Kalpa Vriksha

Makhana: Eat tasty, Live Healthy

Team Daksha IIM Ahmedabad

Avinash Kumar Singh : 8avinashk@iimahd.ernet.in , +91 97259 33682 Abhishek Gour :8agour@iimahd.ernet.in, +91 97253 81855 Prashant Thakur: 8prashantk@iimahd.ernet.in, +91 97255 22065 ( POC)
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We intend to launch a ready to eat, crispy and salted/ sweetened, nutritious, Makhana based product category against the product offered in food category by the likes of Haldiram, Pepsi co. & Kelloggs. Overview Existing state of affairs: Bihar has an area of 69 lakh hectares of pond, 9 thousand hectares isles, 7.2 thousand hectares water reservoir and one lakh hectare of water bodies created by flood, wet land and water stagnation (Bihar Times, 2009). North Bihar in particular is traversed by a number of perennial rivers and their numerous tributaries. The average annual rainfall of 1200 mm creates innumerable water bodies which can be used to grow Makhana i.e. Gorgon nut or Fox nut, an aquatic crop (Euryale Ferox Salibs) of the Family Nymphaeaceae (Wikipedia.org). Makhana is a highly nutritious, low fat, fully organic, non-cereal food (Exhibit 1&2). Currently, these water reserves are grossly under-utilized (only 13,000 hectares) is used for Makhana production as Makhana farmers find the aqua-agreeculture unviable due to lack of credit, old technology and equipments and poor market prices. However, Bihar still accounts for 80% of national Makhana production, according to a rough estimate, a total of 50,000 tonnes of Makhana worth Rs 550 crores( @ Rs 110 Rs/Kg) in domestic market is consumed annually (Project Report on Export Promotion of Makhana under GOI). Benefits of Makhana: Nutritional studies show that edible parts of the seeds contains 12.8% moisture, 9.7% protein, 0.1% fat, 76.9% carbohydrates, 0.5% mineral matters, and 1.45 % iron (Exhibit 1). This is coupled with high amino acid index (89% - 93%) and arginine lysine / proline ratio (4.74 7.6) along with remarkable caloric value as 3.62 Kcal/g. (Springer Link) Medicinally, its reported to possess cardio protective property and is used as a remedy for several human ailments: culinary, digestive, renal, and reproductive problems (Wikipedia.org). Ayurveda mentions it to have spermatogenic and aphrodisiac properties. The seeds are also used for the treatment of stomach ache, articular pain, and seminal loss, diabetics, spleen, and gonorrhoea diseases. The pulps are easily digestible and good for human health because of its low fat content. In addition, the different parts of the entire plant are used for medicinal purposes as remedy for rheumatism, poly-urea, spermatorrhoea, parturition, and bile disorder (Samarjit Das). The leaves and stalks can be used as vegetables by the locals as curry or sauce. Literature survey has revealed it to have starch particles of one of the smallest dimension ranging from 1 to 3. This high quality MAKHANA starch is currently under utilized as 40% of the Makhana produce is purchased by textile mills at Rs 40-50 per kg and the starch is applied to cloths for white glaze. This starch can be used as an ingredient of baby food and is desired by the drug industries in its raw form itself. (Makhananet) Market Opportunity Industry Attractiveness The Savory snacks market in India is currently about $2.2 billion and is expected to grow with a CAGR of 3.6 % (Exhibit 7). However barring a few popular names like Frito-lays or ITC-bingo most of the players are either unorganized or restricted to a small region of the country. In fact, 91.5% of the savory snacks market in India is unorganized which leaves tremendous scope for a new entrant. Amongst the existing 2

players, Pepsi-Cos Frito-lays has the highest market share of 6.1%. ITC-bingo and Haldiram are the next two largest players with 1.4% and 1% of market shares respectively (Exhibit 6). Lays and Bingo have managed to grab a significant market share on the back of highly publicized advertisement campaigns whereas Haldiram rides on its indigenous image and strong distribution network to drive sales. In terms of distribution the industry relies heavily on independent retailers, small kirana stores and convenience stores. Of late, the multiplex culture has increased the consumption of snacks at movie theatres, college canteens and shopping malls. However they still amount to a meager 6% of the total sales. Surprisingly, independent retailers scattered over small towns and rural areas account for a whopping 71% of the distribution channel (Exhibit 8). These retailers yield significant power in their respective regions and can be lured into stocking a new product instead of famous brands like Lays if significantly higher margins are promised. The widespread presence of Balaji Wafers in Gujrat is testimony to the considerable clout enjoyed by these small retailers. Market Trends Consumers nowadays are increasingly becoming health conscious and are looking for substitutes to the ubiquitous pizzas, burgers, chips and other junk food. Moreover, the crumbling of the traditional lunch hour, due to more flexible hours and generally looser schedules, has led to the increasing demand for healthy snacks. People need something energizing, tasty and readymade to be used as daily snacks. However, none of the existing savory snacks brands (Frito-lays|ITC-Bingo|Haldiram) are focusing on the health aspect leaving a gap for a new entrant. The need is to come up with a snack which is nutritious enough to be used as a supplement to breakfast, capable of keeping energy levels high at odd hours while at the same time tasty and trendy enough to cater to the needs of the younger generations. Business Description The Company & Concept Makhana is a strong product and all agro food processing units like Reliance, Spencer etc are looking for continuous supply of produce and sell them at premium price in their stores (Food and Nutrition Security). Makhana is also exported to Middle East to be used in Afghani, Mughlai and Kashmiri dishes. China has been exporting it to be used in medicines. However, there is limited marketing for Makhana and thus people are bereft of a healthy and tasty product. The business is to develop an altogether new food category, based upon Makhana products. The need is to procure good quality Makhana seeds, pop it as Makhana, process it in market desired ways and sell it at premium to health conscious customer. Market Segmentation We segmented the market on various parameters such as Demographics, Personality, Psychographic, Geographic, Brand loyalty and awareness. The main objective was to identify the segments that are yet to be comprehensively targeted by existing players as well as the segments where the competition is most fierce. We noticed that the top two players in terms of market share (Frito-Lays, ITC-Bingo) are focusing on the youth and their promotional strategy are designed on the same lines. This leaves a gap for a new snack which caters to the needs of the entire family. Similarly, none of the existing brands is focusing on the health aspect of snacks and in almost all cases, brand loyalty is very less (Exhibit 10). 3

