Kunvarji Group

Abstract

Kunvarji Group, a market leader in the commodity trading and financial services business led by Nayan Kunvarji, Chairman and Managing Director and Chetan Kunvarji, Managing Director. The group, in 2013, envisioned transforming the commodity trading business into the service-driven business. Though it had already started to transform it by diversifying into financial services and real estate, the volatility in capital market and market trend was a bottleneck to the group’s profit margin. Further, a large number of commodity traders had entered in the business and commodity producers were also becoming price concerned.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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Exhibit 1: Kunvarji Commodity Brokers Private Limited

Company turnover (Billion INR)

Exchange turnover (Billion INR)

Year

Equity

Commodity

Equity

Commodity

2004-2005

380.64

38.70

42218.81

4324.25

2005-2006

611.38

182.67

72098.23

20425.45

2006-2007

819.86

308.69

103167.23

34580.35

2007-2008

1448.88

347.50

184626.80

38979.13

2008-2009

1145.89

456.22

148743.60

51219.23

2009-2010

2116.88

312.24

231807.38

73108.86

2010-2011

1682.03

733.93

339308.15

112821.40

2011-2012

642.84

910.26

356361.48

175459.60

2012-2013

376.09

644.58

419525.81

166514.93

2013-2014

290.30

512.50

507609.95

85212.62

Source: Company Reports.

Figure

Source: Company Reports.

Figure

Source: Company Reports.

Exhibit 2: Financial Statements of Kunvarji Group Companies

Kunvarji Commodity Brokers Private Limited

Particulars (Million INR)

2012-13

2011-12

2010-11

2009-10

2008-09

Operating Income

61.319

81.511

42.903

27.792

27.451

Other Income

16.420

13.002

08.889

07.592

07.489

Expenditure

0

0

0

0

0

Increase/Decrease in Stock

-0.296

0

0

0

0

Purchase of Shares/Units

29.386

32.988

0

0

0

Employee Cost

13.122

12.062

7.000

05.873

05.648

Operating & Establishment Expenses

04.322

05.046

03.655

03.268

04.325

Administrations & Other Expenses

11.536

10.615

13.713

08.841

09.958

Provisions and contingencies

00.36

02.577

06.091

00.472

00.702

Total Expenditure

58.431

63.288

30.460

18.454

20.633

Operating Profit

19.309

31.225

21.332

16.930

14.307

Interest

10.678

07.287

07.810

03.741

03.324

Depreciation

04.919

03.364

03.351

03.716

04.825

Profit Before Taxation

03.712

20.574

10.171

09.473

06.158

Provision for Tax

00.897

06.866

03.540

02.832

02.046

Profits After Tax

02.815

13.708

06.630

06.641

04.112

Source: Company Reports.

Kunvarji Fincorp Private Limited

Particulars (Million INR)

2012-13

2011-12

2010-11

Operating Income

Sale of Shares/Units

15.325

0

0

Other Interest income

08.941

15.327

18.457

Income from Trading in Securities

00.093

08.696

04.372

Net Sales

24.359

24.023

22.830

Other Income

00.002

00.003

00.021

Expenditure

Purchase of Shares/Units

11.547

0

03.732

Employee Cost

0

0

0

Operating & Establishment Expenses

00.054

0.146

00.126

Administrations & Other Expenses

00.817

0.216

00.220

Provisions and Contingencies

00.654

16.700

00.737

Total Expenditure

13.072

17.063

04.814

Operating Profit

11.289

06.964

18.036

Interest

07.544

11.024

11.221

Profit Before Taxation & Exceptional Items

03.745

-4.059

06.815

Provision for Tax

01.269

0

02.215

Profits After Tax

02.476

-4.059

04.600

Source: Company Reports.

