in India has a lot of scope of growth with increased availability of LPG amp piped natural gas in the next few years While the non-stick cookware segment will grow on the back of replacement demand urbanization and growing health consciousness in cooking styles

bull We believe the macro demographic trends in India will drive the growth of the kitchen appliance industry per se The companyrsquos vision for new business opportunities such

3

as modular kitchens and its product innovation provides good business visibility for the company

Mainstay Pressure Cooker Segment Growing at a Stable Rate

bull Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-agrave-vis inner lid cookers

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market

bull The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

bull Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

bull TTKrsquos strategy in this segment has been to innovate and give the user a better product experience TTK has introduced both aluminum and stainless steel cookers the latter of which has given boost to the overall average realization

4

bull TTKrsquos product innovation superior quality and product technology has always enabled it to command a superior price realization over its peers Prestige cookers are targeted towards middle class and the upper middle class and enjoy a 3-5 price premium over other branded manufacturers

De-Risking Business by focusing on the Non-Stick Cookware Range

bull In a bid to de-risk its business from single product dependence TTK forayed into the cookware segment Over the years TTK has emerged as the market leader in the non-stick segment It was only recently in FY07 when the company was flushed with demand and hence operated at 200+ capacity utilization TTK increased itrsquos capacity from 500000 units to 1800000 units in FY08 TTK competes primarily with local and regional players such as Premier in this segment

bull Growing urbanization health consciousness in cooking styles of customers and the segments unique ability for bulky sales (majority consumers do not buy a single pan but a set of non-stick items) will help TTK to grow at a healthy rate The life cycle for the non-stick cookware is 2-3 years hence giving rise to a large replacement market Hence we expect the cookware segment to grow at a CAGR of 15-17 for the next 2-3 years

Investing in setting up In-house Kitchenware (Electrical Appliances) Factory in Uttarakhand

bull Electric kitchenware is the companyrsquos third business segment and has been growing much more aggressively than the other segment This segment includes all types of electric kitchen appliances such as mixer toaster chimneys etc The companyrsquos strategy is mainly to offer complete range of kitchen appliances while encashing on its existing retail network setup amp existing brand which symbolizes quality reliability and safety for all kitchen products for a housewife

bull The finished products of this segment are primarily outsourced at present The growing demand for TTKrsquos electric kitchen appliances has enabled this segment to grow much faster On the back volume growth the company plans to set up its own unit in Uttarakhand at a cost of INR 11 crs This will enable TTK to control outsourcing cost monitor quality and at the same time aggressively penetrate this segment It is important to note that the contribution of this segment to topline has gone up in the last one-year from 13 to 17 We expect its contribution to go up to 20 once the new plant is commissioned by at the end of this fiscal

Evaluation and Outlook

5

bull The company has over the years evolved from being a mere pressure cooker brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company to grow faster than the industry

bull The pressure cooker industry which has a penetration of mere 36 in India has a lot of scope of growth While the non-stick cookware segment will grow on the back of rising urbanization amp growing health conscious trends We believe the macro demographic trends in India will definitely drive the growth of the kitchen appliance industry

bull TTK is one of the leading players in the Indian kitchen appliances industry The company has seen topline growth of more than 20 over the last 5 years with profitability also improving The companyrsquos increased profitability are set to improve its cashflows as the company is almost debt-free

bull Company expect topline amp bottomline to grow in the range of 15-17+ for the next 2-3 years Margins are set to improve on the back of product mix insourcing of electrical appliances and lower interest cost At the current CMP (Current Market Price) of INR 29565- the stock trades at 91x and 81x its FY10E amp FY11E EPS of INR 325 and INR 365

Company Profile

Corporate Office6

11th Floor Brigade Towers

35 Brigade Road

Bangalore - 560 025

Karnataka

Website wwwttkprestigecom

Chariman T T Jagannathan

Business Group TTK

A TTK Group Chennai based company TTK prestige is one of the leading players in the domestic kitchen appliances industry Itrsquos product portfolio spans from domestic cooking vessels to electrical appliances and has recently forayed into modular kitchen designing TTKrsquos products include pressure cookers non-stick cookware electrical appliances amp gas stoves all of which command high brand recall and a price premium over competitors

The company has transformed its distribution model by launching exclusive retail outlets known as lsquoSmart Kitchensrsquo The company is well placed to capitalise on the consumption boom led by the demographic shift towards nuclear families in India

The companyrsquos topline has grown at 150+ CAGR over the last 5 years Profitability also improved and grew by 30+ over the same time period The strategy for maintaining growth and improving profitability has been product innovation brand building and financial prudence

The company has over the years evolved from being a mere pressure cooker product brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company grow faster than the industry while branded industry itself will grow at 5-6

The pressure cooker industry which has a penetration of mere 30-35 in India has a lot of scope of growth with increased availability of LPG amp piped natural gas in the next few years While the non-stick cookware segment will grow on the back of replacement demand urbanization and growing health consciousness in cooking styles We believe the macro demographic trends in India will drive the growth of the kitchen appliance industry per se The companyrsquos vision for new business opportunities such as modular kitchens and its product innovation provides good business visibility for the company Hence we initiate coverage on the company with a ldquoBUYrdquo recommendation

7

KEY TRIGGERS

Increasing urbanization demographics to spur demand

Increasing urbanisation and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances Shrinking household sizes due to nuclearisation coupled with higher incomes are expected to drive demand for household products including kitchenware

Innovation diversification to boost market share

TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Retail foray to increase visibility penetration

The company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY09

COMPANY BACKGROUND

TTK Prestige is a leading player in the pressure cooker market in India It commenced manufacturing in 1959 with technical support from the Prestige Group UK

8

The company deals in pressure cookers non-stick cookware gas stoves and domestic kitchen appliances under the brand name Prestige It sells pressure cookers in the US under Indian-owned brand Manttra through a wholly owned subsidiary Manttra Inc USA It also has tie-ups with leading overseas retail chains like Macyrsquos Target Kohl Walmart K-mart and SearsLong synonymous with pressure cookers the company is now repositioning itself as a lsquototal kitchen solutionsrsquo provider It commenced production at its new Coimbatore plant in April 2006 and is also setting up a plant in Uttaranchal which is likely to be operational in FY10 It also has manufacturing facilities in Bangalore and Hosur It is in the process of decommissioning the Bangalore plant by the end of current financial year

It is the first kitchen appliances company in India to receive the ISO 90012000 certification and to be certified by all international standards which include the British Standards BIS-India UL-USA AFNOR ndash France DLF ndash Germany PATH ndash US ENERSOL ndash Australia and PEDCE certification by TUV Germany

Superbrands India Private Ltd an independent company engaged in valuation of brands declared Prestige a lsquoSuperbrandrsquo in the kitchen appliances category in 2009

INVESTMENT RATIONALE

THE MAINSTAY PRESSURE COOKER SEGMENT TO GROW AT A STABLE RATE

Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-a-vis inner lid cookers

9

The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid marketThe branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

(I) Increasing urbanisation demographics to spur demand

Increasing urbanization has led to the traditional Indian joint-family system breaking down Nuclear families are becoming the norm in cities and towns and the number of people comprising a household has been gradually decreasing This has resulted in an increased demand for additional homes This coupled with growing incomes and rising aspirations of the middle class has led to an increase in demand for household products including kitchen appliances

10

The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy This has meant a steady migration of people from rural to urban areas in search of employment opportunities In a typical rural-urban migration either an individual or a nuclear unit of a larger family (husband wife and children) shift to a town or city This increasing urbanisation is creating incremental demand for residential housing and related products Further more women are also entering the workforce This means they need to be able to complete their cooking in a short time For the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable

According to the 2001 census the number of people classified as urban has increased from 17 of the population in 1951 to 278 in 2001 The figure is expected to increase further to

11

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

as modular kitchens and its product innovation provides good business visibility for the company

Mainstay Pressure Cooker Segment Growing at a Stable Rate

bull Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-agrave-vis inner lid cookers

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market

bull The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

bull Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

bull TTKrsquos strategy in this segment has been to innovate and give the user a better product experience TTK has introduced both aluminum and stainless steel cookers the latter of which has given boost to the overall average realization

4

bull TTKrsquos product innovation superior quality and product technology has always enabled it to command a superior price realization over its peers Prestige cookers are targeted towards middle class and the upper middle class and enjoy a 3-5 price premium over other branded manufacturers

De-Risking Business by focusing on the Non-Stick Cookware Range

bull In a bid to de-risk its business from single product dependence TTK forayed into the cookware segment Over the years TTK has emerged as the market leader in the non-stick segment It was only recently in FY07 when the company was flushed with demand and hence operated at 200+ capacity utilization TTK increased itrsquos capacity from 500000 units to 1800000 units in FY08 TTK competes primarily with local and regional players such as Premier in this segment

bull Growing urbanization health consciousness in cooking styles of customers and the segments unique ability for bulky sales (majority consumers do not buy a single pan but a set of non-stick items) will help TTK to grow at a healthy rate The life cycle for the non-stick cookware is 2-3 years hence giving rise to a large replacement market Hence we expect the cookware segment to grow at a CAGR of 15-17 for the next 2-3 years

Investing in setting up In-house Kitchenware (Electrical Appliances) Factory in Uttarakhand

bull Electric kitchenware is the companyrsquos third business segment and has been growing much more aggressively than the other segment This segment includes all types of electric kitchen appliances such as mixer toaster chimneys etc The companyrsquos strategy is mainly to offer complete range of kitchen appliances while encashing on its existing retail network setup amp existing brand which symbolizes quality reliability and safety for all kitchen products for a housewife

bull The finished products of this segment are primarily outsourced at present The growing demand for TTKrsquos electric kitchen appliances has enabled this segment to grow much faster On the back volume growth the company plans to set up its own unit in Uttarakhand at a cost of INR 11 crs This will enable TTK to control outsourcing cost monitor quality and at the same time aggressively penetrate this segment It is important to note that the contribution of this segment to topline has gone up in the last one-year from 13 to 17 We expect its contribution to go up to 20 once the new plant is commissioned by at the end of this fiscal

Evaluation and Outlook

5

bull The company has over the years evolved from being a mere pressure cooker brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company to grow faster than the industry

bull The pressure cooker industry which has a penetration of mere 36 in India has a lot of scope of growth While the non-stick cookware segment will grow on the back of rising urbanization amp growing health conscious trends We believe the macro demographic trends in India will definitely drive the growth of the kitchen appliance industry

bull TTK is one of the leading players in the Indian kitchen appliances industry The company has seen topline growth of more than 20 over the last 5 years with profitability also improving The companyrsquos increased profitability are set to improve its cashflows as the company is almost debt-free

bull Company expect topline amp bottomline to grow in the range of 15-17+ for the next 2-3 years Margins are set to improve on the back of product mix insourcing of electrical appliances and lower interest cost At the current CMP (Current Market Price) of INR 29565- the stock trades at 91x and 81x its FY10E amp FY11E EPS of INR 325 and INR 365

Company Profile

Corporate Office6

11th Floor Brigade Towers

35 Brigade Road

Bangalore - 560 025

Karnataka

Website wwwttkprestigecom

Chariman T T Jagannathan

Business Group TTK

A TTK Group Chennai based company TTK prestige is one of the leading players in the domestic kitchen appliances industry Itrsquos product portfolio spans from domestic cooking vessels to electrical appliances and has recently forayed into modular kitchen designing TTKrsquos products include pressure cookers non-stick cookware electrical appliances amp gas stoves all of which command high brand recall and a price premium over competitors

The company has transformed its distribution model by launching exclusive retail outlets known as lsquoSmart Kitchensrsquo The company is well placed to capitalise on the consumption boom led by the demographic shift towards nuclear families in India

The companyrsquos topline has grown at 150+ CAGR over the last 5 years Profitability also improved and grew by 30+ over the same time period The strategy for maintaining growth and improving profitability has been product innovation brand building and financial prudence

The company has over the years evolved from being a mere pressure cooker product brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company grow faster than the industry while branded industry itself will grow at 5-6

The pressure cooker industry which has a penetration of mere 30-35 in India has a lot of scope of growth with increased availability of LPG amp piped natural gas in the next few years While the non-stick cookware segment will grow on the back of replacement demand urbanization and growing health consciousness in cooking styles We believe the macro demographic trends in India will drive the growth of the kitchen appliance industry per se The companyrsquos vision for new business opportunities such as modular kitchens and its product innovation provides good business visibility for the company Hence we initiate coverage on the company with a ldquoBUYrdquo recommendation

7

KEY TRIGGERS

Increasing urbanization demographics to spur demand

Increasing urbanisation and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances Shrinking household sizes due to nuclearisation coupled with higher incomes are expected to drive demand for household products including kitchenware

Innovation diversification to boost market share

TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Retail foray to increase visibility penetration

The company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY09

COMPANY BACKGROUND

TTK Prestige is a leading player in the pressure cooker market in India It commenced manufacturing in 1959 with technical support from the Prestige Group UK

8

The company deals in pressure cookers non-stick cookware gas stoves and domestic kitchen appliances under the brand name Prestige It sells pressure cookers in the US under Indian-owned brand Manttra through a wholly owned subsidiary Manttra Inc USA It also has tie-ups with leading overseas retail chains like Macyrsquos Target Kohl Walmart K-mart and SearsLong synonymous with pressure cookers the company is now repositioning itself as a lsquototal kitchen solutionsrsquo provider It commenced production at its new Coimbatore plant in April 2006 and is also setting up a plant in Uttaranchal which is likely to be operational in FY10 It also has manufacturing facilities in Bangalore and Hosur It is in the process of decommissioning the Bangalore plant by the end of current financial year

It is the first kitchen appliances company in India to receive the ISO 90012000 certification and to be certified by all international standards which include the British Standards BIS-India UL-USA AFNOR ndash France DLF ndash Germany PATH ndash US ENERSOL ndash Australia and PEDCE certification by TUV Germany

Superbrands India Private Ltd an independent company engaged in valuation of brands declared Prestige a lsquoSuperbrandrsquo in the kitchen appliances category in 2009

INVESTMENT RATIONALE

THE MAINSTAY PRESSURE COOKER SEGMENT TO GROW AT A STABLE RATE

Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-a-vis inner lid cookers

9

The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid marketThe branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

(I) Increasing urbanisation demographics to spur demand

Increasing urbanization has led to the traditional Indian joint-family system breaking down Nuclear families are becoming the norm in cities and towns and the number of people comprising a household has been gradually decreasing This has resulted in an increased demand for additional homes This coupled with growing incomes and rising aspirations of the middle class has led to an increase in demand for household products including kitchen appliances

10

The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy This has meant a steady migration of people from rural to urban areas in search of employment opportunities In a typical rural-urban migration either an individual or a nuclear unit of a larger family (husband wife and children) shift to a town or city This increasing urbanisation is creating incremental demand for residential housing and related products Further more women are also entering the workforce This means they need to be able to complete their cooking in a short time For the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable

According to the 2001 census the number of people classified as urban has increased from 17 of the population in 1951 to 278 in 2001 The figure is expected to increase further to

11

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

bull TTKrsquos product innovation superior quality and product technology has always enabled it to command a superior price realization over its peers Prestige cookers are targeted towards middle class and the upper middle class and enjoy a 3-5 price premium over other branded manufacturers

