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Venture Capitalist Competition Avenues 08 held at SJSOM, Mumbai winning team

Venture Capitalist Competition Avenues 08 held at SJSOM, Mumbai winning team

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    Venture Capitalist competition Analysis Team Lollapalooza Venture Capitalist competition Analysis Team Lollapalooza Document Transcript

    • CREO CAPITAL PARTNERS, LLC Polysense Aqua Pvt LTD Venture Capital Funding Strategy Team: LOLLAPALOOZA College: S P Jain Center of Management, Singapore- Dubai Hardik Doshi – GMBA (Investment Banking) Navin Bafna – GMBA (Investment Banking) Preet Sabharwal – GMBA (Investment Banking) 2008 CREO CAPITAL PARTNERS, LLC
    • Table of Contents Company & Business ........................................................................................................................... 3 Strategy, Market and Products ............................................................................................................. 4 Nature of Business and Scope ............................................................................................................. 5 Management and organizational structure ........................................................................................... 5 Market analysis and sector assessment............................................................................................... 7 Need for potable drinking water in urban and rural area ................................................................... 7 Future growth of the sector and sustainability of growth, investments by government ................... 10 Current Water Quality Monitoring infrastructure in India ................................................................. 11 Future of conducting polymer technology and scope of development ............................................ 12 Competitors/Products & Services Portfolio......................................................................................... 13 Competitive Advantage ...................................................................................................................... 17 Customers .......................................................................................................................................... 18 Risks involved and Mitigation ............................................................................................................. 19 Financial Projections and Valuations.................................................................................................. 21 Projected Profit & Loss statement ................................................................................................... 21 Project Balance Sheet .................................................................................................................... 22 Cost of Manufacturing ..................................................................................................................... 22 Projected sales schedule and assumptions .................................................................................... 23 Estimated investments in Assets and Assumptions ........................................................................ 24 Ratio & Break Even Analysis .......................................................................................................... 24 Valuation before infusion of Capital ................................................................................................ 25 Investment Strategy ........................................................................................................................ 25 Exit Strategy.................................................................................................................................... 27 Control Provisions ........................................................................................................................... 27 Liquidation Preference .................................................................................................................... 27
    • Company & Business The enterprise is in the process of developing a variety of products using innovative conducting polymer technology. The product range would include water-testing kits (launch product), soil testing kits, milk testing kits and various healthcare diagnostic kits. The products are indigenous, cost effective, compact, portable lab-on-chip devices enabling digitised inputs and are computer compatible for quantitative analysis. The technology enables on the spot testing of samples and the products can be easily enhanced to test for many parameters in a single attempt. In case of water testing kits, the network of Water pollution monitoring boards itself provide a huge market but given the possible challenges of dealing with the government, PSPL also sees the NGO/NPO’s that are working towards delivering potable water to rural households as primary customers. In case of Soil testing kits, PSPL plans to reach farmers by marketing this product to all the agri-clinics around India. PSPL also plans to approach all the big business houses that provide soil testing services to farmers as a part of their rural initiatives. For healthcare diagnostics, a hybrid sales model is being evolved. The launch product, Polysense Aqua, is a system that tests water from natural sources for potability. The system consists of a set of electrochemical sensors that measure conductance, salinity, pH, chloride nitrate and total Dissolved Solids (TDS) in the sample and compare the values with standards set by WHO. If all parameters are within accepted range, the sample is declared potable. The operation is very simple, consisting of taking the water sample in the cup in which the sensors are immersed. Once it is ready to start measurement, the instrument completes all measurements in less than three minutes and displays the result. No skill is required of the operator. The company is in the process of adding more sensors to this system. Sensors for fluoride, iron, ammonium and potassium are ready to be incorporated. Sensors for arsenic and recoil are under development at present. The enterprise also plans to develop a system for testing soil for NPK, i.e., nitrogen, phosphorus and potassium using the sensors already developed and adding a sensor for phosphorus A range of biosensors has already been demonstrated in the company’s lab for glucose, urea, triglyceride and haemoglobin. Proof-of-concept demonstration of an immuno-sensor and a short-
