Should Delkon Textiles invest on new range of products to expand its business?

To whom so ever concerned

I would like to thank Mr --------------------------------------, the Managing Director of Delkon Textiles, for extending his support in helping me complete this assignment by allowing me to interview him. In addition, the Finance Manager Mr ---------------------------------------- for throwing light on the financials details about the company. An acknowledgement to my teacher --------------------------------------------, without whose continued guidance this assignment would not have been complete.

Sincerely,

Delkon Textiles (DT) are a leading manufacturer and exporter in the business of textile fabrics for home furnishings for the past decade. The business is located in Faridabad, Haryana in India. They are experts in manufacturing of bedroom needs like Bedspreads, bedcovers, pillow cases and cushion covers, mattress ticking and also in upholstery like Jacquard Fabrics, curtain and dobby fabrics, Throws , and Accessories like tablecloth , placemat etc. They have a very strong client base in Middle East and USA.

The quality parameters are well adhered to and customers are satisfied throughout globe. As an expansion objective, DT now wants to enhance its business scale of operations.

Hence, this research question is meant to analyse the above objective-

Should Delkon Textiles invest on new range of products to expand its business?

The research proposal considers the rationale, theoretical framework and methodology to be adopted for completing this research question. Starting with the introduction briefing about the current business scenario and the marketing strategies adopted by DT.

The methodology includes interviewing the Managing Director of DT about the varieties of fabrics and the strengths of the business. Some basic financial inputs from the financial Manager will also add on to the contents. The secondary research will support the entire process throughout from internet resources to have an idea about the competitors and their structure of operations.

The Financial analysis will include Ratio analysis of current ratios and acid test ratios, with the calculation of depreciation on new machinery under two methods.

The non-financial analysis will abstract the strategies for brand strengthening for DT, bench marking as a vivid quality control tool,to help form the conclusion and recommendations.

Delokn Textiles, is currently a leading manufacturer and exporter of fabric for home furnishings to various countries across globe. They are now dealing in top-of-the-line jacquard upholstery and are exporting the same all over the globe after having developed a strong client base. Their products are well accomplishing all quality parameters. On interviewing the managing Director, he expressed his vision of expanding the business by introducing new range of products to the existing customer base and try out new markets as well.

• The importance of using STEEPLE factors for the sustainability of any business.
• The value of vision and mission statement to an organisation.
• The use of ratio analysis and measures to improve them.
• The intangible assets and depreciation on them.
• The importance of branding and how to create it.
• The role of quality control and benchmarking as an important tool.

• 1.3 Organizational Objectives - Vision statement and Mission Statement, Aims,
  Objectives, strategies, tactics and their relationships.
• 1.5 External Environment - STEEPLE Analysis
• 3.4 Tangible Assets - Depreciation methods with their advantages and disadvantages
• 3.5 Profitability and Liquidity Ratios Analysis
• 4.5 Branding aspects and its importance - Awareness, development, loyalty, value
• 5.3 Quality Management - Benchmarking Method

• Managing Director
• Finance manager
• Retailers
• Customers

I have planned to interview the Managing director at the first place as a primary research, to know about the marketing status of the business. In addition, financial manager and other few employees at the business place will be interviewed to understand about the working structure. In addition, internet resources will add on the facts and figures to support the analysis and conclusion. Sources such as; interviews, questionnaires, observation etc. will be adhered to strengthen the report.

I will be using certain tools like STEEPLE to analyse the expansion objective of DT, which will be supported by Ratio analysis, benchmarking analysis and SWOT analysis to examine the current financial position of DT.

