Fmcg Case Study Ques.docx

Financial Model of a FMCG Company Calculate the Share Price of NCPL based on the following information Exhibit 1: Historical volumes of product portfolio Sl. No. A B C

Parameter Soap Hair Colour Detergents

Unit Packets Bottles Packets

FY11A 421,875 281,250 131,250

FY12A 485,156 300,000 150,000

FY13A 540,000 315,938 163,125

FY14A 641,250 333,750 173,438

FY15A 759,375 348,188 182,813

FY11A 16 75 100

FY12A 18 80 112

FY13A 20 88 125

FY14A 21 92 135

FY15A 22 95 145

Exhibit 2: Sales Price Movement Sl. No. A B C

Parameter Soap Hair Colour Detergents

Unit INR/ packet INR/ bottle INR/ packet

1. Soap segment has seen a high growth phase so far, but due to enhanced penetration in the rural markets, this segment will see a tapering growth rate from 15% in to 12% in five years’ time. 2. Due to lack of fashion consciousness in the villages, hair colour segment will, at the best see a CAGR of 0.5% less than historical CAGR over a five period time frame. 3. Liquid detergents have gained popularity in the rural markets and will continue to display a growth rate of 5% - 6% over the same time frame, very much in line with its growth rate last year. 4. While NCPL has so far controlled the sale prices of these products at its will, the same may not happen in future. Growth rates have to taper down from 5% to 2 – 3% range in the coming years. 5. Hair colour segment still has a possibility of seeing a price CAGR growth rate same at historical levels. Exhibit 3: Historical P&L Statement of NCPL (All Financials in INR Lakhs) Parameter Revenue Operating Expenses Raw Material Cost Employee Cost Power Cost Packaging Cost Advertisement Cost Commission Maintenance Cost Insurance Premium Admin & Misc Expenses

FY11A FY12A FY13A FY14A FY15A 410 495 590 676 763 138 51 5 11 30 20 1 2 35

156 58 6 13 41 24 1 2 24

175 72 7 16 42 29 1 2 29

206 86 9 19 44 33 1 2 41

245 94 10 21 46 37 1 2 45

Total Operating Expenses EBITDA Depreciation EBIT Interest on Debt Other Income PBT Taxes for the year PAT

293 117 73 43 23 0 20 7 14

326 170 152 17 63 0 (46) (11) (35)

373 217 163 54 81 2 (25) (8) (16)

440 236 163 72 78 8 2 1 1

502 261 163 98 75 15 37 13 25

Exhibit 4: Historical Balance Sheet of NCPL (All Financials in INR Lakhs) FY11A Liabilities & Equity Shareholders Fund Paid Up Capital Share Premium Account Retained Earnings Total Networth Non-Current Liabilities Debt Current Liabilities & Provisions Provisions for Employees fund Advances from customers Commission payable Insurance premium payable Accounts payable Total Current Liab. & Prov. Total Liabilities & Equity Assets Net Fixed Assets Gross Block Accumulated Depreciation Net Fixed Assets WIP Deferred Tax Assets Investments Current Assets Cash & Cash Equivalent Margin Money with Bank Inventory

FY12A

FY13A

FY14A

FY15A

200 0 14 214

300 0 (21) 279

300 0 (37) 263

300 0 (36) 264

300 0 (11) 289

325

638

602

597

550

10 5 4 2 16 36 574

6 8 4 2 18 38 955

8 12 10 2 25 57 921

9 4 6 2 22 43 903

9 7 6 2 25 49 888

505 73 432 40

990 226 764 40

1,044 389 655 1

1,059 552 507 1

1,124 715 409 1

0

0

35

90

140

24

25

95

156

199

36

60

65

69

72

Account Receivables 33 52 55 60 51 Loans & Advances 10 14 15 20 16 Total Current Assets 103 150 230 305 338 Total Assets 574 955 921 903 888 NCPL, a popular name in many of the western states of India, operated in fast moving consumer products segments. It manufactured and sold three products: 1. Soap in packet of 100 gms 2. Hair color in bottles of 250 ml 3. Detergent in packet of 500 gms Exhibit 5: Raw materials requirement of key products of NCPL Raw Materials volume requirement (ml) Acid Specialty chemicals Ordinary chemicals Perfumes