    • strand DNA sensor has also been done. These and similar sensors will be used to develop diagnostic systems for healthcare. The measure electronics for this is in preliminary stage of development. Strategy, Market and Products The areas of intervention that best represent the innovation of the enterprise are Direct Services, Indirect Health Services, Accessibility, Technology-Enabled Innovations, Water and Sanitation, Manufactured Products. Its effort is to combine the power of chemistry and microprocessor technology to develop products that are capable of performing complex chemical and biochemical analyses and are yet low-cost and user friendly. It is an attempt to convert technology developed in the institutions into useful products for local needs. The enterprise will build systems that are presently not seen as an attractive market by the private sector given the low return on investment and low profit margin for rapid tests. Polysense Aqua -- system for testing water for potability -- measures six parameters in three minutes without the need for a trained analytical chemist. There is no need to handle hazardous chemical reagents, no hazardous waste to be disposed later and can be used in the field. The system provides a quantitative measure of the parameters that can be printed or ported to a PC. Thus it combines the performance expected from sophisticated instruments in a laboratory with the low-cost of field kits. The enterprise aims to remove the barrier of high cost and high expertise that most comparable diagnostic tools require and put the tools in the hands of common people. PSPL's innovations will provide access to diagnostic systems that adhere to world standards, to populations that have no access to proper medical facilities. Also, PSPL's innovations will enable early treatment due to early detection and hence save precious income that is otherwise spent on treatment. Since the enterprise is an R&D driven company, it aims to bring out new products to address the needs of our society. Since 70% of people in India still live in rural areas and company is mainly targeting at the rural segment for starting its business the company has huge expected customer base. Also the distribution, sales & marketing strategy of the company should be more focused, planned and superior to its competitors in order to reach out this huge customer base. Company has plans to expand employee base and have dedicated divisions concentrating on sales and marketing one year
    • down the line. Also since the Polysense Aqua is relatively cheaper in cost capturing market pie should not be difficult considering the adherence to planned strategy. Polymeric Sensors Pvt. Ltd. (PSPL) is very focused on the benefits of its technology reaching India’s rural and marginalized populations. While the population is PSPL’s target community, PSPL also recognizes the need of establishing sustainable business models that would ensure rapid dissemination and adoption of the technology. In the initial years PSPL would look forward to partner with other business models rather than build its own model to reach the rural customer. Nature of Business and Scope The enterprise is in the process of developing a variety of products using innovative conducting polymer technology. The product range would include water-testing kits (launch product), soil testing kits, milk testing kits and various healthcare diagnostic kits. Though the exact market size has not been estimated that would help the enterprise break even and make profits, the enterprise is looking at a variety of pricing structures to ensure that its technology is affordable and is disseminated to the masses. Given that it is building systems that will adhere to world standards; it might consider selling its products to the developed world as long as the enterprise does not have to slow down on its mission to serve the populations at the base of the pyramid. Company has got good technical expertise to come up with innovative products in future which is very much necessary for sustenance. Also the company is in business in which cyclicality is less, a lot needs to be done yet, and entry barrier is huge in terms of skills and government contacts. Hence we can expect the stable cash flows and profitability in the long term provided the product is successful. Management and organizational structure The Company is promoted by Professor A Q Contractor of IIT Bombay and Dr. Sharma Bhat of Bhat Biotech Pvt. Ltd, both of whom have considerable experience in their field. Professor Contractor has more than thirty years of research experience and has been involved in research and development of chemical and biochemical sensors for the past fifteen years. His group was the first to propose conducting polymer based biosensors in 1992 and he is the principal inventor of a patent for generic sensors based on this concept and since then several chemical and bio sensors have been demonstrated. Mr. Contractor’s competency in the field of sensors is an added
