Analysing The Diversification Of Operations To Increase Profit Business Essay

Omax car is a prima car accessory company in India which has seven fabrication workss in different parts of the state and manufactures car constituents like sheet metal and cannular constituents, sprockets and besides has the largest welding installation in India. Its patronage includes companies like Hero Honda, TVS Motors, Carrier Aircon Ltd. , Yahama to call a few. The company is confronting disputing times because of falling profitableness accompanied by a menace to the gross revenues as its chief client, Hero Honda has decided to switch production from Gurgaon to Haridwar. These are the chief grounds why the direction has been contemplating to heighten its merchandise line and diversifying its concern. For the same, the company is measuring the determination to put up a works that will provide to the Indian railroads by fabricating train compartment metal organic structures.

Theoretical constructs:

The enlargement program was tested through a figure of fiscal analysis tools viz. , Ratio Analysis and NPV and besides through non- fiscal analysis for which SWOT analysis, Ansoff matrix and Porter ‘s five force analysis was performed.

Key Areas of course of study

Unit of measurement 1.6 – Organizational planning tools

Unit of measurement 3.2 – Investing Appraisal

Unit of measurement 3.6 – Ratio Analysis

Methodology:

Primary: The primary information will be obtained by run intoing the direction of the company and questioning Mr Jatinder Mehta, the MD of the company. This will assist in deriving cognition of the bing merchandise line of the concern, the current and awaited jobs that the company is imagining.

Secondary: The secondary information will be obtained from beginnings like the cyberspace from where industry will be researched. Besides, one-year studies and fiscal histories will be obtained from the company which will function as an of import beginning to measure the current concern of the company.

Problems likely to be encountered and possible solutions

Possible Problems

Solutions

The trouble in measuring the correct projected net income of the company which might non fit with the existent net incomes station variegation.

Trusting on the direction ‘s projected figure and executing the investing assessment based on the figures provided.

Interview might non supply with all relevant information which might be privy to the company.

Trusting with whatever information is obtained through interviews and formalizing the information with industry Numberss from publically available beginnings.

Action Plan:

Dates

Beginning

Activities

Alterations

1stMarch – 2ndMarch, 2010

Topic Selection

After treatment with instructor, subject modified

3rdMarch – 14thMarch

Researched Industry through cyberspace and industry diaries and publications from local library of FICCI

15thMarch, 2010

Preliminary meeting with Mr. Tandon, the Chief Financial Officer of the company and Plant Visit.

Introduction:

Omax Autos Ltd. , a portion of Omax Group is into industry of sheet metal, tubular and machined constituents and sprockets for two-wheelers and four at its two workss in Dharuhera, Haryana. Hero Honda is major client of the company lending 75 % of its turnover. The company has a selling affiliation with Hero Honda, near which the Haryana works of the company is situated. Omax Auto ‘s other clients include Maruti, TVS Suzuki, T I Diamond Chain and SRF. In 1994-95, the company doubled the capacity of its electroplating works and sprocket division and constructed its proposed 3rd unit at Gurgaon. It besides purchased new land in Gurgaon to set up its 4th unit to entirely run into the demands of the a new unit of Hero Honda Motors at Gurgaon. The 4th works at IMT, Manesar, started its commercial production in April, 2002 at an estimated cost of Rs.18 crores. It is besides negociating with MNCs in India for the supply of constituents to their international opposite numbers.

However, the company is now confronting a tough state of affairs as Hero Honda has opened up a new works at Haridwar. Since the works is acquiring revenue enhancement benefits at that location and besides since new engineering which brings in higher efficiency for Hero Honda has been implemented, the company is bit by bit increasing its production at that new works and adding new capacities at that place. As a consequence, it is expected that the Gurgaon works ‘s production of Hero Honda will really diminish as the new works at Haridwar bit by bit increases production. Already Omax car ‘s 75 % gross revenues are contributed to by Hero Honda. Within the bing capacities and the current production parametric quantities, the company has seen a diminution in borders and is runing presently at really low borders. The direction is besides of the position that its chief client ‘s shifting of production base might turn out rather dearly-won for the company as the demand of natural stuffs from the bing workss of Omax Autos will travel down and on the other manus, the transit cost from Gurgaon to Haridwar will be high and with such low borders, the company direction is wary of transit of goods due to the cost involved. Therefore, the company has two options now: Either to put up new works near to the works location of Hero Honda in Haridwar or to diversify production of metal organic structures for railroads as a long term scheme. Therefore through my inquiry, which is ‘Should Omax Autos diversify its operations to increase profitableness or increase capacity for production of same goods at a new location? ‘ , I will seek to get at either of the two proposed solutions by analysing the costs and benefits and delegating chances to different scenarios through determination trees.