Target Segment Our target consumers would be people of all age brackets residing in Tier-2, 3 cities and rural areas. These people are different from those targeted by Lays & Bingo as they seek value for money for virtually every penny spent. Our positioning as a healthy snack is expected to create a buzz among such people. Another important benefit that these consumers derive out of consuming packaged snacks is status. It is their continuous longing to associate themselves with the trendy masses of metros that pushes them to consume such products as snacks and soft drinks. We will address this need by coming up with an attractive packaging and exciting flavours never heard of before. Value Proposition Functional: Makhana has 0.1% fat as against high cholesterol chips and has more protein than milk. It can provide the much needed respite from the unhealthy snacks available in the market. Moreover, the popped nut is naturally crispy, salty in taste and can be used in several variants, i.e., processed (fried) and powdered (to give it several shapes like kurkure). This type of ingredient has never been tried before in the snacks industry which relies heavily on potato based products. When combined with indigenous spices, it would provide flavors radically different from the existing ones, thereby satisfying the funseeking need of the consumers. Price: Since our main target segments are the middle and low class people residing in tier 2,3 cities as well as rural areas, we would be keeping the prices on the lower side. Moreover, we would provide more volume of chips to our customers at the same price as our competitors to enhance value for money quotient of our product. Emotional: The universal embracement of unhealthy and fat-rich snacks by the younger generation has left their elders in a worried state. Moreover, this new wave of modernization has blatantly neglected the middle-aged people and focused only on the youngsters as their target segment. Makhana chips would not only provide respite to the millions of parents due to its health benefits but it will position itself as chips for the whole family to involve the people belonging to the older generation. Marketing Mix Product Makhana chips would be focusing on the three key criteria - quality, convenience and health, to differentiate itself from the competitors. We are planning to launch the product in around 20-30 regional flavours catering to the needs of the local population. The tremendous response received by Lay's Indian Mint Mischief, Bingo Chatkila, Nimbu Achaar, Kurkure Mast Malabari Style or Chutkule Masala Masti make it amply clear that the way to the Indian consumer's wallet is through his home-grown palette. Packaging: Products which stand out from the crowd have a far greater chance of being added to consumers' shopping trolleys than those which blend in with all the others. Makhana chips would be launched in two different packaging styles to cater to the needs of different consumer segments. First one will have transparent packing to demonstrate the packet to be full against chips which are air filled. This will serve to entice lower end customers who seek value for money. For the high end consumers the packaging would focus on the nutritious aspects of Makhana giving a clear description of its ingredients and medicinal properties. 4

Pricing The pricing of Makhana Chips would be comparable to the existing players like Lays and Bingo to create a premium image about the brand in the minds of the consumers. Several consumers have complained about chips and wafer packs being filled with air and providing lesser quantity of product. To address these concerns we would provide greater quantity of product in similar sized packs as our competitors. For instance Kurkures 55 grams pack is priced at Rs 10, whereas for Makhana chips 70 grams pack would be prized at Rs 10. This will greatly help in creating a feeling of trust among the consumers about our brand. Sales & Distribution Due to the fragmented nature of the savory snacks industry, distribution channel plays a crucial role in cementing a permanent position for a new product in the market. We are planning to adopt two different strategies for the small independent retailers and the high end convenience stores. Small retailers are usually indifferent to the various brands of snacks existing in the market and prefer to stock the product which gives them the highest margins. Since wafers are more of complementary products bought with other food items even the consumers dont mind trying out a new brand if it falls in their budget. We will give 4-5% higher margins to these retailers as compared to the existing brands to expand our base in the small towns and rural areas. For specialty retailers and high end convenience stores we are planning to provide 5000-1000 large racks and hanging baskets for stocking our product. These racks would be placed at all points of sale enhancing the visibility of our product. Further, these retailers calculate their return on investment in terms of Profit per square feet of retail space and hence if we can give them extra space they would be more than willing to stock our product. Here again we would give them 1-2% higher margins than the existing brands. Chances of getting caught in a price war are quite rare since bigger players like Lays and Bingo would not be ready to reduce their prices fearing the actions of a comparatively smaller player like us. Furthermore, these players have a country wide focus whereas we would be concentrating only on the states of Bihar and West Bengal thus gaining a competitive edge. Promotion Its imperative that the medicinal use of Makhana is well highlighted. Our firm will independently advertise Makhana as tasty and trendy snacks while government studies will be publicized to endorse the medicinal benefits. Initially the product would be launched into the states of Bihar, West Bengal parts of U.P. and then replicated throughout the country. In order to penetrate into smaller towns and cities, Billboard advertising would be used as a primary mode of communication. Bill boards will carry intriguing messages related to health concerns generating curiosity among the masses and finally project 'Makhana' as a nutritious snack providing taste as well as health benefits One of the main objectives is to generate curiosity among the consumers about 'Makhana' and push them into inquiring about the product. We will launch a contest asking consumers to write about the cons of junk foods and how 'Makhana' can act as a healthy substitute for junk food 5