    • advantage to the enterprise. The water potability field is one in which the moment a new and cost effective technology would come, all the others would become obsolete. Thus, it becomes very important to have renowned and experiences members. Mr. Contractor is the most appropriate person as he has the zeal and interest in the sensor technology field. Dr. Bhat is an academic turned techno-entrepreneur who founded Bhat Biotech in 1994 and established it as a viable and thriving business in the area of healthcare diagnostics. As PSPL also plans to enter the healthcare domain, having a member who is experienced in the same would help the enterprise get hold of various contracts with other firms, and will also help it to be able to spread its operations abroad. In the organization while Prof. Contractor spearheads the research and development activities, Dr. Bhat handles the manufacturing process and marketing. The research team at PSPL is led by Dr. Archana Nath & Dr. Snehalatha Kaliappan, who has several years of research experience from top universities in India and abroad in polymer electrochemistry. In addition team of 4 interns is assisting the scientists in research work. The enterprise plans to hire few marketing professionals by the first year end. The water potability tester, Polysense Aqua will be out soon so the product needs to be marketed in the right way to the right people. Once the other products are out in the market, the company plans to go ahead with setting up of a manufacturing plant to reduce dependency on the suppliers. The enterprise plans to hire a finance and operations team for the same and to also look into the other costing and procuring activities of the enterprise. Designations Educational Qualification 2007-08 2008-09 2009-10 Promoters/ Directors PhD 2 2 2 Senior Research Scientist PhD 2 4 4 Administrative Heads PhD/MBA 1 1 1 Research & Development Staff MSc, BSc 5 8 10 Technical & Administrative Graduation & 3 4 5 Total Number 13 19 22
    • Market analysis and sector assessment Need for potable drinking water in urban and rural area Water supply is crucial to urban and rural development. With rising population and scarcity of usable and potable water, the water industry is expected to grow at higher pace in near future. About 226 million people lack access to safe water and about 70 per cent of population (about 640 million) lack basic sanitation facilities. The water related diseases are claiming the lives of about 1.5 million children (500,000 children due to diarrhoea alone) under 5 years and person-days lost in India are estimated to be about 180-200 million a year. In developing countries, of the 37 diseases identified as major causes of death, 21 are related to water and sanitation. Water-borne diseases are causing more than 4 million infants and child deaths every year in developing countries. Hence the right to have access to clean water is the basic need of every citizen of India. World over drinking and bottled water is becoming a commodity of interest and hence government and private utilities are developing technologies to transport potable water. For sufficiency, the water supply must be 'approximately 50 litres or the minimum essential level of 20 litres' for daily individual requirements and the supply must be regular. Affordability must be ensured in terms of the direct and indirect costs of securing drinking water. The NCU considered 70 litres per capita per day ( lpcd ) as the absolute minimum and 90 lpcd as a desirable level (with 110-120 lpcd as a more desirable scenario) to carry on life at a minimum standard of hygiene. The major issue is connecting household with piped supply of water. The below figures suggested that 65 to 70% of the population have their source of water as groundwater, quality of which has deteriorated in recent times. According to recent survey done Out of the 624 sites monitored, 53% showed the presence of ammonia; 14% showed the presence of Coli form 27% were found to contain a high concentration of Fluoride & Nitrate. The ground water, in almost every site monitored in Bhopal, Lalitpur & Udaipur, was found to contain a high concentration of Fluoride. The municipal water supplied in Ranikhet, Varanasi & Lalitpur showed the presence of ammonia.
    • The ground water in Muzaffarnagar & Jhansi was found to contain a high concentration of he nitrate. The municipal water supplied in Jaipur, Dehradun & Kurnool in most of the sites monitored was found to contain coli form. In Udaipur & Bhopal, both ground water & municipal water form. used for drinking purposes, was found to be contaminated with bacteria. In following cities, a continued occurrence of coli form bacteria in the drinking water were bacteria noticed – Nagpur, Dehradun, Jhansi & Bhopal. Water collected from 69% of the sites monitored was found to be unfit for drinking, containing ater ammonia & bacterial contamination. 5% of the sites monitored showed the presence of Ca & Mg salts, Chloride, Iron & a high amount of Residual Chlorine. Water in 26% of all the sites monitored was found to be satisfactory. ater On the basis of the water quality data obtained using the Jal-TARA kit, all the sites h TARA have been categorised into 3 types varying in the level of purity of drinking water Total Supply GW Total Winter Summer Monsoon water Purify before use 429 182 247 429 82 122 222 Check before use 33 17 16 33 9 12 12 Safe for use 162 74 88 162 46 40 76 Cumulative Water Quality for 28 Cities during different seasons
    • ’purify before use’ implies intensive treatment required for making water safe to use ’check before use’ implies simple treatment required for making water potable ’safe for use’ implies water can be consumed and is safe for drinking Rural Urban Source 1993 1998 2003 1993 1998 2003 Tap 15.5 18.9 18.7 72.1 70.4 70.1 Tube well, hand pump 39.1 44.5 50.1 17.2 18.5 21.3 Well 39.1 31.7 25.8 9.2 8.6 6.7 Tank, ponds 2.2 2.1 1.9 0.3 0.8 0.3 River, canal, lake 2.4 1.7 1.3 0.3 0.1 0.2 Spring 1.4 0.9 1.7 0.2 0.1 0.1 Other 0.6 0.3 0.4 0.8 1.4 1.1 Percentage Distribution of Households by Principal Source of Drinking Water and Sanitation in India: 1993-2003 The above statistics shows that almost in all seasons the majority of groundwater was found below allowable potable limits and required purification before consumed. The declining quality of groundwater due to pollution is posing health problems in India. About 44 million are estimated to be health affected by problems related to water quality excess fluoride, iron, nitrate, arsenic, heavy metals and salinity. The low quality and poor standards maintained by the big names in the bottled wat and water soft drinks sector have been severely exposed in recent years in India. Despite common man paying lot of money for procuring high quality purified mineral water the bottled companies could not maintain the quality standards stated. Hence this causes the need for a water quality tester instrument which is highly portable and at the same time economical. Considering all this parameters Considering a lot needs to be done to improve the potable water quality in India making the clean drinkable water available to every citizen.
