Voltas Ltd.: From Turnaround to the 'Big Bang'

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Case Details:

Case Code : BSTR225
Case Length : 21 Pages
Period : 1996-2006
Organization : Voltas Ltd.
Pub Date : 2006
Teaching Note :Not Available
Countries : India
Themes: Diversification | Turnaround
Industry : Consumer Electronics

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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EXCERPTS Contd...

The Unitary Cooling Business

Voltas' other area of focus was the unitary cooling products business consisting of commercial refrigerator business, water cooling business, retail refrigerator business, and most importantly, the room air-conditioning (RAC) business. Voltas had retained one refrigerator manufacturing unit, which continued to manufacture refrigerators for the retail market on contract basis...

The Big Bang Strategy

The Big Bang strategy aimed to revitalize every facet of the AC business - product, channel, systems, service, costs, and brand. The high profit margins that the company had enjoyed until the early 1990s had become a thing of the past, due to the price war unleashed by the MNCs. Therefore, in order to improve margins, Voltas either had to increase prices or reduce costs.

While the former was not really an option owing to intense competition, Voltas set out to secure economies of scale. However, this meant that it would have to sell in large volumes. "Volumes became critical for survival. Economies of scale were critical," said Jawa...

Rise To The Top?

Going by market shares, the 'Big Bang' strategy was a success. Within a year of its implementation, the company's ranking in the retail AC market leapfrogged from No.7 to No.2. Voltas' ranking in the water coolers market also rose from No. 3 to No.1 (Refer Table II for trends in the market share of Voltas). From 2001 up till 2005, the company was able to maintain its position in the market...

Retail Refrigerator Business:
A Drain On Resources

The retail refrigerator business, a part of the unitary cooling business of Voltas, accounted for most of the division's losses. "In the Unitary Products segment, in the fourth quarter of last year, 2004-05, we had a loss of Rs. 37.4 mn because of the weak performance of the Hyderabad unit.

In this unit we used to incur a loss of about Rs. 140-150 mn every year," said MM Miyajiwala (Miyajiwala), executive vice-president (Finance) and CFO, Voltas. After the restructuring, Voltas had retained one refrigeration manufacturing unit at Hyderabad. This unit manufactured refrigerators for other OEMs...

Outlook

As of early 2006, Voltas was expecting to grow in all its businesses . Voltas' unitary cooling business division aimed to cross Rs. 10 billion in sales by 2008. Rising incomes and availability of cheap consumer credit was expected to fuel the demand for ACs in India. The low penetration of ACs indicated that there was immense potential for growth. Voltas was also planning to set up a research center for product development near its new manufacturing facility in Uttaranchal...

Exhibits

Exhibit I: Voltas Revenue Break-Up In Fy06
Exhibit II - Shareholding Pattern At Voltas
Exhibit III - Voltas Business Segments (2006)
Exhibit IV - Employee Rationalization
Exhibit V - Capital Employed At Voltas
Exhibit VI - More Information On Voltas' Business Segments
Exhibit VII - Growth Of Retail Ac Market
Exhibit VIII - Market Share Moving Away From Unorganized Players
Exhibit IX - The 'Acs With Iq' Ad
Exhibit X - Market Shares In The Indian Ac Market
Exhibit XI - 5 Year Financials Of Voltas

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