A quick glance at the company

• Incorporated in 1994-95

• Promoted by Mr Ramakrishna Karuturi

• Engaged in three businesses

– Floriculture

– Processing foods

– Information technology.

Floriculture

• Initially set up as Karuturi Floritech in Doddaballapur, near Bangalore

• Wholly owned subsidiary in Ethiopia, Africa – Ethiopian Meadows Plc - to produce roses with a special focus on HT roses.

• Today - with the combined production capacities of India and Ethiopia, Karuturi ranks amongst one the largest cut rose producers in the world with a strong global presence.

• Customers across over 15 countries including Holland, Germany, United Kingdom, Italy, Singapore, Taiwan, Bahrain, Muscat, Dubai, Australia, Japan, New Zealand, Brunei and across North America.

• Total acreage under cultivation: 60 hectares

( 50 hectares under implementation in Ethiopia

and 10 hectares in India).

• Roses per annum: 65 mn (15 mn from India

and 50 mn from Ethiopia)

• Cost of production Rs 1.25 per stem

• Realisation per stem: Rs 10 per stem

• Export presence: 80 per cent from Ethiopia

and 50 per cent from India.

Floriculture

Green House

Grading Cold Storage

Sourcing of rose plants Cultivation in greenhouses Harvesting

Storage and refrigeration Processing and packing

Transportation to marketplace Auctions and bouquet manufacturers

Cut rose

supply chain

Information technology

• Has also diversified into IT and network solutions

• Provider of broadband connectivity to connect the customers seamlessly to the Internet.

• Specializes in offering customized solutions in the fields of e-commerce, workflow automation and telecommunication.

• It provides services, such as hosting services, e-infrastructure and e-business consultancy.

• PAT figures in crs

MARCH 2006

MARCH

2005

MARCH

2004

MARCH 2003

MARCH 2002

11.52 5.96 0.74 0.23 -0.47

DEC 2006 DEC 2005

3.55 2.84

Sales ( Rs in Crs )

March 2006

March 2005

March 2004

March 2003

March

2002

29.16 14.88 3.59 5.12 8.94

Sales in Floriculture ( Rs in Crs )

March 2006

March 2005

March 2004

March 2003

March

2002

24.67 12.87 1.22 2.20 6.50

% to Total Sales

March 2006

March 2005

March 2004

March 2003

March 2002

85 86 34 43 73

Sales in Floriculture and IT

0

5

10

15

20

25

30

2002 2003 2004 2005 2006

Rupees in crs

Year

Red – Floriculture

Yellow - IT

Reasons for losses

Retrograde GOVT policies High cost of freight Unreliable flight connections Punitive import duties General depression in the product cycle Competition Limited market in India Low prices being fetched by flowers overseas

Turnaround

Reasons for decline

external

internal

Reasons for turnaround

internal external

Change

Turnaround

Change

Growth

Turnaround building blocks

• Product market refocus

– Concentrated on IT business

– Cut down on exports

– Planted new variety flowers

• Tighter control

• Operating excellence

Items2002-2003

2001-2002 Management Action Bldg. Blocks Savings

Purchases of horticulture

8009705 65262168

Cut down on exportsProduct market refocus

14136247

Freight, Forwarding & Clearing

288677 906546 230718

Amounts written off 0 8949443 8949443

Greenhouse Modernization

4620046 0 Quality improvement

Operating Excellence -4620046

     

Legal & Professional Charges

196200 377439 Measures to cut costs Tighter Controls 181239

Office Expenses 65451 208469 143018

CHANGE

Mr. Ramakrishna MD ,Karuturi Networks Limited - “We introspected on who the real competition was. It was not my neighbor but growers in Africa. We studied their business model to beat them. When we realized we cannot beat them at their game. We joined them, by putting up a production facility in Africa. “

2004:2004: Conceptualized the Ethiopian initiative Conceptualized the Ethiopian initiative and set up a wholly owned subsidiary in and set up a wholly owned subsidiary in Ethiopia, Africa, called Ethiopian Meadows Plc Ethiopia, Africa, called Ethiopian Meadows Plc to produce cut roses. to produce cut roses.

Why Ethiopia ?

Mr. Manoj Agarwal – Manager Operations :

•“Wholly owned subsidiary on the outskirts of Addis Ababa in Ethiopia has helped gain faster and cost effective access to the European and American countries.

•High altitude, close to Equator – similar flowers to world’s best, Ecuador.

•Helps us address the high margin HT (latest variety) - premium segment rose variety (Ethiopia is best suited for HT roses due to the high altitude and colder climate).

• Abundant cheap labor

• Flood-safe geography

• Low freight cost as compared to India

• No EEC duty from Ethiopia to European Union

• US markets opened up as Ethiopia has duty free

access “

Top down change – strong CEO ,i.e., Mr.Ramkrishna – MD Karuturi Networks Limited , takes charge of strategy process & moves quickly to implement changes

Roles in change

Sponsor - Mr.Ramkrishna – MD Karuturi Networks Limited

Change Agents –

• Mr T.Anil – Director – Based in Ethiopia

•Mr Manoj Agarwal – Manager Operations

Convergence – compatible with existing structure

Type of Change

N

A

T

U

R

E

Scope

Reconstruction

Evolution Adaptation

Revolution

Transformation Realignment

Incremental

Big Bang

Implementation of change - Ethiopia Project

• Set up 50-hectare project

• Capital Investment - $ 6 million

• Mainly HTs, latest varieties

• Target markets – Europe, Russia, M.East

• Intends to scale up its operations in Ethiopia to 100 hectares by

2007-08

• By 2007 end - produce 100 mn stems per year and by end 2010,

total production is estimated to touch 300 mn per year.