    • Future growth of the sector and sustainability of growth, investments by government According to World Bank water economy in India is poised to have turbulent future. Some of the major problems that India is facing currently are crumbling water infrastructure and depleting groundwater, growing water conflicts, changing environmental conditions, inadequate infrastructure to support the growing demand. Compared to other developing countries like China, Brazil, Russia the infrastructure and water storage capacity is remarkably low. The investments in water infrastructure transformed the economic and social development of India. Water tariffs have been kept low in country like India which leads to misuse of potable water in urban cities resulting into scarcity in rural areas. Also the pollution control laws not being enforced strictly the corporate and industrial sector negligently treat the industrial waste. The main issue is not the need for these services, which are now universally accepted, but rather how can these be provided to everyone cost-effectively, equitably, and promptly. With recent support from government and Supreme Court reiterating the right to clean drinking water as fundamental right of citizen and insisting on everybody to exercise their right, water industry is expected to see paradigm shift and development in infrastructure in rural and urban India. Unfortunately despite making laws and claims in recent five-year plans allocations to the urban water and sanitation sector have never crossed even 2 per cent of the Plan funds of the Government of India since independence. The water sector is facing a major financing gap. The annual requirements for rehabilitating existing infrastructure alone is estimated to be around Ras. 200 billion while the India Water Vision expects new investments – with very modest allowances for sewage treatment – to cost about Ras. 180 billion a year. Annual allocations in the recent past have varied between Ras 90 and Ras 170 billion a year. Though water is a basic necessity supplying potable water has always been a low priority consideration for government. But government has consistently increased the investments since the beginning of five year plan implementation and there is high potential that this industry will gain importance in near future. Investments in water infrastructure in India have resulted in massive reductions in poverty, and it is actually the poor and landless who have been the biggest beneficiaries and this is one sector which has underperformed till date and is poised to have mandate need of huge investment in future.
    • Plan period Total Outlay Percent Urban Per cent of for outlay UWSS of total population urban sector outlay (million) population 17.3 First Plan (1951-56) 33.59 0.43 1.28 61.6 (1951) Second Plan (1956- 61) 67.69 0.44 0.65 -- -- 18.0 Third Plan (1961-66) 85.93 0.89 1.04 77.6 (1961) Fourth Plan (1969-74) 159.32 2.82 1.77 -- -- 19.9 Fifth Plan (1974-79) 392.46 5.49 1.40 107.0 (1971) 23.3 Sixth Plan (1980-85) 976.07 17.67 1.81 156.4 (1981) Seventh Plan (1985- 90) 1797.42 29.66 1.65 -- -- 25.7 Eighth Plan (1992-97) 4334.84 59.82 1.38 212.9 (1991) 27.8 Ninth Plan (1997-01) 7800.00 117.00 1.50 285.4 (2001) Plan Outlays on Urban Water Supply and Sanitation (UWSS) (Current Prices in Rs. Billion) Current Water Quality Monitoring infrastructure in India Indian rivers are polluted due to the discharge of untreated sewage and industrial effluents. The Central Pollution Control Board (CPCB) has established a network of monitoring stations on rivers across the country. The present network comprises of 870 stations in 26 States and 5 Union Territories spread over the country. The monitoring is done on monthly or quarterly basis in surface waters and on half yearly basis in case of ground water. The monitoring network covers 189 Rivers, 53 Lakes, 4 Tanks, 2 Ponds, 3 Creeks, 3 Canals, 9 Drains and 218 Wells. Among the 870 stations, 567 are on rivers, 55 on lakes, 9 on drains, 12 on canals, 4 on tank, 3 on and creeks, 2 on pond and 218 are groundwater stations. The monitoring of water quality at 257 stations is being done on monthly basis, 393 stations on quarterly basis, 216 on half yearly basis and 4 stations on yearly basis. A comprehensive water quality laboratory development programme has been completed by upgrading of 290 laboratories in three categories. With government becoming more aware recently and with funding from World Bank the investments are expected to go up in improving the water quality measurement system.
    • Future of conducting polymer technology and scope of development The biggest advantage of conductive polymers is their compatibility. Conductive polymers are also plastics (which are organic polymers) and therefore can combine the mechanical properties (flexibility, toughness, malleability, elasticity, etc.) of plastics with the high electrical conductivities of a doped conjugated polymer. Conductive polymers are used in flat panel displays using OLED, solar panels and optical amplifiers. Conductive polymers have their application in wide range of fields such as water industry, biological research, power and energy, electronics and fiber optics. Electro active Polymer Market, 2007-2013 ($ According to a new market research report, Millions) Conductive Polymers, the global market for 2000 electro active polymers will reach 314.7 1500 Conductive polymer($ million pounds in 2008. It is expected to 1000 million) increase to over 409 million pounds by 2013, 500 ICP's($ million) hence it reflects a CAGR of 5.4%. 0 2007 2008 2013 The market is broken down into applications of conductive polymers and inherently conductive polymers (ICPs). Of these, conductive polymers have the largest share of the market. Estimated at 311 million pounds in 2008, this segment is expected to increase to 402 million pounds by the end of 2013, for a CAGR of 5.3%. Conductive polymers have been commercial for many years, and have received increasingly more attention due to the growth of electronics devices vis-à-vis protection against electrostatic discharge (ESD) and electromagnetic interference. ICPs will account for 3.7 million pounds in 2008 and reach 7.9 million pounds in 2013, a CAGR of 15.8%. ICPs are still considered in the early stages of development, although this segment will significantly increase its market share in volume and dollar value over the next 5 years. Many scientists and corporations remain optimistic about ICPs, and hundreds of papers and patents on ICPs are published each year. ICPs have started to slowly penetrate the traditional conductive plastics market in electrostatic coatings. Capacitors are currently the largest ICP application, followed by ESD, sensors, textiles and corrosion protection. A great deal of research and development into conductive polymers has resulted from the continuing proliferation of sensitive electronic devices, the need to protect them, and exciting new technologies. Potential conductive polymer applications include electrostatic dissipation control, antistatic packaging, light emitting displays, capacitors, electrostatic paintable plastics, corrosion-resistant paints/coatings and electrostatic spray painting, and the list keeps on growing.
