The market in which the company operates has shown high potential and the overall market is growing, therefore the company hasopportunities to avail cash easily.The government policies promote companies to expand globally; therefore the company has the opportunity to avail subsidies from government for going global.
The Indian climate is very suitable for growing grapes which is a core component of wine. This will allow the farmers to reduce costs and sell it at lower price to the company. Moreover, thiswill allow the company to buy raw materials at lower costs.The living standard of people is improving, as wine is usually consumed in high standard societies, therefore consumption is expected to increase which will increase demand for wine in the future.(Jacob, February, 2008)
The most dangerous threat for the company is the threat of new entrants and competition due to established players. Companies like Diageo and Constellation Brands have a reputable brand in the industry globally; therefore theirentry into Indian markets will largely hamper the demand of Sula. Furthermore,new entrants can easily enter the market as wine licenses can be easily obtained in India.
Although the weather is perfect in India for growing grapes in the country however,the weather in India is not reliable and it has becomeunsuitable for crops very quickly.Government policies and attitudes regarding production and distribution of wine aredifferent in each state of India; therefore it will be difficultto develop a general policy of distribution across the country.
In order to identify the future growth and future needs of cash, Rajeev designed three different scenarios and he considered that there is a significant potential of growth in both local and international market. Moreover, by anticipating the future financing needs and by identifying the future cash flows he could convince the board of directors.Detailedanalysis of the each scenario is given below.
It is expected that the demand of the Sula’s products will increase in next five years significantlyas well as along with the production unit, the price of each product will also increase, therefore incorporating projected growth rate in unit price and in production and demand, revenue for the next five years is identified under scenario one. By taking this scenario and the further assumption of income statement and balance sheet,projected income statement, balance sheet and cash flow statement arealso formulated under the assumptions of scenario 1.(Gore, 2006)
By incorporating all the assumption, it is clear that under the scenario one, the total revenue of the company increased by 64% in last six years, which shows that there is a significant potential of growth in industry and thedemand of the each product of the company is also increasing.
But along with the increase in revenue, total expenses and cost of goods to sales ratio also increased which resulted in a declinein net profit as compared to the profit of the year 2007. Moreover, it is expected that the net profit of the company has decreased by 10% in last six years under scenario one………………………….
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