 We'll use radio stations and local cable channels to launch customized advertisements by local personalities to help people better associate with the product Entry & Growth Strategy Entry Strategy Market Analysis Highly competitive market due to the presence of players like Pepsi Co and ITC Customers propensity to switch is high Innovation is highly appreciated and rewarded (Bingos new flavours) Market is fragmented as top 3 competitors have hardly 10% of market share Top 2 players not heavily dependent on snacks business (Pepsi Co & ITC) Our company has limited resources in terms of advertising & promotions (Exhibit 9)

Based on the above analysis we have decided to go ahead with a Focused and Aggressive entry Strategy. Focused Strategy: Instead of launching our products across the country in one go, we would initially focus on the markets of Bihar and West Bengal. Moreover, our primary target segment would be the people belonging to the Tier-2, 3 cities as well as rural areas. Aggressive Strategy: We have deliberately chosen the markets which are in sync with our positioning and promotional strategies. We believe that we would be able to position ourselves as a strong brand in the Tier 2,3 cities without spending heavily on TV Ads. However, our pricing and distribution strategy would be aggressive enough to capture maximum market share. Growth Strategy Business Domain: We are planning to enter the market with Makhana chips and focus all our energies on grabbing the maximum market share possible. After about a year, we would diversify into other Makhana related products such as Makhana flakes, Makhana Baby Food, Makhana Malt Powder and Makhana sweets. This will greatly help us in diversifying our market risk as well as increase the overall consumption of Makhana thereby providing greater benefits to the farmer community. Geographic Markets: We would limit ourselves to the states of Bihar and West Bengal for the first 3 years to establish a strong presence in these markets. Our next milestone would be the remaining north Indian states such as Rajasthan, UP, Punjab, Delhi etc. We hope to snatch a decent market share in these markets by the end of 6th year. Our final milestone would be the cash rich states of central and southern India such as Maharashtra, Gujarat and Karnataka. Foreign foray: We are planning to enter the export market in the 6th year of our operation. While there is no product testing so far, there is in general need for fully organic, tasty health food in Europe where the product can be sold through e-marketing networks. This will not only reduce cost of supply chain, but it 6

will have the required reach into far stretched European and American markets where resident Indians as well as foreigners will purchase the product. Target Consumers: One of the main reasons for us to focus on the Tier 2, 3 markets is our limited financial capability which restricts us from spending sufficient amount on TV advertising. However, 5 years down the line, we hope to generate enough cash from our initial markets to launch a new brand catering specifically to the high-end consumers of Tier-1 cities. We intend to support this product with extensive advertising and harness it to position ourselves in direct competition with the big brands like Lays and Bingo. Brand Extension After attaining a foothold in the Savory snacks industry we intend to undertake category extension of the brand Makhana by introducing new product categories including, Makhana flakes, Makhana baby food, Makhana sweets and Makhana malt powder. Makhana flakes: This product will be in direct competition with Kelloggs cornflakes. However, the penetration of Kelloggs is still very less and it is mostly restricted to the tier-1 cities. The main reasons for the lack of penetration are high price, outlandish look and feel of the product. Makhana flakes would be able to address these concerns as it is an indigenous product and we would price it much lower than Kelloggs. Makhana Baby Food & Malt Powder: Due to its high protein (10-12%) and carbohydrate (79%) content Makhana can act as an excellent source of nutrition for babies. It can be crushed into powder and supplied with milk. We are planning to launch it in direct competition with Cerelac which is the most famous baby food brand in India. Similarly in powdered form it can be used as a substitute to Malt powder. The most famous malt powder brands in India are Horlicks, Complan and bournvita. Once again our USP would be low price and indigenous product. Makhana Sweets: Makhana has traditionally been used as an ingredient in kheer and other forms of Indian sweets. In fact it is exported to Middle East to be used in Afghani, Mughlai and Kashmiri dishes. We are planning to launch our own versions of sweets topped with Makhana. These will mostly be catering to the small towns and in direct competition with brands like Brajvasi and Haldiram. Processing and operations Plan Farming of Makhana Makhana farming is done in April and is harvested around October. The plant is a forced perennial plant as after fructation, seeds fall off to bed of pond giving rise to new plants as well as the root remains in the soil which grows again in next year. Some of the seeds which are transferred through water serve the purpose of procreation. The technique of harvesting and processing are labour intensive and skills are typically possessed by a particular community known as Mallah( a socially marginalized community of fishermen) who are spiritually attached to it. Makhana is praised in scriptures and ascribed as food of gods. ( exhibit 4) Makhana pre processing Sun drying and storage: Seeds once cleaned needs to be dried and stored for ease of transportation. Its necessary to keep sprinkling water over Makhana seeds to keep them fresh. The quality of popping is very much dependent upon the amount of moisture in Makhana. 7