    • Electro active Polymer Market (Million Pounds/ $ Millions) Electro active Million CAGR% $ Millions Polymer Pounds 2007 2008 2013 2008- 2007 2008 2013 2013 Conductive 286 311 402 5.3 1,366 1,483 1,897 plastics ICPs 3.2 3.7 7.9 15.8 146 170 361 Total 289.2 314.7 409.9 5.4 1,512 1,653 2,258 Competitors/Products & Services Portfolio it is desired that water sources shall be subjected to regular monitoring and surveillance through sustainable water quality monitoring system such as water quality field test kits for screening of large number of sources. Significant chemical test parameters, for which, regular monitoring and surveillance shall aim, may include Arsenic, Fluoride, Iron, Nitrate, Residual Chlorine, Chloride, Alkalinity, Hardness and Aluminium. Some of the major players in the field of water quality monitoring industry are Jal Tara by development alternatives, Orion Ph meters by Thermo Electron Corporation, NCL, Indian toxicological institute and Toshniwal with Jal Tara capturing the major market share. Most of the kits available in the market use common principle of titration with chemical solution. In order to make the kit portable plastic bottle with chemical solution is attached with kit which mixed the required chemical solution with the sample that needs to be tested. This type of testing method needs careful handling of chemical and operator training also. Further this sensor kits have shelf life after which the kit doesn’t display the correct result and kit needs to be replaced. Polysense aqua has got advantage over this traditional kit as it is quantitative based, easy to use and requires less training. There are numbers of players in the market such as Jal Tara kits by Development Alternatives group, Sumeet instruments & chemicals, Ion exchange limited, Techno-as systems, Merck etc which produce kits measuring single or multiple parameters. The most important parameters to consider for water testing kits are price, usability, portability, overheads required, number of features, training requirement, scope of improvement, methodology used in testing, accuracy, efficiency and cost per test per contaminants. Below are some statistics showing comparison of competitive advantage and cost effectiveness of these kits.
    • Arsenic test kits IEHS-china, Merck-HS and CIC-NCL are producing the most efficient arsenic water testing kit in the NCL market currently. Out of this IEHS-China is selling at price which is significantly lower as compared to China other two. Hence going forward Polysense aqua might face tough competition from Chinese and oing other imported kits. Fluoride test kit Ltec-BARC and JAL Tara kits are currently leading in the market as far as fluoride testing kits and are BARC most efficient. Ltec-BARC is available at low price in the market and has more efficiency. able
    • Similarly CPCB-MP for iron and MERCK in Nitrate testing is leading in the market. MP Iron Test kit Nitrate Test kit Below are statistics which shows the overall efficiency of kits available in the market. We can conclude that different kits are specialised in different parameter testing and no combined package kit is available which has higher efficiency in more than one parameter. If Polysense aqua can accomplish this we expect that polysense aqua will have great demand in the market. at No. of Kits Effective Kits S.No. Type of Kits Evaluated (%) 1 Arsenic Test Kits 9 33% 2 Fluoride Test Kits 15 27% 3 Iron Test Kits 13 31% 4 Nitrate Test Kits 11 18% 5 Chlorine Test Kits 9 44% 6 Chloride Test Kits 5 20% 7 Alkalinity Test Kits 2 50% 8 Aluminium Test Kits 1 100% 9 Single Parameter Kits 46 26% Multiple Parameter 10 Kits 4 50% Percentage of Effective Kits
    • Study indicates very low percentage of effective water quality field test kits available in the country for community based water quality monitoring programmes. In order to strengthen CBWQM, following recommendations could be envisaged: Shelf-life study of existing water testing kits should be conducted to ascertain the useful life of the kits. Research and development efforts should be scaled-up and shall focus primarily on: Reduction/elimination of the hazard involved in using the kits. Enhancement of the technical efficiency of the kits. Amelioration of the kits in terms of user-friendliness. The cost of the kits may be rationalized. Type / Name of Kit Parameter Cost (Ras.) Kits made / sold by Development Alternatives Jal TARA WTK-14 14 parameters 7913.00* Jal TARA WTK-11 11 parameters 7238.00* Jal TARA Mini Kit-I Fluoride 1220.00* Jal TARA Mini Kit-II Nitrate 1474.00* Jal TARA Mini Kit-III Iron 1475.00* Jal TARA Mini Kit-IV Free chlorine 1138.00* Jal TARA Mini Kit-V Arsenic 3073.00* Jal TARA - Set of 10 tests Coli form bacteria 290.00* per set Kits made / sold by Rakiro Biotech Systems Pvt Ltd. Aquasol test Kits (drop titration kit) Fluoride 625 Aquasol test Kits (drop titration kit) Free Chlorine 240 Aquasol test Kits (color Nitrate 700 comparison) Aquasol test Kits (color Iron up to 1.0ppm 825 comparison) Aquasol test Kits (color Iron up to 10.0ppm 800 comparison) Bactaslyde test kit ( bacterial slide) Bacteria count 810 Kits made / sold by Ion Exchange (I) Ltd.
