CASE ANALYSIS NOTE

VANRAJ MINI TRACTORS

NAME: KEYUR C. SAMPAT

ROLL NO.: 34 (ePGP-02)

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 : SYNOPSIS :

Case: VANRAJ MINI TRACTORS

Major Issues: The current market scenario projects the presence of smallest tractors currently
available with 24 HP range and costing above Rs. 0.18 to 0.2 Million. There is a large segment
of farmers who can not afford to buy these tractors and are left with the option of using either
bullocks or inferior means available like Chinese make mini tractors or power tillers etc. They
can either use the bigger tractors by hiring from the others, but all these propositions prove to be
uneconomical and with serious usage limitations. The 10 HP tractor proves to be a small, low
cost and highly efficient tractor which has the potential of filling a wider demand gap which
exists in Indian Market today. In this segment, ‘Vanraj’ a 10 HP Mini Tractor promoted by the
Gujarat Grassroots Innovations Augmentation Networks popularly known as GIAN and
manufactured by M/s Pramal Farmatics Pvt. Ltd., has the potential of filling this crucial demand
gap.
The basic value propositions for the manufacturers included sales linked royalties,
exclusive rights to manufacture and market in the states of Gujarat, Maharashtra, Rajasthan, MP
and UP under the ‘Vanraj’ brand with paid up capital of Rs.1.25 Million. The value proposition
for innovator included equity stake and exclusive rights of dealership for two districts of Gujarat
state.The basic value propositions for the consumers i.e. farmers are aimed at low cost, fuel
efficiency, availability of spares, easy maintainability, high maneuverability and compatibility
with various farming implements. The ‘Vanraj’ can even provide the choice of owning a tractor
at an affordable price to the farmers.

In spite of the above advantages and value propositions to both consumers and
manufacturers & inventors, the manufacturers are in the dilemma;

(1) How to identify the Market Segments and Targets?

(2) How to derive a reasonable price for ‘Vanraj’?

Analysis: Innovators have spent several years for developing ‘Vanraj’ and there after
manufacturers with the help of GIAN, SRISTI and NID have improved upon aesthetic designing
and styling features to enhance performance and endurance. Looking to the above value
propositions the product is really worth the investment. Breakeven sales for the ‘Vanraj’ can be
at par with the actual production capacity, since the demand that can be created for it is
countless.

M/s Pramal Farmatics Pvt. Ltd. has no competitor in the market offering the similar
features. It can be easily targeted to biggest Small and Marginal Farmers’ segment as believed by
Mr. Trivedi, one amongst the three partners of the company. It can be also targeted to
Horticulturalists and also for rural transportation and hauling of agricultural produce to the
market.

Recommendation on Major Issues: In my view, targeting ‘Small and Marginal Farmers’ will
be the right strategy for achieving better sales results. The reasonable price for the ‘Vanraj’
should be fixed at Rs. 0.19 Million as derived by the company.

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 Annexure-6 and Annexure-7 represents the data for Cost of Production and Projected
Profitability Statement respectively. As against the installed capacity of 600 the actual
production of the ‘Vanraj’ varies from 300 to 480 in 1 to 7th year of production. The cost of
production also varies from Rs.47.18 Million to Rs.75.88 Million. The average cost of
production per tractor thus comes around Rs.0.16 Million. Considering profit after tax and
dividend and also considering depreciation and contingent expenses the net cash accrual for
years 1 to 7 ranges from Rs.0.71 to 0.95 Millions. Looking to the deal value at Rs.10 Millions,
ultimate profit comes to 7.1-9.5%.

Considering the limitations on installed capacity, sales realization against production

range 300-480 tractors will be ranging from Rs.57-91.2 Millions in 1 to 7th year and that can not
be increased in any manner otherwise. Thus, the price of ‘Vanraj’ mini tractor fixed at Rs.0.19
Million is just and proper. The breakeven sales at 100% capacity can be Rs.11.40 Millions.

The market segment analysis for the tractors reveals the following facts;

TRACTORS MARKET SEGMENT

(Refer Annexure-5)

Segment Distribution of Price (Millions) Growth Rate Consumption

Sales (subsidy Rs.30000/ (Overall 30%)
for <30HP)
< 20 HP 0.5% 0.17 (0.10 China) -0.37% 1.5 liters/ hour
18-20 HP HMT-new 0.18 to 0.2
21-30 HP 25% 15.22%
31-40 HP 55% 0.24-0.35 -2.90% 4 liters/hour
41-50 HP 15% 0.35-0.40 -5.88%
> 50 HP 4.5% 17.88%

Looking to the above details, the cost of tractors is varying from Rs. 0.10 Million to
Rs.0.40 Million and above. Since, the cost of Chinese assembled Mini Tractors often breakdown
due to problems such as overheating, belt failure, clutch failure etc, ‘Vanraj’ proves to be the
better choice. Hence, its price can be put higher than Chinese assembled Mini Tractor. Also, its
price should be lower than bigger tractors although they are poorly useful in terms of less
maneuverability & could not access small corners of land. The newly entering HMT has also the
above said disadvantages but has put up the price at Rs.0.18-0.20 Millions. Thus, the price of
‘Vanraj’ tractor fixed at Rs.0.19 Million is just and proper.

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 DRIVING FACTORS FOR THE USE OF MINI TRACTORS for FARMER SEGMENT
(Refer Annexure-1 & 2)

States Area under Fruits Area under Marginal / Small Large Farmers
(ha) Yr. 2001-02 Vegetables (ha) Yr. Farmers (Yr. 2000)
2001-02 (Yr. 2000)
Gujarat, MP, 1066.7 1548.9 25415 9681 10472
Maharashtra, (@ 10% increase) (@ 10% increase) 35096
UP

We must target the Marginal & Small farmers since they are the highest in number. Since
the installed capacity is only 600 tractors per annum. The company can cover only 10% of target
consumers in 10 years i.e. simply 1% annually which can be easily be achieved even if the
presence of 3 players and small presence of Chinese made Mini Tractors which are already in the
10 HP segment or newly entering HMT under 18-25 HP segment with the similar price range.

Since, ‘Vanraj’ has the many advantages over the other Big Tractors like low cost, fuel
efficiency, availability of spares, easy maintainability, high maneuverability and compatibility
with various farming implements and since the tractor market is always served by the bank
loans; looking to all above facts the market segments of Marginal & Small farmers should be
targeted.