Sumul Dairy

Situation Analysis

The Venture Capital (VC) firm, which has invested in Sumul, is planning to withdraw its investment from the company. Thus, Sumul should position itself for acquisition or find another VC for equity infusion.

Companies such as Sumul are valued by the VCs on multiple of revenue rather than profit or cash flows because these VC firms invest in order to generate significant revenue growth.

Therefore, the company needed to increase its revenues by over 50% in order to achieve highest possible valuation by the VC firms. The revenue of Sumul in 2009 was Rs.13 Million and the growth required to position itself for acquisition was Rs.20 Million by the end of 2012.

The increase in the revenue would depend on the channel strategy adopted in order to expand the business. A possible option for expansion is to introduce 6 SKUs of the 100-gms product line into two selected supermarket chains. 100-gms cups represented the largest revenue share of 74% in the market and thus provide significant revenue potential with projected incremental sale of 35 million units. The revenue thus generated at the end of

2012 would be Rs.37.08 Million (Exhibit 1).

The 100-gms size product line faced the highest level of competition in the supermarket chains and thus required high promotion and marketing budget. Therefore, this decreases the net profit margin of Sumul to 17% (Exhibit 1). Moreover, owing to the availability of Sumul products at prices 15 % lower in supermarkets as compared to that in natural foods chain, the natural food chains might therefore stop selling Sumul’s products and rather adopt a

competitor’s product line. Assuming that the sale from the natural food chain

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becomes negligible, the projected revenue of Sumul at the end of 2012 would be Rs.25.9 Million (Exhibit 1).

Sumul can otherwise expand four SKUs of the 500-gms product line which although comprised of only 8% market share by revenue, but generated an above average gross profit...