Drying and grading: Seeds are spread over for drying which reduces the moisture content. The sun dried seeds are then graded in 5-7 grades by means of sieves. Grading facilitates the heating process. Preheating and tempering: Sun dried seeds are heated in cast iron pan using sand as medium. After preheating, the seeds are kept in basket at ambient conditions for 45-72 hours. This tampering facilitates the loosening for kernels with the hard seed coats. Roasting and popping: These are the most important tasks and require skills and time. For popping, superheated vapour is created inside the kernel by continuously frying it in Earthen pans, vernacularly called KARAAHI. Mo sand is used during this roasting. The roasted nuts are scooped out continuously (often 5-7 in numbers) and are hit by a wooden mallet to suddenly release the pressure and volume expansion of kernel. As the outer shell breaks, the kernel pops out in expanded form and sold as Makhana. It takes significant amount of skill and attention to keep scooping out kernel and hitting with mallet. (Exim Bank Agro), (R.N. Mandal) (Exhibit 5) Procurement A strong back ended value chain is essential for Makhana production of highest quality, suitable for exports. Procurement of Makhana will be through a tri party agreement between fishermen, Banks and firm in a cooperative model with cash settlement and reward for better grade Makhana. Being away from the market and low on capital, the mallah sells the seeds to middlemen who convert it into Makhana and sell it further down the value chain. The typical value chain observed by a study is Madhubani: Farmers Middlemen Traders Wholesale market Retailers Consumer Katihar: Farmers Phodias Middlemen Traders Wholesale market Retailer Consumer (Socio-Economic Technology Transfer and HRD) The long value chain is a result of distance of seeds from market, high transportation cost and low credit at each stage. This length of value chain while increases cost to consumer, it also inhibits marketing due to significant free rider problem. There is a need for consolidation in entire value chain to facilitate marketing and reduce prices to consumer. The primary need is to provide credit to aqua-farmers so they can lease the pond, invest in water quality, quality of seeds, technology and equipment and obtain economies of scale and scope in their production. The willing farmers will be identified and issued unique identification cards. They will then be provided credit through local partnering banks to obtain lease for the ponds, once the farmer obtains the lease. His credit limit will be upped using the lease as collateral and the credit will be extended for investment in ponds, seeds and equipments. The proceeds from the sale of their produce will be directly credited to their loan account to avoid debt trap for farmers. The farmers will also be given education about weather, seeds and latest financing schemes like Kisan credit card. The firm will also provide technical assistance to fishermen so as to improve the quality and quantity of their production. For example, the current bamboo based equipments have low fixed costs but reduces productivity and have high variable costs as they deplete early.

Here the middlemen can be important as he traditionally has relationships with farmers spread across thousand of villages. We need to bring him into system by providing him 2% commission on the volumes handled by him. This will not only reduce his income variability but also benefit him as the sales rises. Operating Cycle Raw material (Makhana seeds) is harvested from September-November and will be procured at that time with cash settlement. The plant needs to store the raw seed, pop them up as the need persists, process into various form of end products and package them. The popped kernel can be stored for entire year and the quality doesnt deteriorate as long as its kept away from direct contact of water. Geographical location and factory To lower the cost of transportation, seeds which have one third the volume of Makhana will be procured from the farms to the central factory located near Patna ( for lower real estate costs) where they will be popped using the skilled workforce as well as upcoming processing technologies. The processing to snacks will then be done as per the tested recipe, packaged centrally in the same factory and dispatched to top end markets in large trucks to reduce cost of transportation. There will be another corporate office in Patna which will look after the marketing and financing activities. Manufacturing & Employees Makhana processing will be traditionally done in Patna at central level. As its a labor intensive process 100 employees from skilled Mallah community will be hired to handle the output. The cost of the plant will be mostly land and some minor equipment at max 5 crores). More so, there is a recent invention by NRC( National Research corporation for Makhana, Darbhanga) where they have developed some Mechanized system of Makhana pop processing. While the product is yet to be commercialized, it will bring significant reduction in costs which if passed on to consumer will result in significant enhancement of volumes. The packaging of finished Makhana will be done in house to maintain quality standards of highest order and reduce transportation costs. The technology for packaging is proven and attention will be given on making it appealing. Logistics Train transportation for Makhana is costly as trains charge on volume basis and our markets are not very distant. To reach the densely populated state of Bihar, West Bengal and Uttar Pradesh, Road will be ideal mode of transportation and thus large trucks (32 m) will be the primary mode for transportation. Research and development Continuous product innovation is the key to customer stomachs. While its already evident that Makhana is liked in several forms. We will set up a small R&D centre staffed with chefs, nutrition expert and quality inspector to experiment with various end products. A small product testing can be run by providing free samples to households in Patna and gathering feedback. The emphasis will be on developing various variants by including herbal spices and natural glucose while preserving the quality. Legal Environment The production and trade of Makhana Guri and pop fell under the ambit of several legal acts/provisions viz. Agricultural Produce ( Grading & Marketing) act 1937 and 1986 ; production of Food Adulteration act1954 , 1964,1976,1986; Standards of Weights and Measures Act 1976; Consumer Protection Act 1986; 9

