Richardson Hindustan Limited- Subsidiary of RVI

SP JAIN NETWORK OF CASE STUDIES : TALK SHOWHosts- Nirupama & Stanlin

Vicks Commercial

Parent and its child

RVI RHL

Worldwide marketer whose product line is traced back to 1905.

Company’s strategy – meeting distinct customer needs.

Overseas market sales growing faster than domestic.

One of the 30 subsidiaries founded in 1964.

By 1965, 45% equity with Indians and by 1983, a record sales of $23 million.

Company in trouble – 1981

Strategies to turnaround:

◦ Increase profitability

◦ New opportunities for

future growth

◦ Labour Situation

Managing People Strategy

Gurucharan Das – Contribution to RHL

Think Global

Act Local

???

Managing People Strategy

•Providing freedom to executives to take responsibilities

•Perfect structure in place with it own set of checks and balance for smooth operation

Company culture

•Developed computer programs to categorize pharmacological properties of herbal plants

•Researched on 7000 recipes for ayurvedic medicines

Innovation

•Market leader with products like Vaporub and Vicks cough drops

•Known for its quality and performance

Brand Reputation

Sources of Competitive advantage

Political

•India continues to be democratic

•Strict labor laws

Economical

•Economy and consumer spending growing at 3-4%

•Modest growth in Per capita income of top 20%

Social

•Population growth 2.2%

•75% population was rural with heterogeneous culture

PESTLE Analysis for external factors

Technology

•RHL products were low technology products

Environmental

•Major illness prevailed in monsoons and winters

•Concentrated advertisement during these times

Legal

•Forced to reduce ownership to 40% from 55%

•Government attitude towards Multinational was less enthusiastic

PESTLE Analysis for external factors

RHL constituencies comprised 4 stakeholders.

RHL’s role in maintaining stakeholders value

RVI Indian Government

Indian Shareholders Empl

oyees

RHL

Complex and tough tax structure

RHL paid effective income tax at rate of

76%.

Company’s objective of reducing the tax

burden by following means:

◦ Directing business investments for social

and economic development

◦ Manufacturing products which excused RHL

from the excise tax payment.

◦ Efforts directed to convince the

government to eliminate advertising

disallowance.

Indian Government laws

Government regulations led to

change in RHL’s shareholders

structure.

RHL came under FERA as a result

of more than 40% RVI ownership.

Outgrowing industrial licenses

issued by the Indian government.

Additional grant requests for

increasing production capacity

rejected

Shareholders structure

RHL’s success attributed to the

development of the employees.

Creation of an environment

which fosters innovativeness

and excellence.

Investing in the employees to

help them grow.

Adoption of a consultative and

participative management style.

Employees- Valuable assets

Financial objectives within 5 yearso Double sales revenueo Triple profito Decrease tax rate

Medium for growtho 12 new products & 1 re-introductiono Ayurverdicso Dextromethorpan – Hydrobromide factory

Optimistic or Realistic plan?

Strategic Plan

Ansoff Matrix

12

Financial 1983 1984 1985 1986 1987 1988

Sales 23.3 26.795 30.81425 35.43639 40.75185 46.6Expenses 19.7 22.5362 26.16364 30.35792 35.20616 40.54411EBT 3.9 4.2588 4.65061 5.078466 5.545685 6.055888Tax 3 2.958 2.916588 2.875756 2.835495 2.793888PAT 0.9 1.16433 1.506294 1.948692 2.521023 3.262Tax decrease 76.92% 69.46% 62.71% 56.63% 51.13% 46.14%

Financial ProjectionSales CAGR

15%

EBT Growth 9.2%

Tax decrease approx.

48%

Triple profit!!

Current tax rate of almost 76% Target to improve PAT PAT improved by decreasing tax rate Sales and earning growth means nothing without tax rate

reduction

PAT Improvement

1 2 3 4 5 60

0.5

1

1.5

2

2.5

3

3.5

PAT with decreasing tax ratePAT with 76% Tax Rate

Investment on DXM factory Duty drawback on imported materials Cash incentives on export No income tax for seven years Payback within 2 years

Building satellite plant Tax holiday for 8 – 10 years Tax cut on almost 45% of the profit Cut from excise tax

Tax Reduction

Investing in the manufacturing plant for development of

hydro bromide.

Launch of new products.

Building on the R&D - ayurvedics as the base for new

products.

Building satellite plant to decrease tax rate.

Strategic alliance with major players – strong in

manufacturing division.

Recommendations

Thank You !!!!!

StanlinNirupamaErickPratik.BSaurabh