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CASE: 01 COOKING LPG LTD DETERMINATION OF WORKING CAPTIAL

Introduction

Cooking LPG Ltd, Gurgaon, is a private sector firm dealing in the bottling and supply of domestic LPG for household consumption since 1995. The firm has a network of distributors in the districts of Gurgaon and Faridabad. The bottling plant of the firm is located on National Highway – 8 (New Delhi – Jaipur), approx. 12 kms from Gurgaon. The firm has been consistently performing we.” and plans to expand its market to include the whole National Capital Region.

The production process of the plant consists of receipt of the bulk LPG through tank trucks, storage in tanks, bottling operations and distribution to dealers. During the bottling process, the cylinders are subjected to pressurized filling of LPG followed by quality control and safety checks such as weight, leakage and other defects. The cylinders passing through this process are sealed and dispatched to dealers through trucks. The supply and distribution section of the plant prepares the invoice which goes along with the truck to the distributor.

Statement of the Problem :

Mr. I. M. Smart, DGM(Finance) of the company, was analyzing the financial performance of the company during the current year. The various profitability ratios and parameters of the company indicated a very satisfactory performance. Still, Mr. Smart was not fully content-specially with the management of the working capital by the company. He could recall that during the past year, in spite of stable demand pattern, they had to, time and again, resort to bank overdrafts due to non-availability of cash for making various payments. He is aware that such aberrations in the finances have a cost and adversely affects the performance of the company. However, he was unable to pinpoint the cause of the problem.

He discussed the problem with Mr. U.R. Keenkumar, the new manager (Finance). After critically examining the details, Mr. Keenkumar realized that the working capital was hitherto estimated only as approximation by some rule of thumb without any proper computation based on sound financial policies and, therefore, suggested a reworking of the working capital (WC) requirement. Mr. Smart assigned the task of determination of WC to him.

Profile of Cooking LPG Ltd.

1) Purchases : The company purchases LPG in bulk from various importers ex-Mumbai and Kandla, @ Rs. 11,000 per MT. This is transported to its Bottling Plant at Gurgaon through 15 MT capacity tank trucks (called bullets), hired on annual contract basis. The average transportation cost per bullet ex-either location is Rs. 30,000. Normally, 2 bullets per day are received at the plant. The company make payments for bulk supplies once in a month, resulting in average time-lag of 15 days.

2) Storage and Bottling : The bulk storage capacity at the plant is 150 MT (2 x 75 MT storage tanks) and the plant is capable of filling 30 MT LPG in cylinders per day. The plant operates for 25 days per month on an average. The desired level of inventory at various stages is as under.

 LPG in bulk (tanks and pipeline quantity in the plant) – three days average production / sales.

 Filled Cylinders – 2 days average sales.

 Work-in Process inventory – zero.

3) Marketing : The LPG is supplied by the company in 12 kg cylinders, invoiced @ Rs. 250 per cylinder. The rate of applicable sales tax on the invoice is 4 per cent. A commission of Rs. 15 per cylinder is paid to the distributor on the invoice itself. The filled cylinders are delivered on company’s expense at the distributor’s godown, in exchange of equal number of empty cylinders. The deliveries are made in truck-loads only, the capacity of each truck being 250 cylinders. The distributors are required to pay for deliveries through bank draft. On receipt of the draft, the cylinders are normally dispatched on the same day. However, for every truck purchased on pre-paid basis, the company extends a credit of 7 days to the distributors on one truck-load.

4) Salaries and Wages : The following payments are made :

 Direct labour – Re. 0.75 per cylinder (Bottling expenses) – paid on last day of the month.

The Indian Institute Of Business Management & Studies

Subject: Finance Management. Marks: 100

2

 Security agency – Rs. 30,000 per month paid on 10th of subsequent month.

 Administrative staff and managers – Rs. 3.75 lakh per annum, paid on monthly basis on the last working day.

5) Overheads :

 Administrative (staff, car, communication etc) – Rs. 25,000 per month – paid on the 10th of subsequent month.

 Power (including on DG set) – Rs. 1,00,000 per month paid on the 7th Subsequent month.

 Renewal of various licenses (pollution, factory, labour CCE etc.) – Rs. 15,000 per annum paid at the beginning of the year.

 Insurance – Rs. 5,00,000 per annum to be paid at the beginning of the year.

 Housekeeping etc – Rs. 10,000 per month paid on the 10th of the subsequent month.

