KNL Report_IIM Indore

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We would like to thank Mr. Vijay Shahani, Mr. Subodh Kumar, Mr. Sameer Yadav and Mr. Anil Parikh from Kriti Nutrients Limited for giving us an opportunity to work with their organization and for their constant guidance throughout the duration of this project.We also thank Ms. Vibha Mishra from IIM Indore for coordinating with the organization and setting up this opportunity for us.

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Industry Visit Report Kriti Nutrients Limited Project: International Business

Submitted to: Kriti Nutrients Limited Submitted by:

Adhit Shetty S. Vivian Paul Gonsalves Vivek Thebbaria Sonakshi Saini Prabhu Kiran Anugari Shetti Sridevi Ashok

Ajay Singh Yadav Atishay Kumar Jain Sukhad Chaturvedi Khagesh Kaushal Kushal Jajoo Potti Rajesh

Date of Submission: 18th March, 2013

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AcknowledgementsWe would like to thank Mr. Vijay Shahani, Mr. Subodh Kumar, Mr. Sameer Yadav and Mr. Anil Parikh from Kriti Nutrients Limited for giving us an opportunity to work with their organization and for their constant guidance throughout the duration of this project. We also thank Ms. Vibha Mishra from IIM Indore for coordinating with the organization and setting up this opportunity for us.

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Executive SummaryThis report summarises our understanding and analysis of the soya bean industry Kriti Nutrients Limited operates in. Kriti Group was started in 1983 and operates in three main business units Kriti Industries Limited, Kriti Nutrients Limited and Kriti Auto Engineering and Plastics Pvt Ltd. KNL manufactures Soybean related products in both domestic and international markets. Some of the main products include Soya bean Meal, Mixwell, Soya Lecithin, Kriti Cooking Oil etc. The edible oils industry is a highly competitive one and Porters five forces reveal that major threats exist from competition and potential entrants into the market. Bargaining power of buyers and suppliers on the other hand, appears to be low. About the internal systems employed at the organization- Inventory management systems used at KNL currently use activity based costing for all classes of products. Combined with the use of SAP for inventory control this means that some difference may exist between the real and recorded inventory. Managing inventory based on product classifications, based on percentage of revenue generated, may improve this system. The logistics for export of soybean meal is an intricate process requiring careful handling and taking up to 15 days for completion. Global macroeconomic factors have a significant impact of soybean prices and this is critical to business. These factors include volatility in crude prices, number of speculators in the market, factor cost of inputs in soybean production, impact of energy demand for soybean etc. The major producers of soybean in the world USA, Brazil, Argentina and China conform to these trends in these factors. Data from these markets suggests that production of soybean has stagnated in recent years while demand growth has continued. Given the concerns over volatility of soybean prices, contract farming is an option which could be explored by KNL. Different models for its implementation exist but all of them require significant investment and large volumes to be beneficial. Our study shows and inquires the different issues pertaining to the volatility in the soyabean prices in the mandis and exchanges. Companies and farmers both lose out on their margins due to the dominance of the middlemen in this line of business. Better co-ordination with the farmers and a fair contract formulation with them can result in a win-win solution for both.

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ContentsIntroduction About Kriti .................................................................................................................... 5 Industry Overview Porters Five Forces ............................................................................................ 6 Inventory Management at Kriti Nutrients Ltd ....................................................................................... 7 Logistics at Kriti Nutrients Ltd ............................................................................................................. 7 Macroeconomic Factors affecting Soybean Industry ............................................................................ 9 Global Market Overview - Leading Soybean producing countries ..................................................... 11 United States of America ................................................................................................................ 11 Brazil .............................................................................................................................................. 13 Argentina ........................................................................................................................................ 16 China............................................................................................................................................... 18 Contract farming as an alternative ...................................................................................................... 19 Soybean price volatility and suggestive solutions ............................................................................... 22