De-Risking Business by focusing on the Non-Stick Cookware Range

bull In a bid to de-risk its business from single product dependence TTK forayed into the cookware segment Over the years TTK has emerged as the market leader in the non-stick segment It was only recently in FY07 when the company was flushed with demand and hence operated at 200+ capacity utilization TTK increased itrsquos capacity from 500000 units to 1800000 units in FY08 TTK competes primarily with local and regional players such as Premier in this segment

bull Growing urbanization health consciousness in cooking styles of customers and the segments unique ability for bulky sales (majority consumers do not buy a single pan but a set of non-stick items) will help TTK to grow at a healthy rate The life cycle for the non-stick cookware is 2-3 years hence giving rise to a large replacement market Hence we expect the cookware segment to grow at a CAGR of 15-17 for the next 2-3 years

Investing in setting up In-house Kitchenware (Electrical Appliances) Factory in Uttarakhand

bull Electric kitchenware is the companyrsquos third business segment and has been growing much more aggressively than the other segment This segment includes all types of electric kitchen appliances such as mixer toaster chimneys etc The companyrsquos strategy is mainly to offer complete range of kitchen appliances while encashing on its existing retail network setup amp existing brand which symbolizes quality reliability and safety for all kitchen products for a housewife

bull The finished products of this segment are primarily outsourced at present The growing demand for TTKrsquos electric kitchen appliances has enabled this segment to grow much faster On the back volume growth the company plans to set up its own unit in Uttarakhand at a cost of INR 11 crs This will enable TTK to control outsourcing cost monitor quality and at the same time aggressively penetrate this segment It is important to note that the contribution of this segment to topline has gone up in the last one-year from 13 to 17 We expect its contribution to go up to 20 once the new plant is commissioned by at the end of this fiscal

Evaluation and Outlook

5

bull The company has over the years evolved from being a mere pressure cooker brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company to grow faster than the industry

bull The pressure cooker industry which has a penetration of mere 36 in India has a lot of scope of growth While the non-stick cookware segment will grow on the back of rising urbanization amp growing health conscious trends We believe the macro demographic trends in India will definitely drive the growth of the kitchen appliance industry

bull TTK is one of the leading players in the Indian kitchen appliances industry The company has seen topline growth of more than 20 over the last 5 years with profitability also improving The companyrsquos increased profitability are set to improve its cashflows as the company is almost debt-free

bull Company expect topline amp bottomline to grow in the range of 15-17+ for the next 2-3 years Margins are set to improve on the back of product mix insourcing of electrical appliances and lower interest cost At the current CMP (Current Market Price) of INR 29565- the stock trades at 91x and 81x its FY10E amp FY11E EPS of INR 325 and INR 365

Company Profile

Corporate Office6

11th Floor Brigade Towers

35 Brigade Road

Bangalore - 560 025

Karnataka

Website wwwttkprestigecom

Chariman T T Jagannathan

Business Group TTK

A TTK Group Chennai based company TTK prestige is one of the leading players in the domestic kitchen appliances industry Itrsquos product portfolio spans from domestic cooking vessels to electrical appliances and has recently forayed into modular kitchen designing TTKrsquos products include pressure cookers non-stick cookware electrical appliances amp gas stoves all of which command high brand recall and a price premium over competitors

The company has transformed its distribution model by launching exclusive retail outlets known as lsquoSmart Kitchensrsquo The company is well placed to capitalise on the consumption boom led by the demographic shift towards nuclear families in India

The companyrsquos topline has grown at 150+ CAGR over the last 5 years Profitability also improved and grew by 30+ over the same time period The strategy for maintaining growth and improving profitability has been product innovation brand building and financial prudence

The company has over the years evolved from being a mere pressure cooker product brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company grow faster than the industry while branded industry itself will grow at 5-6

The pressure cooker industry which has a penetration of mere 30-35 in India has a lot of scope of growth with increased availability of LPG amp piped natural gas in the next few years While the non-stick cookware segment will grow on the back of replacement demand urbanization and growing health consciousness in cooking styles We believe the macro demographic trends in India will drive the growth of the kitchen appliance industry per se The companyrsquos vision for new business opportunities such as modular kitchens and its product innovation provides good business visibility for the company Hence we initiate coverage on the company with a ldquoBUYrdquo recommendation

7

KEY TRIGGERS

Increasing urbanization demographics to spur demand

Increasing urbanisation and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances Shrinking household sizes due to nuclearisation coupled with higher incomes are expected to drive demand for household products including kitchenware

Innovation diversification to boost market share

TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Retail foray to increase visibility penetration

The company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY09

COMPANY BACKGROUND

TTK Prestige is a leading player in the pressure cooker market in India It commenced manufacturing in 1959 with technical support from the Prestige Group UK

8

The company deals in pressure cookers non-stick cookware gas stoves and domestic kitchen appliances under the brand name Prestige It sells pressure cookers in the US under Indian-owned brand Manttra through a wholly owned subsidiary Manttra Inc USA It also has tie-ups with leading overseas retail chains like Macyrsquos Target Kohl Walmart K-mart and SearsLong synonymous with pressure cookers the company is now repositioning itself as a lsquototal kitchen solutionsrsquo provider It commenced production at its new Coimbatore plant in April 2006 and is also setting up a plant in Uttaranchal which is likely to be operational in FY10 It also has manufacturing facilities in Bangalore and Hosur It is in the process of decommissioning the Bangalore plant by the end of current financial year

It is the first kitchen appliances company in India to receive the ISO 90012000 certification and to be certified by all international standards which include the British Standards BIS-India UL-USA AFNOR ndash France DLF ndash Germany PATH ndash US ENERSOL ndash Australia and PEDCE certification by TUV Germany

Superbrands India Private Ltd an independent company engaged in valuation of brands declared Prestige a lsquoSuperbrandrsquo in the kitchen appliances category in 2009

INVESTMENT RATIONALE

THE MAINSTAY PRESSURE COOKER SEGMENT TO GROW AT A STABLE RATE

Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-a-vis inner lid cookers

9

The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid marketThe branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

(I) Increasing urbanisation demographics to spur demand

Increasing urbanization has led to the traditional Indian joint-family system breaking down Nuclear families are becoming the norm in cities and towns and the number of people comprising a household has been gradually decreasing This has resulted in an increased demand for additional homes This coupled with growing incomes and rising aspirations of the middle class has led to an increase in demand for household products including kitchen appliances

10

The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy This has meant a steady migration of people from rural to urban areas in search of employment opportunities In a typical rural-urban migration either an individual or a nuclear unit of a larger family (husband wife and children) shift to a town or city This increasing urbanisation is creating incremental demand for residential housing and related products Further more women are also entering the workforce This means they need to be able to complete their cooking in a short time For the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable

According to the 2001 census the number of people classified as urban has increased from 17 of the population in 1951 to 278 in 2001 The figure is expected to increase further to

11

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

bull The company has over the years evolved from being a mere pressure cooker brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company to grow faster than the industry

bull The pressure cooker industry which has a penetration of mere 36 in India has a lot of scope of growth While the non-stick cookware segment will grow on the back of rising urbanization amp growing health conscious trends We believe the macro demographic trends in India will definitely drive the growth of the kitchen appliance industry

bull TTK is one of the leading players in the Indian kitchen appliances industry The company has seen topline growth of more than 20 over the last 5 years with profitability also improving The companyrsquos increased profitability are set to improve its cashflows as the company is almost debt-free

bull Company expect topline amp bottomline to grow in the range of 15-17+ for the next 2-3 years Margins are set to improve on the back of product mix insourcing of electrical appliances and lower interest cost At the current CMP (Current Market Price) of INR 29565- the stock trades at 91x and 81x its FY10E amp FY11E EPS of INR 325 and INR 365

Company Profile

Corporate Office6

11th Floor Brigade Towers

35 Brigade Road

Bangalore - 560 025

Karnataka

Website wwwttkprestigecom

Chariman T T Jagannathan

Business Group TTK

A TTK Group Chennai based company TTK prestige is one of the leading players in the domestic kitchen appliances industry Itrsquos product portfolio spans from domestic cooking vessels to electrical appliances and has recently forayed into modular kitchen designing TTKrsquos products include pressure cookers non-stick cookware electrical appliances amp gas stoves all of which command high brand recall and a price premium over competitors

The company has transformed its distribution model by launching exclusive retail outlets known as lsquoSmart Kitchensrsquo The company is well placed to capitalise on the consumption boom led by the demographic shift towards nuclear families in India

The companyrsquos topline has grown at 150+ CAGR over the last 5 years Profitability also improved and grew by 30+ over the same time period The strategy for maintaining growth and improving profitability has been product innovation brand building and financial prudence

The company has over the years evolved from being a mere pressure cooker product brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company grow faster than the industry while branded industry itself will grow at 5-6

The pressure cooker industry which has a penetration of mere 30-35 in India has a lot of scope of growth with increased availability of LPG amp piped natural gas in the next few years While the non-stick cookware segment will grow on the back of replacement demand urbanization and growing health consciousness in cooking styles We believe the macro demographic trends in India will drive the growth of the kitchen appliance industry per se The companyrsquos vision for new business opportunities such as modular kitchens and its product innovation provides good business visibility for the company Hence we initiate coverage on the company with a ldquoBUYrdquo recommendation

7

KEY TRIGGERS

Increasing urbanization demographics to spur demand

Increasing urbanisation and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances Shrinking household sizes due to nuclearisation coupled with higher incomes are expected to drive demand for household products including kitchenware

Innovation diversification to boost market share

TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Retail foray to increase visibility penetration

The company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY09

COMPANY BACKGROUND

TTK Prestige is a leading player in the pressure cooker market in India It commenced manufacturing in 1959 with technical support from the Prestige Group UK

8

The company deals in pressure cookers non-stick cookware gas stoves and domestic kitchen appliances under the brand name Prestige It sells pressure cookers in the US under Indian-owned brand Manttra through a wholly owned subsidiary Manttra Inc USA It also has tie-ups with leading overseas retail chains like Macyrsquos Target Kohl Walmart K-mart and SearsLong synonymous with pressure cookers the company is now repositioning itself as a lsquototal kitchen solutionsrsquo provider It commenced production at its new Coimbatore plant in April 2006 and is also setting up a plant in Uttaranchal which is likely to be operational in FY10 It also has manufacturing facilities in Bangalore and Hosur It is in the process of decommissioning the Bangalore plant by the end of current financial year

It is the first kitchen appliances company in India to receive the ISO 90012000 certification and to be certified by all international standards which include the British Standards BIS-India UL-USA AFNOR ndash France DLF ndash Germany PATH ndash US ENERSOL ndash Australia and PEDCE certification by TUV Germany

Superbrands India Private Ltd an independent company engaged in valuation of brands declared Prestige a lsquoSuperbrandrsquo in the kitchen appliances category in 2009

INVESTMENT RATIONALE

THE MAINSTAY PRESSURE COOKER SEGMENT TO GROW AT A STABLE RATE

Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-a-vis inner lid cookers

9

The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid marketThe branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

(I) Increasing urbanisation demographics to spur demand

Increasing urbanization has led to the traditional Indian joint-family system breaking down Nuclear families are becoming the norm in cities and towns and the number of people comprising a household has been gradually decreasing This has resulted in an increased demand for additional homes This coupled with growing incomes and rising aspirations of the middle class has led to an increase in demand for household products including kitchen appliances

10

The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy This has meant a steady migration of people from rural to urban areas in search of employment opportunities In a typical rural-urban migration either an individual or a nuclear unit of a larger family (husband wife and children) shift to a town or city This increasing urbanisation is creating incremental demand for residential housing and related products Further more women are also entering the workforce This means they need to be able to complete their cooking in a short time For the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable

According to the 2001 census the number of people classified as urban has increased from 17 of the population in 1951 to 278 in 2001 The figure is expected to increase further to

11

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

11th Floor Brigade Towers

35 Brigade Road

Bangalore - 560 025

Karnataka

Website wwwttkprestigecom

Chariman T T Jagannathan

Business Group TTK

A TTK Group Chennai based company TTK prestige is one of the leading players in the domestic kitchen appliances industry Itrsquos product portfolio spans from domestic cooking vessels to electrical appliances and has recently forayed into modular kitchen designing TTKrsquos products include pressure cookers non-stick cookware electrical appliances amp gas stoves all of which command high brand recall and a price premium over competitors

The company has transformed its distribution model by launching exclusive retail outlets known as lsquoSmart Kitchensrsquo The company is well placed to capitalise on the consumption boom led by the demographic shift towards nuclear families in India

The companyrsquos topline has grown at 150+ CAGR over the last 5 years Profitability also improved and grew by 30+ over the same time period The strategy for maintaining growth and improving profitability has been product innovation brand building and financial prudence

The company has over the years evolved from being a mere pressure cooker product brand to a full-fledged kitchen appliances brand Its wide product portfolio and wide spread retail initiative will help company grow faster than the industry while branded industry itself will grow at 5-6

The pressure cooker industry which has a penetration of mere 30-35 in India has a lot of scope of growth with increased availability of LPG amp piped natural gas in the next few years While the non-stick cookware segment will grow on the back of replacement demand urbanization and growing health consciousness in cooking styles We believe the macro demographic trends in India will drive the growth of the kitchen appliance industry per se The companyrsquos vision for new business opportunities such as modular kitchens and its product innovation provides good business visibility for the company Hence we initiate coverage on the company with a ldquoBUYrdquo recommendation

7

KEY TRIGGERS

Increasing urbanization demographics to spur demand

Increasing urbanisation and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances Shrinking household sizes due to nuclearisation coupled with higher incomes are expected to drive demand for household products including kitchenware

Innovation diversification to boost market share

TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Retail foray to increase visibility penetration

The company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY09

COMPANY BACKGROUND

TTK Prestige is a leading player in the pressure cooker market in India It commenced manufacturing in 1959 with technical support from the Prestige Group UK

8

The company deals in pressure cookers non-stick cookware gas stoves and domestic kitchen appliances under the brand name Prestige It sells pressure cookers in the US under Indian-owned brand Manttra through a wholly owned subsidiary Manttra Inc USA It also has tie-ups with leading overseas retail chains like Macyrsquos Target Kohl Walmart K-mart and SearsLong synonymous with pressure cookers the company is now repositioning itself as a lsquototal kitchen solutionsrsquo provider It commenced production at its new Coimbatore plant in April 2006 and is also setting up a plant in Uttaranchal which is likely to be operational in FY10 It also has manufacturing facilities in Bangalore and Hosur It is in the process of decommissioning the Bangalore plant by the end of current financial year

It is the first kitchen appliances company in India to receive the ISO 90012000 certification and to be certified by all international standards which include the British Standards BIS-India UL-USA AFNOR ndash France DLF ndash Germany PATH ndash US ENERSOL ndash Australia and PEDCE certification by TUV Germany

Superbrands India Private Ltd an independent company engaged in valuation of brands declared Prestige a lsquoSuperbrandrsquo in the kitchen appliances category in 2009

INVESTMENT RATIONALE

THE MAINSTAY PRESSURE COOKER SEGMENT TO GROW AT A STABLE RATE

Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-a-vis inner lid cookers

9

The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid marketThe branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

(I) Increasing urbanisation demographics to spur demand

Increasing urbanization has led to the traditional Indian joint-family system breaking down Nuclear families are becoming the norm in cities and towns and the number of people comprising a household has been gradually decreasing This has resulted in an increased demand for additional homes This coupled with growing incomes and rising aspirations of the middle class has led to an increase in demand for household products including kitchen appliances

10

The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy This has meant a steady migration of people from rural to urban areas in search of employment opportunities In a typical rural-urban migration either an individual or a nuclear unit of a larger family (husband wife and children) shift to a town or city This increasing urbanisation is creating incremental demand for residential housing and related products Further more women are also entering the workforce This means they need to be able to complete their cooking in a short time For the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable

According to the 2001 census the number of people classified as urban has increased from 17 of the population in 1951 to 278 in 2001 The figure is expected to increase further to

