Consumers bitter over butter shortage
Consumers across India are increasingly perturbed as they are unable to abundantly butter their toast, thanks to the unprecedented shortage of butter for the past two months fuelled by unrestrained exports to foreign countries

Your toast is no longer delicious because butter is utterly non-existent in various parts of the country.
 
The prices of dairy products—especially butter and cheese—have risen sharply over the past couple of weeks because of countrywide shortage of milk. Many big and small retail stores around Mumbai city have not received butter stocks since August.
 
Talking to Moneylife, Shirish Virkar, deputy commissioner, Dairy Dvelopment Board of Maharashtra said, “It is true that several states like Maharashtra, West Bengal, Gujarat and Madhya Pradesh are facing shortage of dairy products like ghee, cheese and butter to a larger extent. In Maharashtra the situation is not that acute compared to other states.”
 
Irony is that, India dairy giant Amul has been exporting its products to the US and Middle East to meet huge demand for Indian butter and cheese, while Indian cities are reeling under a severe shortage. The government has also failed to keep a check on the export of butter and other milk products to foreign countries.
 
Blaming it on dairy giant Amul, Virkar said, “Around 80% of butter supply in India is done by Amul. It has been more than two months since Amul ran out of butter stock in Maharashtra and several other states in India. This is because there has been some shortage in production of dairy products in Amul in the last couple of months, thanks to the delayed monsoon. This has decreased the yield of milk by over 35%, thereby bringing down butter production in the country.”
 
When asked to comment on the issue, Srinivas Tuma, area sales officer (Mumbai Division) of Amul said, “I agree that there is paucity of butter across India. This is due to shortage of milk production which is likely to continue till Diwali.”
 
BB Bhandari, general manager (Marketing) of Warana said, “The production of table butter of our company is down 80% this year. We have been able to recover production by 20% since August. Earlier, our daily supply of butter was around 2.5 tonnes per day but now, it is only 400 kg. As milk production is gradually recovering after the monsoons, we are hoping the production of butter to normalise after Diwali.”
 
Ajay Gangwani of Vaibhav Concerns, a Mumbai-based butter distributor said, “There has been a shortage of butter in Mumbai for last six months. I have stopped supplying table butter of all leading brands since then.”  
 
Pritam Shah, managing director of Pune-based Gowardhan Dairy said, “The situation of milk production is improving in India. Also there has been a steadily increase in butter stocks since August.”
Vidyut Kumar Ta with inputs from Pallabika Ganguly, Aditya Kshirsagar, Amritha Pillay [email protected]

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Brand Conscious

Gitanjali Gems has just announced that it has undertaken a major brand valuation exercise for the valuation of its top four brands, namely, Gili, Nakshatra, D’damas and Asmi. The evaluation was done by Brand Finance, a UK-based firm specialising in marketing and brand valuation. Together, these four brands have been valued at a whopping Rs1,502 crore. How should we interpret this data?

Companies are known to have a penchant for glorifying brand values and brandishing them in front of customers and shareholders. This exercise might make some sense to the company management, but the relevance for its shareholders is questionable. Gitanjali Gems Limited is the latest to have undertaken what is essentially an exercise in futility.
 
Apparently, Gitanjali’s motive behind this exercise was to identify the demand drivers for its brands and further enhance value through improvements in brand operations. The company is gearing towards improving the brand value, not just sales. It aims to multiply the brand value by 1.5 to 2 times by 2011-2012. No doubt that some of these brands are household names in India, but their ability to create value for the shareholders is highly suspect. A look at the last year’s financial results of the company points to the true picture. Gitanjali had a pre-tax profit of Rs158.45 crore which includes profits from its both branded and non-branded sales. That profit comes to 10.5% of the brand value—not very high from what a long-term return from safe financial assets would fetch. Besides, the company’s return on assets stood at a measly 3.25%. Return on capital employed is just 5.83%. If the company’s return on its brands is anything to go by, there is nothing to boast about. Its sales growth over the past few quarters has been erratic at best.
 