 Regular maintenance of plant – Rs. 50,000 per month paid on the 10th of every month to the vendors. This includes expenditure on account of lubricants, spares and other stores.

 Regular maintenance of cylinders (statutory testing) – Rs. 5 lakh per annum – paid on monthly basis on the 15th of the subsequent month.

 All transportation charges as per contracts – paid on the 10th subsequent month.

 Sales tax as per applicable rates is deposited on the 7th of the subsequent month.

6) Sales : Average sales are 2,500 cylinders per day during the year. However, during the winter months (December to February), there is an incremental demand of 20 per cent.

7) Average Inventories : The average stocks maintained by the company as per its policy guidelines :

 Consumables (caps, ceiling material, valves etc) – Rs. 2 lakh. This amounts to 15 days consumption.

 Maintenance spares – Rs. 1 lakh

 Lubricants – Rs. 20,000

 Diesel (for DG sets and fire engines) – Rs. 15,000

 Other stores (stationary, safety items) – Rs. 20,000

8) Minimum cash balance including bank balance required is Rs. 5 lakh.

9) Additional Information for Calculating Incremental Working Capital During Winter.

 No increase in any inventories take place except in the inventory of bulk LPG, which increases in the same proportion as the increase of the demand. The actual requirements of LPG for additional supplies are procured under the same terms and conditions from the suppliers.

 The labour cost for additional production is paid at double the rate during wintes.

 No changes in other administrative overheads.

 The expenditure on power consumption during winter increased by 10 per cent. However, during other months the power consumption remains the same as the decrease owing to reduced production is offset by increased consumption on account of compressors /Acs.

 Additional amount of Rs. 3 lakh is kept as cash balance to meet exigencies during winter.

 No change in time schedules for any payables / receivables.

 The storage of finished goods inventory is restricted to a maximum 5,000 cylinders due to statutory requirements.

Suppose you are Mr.Keen Kumar, the new manager. What steps will you take for the growth of Cooking LPG Ltd.?

Case 1: Zip Zap Zoom Car Company

Zip Zap Zoom Company Ltd is into manufacturing cars in the small car (800 cc) segment. It was set up 15 years back and

since its establishment it has seen a phenomenal growth in both its market and profitability. Its financial statements are shown in

Exhibits 1 and 2 respectively.

The company enjoys the confidence of its shareholders who have been rewarded with growing dividends year after year.

Last year, the company had announced 20 per cent dividend, which was the highest in the automobile sector. The company has never

defaulted on its loan payments and enjoys a favorable face with its lenders, which include financial institutions, commercial banks and

debenture holders.

The competition in the car industry has increased in the past few years and the company foresees further intensification of

competition with the entry of several foreign car manufactures many of them being market leaders in their respective countries. The

small car segment especially, will witness entry of foreign majors in the near future, with latest technology being offered to the Indian

customer. The Zip Zap Zoom’s senior management realizes the need for large scale investment in up gradation of technology and

improvement of manufacturing facilities to pre-empt competition.

Whereas on the one hand, the competition in the car industry has been intensifying, on the other hand, there has been a

slowdown in the Indian economy, which has not only reduced the demand for cars, but has also led to adoption of price cutting

strategies by various car manufactures. The industry indicators predict that the economy is gradually slipping into recession.

Exhibit 1 Balance sheet as at March 31,200 x

(Amount in Rs. Crore)

Source of Funds

Share capital 350

Reserves and surplus 250 600

Loans :

Debentures (@ 14%) 50

Institutional borrowing (@ 10%) 100

Commercial loans (@ 12%) 250

Total debt 400

Current liabilities 200

1,200

Application of Funds

Fixed Assets

Gross block 1,000

Less : Depreciation 250

Net block 750

Capital WIP 190

Total Fixed Assets 940

Current assets :

Inventory 200

Sundry debtors 40

The Indian Institute Of Business Management & Studies

Subject: Finance Management Marks: 100

Cash and bank balance 10

Other current assets 10

Total current assets 260

-1200

Exhibit 2 Profit and Loss Account for the year ended March 31, 200x

(Amount in Rs. Crore)

Sales revenue (80,000 units x Rs. 2,50,000) 2,000.0

Operating expenditure :

Variable cost :

Raw material and manufacturing expenses 1,300.0

Variable overheads 100.0

Total 1,400.0

Fixed cost :

R & D 20.0

Marketing and advertising 25.0

Depreciation 250.0

Personnel 70.0

Total 365.0

Total operating expenditure 1,765.0

Operating profits (EBIT) 235.0

Financial expense :

Interest on debentures 7.7

Interest on institutional borrowings 11.0

Interest on commercial loan 33.0 51.7

Earnings before tax (EBT) 183.3

Tax (@ 35%) 64.2

Earnings after tax (EAT) 119.1

Dividends 70.0

Debt redemption (sinking fund obligation)** 40.0

Contribution to reserves and surplus 9.1

* Includes the cost of inventory and work in process (W.P) which is dependent on demand (sales).