11

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

KEY TRIGGERS

Increasing urbanization demographics to spur demand

Increasing urbanisation and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances Shrinking household sizes due to nuclearisation coupled with higher incomes are expected to drive demand for household products including kitchenware

Innovation diversification to boost market share

TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Retail foray to increase visibility penetration

The company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY09

COMPANY BACKGROUND

TTK Prestige is a leading player in the pressure cooker market in India It commenced manufacturing in 1959 with technical support from the Prestige Group UK

8

The company deals in pressure cookers non-stick cookware gas stoves and domestic kitchen appliances under the brand name Prestige It sells pressure cookers in the US under Indian-owned brand Manttra through a wholly owned subsidiary Manttra Inc USA It also has tie-ups with leading overseas retail chains like Macyrsquos Target Kohl Walmart K-mart and SearsLong synonymous with pressure cookers the company is now repositioning itself as a lsquototal kitchen solutionsrsquo provider It commenced production at its new Coimbatore plant in April 2006 and is also setting up a plant in Uttaranchal which is likely to be operational in FY10 It also has manufacturing facilities in Bangalore and Hosur It is in the process of decommissioning the Bangalore plant by the end of current financial year

It is the first kitchen appliances company in India to receive the ISO 90012000 certification and to be certified by all international standards which include the British Standards BIS-India UL-USA AFNOR ndash France DLF ndash Germany PATH ndash US ENERSOL ndash Australia and PEDCE certification by TUV Germany

Superbrands India Private Ltd an independent company engaged in valuation of brands declared Prestige a lsquoSuperbrandrsquo in the kitchen appliances category in 2009

INVESTMENT RATIONALE

THE MAINSTAY PRESSURE COOKER SEGMENT TO GROW AT A STABLE RATE

Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-a-vis inner lid cookers

9

The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid marketThe branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

(I) Increasing urbanisation demographics to spur demand

Increasing urbanization has led to the traditional Indian joint-family system breaking down Nuclear families are becoming the norm in cities and towns and the number of people comprising a household has been gradually decreasing This has resulted in an increased demand for additional homes This coupled with growing incomes and rising aspirations of the middle class has led to an increase in demand for household products including kitchen appliances

10

The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy This has meant a steady migration of people from rural to urban areas in search of employment opportunities In a typical rural-urban migration either an individual or a nuclear unit of a larger family (husband wife and children) shift to a town or city This increasing urbanisation is creating incremental demand for residential housing and related products Further more women are also entering the workforce This means they need to be able to complete their cooking in a short time For the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable

According to the 2001 census the number of people classified as urban has increased from 17 of the population in 1951 to 278 in 2001 The figure is expected to increase further to

11

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

The company deals in pressure cookers non-stick cookware gas stoves and domestic kitchen appliances under the brand name Prestige It sells pressure cookers in the US under Indian-owned brand Manttra through a wholly owned subsidiary Manttra Inc USA It also has tie-ups with leading overseas retail chains like Macyrsquos Target Kohl Walmart K-mart and SearsLong synonymous with pressure cookers the company is now repositioning itself as a lsquototal kitchen solutionsrsquo provider It commenced production at its new Coimbatore plant in April 2006 and is also setting up a plant in Uttaranchal which is likely to be operational in FY10 It also has manufacturing facilities in Bangalore and Hosur It is in the process of decommissioning the Bangalore plant by the end of current financial year

It is the first kitchen appliances company in India to receive the ISO 90012000 certification and to be certified by all international standards which include the British Standards BIS-India UL-USA AFNOR ndash France DLF ndash Germany PATH ndash US ENERSOL ndash Australia and PEDCE certification by TUV Germany

Superbrands India Private Ltd an independent company engaged in valuation of brands declared Prestige a lsquoSuperbrandrsquo in the kitchen appliances category in 2009

INVESTMENT RATIONALE

THE MAINSTAY PRESSURE COOKER SEGMENT TO GROW AT A STABLE RATE

Pressure Cookers is TTKrsquos single largest segment which contributes around 54 to the topline currently TTKrsquos pressure cookers are different from other cookers on account of its outer lid-closing feature This feature provides the user with some additional cooking capacity vis-a-vis inner lid cookers

9

The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid marketThe branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

(I) Increasing urbanisation demographics to spur demand

Increasing urbanization has led to the traditional Indian joint-family system breaking down Nuclear families are becoming the norm in cities and towns and the number of people comprising a household has been gradually decreasing This has resulted in an increased demand for additional homes This coupled with growing incomes and rising aspirations of the middle class has led to an increase in demand for household products including kitchen appliances

10

The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy This has meant a steady migration of people from rural to urban areas in search of employment opportunities In a typical rural-urban migration either an individual or a nuclear unit of a larger family (husband wife and children) shift to a town or city This increasing urbanisation is creating incremental demand for residential housing and related products Further more women are also entering the workforce This means they need to be able to complete their cooking in a short time For the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable

According to the 2001 census the number of people classified as urban has increased from 17 of the population in 1951 to 278 in 2001 The figure is expected to increase further to

11

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid marketThe branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

(I) Increasing urbanisation demographics to spur demand

Increasing urbanization has led to the traditional Indian joint-family system breaking down Nuclear families are becoming the norm in cities and towns and the number of people comprising a household has been gradually decreasing This has resulted in an increased demand for additional homes This coupled with growing incomes and rising aspirations of the middle class has led to an increase in demand for household products including kitchen appliances

10

The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy This has meant a steady migration of people from rural to urban areas in search of employment opportunities In a typical rural-urban migration either an individual or a nuclear unit of a larger family (husband wife and children) shift to a town or city This increasing urbanisation is creating incremental demand for residential housing and related products Further more women are also entering the workforce This means they need to be able to complete their cooking in a short time For the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable

According to the 2001 census the number of people classified as urban has increased from 17 of the population in 1951 to 278 in 2001 The figure is expected to increase further to

11

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy This has meant a steady migration of people from rural to urban areas in search of employment opportunities In a typical rural-urban migration either an individual or a nuclear unit of a larger family (husband wife and children) shift to a town or city This increasing urbanisation is creating incremental demand for residential housing and related products Further more women are also entering the workforce This means they need to be able to complete their cooking in a short time For the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable

According to the 2001 census the number of people classified as urban has increased from 17 of the population in 1951 to 278 in 2001 The figure is expected to increase further to

11

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

30 by 2011 The 10th Five Year Plan (2002-2007) forecasts that the urban population will reach 40 (based on a population of 135 crore) by 2025

(II) Innovation product diversification to boost market share

Unorganized players dominate the kitchen appliances segment in India TTK Prestige has introduced many innovative and quality products and its portfolio now includes non-stick cookware LP gas stoves and electrical appliances apart form the pressure cookers It earned more than 70 of its sales during FY09 from products launched in the last three years The total number of variants introduced across product categories during FY09 was around 54

(i) Inner-lid pressure cookers

The pressure cooker market in India can be broadly divided into two ndash outer-lid and inner-lid categories Customer preferences for either of these vary across different regions Outer-lid pressure cookers account for one-third of the pressure cooker market and are largely used in the southern and western regions where TTK Prestige is the market leader Inner-lid cookers are used mainly in the eastern and northern regions Here Hawkins is the market leader TTK Prestige which was present only in the outer-lid segment of pressure cookers has now introduced a new product in the inner-lid segment This should give it the opportunity to penetrate in the north and eastern region and increase its market share both in volumes as well as value share

(ii) Constant product innovation

TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

Non-stick coated pressure cookers with attractive colours in unique lsquohandirsquo and lsquokadairsquo shapes

Indiarsquos first pressure cooker with the unique pressure indicator that serves as a visual confirmation when it was safe to open the cooker

Indiarsquos first metal spoon friendly non-stick cookware Pressure Kadai a multipurpose cooking appliance in which one can fry sauteacute and

pressure-cook

(iii) Enhancing presence across the kitchen value chain

The company has successfully extended its Prestige brand beyond pressure cookers to cover the entire kitchen value chain It has introduced high-end appliances which are currently being sourced from China and other new products These products include chimneys hobs mixer grinders rice cookers coffee makers grills microwave ovens irons etc It also introduced small appliances like kettles toasters and food processors All these have added significantly to the growth potential of the company

12

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

The product extension has enabled the company increase its product portfolio and reach a wider spectrum of customer and geographical segments We believe this will lead to a stable earning and minimize its dependence on a particular segment as it now has de-risked itself from being a single product company

Sales from pressure cookers amounted to Rs 1373 crore in FY09 accounting for 592 of the total sales of Rs 23183 crore The percentage was lower compared to 643 in FY08 when pressure cooker sales accounted for Rs 1218 crore or 643 of total sales of Rs 18937 crore This clearly shows the declining dependence on pressure cookers and increasing contributions from high-margin products like electrical appliances

(III) Retail foray to increase visibility

Over the last few years organized retail like large format stores malls super markets and hypermarkets have started attracting huge footfalls (number of visitors) especially in urban areas They cater to a variety of customer segments at several price points Though these outlets currently cover barely 3 of the retail business their share is likely to grow significantly going forward To capitalise on this new emerging opportunity TTK Prestige is establishing an extensive network of its dedicated retail outlets

13

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

(i) Prestige Smart KitchenAs part of an aggressive retail initiative the company made an entry into the retail space in 2003 by launching its lsquoSmart Kitchenrsquo outlets These outlets are a one-stop shop and offer the entire range of Prestige products and kitchenware in a modern ambiance that is able to draw significant customer footfalls

The strategy of expanding its reach through these exclusive retail outlets has yielded rich dividends During FY08more than 10 of the domestic sales were from its exclusive retail network We expect this proportion to increase going forward The launch of Smart Kitchens has helped the company increase its turnover and also boosted its bottom line in terms of increased margins Margins in direct retailing are higher than those in traditional dealer sales

The Smart Kitchen is operated through the franchise model where TTK Prestige invests in stock and the franchisee bears the lease rental cost The model is designed to generate a 20 return on Investment after deducting the expenses for a franchisee to be able to continue its business as a franchisee of Smart Kitchen

Smart Kitchen outlets have also helped the company diversify its sales mix About 55 of sales are from products other than pressure cookers

(ii) Prestige Kitchen BoutiquesThe company entered into the modular kitchen segment in June 2005 which it currently sells through its Smart Kitchen outlets Now it plans to sell them through a new retail format lsquoPrestige Kitchen Boutiquesrsquo This will add to revenue and improve margins at the operating level The margin on modular kitchen is around 25 The Kitchen Boutiques would have a large floor space of more than 3000 square feet where it will be exhibiting 3 to 4 different kinds of modular kitchens and other furniture like hobs chimneys and high-end cookware These will be company-owned stores and the investment is likely to be about Rs 75 lakh per boutique The company open 5 such boutiques in FY08 and the first of these was launched in Bangalore

14

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

With the growing importance on aesthetics and simple functionality the modular kitchen market is set to grow to Rs 1000 crore in a few years The need for a beautiful and efficient kitchen has been felt across the spectrum and a modular kitchen more than fulfills this need

With a focus on the value-for-money segment TTK Prestige has priced its modular kitchens at a starting range of Rs 75000 ndash 100000 onwards The material is sourced from Italy as well as from some domestic manufacturers The competition is mainly in the form of foreign unorganised and a few regional branded players The company is set to dominate this high-end market because its price points are competitive compared to other branded players The cost for a TTK Prestige modular kitchen having an area of 10 ft x 8 ft would be Rs 100000 including a chimney and hob The cheapest branded modular kitchen of that size costs around Rs 150 lakh

Foreign players have priced their sets at Rs 300000 and upwards All house in the US are equipped with modular kitchens They are also getting popular in Europe and countries in the Far East In India modular kitchens account for a meager 01 of the total kitchens This means there is a significant opportunity to expand modular kitchens especially in urban areas

The National Council for Applied Economic Research (NCAER) calculated the number of people in the high income bracket (annual income of over Rs 5 lakh) at 462 crore by 2007-08 We believe the sale of such high-end products will grow exponentially in the next few years The growth of nuclear and double-income families has also fueled the demand for modular kitchens

(iii) Rural opportunityPenetration of pressure cookers in the urban market has reached saturation levels and future growth is expected to come from rural households Demand for such products can be increased in rural areas with increased awareness and proper distribution reach TTK Prestige forayed into the rural segment in FY08 and currently operates Smart Kitchen outlets in rural

15

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

Karnataka These outlets have been drawing good footfalls and are delivering an average sales volume of Rs 40000 per month

The company will also be part of the TTK Grouprsquos strategy to make a retail foray in rural regions The TTK group has significance presence across several segments of industry such as consumer durables pharmaceuticals amp supplements bio-medical devices maps and atlases and health-care services The group has unveiled an ambitious plan to open 1500 outlets in the rural areas to sell products of the group About 50-60 of products sold from these stores are expected from the TTK Prestige stable

In order to increase the awareness of cookers in the rural areas TTK Prestige has started a unique concept It trained a team of 50 women from Mehboobnagar district in Andhra Pradesh to demonstrate pressure-cooking to the villagers there The idea is not to sell but simply promote the concept

We believe that with an increased penetration of LPG demand for pressure cookers in rural areas will be higher and help TTK in its rural initiative

(IV) Unlocking of land value

TTK Prestige is phasing out manufacturing operations from its Bangalore unit by the end of the current financial year and the land estimated at about 285 lakh square feet will become available for development This land near Old Madras Road is valued at around Rs 75 ndash 80 crore going by the current market price of around Rs 2500 ndash 2800 per sq foot in Bangalore The company has hired an international consultant to look for various alternatives and suggest the best method to avail maximum benefit for all stakeholders The options are either to totally dispose off the land in totality or let it out on a rental or lease basis by developing it commercially It has already applied to the Bangalore Development Authority for developing this property and based on the approval it would take a decision

If it is able to develop and rent out the property the gross rental realisation annually would come around Rs 10 ndash 12 crore based on a monthly rental price of Rs 30-35 per square feet which we believe is likely to increase further with increasing demand for commercial property This rental income will add another Rs 8 to the EPS which we have not factored in our estimates

KEY CONCERNS

Rising prices of key raw materials

16

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

A sharp rise in key raw material prices could impact the profitability of the company The major raw materials are aluminium and stainless steel Globally metal prices have been very volatile in the recent past The company has been able to pass on the hike in inputs to the end customers and we believe a diversified product range will help it mitigate some of the risks

MAJOR PROBLEM IDENTIFICATION

TTK Prestige Cooker Problems Identification

17

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

1 Rising Competition

bull The Indian pressure cooker market size is approx 9 million pieces pa which is equally divided between organized and unorganized sector TTK enjoys 30+ market share in the pressure cooker market of which it is the market leader in the outer lid market segment with 65 market share and 5 of its recently entered into and a highly competitive inner lid market The branded cookers market has been growing at 5-6 over the last 4-5 years while TTK has witnessed volumes growth at 13-15 We expect this segment to continue to clock similar volumes growth over the next 2-3 years

The company faces tough competition from the unorganized sector

Apart from that TTK has introduced a niche product through the launch of pressure handi a few years back

The major competitor for Prestige in organized Pressure cooker market is Hawkins

Launched in 1959 Hawkins is neck to neck with Prestige in market share estimated to be

around 25

18

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

Difference between Sales Growth of TTK Prestige and competitor I ie Hawkins has been seen as neck to neck competition in past 5 years

bull Hawkins in 1993 tried to break into the premium range of cookers by launching its Futura range of Pressure cookers Although the design and the ads were catchy the price was around 200 more than the ordinary cookers Hence Indian consumers gave thumbs down to this range Futura has cornered a niche in the market but the growth is limited because of unreasonable price

bull The early campaigns of Prestige brand has been able to create the brand equity the share of voice of this brand still remains low In order to increase the share in the market this brand has to transform it to be a small appliances brand it has to discover some core values of the brand and position the brand around it