100 gms soap

250 ml hair color

500 gms detergent

105 10 5 10

255 12 8 5

505 25 15 12

Exhibit 6: Raw Materials Price movement Raw Materials prices (Paise/ml) Acid Specialty chemicals Ordinary chemicals Perfumes

FY11A

FY12A

FY13A

FY14A

FY15A

6.80 3.70 1.70 12.00

6.80 4.50 2.50 13.00

7.00 5.00 2.80 14.00

7.50 5.30 3.00 15.00

8.20 5.50 3.50 16.00

For the acids, NCPL has now entered into a long term off-take agreement with the leading supplier in the region. Under the terms of the contract, acids will see a price escalation of 5% for first 2 years and 4% thereafter till the tenure of off-take agreement. For specialty chemicals, he has multiple vendors and due to high bargaining power NCPL enjoys with the suppliers, the price rise in this segment will be restricted to 5%. Ordinary chemicals will display a price decline of 15% to 13% over the same time horizon while perfumes will display the historical CAGR in terms of its price growth. Exhibit 7: Manpower in NCPL Manpower (Nos.) FY11A FY12A FY13A FY14A FY15A Manufacturing 28 30 35 40 40 Marketing 5 5 7 8 9 Corporate 2 2 2 3 3 manpower count will remain the same for this year while she had budgeted a headcount increase of 5% beyond. Exhibit 8: Average monthly salary Monthly salary

FY11A

FY12A

FY13A

FY14A

FY15A

(Rs./employee) Manufacturing 10,000 10,500 11,000 11,100 11,700 Marketing 15,000 16,000 17,000 17,500 18,000 Corporate 16,000 16,500 17,200 17,800 18,200 Bonus (% of salary) 10% 12% 12% 12% 15% the employees would not receive any salary hike this year; however she had budgeted for 5% hike year on year for the next five years. The firm will continue to pay 15% of the salary as bonus in the years to come unless something unforeseen happens.

Exhibit 9: Power Cost 1.Power purchase tariff – Rs. 5.25 per unit 2. Power consumption in production process – 177,737 kWh 3. Power consumption in other offices and buildings – 19,749 kWh most of the Discoms have proposed the highest year on year tariff hike of 8% - 10%

Exhibit 10: Packaging cost per unit Packaging Cost (Rs. /Unit) FY11A FY12A FY13A Soaps (100 gms packet) 1.0 1.1 1.2 Hair Colour (250 ml bottle) 1.5 1.6 1.8 Detergents (500 gms packet) 2.0 2.2 2.3 packaging cost will see a meager rise of 2% after remaining constant this year.

FY14A 1.3 1.9 2.5

FY15A 1.3 1.9 2.5

He had increased the budgetary allocation of advertising spend to 10% of sales this year and had decided to raise it to ~ 14% gradually over next few years. Besides to prevent the retailers and salesman from partnering with any new player in the area and to lure them to push NCPL’s products, he knew he would have to gradually increase their commission to 7% from the current levels of 5%.

Exhibit 11: Historical Capital Expenditure and Depreciation Sl. Parameter (Rs. Lakhs) No. 1 Capital Expenditure A Land B C D

Plant, Machinery & Buildings Laptops, Desktops & Mobiles Furniture, Fixtures & Furnishings

Depreciation Rates

100 18.0% 33.3% 15.0%

FY11

FY12

50 400 10 35

400 10 25

FY13

FY14

-

-

50

10 5 -

10 5 -

10 5 -

FY15

2

Book Depreciation

163 73

152

163

163

Project Department phased the capital spend in such a way that all the Projects except those belonging to Plant, Machinery and Buildings (“PMB”) were complete by fiscal year end. Typically 10% of the PMB projects (value wise) awaited final installation, testing and commissioning by year end.

Exhibit 12: Proposed Capital Expenditure Plan Sl.No. 1 2 3 4

Asset Class Land Plant, Machinery & Buildings Laptops, Desktops & Mobile Furnitures, Fixtures & Furnishings Total

FY16P 0 150 10 30 190

Other Data Risk free rate Beta Expected return from market Cost of debt Terminal Growth Rate Interest on cash and cash equivalent Tax Rate Face Value of Share Market Price per share

8.0% 0.8 16.0% 12% 4% 8% 30% 10 25

FY17P FY18P FY19P FY20P 50 30 0 0 150 100 100 105 5 5 5 10 0 0 0 10 205 135 105 125