The annual report for 1997-98 reveals, the Rs 16,403-crore Steel Authority of India Ltd’s (SAIL) bottomline is not worth its weight in steel. By resorting to complex accounting changes, and despite 11 qualifications from 5 statutory auditors–as well as the venerable Comptroller & [...]]]> Window Dressing done by “SAIL”

The annual report for 1997-98 reveals, the Rs 16,403-crore Steel Authority of India Ltd’s (SAIL) bottomline is not worth its weight in steel. By resorting to complex accounting changes, and despite 11 qualifications from 5 statutory auditors–as well as the venerable Comptroller & Auditor-General of India (CAG) SAIL, transfigured net losses of Rs 354.08 crore into net profits of Rs 132.99 crore in 1997-98.

The performance of SAIL the country’s largest steel producer was not good in the previous year. Despite the recession, and even as it was buffeted by cheap imports, SAIL’s sales went up marginally: from Rs 14,114.01 crore in 1996-97 to Rs 14,624.07 crore in 1997-98. But its net profits plummeted from Rs 515.17 crore to Rs 132.99 crore on account of a Rs 374- crore increase in interest costs and a Rs 104-crore increase in depreciation.

Even these meagre profits–which account for only 0.81 per cent of its sales–came from window-dressing the accounts through write-backs and non-provisions. But a SAIL spokesperson defended by saying that “Changes in accounts are for valid and justifiable reasons.” We now look at the five contentious accounting changes made by SAIL:

Pre-commissioning expenses.

Until 1996-97, SAIL used to treat project expenditure incurred beyond the 6-month trial-run period as deferred revenue expenditure, which was written off over the next 5 years. But, last year, the company changed tack: it capitalised the entire expenditure on the modernisation of the Durgapur (West Bengal) steel plant and the new hot-rolled coil plant at Salem (Tamil Nadu) with retrospective effect. Thus, the company was able to increase its net profits by Rs 61.79 crore.

SAIL replied to this qualification by saying: “The company sought the advice of financial experts, who stated that all expenses incurred in the trial-run period–without limiting to 6 months–till the assets concerned are ready for commercial production should be capitalised. Accordingly, the expenditure during trial-run has been capitalised.” In doing so, SAIL is no different from many other Indian companies that capitalise the entire expenses during the trial-run time-frame.

That does not mean that the move isn’t opportunistic: by capitalising the entire expenditure, the time over-run costs do not figure in the revenue account. And profits are, thus, not depressed. Once a plant is ready, a 6-month trial-run period is adequate to make it fit for commencing operations. If, for any reason, that period extends beyond 6 months, at least a part of the expenses should get reflected in the revenue account. Which they aren’t.

Depreciation accounting

Until last year, SAIL used to fix the depreciation rates for assets–like earth-moving equipment, automobiles, and so on–according to the estimated useful life of the assets, or by the rates as per Income Tax laws. However, its depreciation rates in the current year have been changed to those suggested in Schedule 14 of the Companies Act, 1956. As these rates are lower–and since the change was made with retrospective effect from the date of acquisition of the assets–the company wrote back Rs 109.83 crore of excess depreciation provided for in previous years in the Profit & Loss (P&L) account.

Including the Rs 8.74-crore lowering of depreciation for 1997-98, Rs 118.57 crore accrued to the company’s P&L account last year. Not only has the company artificially boosted its profits, the change is against the accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI). According to the Accounting Standard (6)–which is a standard, and not statutory–the impact of any change in the depreciation rate should be carried out on the residual Book Value of the assets, and not for the re-computation of depreciation in the past. Says the SAIL spokesperson: “It was decided to follow the depreciation rate according to the Companies Act, as is being done by other players in the industry.” This is an age-old manipulation used by corporate India.

Leave-Encashment liability.

In 1997-98, SAIL also changed the policy of providing for the leave-encashment liability for its employees from an accruals basis to an actuals basis. Thus, it wrote back the provisions made in the earlier years, resulting in an increase in net profits by Rs 85.39 crore. This is, again, against the Accounting Standard (15) issued by the ICAI, which insists that such liability must be provided for on an accruals basis.

The company’s explanation: “Leave is not a matter of right. As leave is meant to be availed of, the employees have been advised to plan their leave in advance while in service, and also immediately before superannuation. Liability towards leave encashment is recognised and provided for only when the encashment is allowed by the management.” However, the labour laws of the Government Of India stipulate that leave is the right of an employee, who also has the right to encash leave by accumulating it. When you work, you earn leave. Just as one has the right to get a salary, one also has the right to avail of the leave that he has earned.

