EROS

Indian Institute of Technology Kanpur

OUR STRATEGY

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Our Strategies
1.

Lowest Production Cost Manufacturing Strategy

Economies of Scale

APWholesale (High SQ), LAPrivate (Low SQ), NAtill AP & LA

grow

TQM & Best Practices

2.

Lowest Distribution Cost Distribution & SCM Strategy

Separate Plants for WS & PL
SCM to minimize taxation

3.

Product Strategy (Marketing, Positioning)

Differentiation: Premium - Aim 9,500 (SQ rating, No of models)

7,50Financial
9,50
9,200
5,350
7,500
9,500
4.
Practices9,100
(Leverage,
Financing
Equity/Debt)

Grow with high Leverage: Debt/Assets Ratio

Issuing, Repurchasing Stock to manage credit rating, ROE, EPS

Refinancing Loans

Dividends - waste of capital for temporary stock increases (Only

Y17)

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Private Label
Purchase 2000 LA & max in AP in 1 st year and also in
subsequent 3-4 years if possible
Use excess capacity in Private Label (After 2-3 year, no one
will mess with your PL Market if they cant match your costs)
Produce PL only in LA Can save ~4$/pair with huge capacity
and proper distribution mgmt
By dumping, One can have 100% share of PL, but not for WS
Sell of NA plant when you are credit constrained
High PL market share increases Image ratings by increasing
total share (worry less about CSR or selling WS shoes at
higher SQ)
Drastic market share increases and bid-price reduction in PL
would hit competitors who have bid for PL unawares
(Silencing them for 1-2 years Cr rating falls to C, stock pr
lowers than 15)
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Finance
Take Only 10 yr loans the game is not going to last ten years
10 yr loans have the less effect on Cr ratings (compared to 1,5
yr)
Avoid issuing stock unless credit constrained (decreases EPS)
Grow fast and huge by taking big loans initially , but maintain B
+ credit rating
In the last two years, sell excess unprofitable capacity,
repurchase stock, give dividends (Or if you think industry is too
oversupplied)
Repurchasing stock better than dividend. (Increases both EPS &
ROE)
Avoid stock repurchasing and dividend during start & mid years It would hurt your ability to grow fast and invest
Repurchasing stock at high stock price in the last year can be
beneficial (reduce Equity drastically in ROE)
Do not spend in CSR, instead upgrade your LA & AP plants
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Whole Sale
Don't spend too much on celebrity initially but bid around
1-2k max (high marketing $/shoe)
Initially, use much needed capital to grow (dump excess
shoe in PL)
When big enough for low marketing $/shoe even with very
high celebrity & adv costs => go for celebrities
Celebrity has to be accompanied with high advertising Cost

(PTO)

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Start Strategy

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Y 14 downfall reason

This year we underperformed very badly

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Y 15 Strategy Diversion

Surprise to competitors & niche segment Still not large enough for 9
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Marketing Strategy Y17

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Problems
Quickly purchase used Capacity before others
Anticipate Demand, Supply Fluctuation
Anticipate pricing effects
Private Label bids avoid too low, high
Do not be predictable

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Learning's

Economics Demand, Supply, Economies of Scale

Strategic Manufacturing, Distribution & Supply Chain to reduce Costs

Predatory strategy - Cornering the market

Finance
Equity/Debt Mgmt Stock sale/purchase, Dividend policy, Loan mgmt
Using Leverage - Debt/Assets
Practical implications of business decisions on ROE, EPS

Balancing between Investor expectation/Financial Stability/ Production

Costs/ Distribution/Quality/ Prices/Brand Image

Long term decisions (Y 11,12,13,14,15) Investments, Capacities

Short term decisions (Y16, Y17) Cash Out, dividends, stock repurchase

CSR is useless!!!
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Key Learning

Big Fish always

gobble up the
Small Fish - Matsya
Nyaya
Grow fast and Big before your competitors do
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Revenue, Sales & Market Share

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EPS & ROI

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STOCK PRICE 234.02

Stock Price of Nearest Competitor in Y17 was 78.9

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Conclusion
Reach max capacity in AP and LA as soon as possible
Best practices, TQM, economies of scale by huge
capacities Low Cost => Indulge in predatory pricing to
suffocate competitors.
Buy off the NA capacities that they sell
After 2-3 years, invest in celebrities and marketing to
push sales from your excess capacity plants v/s
competitors who would not have enough muscle and
economies of scale to invest in celebrities.
Dont invest in CSR
Image ratings will automatically increase thru increase
sales from excess capacity
Increase no of models rather than SQ rating Models is
fixed cost (beneficial in economies of scale) while SQ
rating increase is variable cost
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