Delkon Textiles (DT) a private limited company, based in Faridabad, Haryana (India). They have a factory with full infrastructural facilities for manufacturing textile fabrics for Home furnishings and upholstery. The annual sales turnover is around US $ 282, 6256.00 with annual profits of around 10% on the same. The business of DT is primarily exporting to 20 different countries across globe, with a stronger client base in USA and Middle East. The products of DT includes items like bedspreads, bed sheets, pillow and cushion covers, throws and other table accessories as well. Their technology exhibits the top class Jacquard upholstery with International standards quality compliance parameter in place. The colours are natural, bold and appealing pastels with over 500 designs in 4 to 10 colours to satisfy aesthetically. The patterns displayed are classical, abstracts, damasks, floral and geometric. The efficient and technically qualified staff are CAD geniuses to add onto newer collections every month.

DT almost 10 years of experience in manufacturing and exporting these products have added on to a new objective of expansion by introducing a new range of products that can include- cotton, foam and non-foam based products like mattresses and protectors, pillows, protectors and cushions, comforters, quilts and blankets and enhancing on its existing brand. The best advantage is that DT already has a strong client base for fabric textiles, hence marketing of this new range of products will be the next leap forward to its expansion project. Also, restructuring of its vision and mission down the pipeline in near future. So the following Research question in place-

• Interview the Managing Director, financial Manager and other Employees for the overall business operations, style, culture, vision and mission.
• Questionnaires survey with the selected customers (existing and potential) and retailers in Dubai and Muscat.
• Observation - I will observe the manufacturing process, CAD in the design Department and the packaging department.

• Reference books and Textbook resources for formulae and other financial input calculations.
• From Internet on Websites of the company and its competitors to collect and collate information on the procedures and marketing, branding and packaging, vision and mission.
• Government publications..
• Private agencies Journals.

Delkon Textiles(DT) has been a successful manufacturer and exporter who have sustained in the global market for home furnishings fabrics and continues to provide customer satisfactory designs with good quality at a shorter lead time. Their speciality includes tapestry of polyester blended jacquard fabrics available, in 54 ‘’ and 110’ width, woven and somet looms curtains and dobby fabrics, mattress ticking, bedspreads, bed sheets and pillow cases, cotton throws, placements and table cloth.

Delkon Textiles have now decided to expand its business by launching new range of products like

Blankets - woollen, fleece, satin finish, flannel, Sherpa, mink for kids and adults.

Quilts - woollen, foam and non-foam based.

Pillows and cushions - soft cotton and fibre made, soft, medium and ultra-soft.

Mattress and pillow protectors’ being water proof and stain resistant.

The business is currently adding on to its expansion objective because there is more demand for these products due to health concerns mixed with more real income power in the hnds of customers. So DT is rewriting it vision and mission statements as follows-

Enhancing higher levels of customer choices and satisfaction by increasing brand image and sustainable inclusive growth.

By 2022, our aim is to

• Be in the top 100 exporters list in India
• Increase our market share to 15 % from the current 12%.

The following external factors will influence DT-

• Socio - Cultural - Currently, people are becoming more of health cautious and hence want to spend on good bedding items to get a good night’s sleep. These items are more in demand because of changing climatic conditions across the globe, interests and attitudes of people towards comfort and luxuries.
• Technological - The machineries to make comforters and quits are available across the globe. Innovation and globalization have made it possible to ask for the best combination of machines that can yield the best of results in the minimum cost and time. Moreover, means of communication and transportation have also broken all hazards and the manufactured items can be placed in the hands of the customers the moment they demand for it. The procurement of cotton bales till the receipt and spinning stage can be tracked by the reader.
• Economic Factors - The Government of India is making available the loan amount to such business that are into 100 % export, seconded by duty drawback schemes, to import such machineries to facilitate the manufacture of such items meant for 100% exports. Hence, the rate of interest charged is also lesser. The economies of USA and Middle East countries are currently operating under normal working conditions; hence, exchange rate fluctuations will also not be much. The government will provide for tax exemptions on duties and export earnings.
• Environmental Factors - The manufacturing or buying of cotton and wool is supported by the natural methods of production and weaving (as shown in the pic) not harming the environment in any way. In addition, the supply chain can be backward integration with the cotton manufacturers who are into indigenous production methods as adopted by Indian Farmers. A sewage treatment plant can be set up to reuse the most scarce factor the water.
• Political Factors - The government of India is promoting more of policies to encourage exports of goods especially in textiles because cotton and wool is a good supply chain in India.
• Legal Factors - DT is already a registered unit to exports fabrics from India. To expand its range of products, DT has to further get a license in place and arrange for Letter of Credit to initiate the exports of finished goods. The Labour laws and the Foreign Exchange Regulation Act of India and the importer country should be practised thoroughly.
• Ethical Factors - The employees should be given proper training to handle the new machines and social security financial benefits. The working conditions should be accident free and facilities of first aid and ambulance facilities on call should be there.

