Vanraj Mini Tractors

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1. Product Analysis:

The 10 HP Vanraj Mini Tractor offers a new option to the tractor market where most
of the existing players are catering to the needs of the big and commercial farms. The
technology is built such that it offers cost benefits, fuel efficiency, availability of spare parts,
easy maintainability, high manoeuvrability and compatibility with various farming
implements. Also the attention given to aesthetic design and styling will add to the appeal for
the product. Another feature of these tractors is its hauling capacity of 2 tonnes which caters
to the transportation needs of the farmers. This feature can also be harnessed by the various
industry players for their material handling needs.

To hit the perfect market segment from available markets like small and marginal
farmers, large farmers and horticulture farmers or industrial users, it is required to understand
the cost benefit analysis from the consumer’s perspective. It is quite important to do cost
benefit analysis because this is the basis on which a farmer buys, hence the price tag of the
Vanraj tractors is crucial.

2. Cost Analysis:

Bullock Small Tractor Vanraj Chinese Tractor

Life span 8-10 yrs 6-7 yrs 8-9 yrs Frequency of
breakdown is high
Purchase 27000 170000 190000 1,00,000
Cost (Rs.)
Maintenanc - 40% of SP 15% of SP Very High, Unsuitable
e Cost (Rs.) =68000 =28500 for Indian conditions
Operational Feed Fuel=1000hrs*40(rs. Fuel=1000hrs*40(rs.)*1 Fuel=1000hrs*40(rs.)*1
Cost (Rs.) =200000 )*1.5(lt) .5(lt) .5(lt)
=60000 =60000 =60000
Total 227000 2,98,0000 2,78,500 1,60,000
Cost(Rs.)
Small and Marginal Farmers: On the basis of calculations above it is quite clear that
although using a mechanized equipment rather than bullocks would increase efficiency in
agricultural methods, but total cost incurred on Vanraj mini tractors is 3 times more when
compared with total cost incurred on bullocks. Hence, it is not economical for small farmers.
It is more economical for farmers to hire a big tractor on the credit basis. This way they
would be saving time and work more efficiently.

Large Farmers: Although this segment of farmers are relatively better off economically and
have higher level of farm mechanization but they are small in number. This is a lucrative
market segment hence all big players in the tractor market are focussing and serving this
market segment. Also the requirement of the farmers in this segment are of high Hp
tractors(40-50) as they have large land holding ,So it is not appropriate for the Vanraj to enter
into this segment in the initial stage.

Horticulturists: Vanraj has got an edge over big tractors in the case of Horticulture farming.

 The big tractors are unwieldy in negotiating their way through the small gap between
the lanes in horticulture farms. Vanraj’s small turning radius and mini-size would
make it easy to maneuver it through the small lanes of horticulture farms.
 The three wheel convertibility option available in Vanraj would be of great use
in inter culture operations in Horticulture farms.
 Savings on initial cost: 
Vanraj Mini tractor price= Rs 0.19 million
Least price of a Big Tractor= Rs 0.24 million. Thus, Savings= Rs 0.05 million.
 Savings on fuel Cost: 
Vanraj Mini Tractor consumption= 1.5 litre/hr
 Average consumption of a big tractor= 4 litre/hr 
Savings in fuel= 2.5 litre/hr  ; Savings in fuel cost= 2.5 * 33 = Rs 82.5 /hr 
Thus, horticulture sector would serve as a niche market for Vanraj Tractors.
 Horticulture sector recorded very high growth in the period from 1991-92 to 2001-02
with 50%increase of land area under fruits and 39% increase of land area under
vegetables in the major states of Maharashtra, MP, UP and Gujarat.
 Owners of such farms are well off and they can afford Vanraj as their second tractor
for their special needs where big tractors are unwieldy.
  Making a reasonable assumption that 1 tractor is required for every 2 hectares ( i.e.
approximately 5 acres ), then  number  of tractors required = 1308
 Hence, estimated market potential in Horticulture = 1308 * 1.9= Rs 24.85 crores.

4. Profitability

Based on the information in Annexure-6 and Annexure-7 cost of production per unit
is calculated and analysis of the Projected Profitability Statement is analysed. We see that the
actual production of the ‘Vanraj’ varies from 300 to 480 from 1 st to 7th year of production as
opposed to the installed capacity of 600. Thus, the Cost of Production per Tractor for the
seven years ranges from Rs.0.157 mn to Rs.0.158 mn per tractor. Also from annexure 7, the
Net Cash Accrual ranges from 0.712 million to 0.954 million Rs over the seven years. When
compared to the deal with the innovators priced at Rs. 10 millions, the profit margin ranges
from 7.12 % to 9.54 %.

Cost of Production (Rs. in Lakhs)

Sr. Description 1st Year 2nd Year 3rd Year 4th 5th 6th 7th
No. Year Year Year Year
1 Installed 600 600 600 600 600 600 600
Capacity
2 Actual 300 330 360 390 420 450 480
Production
Total Cost of 471.84 519.54 567.60 615.18 662.88 710.58 758.76
Production (in Rs.)
Cost of 1.57280 1.57436 1.57667 1.5773 1.5782 1.5790 1.58075
Prod/Tractor = 8 9 7
(Total Cost of
Prod. ÷ Actual
Prod.)
Sales Realization 570.00 627.00 684.00 741.00 798.00 855.00 912.00
Net Cash Accrual 7.12 7.98 8.52 8.85 9.72 9.35 9.54

Recommendation:

1. On the basis of the above calculations Mr. Trivedi can convince his partners that
Horticulturists should be the prime target segment.
2. Small and Marginal Farmers comprises a large part of the total market and also low in
terms of mechanisation so this market will also be catered too as secondary market.
Government provides credit at low rates; this will help the consumers of this segment
to buy Vanraj mini tractors. Its cost is high if we only consider it for farming purpose
but if a farmer could use it for other purposes also then it would become a value for
money. So we can not discard this segment totally.