Bureau of India Standards Act 1986 and Food Product Order 1955, 1977. The adherence to these norms will help us maintain quality (Ministry of Commerce). Also the Jalkar act amendment has increased the lease duration of ponds from previous 11 months to 9 years, facilitating capital investment in ponds by lease owner. (Jalkar Act 2006) Technical and economic feasibilities The project funding required is Rs 15 crores. Bihar government is expected to be a significant stake holder in plant and is willing to provide an investment upto Rs 5 crores through SIPB( state investment promotion board, Bihar). Rest of the money needs to be raised through equity partnership and market debt. To vigorously analyze the economic viability of the business model, We have assumed costs of the plant & machinery on higher side( Rs 5 crore). We also assumed a modest 1% market share in first year and gradual growth over next five year. Assuming 100% debt financing, no tax benefits granted on the basis of green technology and Interest rate on debt assumed to be a pessimistic 22%. We discount the project using a WACC of 15%. Despite such rigorous assumptions, the plant will be producing cash from 2nd year, will repay all debts and Capex in 5 years and has the NPV of 37.07 crores rupees over 5 years. Economics of Business The gross margin represents the proportion of the revenue that can be retained as gross profit. In our case the gross margin starts with 8% and builds up to 26% by the fifth year of operations. Also the operating margin which represents our operating profit compared to the total sales stabilizes to 23% by the fifth year. Such promising figures suggest that our firm will have more than sufficient earnings from operations to pay back its liabilities and meet the salary, administrative expenses and other fixed costs for continuing the operations. (Exhibit 13 & 14) This project is an asset intensive one and hence will require investment of the size of 15 Crore Rs. In procuring land, setting up the building and buying the appropriate plant and machinery. Leasing is not suitable as the plant set up and locations are critical as well as dependent up on the type of product to be processed i.e. Makhana. The raw material supply and storage needs to be planned and for social welfare we will like to keep the account payable to zero. Also the work in progress and inventory size is assumed to be around 10% of the total sales and a same 10% of revenue is expected to fall in accounts receivable. We have also assumed a healthy 10% of the worth of the depreciable assets to be used for annual maintenance. Excess Cash can be directed to handle contingency problems and emphasis on maintaining a positive cash position. The material cost is assumed to be Rs60/Kg while the sales are Rs140/Kg. Based on our strategy to push the product by incentivizing the distributors and retailers, their share is around 10% of revenue for retailers and 5% of revenue for distributors. Since the bulk of administrative and salary component goes for the employees in the plant, it has been categorized as a part of COGS and results in Rs 2 Crores annually. The expected expenditure on advertising and marketing promotions is around 7% of the total revenue for the start. Financing decisions The conservative assumption is that we will start with capturing 1% of the existent market share of Rs 2000 Crores of Snacks sector in India. Hence we need to raise a total capital of Rs. 21 crores (Rs 15 10

Crores as Long term debt and Rs 6 Crores from private investments). This sum is to ensure that at no point in near future we are cash strived and covers the cost breakups as explained in Exhibit 12, 14, 15&16. Also the initial equity inflow will help us buy the land, which can later be used as collateral to raise debt. The terms of Long term loan is assumed to be at overall 10% rate of interest (we expect a subsidized debt of around Rs 5 Crores from state of Bihar) and repayment period as 7 years. Social impact assessment This project is not just guided by the financial prospects but in turn is expected to enhance the social benefit by creating a self growing platform which provides hygiene benefits, business opportunity and socio-economic upliftment for villagers who have been endowed with the natural aquatic resources but have not able to reap its benefits. It will also provide a source of excellent nutrition in India where lower middle income group suffers from severe malnutrition and upper income group is suffering from obesity, high cholesterol and lack of energy. Objective 1. Employment generation for marginalized Mallah A major social benefit will be observed in the form of industrial presence in rural and poverty stuck villages with increased opportunity of jobs and skill development. First the setting up of Makhana plants is a labour intensive process which will employ the local community into temporary jobs. Along with that, once the plant is set up, it will require a lot of manual attention and care with regards to production process resulting in permanent employment for many including women laborers. Moreover efficiency in Makhana production increases by following a clustered approach of livelihood. A promotion like these for 100-150 households at a time can be used as a platform for increasing social and educational awareness among these communities. This will also help in percolating good agricultural practices. Currently due to lack of easy selling solutions of Makhana, the farmers involved in Makhana production process are at immense disadvantage in terms of returns on labor. A standard production plan can ensure appropriate returns without discrimination for the amount of labor put in. Also the easy buying of raw Makhana will help enrich these people economically (Lalan Purnima Charitable Trust). At present these Mallahs who involve into Makhana production often have to get capital at high debt rates (60%-120%) which more than often lead them into a debt trap. (Associated Chambers of Commerce and Industry of India) The possible scope of use of credit facility and wage contracts can aid to their social and economic upliftment. i) Additional revenues for farmers: The industrial benefit of Makhana will further amplify as water rich regions of Bihar can use these ponds for aquatic and fishery resources as there is a lot of synergy in Fish and Makhana production. Fish is a prime source of nutrients and food supply, especially in the state of Bihar. However due to poor socio economic condition of fishers, no incentive for maintenance of ponds and lack of adequate capital investment there is low average productivity and this results in Bihar importing half of its Fishery products from outside the state (Animal & Fishery Resources, Govt. of Bihar). Makhana cultivation can be appended with fishery production as Makhana provides food for fishes while fish excrete enhances the fertility of pond bed. This fish production will provided added sources of revenues to aqua farmers as well as meet the demand in local market. Traditionally, only air-breathing fishes (Mangur, Singhi) are cultivated as Makhana production is done in small ponds where Makhana petals cover the entire surface obfuscating the absorption of oxygen in water 11