Kunvarji Finstock Private Limited

Particulars (Million INR)

2012-13

2011-12

2010-11

2009-10

2008-09

Income from Trading in Securities

00.063

0.018

0

0

0

Income from other investments

07.988

-0.912

05.784

46.363

0

Brokerages & commissions

53.966

66.748

84.611

81.269

0

Net Sales

62.017

65.854

90.394

127.632

128.459

Other Income

31.878

31.506

27.306

27.089

16.987

Expenditure

0

0

0

0

0

Increase/Decrease in Stock

00.256

00.079

0

0

0

Employee Cost

24.898

36.692

43.015

29.777

0

Operating & Establishment Expenses

08.577

09.842

13.467

14.531

0

Administrations & Other Expenses

20.451

27.561

34.643

24.497

165.907

Provisions and contingencies

00.264

00.840

02.659

15.605

0

Total Expenditure

54.446

75.014

93.784

84.410

165.907

Operating Profit

39.449

22.345

23.916

70.311

-20.461

Interest

12.290

14.031

11.677

11.899

0

Depreciation

06.710

09.235

10.622

09.409

11.778

Profit Before Taxation & Exceptional Items

20.449

-0.921

01.617

49.003

-32.238

Provision for Tax

03.984

-0.567

01.069

14.013

02.239

Profits After Tax

16.465

-0.354

00.548

34.990

-34.478

Source: Company Reports.

Kunvarji Finance Private Limited

Particulars (Million INR)

2012-13

2011-12

2010-11

2009-10

2008-09

Sale of Shares/Units

09.351

67.619

153.490

303.751

2071.693

Income from Trading in Securities

19.978

45.569

25.319

13.732

55.723

Other Operating Income

61.183

255.947

0

0

0

Net Sales

90.512

369.135

178.809

317.483

2127.415

Other Income

12.274

06.458

05.180

06.460

9.320

Expenditure

Increase/Decrease in Stock

42.573

27.272

-44.123

25.079

30.815

Purchase of Shares/Units

20.250

288.464

192.026

278.471

2039.021

Employee Cost

01.332

00.969

01.043

01.005

01.326

Operating & Establishment Expenses

01.632

00.513

02.519

03.114

15.697

Administrations & Other Expenses

04.387

04.290

09.430

03.046

10.721

Provisions and contingencies

02.674

30.987

19.848

11.746

27.252

Total Expenditure

72.847

352.496

180.743

322.460

2124.832

Operating Profit

29.939

23.097

03.246

01.483

11.904

Interest

06.929

04.132

04.823

04.517

09.878

Depreciation

02.279

01.029

01.339

01.856

01.872

Profit Before Taxation

20.730

17.935

-2.915

-4.889

00.155

Provision for Tax

06.944

03.569

-2.278

00.178

01.025

Profits After Tax

13.786

14.366

-0.637

-5.067

-0.871

Source: Company Reports.

Exhibit 3: History of Kunvarji Group

1960: Started commodities trading with operations in physical commodity market at Patan.

1987: First membership for futures trading in 1987 of Ahmedabad Commodity Exchange.

1991: Beginning of Stock Broking activities at Ahmedabad Stock Exchange & spread of commodities business across Gujarat.

2003: Kunvarji Commodities Brokers Pvt. Ltd. (KCBPL) incorporated.

2004: KCBPL began operations as a TCM of NCDEX and MCX.

2005: Membership of DGCX, Dubai and TCM of NSE Cash & F&O Milestones

2006: Membership of BSE

2007: Membership of NCDEX Spot and Depository Participant (DP) of (Central Depository Services Limited) CDSL

2008: Named as Leading Brokerage House in India by Dun & Bradstreet.

2012: Started International Business Division with exports of multiple commodities to China, Sri Lanka and Mexico

2012: Obtained Common Mandi License for Gujarat and started operations across various mandis

2013: Awarded “Innovative Achievers” for building value chain in commodity business by GIS

2013: Launch of Property Advisory Services

Source: Company Reports.

Exhibit 4: Leased Storage Business

Place

Area Sq ft

Capacity in Mt

Bikaner

40764

6829

Jaipur

38927

6485

Jodhpur

31497

5250

Kadi

265896

43644

Kota

19217

3417

Source: Company sources.