Valuation of stocks.

SAIL has also inflated its income by changing the valuation methodology for its stocks. In a break from the past, SAIL included the interest on funds borrowed for working capital as a part of the cost in the valuation of finished and semi-finished stocks in 1997-98. According to the auditors, this change in methodology, which is “not in accordance with the generally-accepted norms of valuation,” resulted in an increase in SAIL’s profits by Rs 159.78 crore last year.

Adding interest cost to the valuation of stocks is against the spirit of the Accounting Standard (2), which deals with the valuation of inventories. SAIL, however, argued that for production planning, all elements of cost–including the interest on working capital–are taken into consideration. The same logic had been used for the valuation of stocks.

Export incentives.

Also, SAIL changed the method of calculating its export incentives, which were, so far, accounted for on a cash basis. In 1997-98, this was changed to an accruals basis, resulting in an increase in profits by Rs 72.35 crore. SAIL explains that it did so because “export incentives are available based on exports during the year. Accordingly, the benefits of exports incentive earned during the year have been recognised in the accounts.” However, it also adds income which may actually come in the next financial year for exports made in the current financial year.

Wage revisions.

Finally, SAIL’s auditors have also pointed out that the company has not made any provision for a wage revision pending the finalisation of a long-term agreement with its employees. The management argues that since the new wage agreement had not fructified, the financial impact was not ascertainable. That is surprising since the earlier agreement expired 22 months ago, on December 31, 1996. In fact, the CAG points out that SAIL has understated its employee remuneration by not providing for Rs 194.48 crore.

Although it is not clear how the CAG has arrived at this figure, SAIL could have, as a matter of prudent accounting practice, made a provision of, say, Rs 110 crore, which is 5 per cent of its present annual wage bill of Rs 2,200 crore. By not doing so, the company is carrying over its present expenditure to a future date, and, thereby, presenting a distorted picture of profitability. It is sure that by not providing any money for the wage-revision liability, SAIL has artificially kept its wage costs low for the year.

If all the accounting changes listed by the auditors–including the CAG’s figure of a wage-revision liability of Rs 194.48 crore–are adjusted for in SAIL’s p&l account, the company would have incurred losses of Rs 548 crore in 1997-98. And that represents a negative swing of nearly Rs 1,000 crore from SAIL’s net profits of Rs 515 crore in 1996-97. Clearly, the chinks are showing at India’s largest house of steel. And the worst may still be in the forging.

Profit and Loss Account for the year ended 31-3-1998.                            Rs. Mn.

Balance Sheet as on 31-3-1998

In 1960, a factory was built in the state of Punjab, India following pressure from local Government, heavy tariffs and diminishing import permits for Horlicks. This involved using Buffalo milk rather than cows milk, and the modified technology of using vacuum ovens, rather than the [...]]]> Marketing Mix of Horlicks

In 1960, a factory was built in the state of Punjab, India following pressure from local Government, heavy tariffs and diminishing import permits for Horlicks. This involved using Buffalo milk rather than cows milk, and the modified technology of using vacuum ovens, rather than the traditional vacuum pans. During 1969, a second factory was started in Andhra Pradesh, India subsequently increased in size until finished in 1978. The two factories now produce twice the quantity of product now produced at Slough (a factory at England).

The Merger 1989

On July 26, 1989, SmithKline Beckman and the Beecham Group merged to form SmithKline Beecham. SmithKline Beecham was formed with a compelling goal to become an integrated human healthcare company, covering prevention, diagnosis, treatment, cure and disease management — all built around creating customer healthcare solutions for today and tomorrow’s evolving healthcare needs.

Product:

Horlicks is a widely regarded and highly respected 130-year-old brand. GSK has four brands in the health food drinks segment. Apart from Horlicks, which contributes Rs 600 crores in revenue to the consumer healthcare division, it has Boost, Maltova and Viva – the last three are much smaller brands than Horlicks. Faced with stagnating sales in the health food drinks segment, the company has chalked out an aggressive brand push strategy and a revamp for its flagship brand, Horlicks. The relaunch aims to focus on children as Horlicks was previously considered as a nourishment drink for old people. The company expects Horlicks contribution to the total turnover to be around Rs 800 crore which amounts to a major chunk of the company’s turnover. Horlicks is a nourishing malted food drink which combines the wholesome goodness of malted barley, wheat and dairy ingredients.  For more nourishment, Glaxo SmithKline  Consumer Healthcare India Ltd (GSKCH) has relaunched its flagship brand Horlicks.  To enable consumers choose different flavours, Horlicks is now available in Regular, Chocolate, Creamy Vanilla and Honey Buzz varieties in a new package.  Horlicks drinks provide the following essential nutrients:  Proteins, Carbohydrate, Fat, Vitamin A, Niacin, Vitamin B1, VitaminB12, Vitamin E, Vitamin B6, and Iron & Calcium