For example a regional brand ldquoPreethy ldquowhich is a major player in the Mixie category is using a homemaker (model of course) to endorse the brand by using the tagline ldquoI guaranteerdquo which can be extended to any product categories

bull Prestige has to strategically position the brand in order to use it as an Umbrella brand to endorse multiple categories

19

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

2 Increasing Cost of Raw Materials

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10

bull The unabated rise in aluminium prices and a possible roll back of excise duty cuts could adversely impact profit margins in the cookware segment of TTK Prestige Ltd In fact the next two quarters could be a test of brand strength and pricing power which have helped sustain the jump in profit margins seen in the first two quarters of the current financial year

bull Operating profit margins (OPM) for TTK and Hawkins were at 96 and 121 respectively during FY 2009 This jumped to 129 and 207 in the June quarter of FY2010 and to 208 and 155 respectively in the September quarter Analysts state that the rise in margins is a function of cost rationalisation and also some pipeline low-cost inventory For TTK Prestige the ratio of raw material costnet sales fell from 552 in FY2009 to 517 in the September quarter Likewise for Hawkins the ratio dropped from 448 to 359 during the same period

bull Also benefits accrued on account of the governmentrsquos stimulus of an across the board excise duty benefit to boost consumption

bull In the last few months though the price of aluminium which accounts for 50-55 of the material cost has seen a price increase of around 10 ldquoHow much of the cost increase can be passed on depends on market factors although history states that we have been able to handle thisrdquo said an official from TTK Prestige

bull For now the two companies have pulled off strategies to maintain a fair share of the market although therersquos stiff competition from the unorganised sector This hampers the companyrsquos ability to freely pass on any cost increases Both these companies have a 62-65 slice of the market leaving the rest to regional players

bull Perhaps another judicious strategy which has paid off is that the two companies have expanded the product range to include a host of kitchenware items like non-stick pans cookers and even electrical appliances For example TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull In fact both companies have done very well on the earnings front Hawkins posted earnings per share (EPS) of Rs 325 for the first half of FY2010 against Rs 362 during the full year FY2009 Likewise TTK posted Rs 19 against Rs 20 during the same periods But a similar performance in future is an uphill task

3 Lack of Scope for Innovation

20

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

Pressure Cooker is inarguably one of the most important utensil of an Indian Kitchen If you are doing a serious cooking you are bound to use a Pressure Cooker But as pressure cooker is a single kind of cooking appliance there is a very small area for innovation in this segment In the name of product differentiation there is a very less difference between the variety of pressure cookers of Prestige and Hawkins ie on the basis of-

Price

2 LITRE Hawkins Pressure Cooker - Aluminum $44992LITRE Prestige Pressure Cooker - aluminum $4499

3 Litre Hawkins Pressure Cooker - Aluminum $4999 3LITRE Prestige Pressure Cooker - Aluminum$4999

4 Litre Hawkins Pressure Cooker - Aluminum $54994LITRE Prestige Pressure Cooker - aluminum $5499

Both companies have exactly same range of prices in every single range of pressure cooker

Models

Three types of Cookers of both companies that you will find at stores are-

Types -1 Futura Types - Black Ones - Gook Looking and expensive2 Steel Made - Look similar to the normal ones you see all the time but they are also expensive3 Alumnium Made - They are widely sold model and is cheap It has the disadvantage of losing its shine after prolonged usage

4 Saturation of Urban Pressure Cooker Market

bull Prestige pioneered the pressure cooker market in India Launched in 1950rsquos this brand has popularized pressure cooker as an essential cooking device

21

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

bull When Prestige was launched Indian consumers were somewhat afraid about using pressure cookers The product category was looked upon by the consumers with suspicion and fear Prestige changed all that The brand using careful communication messages were able to establish itself as the safest cooker

bull Prestige brand was able to address the initial concerns of the consumers like the nutrients getting destroyed using the cookers and more importantly the normal inertia in changing the way of cookers

bull Long before the Product Demonstrations began to be popular among marketers Prestige started highly successful house to house demonstrations to popularize the efficacy of this product category These steps enabled the market to grow very fast The pressure cooker market is estimated to be around 9mn pieces pa

bull Not resting on laurels Prestige was careful enough to innovate In 1980 it came out with the first Pressure Pan which can cook a variety of Indian dishes

bull In 2003 to tap the premium segment Prestige launched the Deluxe range of pressure cookers The safety features like ldquoGasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo was invented by Prestige

bull Prestige also introduced a unique concept of separator cooking which means that two dishes can be cooked in the pressure cooker at the same time thus increasing the utility and reducing the fuel costs

bull Later Prestige ventured into Non stick cookware category extending the brand The company was leveraging the brand equity of Prestige to this new category There also Prestige tried to provide freshness through innovation It launched Indiarsquos first Metal friendly nonstick cookware range

bull The reason for the brand extension is that the market for pressure cookers was not growing The branded cookers faced lot of competition from unbranded cheap products The unbranded cookers corner about 50 share in this market

22

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

bull The pressure cooker market plus the nonstick market is worth around 600 crores making it more sensible for the company to extend the brand

5 Changing Cooking Habits of Working Women

bull The main users of pressure cooker or target customers for pressure cooker are women and in the big urban market where most of the women are working and have lack of time for cooking and other activities the trend is changing in cooking habits and women are turning towards using packaged food as they save much of the time and are easy to use and cook

bull Moreover the changing lifestyle due to decline of joint (big size) families phenomena and with the evolution of nuclear families where there are few members in a family those who like to spend some of their time together outside house every week are likely to cook food lesser time in their houses

bull Although people of India are doing pressure cooking from a long time but still there is a perception in the mind of people that cooking food through pressure cooking is still a quite complex work Moreover the increase in popularity of other cooking appliances like microwave oven electric stoves etc are lowering down the popularity of pressure cookers

23

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

SITUATIONAL ANALYSIS

Grand strategies

GROWTH

Why no one will give their Prestige cooker awayhellip

Prestige like other brands like Bata Godrej and Tata are part of growing up in modern India If you think of pressure cooker Prestige is one name that will come to mind That the brand has managed to sustain loyalty over the many years is because as T T Jagannathan chairman of TTK group says ldquoWersquove always kept in touch with our consumers and have constantly been innovatingrdquo

During this current financial year for instance it has launched a variety of products one being Prestige Deluxe cooker that has a pressure indicator which the chairman says is a

24

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

result of customer research which indicated that cooks wanted to know when the cooker could be opened Recently the group forayed into modular kitchens and launched its trendy Prestige Smart Kitchen across major cities There are 100 such stores planned

Prestige started the chain of exclusive franchise stores with the following objectives To create a retail ambience for kitchenware and showcase the vast range the brand has to offer This was not happening in the multibrand traditional kitchenware outlet that was cramped and far below expectations of the fast-changing customer

TTK also wanted to have a one-on-one contact with the end consumers to understand their needs better and to rekindle interest in an otherwise low-involvement category The long-term vision is to be the countryrsquos number one small appliance kitchenware company so they had to move on from being just a pressure cooker company to a cookware company

There is very little differentiation in the category - beyond inner lid and outer lid and stainless steel and aluminium - and despite some innovations like the Prestige Smart range of cookers launched last year the urban market is almost saturated with some numbers only in the add-on replacement and gift segments The rural market while largely unpenetrated remains the preserve of unbranded products which account for roughly 40 per cent of the value share of the total market besides most villagers still use firewood Kalro Senior Vice-President

(Marketing) says When more and more people have LPG in rural areas the first thing they will do hopefully is buy a pressure cooker

Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach The company opened two Prestige Smart Kitchen outlets in rural areas in Karnataka during the year under report and both the outlets have been drawing good foot falls and are delivering good sales volume TTK Group has drawn up a strategy for rural retail foray to deliver all the products of the group relevant to the rural customer If this strategy works out well the Company will be a major supplier to these stores This will be in addition to TTKs stand alone rural smart kitchen outlets

The company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country TTKs proposed new ERP implementation will further improve the internal controls

25

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

TTK Prestige is the first kitchenware company in India to receive the ISO 9001 certification and the PED CE certification by TUV Germany TTK Prestige Ltd is listed on both BSE amp NSE The company presently has manufacturing set-ups in Hosur Coimbatore and Bangalore and 19 sales branches located across the country to cater to the needs of specific markets

Over the last few years modern retail formats like large format stores malls super markets and hypermarkets have started attracting huge foot falls especially in the urban areas Some of these outfits belong to one or more national chains They cater to a variety of customer segments at several price points While this modern format currently covers hardly 3 of the retail business this share is likely to become significant in the coming years especially in the urban areas The company is in the process of ensuring its presence significantly in these modern format stores

The Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing The dealer network which has been largely supporting the traditional product categories consisting of pressure cookers and cookware is now stocking a larger range of TTKs products and the dealers are keen to increase the shelf space of its products

TTK witnessed a decline in the export sale during the current year especially in the US market However the sales in the non US markets are encouraging There is a moderate growth opportunity for pressure cookers in the non US markets As pressure cooker is not a significant part of kitchen appliance market in USA the company is looking at opportunities

26

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

for tapping the high end cookware market in USA If this opportunity can be exploited then it affords an opportunity to increase the distribution for pressure cookers also in this market As the domestic economy is growing rapidly TTK will be committing larger resources to the domestic market and hence export opportunities will be considered only step by step to optimize the overall earnings of the company

FINANCES AND INTEREST RATE STRUCTURING

During the year there was no change in the equity capital The company was able to finance its growth through internal accruals without increasing debt capital It may be noted that over the last three years prior to the year under report TTK reduced its debt burden by over Rs20 crores There was a further reduction in the interest burden as compared to the previous year by about Rs86 lakhs The interest cost as a percentage to sales has dropped from 84 two years back to 24 during the year under report

INVESTMENTS

The company further recapitalized its wholly owned subsidiary Manttra Inc by investing Rs441crores

During the first quarter of 2005-06 the investments made in TTK Services Private Ltd was also encashed which brought in cash of Rs130 crores With this TTK has dealt with all its unrelated investments

EXPANSION AND CAPITAL EXPENDITURE

The company has during the start of the current financial year ie April 2008 commenced commercial production of pressure cookers in the new facility created at Myleripalayam Village near Coimbatore The capacity has been established by adding new machinery as well as transferring machinery that has been rendered surplus in the Bangalore facility As mentioned in the earlier directorrsquos reports pursuant to right-sizing the Bangalore Unit is being used a stand by unit as part of supply chain optimization measures This standby use will be phased out during the next twelve months

TTK is also in the process of establishing a new manufacturing undertaking near Roorkee in

27

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

the State of Utharanchal This unit will manufacture all types of pressure cookers and cookware Facility for assembly of other domestic kitchen appliances will also be incorporated in this unit As the demand for companyrsquos products exist in northern India a manufacturing facility in the North affords logistical advantages and incidental cost savings Further a unit established in the notified areas in the State of Utharanchal is also entitled to excise duty exemption and income tax concession for a period of 10 years This unit is expected to commence commercial production during the course of the financial year 2009-2010

All the above initiatives together with normal capital expenditure will result in a capital expenditure spend of over Rs20 crores spread over the financial years 2009-10 and 2010-11

The Public Deposits aggregated to Rs310 lakhs as on 31st March 2008 There were no unclaimed deposits which remained unpaid as on that date

As stated earlier the manufacturing activity in the Bangalore Unit will be phased out during the course of next 12 months and the land therein admeasuring around 285 lakh square feet will become available for development The Board has a massive opportunity to take appropriate decisions in dealing with this property in the best interests of the shareholders to ensure considerable revenue windfall

DEVELOPMENTS IN HUMAN RESOURCES

The direct employment strength stood at 724 as compared to 708 in the previous year Improved training and development programmes are in place to achieve improved productivity in all departments Industrial relations were cordial throughout the year Your company maintained its morale of human resource at the highest level which enabled the growth possible

28

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

The long term settlement with the union in the Hosur manufacturing complex expires during the financial year 2008-09 The directors must work toward concluding a settlement with more thrust on employee productivity

THREATS

In the domestic market the threat continues to be from the mushrooming unorganized players and regional brands These have two impacts namely commoditization of product categories and unrealistically low pricing Though there is high mortality of these players they tend to impair the rapid growth of quality conscious branded players by putting their legitimate margins under pressure As has been the policy the company continues to invest in innovation feature and value addition customer education and brand promotion to stay above these unorganized players

The company operates in a single segment-Kitchen Appliances The products include Pressure Cookers Non-stick Cookware Kitchen Electrical Appliances and Gas Stoves although the companyrsquos revenue is still dominated by Pressure cooker sales The company needs to be less dependant on one product by aggressively promoting amp consolidating rest of its kitchenware products in the segment

2007-08 2006-07Domestic Export Total Domestic Export Total

Pressure Cookers

12249 1481 13730 9717 2463 12180

Non-stick Cookware

3542 32 3574 2424 43 2467

Kitchen Electric Appliances

2163 2163 1136 -- 1136

Gas Stoves 2254 2254 1766 -- 1766

Others 1375 87 1462 1336 52 1388

Total 21583 1600 23183 16379 2558 18937

29

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

In the export market the influx of cheaper supplies from China continues to put pressure on margins as well as expansion of sales

Alternatives to combat these very problems are as follows

Option

1 Launch large-scale promotions to make consumers aware of advantages

of branded kitchenware appliances

2 Employ cost-cutting methods to further lower prices especially during recessionary

pressure

3 Investing more heavily in Research and Development so as to make more innovative

products to compete better

PORTFOLIO ANALYSIS FOR TTK PRESTIGE

One of the most popular aids to developing corporate strategy in a multibusiness corporation is the portfolio analysis Portfolio analysis is the wide set of tools to analyze elements of a firms product mix to determine the optimum allocation of its resources Two most common measures used in a portfolio analysis are market growth rate and relative market shareIn portfolio analysis top management views its product lines and business units as a series of investments from which it expects a profitable return The product linesbusiness units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporations invested money Two of the most popular approaches are the BCG growth share matrix and the GE business screen

The BCG MATRIX is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines This helps the company allocate resources and is used as an analytical tool in brand marketing product management strategic management and portfolio analysis Each of the corporations product lines or business units is plotted on the matrix according to the 1gt growth rate of the industry and 2gt its relative market share Placing products in the BCG matrix results in 4 categories in a portfolio of a company

30

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

1 Stars (=high growth high market share)

- use large amounts of cash and are leaders in the business so they should also generate large amounts of cash

- frequently roughly in balance on net cash flow However if needed any attempt should be made to hold share because the rewards will be a cash cow if market share is kept

2 Cash Cows (=low growth high market share)

- profits and cash generation should be high and because of the low growth investments needed should be low Keep profits high

- Foundation of a company

3 Dogs (=low growth low market share)

- avoid and minimize the number of dogs in a company

- beware of expensive lsquoturn around plansrsquo

- deliver cash otherwise liquidate

4 Question Marks (= high growth low market share)

- have the worst cash characteristics of all because high demands and low returns due to low market share

- If nothing is done to change the market share question marks will simply absorb great amounts of cash and later as the growth stops a dog

- Either invests heavily or sells off or invest nothing and generate whatever cash it can Increase market share or deliver cash