DT needs to purchase a new machinery for comforter/ quit making,that may cost around US $ 45000. The machine needs tobe depreciated under any one of the following method -

1) Straight Line Method: Suppose this machinery is to last for 5 years and a scrap, value of US $ 5000 is to be realised, Then the amount to be charged to the final accounts will be \(\frac{45000-5000}{5}\) US $ 8000 per year for 5 years.

Advantages of using Straight Line Method is that its very simple and easy to calculate. However, it is difficult to calculate the life of the machinery.

2) Reducing balance method: The amount of depreciation to be charged is on a constant rate throughout the entire life of the machinery.

If the rate to be charged is say 15% per annum, then the amount to be charged is US $ 45,000 8* 15% = US $ 6750, around 6 to 7 years the machinery can be used. Again, the advantage of using this method is its more appropriate where the machine will be wearing off due to usage over the years.However, the rate to be used cannot be justified as exact due to biasness creeping in.

Still, I feel that the reducing balance method of calculating depreciation on this machinery will be more appropriate as it may realise its investment cost by 6 to 7 years.

• Current Ratio is 5.34 that depicts a strong financial position of DT whereby it can meet its short-term liabilities easily.
• Acid Test ratio is 3.715, depicting that the liquid cash position of the business is good with incoming cash being at a good rate and timely payments form their debtors.

Branding strategies

DT needs to work on its branding status for which the following strategies can be put in place -

• Get the retailers to display the new products prominently by collaborating and motivating the retailer network at appropriate places and timings.
• Using branded packaging structure with impactful labelling guidelines that draws in the attention of the onlookers immediately. Fixating their attention and invoking their desire to purchase the product is the immediate step to purchase of the new products.
• Making the SEO of DT more powerful so that it pops up on every web search contents and allures the person to buy the product.

Many such companies in India are into manufacture and exporting bathroom and bedroom accessories on a larger scale. One such company is Welspun Textiles operating from Mumbai. With a sales turnover of around US $ 2.3 billion, is the country’s largest exporter of home textiles products from India. They are on to hospitality and healthcare segments across 50 countries. Their strengths include cross selling, competitive manufacturing, strong technological innovations and global delivery models, claim to be their secret of success. DT can study, analyse and adopt the strategies to enhance their quality standards.

Delkon Textiles has been in business for almost a decade. Now its high time it needs to grow and expand into enhanced scale of operations. So DT can definitely enter into launching range of new products as analysed above. They can manufacture comforters, pillows and quilts of their own by investing in two numbers of machine and employing some 10 more people for starting with the manufacture of these items. Alternatively, they can opt for tie-ups with small- scale local manufacturers from Punjab, Haryana and New Delhi, who are into manufacturer of woollen and fleece blankets, cotton pillows and comforters. However, more elaborate research need to be done by DT to finalise on these recommendations.