** The loans have to be retired in the next ten years and the firm redeems Rs. 40 crore every year.

The company is faced with the problem of deciding how much to invest in up gradation of its plans and technology. Capital

investment up to a maximum of Rs. 100 crore is required. The problem areas are three-fold.

 The company cannot forgo the capital investment as that could lead to reduction in its market share as technological

competence in this industry is a must and customers would shift to manufactures providing latest in car technology.

 The company does not want to issue new equity shares and its retained earning are not enough for such a large investment.

Thus, the only option is raising debt.

 The company wants to limit its additional debt to a level that it can service without taking undue risks. With the looming

recession and uncertain market conditions, the company perceives that additional fixed obligations could become a cause of financial

distress, and thus, wants to determine its additional debt capacity to meet the investment requirements.

The Indian Institute Of Business Management & Studies

Subject: Finance Management Marks: 100

Mr. Shortsighted, the company’s Finance Manager, is given the task of determining the additional debt that the firm can raise. He

thinks that the firm can raise Rs. 100 crore worth debt and service it even in years of recession. The company can raise debt at 15 per

cent from a financial institution. While working out the debt capacity. Mr. Shortsighted takes the following assumptions for the

recession years.

a) A maximum of 10 percent reduction in sales volume will take place.

b) A maximum of 6 percent reduction in sales price of cars will take place.

Mr. Shorsighted prepares a projected income statement which is representative of the recession years. While doing so, he

determines what he thinks are the ―irreducible minimum‖ expenditures under recessionary conditions. For him, risk of insolvency is

the main concern while designing the capital structure. To support his view, he presents the income statement as shown in Exhibit 3.

Exhibit 3 projected Profit and Loss account

(Amount in Rs. Crore)

Sales revenue (72,000 units x Rs. 2,35,000) 1,692.0

Operating expenditure

Variable cost :

Raw material and manufacturing expenses 1,170.0

Variable overheads 90.0

Total 1,260.0

Fixed cost :

R & D ---

Marketing and advertising 15.0

Depreciation 187.5

Personnel 70.0

Total 272.5

Total operating expenditure 1,532.5

EBIT 159.5

Financial expenses :

Interest on existing Debentures 7.0

Interest on existing institutional borrowings 10.0

Interest on commercial loan 30.0

Interest on additional debt 15.0 62.0

EBT 97.5

Tax (@ 35%) 34.1

EAT 63.4

Dividends --

Debt redemption (sinking fund obligation) 50.0*

Contribution to reserves and surplus 13.4

* Rs. 40 crore (existing debt) + Rs. 10 crore (additional debt)

Assumptions of Mr. Shorsighted

 R & D expenditure can be done away with till the economy picks up.

 Marketing and advertising expenditure can be reduced by 40 per cent.

 Keeping in mind the investor confidence that the company enjoys, he feels that the company can forgo paying dividends in

the recession period.

The Indian Institute Of Business Management & Studies

Subject: Finance Management Marks: 100

He goes with his worked out statement to the Director Finance, Mr. Arthashatra, and advocates raising Rs. 100 crore of debt to

finance the intended capital investment. Mr. Arthashatra does not feel comfortable with the statements and calls for the company’s

financial analyst, Mr. Longsighted.

Mr. Longsighted carefully analyses Mr. Shortsighted’s assumptions and points out that insolvency should not be the sole criterion

while determining the debt capacity of the firm. He points out the following :

 Apart from debt servicing, there are certain expenditures like those on R & D and marketing that need to be continued to

ensure the long-term health of the firm.

 Certain management policies like those relating to dividend payout, send out important signals to the investors. The Zip Zap

Zoom’s management has been paying regular dividends and discontinuing this practice (even though just for the recession phase)

could raise serious doubts in the investor’s mind about the health of the firm. The firm should pay at least 10 per cent dividend in the

recession years.

