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Pouring out a new growth plan

S Kalyana Ramanathan | January 03, 2004

It was one company that held out against a giant. Back in the '90s Hindustan Lever was bulldozing its way into the foods business and snapping up a string of small and regional ice cream brands.

Many established regional brands sold out rather than face competition from a huge multinational like HLL. But one Chennai-based company firmly but courteously spurned all advances.

The company's refusal to sell must have baffled the multinational. The Chennai company had been selling ice cream for over 20 years and its turnover was only Rs 9 crore (Rs 90 million). Ten years later, however, Arun ice cream is thriving and it's part of the Rs 400-crore (Rs 4 billion) Hatsun Agro Products.

Arun ice cream is, of course, only one part of the Hatsun success story. Ice cream sales have grown to around Rs 40 crore (Rs 400 million) today.

More importantly, however, Hatsun's promoter has become a milk magnate with a network that stretches across the state. Hatsun's packed standard and toned milk accounts for 90 per cent lion's share of the company's turnover of Rs 400 crore (Rs 4 billion).

Nevertheless, the ice cream has played a key role in the company's expansion.

"Despite contributing only 10 per cent of Hatsun Agro's topline, the entire selling and distribution network for Arokya and Komatha packet milk has been built with Arun at its base," says Chandramogan, managing director, Hatsun Agro.

Chandramogan figured a decade ago that processed milk was the industry of the future. Over the last few years he invested heavily in processing, chilling and packing units across Tamil Nadu and Karnataka.

The result is that today Hatsun Agro has built a network of 100,000 farmers who are the source for its Rs 360 crore (Rs 3.6 billion) milk business. It procures 725,000 litres of milk daily and is the largest private sector milk supplier in Tamil Nadu.

The company has a 20 per cent market share in the state. State-owned brand Aavin is the market leader with a 47 per cent market share in the standard milk market in Tamil Nadu. The rest of the market in the state is divided between 50-odd branded and unbranded milk producers.

Now Chandramogan is looking beyond south India. He's talking to the Board of Investment in Sri Lanka about setting up an integrated milk processing plant in the country.

A final decision on the project is likely in the next three months though Chandramogan says that the country isn't a very large market. The total market for milk in Sri Lanka, according to him, is worth around Rs 19 lakh (Rs 1.9 million) per day.

Says Chandramogan: "We are yet to decide on the size of the processing unit in Sri Lanka or the investments we are planning."

Hatsun is also looking seriously at another island in the Indian Ocean. It is planning to set up an ice cream factory in the Seychelles. The plant will produce around 8,000 litres of ice cream daily and the facility will be run by a franchisee.

Says Chandramogan: "Hatsun Agro will help to set up the plant there and also help to build the Arun Ice Cream brand there for royalty."

In India Chandramogan is looking at new routes to growth. He reckons that the contribution of ice cream products will, in coming years stay at around 10 per cent of total turnover. But he's planning a string of value added products like butter, casein, and lactose.

"Growth will come from milk and the value-added products we plan to launch in the coming years," he says.

Chandramogan isn't content with all this. He's looking for new ways forward in a competitive environment.

To that end he recently hired the services of global marketing guru Al Ries to suggest a strategic vision for the company's future growth.

Ries', whose most recent work was titled 'The Fall of Advertising and the Rise of PR', addressed Hatsun's senior executives for a day and will send a batch of recommendations about the way forward.

The cost of hiring Ries for a day: $30,000. This was Ries' first consulting project in India though he has come here before to address organisations like the Confederation of Indian Industry.

"There was no obvious problem with our brands or marketing strategy. The appointment of a brand consultant is more a pro-active measure. We thought it would make sense to hire a top-notch consultant to give pointers for the future," Chandramogan says.

How much Ries can contribute to a milk manufacturing company in Chennai?

The fact is that Hatsun's real strength is the rural network it has built over the decade. The company has also worked overtime to keep its family of dairy farmers happy.

It has teamed up with the State Bank of India to organise training programmes in the rural areas for the farmers. Together the two hold regular training programmes. The one-week training programme on cattle buying and upkeep is open to all farmers.

The result, he says, is that "the farming technique adopted by our farmers is scientific and productivity levels are much higher than what it was earlier."

The week-long training programme comes with a loan for the farmers from State Bank of India for buying cattle.

"The weekly payment for milk, to the farmers is routed through the bank. This, along with sound farming techniques, assures a near-zero NPA to SBI from our network of farmers. It is a win-win situation for all of us," he adds.

The key to successful milk sourcing network, Chandramogan says, lies in three key determinants.

"One, this is a cash-rich business for the farmer, two, milk is a cost plus product and three the prices are stable. See this in the light of other agricultural commodities and the conventional risks associated with it. Farmers are more than happy to be in this business," he explains.

What about the future? Chandramogan has ambitious plans and hopes to hit a turnover of Rs 1,000 crore (Rs 10 billion) in the next three years. Is that a bit too ambitious? Chandramogan believes this ambitions target is pragmatic and points to how the company has grown in the last few years.

"In 1995, we were just a Rs 18 crore (Rs 180 million) company. In fact, our daily turnover today is bigger than the company's turnover in the first 16 years of its existence," he says.

Back in the '90s when HLL came calling, Chandramogan had defiantly said he was determined not to sell. "I said I will not give up until my capital is eroded to its original size -- Rs 15,000, and I still stand by that statement," he says.

For the time being, at least, there doesn't seem to be a risk that he will suffer that fate.

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