Business Case Study – VALJIBHAI STONES

Group #5

Prepared for:

Professor Ramesh Saxena

ACCT 4000 RLA

Humber college

Prepared by:

Mohit Gadwal(N01332620)

Urvil Pravinbhai Patel (N01332646)

Aliza Tharani(N01349821)

Matthew Johnson(N01268714)

Denvis Tabod (N01250378)

 Table Of Contents

EXECUTIVE SUMMARY 3
PROBLEM STATEMENT: 5
SWOT ANALYSIS 5
QUANTITATIVE ANALYSIS 9
ALTERNATIVES 11
RECOMMENDATION 13
APPENDIX 14
EXECUTIVE SUMMARY

Valjibhai stones is one of the three major players in the stone mining and processing business.
Valjibhai has been in the stone mining business for the last 30 years and has a market share of
38%. GCC, a multinational company, had obtained a large contract for which it needs 28000 MT
of stone chips for the next 8 years and GCC wanted to source the whole requirement of stones
chips from Valjibhai Stones. Valjibhai is confused about whether to accept the offer from GCC
or not. In this report, we have conducted SWOT Analysis and prepared a capital budgeting
analysis that could help Valjibhai in determining whether to accept the offer from GCC or not.
We have also tried to provide some suggestions and discussed the pros and cons of each
suggestion.
INTRODUCTION :

Valjibhai stones is a stone chip supplier located in Mundra, Kachchh, Gujrat, India owned by
Valjibhai Dedhia. Valjibhai has a son who recently graduated with a masters in business
administration from Narsee Monjee Institution of Management studies in Mumbai.

Kachchh has had a growing population rate in the past few years however, a huge earthquake in
January 2021 had destroyed a large part of the district. With the earthquake destroying a major
part of the district, a global construction company had received a large contract for the
construction of marine piles in the south basin of Mundra port and the manager was probing a
dependable and reliable source to supply a large quantity of stone chips. This big contract from
the global construction company left Valjibhai in thoughts of whether the son Jignesh would be
interested in taking over the family business since he had graduated.

GCC was looking for a dependable and reliable source to supply a large quantity of stone chips
because once it starts functioning, it cannot turn down due to any heavy traffic. Additionally, the
quality requirements during the construction phase are very strict. It is assumed that a good
concrete mixture for piling is composed of cement, fine aggregate and coarse stone in a weight
ratio of 1:2:4.

The current stone crushing capacity of Valjibhai is 15,600 metric tonnes per year and at almost
full capacity. The facility is located on 10 acres of leased land for which Valjibhai stones had
acquired 10 year mining rights in 2008. Additionally he had invested in brand new machinery
and equipment in 2008 for INR 1,405,000 and had a turnover of INR 4,200,000.

Valjibhai stones has been one of three major players in that area with a market share of 38%
which is why GCC wanted them to take over the contract. GCC has been fast in sending the
contract terms, schedule of demands and the rates. Furthermore, GCC is ready to give an
additional amount for additional machinery and also an advance. Therefore accepting the order
would require a capacity expansion in order to output high quality aggregate. If the order is
accepted, Valjibhai will gain a lot of revenue.
PROBLEM STATEMENT:

Valjibhai stones which is owned by valjibhai in India supplies stone chips and is approached by a
multinational company called Global Construction Company that is looking for a reliable
supplier of quality stone chips and is expecting Valjibhai to be that supplier. It faces the decision
to accept the contract, which needs to expand its ability to serve multinational companies, but
abandon all existing businesses while generating high income. Taking the order would demand
capacity growth to create high quality aggregate for GCC and at the expense of foregoing all of
its present business. On the other hand, if the offer is accepted valjibhai stones would get a
significant number of sales and profit.

SWOT ANALYSIS

The SWOT analysis and assessment of valjibhai stones discusses strengths and weaknesses in
the business and for valjibhai stones and organisations (internal key strategic components). the
evaluation and analysis of SWOT will also examine the opportunities and threats which are the
external key variables identified by the market and industry competitiveness.

STRENGTHS:

1) Brand image/ company reputation:

The case study states, “ Valjibhai had been in the stone mining and processing business for the
past 30 years.” Additionally the case study also states that he was one of the three major players
in the area. The above statement proves a high brand image and solid company reputation.