 Mr. Shortsighted has used the accounting profits to determine the amount available each year for servicing the debt

obligations. This does not give the true picture. Net cash inflows should be used to determine the amount available for servicing the

debt.

 Net Cash inflows are determined by an interplay of many variables and such a simplistic view should not be taken while

determining the cash flows in recession. It is not possible to accurately predict the fall in any of the factors such as sales volume, sales

price, marketing expenditure and so on. Probability distribution of variation of each of the factors that affect net cash inflow should be

analyzed. From this analysis, the probability distribution of variation in net cash inflow should be analysed (the net cash inflows

follow a normal probability distribution). This will give a true picture of how the company’s cash flows will behave in recession

conditions.

The management recognizes that the alternative suggested by Mr. Longsighted rests on data, which are complex and require

expenditure of time and effort to obtain and interpret. Considering the importance of capital structure design, the Finance Director

asks Mr. Longsighted to carry out his analysis. Information on the behaviour of cash flows during the recession periods is taken into

account.

The methodology undertaken is as follows :

(a) Important factors that affect cash flows (especially contraction of cash flows), like sales volume, sales price, raw materials

expenditure, and so on, are identified and the analysis is carried out in terms of cash receipts and cash expenditures.

(b) Each factor’s behaviour (variation behaviour) in adverse conditions in the past is studied and future expectations are

combined with past data, to describe limits (maximum favourable), most probable and maximum adverse) for all the factors.

(c) Once this information is generated for all the factors affecting the cash flows, Mr. Longsighted comes up with a range of

estimates of the cash flow in future recession periods based on all possible combinations of the several factors. He also estimates the

probability of occurrence of each estimate of cash flow.

Assuming a normal distribution of the expected behaviour, the mean expected value of net cash inflow in adverse conditions

came out to be Rs. 220.27 crore with standard deviation of Rs. 110 crore.

The Indian Institute Of Business Management & Studies

Subject: Finance Management Marks: 100

Keeping in mind the looming recession and the uncertainty of the recession behaviour, Mr. Arthashastra feels that the firm

should factor a risk of cash inadequacy of around 5 per cent even in the most adverse industry conditions. Thus, the firm should take

up only that amount of additional debt that it can service 95 per cent of the times, while maintaining cash adequacy.

To maintain an annual dividend of 10 per cent, an additional Rs. 35 crore has to be kept aside. Hence, the expected available

net cash inflow is Rs. 185.27 crore (i.e. Rs. 220.27 – Rs. 35 crore)

Question:

Analyse the debt capacity of the company.

CASE: I ARROW AND THE APPAREL INDUSTRY

Ten years ago, Arvind Clothing Ltd., a subsidiary of Arvind Brands Ltd., a member of the Ahmedabad

based Lalbhai Group, signed up with the 150- year old Arrow Company, a division of Cluett Peabody

& Co. Inc., US, for licensed manufacture of Arrow shirts in India. What this brought to India was not

just another premium dress shirt brand but a new manufacturing philosophy to its garment industry

which combined high productivity, stringent in-line quality control, and a conducive factory

ambience.

Arrow’s first plant, with a 55,000 sq. ft. area and capacity to make 3,000 to 4,000 shirts a day, was

established at Bangalore in 1993 with an investment of Rs 18 crore. The conditions inside—with

good lighting on the workbenches, high ceilings, ample elbow room for each worker, and plenty of

ventilation, were a decided contrast to the poky, crowded, and confined sweatshops characterising

the usual Indian apparel factory in those days. It employed a computer system for translating the

designed shirt’s dimensions to automatically mark the master pattern for initial cutting of the fabric

layers. This was installed, not to save labour but to ensure cutting accuracy and low wastage of cloth.

The over two-dozen quality checkpoints during the conversion of fabric to finished shirt was unique

to the industry. It is among the very few plants in the world that makes shirts with 2 ply 140s and 3

ply 100s cotton fabrics using 16 to 18 stitches per inch. In March 2003, the Bangalore plant could

produce stain-repellant shirts based on nanotechnology.

The reputation of this plant has spread far and wide and now it is loaded mostly with export orders

from renowned global brands such as GAP, Next, Espiri, and the like. Recently the plant was

identified by Tommy Hilfiger to make its brand of shirts for the Indian market. As a result, Arvind

Brands has had to take over four other factories in Bangalore on wet lease to make the Arrow brand

of garments for the domestic market.