and thus the oxygen level of water depletes leading to the death of water breathing fishes. However, as the scale of Makhana production would be increased, some area in the middle of the deep ponds can be left uncovered by Makhana and thus providing an inlet for oxygen. In this environment, better priced waterbreathing fishes (like Rohu) can be cultivated (Aquaculture Makhana). Some points inherent to Makhana production which help fishery are: Regular netting of ponds or draining of ponds wherever possible; which helps in removing fish predators (Fisheries & Aquaculture Department) Makhana production will incentivize farmers to control other noxious aquatic vegetations and weeds. For example JalKhumbhi is a big drainage of water resources and provides shelter to mosquitoes.

There was an interesting phenomenon reported in Darbhanga district in Bihar, where farmers were able to farm Potatoes between October to April when the water level depletes. The soil quality remained intact despite double crop as a drainage line was bringing bio sewage of city to the shallow marsh lands acting as natural fertilizer. This is another example of Makhana reducing water pollution levels while improving overall productivity for farmers. (Makhananet) ii) Women empowerment: Harvesting and processing are time consuming and laborious tasks and brings significant employment opportunity for women. According to a study, it is estimated that roughly 50% of labour work is done by adult males, followed by a portion of 40% of labour by adult female, and then the children (both boys and girls) who do the rest 10% (R.N. Mandal). While the male involvement is in laborious work related to harvesting. Women contribute in processing (sparkling and drying) and selling in local markets. The employment opportunity generated for women can be a direct measure for their involvement i.e. a measure of how much percentage of overall population of women is employed. 2. Health and Nutritional benefits for society Other aspect of social impact will be the nutrient and medicinal value it will provide to the society. The problem of diet in India as well as abroad are twofold. i) Energetic food for riches: In upper income group, there is a need for improving the diet undertaken mostly for obese and health conscious people. A lot of chips and other snacks are major contributors to many individuals diet problems. Whereas Makhana mixed with herbal and medicinal spices will be an ideal snacks. ii) Cheap low cost food for babies: In lower income group, the malnutrition is prevalent in India. Almost 30% of infants are significantly underweight and 400 million children suffer from impacts of malnourishment. Poverty is attributed as the major cause for malnourishment as it limits the consumption of necessary vitamin, protein and mineral (Blakeman). As Makhana has high content of easily digestible liquid protein and fine quality starch. This can be used as baby food. The products like Makhana horlicks and malt will be a widely available, low cost alternative for people in lower middle income group. 3. Hygiene & Sanitation

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One important social impact that arises from regular maintenance of ponds and its development is in the form of hygiene and sanitation. More than 80% of diseases in India are water related. Most of the rural areas fall prey to diseases like Malaraia and Dengu as stalled water beds are perfect place for mosquitoes to lay eggs and breed. With the Makhana production plants, the rise of malaria will be directly checked as Makhana leaves cover the entire water surface leaving no water surface for mosquito to lay eggs. Also, the unkempt ponds become a source of water borne diseases like Cholera & Typhoid due to the poor hygiene/sanitary conditions. According to UNICEF report, 4 lacs children in India die due to unsafe drinking water. These diseases coupled with lack of medical facilities can even lead to death in several cases. Due to Makhana production, villagers will be willing to take measures to maintain the cleanliness of water bodies and reduce pollution arising from their inappropriate sanitary habits like loitering in the ponds and nearby areas. Also this Makhana production will gradually increase the size of the pond whose water capacity can be used for other government initiatives like building community toilets for better sanitation coverage (Planning Commission of India). 4. Environmental impact a) Large petals of Makhana reduces CO2 levels through Photo-Synthesis b) Only seeds are taken out of the system, the fertility of the water bed is maintained c) No pesticides or chemical fertilizers are used in the production, Ash is applied sometimes to remove paste. Rope is rolled over plants to submerge them partially in water which kills aphids, Similar way, rope is used to weed out noxious vegetation Measurable Social Parameters and Monetization The social benefits of Makhana venture can be broadly classified into three categories
Social benefits