Exhibit 5: Kunvarji’s Geographic Spread and Majorly Traded Commodities

State

Commodity

Gujarat

Castor/Cumin/Wheat/Channa/Coriander/Sesame/Cotton/Cotton seed oil cake/Mustard

Rajasthan

Wheat/Barley/Channa/Coriander/Ground nut/Mustard/Soya bean

Maharashtra

Cotton/Cotton seed oil cake/Pulses/Channa/Turmeric/Tuvar dhal

Madhya Pradesh

Soya bean/Wheat/Channa/Paddy

Haryana

Wheat/Paddy/Mustard/Millets

Uttar Pradesh

Wheat/Paddy/Sesame

Andhra Pradesh

Chilli/Maize/Turmeric/Ground nut

Bihar

Maize/Paddy

Karnataka

Maize

Kerala

Pepper/Cardamom

Chhattisgarh

Paddy

Source: Company Reports.

Exhibit 6: Supply chain of agriculture commodities

Figure

Source: Company Reports.

Exhibit 7: Demand and supply locations for perishable commodities

Major perishable commodities and their major producer states

Apple – Jammu & Kashmir (1852.4), Himachal Pradesh (892.1), Arunachal Pradesh (10) and Uttarakhand (135.9) in ‘000MT as per 2010-11

Tomato – Bihar (1056.2), Karnataka (1756.7), Orissa (1367.2), Maharashtra (738), Gujarat (978.4) and West Bengal (1063.7) in ‘000MT as per 2010-11

Pineapple –Assam (220.7), Bihar (129.4), Karnataka (186.1), West Bengal (303.7) and East India (350) in ‘000MT as per 2010-11

Mango – Gujarat (911.3), Andhra Pradesh (3363.4), Uttar Pradesh (3623.2), Bihar (1334.9), Karnataka (1778.8), and Tamil Nadu (823.7) in ‘000MT as per 2010-11

Major perishable commodities and their major demand markets

Tomato – Jaipur, Delhi, Mumbai, Bangalore, Pune

Pineapple – Industrial demand i.e. hotels, defence, airlines etc.

Major export markets – India produces 54% of total world’s Mango. From export point of view, mango is the major fruit crop in India. 59.22 thousand MT mango was exported in 2010-11.

Source: CMIE commodities major fruits and vegetables producing states.

Exhibit 8: Major Dry Commodities and Their Major Producer States

Top producing states of Wheat in 2012-13

Rank

Wheat

Production in ’000 MT

1

Uttar Pradesh

30301.9

2

Punjab

16591.0

3

Madhya Pradesh

13133.4

4

Haryana

11117.0

5

Rajasthan

9275.5

6

Bihar

5357.2

7

Gujarat

2944.0

Top producing states of Maize in 2012-13

Rank

Maize

Production in ’000 MT

1

Karnataka

2978.0

2

Andhra Pradesh

2342.0

3

Rajasthan

1725.2

4

Maharashtra

1582.0

5

Madhya Pradesh

1513.6

6

Uttar Pradesh

1154.5

7

Himachal Pradesh

657.2

Top producing states of Paddy in 2012-13

Rank

Paddy

Production in ’000 MT

1

Uttar Pradesh

14416.0

2

Punjab

11374.0

3

West Bengal

15023.7

4

Bihar

7529.3

5

Andhra Pradesh

11510.0

6

Chhattisgarh

6608.8

7

Odisha

7295.4

8

Haryana

3976.0

Source: http://eands.dacnet.nic.in/StateData_12-13Year.html

Exhibit 9: Major spice producing states

Major spice producing states 2012-13 in ’000 tones

India

5742.5

Rajasthan

860.9

Gujarat

882.1

Madhya Pradesh

461.2

Karnataka

368.9

Tamil Nadu

279.6

Assam

287.5

Uttar Pradesh

212.3

West Bengal

207.7

Odisha

181.5

Kerala

128.8

Source: CMIE commodities major spice and condiment producing states.

Major chilli producing states 2012-13 in ’000 tones

India

1304.0

Gujarat

68.5

Madhya Pradesh

93.6

Karnataka

107.0

West Bengal

100.0

Odisha

70.0

Source: CMIE commodities major spice and condiment producing states.