A company may score high in all brand surveys, but what matters most is whether this translates into returns. Brands themselves don’t create shareholder value, only financial returns do. In the end, brands signify nothing more than familiarity and name recognition. They have little to do with the earnings and cash flows of the company, which ultimately drive the market value higher. Product familiarity among consumers has no significance on financial returns for investors. The Gitanjali Gems exercise in brand valuation merely underlines this phenomenon. Its brands command recognition due to the company’s heavy promotional and advertisement activities. The impact on the earnings however is not that significant. The fact is, brand valuations by managements are often an exercise in narcissism.

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Scooty, Passion Pro and Access zoom ahead in Activa's absence
The strike and production cut at Honda Motorcycle & Scooter India Pvt Ltd (HMSI) has created an opportunity for other two-wheeler makers to sell more units during the festival season. In the absence of Honda’s flagship Activa, there has been an increased demand for other scooters like Scooty Pep, Passion Pro and Access.
 
The labour strike at HMSI's Manesar facility has forced the company to cut down production by more than 50% and it had even threatened to move to an alternate location. "HMSI dealers are under-stocked for the festive season. Demand for our products has gone up during to festive season but at the same time our production also fell due to the strike and it will have a direct impact on our sales," said a company official.
 
In normal days, HMSI's flagship Activa has a waiting period of 30 days, but owing to the labour problem, the waiting period could be double that duration, the official added.
 
According to some reports, HMSI's production has come down to half of its daily capacity of 4,200 units. HMSI has so far invested Rs10 billion in India and has an annual capacity of 1 million units, which it had planned to increase to 1.5 million units in the next three years.This shortage has created a demand for two-wheelers from other manufacturers like Hero Honda Motors Ltd, Bajaj Auto Ltd and TVS Motors Ltd.
 
“There is surely a demand currently, but this is due to the industry buoyancy and not because a competitor manufacturer is facing difficulties at their plant. I am sure they will find out a way soon. We are not looking at the deficit that would be created due to the problem,” said Millind Bade, general manager, marketing, Bajaj Auto. While availability of Honda models like Activa and Honda Shine have been adversely affected, business for TVS, Hero Honda and Suzuki is looking up. Two-wheelers like Scooty Pep, Passion Pro and Access are much in demand in the festive season.
 
“Activa will not be available for the next three to four months and at present the demand for scooters like TVS's Scooty Pep and Suzuki's Access is high,” said a Mumbai-based dealer. “Acitva and other Honda models will be available only after Diwali. There is a great demand for Hero Honda Passion Pro,” added another dealer.
 
Motilal Oswal Securities Ltd, in a report said, "While the below average monsoon coupled with hardening of interest rates might have an impact on demand in the second half of FY10, there has been no visible impact of poor monsoon on demand yet."
 
"Apart from conducive macro scenario in terms of better credit availability, lower interest rates and improved consumer sentiments, the second quarter of FY10 witnessed pre-festive inventory build-up leading to robust volumes for auto companies. Newly launched products in recent months also gave a boost to the growth on a year-on-year basis,” said Sharekhan Ltd in a report. 
 
During September, total two-wheeler volumes rose 7% year-on-year with Bajaj Auto clocking 15% growth on the success of its new launches. Hero Honda, however, reported a muted 4% growth due to some issues with its suppliers.
 
Last year, HMSI sold about 1.1 million units and was planning to increase production to 1.5 million units with the help of a third assembly line, but owing to the labour problems the company could not operationalise this facility. "We have approached the government, the court, the labour department. The talks are on. They have issued a notice to the workers’ union because this is against the Industrial Disputes Act. Workers have to answer why they have gone for the slowdown in production," the official said.
 
Labour problems at HSMI are not new. After the violent strike at HMSI that rocked Gurgaon in 2005, HMSI and the workers union had signed a long-term agreement in 2006 that expired in July. Since then, the workers and the management have been re-negotiating the terms and conditions.
 
Officials from Hero Honda and TVS Motors were not immediately available for comments.

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