Chief Findingss:

Indian Auto Ancillary Industry and its public presentation:

Auto accessory companies were amongst the worst hit for the full twelvemonth 2008-09 and till December 2010. Most of the companies have been holding a stretched balance sheet with big sums of debt. The comparatively sudden contraction in automotive demand that followed in the aftermath of the planetary fiscal crisis, besides fluctuations in foreign exchange ( forex ) rates, addition in trade good monetary values, and the drying up of liquidness in the market, aggravated the state of affairs farther, doing a crisp impairment in the corporate public presentation of many car accessory companies and taking to loss of borders and a diminution in profitableness.

Besides demand contractions, the car accessory industry was besides adversely affected by high trade good ( steel, aluminum, petroleum, rubber among others ) monetary values in 2008-09, although the force per unit area eased to an extent towards the last one-fourth. While decreased capacity use affected operating expenses, most companies responded with aggressive cost decrease enterprises, including rationalization of employee disbursals and other costs.

For the Indian car accessory industry, most export sections reported hushed growing in 2008-09 despite the depreciation of the Indian rupee which pushed up realizations. Contraction in automotive gross revenues in North America and Europe, which accounts for over 65 % of India ‘s car constituent exports, had an inauspicious impact on component offtake during 2008-09 and the first nine months of 2009-10. Two sections that reported a peculiarly hasty diminution in gross revenues were exported constituents for CVs and off-highway vehicles. The European CV market witnessed a autumn for 18 back-to-back months till November-09 and posted a diminution of 33.9 % during January-November 2009 over the corresponding period in the old twelvemonth. Component exporters like Bharat Forge Limited, Rane Engine Valves Limited, Wheels India Limited and Rane Madras Limited bore the brunt of this contraction. An added concern continues to be the possibility of Chapter-11 filings by planetary OEMs and Tier-I providers, which could take to impermanent breaks in concern and payments. The short-run mentality for the car accessory export markets remains weak with accumulations to the order book being negative. While Government enterprises like scrappage strategies in EU and “ Car Allowance Rebate Scheme ” in the USA have provided some drift to growing, particularly in the rider auto section, there are no clear marks of recovery on the planetary forepart yet.

I considered a figure of companies in my analysis to formalize the impairment of public presentation of the industry and found that Omax Auto has non been an exclusion. But the fact that the figure one client of the company has merely shifted base and is bit by bit increasing the production from the new base in Haridwar could do the state of affairs worse for this company.

On the other manus, railways seem a moneymaking chance for many industries including Accessory industry. Following seem to be the grounds for the same:

Revamping the Railwaies

Railways ‘ ‘Vision 2020 ‘ envisages a several-fold addition in investing degrees, the largest ball of this is to come from a projected rush in net incomes. Announced in December, Vision 2020 is the design for unprecedented investing in the web over the following 10 old ages. In add-on to the excess 25,000km of new lines that will take the web entire to 89,000km, the Vision calls for 12,000km of dual and multiple path add-ons for a sum of 30,000km countrywide, and an excess 14,000km of lines to be electrified for a sum of 33,000km by the terminal of the decennary.

A

Double-deck trains and modern Doctor of Music and electromagnetic unit will be introduced on the web which will include four new high-speed lines that will suit trains capable of making velocities of 250-330km/h. Budgets over the following 10 old ages are intended to evenly back up the accomplishment of these ends that includes the building of 1000km of new lines at a cost of Rs 44.1 billion during the following twelvemonth, every bit good as Rs 13 billion to better rider comfortss. Surveies for 55 new lines will besides be conducted, along with gauge-conversion of 800km of path and 700km of track-doubling, with costs to be shared with local authoritiess. To accomplish Vision 2020 ‘s ends, there shall be a procurance of 280,000 waggons and 50,880 rider managers every bit good as 5334 Diesel engines and 4281 electric locomotives.A

This clearly shows the demand for railways constituents and the chance that lies for companies which are able to carry through this demand. Omax Auto can decidedly take advantage of this chance to make another line of concern for itself and with that better its gross base and profitableness.

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