MARKETS

The markets of prestige products can be mainly divided on the basis of some common characteristics into urban markets and rural markets Although the urban markets are mostly saturated with low growth rates in the pressure cooker segment the rural market is experiencing a rapid double digit growth rate with the penetration into rural households being the hope for this segment TTK prestige forayed into the rural markets in FY 06 in the modular kitchen segment in rural Karnataka and is drawing heavy footfalls in the retail outlets The modular kitchen and the electrical appliances markets are experiencing a high growth rate in the urban markets The non stick cookware segment is one in which prestige has a strong position and although the urban market is saturated the rural market is growing at a high rate

Thus in the BCG matrix the products of TTK Prestige can be divided into stars question marks cash cows and dogs according to the markets in which they are in ie according to the

31

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

urban and rural markets

URBAN MARKETS

STARS NONE

QUESTION MARKS Electrical appliances modular kitchens

CASH COWS pressure cookers non-stick cookware

DOGS Gas stoves

RURAL MARKETS

STARS Pressure cookers electrical appliances modular kitchens non stick cookware gas stoves

QUESTION MARKS none

CASH COWS none

DOGS none

BCG MATRIX FOR TTK PRESTIGE URBAN MARKETS

32

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

33

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET STARS

QUESTION MARKS

GROWTH

LOW C CASH

Electrical appliances

ppliancessss

CASH COWS

Gas stoves

Modular kitchens

Pressure cookers

Non stick cookwar

DOGS

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

BCG MATRIX FOR TTK PRESTIGE RURAL MARKETS

GE MATRIX FOR TTK PRESTIGE

In consulting engagements with General Electric in the 1970s McKinsey amp Company

34

HIGH RELATIVE

MARKET SHARE LOW

HIGH

MARKET GROWTH

QUESTION MARKS

LOW CASH COWS

DOGS

Pressure cookers

STARS

Modular kitchens

Electrical

Non stick

cookware

Gas stoves

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

developed a nine-cell portfolio matrix as a tool for screening GEs large portfolio of strategic business units (SBU) This business screen became known as the GEMcKinsey Matrix

The GE McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBUs position in the industry The GE matrix however attempts to improve upon the BCG matrix in the following two ways

bull The GE matrix generalizes the axes as Industry Attractiveness and Business Unit Strength whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit

bull The GE matrix has nine cells vs four cells in the BCG matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each determining the value of each parameter in the criteria and multiplying that value by a weighting factor The result is a quantitative measure of industry attractiveness and the business units relative performance in that industry

COMPETETIVE STRENGTH

MARKET ATTRACTIVENESS

HIGH MEDIUM LOW HIGH PRESSURE

COOKERSNON STICK COOKWARE

MEDIUM MODULAR KITCHENS

ELECTRICAL APPLIANCES

GAS STOVES

LOW

Criteria for market attractiveness

bull Size of market

35

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

bull Market rate of growth

bull Nature of competition and its diversity

bull Profit levels

bull Ability to differentiate

bull Impact of technology the law and energy effeciency

Criteria for competitive strength

bull Market share

bull Management profile

bull R amp D

bull Quality of products and services

bull Branding and promotions success

bull Place (or distribution)

bull Brand loyalty

bull Efficiency

bull Cost reduction

ADLITTLE MATRIX FOR TTK PRESTIGE

The Arthur D Little (ADL) Strategic Condition Matrix offers a different perspective on strategy formulation ADL has two main dimensions - competitive position and industry maturity

Competitive position is driven by the sectors or segments in which a Strategic Business Unit (SBU) operates The product or service which it markets and the accesses it has to a range of geographically dispersed markets that are what makes up an organizations competitive position ie product and place

Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be renamed an industry life cycle Of course not only industries could be considered here but also segments

It is a combination of the two aforementioned dimensions that helps us to use ADL for marketing decision-making Now lets consider options in more detail Competitive position has five main categories

bull 1 Dominant - This is a particularly extraordinary position Often this is associate with some form of monopoly position or customer lock

36

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

bull 2 Strong - Here companies have a lot of freedom since position in an industry is comparatively powerful

bull 3 Favourable - Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place No single global player controls all segments Here product strengths and geographical advantages come into play

bull 4 Tenable - Here companies may face erosion by stronger competitors that have a favourable strong or competitive position It is difficult for them to compete since they do not have a sustainable competitive advantage

bull 5 Weak - As the term suggests companies in this undesirable space are in an unenviable position Of course there are opportunities to change and improve and therefore to take an organization to a more favourable strong or even dominant position

From here the strategic position of an organisation can be established Managers then need to decide upon the best strategic direction for the business For example they might use a Gap Analysis According to ADL there are six generic categories of strategy that could be employed by individual SBUs

bull Market strategiesbull Product strategiesbull Management and systems strategiesbull Technology strategiesbull Retrenchment strategiesbull Operations strategies

STAGES OF INDUSTRY GROWTH

37

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

COMPANYrsquoS COMPETITIVE POSITION

EMBRYONIC GROWTH MATURITY AGEING

DOMINANT PRESSURE COOKER

STRONG NON STICK COOKWARE

FAVOURABLE

ELECTRICAL APPLIANCES

GAS STOVES

KITCHEN ACCESORIES

TENABLE MODULAR KITCHEN

WEAK

Porterrsquos 5 forces model-

38

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

Academic Information

Porter referred to these forces as the micro environment to contrast it with the more general term macro environment They consist of those forces close to a company that affect its ability to serve its customers and make a profit A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information The overall industry attractiveness does not imply that every firm in the industry will return the same profitability Firms are able to apply their core competencies business model or network to achieve a profit above the industry average A clear example of this is the airline industry As an industry profitability is low and yet individual companies by applying unique business models have been able to make a return in excess of the industry average

Porters five forces include three forces from horizontal competition threat of substitute products the threat of established rivals and the threat of new entrants and two forces from vertical competition the bargaining power of suppliers and the bargaining power of customers

The threat of substitute products or services

39

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives

bull Buyer propensity to substitute

bull Relative price performance of substitute

bull Buyer switching costs

bull Perceived level of product differentiation

bull Number of substitute products available in the market

bull Ease of substitution Information-based products are more prone to substitution as online product can easily replace material product

bull Substandard product

bull Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants which eventually will decrease profitability Unless the entry of new firms can be blocked by incumbents the profit rate will fall towards a competitive level (perfect competition)

bull The existence of barriers to entry (patents rights etc)The most attractive segment is one which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

bull Economies of product differences

bull Brand equity

bull Switching costs or sunk costs

bull Capital requirements

bull Access to distribution

bull Customer loyalty to established brands

bull Absolute cost advantages

bull Learning curve advantages

bull Expected retaliation by incumbents

bull Government policies

bull Industry profitability the more profitable the industry the more attractive it will be to new competitors

bull Internet era today competitors need only a website to enter a market

The intensity of competitive rivalry

40

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

bull Sustainable competitive advantage through innovation

bull Competition between online and offline companies click-and-mortar -v- brick-and-mortar

bull Level of advertising expense

bull Powerful competitive strategy used by a company which can intensify competitive pressures on their rivals

How will competition react to certain behavior by another firm Competitive rivalry is likely to be based on dimensions such as price quality and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits until competitors imitate them Examples of recent technology advantage in have been mp3 players and mobile telephones Vertical integration is a strategy to reduce a business own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs the ability of customers to put the firm under pressure which also affects the customers sensitivity to price changes

bull Buyer concentration to firm concentration ratio

bull Degree of dependency upon existing channels of distribution

bull Bargaining leverage particularly in industries with high fixed costs

bull Buyer volume

bull Buyer switching costs relative to firm switching costs

bull Buyer information availability

bull Ability to backward integrate

bull Availability of existing substitute products

bull Buyer price sensitivity

bull Differential advantage (uniqueness) of industry products

bull RFM Analysis

The bargaining power of suppliers

41

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials components labor and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes Suppliers may refuse to work with the firm or eg charge excessively high prices for unique resources

bull Supplier switching costs relative to firm switching costs

bull Degree of differentiation of inputs

bull Impact of inputs on cost or differentiation

bull Presence of substitute inputs

bull Supplier concentration to firm concentration ratio

bull Employee solidarity (eg labour unions)

bull Supplier competition - ability to forward vertically integrate and cut out the buyer

New entrants

Prestige cooker is a brand of the company TTK which is known for its food kitchen utensils The threat of new competitors is one of the forces of Porterrsquos model which in this case is less because of the cost advantage they provide to their customers on various sizes available in the market It has established superior production operations and processes due to experience patents and exercise huge control on particular inputs required for production such as labor materials equipment or management skills On the other hand new entrants would have to undertake huge capital investment to build out their networks and match the scale advantage of established companies This is especially true as Prestige Cooker is already in fierce competition with other more established brands like Hawkins kanchan Jaipan Increasing urbanization and fast-changing demographics have led to a growing demand for additional homes which in turn have increased demand for kitchen appliances TTK Prestige has evolved from a pressure cooker company to a total kitchen solution provider It has refurbished its product portfolio by introducing gas stoves mixer-grinders domestic kitchen appliances non-stick cookware chimneys hobs and modular kitchen solutions

Competitive Rivalry

The competitive struggle is fought through price advertising and promotion spending and direct selling efforts Prestige Cooker is affecting its rivals by its price and the technology of being balanced cookers all through the world containing aesthetic styles and better technology efficient TTK controls more than 60 of the pressure cooker market thus actions of other companies affect the market share of it but the growing need for cookers tend to moderate competition by providing scope for growth to the company Thus fierce competition does exist but at the moment Prestige with its variety of ranges seems to have advantage of price distribution perceived quality and thus market share TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now

42

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

become standards for other manufacturers which makes difficult for other competitors for rivalry

Bargaining power of buyers

When the buyers purchase in large quantities then buyer can use their purchasing power as leverage to bargain for price reductions The switching costs are low so buyers can play off the supplying companies against each other to force down prices As mentioned earlier the retail chains are exercising sufficient power over major brands of cookers Prestige at present has many outlets the company has entered the fast growing retail space with its exclusive lsquoSmart Kitchenrsquo outlets which has helped in boosting brand image and demand TTK Prestige is aggressively expanding the number of exclusive outlets which is expected to go up from 164 in 92 towns to over 200 outlets by the end FY07 The change in the family structure in India is clearly reflected in the reducing number of persons per household which has fallen from 57 persons in 1971 to 53 in 2001 Going forward we expect the trend towards nuclear families to intensify with the average number of people in a household set to fall to 51 by 2011India is also fast moving from an agriculture-based to a services-driven economy

Bargaining power of suppliers

Suppliers are weak as the company has the opportunity to force down input prices and higher quality inputs TTK Prestige is having a huge turnover nearly half of which comes from its pressure cooker so it could threaten to enter the suppliers industry and make the inputs as a tactic to lower down the prices of the input

Also it must be remembered that TTK not only has its manufacturing plants but also the capability of importing with research and development units as for the urban woman whether she is a working woman or a housewife the pressure cooker has become indispensable The trend of pressure cooker has grown so widely that people from rural are also using the pressure cookers as even the government is stressing upon these people to use pressure cookers so that usage of liquid petroleum gas can be lessened Its varied variety and its design which are very common and known to many people makes usability very easy which tends the people to purchase also for its long time sustainable in the market makes them the first priority to purchase

Threat of substitutes

43

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

TTK Prestige cooker provides cookers with different sizes like pressure cooker pressure kadai pressure handi etc therefore the threat of having substitute is reduced as customer can buy according to his own preference within the same brand Also for the price conscious customer who might migrate to cheaper TTK prestige cooker has low range or the low cost brand variant Some brand concern persons who think that prestige cooker pressure is a low class cooker might shift to other brands like Hawkins kanchan or Jaipan as these come with some very good western aesthetic designs The threat is minimal as Prestige has some flamboyant designs where all the utensils and other cookware are matched with to increase the uniqueness

PESTLE [Political Economic Social Technological Legal and

Environmental Profile]

PESTLE analysis factors are Political Economic Sociological Technological Legal and Environmental The PESTLE analysis examines each factor to assess what their impact or potential impact on the organization In this way they can prepare strategically for any changes that need to be made in the organization or simply to have the awareness of the external market to give them a competitive edge over other firms in the industry Examples of each PESTLE analysis factor are

bull Political what is happening politically with regards to tax policies employment laws trade restrictions tariffs

bull Economic what is happening within the economy ie economic growth decline minimum wage unemployment (local and national) credit availability cost of living etc

bull Sociological what are occurring socially ie cultural norms and expectations health consciousness population growth rate career attitudes

bull Technological new technologies are continually being developed There are also changes to barriers to entry in given markets

bull Legal changes to legislation This may impact employment access to materials resources imports exports taxation etc

bull Environmental what is happening with respect to ecological and environmental aspects

44

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

Competitive Advantage Profile [CAP] of TTK Prestige Pressure

Cooker brand in India

bull TTK Prestige pioneered the concept of pressure-cooking in India It has introduced many new concepts in pressure cookers like new shapes non-stick pressure cookers and pressure indicator which have now become standards for other manufacturers Over the years it has launched many unique and innovative products

bull TTK which was only into cookware now has around 33 of its revenues coming from kitchen appliances

bull Company recognizes the immense value of its traditional dealer network Owing to a dynamic trade policy which affords satisfactory return on investment to the dealer the contribution through traditional dealer network is also growing

bull Penetration of pressure cookers in the domestic urban market is very high and the future growths have to come from rural households There are rural households who have disposable incomes but the impulse to buy pressure cookers or other kitchenware has not been generated due to inadequate distribution reach

45

EXTERNAL FACTORS

EXTERNAL FACTORS AFFECTING ORGANISATION

POLITICAL GOVERMENTS TAX POLICYAND OTHER SUBSIDARIES FOR USAGE OF PRESSURE COOKERS

ECONOMIC INFLATION RECESSION DOWNTURN COST OF INPUTS

SOCIAL URBAN INDIA TRENDS TO EAT OUTSIDE

TECHNOLOGICAL ISO CERTFIED AND WITH US HELP TECHKNOWLEDGE KNOW HOW CAN BE TRANSFERED

LEGAL MANTRAA- VARIANT OF COOKER WHICH IS EXPORTED TO US AND LESS LAYOFF AT THE TIME OF RECESSION

ENVIRONMENTAL STRINGENT SPECEFICATIONS FOR MAINTENANCE OF PRODUCT

QUALITY AND OTHER METALLURGICAL MEASURES

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

bull The company is also into the modular kitchen segment which is the single largest brand

bull The companyrsquos current installed capacity in pressure cookers is 40 lakh units But as it is running only at 50 per cent of its capacity there is room for scaling up production with demand expected to rise in the coming years The company will enjoy higher revenues as the market grows in size with no additional capexinterest

bull Company is continuously improving the internal control system in all the areas of operation including the effective monitoring of Prestige Smart Kitchens established across the length and breadth of the country Companyrsquos proposed new ERP implementation will further improve the internal controls

SWOT analysis46

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

SWOT Analysis is a strategic planning method used to evaluate the Strengths Weaknesses Opportunities and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

A SWOT analysis must first start with defining a desired end state or objective A SWOT analysis may be incorporated into the strategic planning model

bull Strengths attributes of the person or company that is helpful to achieving the objectivebull Weaknesses attributes of the person or company that is harmful to achieving the objectivebull Opportunities external conditions that is helpful to achieving the objectivebull Threats external conditions which could do damage to the objective

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs

First the decision makers have to determine whether the objective is attainable given the SWOTs If the objective is NOT attainable a different objective must be selected and the process repeated

Matching and converting

Another way of utilizing SWOT is matching and converting Matching is used to find competitive advantages by matching the strengths to opportunities Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities An example of conversion strategy is to find new markets If the threats or weaknesses cannot be converted a company should try to minimize or avoid them