In fact, the demand pressure from global brands which want to outsource form Arvind Brands is so

great that the company has had to set up another large factory for export jobs on the outskirts of

Bangalore. The new unit of 75,000 sq. ft. has cost Rs 16 crore and can turn out 8,000 to 9,000 shirts

per day. The technical collaborators are the renowned C&F Italia of Italy.

Among the cutting edge technologies deployed here are a Gerber make CNC fabric cutting machine,

automatic collar and cuff stitching machines, pneumatic holding for tasks like shoulder joining, threat

trimming and bottom hemming, a special machine to attach and edge stitch the back yoke, foam

finishers which use air and steam to remove creases in the finished garment, and many others. The

stitching machines in this plant can deliver up to 25 stitches per inch. A continuous monitoring of the

production process in the entire factory is done through a computerised apparel production

management system, which is hooked to every machine. Because of the use of such technology, this

plant will need only 800 persons for a capacity which is three times that of the first plant which

employs 580 persons.

Exports of garments made for global brands fetched Arvind Brands over Rs 60 crore in 2002, and

this can double in the next few years, when the new factory goes on full stream. In fact, with the

The Indian Institute of Business Management & Studies

Subject: International Business Marks: 100

lifting of the country-wise quota regime in 2005, there will be surge in demand for high quality

garments from India and Arvind is already considering setting up two more such high tech exportoriented

factories.

It is not just in the area of manufacture but also retailing that the Arrow brand brought a wind of

change on the Indian scene. Prior to its coming, the usual Indian shirt shop used to be a clutter of

racks with little by way of display. What Arvind Brands did was to set up exclusive showrooms for

Arrow shirts in which the functional was combined with aesthetic. Stuffed racks and clutter

eschewed. The product were displayed in such a manner the customer could spot their qualities from

a distance. Of course, today this has become standard practice with many other brands in the

country, but Arrow showed the way. Arrow today has the largest network of 64 exclusive outlets

across India. It is also present in 30 retail chains. It branched into multi-brand outlets in 2001, and is

present in over 200 select outlets.

From just formal dress shirts in the beginning, the product range of Arvind Brands has expanded in

the last ten years to include casual shirts, T-shirts, and trousers. In the pipeline are light jackets and

jeans engineered for the middle-aged paunch. Arrow also tied up with the renowned Italian designer,

Renato Grande, who has worked with names like Versace and Marlboro, to design its Spring /

Summer Collection 2003. The company has also announced its intention to license the Arrow brand

for other lifestyle accessories like footwear, watches, undergarments, fragrances, and leather goods.

According to Darshan Mehta, President, Arvind Brands Ltd., the current turnover at retail prices of

the Arrow brand in India is about Rs 85 crore. He expects the turnover to cross Rs 100 crore in the

next few years, of which about 15 per cent will be from the licensed non-clothing products.

In 2005, Arvind Brands launched a major retail initiative for all its brands. Arvind Brands licensed

brands (Arrow, Lee and Wrangler) had grown at a healthy 35 per cent rate in 2004 and the company

planned to sustain the growth by increasing their retail presence. Arvind Brands also widened the

geographical presence of its home-grown brands, such as Newport and Ruf-n Tuf, targeting small

towns across India. The company planned to increase the number of outlets where its domestic

brands would be available, and draw in new customers for readymades. To improve its presence in

the high-end market, the firm started negotiating with an international brand and is likely to launch

the brand.

The company has plans to expand its retail presence of Newport Jeans, from 1200 outlets across 480

towns to 3000 outlets covering 800 towns.

For a company ranked as one of the world’s largest manufactures of denim cloth and owners of

world famous brands, the future looks bright and certain for Arvind Brands Ltd.

Company profile

Name of the Company :Arvind Mills

Year of Establishment :1931

Promoters : Three brothers--Katurbhai, Narottam Bhai, and Chimnabhai

Divisions :Arvind Mills was split in 1993 into Units—textiles, telecom and garments.

Arvind Ltd. (textile unit) is 100 per cent subsidiary of Arvind Mills.

The Indian Institute of Business Management & Studies

Subject: International Business Marks: 100

Growth Strategy :Arvind Mills has grown through buying-up of sick units, going global and

acquisition of German and US brand names.

Questions

1. Why did Arvind Mills choose globalization as the major route to achieve growth when the

domestic market was huge?

