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KS Oils: SWOT analysis part I - Views on News from Equitymaster
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  • Mar 3, 2008

    KS Oils: SWOT analysis part I

    KS Oils Ltd is in the business of manufacturing edible oils. Mustard Oil is the core business of the company. Apart from this, it also earns income by refining soyabeen oil and power generation. Considering the demand for edible oil, KS Oil is slated to grow in line with the organised sector, which is growing at the rate of 25%.

    After taking a look at the company's business and its expansion plans let us understand its strengths.

    Strong management: Promoted by the Garg family, the company is a part of a well-established business house with decades of experience (almost 150 years) in dealing with agro-based products. Present management includes representatives from the fifth generation family. The vast experience and foresight of the management has helped company improve efficiency and be ahead of its peers in terms of capacity and procurement.

    Largest integrated solvent crushing capacity in India: The company, which was established in 1985, today is one of the largest manufacturers of mustard oil in India with crushing capacity of 1,475 metric tonnes per day of mustard seeds. The company's integrated operations with respect to crushing, refining, solvent extraction and vanaspati with in house packaging unit has resulted in cost savings, which results in better margins and in turn, higher returns to share holders.

    Efficient and flexible facilities: The company is not only the largest crusher of rapeseeds / mustard seeds but also has efficient and flexible manufacturing facilities. The units are well equipped to switch to processing of any crude edible oil. Depending upon the demand for the commodity or rather type of edible oil demanded (mustard, refined mustard and soyabeen oil), the company could switch to processing of any edible oil. Apart from the integrated facilities, high profitability or highest margins in the Indian edible oil sector is the result of increased automation to achieve yields, reduced manufacturing cost on per tonne basis of edible oil produced and the flexible facilities.

    Secure raw material supply: KSO's plants are located in the primary mustard and soya belt of the country, Madhya Pradesh and Rajasthan, which account for over 55% of the mustard seed production in the country. The facilities are located in the primary raw material producing states, which results in ease in procuring raw material and also ensures smooth supply of the same. Moreover, the facilities are also well connected to principal modes of transportation (viz railway and road) that result in savings in transportation cost. The company has initiated bulk sourcing of seeds from NAFED. It also imports crude soyabeen oil from South America and Palm oil for Vanaspati production from Malaysia and Indonesia. Owing to its experience and well-established relations with raw material suppliers, the company enjoys competitive advantage over other players.

    It has not only secured raw material procurement but also has entered into agreement with kohllu (cold press crusher for high pungency mustard oil) manufacturers over the next two years, for its huge expansion plans (to crush 5,000 metric tones per day of mustard seeds over next 4 to 5 years). This itself is an entry barrier for new entrants. Many new entrants are sourcing crude oil from third parties, which has implications on maintaining quality and less scope to control costs. Thus, owing to proactive management with years of experience in this business, the company is better placed as compared to it peers.

    Well-trained, skilled employee base: The manufacturing process requires special skills and requisite infrastructure to get the right pungency. The employees have to manually adjust temperature depending upon the quality of procured raw materials (seeds) to ensure the indispensable pungency. Now, this may also be looked upon as a weakness if the competitors are able to porch the employees. However, the possibility of the same is taken care of by the company by way of employee oriented policies in place. Further, the onus of ensuring the quality lies upon employees and to ensure the same, they have been given full freedom to experiment with the process of manufacturing oil, which has resulted in long lasting association with the company.

    High penetration with established brand: The company has well-established brands with high brand recall in respective segments. The company's brands are 'Kalash' (positioned as flagship brand throughout all mustard consuming states and which it plans to launch as the National brand) and 'Double Sher' (enjoys 50% market share in the North East, high penetration and acceptance in the rural areas and also enjoys premium over other bards in this category). It sells refined Mustard oil under the brand name KS and KS Gold, while Vanaspati is sold under the 'Gold' and 'Gold Plus' brand. Owing to its quality and brand recall (also in the refined oils as well as Vanaspati segment) it enjoys 4.5% share of total mustard oil market with a dominant 25% market share of branded mustard oil market. The company accounts for 40% market share in North Eastern India. KS Oil (KSO) is one of the largest and regular supplier of edible oils to the Indian Defence Organisation and a leading exporter of soyabean / rapeseed (mustard) meal to foreign buyers.

    Power generation: The company has outlined power generation to the tune of 6.93 MW DG gensets and 8.5 MW of six windmills. The company's objective of foraying into power generation is to support smooth functioning of its facilities. The high dependence on costly grid power not only results in increased cost burden but may obstruct smooth functioning units. Having said that, the planned 4 windmills of 1.5 MW each out of which 3 windmills have been commissioned in FY07 at an investment of Rs 255 m, have been set in Gujarat where the company does not have a manufacturing facility. It benefits from power tariff arbitrage (it sells power in Gujarat and purchases power from the states where its manufacturing facilities are located). Thus, power generation not only results in extended income source, but has also resulted in reduced corporate costs.

    Extensive distribution network: The company has a dominant position in the Northern and North Eastern regions, the primary consuming markets of Mustard oil, where it transports goods through railways racks and has own depots at the major railway arrival points. For rest of India, other Mustard oil consuming markets, the company has set up Central Distribution Points (CDP's) to cater to distributors and wholesalers. At present, the company has set up a network of 350 distributors and over 45,000 retailers, which it plans to increase to 1,000 distributors and 1,30,000 retailers with the objective of entering into newer markets such as Central and South. With the boom in the organised retail sector and preference for packaged oil, the extensive distribution network will help company cater to the consumer demands on a timely basis, apart from expanding its reach.

    While these are the company's strengths that help it withstand competition, we shall continue with the SWOT analysis in the next article.



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    1 Responses to "KS Oils: SWOT analysis part I"

    Martin Orwa

    Feb 20, 2017

    thanks you

    Equitymaster requests your view! Post a comment on "KS Oils: SWOT analysis part I". Click here!

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