    • Easy Test Kit Iron 2840 Easy Test Kit Free Chlorine 1120 Easy Test Kit Fluoride 1120 Easy Test Kit Nitrate 1245 Easy Test Kit for potability of Water 8 parameters 13000 Easy Test Kit E coli 500 Kits made / sold by Sumeet Instruments & Chemicals Arsenic Test Kit Arsenic 2500 Nitrate Test Kit Nitrate 3000 Fluoride Test Kit Fluoride 3200 Iron Test Kit Iron 3200 Multi Parameter Test Kit 10 parameters 11500 Hence the above statistics show that most of the product doesn’t provide a complete package of features. Once has to trade off certain functions depending on the speciality of the instrument. There is a need for a water testing product which can provide multiple features, ease of use, and affordability in one instrument. Competitive Advantage As values are directly displayed on the LCD panel and require no complicated chemical formulae for estimating Portable Battery operated Low maintenance system Data synchronization with computer provided Sensitivity of the instrument is very good compared to its counterparts Six parameters measured by one instrument Doesn’t use chemical based methodology Easy to use and can be used by layman Use of most recent technology
    • Customers Department of drinking water supply Water pollution control board Defence service Educational institutions Local Self Government India has one of the biggest army in the world and hence even if polysense aqua is able sell units equal 20% of the size of the army to the government it is a substantial achievement. Also Education from service being available only to privileged is becoming a necessity transforming itself into a profitable business. The total IT spending by the government and education sector in India was US$1,734.4 million in 2006 and is expected to increase at a compound annual growth rate (CAGR) of 16.8% throughout the forecast period to US$3,770.8 million by 2011. India will have to significantly gear up its academic infrastructure to meet the growing demand for educated professionals. Education improvements are primarily funded by the government through its school infrastructure and large union budget outlays. It has been laying stress on imparting quality education by increasing the number of school and academic institutions. Subsidies are offered to people who want to start up education institutions in order to promote the business. Many other schemes like Sarva Shiksha Abhiyan focus at increasing the number of schools to provide access to larger population, improving the infrastructure in existing school, increasing the enrolment rates and lower dropout rates. India has very minimal infrastructure to store rain water as compared to China, Russia and US. With increasing environmental uncertainty, rising water pollution because of industrial waste, degrading quality of ground water government would require to increase the spending on water industry and improve the water quality monitoring system of India. With this assumption we expect that new laboratories and research institutions would be established in India which can again add to the customer base of Polysense Aqua. Hence we expect that Polysense aqua will continue getting new customers and adding to its customer portfolio. However we also fear that the kind of customers that polysense aqua are targeting are mostly government institutions where the risk in winning the project is quite difficult without political power. Also these institutions are severely infected by corruption and bureaucracy as far as India is concerned.