Kotter’s 8 Step Model • Establish a sense of urgency • Form a powerful guiding • Create a vision

– “ to emerge as a integrated service provider with a comprehensive presence in floriculture, agro-based products and food processing”

• Communicate the vision• Empower others to act on the vision• Plan for and create short term • Consolidate improvements and produce more changes• Institutionalize new approaches

Bullock and Button Model

4-stage process consider how the organisation may go about implementing this change in its business practice :

1. Exploration Phase : becoming aware for the need for change

2. Planning Phase : collecting information to ensure correct ‘diagnosis’ of needs; establish change goals and actions to achieve goals; get ‘decision makers’ support

3. Action Phase : implementation of changes

4. Integration Phase : consolidating and stabilising changes so they become part of the organisation’s normal activities

GROWTH

Reasons for growth

Floriculture –Scope for growth in India - Indian government has accorded sunrise industry status to floriculture and offering export-oriented units several tax benefits

•income tax holidays and exemptions from certain import duties

•subsidies for establishing cold storage

•pre cooling units

•refrigerated vans and green houses, and

•air freight subsidy.

Ethiopian project

Mr. Ramakrishna : “With our knowledge of the business learned without the buffers of profit we beat them on cost quality and service like never before. Voila we had a winner on our hands.”

How did they do it?

•Ten years experience in producing and marketing cut roses

Low cost production

•Indigenously built greenhouses (as against importing from Holland)•Indigenous sourcing of flowers (savings of Rs 40 per plant). •Rainwater harvesting. •In-house power generation through bio-gas. •Broad product range: cut roses, rose plants, coco peat, and coco cups.•Complete technology available – greenhouse, irrigation, planting material, agronomy, pest management, post harvest, marketing, experienced personnel

Information technology –

•Fiber bandwidth coming into the country

What did they do it ?

Partnership with Technology Partners to buy bandwidth from them for their network and also resell their IPLC’s to their customers

•150% growth in ISP business

Reasons

Added high value customers from software industries like Bharti Infotel Ltd,BSNL,Tata Teleservices etc

Future

Floriculture –•Karuturi intends to scale up its operations in Ethiopia to 100 hectares by 2007-08

•By 2007 end, Karuturi, with its ramped up capacities, will be well placed to produce 100 mn stems per year and by end 2010, total production is estimated to touch 300 mn per year.

•To further ramp up floriculture business and reach its ultimate goal - of becoming the largest rose producer in the world – the company is actively looking at acquiring one of the largest floriculture companies based out of Africa.

Inorganic growth route

•To expedite the cultivation process and further prune costs, Karuturi has acquired over 25 hectares of greenhouses (from Greengold in Pune, Camson Biotechnologies Ltd. in Bangalore and Crystal Agritech, TransIndia Floritech Ltd., Asian Flora) and successfully relocated them to Ethiopia.

•These above acquisitions will help Karuturi cut down on costs of setting up a full-fledged greenhouse and simultaneously help crunch project implementation time.

Dubai as redistribution hub

Mr Manoj Agarwal “Redistribution hubs like the Dubai Flower Centre will help expand trade opportunities for flower producers in developing economies, particularly Africa and Asia.”

Advantage of Dubai as a redistribution hub:

•Location •Historical trading ties, •Increasing global connectivity available at the Dubai International Airport, makes it a perfect 21st century hub for perishables trade between Africa, Asia and the rest of the world.

Advantages for Karuturi

•Will offer high-quality transit point with a rapid turn around.

•With our proposed value-added services like packaging for the end market, Dubai will offer an even more cost-effective access to the western markets and throw open new sales channels.

Information technology

•Looking to develop plug and play Broad band service product which will lead to a significant increase in revenue flows.

•Looking at acquiring smaller ISPs in South India.

•Leveraging the ISP business, - also studying the Data Center business and understanding the opportunities available and may look at getting into the same.

Food processing

•Company is entering into other synergistic and attractive segments within the agro-based, horticulture and food processing industry out of India. Processing of Gherkins emerged as attractive option.

•The company’s decade plus experience in floriculture has helped it understand the intricacies of contract farming and cold chain logistics, two factors which are critical for succeeding in the gherkins business.

Seven Growth Options (McKINSKEY model)

• Maximization of sales to current customers

• Attracting new customers

• Innovation in products / services

• Innovation in distribution methods – Dubai

• Acquisition

• Expand to new geographical markets

• Diversify towards new field of business

Ansoff Model

Three horizons of Growth Approach

Time (Years)

Pro

fit

Horizon 1 – extend and defend core business – new variety of plants

Horizon 2 – build emerging business – Ethiopian Project

Horizon 3 – create viable options (future opportunities ) – food processing