Broke to Breakthrough

Author: Harish Damodaran

Book Link: Broke to Breakthrough on

Table of Contents


Broke to Breakthrough is a well written business biography of the Hatsun group. The author has painted a detailed picture of Hatsun group and through it the broader agro-diary business.
The book does at rare moments feel like a mouth piece of the company as vast paragraphs are direct quotes, and very rarely does the author contradict the statements made by the actors connected with Hatsun, but i won't call it biased by any manner.
Given that the book is a story of Hatsun and its promoter Chandramogan, I don't have any issue with the way story is framed. My only point of reference is Shelly Vishwajeet's book The IndiGo Story which while praising Indigo overall does take moments at time to zoom out and examine the overall landscape and Indigo critically.
However, having said that, I'd like to reaffirm that the book does not read like a PR exercise for HAtsun and anyone picking up this rather slim book will benefit immensely not just in term of the mindset of the family owned Indian businesses and their determination, but also of the general landscape in India around business in general and agri-dairy business in particular.


  • Entrepreneurship out of survival
  • Focused on aspirations of Tier2 cities.
  • Ice Cream or Dairy business was not a new industry like IT or Aviation, but the success came from trying new things.
  • Roger Federer once remarked that as a Swiss he loved to climb mountains, but for the sake of his career he could not afford to do it and hence he had to sacrifice it.
  • One of the biggest strengths of Hatsun is that it never went the conglomerate route, entering unrelated sectors like real estate, infra, finance or education.
  • Moats can be built in a number of ways. Hatsun built a strong network of farmer suppliers, removing inefficiencies of using middle men and this benefitted both the farmers and Hatsun.
  • Further, helping farmers lower production costs, meant better raw material for Hatsun even though they did not directly invest in these with an immediate profit motive.
  • An advantage of being a family business with strict control over the shareholding pattern is that Hatsun need not worry about quarterly earnings and thus focuses on long term bets, which yield rich dividends in long term.

Chapter-wise Notes

Chapter 1: The Early Years

  • Chandramogan is from Thiruthangal, a water deprived area filled with and surrounded by entrepreneurial energy.
  • He failed his class 10th exams as his mind was occupied with his father's fledging business but decided to retry the exam in English and not Tamil. He pass in first class. (Private Note: Given that these stories have been told by the subject themselves, these could be attempts at pure PR).
  • His teacher, P K Srinivasan, founder of Association of Mathematics Teachers of India in 1965 and current director of Ramanujan Museum of Math Education Centre, Madras, encouraged ruthless excellence.
  • After 10th he wanted to do business but his father didn't agree as he wanted him to go to US.
  • He sat for exams but failed in Maths. While retrying next year he, while sitting for chemistry exam, which he had cleared previously, realised that he did not want to study and thus left the exam hall without writing the paper.
  • At home, his maternal grandfather gave his vegetable business to his father, as his sons were involved in textile trade in Madras. Chandra was sent to a place near Madras to work in a timber business where his language skills of Telugu and English helped him shine.
  • He was soon given a saw mill to operate by the business owner but the town already had a saw mill. Chandra solved the problem by waking up early to capture the incoming timber merchants and by offering them a drink and free hay for cattle. The business succeeded but he was not satisfied so he left.
  • Given that he had abandoned education and had also left his job, his reputation was not great but still his maternal uncles supported him by helping him setup an ice-cream factory. His ancestral shops and land were sold to get 13, 000 and rest 12000 was raised from a bank with assistance from the uncles, who stood as guarantors.
  • His father (20 years elder to him) became his partner in the ice-cream factory business.

Chapter 2: Growing with Ice Cream

  • His success came from the shop in front of the factory and not the push carts but when he expanded he had to rely more on carts and carts did not need him, so sales/profit did not increase consummately.
  • To be fair, machines he bought were efficient but not what his business needed.
  • Selling to retailers or hotels what is no problem because they asked to supply deep freezers and he didn't have money for it. Neither was his brand powerful enough to attract demand by itself.
  • Hiring experienced staff at a premium helped him understand business better and also get to know about other opportunities: ship chandlers.
  • Focusing on quality help to track those ship chandlers, hostel students etc. who wanted quality but were willing to compromise on brand name.
  • Once his ice cream business was more or less set he looked at the side hustles to generate extra cash. This paid for his personal expense while profits from Ice Cream factory were reinvested.
  • Impromptu Franchise Model
    • People came up to him to open franchises and this helped as they invested their own money and got exclusivity in return.
    • For him he got a cash cycle of two days as opposed to 2 months for competition.
    • Moral: Focusing on the unserved Tier-2 cities helped him avoid the expensive marketing expenses and set his own terms.