    • Risks involved and Mitigation Along with inherent risks of start-up we see following risks attached to the business: Since production of the measuring instrument is outsourced, any delays on the part of the supplier will cause a delay in delivery of the goods to our customers, which will in turn affect our revenues. Since most of the products will be sold to government agencies, if the revenue realisation from these agencies is delayed, cash flow may be affected. Since most of these products will be sold to the government agencies, which purchase through an elaborate tendering process, the sales are likely to be lumpy. The management team does not seem to have influential and powerful relations with the various high officials in the government offices. This can prove to be one of the biggest challenge and risk involved with investing in the enterprise. The reason for the same is that India is a country where it is well known that various processes, regulations and formalities can take ages to get completed if one is not in contact with the right people. Also, there exists bias across various sectors in our country where special few are preferred over others. Mr. Bhat founded the Bhat Biotech in 1994 and established it as a viable and thriving business in the area of healthcare diagnostics. Thus there may be conflict of interest between the two enterprises as both would be competing in the healthcare sector. It does not seem to be an appropriate strategy to have a promoter who may have vested interests in the well being of some other organization which is the competitor of PSPL. The enterprise is aiming to tap the market of NGOs. Some of these organizations are small and cater to the rural area. The risk involved here is that the enterprise might never be able to realise this market as the various products would have to be provided to the NGOs at fairly low and competitive prices. Also, other players in the market have tie-ups with the same, thus making it more difficult for PSPL to be able to enter and have a substantial foothold. Although the various innovative products have been mentioned in the plan, the biggest flaw is that no information and comparative analysis has been provided about any product other than
    • Polysense Aqua. We have no information about the market potential, costs involved, expenditure being incurred on these products as of today, and market competitors. This gives the picture that the enterprise is backing only on the success of Polysense Aqua, which makes this proposition very risky. Since Mr. Contractor seems to be the person solely responsible with the research, design, and implementation of the Polysense Aqua, it brings out the fears as to where would the company head if he were to ever leave the company. Although the enterprise has applied for patents, it is well known that implementation of same in a country like India is a formidable task. The biggest example is the pharmaceutical sector. Thus, the risk lies with the fact that once the Polysense Aqua is out in the market, its various competitors are going to ape it. This might lead to price competition which may further force PSPL to lower the price of its product. Another factor is the production of cheap products in China. Although they might not have implemented the technology that Polysense has, it would take them no time to do the dame once the PSPL’s product is out in the market. Since PSPL does not have a manufacturing plant yet, it is heavily dependent on the suppliers, which can prove to be disadvantageous from aspects like delay in delivery and cost. It has been mentioned that the cartridge in Polysense Aqua equipment will have to be replaced 15 times a year. If we calculate the total cost by including these overhead charges, the cost turns out to be higher than that of other competitors like Jal Tara. One of the reasons for the same is that PSPL still does not have a manufacturing firm.
    • Financial Projections and Valuations (According to Researchers) The below stated financial statements and considerations are as per our assumption that is achievable and realisable. We have adopted a conservative approach to estimation of revenue and profitability. Projected Profit & Loss statement PROFIT AND LOSS STATEMENT (in USD) 2008 2009 2010 REVENUES Sale of Polysense + Sensors 295,500 423,000 550,280 EXPENSES Cost of Goods Sold 161,000 252,120 363,145 Gross Profit 134,500 170,880 187,135 Sales and General Administration Exp 32,200 50,424 72,629 R&D Expenses 29,550 42,300 55,028 Depreciation 313 3652 6482 Other Expenses 5910 8460 11006 Operating Profit 66,528 66,044 41,990 Other Income 0 0 0 Profit before Interest and Tax 66,528 66,044 41,990 Interest 0 0 0 Profit Before Tax 66,528 66,044 41,990 Provision for Tax 23285 23115 14697 Profit After Tax 43,243 42,929 27,294 Provision for Dividend 313 313 313 Retained Earnings 42,930 42,616 26,981