Exhibit 10: Storage Facilities and Storable Commodities

Controlled atmosphere cold storage

Major commodities which can be stored in controlled atmosphere cold storage are Apples, Pears, Kiwi, Cabbage, Tomato, Mango, Pineapple, Cherries. Out of these, only Apples, Pears, Pineapple and Mangoes are the major commodities in Indian context. (From production point)

Modern silo

Silo is generally used for food grains and economy of scale is required.

Traditional warehouses

Warehouses are generally used for food grains and are not automated.

Source: Adapted from “Agro Logistics Agriculture Marketing & Agri-Business” TNAU AGRITECH PORTAL.

Exhibit 11: Comparative Analysis of Silo v/s Warehouse v/s CA Cold Storages

Comparative advantages

Silo/Controlled atmosphere cold storage

Warehouse

Area

Requires less installation area.

2 Sq. Ft per MT

Requires more installation area.

6 Sq. Ft per MT

Capital

Expenses

Leads to higher savings on expense incurred on land purchase

Comparatively lower savings on expenses incurred on land purchase

Protection

Have inbuilt systems to protect grains from bacteria.

Loss of 2-6% when grains are stored in traditional warehouse

Construction time

Much easier to ship, erect and commission. Thereby project completion time is less

Project completion time is relatively more.

Temperature control

Inbuilt temperature control

Variable temperature alters quality and properties of stored food grains

Logistic

Helps in saving any additional requirement for stock logistics management

Requires computerized systems for stock / logistics management

Labor

10 times less labor than traditional warehouse

More labor required than silo

Wastage

All in all out principle is adopted. Thereby less wastage due to no human interface

Wastage is unavoidable as human interface is much higher

Source: Feasibility Report, MPWLC, Government of Madhya Pradesh.

Comparative disadvantages
  • Silo stores commodities in bulk and not sack/bag wise so silo is not feasible especially in places where produce which is to be stored is not in large quantity and not in standardised form.
  • Controlled atmosphere cold storages are used for selected fruits only but not for grains.

Exhibit 12: Cost and Savings Comparison of Silo v/s Traditional Warehouses

Galvanized Silo Storage System of 8000 MT capacity. (2000 MT x 4 Nos.) for Paddy @ 540 Kg/M3

SUMMARY

S.No.

Particulars

GIC Silo system

Traditional warehouse

(Million INR)

(Million INR)

1

Capital Investment

50.760

28.80

2

Operation & Maintenance Cost

02.120

05.368

3

Loss

00.076

10.276

#

Saving in operation & maintenance cost per year.

03.251

#

Saving in losses of paddy & gunny bags per year

10.200

#

Total Saving per year

13.451

Source: Information provided by M/s Fowler Westrup (India) Pvt. Ltd.

Exhibit 13: Manufacturing Cost Comparison of Silo v/s Traditional warehouses

Features

Storage capacity considered per silo = 8000MT

Feed rate considered = 540Kg/M3

Operating days = 360 days (Assumption)

Commodity specifications = Paddy (1 bag = 61 Kg)

Silo height = 40 Meters (Grain height + Bottom cone height)

Stack height in warehouse = 6 Meters

Land Rate = INR 3.20 million per Acre (Approximate)

Manufacturing Cost

S. No.

Particulars

GIC Silos

Amount (Million INR)

Godown

Amount (Million INR)

1

Land

2255 M2

INR 46.45/M2

1.600

4645 M2

INR 46.45/M2

3.700

2

Equipment

Silo accessories & other ancillary equipment

32.662

Godown M2

constr./M2

4645

5400

25.083

Accessories

drier, electrical, ancillary

equipment

10.000

No accessories.

0

3

Civil

foundation

12% of

capital cost

6.500

Included in

above cost

0

Total

per MT INR

50.762

7,470

28.800

3,601

Note: If silo or warehouse is built in cooperation of FCI then FCI provides free land and ensures 10 years 100% capacity utilization. However, revenue rates as per FCI are lower than rates charged by private owners.

Source: Information provided by M/s Fowler Westrup (India) Pvt. Ltd.

