Voltas Ltd.: From Turnaround to the 'Big Bang'

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Case Details:

Case Code : BSTR225
Case Length : 21 Pages
Period : 1996-2006
Organization : Voltas Ltd.
Pub Date : 2006
Teaching Note :Not Available
Countries : India
Themes: Diversification | Turnaround
Industry : Consumer Electronics

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"With the restructuring well in place and a robust order book position, the company has confidence that a strong growth trajectory will be maintained as we go forward. The focus on streamlining processes, cost and financial management has also helped in the growth of profitability." 1

- M M Miyajiwala, Executive Vice President (Finance) and CFO, Voltas Ltd., in 2006.

"Two factors were hindering the growth of the industry (air-conditioning): initial and recurring costs. No other company thought of breaking the price barrier; our idea has paid off." 2

- K. J. Jawa, Vice President (Operations), Voltas Ltd., in 2004.


In March 2006, Voltas Ltd. (Voltas), a part of the Tata Group3 and a major player in the Indian air conditioner (AC) market,4 announced plans to invest about Rs. 200 million in brand-building and another Rs. 60 million in expanding its distribution network in the retail AC market for the year 2006-2007.

With this investment, the company aimed to capture a 20% market share in the Indian retail AC market by fiscal 2007. It also announced plans to start production of ACs at its new plant at Pantnagar in Uttaranchal, a location which allowed the company to claim some tax exemptions.

Voltas, established in 1954, initially marketed imported products5 and provided engineering services.

In the 1960s, it started manufacturing air-conditioning and refrigeration equipment. Gradually, it became a leading player in the Indian AC market. Even in the refrigeration market the company did reasonably well.

Anticipating high growth in the retail refrigerator market, Voltas invested heavily in the business between 1994 and 1997. However, in 1996-97, the market shrank by around 9%. Also, Voltas had diversified into several unrelated businesses like pesticides, furniture, granites,6 etc., in the period. By the mid 1990s, the management of these businesses proved to be difficult and some of them became a drag on the balance sheet. These factors led to Voltas registering its first loss in 1996-97.

Subsequently, Voltas embarked on a major restructuring exercise. It was decided that the company would concentrate primarily on its air-conditioning and engineering businesses. Some of its unrelated businesses were sold off. The company also reduced its manpower. These measures proved successful in making the company profitable again.

After the successful turnaround, the company tried to improve its operating margins which had contracted owing to intense competition. For this, it began an exercise to identify avenues for future growth in its businesses. The company identified electromechanical projects and the retail AC market as potential growth drivers.

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1] "Voltas' FY 05-06 net sales up by 32 per cent; operating profit up by 124 per cent; net profit up by 40 per cent," www.tata.com/voltas, May 12, 2006.

2] "Some like it hot," www.tata.com, September 01, 2004.

3] Tata Group is a major Indian conglomerate with business interests in automobiles, steel, hotels, chemicals, retail, lifestyle goods, etc.

4]The Indian AC market comprised RAC (Room air conditioning) and CAC (Central air conditioning). The RAC market in turn consists of the Window AC and the split AC markets. With respect to customer segments, while the RAC market includes the institutional (corporate and government) and retail segments, the CAC market is dominated by the institutional segment.

5] The company marketed products like drugs, pharmaceuticals, electrical and mechanical equipment and other consumer products.

6] Through its subsidiary Premium Granites, Voltas operated in the granites business. As of 1998, the unit had accumulated losses of Rs. 200 million.


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