Mineral Water Comparision

determine *         The terms can be broken up into avocation components:         -         Raw material toll (Water processing)         -         Labour charges         -         Packaging (Bottle, Label, tough & Carton)         -         Manufacturers valuation account         -          strike duty         -         gross revenue tax         -         C & F agent/stockists commission         -         Retailer marge *          on that point is considerable eye socket for interchangeing these termss depending on technology, master of operation of unit set (Contd.) *         Raw material and excavate costs         As discussed earlier there is considerable scope for cost reduction (a) by using minimum involve processes/equipment (b) by employing casual labour                  Bisleri & Bailley :                  -         Raw material         Re 0.15 to 0.20 per lambert of output                  -         Labour                           Re 0.25 to 0.35 per litre                   contribute                                    Re 0.40 to 0.55 per litre         ICE, Delhi spends Re 1.00 per litre of output set (Contd.) -         Packaging cost         The comportage cost can motley depending on the choice of material (PET Vs. PVC), quality of cap, labels, shrink-wrap and Cartons         A natural cost structure depending on PVC/PET drill and grammage of bottle is given below:                                                                                                                                        Price (Rs.)                                                                                 Low          fair          advanced                  -         Bottle                                                      2.20                           3.00                  3.40         -         Cap/shrink-wrap/label                  0.35                           0.50                  0.50         -         Carton (Rs 5-7.5 per pack of 12)         0.45                           0.50                  0.60         Total                                                               3.00                           4.00                  4.50 Pricing (Contd.) -         Total product cost + Manufacturers shore                                                               Low                   ordinary          high gear                  Process cost                  Re 0.40                  Re 0.55                  Re 1.00                                    Package cost         Rs 3.00                  Rs 4.00                  Rs 4.50                                                      ----------                  -----------         -----------                  Total cost                  Rs 3.40                  Rs 4.55                  Rs 5.50                  Manufacturers                            shore                           Re 0.50                  Rs 1.00                  Rs 1.50                                                      ----------                  -----------         -----------                           Ex factory cost         Rs 3.90                  Rs 5.55                  Rs 7.00 Pricing (Contd.) *         Tax structure         Excise duty is charged in the following slabs:                           Rs 75 lakh +         =         15%                           Rs 50-75 lakh         =         10%                           < Rs 50 lakh                  =         5%                  Sales tax ranges from 7.7% and goes upto 10% for movement across states         The small/medium players evade slightly of these taxes by under-invoicing         A large investor can take proceeds of backward area development and claim benefit (Mt. Everest mineral Water enjoys a 5 year tax holiday) Pricing (Contd.) -          price of taxation         The Excise (assuming an average of 15%) and gross sales tax rate can be added to the final cost                                                      Low                  Medium          High                  Ex factory cost         Rs 3.90                  Rs 5.55                  Rs 7.00                  Excise duty                  Re 0.60                  Re 0.85                  Re 1.05                  Sales tax ~                  Re 0.90                  Re 0.90                  Re 0.90                                                      ----------                  -----------         -----------                  Product determine         Rs 5.40                  Rs 7.30                  Rs 8.95                   Pricing (Contd.) *         Cost of freight and Distribution         This will vary as per the capability of manufacturer (In some en nationals, manufacturers deliver upto stockists post and in some cases delivery are made ex-factory). Also, the distances to extract will determine costs:                                                               Low                  Medium          High         Product price                           Rs 5.40                  Rs 7.30                  Rs 8.95         Freight & Distribution         Re 0.30                  Re 0.45                  Re 0.65                                                               ----------                  -----------         ----------         Total                                             Rs 5.70                  Rs 7.75                  Rs 9.60                  Sale price                                    Rs12.00                  Rs12.00                  Rs12.00                                                               ----------                  -----------         ----------         Trade margin                           Rs 6.30                  Rs 4.25                  Rs 2.40 Pricing (Contd.



) Thus, a case of 12 will score the following price structure:                                                                        Low                  Medium          High* Cost of case                                             Rs 68                  Rs 93                  Rs 115 selling price                                             Rs 144                  Rs 144                  Rs 144 Margin                                                      Rs 76                  Rs 51                  Rs 29                                                               (52%)                  (35%)                  (20%) * Some manufacturers will price such(prenominal) bottles at Rs 14 thus selling at Rs 168 (a margin of Rs 53 or 32%) Pricing - Worst case scenario Since there is tremendous pressure on margins, a strap case scenario can be built from the point of emplacement of a manufacturer:                           Selling price per 1 litre bottle                           =         Rs 10                           Retailer/distributor margin (Rs 40/case)         =         Rs 3.40         (-)                                             Freight etc.                                                      =         Rs 0.30         (-)                                                                                                   ---------                           Product cost to trade                                    =         Rs 6.30                           Excise (15%)                                             =         Rs 0.90         (-)                           Sales tax                                                      =         Rs 0.80         (-)                                                                                                   ---------                           Net product price for mfrs                           =         Rs 4.60                           Cost fo manufacturing                                    Net realisation                           Low (Rs 3.40 per bottle)                                    + Rs 1.20 per bottle                           Medium (Rs 4.55 per bottle)                           + Rs 0.05 per bottle                           High (Rs 5.50 per bottle)                           - Rs 1.10 per bottle Thus, ability to operate at low cost will be the key determinative of success unless the manufacturer is able to reduce the trade margin in his favour.

Investment & returns A plant of 40,000 lts/day is delusive to cost Rs 40 lakh or Rs 1 crore or Rs 5 crore and is expected to operate in 20, 40, 60, 80, 100% its rated capacity. presume a margin of Re 0.50 per litre sold, the ROI is as follows:                                             ROI at Capacity utilisation (in %) Plant cost                           20%                  40%                  60%                  80%                  100% Rs 40 lakhs                  30                  60                  90                  120                  150          Rs 1 crore                           12                  24                  36                  48                  60 Rs 5 crores                  2.4                  4.8                  7.2                  9.6                  12.0 The low investment funds to high return indicates the proliferation of small operators even at 20% capacity utilisation. Whereas, the medium sized entrepreneur finds it just almost OK at 25-30% capacity utilisation (which is normally the case and this explains the franchisee operations of Bisleri & Bailley). The high quality entrepreneur cannot survive until he reaches a capacity of 100% and that too can exactly manage to survive                           

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