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective These come from within the companys unique value chain SWOT analysis groups key pieces of information into two main categories

bull Internal factors ndash The strengths and weaknesses internal to the organizationbull External factors ndash The opportunities and threats presented by the external environment to the organization

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives What may represent strengths with respect to one objective may be weaknesses for another objective The factors may include all of the 4Ps as well as personnel finance manufacturing capabilities and so on The external factors may include

47

macroeconomic matters technological change legislation and socio-cultural changes as well as changes in the marketplace or competitive position The results are often presented in the form of a matrix

SWOT analysis is just one method of categorization and has its own weaknesses For example it may tend to persuade companies to compile lists rather than think about what is actually important in achieving objectives It also presents the resulting lists uncritically and without clear prioritization so that for example weak opportunities may appear to balance strong threats

SWOT ANALYSIS OF PRESTIGE

S (Strength)

1 The product is treated as a matter of prestige which gave good brand image2 Pioneers in this industry3 Prestige has the largest range of pressure cookers in the country 4 with years of trust reliability and safety as our hallmarks 5 Price of these cookers ranges in all income group people6 Customers review

48

W (weakness)

1 Unable to reach huge sales volume2 Lacking in high diversified segmentation3 Not able to beat out Hawkins Butterfly and kanchan4 Incapable in dominating the outer fitting lead pressure cooker market with nearly 70-80 of market share

of competitorsrsquo like Hawkins 5 No innovative marketing strategy been adopted so as grab the market

O (Opportunities)

1 Currently the season which is going begin is marriage season so new families form they can target those customers in bulk pack2 They are declining the direct promotion to attain good market3 Capture the range of market namely low-medium users4 They have mudra communications as their marketing agent which is a good opportunity to explore5 Safety techniques like Gasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo add points in safe use for beginners

T (Threats)

1 Competitors future cookers are being planned to manufacture with Anodized aluminum2 Wide range of availability of competitors products3 The expected moving of high income group towards the black berry of Hawkins is nearly threat4 Launching of anodized cookers in front challenge before all pressure cookware5 Unbranded cookers in market are swallowing 50 percent of market share

VALUE CHAIN ANALYSIS

49

Ease of Use

Durability

Ease of Cleaning

Style amp Design

Service amp Support

The value chain is a systematic approach to examining the development of competitive advantage It was created by M E Porter in his book Competitive Advantage (1980) The chain consists of a series of activities that create and build value They culminate in the total value delivered by an organization

Primary Activities

Inbound LogisticsHere goods are received from a companys suppliers They are stored until they are needed on the productionassembly line Goods are moved around the organisation

OperationsThis is where goods are manufactured or assembled Individual operations could include room service in an hotel packing of booksvideosgames by an online retailer or the final tune for a new cars engine

Outbound LogisticsThe goods are now finished and they need to be sent along the supply chain to wholesalers retailers or the final consumer

Marketing and sales

50

In true customer orientated fashion at this stage the organization prepares the offering to meet the needs of targeted customers This area focuses strongly upon marketing communications and the promotions mix

ServiceThis includes all areas of service such as installation after-sales service complaints handling training and so on

INBOUND LOGISICS

MARKETING AND SALES

The dealers and distributors played a very important role in success of prestige The dealers and distributors are dealing with the prestige products alone Prestige strongly believes in trade partners and is committed to strengthen them and prepare them for the challenges ahead With the current trend of organized retail growing prestige believes as the leader in the segment They educate and instigate change in the trade partners and help them get to next level

Prestige smart kitchens have been one of the most innovative marketing moves by prestige PSK was conceptualized to do three things To improve the visibility in terms of display the entire range of products to improve the distribution of our new products and to offer the customer right ambience to shop and educate and communicate the right things about prestige

51

After three years of successful operation and over 100 stores PSK today offers that edge over the competition which cannot be replicated Besides the three benefits that PSK offered contributes 12 of the revenue It has prepared to take the challenges of organized retail

PSK has instigated the nearby traders to keep the entire range of products The same traders were not ready to stock and sell the entire range This has actually resulted in prestige increasing its market share for its entire range in that area dramatically

They have plans to expand the stores across the country The concentration would be on the tier 11 cities in south India and tier 1 in non south markets By the end of this fiscal they shall be 400 in numbers with 80000sqft of retail space

Outbound LogisticsThe goods are now finished and they need to be sent along the supply chain to wholesalers retailers or the final consumer

SERVICE

52

The Pressure Cooker Centre has been supplying and servicing pressure cookers since 1968 when we started in a little shop in West Perth Western Australia With a devotion to a quality service to our customers our business has expanded to the point of supplying pressure cookers now on a daily basis to all corners of Australia New Zealand various countries throughout SE Asia (including Thailand Philippines Malaysia Indonesia) and beyond and spare parts to all corners of the world The little store now in Subiaco WA still provides the personal friendly service that helped us grow to a truly National dimension

We specialize in Pressure Cookers and their Spare Parts and have sourced quality products from around the world (several brands are exclusive to the Pressure Cooker Centre) so that we can offer you a complete choice of quality pressure cookers for all budgets

We also carry a select range of quality kitchenware and kitchen accessories so that we can offer you world renowned top-of-the-range cookware and kitchenware You will find a large range of SILAMPOS saucepans stockpots frypans steamer sets and double boilers This top-of-the range cookware with Thermoplan base (guaranteed for 25 years) is made of the finest 1810 stainless steel and is imported directly from Portugal The Silampos cookware range is of excellent quality design and finish and is offered to our customers at the lowest retail prices We also offer exclusive to Pressure Cooker Centre the top quality SILIT cookware from Germany with its unique SILARGAN ceramic non-stick and scratch-proof coating and ZWILLING HENCKELS knives also from Germany and much more Goto Kitchenware

STRATEGIC ALTERNATIVES SOLUTIONS

53

The main issues for Prestige pressure cookers are regarding the threat from other kitchen

ware products ensuring growth in kitchenware market differentiating its products further so

as to fend off competition

Alternatives to combat these very problems are as follows

Option 1 Launch large-scale promotions to make consumers aware of advantages of

variant pressure cookers released by prestige

2 Employ cost-cutting methods to further lower prices while discontinuing

unsustainable products

3 Investing more heavily in Research and Development so as to make more

innovative products to compete better

4 With the improved research and development EXPORTING to USA according to

their standards may prove to be advantageous

Recommended Strategy

In spite of all the aforementioned strategies would help Prestige compete grow and sell

better the best option for now would be to employ cost-cutting methods to decrease prices

further This would not only ward off the significant competition from other players like

Hawkins Jaipan and Kanchan but would also help in wooing the 80 of the consumers of

India who rely on pressure cookers It is our understanding that the vast rural sectors

subscribe most to the cookers as they are seen to be cheaper and efficient than normal

cooking methodology By employing cost-cutting methods this price difference and the

associated perception can be bridged to increase Prestige market share It is also imperative

for the brand to discontinue the products in its portfolio that are not doing well Pouring

money into promotion of products that arenrsquot selling in the market is unwise Increase in sales

and market share while further cutting down costs is also likely to increase TTK Prestige

Pressure cooker profit margins which at the moment is a luxury that none of the competing

others players enjoy Similarly with more revenue the rest of the strategies and alternatives

can be easily implemented post evaluation to find the best practices to make TTK Prestige

growth in India both sustainable and profitable

54

Conclusion

By studying products of TTK Prestige India specifically its cooker brand we have been able

to analyze the brand the value it has created the products the variants the problems faced

specifically by the brand and those faced by the industry as a whole in recent times We have

55

been able to evaluate to an extent the strategies that are conspicuous to us while noting

whether implementing these strategies have helped Prestige or not In light of our study we

have been able to formulate certain solutions to the issues identified by us while

recommending the most suitable on for a variety of reasons All in all it is certain that

Prestige brand of pressure cookers backed by the parent company TTK Ltd is here to stay

and its market share is only bound to soar with the definite shift towards packaged cookers by

the rural and urban population given to the growing density

REFRENCES

1 TTK_Prestige-Techno_Research_Report Pdf

2 TTK Prestige reportpdf

56

3 wwwprestige cookwareState-of-art-Microwave-ovens- launched-by-TTK-Prestigehtml

4 wwwa-review-of-the-royal-prestige-hy-cite-corp-income- opportunity-579302com

5 wwwannual-report-ttk-prestige-2008-2009html

6 httpwwwprestigesmartkitchencom

7 httpwwwmouthshutcomproduct- reviewsPrestige_Pressure_Cooker-925003557html

8 httpcorporategiftseasy2sourcecomttkprestigeproductpr ofile2htm

9 httpwwwthehindubusinesslinecomiw20091019stories2 009101950210400htm

10httppressure-cookersblogspotcom200905prestige- pressure-cooker-cheap-solutionhtml

11www hawkinscookers comdownloadspc_catalogpdf

12httpwwwreviewstreamcomreviewsp=25542

13httpwwwamericanchroniclecomarticlesview105565

14httpwwwreviewcentrecomproducts2171html

57

W (weakness)

1 Unable to reach huge sales volume2 Lacking in high diversified segmentation3 Not able to beat out Hawkins Butterfly and kanchan4 Incapable in dominating the outer fitting lead pressure cooker market with nearly 70-80 of market share

of competitorsrsquo like Hawkins 5 No innovative marketing strategy been adopted so as grab the market

O (Opportunities)

1 Currently the season which is going begin is marriage season so new families form they can target those customers in bulk pack2 They are declining the direct promotion to attain good market3 Capture the range of market namely low-medium users4 They have mudra communications as their marketing agent which is a good opportunity to explore5 Safety techniques like Gasket Release Systemrdquo and the ldquoGasket Offset Devicerdquo add points in safe use for beginners

T (Threats)

1 Competitors future cookers are being planned to manufacture with Anodized aluminum2 Wide range of availability of competitors products3 The expected moving of high income group towards the black berry of Hawkins is nearly threat4 Launching of anodized cookers in front challenge before all pressure cookware5 Unbranded cookers in market are swallowing 50 percent of market share

VALUE CHAIN ANALYSIS

49

Ease of Use

Durability

Ease of Cleaning

Style amp Design

Service amp Support

The value chain is a systematic approach to examining the development of competitive advantage It was created by M E Porter in his book Competitive Advantage (1980) The chain consists of a series of activities that create and build value They culminate in the total value delivered by an organization

Primary Activities

Inbound LogisticsHere goods are received from a companys suppliers They are stored until they are needed on the productionassembly line Goods are moved around the organisation

OperationsThis is where goods are manufactured or assembled Individual operations could include room service in an hotel packing of booksvideosgames by an online retailer or the final tune for a new cars engine

Outbound LogisticsThe goods are now finished and they need to be sent along the supply chain to wholesalers retailers or the final consumer

Marketing and sales

50

In true customer orientated fashion at this stage the organization prepares the offering to meet the needs of targeted customers This area focuses strongly upon marketing communications and the promotions mix

ServiceThis includes all areas of service such as installation after-sales service complaints handling training and so on

INBOUND LOGISICS

MARKETING AND SALES

The dealers and distributors played a very important role in success of prestige The dealers and distributors are dealing with the prestige products alone Prestige strongly believes in trade partners and is committed to strengthen them and prepare them for the challenges ahead With the current trend of organized retail growing prestige believes as the leader in the segment They educate and instigate change in the trade partners and help them get to next level

Prestige smart kitchens have been one of the most innovative marketing moves by prestige PSK was conceptualized to do three things To improve the visibility in terms of display the entire range of products to improve the distribution of our new products and to offer the customer right ambience to shop and educate and communicate the right things about prestige

51

After three years of successful operation and over 100 stores PSK today offers that edge over the competition which cannot be replicated Besides the three benefits that PSK offered contributes 12 of the revenue It has prepared to take the challenges of organized retail

PSK has instigated the nearby traders to keep the entire range of products The same traders were not ready to stock and sell the entire range This has actually resulted in prestige increasing its market share for its entire range in that area dramatically

They have plans to expand the stores across the country The concentration would be on the tier 11 cities in south India and tier 1 in non south markets By the end of this fiscal they shall be 400 in numbers with 80000sqft of retail space

Outbound LogisticsThe goods are now finished and they need to be sent along the supply chain to wholesalers retailers or the final consumer

SERVICE

52

The Pressure Cooker Centre has been supplying and servicing pressure cookers since 1968 when we started in a little shop in West Perth Western Australia With a devotion to a quality service to our customers our business has expanded to the point of supplying pressure cookers now on a daily basis to all corners of Australia New Zealand various countries throughout SE Asia (including Thailand Philippines Malaysia Indonesia) and beyond and spare parts to all corners of the world The little store now in Subiaco WA still provides the personal friendly service that helped us grow to a truly National dimension

We specialize in Pressure Cookers and their Spare Parts and have sourced quality products from around the world (several brands are exclusive to the Pressure Cooker Centre) so that we can offer you a complete choice of quality pressure cookers for all budgets

We also carry a select range of quality kitchenware and kitchen accessories so that we can offer you world renowned top-of-the-range cookware and kitchenware You will find a large range of SILAMPOS saucepans stockpots frypans steamer sets and double boilers This top-of-the range cookware with Thermoplan base (guaranteed for 25 years) is made of the finest 1810 stainless steel and is imported directly from Portugal The Silampos cookware range is of excellent quality design and finish and is offered to our customers at the lowest retail prices We also offer exclusive to Pressure Cooker Centre the top quality SILIT cookware from Germany with its unique SILARGAN ceramic non-stick and scratch-proof coating and ZWILLING HENCKELS knives also from Germany and much more Goto Kitchenware

STRATEGIC ALTERNATIVES SOLUTIONS

53

The main issues for Prestige pressure cookers are regarding the threat from other kitchen

ware products ensuring growth in kitchenware market differentiating its products further so

as to fend off competition

Alternatives to combat these very problems are as follows

Option 1 Launch large-scale promotions to make consumers aware of advantages of

variant pressure cookers released by prestige

2 Employ cost-cutting methods to further lower prices while discontinuing

unsustainable products

3 Investing more heavily in Research and Development so as to make more

innovative products to compete better

4 With the improved research and development EXPORTING to USA according to

their standards may prove to be advantageous

Recommended Strategy

In spite of all the aforementioned strategies would help Prestige compete grow and sell

better the best option for now would be to employ cost-cutting methods to decrease prices

further This would not only ward off the significant competition from other players like

Hawkins Jaipan and Kanchan but would also help in wooing the 80 of the consumers of

India who rely on pressure cookers It is our understanding that the vast rural sectors

subscribe most to the cookers as they are seen to be cheaper and efficient than normal

cooking methodology By employing cost-cutting methods this price difference and the

associated perception can be bridged to increase Prestige market share It is also imperative

for the brand to discontinue the products in its portfolio that are not doing well Pouring

money into promotion of products that arenrsquot selling in the market is unwise Increase in sales

and market share while further cutting down costs is also likely to increase TTK Prestige

Pressure cooker profit margins which at the moment is a luxury that none of the competing

others players enjoy Similarly with more revenue the rest of the strategies and alternatives

can be easily implemented post evaluation to find the best practices to make TTK Prestige

growth in India both sustainable and profitable

54

Conclusion

By studying products of TTK Prestige India specifically its cooker brand we have been able

to analyze the brand the value it has created the products the variants the problems faced

specifically by the brand and those faced by the industry as a whole in recent times We have

55

been able to evaluate to an extent the strategies that are conspicuous to us while noting

whether implementing these strategies have helped Prestige or not In light of our study we

have been able to formulate certain solutions to the issues identified by us while

recommending the most suitable on for a variety of reasons All in all it is certain that

