Celebrating the spirit of entrepreneurship – Rs.5000 to 2000 crores – Suguna Chicken – Soundararajan Success Story
July 26, 2008 § 9 Comments
HE COUNTS HIS EGGS BEFORE THEY HATCH
Celebrating the spirit of entrepreneurship in Tamil Nadu
Soundararajan borrowed Rs 5,000 from his parents to start a poultry farm. When the industry faced a glut, he refused to chicken out. Today Suguna is a Rs 2,000-cr company. M Allirajan tracks the travails behind the rise of this poultry giant who preferred raising hens to attending college
BSoundararajan’s first brush with business was anything but a success. His fledgling feed trading business almost came unstuck even before it took off. Suguna, the firm he started with Rs 5,000 he borrowed from his parents in 1984 at Udumalpet, a town near Coimbatore, ran into trouble following the glut in the poultry industry.
Soundararajan had hoped that he could cash in on the demand from poultry units. But in a few years, the industry, unable to take the excess supply, went into a tailspin.
“Prices came down drastically and many farmers stopped operations. They were not in a position to pay for supplies,” he reminisces. But Soundararajan was shrewd enough to see an opportunity in this threat. “Suddenly, we thought why not invest working capital and manage these farms? Farmers also wanted stability. We supplied the inputs and they (farmers) became converters,” he says.
The crisis helped Soundararajan transform a small poultry feed trading firm into a multi-billion-rupee enterprise. The Rs 2,018-crore Suguna Poultry Farm is now one of the largest integrated poultry companies in the country. From 200 birds and a few hatcheries in the ’80s, Suguna now has 15,000 farmers under its contract farming model across 11 states in the country and produces 80 lakh birds (out of the country’s 450 lakh birds) a week employing 4,200 persons.
The company made its first bank borrowing of Rs 18,000 in 1987-88 paying an interest of 20%. “Getting loans was a tough task then. We had pledged our farm lands to borrow funds,” he recalls.
On an average a farmer earns up to Rs 15,000 per month under the Suguna model. Apart from constructing a shed for the farm, the company gives farmers day-old chicks and feed worth Rs 6 lakh that would be used for the six-week cycle for producing a broiler (live bird). Suguna’s success is largely because of its ability to make the necessary linkages.
End of middlemen
Soundararajan’s contract farming model eliminated middlemen and reduced the number of players in the poultry value chain to just three — farmer, company and the retailer. “Until then the middlemen took away around 10% as commission. As a result, costs increased by 25%,” he says.
The progress in the 80s though was rather slow. It took Suguna 14 years to reach Rs 7 crore in revenues. Between 1990 and 1995 the company patiently tried perfecting the model. Soundararajan acknowledges the company had no big plans till 1995. “We somehow wanted to run the show and survive.”
All that changed post-1995 when the company took the model to the rest of Tamil Nadu, Karnataka, Andhra Pradesh andMaharashtra. Suguna now has a pan-Indian presence in broiler chicken with 15,000 farmers under contract farming.
“He has a strong focus on processes and even when work is done manually errors are few,” Prasad Gopalan, head, International Finance Corporation (IFC), Chennai.
IFC, the commercial lending arm of the World Bank, committed $ 30 million (then valued at around Rs 130 crore) in Suguna in 2006. The company now has close to 18% market share in the Rs 12,000-crore organised broiler chicken market in the country.
The success has spurred Suguna to look beyond broiler chicken. Despite being a late entrant the company has managed to grab close to 10% market share in the layer segment (the company gives day-old chicks for hatcheries which produce unfertilised eggs).
But Suguna has not always got it right. Rail Road, its food retail venture that was modelled on the lines of Kentucky Fried Chicken (KFC), failed to take off. Though he lost money, Soundararajan was smart to wind it up early.
“He recognises the need to balance long-term views and short-term tactics. Despite his background (of not going to college) he knows how to keep people motivated,” says Gopalan of IFC.
In the late 90s, the company again saw erosion in capital when it invested heavily in the Tamil Nadu market. “We had overgrown in TN. The market took our products at a lower cost,” Soundararajan acknowledges. Overproduction and dependence on a single market hurt, but it also ensured the company made the much-needed course correction.
“We realised that we had to de-risk,” he says. Starting with Karnataka in 1999, Suguna launched every year in each state and became a pan-India player in a few years.
But its foray into newer geographies was anything but smooth. Stronger, wellentrenched rivals made it a tough task and in Maharashtra the race for market share turned ugly at times.
Industry insiders describe them as ‘street fights’. The battle never came out in the open but there was enough heat generated making the climb for Suguna all the more difficult.
To his credit, Soundararajan emerged out of all this rather unscathed making a mark in all the new markets. He capped his effort by diversifying into producing day-old chicks for hatcheries in 2007 taking Venkateshwara Hatcheries, a near monopoly in the segment, head on.
Challenging road ahead
His biggest bet now is ‘Suguna Daily Fressh’, the processed meat retail venture. The company would open 100-150 stores in Tamil Nadu and Kerala before the end of the fiscal. Suguna expects the share of fresh, processed and value-added chicken to go up to 15-20% from the current 2% in the next 3-4 years due to fast changing lifestyles and higher disposable incomes. All the good work over the years has shown results. But commodity price inflation is a threat. Suguna, which produces 80 lakh broiler chicken a week, needs 7-8 lakh tons of maize a year. Maize prices have shot up to Rs 12,000 a ton from Rs 5,500 a tonne. Cost of producing a kg of broiler has increased from Rs 30 per kg a year ago to Rs 45. The retail prices of chicken have gone up but margins are coming down. Operating profit margins are hovering around the 5% mark now. Whatever is the answer to the proverbial question of which came first the chicken or the egg, Soundararajan is one man who will never chicken out.
Source – Times of India