2) Quality:
Valjibhai’s main aim is high quality products. The case study states,”over the years, valjibhai
had earned a reputation for adherence to quality and timely delivery.” This strategy has enabled
the company to build a strong bond with customers and gain their trust.
3) Innovation:
When analyzing the article, it is seen that valjibhai stones have put their money in innovation of
business processes and products. The case study says, “He had also procured brand new
machinery and equipment in 2008.” This clearly shows that he invested in machinery in order to
introduce innovation in its product line to keep the interest of customers at a spike.

4) Global Presence:
Another strength of the company is the geographical presence in different places. It determines
the company’s reach to the target market and makes it easy to obtain. Valjibhai. The global
presence also extends valjibhai stones clients base and has enabled valjibhai to satisfy cultural
expectation with its different products

WEAKNESSES

1) Premium prices:
Valjibhai has a premium brand image therefore all of its products are expensive compared to
others. This indicates that the pricing strategy needs to be revised.

2) Fluctuations in cash flow:

The current economic changes have also caused volatility in valjibhai stones cash flows. The
detrimental impact of such changes is the result of temporary financial insecurity. This
uncertainty reflects reduced innovation, greater prices and cost of the company. This affects the
business and its performance.

OPPORTUNITIES

Due to the earthquake, several opportunities for business development and growth have emerged
for Valjibhai Stones, some of which are;

1) Opportunity for Partnerships:

Valjibhai Stones can get into partnerships with other businesses in the industry, so as to continue
growing their quality, value and their income. Valjibhai Stones already has an excellent
reputation and as such, if they diversify their resources through partnership with other firms, this
helps increase their overall share in the industry. For example; partnerships with small retailers
in different locations will reduce delivery cost for Valjibhai Stones.
In another development, Valjibhai Stones can diversify through international partnership, making
use of opportunities in the International market,, which means growth and more income for
them.

2)Green Products:
Nowadays, consuming environmentally friendly products has become very popular. Consumers
in general pay attention to their health and wellness lifestyle. In that sense, Valjibhai Stones in an
attempt to expand should consider including green or environmentally friendly products and
services to their business. This will help them attract new customers, get their loyalty and as a
result continue to increase their profits.

3)Business Enhancement:
Valjibhai Stones has an opportunity to enhance and continue to grow their business. This can be
done through diversification of their investments into other business streams of their choice.
According to the case, Valjibhai Stones depend only on the stone mining business. Investing
through diversifying into other businesses, will reduce this sole dependence and create multiple
business incomes for them.

THREATS

1)Threat of new businesses in the industry:

The earthquake at Mundra has attracted many national and international companies to do
business at the Port of Mundra. This is a threat to Valjibhai Stones in the sense that, as new
players enter the industry, the possibility of continuing earning their profits reduces, since there
is the availability of different businesses to pick from and a wide variety of talent to exploit. This
will lead to a high pressure on costs and prices in the industry.
2)Threat of substitute Products:
With the entry of other similar businesses in the industry,for example; Adani and Alsthan, there
is the availability of substitutable products in the market. Valjibhai Stones face the threat of
substitutes due to high competition,which will again reduce their profits. The concentrated nature
of the market with companies of different sizes and producing similar or slightly different
products, creates competitive rivalry for which is a huge threat to Valjibhai Stones.

3)Threat of Bargaining Power of Suppliers:

Valjibhai Stones depend on their suppliers for material, machinery and other equipment to enable
the efficiency of their production. The entry of other national and international small and large
companies into the industry, coupled with the existence of many independent suppliers in the
industry, there is bound to be weak supplier bargaining power. This is so because producers will
easily switch their suppliers due to the price differentiation of suppliers. This is a challenge to
Valjibhai Stones because suppliers can easily venture into other opportunities of investments in
other markets.
QUANTITATIVE ANALYSIS

NPV (Net present value)

Figure in INR

Particulars With GGC Without GGC

PV of all Cash
Inflows 13,642,195.31 6,742,471.78

PV of all Cash
Outflows (8,122,204.90) (3,588,144.02)

NPV 5,519,990.41 3,154,327.76

NPV ratio
Figures in INR

Particulars With GGC Without GGC

PV of all Cash
Inflows 13,642,195.31 6,742,471.78

PV of all Cash
Outflows (8,122,204.90) (3,588,144.02)

NPV ratio 1.68 1.88

Payback period

Particulars With GGC Without GGC

 Payback period 1.8 years 1.99 years

Discounted payback period 2.1 years 2.3 years

All the calculations for Cash inflows and outflows are provided in the appendix.