Price:

HORLICKS JUNIOR
Weight(gm)	Jar	Refill Pack
200	58	-
500	114	105

Target market:

Earlier Horlicks believed, white drinks are for the entire family in contrast to the browns, whose prime target audience is children. This is probably because whites–whose growth rate is faster than the browns–have the added advantage of being perceived as food which enhances the healthy image of those who are recovering. But gradually they realized that they have to focus on one segment of market that is children. Horlicks is now positioned as a pleasurable nourishment drink aimed at children between the age group of 8 -14. Nowadays children have tremendous influence on the things purchased for the family and therefore we want children to prefer Horlicks as a pleasurable nourishment drink. While all the action will be in the general Horlicks segment, the focus of Junior Horlicks (target segment: kids between one and three) will continue to remain the same.

Promotion:

The company has earmarked around Rs 10 crores for brand promotion throughout 2003, and 70% of this will be spent in next six months. Sixty-five per cent of the ad-spend (around Rs 10 crores) will be for the visual medium and the balance for the print and others. Apart from the high-decibel media campaign, the company also plans to conduct an inter-school competition called “Activity 2003” in which around 1.5 million students are expected to take part. Unlike its other drink (the Rs 170-crore Boost, promoted by Sachin Tendulkar); the new Horlicks does not have a brand ambassador. While all the action will be in the general Horlicks segment, the focus of Junior Horlicks (target segment: kids between one and three) will continue to remain the same. The brand will continue to talk to the mother since the purchase decision rests with her.

Place:

It has a strong marketing network in India comprising over 1800 wholesalers and direct coverage of over 4,00,000 retail outlets.  Horlicks sales have been strong in the south and eastern markets which contributes about 46 per cent and 47 per cent of the total sales. Milk-deficient South and East preferred white liquid powders (Horlicks, Viva, and Complan) as the drink could be prepared with hot water.

The nutritional drink or the health drink industry has been marked by competition from various companies in the past few years. The health drink manufacturers in India have tried to retain their brand image by improving their product quality & by meeting consumer’s expectation. [...]]]> Cadbury’s ‘Bourn Vita’

The nutritional drink or the health drink industry has been marked by competition from various companies in the past few years. The health drink manufacturers in India have tried to retain their brand image by improving their product quality & by meeting consumer’s expectation. But only one health drink has successfully captured the heart of millions of Indians & that is………..Cadbury Bourn Vita.

In spite of the fact that our health drink market is flooded with newer fun drinks for kids, Cadbury Bournvita has made a niche for itself as a drink for children who are mentally and physically active. Every bright and sportive kid down the block must be drinking Cadbury Bournvita. In fact nobody has forgotten the jingle screaming ’’BOURN VITA!!’’

Product:

Cadbury India Ltd launched Cadbury Bournvita, a chocolate health drink in 1947 in India. But even before launching its new health product in the Indian market, Bournvita was one of the most loved chocolate drinks around the world. Bournvita is a combination of 2 words, “Brown” & “Vita”. Brown because its brown in colour & Vita because it has lots of vitamins.
If I were to ask you all a simple question like “what is Cadbury Bournvita”….I am sure you would say “Woh powder jo mummy doodh mein milati hai”….But that’s not what Bournvita is all about. It’s a nutritional drink which acts as a dietary supplement providing nourishment along with good taste & flavors.

For today’s kids who detest milk in its pure state unless flavored, this is an ideal drink. It has its own unique flavor, and the taste is rich and full-bodied. It’s so easy to prepare, just instant mix it into your milk. Even a child can manage this for himself when he is in a hurry to run off to play! Many children I have known just scoop up a spoonful of Bournvita fine granules into their mouth and crunch away happily…goes to prove its taste bud friendly value for kids.

Ingredients:
Malt extracts, sugar, cocoa powder, milk solids, liquid glucose, vitamins,

Bourn Vita’s nutritional facts:
1) Gives protein.
2) Provides Vitamin A, Vitamin C & Vitamin B12.
3) Contains Calcium, Iron & Folic Acid.
4) It also provides our body with Niacin, pyridoxine, Riboflavin, & Thiamin

which is very essential for the proper working of our nervous system.

