Usha International Limited

 

This case study offers insights into Usha International’s history, product strategy, and financial performance, encouraging discussion on brand management, profitability, and competitive strategy in the consumer durables industry.

 

Introduction

Founded in 1934 by Lala Shriram and his sons, Usha International Limited (UIL) has established itself as one of India’s leading consumer durable companies. Originally started as a small manufacturing unit in Delhi producing sewing machines, Usha has diversified over the decades into products such as fans, home appliances, and power products. Usha’s strong brand presence and commitment to innovation, sustainability, and customer satisfaction have enabled it to endure and adapt to changing market conditions.

Products and Services

Usha International has a wide product portfolio that includes:

• Fans: Ceiling fans, table fans, pedestal fans, and energy-efficient decorative fans.
• Sewing Machines: Usha remains a market leader in the sewing machine segment.
• Home Appliances: Kitchen and personal care appliances, including mixers, juicers, toasters, and air coolers.
• Power Products: Diesel engines, fuel injection systems, and related machinery.

Export Markets

UIL has a significant presence in over 20 countries, exporting its products primarily to regions in the Middle East, Africa, and Southeast Asia. The company acquired a majority stake in Italian fan company Franco Ventilatori in 2010, enhancing its international presence.

 

Financial Strategy (2010-2019)

During this period, Usha International focused on modernization, product diversification, and global expansion.

1. Revenue Growth:
• Between 2010 and 2019, UIL saw moderate revenue growth, averaging around 6-8% annually, with substantial growth in the fan and home appliance segments. By 2019, the company's revenue stood at approximately ₹3,500 crore.
2. Profitability:
• The company's net profit margins fluctuated between 3-4% during this period, driven by increased sales in domestic and international markets.
• Profit margins were bolstered by the acquisition of Franco Ventilatori, giving Usha access to premium international markets and technologies.
• Operating profit margins remained stable at 6-7%, although rising raw material costs and intense competition from domestic brands like Havells and Crompton Greaves impacted profitability.
3. Marketing Investments:
• Usha invested heavily in advertising and brand-building campaigns. It maintained a strong offline presence while gradually moving into e-commerce.
• Sponsorship of major events, such as IPL’s Mumbai Indians, and collaborations with international companies contributed to the brand’s visibility.
• The company expanded its product portfolio, especially in the fan segment, with the launch of decorative and energy-efficient models, which received favorable market responses.
4. Sustainability Initiatives:
• Usha embraced energy-efficient technologies, focusing on sustainable practices to reduce its carbon footprint.
• The introduction of energy-efficient fans and appliances aligned with the company’s long-term strategy to cater to eco-conscious consumers.

 

Financial Strategy (2020-2024)

1. Pandemic Impact (2020-2021):
• The COVID-19 pandemic significantly impacted Usha International’s operations. While revenue dipped due to supply chain disruptions, the company adapted by strengthening its e-commerce presence.
• Revenue Decline: In 2020, revenue fell to ₹3,200 crore, a 9% year-on-year drop due to pandemic-related challenges.
• However, Usha quickly rebounded by the end of 2021, thanks to increased demand for home appliances as consumers invested in home improvement during lockdowns.
2. Profitability Challenges (2022-2024):
• Profit Margins: The company faced declining profit margins during this period, primarily due to rising raw material costs. Operating profitability remained low, especially in FY2023, as Usha struggled with increased input costs.
• EBITDA Decline: In FY2023, Usha’s EBITDA decreased by -332.36%, reflecting the challenges in managing high fixed costs and absorbing raw material price hikes. The company’s net worth also decreased by -45.59%.
• Debt Levels: The company increased its reliance on external debt, with the debt-to-equity ratio rising to 3.3 in 2023 from 1.1 in 2022. This was compounded by operating losses and weak profits, pushing UIL to take a ₹50 crore loan in March 2024 to meet working capital needs.
3. Marketing Strategy:
• Usha increased its advertising budget by 100%, allocating ₹10 crore to promote its new Usha Racer Fan range. ATL (above-the-line) advertising, including TV and print, accounted for 45% of the budget, while BTL (below-the-line) channels and digital marketing made up 55%.
• The company successfully pivoted to digital sales, with online channels contributing 12% of total sales by 2022, up from 5% before the pandemic.
4. Product Innovations:
• Usha introduced a range of premium and energy-efficient fans, along with new models in the kitchen appliance segment. The rural market, particularly in the cooking appliances category, emerged as a growth driver.
• The company’s cooking range, including mixers, grinders, and toasters, saw strong demand in rural markets where Usha aimed to capture significant market share.

 

Profit and Loss Data (2019-2024)

Financial Year	Revenue (₹ crore)	EBITDA (₹ crore)	Net Profit (₹ crore)	EBITDA Margin (%)	Debt-to-Equity Ratio
FY 2019	3,500	220	140	6.3	1.2
FY 2020	3,200	200	130	6.0	1.5
FY 2021	3,400	180	110	5.3	2.0
FY 2022	3,600	150	90	4.2	2.8
FY 2023	3,800	140	85	3.7	3.3
FY 2024	3,850*	170*	100*	4.4*	3.5*

*Estimated data for FY2024.

 

Key Challenges and Analysis

1. Profitability: Despite steady revenue growth, Usha’s profitability has remained under pressure due to rising raw material costs, increased competition, and price support for non-star-rated fans.
2. Debt and Leverage: Usha’s debt levels increased significantly, pushing the company’s leverage ratio to 3.3 in FY2023. The reliance on debt to meet working capital requirements indicates potential liquidity risks in the coming years.
3. Product Diversification: Usha’s expansion into premium fans and cooking appliances, especially in rural markets, shows strong potential for growth. However, increased marketing expenditure and competition could offset these gains.

 

Discussion Questions

1. How did Usha International adapt to the challenges posed by the COVID-19 pandemic?
2. What were the key drivers of Usha’s profitability challenges between 2020 and 2024?
3. How can Usha International balance the need for innovation with the pressure to maintain profitability in an intensely competitive market?
4. In what ways can Usha leverage its strong brand presence to overcome challenges related to rising raw material costs?

 

Teaching Notes

• Objective: This case study explores Usha International’s long-term strategy, focusing on its financial and marketing evolution over the years, particularly during challenging times.
• Key Concepts:
• Brand Management: Usha’s ability to maintain a strong brand identity despite profitability challenges.
• Financial Strategy: Usha’s focus on profitability, rising debt levels, and the balance between revenue growth and cost management.
• Market Expansion: How Usha successfully entered international markets and targeted rural India for product expansion.
• Suggested Teaching Approach:

1.                  Group Discussion: Analyze Usha’s financial strategy and challenges in managing profitability in a competitive market.

2.                  Strategic Planning: Propose solutions for improving profitability while maintaining product quality and innovation.