Prestige brand of pressure cookers backed by the parent company TTK Ltd is here to stay

and its market share is only bound to soar with the definite shift towards packaged cookers by

the rural and urban population given to the growing density

REFRENCES

1 TTK_Prestige-Techno_Research_Report Pdf

2 TTK Prestige reportpdf

56

3 wwwprestige cookwareState-of-art-Microwave-ovens- launched-by-TTK-Prestigehtml

4 wwwa-review-of-the-royal-prestige-hy-cite-corp-income- opportunity-579302com

5 wwwannual-report-ttk-prestige-2008-2009html

6 httpwwwprestigesmartkitchencom

7 httpwwwmouthshutcomproduct- reviewsPrestige_Pressure_Cooker-925003557html

8 httpcorporategiftseasy2sourcecomttkprestigeproductpr ofile2htm

9 httpwwwthehindubusinesslinecomiw20091019stories2 009101950210400htm

10httppressure-cookersblogspotcom200905prestige- pressure-cooker-cheap-solutionhtml

11www hawkinscookers comdownloadspc_catalogpdf

12httpwwwreviewstreamcomreviewsp=25542

13httpwwwamericanchroniclecomarticlesview105565

14httpwwwreviewcentrecomproducts2171html

57

The value chain is a systematic approach to examining the development of competitive advantage It was created by M E Porter in his book Competitive Advantage (1980) The chain consists of a series of activities that create and build value They culminate in the total value delivered by an organization

Primary Activities

Inbound LogisticsHere goods are received from a companys suppliers They are stored until they are needed on the productionassembly line Goods are moved around the organisation

OperationsThis is where goods are manufactured or assembled Individual operations could include room service in an hotel packing of booksvideosgames by an online retailer or the final tune for a new cars engine

Outbound LogisticsThe goods are now finished and they need to be sent along the supply chain to wholesalers retailers or the final consumer

Marketing and sales

50

In true customer orientated fashion at this stage the organization prepares the offering to meet the needs of targeted customers This area focuses strongly upon marketing communications and the promotions mix

ServiceThis includes all areas of service such as installation after-sales service complaints handling training and so on

INBOUND LOGISICS

MARKETING AND SALES

The dealers and distributors played a very important role in success of prestige The dealers and distributors are dealing with the prestige products alone Prestige strongly believes in trade partners and is committed to strengthen them and prepare them for the challenges ahead With the current trend of organized retail growing prestige believes as the leader in the segment They educate and instigate change in the trade partners and help them get to next level

Prestige smart kitchens have been one of the most innovative marketing moves by prestige PSK was conceptualized to do three things To improve the visibility in terms of display the entire range of products to improve the distribution of our new products and to offer the customer right ambience to shop and educate and communicate the right things about prestige

51

After three years of successful operation and over 100 stores PSK today offers that edge over the competition which cannot be replicated Besides the three benefits that PSK offered contributes 12 of the revenue It has prepared to take the challenges of organized retail

PSK has instigated the nearby traders to keep the entire range of products The same traders were not ready to stock and sell the entire range This has actually resulted in prestige increasing its market share for its entire range in that area dramatically

They have plans to expand the stores across the country The concentration would be on the tier 11 cities in south India and tier 1 in non south markets By the end of this fiscal they shall be 400 in numbers with 80000sqft of retail space

Outbound LogisticsThe goods are now finished and they need to be sent along the supply chain to wholesalers retailers or the final consumer

SERVICE

52

The Pressure Cooker Centre has been supplying and servicing pressure cookers since 1968 when we started in a little shop in West Perth Western Australia With a devotion to a quality service to our customers our business has expanded to the point of supplying pressure cookers now on a daily basis to all corners of Australia New Zealand various countries throughout SE Asia (including Thailand Philippines Malaysia Indonesia) and beyond and spare parts to all corners of the world The little store now in Subiaco WA still provides the personal friendly service that helped us grow to a truly National dimension

We specialize in Pressure Cookers and their Spare Parts and have sourced quality products from around the world (several brands are exclusive to the Pressure Cooker Centre) so that we can offer you a complete choice of quality pressure cookers for all budgets

We also carry a select range of quality kitchenware and kitchen accessories so that we can offer you world renowned top-of-the-range cookware and kitchenware You will find a large range of SILAMPOS saucepans stockpots frypans steamer sets and double boilers This top-of-the range cookware with Thermoplan base (guaranteed for 25 years) is made of the finest 1810 stainless steel and is imported directly from Portugal The Silampos cookware range is of excellent quality design and finish and is offered to our customers at the lowest retail prices We also offer exclusive to Pressure Cooker Centre the top quality SILIT cookware from Germany with its unique SILARGAN ceramic non-stick and scratch-proof coating and ZWILLING HENCKELS knives also from Germany and much more Goto Kitchenware

STRATEGIC ALTERNATIVES SOLUTIONS

53

The main issues for Prestige pressure cookers are regarding the threat from other kitchen

ware products ensuring growth in kitchenware market differentiating its products further so

as to fend off competition

Alternatives to combat these very problems are as follows

Option 1 Launch large-scale promotions to make consumers aware of advantages of

variant pressure cookers released by prestige

2 Employ cost-cutting methods to further lower prices while discontinuing

unsustainable products

3 Investing more heavily in Research and Development so as to make more

innovative products to compete better

4 With the improved research and development EXPORTING to USA according to

their standards may prove to be advantageous

Recommended Strategy

In spite of all the aforementioned strategies would help Prestige compete grow and sell

better the best option for now would be to employ cost-cutting methods to decrease prices

further This would not only ward off the significant competition from other players like

Hawkins Jaipan and Kanchan but would also help in wooing the 80 of the consumers of

India who rely on pressure cookers It is our understanding that the vast rural sectors

subscribe most to the cookers as they are seen to be cheaper and efficient than normal

cooking methodology By employing cost-cutting methods this price difference and the

associated perception can be bridged to increase Prestige market share It is also imperative

for the brand to discontinue the products in its portfolio that are not doing well Pouring

money into promotion of products that arenrsquot selling in the market is unwise Increase in sales

and market share while further cutting down costs is also likely to increase TTK Prestige

Pressure cooker profit margins which at the moment is a luxury that none of the competing

others players enjoy Similarly with more revenue the rest of the strategies and alternatives

can be easily implemented post evaluation to find the best practices to make TTK Prestige

growth in India both sustainable and profitable

54

Conclusion

By studying products of TTK Prestige India specifically its cooker brand we have been able

to analyze the brand the value it has created the products the variants the problems faced

specifically by the brand and those faced by the industry as a whole in recent times We have

55

been able to evaluate to an extent the strategies that are conspicuous to us while noting

whether implementing these strategies have helped Prestige or not In light of our study we

have been able to formulate certain solutions to the issues identified by us while

recommending the most suitable on for a variety of reasons All in all it is certain that

Prestige brand of pressure cookers backed by the parent company TTK Ltd is here to stay

and its market share is only bound to soar with the definite shift towards packaged cookers by

the rural and urban population given to the growing density

REFRENCES

1 TTK_Prestige-Techno_Research_Report Pdf

2 TTK Prestige reportpdf

56

3 wwwprestige cookwareState-of-art-Microwave-ovens- launched-by-TTK-Prestigehtml

4 wwwa-review-of-the-royal-prestige-hy-cite-corp-income- opportunity-579302com

5 wwwannual-report-ttk-prestige-2008-2009html

6 httpwwwprestigesmartkitchencom

7 httpwwwmouthshutcomproduct- reviewsPrestige_Pressure_Cooker-925003557html

8 httpcorporategiftseasy2sourcecomttkprestigeproductpr ofile2htm

9 httpwwwthehindubusinesslinecomiw20091019stories2 009101950210400htm

10httppressure-cookersblogspotcom200905prestige- pressure-cooker-cheap-solutionhtml

11www hawkinscookers comdownloadspc_catalogpdf

12httpwwwreviewstreamcomreviewsp=25542

13httpwwwamericanchroniclecomarticlesview105565

14httpwwwreviewcentrecomproducts2171html

57

In true customer orientated fashion at this stage the organization prepares the offering to meet the needs of targeted customers This area focuses strongly upon marketing communications and the promotions mix

ServiceThis includes all areas of service such as installation after-sales service complaints handling training and so on

INBOUND LOGISICS

MARKETING AND SALES

The dealers and distributors played a very important role in success of prestige The dealers and distributors are dealing with the prestige products alone Prestige strongly believes in trade partners and is committed to strengthen them and prepare them for the challenges ahead With the current trend of organized retail growing prestige believes as the leader in the segment They educate and instigate change in the trade partners and help them get to next level

Prestige smart kitchens have been one of the most innovative marketing moves by prestige PSK was conceptualized to do three things To improve the visibility in terms of display the entire range of products to improve the distribution of our new products and to offer the customer right ambience to shop and educate and communicate the right things about prestige

51

After three years of successful operation and over 100 stores PSK today offers that edge over the competition which cannot be replicated Besides the three benefits that PSK offered contributes 12 of the revenue It has prepared to take the challenges of organized retail

PSK has instigated the nearby traders to keep the entire range of products The same traders were not ready to stock and sell the entire range This has actually resulted in prestige increasing its market share for its entire range in that area dramatically

They have plans to expand the stores across the country The concentration would be on the tier 11 cities in south India and tier 1 in non south markets By the end of this fiscal they shall be 400 in numbers with 80000sqft of retail space

Outbound LogisticsThe goods are now finished and they need to be sent along the supply chain to wholesalers retailers or the final consumer

SERVICE

52

The Pressure Cooker Centre has been supplying and servicing pressure cookers since 1968 when we started in a little shop in West Perth Western Australia With a devotion to a quality service to our customers our business has expanded to the point of supplying pressure cookers now on a daily basis to all corners of Australia New Zealand various countries throughout SE Asia (including Thailand Philippines Malaysia Indonesia) and beyond and spare parts to all corners of the world The little store now in Subiaco WA still provides the personal friendly service that helped us grow to a truly National dimension

We specialize in Pressure Cookers and their Spare Parts and have sourced quality products from around the world (several brands are exclusive to the Pressure Cooker Centre) so that we can offer you a complete choice of quality pressure cookers for all budgets

We also carry a select range of quality kitchenware and kitchen accessories so that we can offer you world renowned top-of-the-range cookware and kitchenware You will find a large range of SILAMPOS saucepans stockpots frypans steamer sets and double boilers This top-of-the range cookware with Thermoplan base (guaranteed for 25 years) is made of the finest 1810 stainless steel and is imported directly from Portugal The Silampos cookware range is of excellent quality design and finish and is offered to our customers at the lowest retail prices We also offer exclusive to Pressure Cooker Centre the top quality SILIT cookware from Germany with its unique SILARGAN ceramic non-stick and scratch-proof coating and ZWILLING HENCKELS knives also from Germany and much more Goto Kitchenware

STRATEGIC ALTERNATIVES SOLUTIONS

53

The main issues for Prestige pressure cookers are regarding the threat from other kitchen

ware products ensuring growth in kitchenware market differentiating its products further so

as to fend off competition

Alternatives to combat these very problems are as follows

Option 1 Launch large-scale promotions to make consumers aware of advantages of

variant pressure cookers released by prestige

2 Employ cost-cutting methods to further lower prices while discontinuing

unsustainable products

3 Investing more heavily in Research and Development so as to make more

innovative products to compete better

4 With the improved research and development EXPORTING to USA according to

their standards may prove to be advantageous

Recommended Strategy

In spite of all the aforementioned strategies would help Prestige compete grow and sell

better the best option for now would be to employ cost-cutting methods to decrease prices

further This would not only ward off the significant competition from other players like

Hawkins Jaipan and Kanchan but would also help in wooing the 80 of the consumers of

India who rely on pressure cookers It is our understanding that the vast rural sectors

subscribe most to the cookers as they are seen to be cheaper and efficient than normal

cooking methodology By employing cost-cutting methods this price difference and the

associated perception can be bridged to increase Prestige market share It is also imperative

for the brand to discontinue the products in its portfolio that are not doing well Pouring

money into promotion of products that arenrsquot selling in the market is unwise Increase in sales

and market share while further cutting down costs is also likely to increase TTK Prestige

Pressure cooker profit margins which at the moment is a luxury that none of the competing

others players enjoy Similarly with more revenue the rest of the strategies and alternatives

can be easily implemented post evaluation to find the best practices to make TTK Prestige

growth in India both sustainable and profitable

54

Conclusion

By studying products of TTK Prestige India specifically its cooker brand we have been able

to analyze the brand the value it has created the products the variants the problems faced

specifically by the brand and those faced by the industry as a whole in recent times We have

55

been able to evaluate to an extent the strategies that are conspicuous to us while noting

whether implementing these strategies have helped Prestige or not In light of our study we

have been able to formulate certain solutions to the issues identified by us while

recommending the most suitable on for a variety of reasons All in all it is certain that

Prestige brand of pressure cookers backed by the parent company TTK Ltd is here to stay

and its market share is only bound to soar with the definite shift towards packaged cookers by

the rural and urban population given to the growing density

REFRENCES

1 TTK_Prestige-Techno_Research_Report Pdf

2 TTK Prestige reportpdf

56

3 wwwprestige cookwareState-of-art-Microwave-ovens- launched-by-TTK-Prestigehtml

4 wwwa-review-of-the-royal-prestige-hy-cite-corp-income- opportunity-579302com

5 wwwannual-report-ttk-prestige-2008-2009html

6 httpwwwprestigesmartkitchencom

7 httpwwwmouthshutcomproduct- reviewsPrestige_Pressure_Cooker-925003557html

8 httpcorporategiftseasy2sourcecomttkprestigeproductpr ofile2htm

9 httpwwwthehindubusinesslinecomiw20091019stories2 009101950210400htm

10httppressure-cookersblogspotcom200905prestige- pressure-cooker-cheap-solutionhtml

11www hawkinscookers comdownloadspc_catalogpdf

12httpwwwreviewstreamcomreviewsp=25542

13httpwwwamericanchroniclecomarticlesview105565

14httpwwwreviewcentrecomproducts2171html

57

After three years of successful operation and over 100 stores PSK today offers that edge over the competition which cannot be replicated Besides the three benefits that PSK offered contributes 12 of the revenue It has prepared to take the challenges of organized retail

PSK has instigated the nearby traders to keep the entire range of products The same traders were not ready to stock and sell the entire range This has actually resulted in prestige increasing its market share for its entire range in that area dramatically

They have plans to expand the stores across the country The concentration would be on the tier 11 cities in south India and tier 1 in non south markets By the end of this fiscal they shall be 400 in numbers with 80000sqft of retail space

Outbound LogisticsThe goods are now finished and they need to be sent along the supply chain to wholesalers retailers or the final consumer

SERVICE

52

The Pressure Cooker Centre has been supplying and servicing pressure cookers since 1968 when we started in a little shop in West Perth Western Australia With a devotion to a quality service to our customers our business has expanded to the point of supplying pressure cookers now on a daily basis to all corners of Australia New Zealand various countries throughout SE Asia (including Thailand Philippines Malaysia Indonesia) and beyond and spare parts to all corners of the world The little store now in Subiaco WA still provides the personal friendly service that helped us grow to a truly National dimension

We specialize in Pressure Cookers and their Spare Parts and have sourced quality products from around the world (several brands are exclusive to the Pressure Cooker Centre) so that we can offer you a complete choice of quality pressure cookers for all budgets