2. How does lifting of ‘Country-wise quota regime’ help Arvind Mills?

3. What lessons can other Indian businesses learn form the experience of Arvind Mills?

CASE – 1 Dabur India Limited: Growing Big and Global

Dabur is among the top five FMCG companies in India and is positioned successfully on the specialist

herbal platform. Dabur has proven its expertise in the fields of health care, personal care, homecare

and foods.

The company was founded by Dr. S. K. Burman in 1884 as small pharmacy in Calcutta (now Kolkata),

India. And is now led by his great grandson Vivek C. Burman, who is the Chairman of Dabur India

Limited and the senior most representative of the Burman family in the company. The company

headquarters are in Ghaziabad, India, near the Indian capital New Delhi, where it is registered. The

company has over 12 manufacturing units in India and abroad. The international facilities are located

in Nepal, Dubai, Bangladesh, Egypt and Nigeria.

S.K. Burman, the founder of Dabur, was trained as a physician. His mission was to provide effective

and affordable cure for ordinary people in far-flung villages. Soon, he started preparing natural

remedies based on Ayurved for diseases such as Cholera, Plague and Malaria. Due to his cheap and

effective remedies, he became to be known as ‘Daktar’ (Indianised version of ‘doctor’). And that is how

his venture Dabur got its name—derived from Daktar Burman.

The company faces stiff competition from many multi national and domestic companies. In the

Branded and Packaged Food and Beverages segment major companies that are active include

Hindustan Lever, Nestle, Cadbury and Dabur. In case of Ayurvedic medicines and products, the major

competitors are Baidyanath, Vicco, Jhandu, Himani and other pharmaceutical companies.

Vision, Mission and Objectives

Vision statement of Dabur says that the company is “dedicated to the health and well being of every

household”. The objective is to “significantly accelerate profitable growth by providing comfort to

others”. For achieving this objective Dabur aims to:

 Focus on growing core brands across categories, reaching out to new geographies, within and

outside India, and improve operational efficiencies by leveraging technology.

 Be the preferred company to meet the health and personal grooming needs of target consumers

with safe, efficacious, natural solutions by synthesising deep knowledge of ayurveda and herbs with

modern science.

 Be a professionally managed employer of choice, attracting, developing and retaining quality

personnel.

 Be responsible citizens with a commitment to environmental protection.

 Provide superior returns, relative to our peer group, to our shareholders.

The Indian Institute of Business Management & Studies

Subject: Managerial Economics Marks: 100

Page | 2

Chairman of the company

Vivek C. Burman joined Dabur in 1954 after completing his graduation in Business Administration

from the USA. In 1986 he was appointed Managing Director of Dabur and in 1998 he took over as

Chairman of the Company.

Under Vivek Burman’s leadership, Dabur has grown and evolved as a multi-crore business house with

a diverse product portfolio and a marketing network that traverses the whole of India and more than

50 countries across the world. As a strong and positive leader, Vivek C. Burman has motivated

employees of Dabur to “do better than their best”—a credo that gives Dabur its status as India’s most

trusted nature-based products company.

Leading brands

More than 300 diverse products in the FMCG, Healthcare and Ayurveda segments are in the product

line of Dabur. List of products of the company include very successful brands like Vatika, Anmol,

Hajmola, Dabur Amla Chyawanprash, Dabur Honey and Lal Dant Manjan with turnover of Rs.100

crores each.

Strategic positioning of Dabur Honey as food product, lead to market leadership with over 40%

market share in branded honey market; Dabur Chyawanprash is the largest selling Ayurvedic

medicine with over 65% market share. Dabur is a leader in herbal digestives with 90% market share.

Hajmola tablets are in command with 75% market share of digestive tablets category. Dabur Lal Tail

tops baby massage oil market with 35% of total share.

CHD (Consumer Health Division), dealing with classical Ayurvedic medicines has more than 250

products sold through prescription as well as over the counter. Proprietary Ayurvedic medicines

developed by Dabur include Nature Care Isabgol, Madhuvaani and Trifgol.

However, some of the subsidiary units of Dabur have proved to be low margin business; like Dabur

Finance Limited. The international units are also operating on low profit margin. The company also

produces several “me – too” products. At the same time the company is very popular in the rural

segment.

Questions

1. What is the objective of Dabur? Is it profit maximisation or growth maximisation? Discuss.

2. Do you think the growth of Dabur from a small pharmacy to a large multinational company is

an indicator of the advantages of joint stock company against proprietorship form? Elaborate.