siddharth tiwary b-plan

8/6/2019 Siddharth Tiwary B-Plan

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Rhythm Musical InstrumentsRevolutionizing Music

Siddharth Tiwary04CS3010

B-215,

LLR Hall

IIT Kharagpur


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Executive SummaryRhythm Musical Instruments faces an important new challenge. Ourprivileged position as the premier name in high-quality musical instruments,the choice of the concert professional, is threatened by new technology.Electronic alternatives become more important every day. Yet our mostimportant product line, acoustic instruments, is addressing the slowest-growing market segment in the industry.

Our answer to this challenge is change and development. This 5-yearbusiness plan guides Rhythm Musical Instruments through the transition tonew technology. We will continue to develop and expand our position in

keyboards, speakers, and related electronic equipment, while slowly reducingour present dependence on acoustics.

Our new plan is ambitious. We expect a dramatic increase in sales andprofits, as shown in the chart Business Plan Highlights.

VisionFour measurable objectives drive the changing direction of Rhythm MusicalInstruments:

1. To increase sales to Rs.74 million in 2008 and to Rs.80 million in 2009,reaching more than Rs.120 million by 2008.

2. To maintain gross margins above 40% throughout the 5-year period.

3. To increase sales in keyboards, speakers, and music electronics to

account for 55% of our sales for 2009.

4. To increase profits to more than Rs.2,400,000 in 2008 and Rs.400,000by 2009.

MissionUsing the best mix of technology and tradition, Rhythm Musical Instrumentsempowers the music professional with the best possible instruments. Weprovide the medium for professional musical expression.

CompanyRhythm Musical Instruments is a privately owned corporation founded in

1987 by Mr. Vijay Malhotra, whose family still owns significant stock.Headquarters and manufacturing facilities are in Mumbai, and sales covermajor markets worldwide.

Company OwnershipRhythm Musical Instruments is a private corporation, owned by fewer than 30shareholders. The shareholders include 14 members of the Malhotra family,who among them hold approximately 40% of total ownership. Another majorblock, approximately 30% of ownership, is held by Fabrionas, Inc. The


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remainder is owned mainly by employees and former employees or theirfamilies.

Product LinesRhythm Musical Instruments has a reputation for very high-quality sound andvery high-quality instruments. We are not well known to the buying public,

but we are a respected name among the top concert musicians in the world.In all of our product lines, we are positioned at the top of the scale in price,quality, and reputation.

Company Location and FacilitiesHeadquarters and manufacturing facilities are located in Mumbai at 280South 68th Street, Mumbai. The 10,000-sq. ft. facility is 10 years old now,but still works well for Rhythm with ample capacity in manufacturing,shipping, and office space.

Product

Rhythm Musical Instruments makes high-quality musical instruments, thepreferred brand of the professional musician. Our acoustic line sticks totraditional materials without compromising sound generation. Our newerelectronic lines preserve the reputation for quality, while building a bridge tonewer technologies that will be important for the future.

Product DescriptionRhythm Musical Instruments offers six product lines: acoustic instruments,electric guitars, keyboards, speakers, other electronic products, and otherproducts.

Acoustic Instruments

Acoustic guitars are still our largest single line of products.

Electric GuitarsOur Rhythm electric guitars are known as the quality high-end of the marketfor concert and classical musicians.

KeyboardsOur keyboards are used by some of the finest musicians for practice studiosand electronic studios.

SpeakersWe developed a line of speakers to complement our guitars, keyboards, and

other electronic products.

ElectronicsThese have been developed to serve the customer base with MIDI electronics,computer composing, and accessories our customers need to continue toproduce the finest-quality music using Rhythm Musical Instruments products.


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Other ProductsWe also produce accessories such as guitar straps, cords, and relatedproducts to serve our customers.

Market AnalysisOverall market growth is estimated between 6% and 8% per year, in bothunits and value. Distribution patterns vary a great deal by segment, from themass retail distribution of the low end to the specialized distribution of thehigh-quality and high-price segments. Rhythm operates in a narrow part ofthe market; instruments and equipment are sold to professionals who insiston the highest-quality sound. Most of our customers are concert musicians.

Industry AnalysisThe market for musical instruments divides easily into several segments.Several market segments are relevant, and for this discussion we define thesegments in which Rhythm Musical Instruments operates:

1. Customers. Customers range from children learning how to play to

professional musicians in concert settings. However, Rhythm MusicalInstruments sells almost exclusively to professional musicians.

2. Instrument or type of instrument. Rhythm Musical Instrumentsmanufactures and distributes both acoustic and electric guitars, electrickeyboards, speakers, electronic music equipment, and relatedaccessories.