Chapter 3: From Ice Cream to Dairy

  • Opening a second factory in Salem helped as:

    • Land was cheaper than Chennai (1/10th the Price)
    • Closer to the markets he was serving and his suppliers.
    • Cheaper labour costs.
    • Savings in transportation.
    • Centrally located to other parts of Tamil Nadu.
  • Near Fatal

    • He tried to replicate Rasna's success and create an instant milkshake brand but it failed as it was complex.
    • Rasna just needs to be mixed in water but his instant milkshake Santosa needed a blender and ice. Homemakers thought that ice would damage their mixers and hence didn't use his product.
    • The milkshake business was repurposed into milk marketing and the price hiked compared to competition with additional fat added to give a premium feel.
    • Plus milk was homogenised which improved experience.
  • Dairy as future:

    • Ice cream hard margins but milk brought turnover and this was Hatsun's future.
    • Even though dairy industry was liberalised in 1991, dairy cooperatives used MMPO registration as an entry barrier (Milk and Milk Products Order 1992).
    • MMPO was abolished in 2002 and this was the real liberalisation in dairy sector as setting up new or expanding facilities was no longer a crime.
  • Expansion mode:

    • He acquired Ajith dairy industries Ltd for 10 crores where assets were worth 8 crores. The 2 crore premium was because ADIL was about to get MMPO licence and this was a cost of that license effectively.
  • Consumers to farmer:

    • Milk supply is variable and reliability is key
    • Hatsun tried to move away from bulk vendors and deal directly with farmers. This improved cash cycle for farmers and earned him the loyalty as cooperatives wouldn't pay them for months.
    • For him this also meant lower procurement costs as intermediaries were eliminated.

Chapter 4: Challenges Amid growth

  • Between 2000-05 equity grew from 15 crores to 23 crores, while debt grew from 10 crores to 90 crores.
  • This was mostly due to the capital expenditure on new factories.
  • Based on the advise by marketing guru Al Ries, they rebranded their Arokya milk from "Standardised milk with 4.5% fat" to the "4.5% milk". The idea being to focus on the differentiator (4.5%) rather than the shared attribute (standardised milk).
  • They even launched an Ad campaign to highlight the same.
  • The Komatha brand (standardised toned milk) was shut and rebranded as curd brand which was later rebranded as Hatsun curd. The curd vertical became the second largest revenue generator after Arokya milk eventually.
  • Target group for curd was young married working women who did not have time to set curd at home or faced seasonal difficulties.
  • Hatsun ventured into Home Delivery Centers but it failed and they pivoted them to Hatsun Distribution Centers for centralised distribution.
  • Connecting with Farmers

    • Hatsun was focused on farmers but they supplied only 40% of the milk procured by Hatsun.
    • Relying on bulk suppliers was a risk and thus the only solution was to build a stronger connect with farmers and boost their production.
    • Initially Hatsun supplied feed on a no-profit basis and also started their research unit but little success came of it.
    • The solution then was to rope in experts. After talking to experts from US, Europe etc., they finally settled in New Zealand as it had one of the lowest costs.
    • Farms in US and Europe had a lot of automation but this was not feasible for small farmers in India.
    • Experts from New Zealand suggested tweaking the feed and strict protein requirement as part of high quality fodder.
    • The simple act of substituting feeds led to reduction on dependence on factory made concentrates and the farmers could earn a 35-40% margin.
    • Hatsun also started White Gold Project for farmers with 3-5 acres of land and asked them to take up dairy agriculture as a full time business; growing the required high quality feed and tending to cows in the shed on the farm.
    • This helped Hatsun as rather than have a scattered supplier base of 70k farmers, they could have 4k farmers supply a larger amount of milk.
    • They also helped arrange loans to setup these dairy farms from the leading banks.
    • Further to maintain farmer trust, on three different occasions over the years they had a milk holiday, where due to oversupply of milk the previous days they could not accept any more milk, and yet paid the farmers based on last day quantities.
    • During this time Hatsun also entered the dairy commodity business supplying Skimmed Milk Powder (SMP) and Anhydrous Milk Fat (AMF) that were being traded on a premium in the international markets.
    • By 2010, due to impact by Global Financial Crises, amidst other factors, Hatsun's debt to equity deteriorated further as debt (313 cr) reached 6 times the equity (50 cr), worse than the 2004-05 period.
    • But unlike 2004-05, this time the cash situation was worse as Hatsun was involved in the commodity business whose prices crashed and thus the stock has to be sold on loss
  • Back to Basics

    • They exited commodity markets (for SMP and AMF) as these were volatile in nature but also because government regulation was unpredictable, so they focused entirely on branded consumer facing products.
    • One additional mistake they made was "Sikkanam", the idea to have a no-frills provisional store in the spare area of procurement centers. But it failed as it complicated logistics although the plan made sense on paper.
    • The idea thus became to only focus on dairy related products and eventually they were used to sell cattle fodder.