Socio-Economic status Health benefits

Hygiene and sanitation

Fishery Production

Women empowerment For upper class

Lower class

Socio-Economic status: The Makhana production will bring sources of income for the poor villagers and a culture of community living empowering the clusters to have an improved social and economic status. Overall literacy rate, the percentage of population that is employed in these areas and the per capita income are some straight forward measures for this. An interesting project conducted by Agricultural Finance corporation ltd suggests that forming self help groups of 180-200 Makhana farmers didnt only create awareness about farming techniques but also improved the price received by 18% over last year. (Agriculture Finance Corporation Ltd) Fishery and Makhana production: The social impact of aquatic production is necessarily in economic terms and increased opportunity. Hence a good measure of social benefit arising from it is to assess the 13

growth rate of aquatic and fishery production. If the growth rate improves then it can be attributed to the increased average productivity of aquatic resources. Monetary analysis: From Fishery production (Ministry of Commerce) - This report suggests that for every 100 Kg of guri production income from fishery is around 1000Rs. The report also suggests that 100 kg of guri gives around 35 Kg of Makhana (35% yield). Hence we can expect an income of 1000 Rs 35 per Kg of Makhana. Thus, fishermen would be gaining an additional Rs 26 Crores from fisheries over five years along with the revenue generated by their Makhana production which is Rs 91 Crores. Health benefits: The medicinal and nutrient value of Makhana can help individuals maintain a balance between taste and nutritional content. It is also a cheap and effective way of fulfilling daily caloric needs. Indicators for assessing the nutrient value benefits can be the difference of sales of Snacks (Potato chips and Bhujias) along with the increased sale of Makhana products. Assuming that most of the Makhana products in snacks sector will directly compete with these existing low caloric and high fat contents, we can hope to re-route the culture of snacks towards a more health conscious approach. To measure the impact of proper nourishment on children we can take the count of diseased children in those regions. Hygiene and sanitation: The integrated fishery and Makhana production approach will help ensure the hygiene and sanitation level of aquatic resources leading to controlled overall pollution and net community health conditions. A comparative year by year statistical measure of number of people affected by Malaria, Dengu and other water borne disease in Makhana producing region can be a good indicator. Monetary analysis In 2009, the World Bank allocated USD 521 million for 11 states including Bihar to prevent Malaria and other vector borne disease. Even though Bihar accounts for a significant proportion of the diseases, for a conservative estimate the distribution of allocation was assumed to be uniform across the states. Keeping the conservative estimate we assume that this fund is for five years and the reduction in malarial impact over five years can be 5%. Then for a dollar conversion of INR 42.5 per USD we get an overall benefit worth Rs 50 Crores (Exhibit 9). It has also been estimated that Rs 19,995 crores accrues to India on account of water pollution. Even if we arrest 0.1% of it, 20 crores annually will be saved for society (Saha). Key Risks & Mitigation Operations risk: Makhana production can get heavily affected due to drought and flood which regularly hit these regions. The output may get reduced by 50-60%. However we are planning to use only about 2% of the total Makhana production. Hence the supply is not going to be constrained. Still to help the farmers, we can increase the material buying price by 25% to Rs 75 per Kg. Also we will take general insurance which will cover the risks related to it along with the other pertinent fire and theft protections. Storage and warehousing of both raw materials and finished goods are critical for continuous operations. We plan to build this facility along with the plant set up. This will reduce the risks of maintenance and allow for contingency measures. Market risk: The market risk of a type of Makhana product not being accepted is high. Hence we plan to extend the products on a one month credit facility to the retailers. Also a separate team involved in R&D and identifying the necessary attributes of our product will help mitigate the uncertainty in the market. 14

Financial risk: Even though the Makhana production is asset intensive, the asset base created i.e. land and buildings are highly transferable. Hence there is a good scope to dilute the investments in case of project failure and this should ensure easy financing. More over Government of Bihar aids such projects with an investment of Rs 5 Crores which is around 33% of the total project cost. Regulatory risk: Another risk is associated with certification required to penetrate European and American markets. While Bihar government has facilitated self certification by applicants, it might not be accepted in European markets. (Food Industry Bihar) Government encouragement Bihar government is very keen on development of Makhana industry and has launched several initiatives to boost Makhana production by providing better quality seeds and initiating research studies. The recent research done by Nabard and approved by planning commission is a big step in documenting the Makhana processing industry. Bihar government is also looking for public-private partnerships through the special department of SIPB( State investment promotion board, Bihar) and has cleared 190 projects in last 3 years and has made 12000 crore rupees of investment. More so, Makhana has been given special priority in export promotion. Its scheme for Integrated Development of Food Processing Sector covers Land & Factory building, plant and machinery, R& D quality control center, warehousing facilities, training center, trade and display center, water supply, electric supply including captive power plant, effluent treatment, telecommunication lines etc. SIPB is willing to partner upto 35% or 5 crores in case of individual partner building plant. It has also enabled policy environment through Industrial Incentive Policy 2006, Abolishment of APMC Act and Bihar Single Window clearance Act 2006. (Associated Chambers of Commerce and Industry of India) Management Team Organizational chart

CEO
CMO
CFO COO

Sales Team (10-12 members)

Procurement Manager

Operations Manager

Logistics In-charge

Value chain Relationship incharge

Apart from above, a skilled labor force of around 100 will be required for Makhana processing and packaging working under operations manager. Management We got a strong and committed team which is essential for success.