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Introduction About KritiKriti group was started in 1983. It is currently chaired by Mr Shiv Singh Mehta. The Kriti Group has three main businesses:1). Kriti Industries (India) Ltd: The manufacturing unit houses comprehensive extrusion and moulding facilities. The products are sold under the brand names of Kasta which has sub brands like Khushali, Koresil, Krystal and are used for agriculture, micro irrigation, construction, infrastructure and telecommunication purposes. 2). Kriti Nutrients Ltd: The unit has a state of the art manufacturing setup which includes solvent extraction plants, vegetable oil refinery, lecithin plant, effluent treatment plant, fluidized bed boilers and an in-house tin and jar manufacturing facility. It uses best quality, Non GMO soyabean seeds with a high nutrient content to manufacture a premium quality product range. The range includes refined soyabean oil, Superhypro meal, Defatted soya flakes and lecithin used for human consumption, cattle feed, poultry, aquaculture, confectionary, dairy product, industrial applications and pharmaceutical preparations. 3). Kriti Auto Engineering and Plastics Pvt. Ltd.: It is an auto component manufacturing division, which produces moulded plastic components for automobiles. The customer list includes the leading automobile manufacturers of India. KRITI NUTRIENTS LTD Kriti is the most respected brand of Soya Oil in central India, SBM in Asia and its Mixwell soya Lecithin is accepted worldwide. The result obtained is reflected in the high level of customer satisfaction which is the driving force behind the company's growth. The company started a 50 tonne edible oil refinery in the year 1998. The soya plant is located at Dewas, with an area of 60520 sq. meters with its modern infrastructure and technically advanced machinery. It comprises of an Alfa Laval refinery, ion exchange R.O. Plant for water purification, Fluidized bed boilers, effluent treatment plant and skilled man power. It manufactures Refined Oil, Textured Vegetable Protein, Full Fat Soya Flour, and Lecithin. As a result of high-tech processing in an in-house refinery, all soya products of Kriti are very high on hygiene quotient and have been adopted by health conscious hospitals, schools, the Indian army, farmers, hotels etc. In 2000,the capacity was increased to 70 tonnes, this earmarked the successful launch of the brand Kriti Refined Edible Soya Oil. In 2001, the company received the ISO 9000 certification, added a 2 tonne per day Lecithin plant in the soya division. In 2007 Kriti became the pioneer in manufacturing and exporting Super HyPro Soya bean meal, Value added soya flakes and speciality lecithin. Total Soya processing capacity of 4,38,000 MT/Year. Total Income of Kriti Nutrients is Rs.458 Cr., Profit after tax is Rs. 4 Cr. It is Second highest supplier to Nestle for Lecithin In the long run, the company is aiming to become the leader in quality value added soya-protein based products. Products of Kriti Nutrients Ltd: Kriti Soya Flour(Toasted/Untoasted),Kriti Soya Flakes(Toasted /Untoasted), Kriti Super Hy-protein SBM, Mixwell Soya Lacithin, Disperthin Soya Lacithin ,Kriti Soya Grits, Kriti Full Fat Soya, Kriti Cooking Oil.

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The USP for KNL and other Indian manufacturers globally is that only non-GMO seeds are used in production of soybean related products.

Industry Overview Porters Five ForcesPorters Five Forces Analysis: Threat of Substitutes Low There is not much scope for substituting oil with another product as it is a crucial part of the Indian food basket. As a result of this the threat of substitution remains relatively low. However there is the threat of switching especially with the number of oils available in the market. Consumer switching commonly happens not only between oil types but also between packaged and loose oils

Bargaining Power of SuppliersLow There are a large number of oil seed suppliers and no particular region can claim a monopoly on supply. Hence the ability of nay one particular supplier to command or determine prices is nonexistent. Hence bargaining power of supplier is low.

Competitive Rivalry High The industry is growing at a rapid pace and this has attracted several new players into an already crowded market. As a result there has been an addition of capacity along with the setting up of new facilities especially along the coast in order to refine imported crude oil as quickly as possible. Also with technology advances, those players with the deeper pockets stand to gain from technological advances. Hence the competitive rivalry in the industry is high.

Bargaining Power of Buyers Low to Medium With several options available to buyers, and as the threat of switching between oil types and from branded to non-branded oils the buyer does have a limited amount of bargaining power. However this power is diluted by the fact that they are widely dispersed and hence cannot collectively exercise the powe