    • Project Balance Sheet BALANCE SHEET (in USD) 2008 2009 2010 SOURCES OF FUND Shareholder's Fund Share Capital – Promoters 2,500 2,500 2,500 Share Capital – VC 1,071 1,071 1,071 Share Premium 26,929 26,929 26,929 Reserves and Surplus 42,930 42,616 26,981 Net Worth 72,359 72,045 56,410 Loans Funds TOTAL LIABILITIES 72,359 72,045 56,410 APPLICATION OF FUNDS Fixed Assets Gross block 1,250 14,608 25,927 Accumulated Depreciation 313 3652 6482 Net Fixed assets 938 10956 19445 Investments 0 0 0 Current Assets Sundry Debtors 59,100 84,600 110,056 Cash in Hand & Bank 44521 26913 -462 Current Liabilities Sundry Creditors 32,200 50,424 72,629 Net Current Assets 71,421 61,089 36,965 TOTAL ASSETS 72,359 72,045 56,410 Cost of Manufacturing Cost of Manufacturing Annual Increase in Cost of Goods Sold* 10% Sales & General Expenses as proportion of Cost of Goods Sold 20% Sundry Debtors as % of Sales 20% Sundry Creditors as % of Cost of Goods sold 20% Initial Assets (Testing Eqpt and Electrode Mfg Eqpt) 50000 Annual Rate of Depreciation 25% Reducing Balance Method used for Depreciation Tax Rate (Corporate tax) 35% R& D Investment as % of Sales 10% Interest Rates Long term Debt 10% Provision for dividend (Including CDT) 12.50%
    • Projected sales schedule and assumptions SALES SCHEDULE 2008 2009 2010 Assumptions 2008 2009 2010 Rate of Growth for Polysense 0.20 0.20 Growth 20% 20% Price 187.50 187.50 187.50 Selling Price would not increase 187.5 187.5 187.5 Rise in Cost (125 $) 0.10 0.10 Rise in COGS (%) 0% 10% 10% Sensor sale Per Polysense 12 11 10 Decrease in Rise in Cost (10 $) 0.10 0.10 Sensor Sale per Machine 12 11 10 SALES SCHEDULE 2008 2009 2010 Rise in COGS of Projected Sales (Units) 1000 1200 1440 Sensor (%) 0% 10% 10% Polysense Selling Price 187.50 187.50 187.50 Polysense Cost 125.00 137.50 151.25 Polysense Revenues 187500 225000 270000 Sales Projection on Realistic basis 1000 1200 1440 COGS 125000 165000 217800 Operating Margin 62500 60000 52200 Cartridge 12000 26400 40040 Decrease in selling Price of Sensor Cartridge Selling Price 9 7.5 7 Cartridge 9 7.5 7 COGS of Sensor would Sensor Cartridge Cost Price 3.00 3.30 3.63 increase 0% 10% 10% Sensor Cartridge Revenues 108000 198000 280280 COGS 36000 87120 145345 Operating Margin 72000 110880 134935 Total Operating Margin 134500 170880 187135
    • Estimated investments in Assets and Assumptions Investment in Assets (% of GP) 8% 8% 8% New Assets 5322 13670 14971 Assets 1250 14608 25927 Depreciation 313 3652 6482 Net Assets 938 10956 19445 We assume that investment in miscellaneous assets on % of GP 8% 8% 8% Depreciation WDV 25% 25% 25% Ratio & Break Even Analysis Ratio Analysis 2008 2009 2010 ROE 59.33% 59.15% 47.83% Sales/ Book Value 4 7 15 EPS assuming 1 share of 1$ 12.02 11.93 7.55 Operating Margin 46% 40% 34% Overhead Expenses to Operating Exp 46% 56% 72% Gross Profit/ Net Profit 32% 25% 14% Return on Net Assets 60% 70% 73% Current Ratio 3.22 2.21 1.51 Cash to Net Assets 62% 44% -1% Break Even Analysis 2008 2009 2010 Sales 295,500 423,000 550,280 Variable cost 161,000 252,120 363,145 Semi- Variable Cost 38,110 58,884 83,635 Contribution 96,390 111,996 103,500 Contribution Per Unit 96 93 72 Fixed Cost 29,863 45,952 61,510 Break Even (Units) 310 492 856
    • Valuation before infusion of Capital Valuation Pre Investment 2008 2009 2010 PAT 43,243 42,929 27,294 Depreciation 313 313 313 Cash Flow 43,555 43,241 27,606 Year 1 2 3 Discounting Rate 0.12 0.12 0.12 Discounting Factor 0.89 0.79 0.71 PV of Cash Flows 38888.72 34471.5531 19649.62 Other expenses are taken as percentage of sale @2% 2% Sum Of Present Values 93009.90 Purchase 30% Value – Equity 27902.97 Investment Strategy Investment Strategy 2008 2009 2010 Equity 28000 Debt Commitment (with conditions) @10 % 50000 50000 75000 Rate of Interest 10% PLR+2.25% PLR+2.25% We would embed a real option into the debt converting debt into equity within a period of two years from the date of debt given but only till Dec 2011 as last
    • Valuation of company for converting debt into equity would be Years 2008 2009 2010 Increment for Valuation in future years 40% 60% 80% Valuation of Company for these years 130667 149333 168000 Example Date of loan given Dec-08 Nov-09 Mar-10 Debt given 50000 50000 50000 Rate of Interest 10% PLR+2.25% PLR+2.25% Exercising Right Valid Till Dec-10 Nov-11 Dec-11 Debt conversion in the following years 50000 40000 40000 Equity 38% 27% 24% UPPER Cap on VC shareholding would not be more than 60% at any point of time Investment Plan 2008 2009 2010 Equity 28000 Debt Commitment 50000 50000 75000 Key Benchmarks to achieve Sales of minimum Machines Sensors 800 960 1100 6400 14080 22880 Minimum Level of ROE 30% 30% 30% R&D expenses Both the Products are to be evaluated and stage of development would be considered Rating of UNICEF would be taken into consideration
    • Exit Strategy The Exit strategy is designed with a perspective of 5 – 7 year of time frame. The company is too small to be taken for an IPO. Private Placement or Stake sale to other investors Establishing the brand name for all the products and then exiting each one of them separately Selling the investment to other big players Other methods depending upon scenario and opportunities Control Provisions Two directors in the board Any stake dilution would not be permissible without the consent of VC The VC would have "First right of Refusal" The Promoter cannot engage in any other business with the same kind of research Any dealings with Bhat-Bio- Tech India private Ltd would have to be cleared from the director of VC Both the Products are to be evaluated and stage of development would be considered Rating of UNICEF would be taken into consideration Liquidation Preference Drag along Right would be with VC Tag along Right would also be with VC In case of new entity entry into the business the Right of First refusal would be with VC