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Based in Bihar, A has degrees in Manufacturing and Industrial engineering from IIT Kharagpur and is currently pursuing MBA in strategy from one of the premier institute. His sister is in administrative services and is capable of providing protection against crime risk, a major deterrent in Bihar by facilitating bureaucratic umbrage. A is keen to look after strategy & General Management. Based in Bihar, B is a geo-scientist from IIT Kharagpur and is currently pursuing MBA in Finance from one of the premier institute. His entire family is in medical profession and is keen on taking up initiatives to improve the health and nourishment level of impoverished in India. B wants to look after strategy and financial affairs. His internship in a Private Equity firm has provided him exposure to mitigation of risks in upcoming start ups. C is a young, computer science engineer from NIT Allahabad who is currently pursuing MBA in Marketing from one of the premier institute. As the product is in FMCG category and competing against several products vying for the same shelf space and share of the dining table, the role of Marketing, sales and distribution becomes paramount. C is excited about this challenge and he will be responsible for the 4Ps of business. Apart from individual specialization areas, we enjoy strong relationship and trek record as team and most of the decisions are taken jointly and after mutual consultation. Company Ownership We start with a private limited structure to conceal strategy, run operations independently and investing in long term growth. As business is asset heavy, we will try to obtain debts as much as possible by collateralizing our lands and securitizing our receivable. The emphasis will be attaining as much ownership stake as possible as we see heavy growth in this category. Board of directors Board of directors would comprise of Bankers who will extend long term debt and working capital loans, Government officer as per regulations and directors representing other equity holders. Additional advisory personnel As a burgeoning organization, we solicit support from our faculty members, Prof. Shailendra Mehta( Entrepreneurship, reputed institute), Prof. Anil Gupta( Social entrepreneurship, reputed institute), Prof. HN Mishra (Agricultural Engg., IIT Kharagpur ), CIIE( centre for industrial innovation and entrepreneurship, reputed institute) and NID, Ahmedabad professors and student. Also we will work with NRC, Darbhanga for continuous improvement of Makhana related technologies.

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Annexure
Exhibit 1: Composition of Makhana Exhibit 2: Images: Makhana

Exhibit 3: Vegetable preparation of Makhana

Exhibit 4: Wooden Gaanja collection of Makhana seeds

Exhibit 5: Value proposition of Makhana

Main Ingredients Cost of Raw Material( Kg) Customer Price Fat Heart Disease Diabetic people Potato Rs 10 Rs.10/High Cant't Eat Cant't Eat Besan Rs 15 Rs.10/High Cant't Eat Cant't Eat Makhana Rs.50-100/-Per Kg. Rs.10/Negligible Recommended Recommended

Exhibit 6: India savory snacks Market forecast

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Exhibit 7: India Savory Snacks

Exhibit 8: India Savory Snacks Distribution

Exhibit 9: Market Analysis & Entry Strategy

Decision Parameters Market Size Customer Risk Technology turbulence

Explanation Propensity to switch Impact of innovation

Market Scenario Large High High

Implications

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Market Lifecycle Competition level Level of fragmentation Dependence Company resources

(Early, Developed, Mature ) Market share of top 3 players

Developed High High

Of top players on current Low (Pepsi Co, business ITC) Restricted

Exhibit 10: Market Segmentation Basis Demographic (Age) Brands Presence Personality* Brands Presence Psychographic*(Needs ) Brands Presence Geographic Brands Presence Brand loyalty Brands Presence Awareness Brands Presence Loyalist None Low Moderate (Print, billboards) High (Follows TV Ads) Indifferent Switcher Health benefits None Rural Metros Tier 2,3 Fun seekers Status Seekers Innovators Extroverts Reserved Level 1 Less than 14 Level2 14-35 Level3 More than 35

*The differentiation is not mutually exhaustive but represents majority of the consumers in this segment Exhibit 11: Component break ups 19

Exhibit 12: Income statement

Exhibit 14: Debt Repayment

Exhibit 15: Balance Sheet

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(All figure in Rs. Cro Revenue Gcro ro (In COGS (RDebt n eve a M ater Retaili Totalp e O Revenue (Rs/Kg)cos M ainta Repay (E B I Material cost (Rs/K Transpo Int exp Retailing cost Debt a (Rs/k Disributor Salary & Admin Distribution cost (R
Exhibit 13: Operational Parameters Exhibit 16: Cash Flow Statement

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(All figure in Rs. Crore Assets Cas Invento Account Receiva (All figure Fixed assets ca Operating Lan Buildi Ad Plant & M achin

Bibliography
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