Shri Dharmasthala Manjunatheshwara Institute of Management Development, Mysuru

Delta Company’s Innovation

Delta Consumer Electricals Ltd

Delta Consumer Electricals Ltd. manufactures and markets a wide range of electronic

products right from fans, light sources and luminaires, pumps and household appliances,

such as geysers, mixer grinders, toasters and iron boxes. From past two decades Delta has

been the market leader in fans, domestic pumps and street lighting. It has manufacturing

locations in Bangalore, Chennai, Cochin, Goa, Vadodara, Ahmednagar and Baddi. Their

products are available in nearly 15,000 retail points across the country. The business is

rapidly expanding into new categories and expanding its "Reach".

Development

The Delta Consumer business has been the best performing business in the industry

growing nearly @ 15-18% percent CAGR over the past 5 years. Last year (2015-16) revenues

were Rs. 1002 crores with 12% operating margins. Delta customer service is the benchmark
in the industry as is the product quality. The CFL lamps have the lowest defects in the

lighting industry. Delta's portfolio of energy-efficient products include 5 star rated durable

light, fans, pumps and appliances for home and offices. It has the largest number of '5-

Star' rated energy efficient products. It was the first company to cross sales of a million

fans in 1999 and last year the sales crossed 1 million fans, the largest in the world.

It is continually introducing smarter products like super-efficient LED bulbs, water heaters

with the lowest standing costs and patented tank designs made from nano-tech based

materials. Delta pumps are the preferred way to fill overhead water tanks in millions of

homes. NEOLA is India's first microchip controlled mixer-grinder. Amongst other initiatives,

Delta is building "Brand" stores in India to give consumers a more enjoyable shopping

experience and create awareness of the wide range of its products.

Innovation

At present, the firm is planning to expand its product line by introducing an innovative

dream product “Li-breeze” in the market. It’s a product of three in one. It’s an air

conditioner cum heater with a power saving LED lamp. The product is also designed with
automated switch off system (except the lamp) if the room is opened for more than a 45

seconds. The initial investment to setup the plant is estimated Rs.250 crores with the

borrowing of 750 crores with an annual interest rate of 6%. The annual fixed cost is

estimated as Rs.120 crores which includes patent rights, copy rights, insurance,

depreciation, employee salary and some of the utilities excluding interest.

EXHIBIT:1

Particulars Quantity manufactured Cost Incurred

(previous year) (Amount in Rs,)

Fans 10,50000 2,100,000,000

CFL Lamps 2,00,000 2,500,000

Iron boxes 75000 8,500,000

Geysers 125000 450,000,000

EXHIBIT: 2

The estimated variable cost/unit of final product is as follows:

Particulars Amount in Rs.

 Direct materials for A/C spare parts Rs.12250

Direct materials for space heater spare parts Rs. 3550

Direct materials for the LED Lamp Rs. 200

Direct wages for A/C spare parts Rs.1250

Direct wages for space heater spare parts Rs. 550

Direct wages for the LED Lamp Rs. 50

Direct Manufacturing

Overheads of all the three put together Rs.24900

Marketing and distribution overheads Rs. 1500

Targeted Selling price per unit Rs. 70500

As a cost analyst you are expected to analyze the existing facts and figures of the

company and suggest the following:

1. How many units of product Delta must sell to break even?

2. Sales required to maintain the earlier rate of operating profit.

3. If the sales reaches 5 billion (in rupees), what will be the return on revenue?

4. What will be the margin of safety if the return is 14%

5. If the fixed cost increases by 10% what will the breakeven point?

6. If the firm plans to escalate its rate of return by another 3%, then what should be the

sales to earn that profit?

7. Sales required to earn a profit of Rs. 2.5 billion