Price:

Normally, price is the most important element in deciding the fate of any product. While purchasing any health drinks however, a housewife or a mother who is the ultimate buyer gives price secondary importance. She will carefully study the taste & nutritive values in the health drinks. I agree that Bournvita is one of the most expensive health drinks in the market (Rs.101 for 500gms) but still due to its good taste & great nutritive values it has captured the majority of the market.

Target Market:

Brown HFD’s target audience has always been kids who are in the age group of 7-15. Why a HFD targets audience in this age group? The answer to this is very simple. Most of the children in this age group have casual eating habits and milk is like a curse for them. This is were a HFD comes into picture the work of  HFD is not only to add flavor to the milk but also act as supplement which  can add nutrition to their child. The other advantage of having this segment as target market is HFD are mostly taken with milk

And the largest consumption of milk is seen in this segment.

Place:

The distribution pattern followed by Cadbury’s Bourn vita is more or less same as the traditional channel of distribution. Cadbury’s distribution network encompasses 2100 distributors and 4,50,000 retailers. The company has a total consumer base of over 65mn. Besides use of IT to improve distribution logistics, Cadbury is also attempting to improve distribution quality. To address the issues of product stability, it has installed coolers at several outlets. This helps in maintaining consumption in summer, when sales usually dip due to the fact that the heat affects product quality and thereby off take.

Promotion:

Bournvita always comes up with consumer promotion activities from time to time e.g. giving free gifts like plastic mugs, chess game or ludo etc. They also come up with the scheme of extra Bournvita for the same price. The ads had very cleverly promoted this drink for intelligent school kids through organizing the famous Bournvita Quiz Contest between different schools. This was a fantastic gimmick on television, which had caught on so well, that even adults would spare some time to watch it without fail. The Quiz Master Derek O’Brian was loved by all, the young and the old alike. This Advertising concept was so successful, that they even came out with the Bournvita General Knowledge Book (a mini encyclopedia). Cartoon Network and Cadbury India has announced a one-year promotional license agreement. Bournvita positions itself as a healthy and nutritious drink for kids. The first promotion is the Toon Mug offer. A 500 gram Bournvita pack comes with a mug featuring some of the best loved Cartoon Network characters. Toon buffs get a choice of over six toon mugs including The Power puff Girls, The Flintstones, Scooby-Doo, Johnny Bravo, Dexter and Tom & Jerry. The Bournvita promotion is being supported by television commercials and in-store advertising.

Packaging:

Earlier packaging was not given the kind of importance to what it’s gaining now. Marketers have now realized the importance of packaging in today’s competitive market.

Hence they are concentrating on various aspect of packing such as the color, material used to make the package & cost. They use glass jars for packaging which do not allow moisture to get in the product and also increases its shelf life.

They have also introduced the refill packs so their no problem of buying Jars every now & then. They have also worked upon the color which is now Red & Purple against the old one Brown & Yellow because kids love bright colors.

This case is written on Launch of an Hospital, Which is very effectively a great success story.

Market Research -

1. To determine:

The following major segments of the softdrink drinkers have been identified:

1.  Fashionable brand conscious consumers:

This segment of people are generally in their twenties, who are uni students or make up the working class, drive fast cars(or would like to ) they [...]]]> Market segmentation of softdrink industry:-

The following major segments of the softdrink drinkers have been identified:

1.  Fashionable brand conscious consumers:

This segment of people are generally in their twenties, who are uni students or make up the working class, drive fast cars(or would like to ) they socialize with friends and go to parties and dance clubs. They are carefree and are freestyle. When they buy this product, they buy the image, they buy the fashionable drink that exudes coolness.

2.  Average consumers:

These people are usually prone to purchase product out of mindless habit. This segment of consumers have successfully been “brainwashed” to some extent by advertising campaigns and heavy promotions conducted by these companies. Again the age bracket is in the twenties, although teenagers tend to fall under this category.

3.  Peer pressured consumers:

This segment of the majority teenagers who purchase this product “because their friends do it,” or they do not want to appear daggy purchasing a local drink. They are less likely to request any ordinary drink while purchasing.

4.  Soft drink addicts:

This segment usually follows any particular brand that will have nothing other than there preferred brand, no substitute’s, no imitations. They are accustomed to the taste, and believe it is the distinct flavour that keeps them buying coke consistently. On the other side, these consumers are addicted to the prizes and competitions offered by these companies, resulting in the purchase of that product

Youth of India

- Best of the east and west

YOUTH CONSUMER:

Women of Consumer India

STRENGTHS.

WEAKNESS.