• https://ceopedia.org/index.php/File:STEEPLE analysis.png
• https://www.foamsindia.com/
• http://www.geofoam.in/standard-product-line.html
• http://mattress.sriivalli.com/travelling bed.ph
• http://www.kamalproductsco.in/index.html
• http://www.apparelviews.com/wp-content/uploads/2018/03/HV Jan-Mar-18.pdf
• http://www2.dupont.com/India_Country_Site/en_IN/Industries/Manufacturing/manuf acturing apparel_textiles.html
• http://www.satcapindia.in/
• http://www.welspun.com/content.asp?Submenu=Y&MenuID=2&SubmenuID=4
• https://accounting-simplified.com/financial/fixed-assets/depreciation-%20methods/types.html
• http://www.delkontextiles.com/profile.htm
• https://www.entrepreneur.com/article/310427
• https://www.cheshnotes.com/ikea-pestel-analysis/
• http://www2.gsu.edu/~mgtcan/SWOT%20Analysis%20Handout.pdf
• SOURCE: Thompson, A.A., Jr. & Strictland, A.J., III. (1996). Strategic Management: Concepts and Cases. (9th edition) Chicago: Irwin. (SWOT Analysis)
• https://www.strategiemanagementinsight.com/tools/benchmarking.html
• . https://www.alibaba.com/product-detail/YIBODA-hot-sale-industrial-automatic- lock 204501038.html?spm=a2700.7724857.normalList.17.1b9a3825anlg3W&s=p
• https://www.alibaba.com/product-detail/Comforter-Nonwoven-Machinery-%20HENGYUE-USED-%20PRODUCTION%20311849098.html?spm-a2700.7724857.normalList.37.1b9a3825anlg%203W

Fixed assets = US $ 281,440

\(\frac{Credit\ Purchases}{Trade\ Payables}\) = US $ 56,288

\(\frac{Credit\ Sales}{Trade\ receivables}\) = US $ 75,468

Cash as on date for the year ending 2018= US $ 133,684

Stock of inventories for the year ending 2018 = US $ 91468

Liquidity Ratios

a) Current Ratio = \(\frac{Current\ Assets}{Current\ Liabilities}\) 

\(\frac{Cash + Trade\ Receivables+ Inventories}{Trade\ Payables}\)

\(\frac{133,684 + 75,468 + 91468}{56,288}\) = \(\frac{300620}{56,288}\) = 5.34

\(\frac{Acid\ test}{quick\ ratio}\)

\(\frac{Liquid\ Assets}{Current\ liabilities}\) = \(\frac{Cash + Trade\ receivables}{Trade\ Payables}\)

\(\frac{133,684 + 75,468}{56,288}\) = \(\frac{209152}{56,288}\) = 3.715

Question 1 - From how many years you are into this business?

Answer 1 - Almost for the past 10 years, we are manufacturing and exporting fabrics for home furnishings and upholstery.

Question 2 - What are the specialty of you fabrics?

Answer 2 - We design the prints with the helpof CAD and make stunning pastel shades combination with bold and beautiful designs.

Question 3 - What about the lead time?

Answer 3 - It’s anywhere between 4 to 6 weeks depending upon the place and quantity demanded. We ship through both air and sea.

Question 4 - What is your expansion plans?

Answer 4 - Now we want to launch new range of products as blankets, comforters, quilts, cushions and pillows and waterproof protectors.

Question 5 - How do you feel that these products can be marketed easily?

Answer 5 - Since we already have a strong retailer and customer base, we can easily introduce these products to them.

Question 6 - How can you work on your branding?

Answer 6 - We need to give some more extra credit period for our retailers to sell these items as compared to our competitors.

Question 7 - How are the competitors a benchmark in quality?

Answer 7 - The quality standards adopted by them is more organised and broader than ours is.

Question 8 - Do you feel you are launching the right range of products?

Answer 8 - Yes because it is the next combination of products that can be made available to the customers.

Question 9 - What about the cost of investments?

Answer 9 - We already have textile-producing machines. Now we only need to get some quilt making machines, cotton, and foam as raw materials, that may be anywhere around US $ 45000 to US $ 50000. We can arrange from our profits reserve of last years.

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