ALTERNATIVES

This paper has arrived a number of alternatives for the company to consider:

1. Do not accept the GGC Contract

 2. Accept the GGC contract and upgrade operations

3. Purchase smaller competitors

The first Alternative for the company is to refuse the contract from the GGC which would
require no upgrades on the part of the company and result in a higher NPV over the course of
what would have been the contracts time span. Being able to avoid costly upgrades allows
Valjibhai to focus on its current clientele while their maximum output allows for a modest
amount of new orders.

The second alternative for the company to consider is to accept the GGC deal. While this
contract will result in a lower NPV for the company in the future it does give them the certainty
of cash flow. This certainty can allow the company to safely upgrade its operations to meet the
new output demands of this contract, while satisfying existing client orders. The end result being
that at the end of the contract, should it not be renewed, Valjibhai is left with an expansive
operation in which they can then increase their share of the market or sell off the operation to a
competitor to reclaim some of their capital expenditures from the project.

The final alternative is for Valjibhai to begin purchasing some of the smaller competitors in the
industry. While the GGC contract presents an opportunity for the firm to greatly expand its
operations with a certain, guaranteed cash flow for years to come, another viable alternative is to
purchase established companies with existing orders. By purchasing these smaller businesses the
firm can avoid the costly upfront costs involved with expansion, the legal ramifications of
acquiring more land to convert for mining operations, and avoid having to finance a large
acquisition of capital assets necessary for their business to function.

Alternatives Compared

To begin the comparison this paper will look at the GGC contract. The main crux of the issue in
regards as to whether or not the company should accept the contract is that the business is only
capable of 15,600MT of stone chips a year. GGC would requires 28,000MT of chips, and would
prefer to source them solely from Valjibhai. This contract would require the business to nearly
double the size of its operations in order to meet the demands of just this contract. The result of
this would mean that the business would have to either forgo current and future contracts with its
existing clients, whom make up 15,000MT of the 15,600MT available in output, or the company
would be required to nearly triple in size in order to satisfy both its existing clients and the GGC
contract. Both of these options are terrible for the company as relying on one customer for
business for 8 years would mean the loss of clients that may never return, and once the contract
is satisfied the firm will be at nearly 3 times its former size with not enough cash flow and
customers to justify the operation of a large portion of the new business.

When considering whether the firm should do nothing and reject the GGC contract or instead
focus on expanding its operations sustainably by purchasing smaller competitors it is important
to look at what both alternatives allow for. While declining the GGC contract would allow for a
greater NPV in the long run it also means the company is forced to rely on its current clientele
for future cash flows. The business does not present any significant challenges to being
mimicked if a considerable investment is made to enter the industry which means that relying on
future business of current clients is untenable in a competitive market. The solution then is to
purchase the competitors. This allows the business to remove its competition, expand its
operations and increase the number of customers by purchasing firms with a sizable customer
count. The ability to bypass any environmental, legal or financial considerations typically
involved with the expansion of operations with a mining company is a significant advantage to
this plan and one that should be considered.

RECOMMENDATION

Firstly, with 30 years of experience in the stone mining business and reputation of high quality,
Valjibhai Stone should keep their focus on delivering high quality and maintaining excellent
customer relationships to the local community in order to eliminate the threat of other smaller
players turning big once the contract is over from GGC. This will strengthen the loyalty of their
customers and help keep the current market share.

Secondly, as GGC is willing to advance the investment cost to them and also a premium to price
to have the stones delivered to the construction site, by accepting the contract they can already
start earning a premium rate in the industry and set standards too. We recommend this strategy in
the worst case scenario, to say only if the government would not renew the lease to mine or they
consider that their son is not willing to take part in the business and this is their last contract
before they shut down the operations and Valjibhai retires.

Lastly, being the biggest player in the area has its own benefits and should be easy for Valjibhai
Stones to embark on expansion strategy by obtaining more permits in the nearby area and
fulfilling both orders or by overtaking small competitors with at least 8-10 years of permit to
fulfill the GGC order as they are ready to expand loan for the machinery and assets. By obtaining
new permits, they have independent operations and do not have to rely on other competitors to
supply them for the GGC contract and by doing so quality control can be established and better
management control too and they can have the best of both worlds and maintain their reputation
while further increasing their market share.
APPENDIX

1. IF GGC proposal is accepted

2. IF GGC proposal is not accepted.