3. Type-of-music segments. At the high end of the market, Rhythm has anexcellent reputation among musicians dedicated to more traditionalmusic. One of our challenges is to manage the transition to newtechnologies without losing our carefully guarded position with thedevotees of traditional music.

The growth segments of the market are highly competitive, technology

dependent, and distribution dependent. They include a vast range ofelectronics-dependent products such as keyboards, guitars, soundamplification equipment, and synthesizers.

Rhythm Musical Instruments is presently focused on the traditional musicalsegments, a relatively mature industry driven mainly by brand recognitionand reputation for quality. Unfortunately, this segment is threatened asprofessional music turns steadily towards increasing electronics.

Market ForecastThe acoustic instruments segment relevant to Rhythm, our most importantmarket segment, is expected to grow at a very slow 2% per year through2011. Greater growth rates are expected for keyboards, speakers, andelectronic equipment, all of which grow between 10% and 20% per year.

5-Year Total Market Forecast

HIGH-QUALITY PROFESSIONAL SEGMENT ONLY


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All figures are in Rupees.

20082009 2010 2011 2012

CAGR

instruments

121000000 123000000 123000000 128330000 8200000

2%

Electric

guitars 97580000 106600000 117670000 129560000 143500000

10%

Keyboards71750000 82000000 94300000 108650000 127100000

15%

Speakers41000000 41000000 41000000 41000000 41000000 0%

Electronics56580000 67650000 81180000 97170000 116850000

20%

Total

market 387860000 420250000 457150000 504710000 559650000

10%

Marketing Strategy1. We must maintain positioning as a traditional and high-qualitymanufacturer, playing to our strengths and away from our weaknesses.

2. Where possible, we must position our marketing communications toemphasize good relations with specialty media and opinion leaders. Weneed to keep our name and reputation in the minds of the trueprofessionals.

3. We will continue to maintain focused high-prestige channels in a fewmajor cities. Our customers know and respect our channels.

Sales PlanWe continue to sell through selected prestige retailers in these major cities:

Delhi, Mumbai, Kolkata , Chennai, and Bangalore..The carefully selected channel strategy has worked well. There is no channelconflict, and retailers can count on maintaining their margins againstcompetition. Our suggested retail prices allow some room for discountingprograms with local professional organizations.

The following tables and accompanying charts provide a detailed salesforecast, both for the next year in quarters and for the next 5 years.

5-Year Sales ForecastTOTAL SALES


2008 2009 2010 2011 2012 CAGR

Acoustic

instruments 36285000 36900000 31980000 32082500 31488000

3%

Electricguitars 18501250 18122000 17650500 15547200 12915000

9%

Keyboards10045000 12300000 16031000 27162500 44485000

45%

Speakers2460000 3280000 4100000 6150000 8200000

35%


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Electronics8036000 10147500 14206500 19434000 29212500

38%

Other799500 799500 799500 799500 799500 0%

Total

market 76126750 81549000 84767500 101175700 127100000

14%

TOTAL COST OF SALESAll figures are in Rupees.

2008 2009 2010 2011 2012 CAGR

Acoustic

instruments 21771000 22140000 19680000 19147000 17589000

5%

Electricguitars 11090500 10906000 10578000 9307000 7708000

9%

Keyboards6027000 7421000 9389000 15990000 26035000

44%

Speakers1102900 1394000 1845000 2788000 3690000

35%

Electronics4038500 5084000 7134000 9758000 14637000

38%

Other 442800 451000 410000 451000 451000 0%

Total

market 44472700 47396000 49036000 57441000 70110000

12%

Organizational StructureRhythm has a successful management team that includes nine people. Salesand marketing depend a great deal on key distributors.

Management TeamSanjay Shukla, PresidentMr. Shukla was hired from Raymond, Ltd. 3 years ago. He had worked for 10years in sales and marketing with that company, increasing its market shareto a leadership position, ending his stay there as senior vice president forsales and marketing.

Anurag Tiwary, Senior Vice President of Marketing & SalesMr. Tiwary was hired out of college in 1981 and has been with Rhythm eversince. She has a degree in fine arts and an MBA, both from the University ofMumbai. He has held a series of positions beginning with marketing

assistant. Mr. Tiwary was promoted to Senior Vice President in 2002.

Gaurav Shukla, Vice President of FinanceMr, Shukla was hired in 1989 from Lakes & Sons, where he had been workingclosely with Rhythm for several years. He has an undergraduate degree inbusiness from the University of Notre Dame. Mr Shukla serves on theadvisory boards of local music organizations.


