L1.
Generic Strategies
Hanif Kanjer
MBA (London Business School), BE (Production)
Director, Rustomjee Cambridge International School
Director, Rustomjee International School
Index
Why Aluminium?
The Product Mix
The Moiney Spinners
Nalcos Production Costs
The Cost Drivers
Reading between the lines
Why did Nalcos profits jump?
Why did Spot Alumina prices crash?
Is this threat for real?
The Game Plan
The Generic Strategies
What is Nalcos competitive edge?
What are the issues facing the organisation?
Why are Nalcos workers objecting to the
divestment?
How would you address this problem?
Nalcos Social Development Programs
Why Aluminium?
Product Mix
Ingots
SOW
Billets Wire rods
Cast strips
Aluminium Metal
Calcined Alumina
Coarse Alumina, Sand
type
ALUMINA CHEMICALS Specialty Hydrates(ATH):
Rolled Products Unit (100% EOU)
The Money Spinners
Revenues
Aluminium
49%
Alumina
51%
Profits
Aluminium
17%
Alumina
83%
Exports account for 50% of Alumina sales
Cheapest producer of Alumina at $120/ton
Why produce Aluminium?
Why Not stick only to ALUMINA, if the
profitability is so high?
59,770
61,265
48,887
32,493
41,240
17,412
19,850
23,721
25,443
26,729
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
FY04 FY05 FY06 FY07E FY08E
Rs. mn
Reading between the lines
Total Operating Expenses
Net Sales
Nalcos Production Costs
Selling &
Distribution
12%
Other
Expenses
13%
Raw
material
costs
22%
Power &
Fuel
expenses
38%
Employee
Costs
15%
Rs.19,849mn
Workforce strength 3,000
Fully mechanised Open-Cast Bauxite Mine on Panchpatmali
Hills, Orissa providing feedstock of 48lac tons/annum to
Alumnia refinery which is 16km downhill
Revenue per employee metric and comparison with other competitors
The Cost Drivers
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY04 FY05 FY06 FY07E FY08E
Raw material costs
Power & Fuel expenses
Employee Costs
Selling & Distribution
Other Expenses
Rs. mn
Power & Fuel Costs
Raw material costs
Other Expenses
Why did Nalcos profits jump 122% in the current financial year 1
st
Quarter?
59,770
61,265
48,887
32,493
41,240
17,412
19,850
23,721
25,443
26,729
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
FY04 FY05 FY06 FY07E FY08E
Total Operating
Expenses
Net
Sales
Rs.
mn
NALCO Op Cost
Milking the Opportunity
Aluminium
Prices
Alumina
prices
Why did Spot Alumina Prices crash?
US$625/ton
US$300/ton
Is this threat for real?
NALCOs production cost: US$120/ton
NALCOs expanded capacity, 12 tons
available for exports,
Will NALCO drop prices to $200/ton?
Chinas production cost: US$240-280/ton
The Game Plan
Not required
Rs. 15,000 crore proposal, which envisages 5-lakh ton Aluminium plant, and 1,500MW power station
linked to the plant
The Generic Strategies
NALCO
FedEx
Nestle
Raymond Weil
M
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k
e
t
T
a
r
g
e
t
Youth Hostels
Dollar Shops
Godiva
Rolls Royce
Rolex
N
a
r
r
o
w
B
r
o
a
d
Low Cost
Differentiation
Best- Cost
Provider
What is Nalcos competitive edge?
Gigantic plant site Rs.5,000 crores
Zero-debt
Production of 950tons/day
Workforce strength 3,000
Most Efficient Producer of Aluminium
Proven State-of-the-Art French 180KA Cell Technology
(Arch rivals Hindalco/BALCO use older technology)
Highest OPM in the industry
Uses automated pot-tending machines
Produces superior Grade aluminium registered on LME for conforming to the highest
purity standard
Multi-unit, multi-location company, largest integrated Al company
Fully mechanised Open-Cast Bauxite Mine on Panchpatmali Hills, Orissa providing
feedstock of 48lac tons/annum to Alumnia refinery which is 16km downhill
What are the issues facing the organisations?
Absence of a full-time Finance Director
Lack of some Key Personnel in Management
Pradhan
Director - Projects
Director Finance
Director Production
Acting CMD
Workers objecting to Divestment
15,000 crore proposal was to be given to Ministry in 2006, but is delayed
Delays in commissioning of projects
Aluminium projects in China come up within a years time, whilst Nalco has
been working on expansion plans since 2001
Why are Nalcos workers objecting to the divestment?
Is there a dire need for divestment?
What would be the objective of divestment?
How would liquidity of stock benefit the company/workers?
Is there a fear of privatization, which might result in workers losing their jobs?
Do they see this as a first-sign of privatisation?
Divesting shareholding in parts
How would you address this problem?
Could you share some portion of the divestment income with the workers in
the form of bonus?
Could you show how the divestment income would be utilised to generate
additional capacity, etc., which might in effect yield additional employment?
Could you justify divestment income as necessary for expansion plans?
Expansion would otherwise require external borrowings which would be
expensive way of growth.
Social Development
Periphery Development Works in Angul & Damanjodi
(amount spent in lakh rupees as on 2004-2005)
Angul Damanjodi Total
Infrastructure &
Communication 696 1,028 1,724
Drinking Water 1,337 45 1,382
Education 317 110 428
Public Welfare 106 236 342
Culture & Sports 72 132 204
Health & Sanitation 82 83 165
Environment Care & Plantation 16 3 19
Social Projects
Assistance to Orissa Engineering College for construction of auditorium: Rs. 5.00 lakh
Electronic traffic signaling at Assembly/Rabindra Mandap Square , Bhubaneswar : Rs. 5.00 lakh
Development of Assembly/Rabindra Mandap Square , Bhubaneswar : Rs. 5.00 lakh
4 ambulances and one dead body carrier to Medical College and Hospital, Berhampur: Rs. 10.69 lakh
To Paediatric Ward at Govt. Hospital , Aska: Rs. 23.73 lakh
Lighting & illumination of Lord Lingaraj Temple , Bhubaneswar : Rs. 10.00 lakh
Development of children's park and plantation in Jajpur district: Rs. 10.00 lakh
Street lights for Balangir Municipality : Rs. 4.23 lakh
War Memorial in Infantry Battalion, Bhubaneswar : Rs.2.00 lakh
Construction of Police Barrack, Bhubaneswar : Rs. 4.56 lakh
Plantation in Capital Hospital area, Bhubaneswar : Rs. 3.20 lakh
Traffic signaling system at Vani Vihar Square , Bhubaneswar : Rs.15.00 lakh
Beautification of Rasulgarh traffic island, Bhubaneswar : Rs. 5.00 lakh
Construction of Police Officers' Mess cum Transit House, Bhubaneswar : Rs. 14.00 lakh
Construction of Eye Hospital by Lions Club: Rs.3.00 lakh
Construction of classroom in Sarada Math, Bhubaneswar : Rs.4.00 lakh
Construction of stadium at Vani Vihar, Bhubaneswar : Rs.10 lakh
Development of Nalco Square at Chandrasekharpur, Bhubaneswar : Rs. 3.00 lakh
2 jeeps for mobile health check-up in Koraput district: Rs. 7.00 lakh
To OTDC for development of Karangakata Pond at Balangir: Rs. 25.00 lakh
Vehicle to Red Cross: Rs. 5.5 lakh
Assistance for Multi-disciplinary Centre, Bhubaneswar : Rs. 5.00 lakh
Landscaping and plantation around Orissa State Museum : Rs. 10.00 lakh