Exhibit 14: Operations & Maintenance Cost Comparison of Silo v/s Traditional Warehouses

Particulars

Galvanized

Silo System

Amount

(Million

INR)

Warehouse

Amount

(Million

INR)

Labour

2 fitter is required for

operating silo system

INR 5000/Month

0.120

3 watchmen i.e., one/shift

& 1 helper for warehouse.

INR 12000/Month

0.144

Handling cost

4000 MT of paddy is to

be handled per month

i.e. in a year 48000 MT

i.e. 786885 bags

4000 MT of paddy is to

be handled per month

i.e., in a year 48000 MT

i.e., 786885 bags

Unloading of bags from

truck, opening the mouth

& dump the same in

receiving hopper

@ INR 1/bag

0.787

Unloading of bags from

truck, stacking properly

in warehouse @ INR 3/bag

2.360

Unloading of paddy

from silo. No manpower

is required.

Shifting of bags, opening

the mouth & dump it in

intake @ INR 2/bag.

1.574

Electrical

For paddy loading in

silos 9150 KWH, for

aeration 4229 KWH &

for unloading the paddy

from silo 1680 KWH are

used per year.

0.963

Lightening charges of

warehouse in a year

approximately

0.240

Hence total power consumption per year

@ 4 KWH

13379 KWH x INR 6

Fumigation

Fumigation of silo

Approximately

INR 0.25/bag stored.

0.197

Fumigation of warehouse

Approximately INR.1/bag stored.

0.787

Maintenance

Maximum 0.1% of

capital investment year,

i.e., wear & tear of

rotating parts, belts,

buckets, etc.

0

Maximum 1% of capital

investment/year, i.e., for

painting, lightening,

cleaning, etc.

0

Miscellaneous

0.050

0.262

Total

2.117

5.368

Source: Information provided by M/s Fowler Westrup (India) Pvt. Ltd.

Exhibit 15: Revenue Estimation for Silo and Traditional Warehouses

For warehouse:

As per private standards, storage charged is directly charged based upon quantity stored

Storage charge – INR 80/MT/Month

(Either reimbursement at actual expenses incurred or upfront charge from the stock owner.)

Other charges – Asper value added services like – laboratory, finance, logistics, fumigation, etc.

For silos:

As per private standards, storage charged is directly charged based upon quantity stored

Storage charge – INR 80/MT/Month

Logistics charges for automatic loading/unloading facilities – INR 60-100 per MT

Other revenue sources such as fumigation, assaying, etc. – INR 5 per MT

Source: Company sources.

Exhibit 16: Revenue and cost escalation rates for future estimation

Financial parameter

Rate of escalation

Basis

Receipt and dispatch charges

5.91%

CAGR of WPI 1

Storage Charges

5.91%

CAGR of WPI

Power Cost

3.00%

Industry Practice

Manpower Cost

6.00%

Industry Practice

Administrative Expenses

5.00%

Industry Practice

Contract labor

5.00%

Industry Practice

Fumigation Cost

5.00%

Industry Practice

Repair and Maintenance

5.00%

Industry Practice

Insurance on Grain

5.00%

Industry Practice

Note: Standard depreciation rate can be considered as 5% SLM 1 and tax rate is 35% for calculation purpose.

Source: Feasibility Report, MPWLC, Government of Madhya Pradesh.

Exhibit 17: Multi Product Cold Storage Costing and Revenue for 5000 MT

Cost (in Million INR )

Plant and machinery

50

Land requirement 1 acre

3

Building and construction

15

Operation and maintenance cost

50% of revenue

Subsidy

INR 6000 per MT

Revenue ( INR)

Kg/Month

1.5 – 2 INR *

* Depends on perishability and bulkiness of commodity.

Note: Standard depreciation rate can be considered as 5% SLM for building and 10% SLM for plant and machinery and tax rate is 35% for calculation purpose.

Source: Information provided by M/s Mother Shree cold storage’s owner Mr. Hasmukh Bhai.

Notes

1. WPI – Wholesale Price Index

2. SLM – Straight line depreciation method

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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