Case
Teaching Notes
Supplementary Resources
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
Resources
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.
Source: Company Reports.
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
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 |
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.
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