Chapter 5: Corporate Social Enterprise

  • Dairy business, unlike regular agriculture provides liquidity, stability and predictability to small farmers associated with Hatsun.
  • By October 2015, Hatsun moved to 100% cashless model to make payments to all its farmers. This move had met initial resistance as farmers were used to dealing in cash but that complicated calculations, increased discretion of local point-of-contact person and was also a logistical nightmare to transport cash.
  • But this benefitted HAP immensely as one year later demonetisation proved to be shock to most businesses but not Hatsun's farmers.
  • Another benefit of regular bank transfers to farmers account was that banks now treated them with respect as a regular customer bringing in cash, rather than somebody who's loans had to be waived under government pressure.
  • Hatsun also started a unique ID program for animals where they were tagged and QR codes generated for them.
  • This allowed doctors and inseminators scan the QR code attached to the animals and get all the information related to that animal.
  • For Hatsun, it helped them in tracking and improving their artificial insemination program. Farmers on the other hand were able to look after their cattle better.
  • While farmers are charged for material costs involved in insemination, no other charges are collected and this is Hatsun's method of building trust and loyalty.
  • Chandramogan endorse's government's aim of doubling farm income but argues that this should be done by lowering the cost of production and not by increasing procuement costs as that could render our products uncompetitive.

Chapter 6: New Horizons

  • "Power of Compounding": hatsun's combined turnover for first 10 years was less than 25 lakhs which it now grosses in less than 25 minutes.
  • Hatsun's stock price growth since IPO in 1996 is 55511%
  • Most of the growth has been fuelled through debt and not by equity dilution of existing shareholders. Chandramogan and his family own 74% of HAP and this means that they are not subject to quarterly earnings pressure and thus can undertake investments yielding returns in the long run.
  • Hatsun's most prised asset is their brand. Even MNCs who acquire Indian (FMCG) companies don't acquire them for their physical assets but for their brands.
  • Another source of financing is depreciation. Unlike interest payment, funds marked for depreciation don't leave the firm but help reduce the tax liability.
  • Hatsun's approach is to identify products that people were making at home and which they may be prepared to buy. Thus curd was a success but cooking butter or khoa failed.

Chapter 7: The Lockdown

  • While demonetisation was totally unexpected, covid lockdown was anticipated in some form.
  • News about Covid had been building up for weeks preceding the lockdown and Janta Curfew was an indication. Hatsun instructed all factories to stock up on fuel and raw materials (for packaging etc.) But they hadn't anticipated a prolonged ban on movement.
  • Due to lockdown and that too in peak summer months (March - June) ice-cream sales tanked 57% in 2020 which reduced overall sales by 10% causing Hatsun to grow negatively for the first time.
  • But since dairy business was exempt from lockdown; business mostly could continue. In fact, Hatsun posted strong growth overall in the year.
  • Further, Feb to May is lean season for milk production; so even though dairy demand had fallen due to lockdown; Hatsun didn't need to chase procurement and this saved them. Had the lockdown happened in the latter half of the year, they would have procured milk at higher prices in the lean months only for the demand to collapse later.
  • New farmer-suppliers were not onboarded in lockdown but for existing farmers there was no refusal of milk or delayed payments. Further, farmers were categorised into three categories based on length of relationship and regularity and this was used as a basis for deciding prices for procurement and thus loyalty was rewarded.
  • Procurement data shows Hatsun's procurement in lockdown compared to the same time a year ago was just 0.4% less and it increased in subsequent months.
  • Employees were given essential service allowance and even contractual labour was paid. Some of the labour and factory facilities was used to make sanitisers. This helped reduce the need for layoffs and also served a humanitarian purpose.
  • To help Ice-Cream franchisees, they were allowed to sell milk, curd, etc to supplement loss from ice cream sales and procure directly from company bypassing hatsun's own established distribution channels.
  • Further, franchisees for its premium ice-cream were paid in full even though the ice cream parlours were not operational.


These notes are based on my reading of the book and were originally for meant for my personal use only. As such there may inadvertently contain any biases or errors. I'd be grateful if you point out errors (if any) as well as discuss any point that you may not agree with.

Just to be absolutely sure, please note that I have not proof-read these notes, but simply copied them verbatim from my notes app to cut down the time taken. At the time of writing these notes were purely for personal consumption and/or further enquiry. So if you find any sentence/reference/comment to be offensive, please contact me first before "calling me out". I'll remove it if I agree with you or at the very least will try to make my case

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