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Sunny Kurian, Vice President of International OperationsMr, Kurian brings 25 years of international business experience to Rhythm.As the former operations manager at both Parnell Aerospace, she hasmanaged distribution networks around the world. Since joining Rhythm in2003, he has expanded operations into four additional countries

Stephanie Jones, Vice President of Human RelationsJones joined Rhythm Musical Instruments 7 years ago after establishing thehuman resources department at City Power and Light Hooper has beeninstrumental in establishing profit-sharing and job-sharing programs atRhythm.

Financial AssumptionsOur plan depends on a set of reasonably conservative assumptions. If themarkets continue as favorable as they have been, we should be able toborrow at better rates than assumed. Also, we believe our effective tax ratewill be lower than what we show in our financial assumptions.

Financial AnalysisWe plan to increase sales significantly, without losing control of cash flow orprofitability. This requires careful financial planning and management. Thechart of Rhythm Musical Instruments Business Plan Highlights shown herepoints out the major financial goals for the 5 years, and the 2004 Profits


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Pro Forma BalanceThe projected balance sheet, shown in the following table, indicates networth increasing dramatically. This increase corresponds to the chart shownin the Financial Plan section.

5-Year Pro Forma Income StatementSALES AND GROSS MARGIN


2008 2009 2010 2011 2012 CAGR

Salesrevenue

14%76126750 81549000 84767500 101175700 1.27E+08

14%

Cost ofsales

12%

44472700 47396000 49036000 57441000 70110000

12%

Other

salescosts

5%

188600 205000 233700 254200 229600

5%

Totalcost ofsales

12%

44661300 47601000 49269700 57695200 70339600

12%

Grossmargin

16%

31654050 34153000 35731500 43734700 56990000

16%

Percent 41.58% 41.88% 42.15% 43.23% 44.84%

OPERATING EXPENSES


2008 2009 2010 2011 2012

ExpensesAdvertising/promotion

5945000 6232000 6554383 6883900 6551800Wages and salaries

15785000 16564000 17402983 18273700 17400400Leased equipment

1230000 1291500 1353000 1423889 1353000Utilities

492000 512500 541200 569572 541200Insurance

225500 205000 225500 237349 225500Rent

1640000 1722000 1808100 1898505 1808100Depreciation

108650 110700 110700 118654 110700


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Payroll taxes etc

2209900 2318960 2436425 2558318 2436056Contract/consultants

82000 86100 90200 94915 90200Miscellaneous

41000 41000 45100 47478 45100Other

41000 41000 45100 47478 45100

Total 27800050 29124760 30612691 32153758 30607156

Percent of sales

ProfitOperating profit

3854000 5028240 5118809 11580942 26382844Short-term interes

278800 360800 410000 475600 574000

Long-term interest

461250 461250 461250 461250 461250Taxes incurred

1089903 1472187 1486660 3725424 8871662

Net profit 2024088 2734044 2760899 6918668 16475932

5-Year Pro Forma Balance Sheet

ASSETS


2008 2009 2010 2011 2012 CAGR

Cash3807588 6521091 9158990 14519658 20966990 53%

Accountsreceivable 8446000 9061000 9471000 11193000 13940000

13%

Inventory6355000 6806000 7134000 8405000 10455000 13%

Other short-term assets

1517000 1640000 1722000 2009000 2501000

13%

Total 20125588 24028091 27485990 36126658 47862990 24%Capitalassets 512500 984000 1312000 1845000 2542000

49%

Accumulateddepreciation

123000 246000 328000 451000 574000

47%

Total 389500 738000 984000 1394000 1968000 50%


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Totalassets 20515088 24766091 28469990 37520658 49830990

25%

DEBT AND EQUITY


2008 2009 2010 2011 2012 CAGR

Accountspayable

5084000 5453000 5699000 6724000 836400

36%

Short-termnotes

3485000 4510000 5125000 5945000 7175000

20%

Other short-termliabilities

1517000 1640000 1722000 2009000 2501000

13%

Total 10086000 11603000 12546000 14678000 10512400 1%

Long-termliabilities

6150000 6150000 6150000 6150000 6150000

0%

Total

liabilities 16236000 17753000 18696000 20828000 16662400

1%

EquityPaid-in capital

1845000 1845000 1845000 1845000 1845000

0%

Retainedearnings 410000 2434088 5168091 7928990 14847658

145%

Earnings2024088 2734044 2760899 6918668 16475932 69%

Total 4279088 7013091 9773990 16692658 33168590 67%

Total debtand equity

20515088 24766091 28469990 37520658 49830990

25%

Check line

0 0 0 0 0

Net worth

4279088 7013091 9773990 16692658 33168590

67%


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This is just a precursor to the revolution that is going

to take the musical world by storm when we launch

our product, which is currently under development,

within a few years

siddharth tiwary b-plan

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