We also carry a select range of quality kitchenware and kitchen accessories so that we can offer you world renowned top-of-the-range cookware and kitchenware You will find a large range of SILAMPOS saucepans stockpots frypans steamer sets and double boilers This top-of-the range cookware with Thermoplan base (guaranteed for 25 years) is made of the finest 1810 stainless steel and is imported directly from Portugal The Silampos cookware range is of excellent quality design and finish and is offered to our customers at the lowest retail prices We also offer exclusive to Pressure Cooker Centre the top quality SILIT cookware from Germany with its unique SILARGAN ceramic non-stick and scratch-proof coating and ZWILLING HENCKELS knives also from Germany and much more Goto Kitchenware

STRATEGIC ALTERNATIVES SOLUTIONS

53

The main issues for Prestige pressure cookers are regarding the threat from other kitchen

ware products ensuring growth in kitchenware market differentiating its products further so

as to fend off competition

Alternatives to combat these very problems are as follows

Option 1 Launch large-scale promotions to make consumers aware of advantages of

variant pressure cookers released by prestige

2 Employ cost-cutting methods to further lower prices while discontinuing

unsustainable products

3 Investing more heavily in Research and Development so as to make more

innovative products to compete better

4 With the improved research and development EXPORTING to USA according to

their standards may prove to be advantageous

Recommended Strategy

In spite of all the aforementioned strategies would help Prestige compete grow and sell

better the best option for now would be to employ cost-cutting methods to decrease prices

further This would not only ward off the significant competition from other players like

Hawkins Jaipan and Kanchan but would also help in wooing the 80 of the consumers of

India who rely on pressure cookers It is our understanding that the vast rural sectors

subscribe most to the cookers as they are seen to be cheaper and efficient than normal

cooking methodology By employing cost-cutting methods this price difference and the

associated perception can be bridged to increase Prestige market share It is also imperative

for the brand to discontinue the products in its portfolio that are not doing well Pouring

money into promotion of products that arenrsquot selling in the market is unwise Increase in sales

and market share while further cutting down costs is also likely to increase TTK Prestige

Pressure cooker profit margins which at the moment is a luxury that none of the competing

others players enjoy Similarly with more revenue the rest of the strategies and alternatives

can be easily implemented post evaluation to find the best practices to make TTK Prestige

growth in India both sustainable and profitable

54

Conclusion

By studying products of TTK Prestige India specifically its cooker brand we have been able

to analyze the brand the value it has created the products the variants the problems faced

specifically by the brand and those faced by the industry as a whole in recent times We have

55

been able to evaluate to an extent the strategies that are conspicuous to us while noting

whether implementing these strategies have helped Prestige or not In light of our study we

have been able to formulate certain solutions to the issues identified by us while

recommending the most suitable on for a variety of reasons All in all it is certain that

Prestige brand of pressure cookers backed by the parent company TTK Ltd is here to stay

and its market share is only bound to soar with the definite shift towards packaged cookers by

the rural and urban population given to the growing density

REFRENCES

1 TTK_Prestige-Techno_Research_Report Pdf

2 TTK Prestige reportpdf

56

3 wwwprestige cookwareState-of-art-Microwave-ovens- launched-by-TTK-Prestigehtml

4 wwwa-review-of-the-royal-prestige-hy-cite-corp-income- opportunity-579302com

5 wwwannual-report-ttk-prestige-2008-2009html

6 httpwwwprestigesmartkitchencom

7 httpwwwmouthshutcomproduct- reviewsPrestige_Pressure_Cooker-925003557html

8 httpcorporategiftseasy2sourcecomttkprestigeproductpr ofile2htm

9 httpwwwthehindubusinesslinecomiw20091019stories2 009101950210400htm

10httppressure-cookersblogspotcom200905prestige- pressure-cooker-cheap-solutionhtml

11www hawkinscookers comdownloadspc_catalogpdf

12httpwwwreviewstreamcomreviewsp=25542

13httpwwwamericanchroniclecomarticlesview105565

14httpwwwreviewcentrecomproducts2171html

57

The Pressure Cooker Centre has been supplying and servicing pressure cookers since 1968 when we started in a little shop in West Perth Western Australia With a devotion to a quality service to our customers our business has expanded to the point of supplying pressure cookers now on a daily basis to all corners of Australia New Zealand various countries throughout SE Asia (including Thailand Philippines Malaysia Indonesia) and beyond and spare parts to all corners of the world The little store now in Subiaco WA still provides the personal friendly service that helped us grow to a truly National dimension

We specialize in Pressure Cookers and their Spare Parts and have sourced quality products from around the world (several brands are exclusive to the Pressure Cooker Centre) so that we can offer you a complete choice of quality pressure cookers for all budgets

We also carry a select range of quality kitchenware and kitchen accessories so that we can offer you world renowned top-of-the-range cookware and kitchenware You will find a large range of SILAMPOS saucepans stockpots frypans steamer sets and double boilers This top-of-the range cookware with Thermoplan base (guaranteed for 25 years) is made of the finest 1810 stainless steel and is imported directly from Portugal The Silampos cookware range is of excellent quality design and finish and is offered to our customers at the lowest retail prices We also offer exclusive to Pressure Cooker Centre the top quality SILIT cookware from Germany with its unique SILARGAN ceramic non-stick and scratch-proof coating and ZWILLING HENCKELS knives also from Germany and much more Goto Kitchenware

STRATEGIC ALTERNATIVES SOLUTIONS

53

The main issues for Prestige pressure cookers are regarding the threat from other kitchen

ware products ensuring growth in kitchenware market differentiating its products further so

as to fend off competition

Alternatives to combat these very problems are as follows

Option 1 Launch large-scale promotions to make consumers aware of advantages of

variant pressure cookers released by prestige

2 Employ cost-cutting methods to further lower prices while discontinuing

unsustainable products

3 Investing more heavily in Research and Development so as to make more

innovative products to compete better

4 With the improved research and development EXPORTING to USA according to

their standards may prove to be advantageous

Recommended Strategy

In spite of all the aforementioned strategies would help Prestige compete grow and sell

better the best option for now would be to employ cost-cutting methods to decrease prices

further This would not only ward off the significant competition from other players like

Hawkins Jaipan and Kanchan but would also help in wooing the 80 of the consumers of

India who rely on pressure cookers It is our understanding that the vast rural sectors

subscribe most to the cookers as they are seen to be cheaper and efficient than normal

cooking methodology By employing cost-cutting methods this price difference and the

associated perception can be bridged to increase Prestige market share It is also imperative

for the brand to discontinue the products in its portfolio that are not doing well Pouring

money into promotion of products that arenrsquot selling in the market is unwise Increase in sales

and market share while further cutting down costs is also likely to increase TTK Prestige

Pressure cooker profit margins which at the moment is a luxury that none of the competing

others players enjoy Similarly with more revenue the rest of the strategies and alternatives

can be easily implemented post evaluation to find the best practices to make TTK Prestige

growth in India both sustainable and profitable

54

Conclusion

By studying products of TTK Prestige India specifically its cooker brand we have been able

to analyze the brand the value it has created the products the variants the problems faced

specifically by the brand and those faced by the industry as a whole in recent times We have

55

been able to evaluate to an extent the strategies that are conspicuous to us while noting

whether implementing these strategies have helped Prestige or not In light of our study we

have been able to formulate certain solutions to the issues identified by us while

recommending the most suitable on for a variety of reasons All in all it is certain that

Prestige brand of pressure cookers backed by the parent company TTK Ltd is here to stay

and its market share is only bound to soar with the definite shift towards packaged cookers by

the rural and urban population given to the growing density

REFRENCES

1 TTK_Prestige-Techno_Research_Report Pdf

2 TTK Prestige reportpdf

56

3 wwwprestige cookwareState-of-art-Microwave-ovens- launched-by-TTK-Prestigehtml

4 wwwa-review-of-the-royal-prestige-hy-cite-corp-income- opportunity-579302com

5 wwwannual-report-ttk-prestige-2008-2009html

6 httpwwwprestigesmartkitchencom

7 httpwwwmouthshutcomproduct- reviewsPrestige_Pressure_Cooker-925003557html

8 httpcorporategiftseasy2sourcecomttkprestigeproductpr ofile2htm

9 httpwwwthehindubusinesslinecomiw20091019stories2 009101950210400htm

10httppressure-cookersblogspotcom200905prestige- pressure-cooker-cheap-solutionhtml

11www hawkinscookers comdownloadspc_catalogpdf

12httpwwwreviewstreamcomreviewsp=25542

13httpwwwamericanchroniclecomarticlesview105565

14httpwwwreviewcentrecomproducts2171html

57

The main issues for Prestige pressure cookers are regarding the threat from other kitchen

ware products ensuring growth in kitchenware market differentiating its products further so

as to fend off competition

Alternatives to combat these very problems are as follows

Option 1 Launch large-scale promotions to make consumers aware of advantages of

variant pressure cookers released by prestige

2 Employ cost-cutting methods to further lower prices while discontinuing

unsustainable products

3 Investing more heavily in Research and Development so as to make more

innovative products to compete better

4 With the improved research and development EXPORTING to USA according to

their standards may prove to be advantageous

Recommended Strategy

In spite of all the aforementioned strategies would help Prestige compete grow and sell

better the best option for now would be to employ cost-cutting methods to decrease prices

further This would not only ward off the significant competition from other players like

Hawkins Jaipan and Kanchan but would also help in wooing the 80 of the consumers of

India who rely on pressure cookers It is our understanding that the vast rural sectors

subscribe most to the cookers as they are seen to be cheaper and efficient than normal

cooking methodology By employing cost-cutting methods this price difference and the

associated perception can be bridged to increase Prestige market share It is also imperative

for the brand to discontinue the products in its portfolio that are not doing well Pouring

money into promotion of products that arenrsquot selling in the market is unwise Increase in sales

and market share while further cutting down costs is also likely to increase TTK Prestige

Pressure cooker profit margins which at the moment is a luxury that none of the competing

others players enjoy Similarly with more revenue the rest of the strategies and alternatives

can be easily implemented post evaluation to find the best practices to make TTK Prestige

growth in India both sustainable and profitable

54

Conclusion

By studying products of TTK Prestige India specifically its cooker brand we have been able

to analyze the brand the value it has created the products the variants the problems faced

specifically by the brand and those faced by the industry as a whole in recent times We have

55

been able to evaluate to an extent the strategies that are conspicuous to us while noting

whether implementing these strategies have helped Prestige or not In light of our study we

have been able to formulate certain solutions to the issues identified by us while

recommending the most suitable on for a variety of reasons All in all it is certain that

Prestige brand of pressure cookers backed by the parent company TTK Ltd is here to stay

and its market share is only bound to soar with the definite shift towards packaged cookers by

the rural and urban population given to the growing density

REFRENCES

1 TTK_Prestige-Techno_Research_Report Pdf

2 TTK Prestige reportpdf

56

3 wwwprestige cookwareState-of-art-Microwave-ovens- launched-by-TTK-Prestigehtml

4 wwwa-review-of-the-royal-prestige-hy-cite-corp-income- opportunity-579302com

5 wwwannual-report-ttk-prestige-2008-2009html

6 httpwwwprestigesmartkitchencom

7 httpwwwmouthshutcomproduct- reviewsPrestige_Pressure_Cooker-925003557html

8 httpcorporategiftseasy2sourcecomttkprestigeproductpr ofile2htm

9 httpwwwthehindubusinesslinecomiw20091019stories2 009101950210400htm

10httppressure-cookersblogspotcom200905prestige- pressure-cooker-cheap-solutionhtml

11www hawkinscookers comdownloadspc_catalogpdf

12httpwwwreviewstreamcomreviewsp=25542

13httpwwwamericanchroniclecomarticlesview105565

14httpwwwreviewcentrecomproducts2171html

57

Conclusion

By studying products of TTK Prestige India specifically its cooker brand we have been able

to analyze the brand the value it has created the products the variants the problems faced

specifically by the brand and those faced by the industry as a whole in recent times We have

55

been able to evaluate to an extent the strategies that are conspicuous to us while noting

whether implementing these strategies have helped Prestige or not In light of our study we

have been able to formulate certain solutions to the issues identified by us while

recommending the most suitable on for a variety of reasons All in all it is certain that

Prestige brand of pressure cookers backed by the parent company TTK Ltd is here to stay

and its market share is only bound to soar with the definite shift towards packaged cookers by

the rural and urban population given to the growing density

REFRENCES

1 TTK_Prestige-Techno_Research_Report Pdf

2 TTK Prestige reportpdf

56

3 wwwprestige cookwareState-of-art-Microwave-ovens- launched-by-TTK-Prestigehtml

4 wwwa-review-of-the-royal-prestige-hy-cite-corp-income- opportunity-579302com

5 wwwannual-report-ttk-prestige-2008-2009html

6 httpwwwprestigesmartkitchencom

7 httpwwwmouthshutcomproduct- reviewsPrestige_Pressure_Cooker-925003557html

8 httpcorporategiftseasy2sourcecomttkprestigeproductpr ofile2htm

9 httpwwwthehindubusinesslinecomiw20091019stories2 009101950210400htm

10httppressure-cookersblogspotcom200905prestige- pressure-cooker-cheap-solutionhtml

11www hawkinscookers comdownloadspc_catalogpdf

12httpwwwreviewstreamcomreviewsp=25542

13httpwwwamericanchroniclecomarticlesview105565

14httpwwwreviewcentrecomproducts2171html

57

been able to evaluate to an extent the strategies that are conspicuous to us while noting

whether implementing these strategies have helped Prestige or not In light of our study we

have been able to formulate certain solutions to the issues identified by us while

recommending the most suitable on for a variety of reasons All in all it is certain that

Prestige brand of pressure cookers backed by the parent company TTK Ltd is here to stay

and its market share is only bound to soar with the definite shift towards packaged cookers by

the rural and urban population given to the growing density

REFRENCES

1 TTK_Prestige-Techno_Research_Report Pdf

2 TTK Prestige reportpdf

56

3 wwwprestige cookwareState-of-art-Microwave-ovens- launched-by-TTK-Prestigehtml

4 wwwa-review-of-the-royal-prestige-hy-cite-corp-income- opportunity-579302com

5 wwwannual-report-ttk-prestige-2008-2009html

6 httpwwwprestigesmartkitchencom

7 httpwwwmouthshutcomproduct- reviewsPrestige_Pressure_Cooker-925003557html

8 httpcorporategiftseasy2sourcecomttkprestigeproductpr ofile2htm

9 httpwwwthehindubusinesslinecomiw20091019stories2 009101950210400htm

10httppressure-cookersblogspotcom200905prestige- pressure-cooker-cheap-solutionhtml

11www hawkinscookers comdownloadspc_catalogpdf

12httpwwwreviewstreamcomreviewsp=25542

13httpwwwamericanchroniclecomarticlesview105565

14httpwwwreviewcentrecomproducts2171html

57

3 wwwprestige cookwareState-of-art-Microwave-ovens- launched-by-TTK-Prestigehtml

4 wwwa-review-of-the-royal-prestige-hy-cite-corp-income- opportunity-579302com

5 wwwannual-report-ttk-prestige-2008-2009html

6 httpwwwprestigesmartkitchencom

7 httpwwwmouthshutcomproduct- reviewsPrestige_Pressure_Cooker-925003557html

8 httpcorporategiftseasy2sourcecomttkprestigeproductpr ofile2htm

9 httpwwwthehindubusinesslinecomiw20091019stories2 009101950210400htm

10httppressure-cookersblogspotcom200905prestige- pressure-cooker-cheap-solutionhtml

11www hawkinscookers comdownloadspc_catalogpdf

12httpwwwreviewstreamcomreviewsp=25542

13httpwwwamericanchroniclecomarticlesview105565

14httpwwwreviewcentrecomproducts2171html

57