Maverick

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  • 1. Maverick Business Challenge
  • 2. Executive Summary Industry Highlights Industry Highlights Financial Analysis Competitive Position Recommendation • Includes information about the current Aerospace and Defense market scenario, the problems faced by the industry, the Aerospace and Defense country wise share in the global context , revenues , operating profit and operating profit margin made by top 100 A&D contractors in 2014 etc. Financial Performance • Forecasting of Milco revenue on the basis cost CAGR, Revenue CAGR, Sales unit CAGR. • Ratio and Dupont analysis of Milco in respect to industry • Identified the segment which is not performing well and you may exit from it on the basis of ROCE keeping the WACC benchmark in mind. Competitive Analysis • Analysis of various competitors of Milco based on their revenues in the business in which Milco operates. • SWOT analysis to asses the market conditions and what leverage does Milco have in the market arena. • Porter 5 Force Analysis to provide information about the competitiveness of global Aerospace and Defense market. Recommendations • Suggestions based on financial and competitive analysis as to what business Milco should exit, acquire and expand. • 5 point strategy that Milco can consider to be profitable in this current declining market.
  • 3. Executive Summary Industry Highlights  The top 100 A&D companies reports $719bn in revenue and $66bn in operating profit.  Commercial Aerospace grew by 16%, while defense aerospace grew by 4% in terms of Operating Profit.  Due to the declining budget spending in United States and other developed economies(which were affected by 2008 recession), the A&D companies are suffering decline in revenues and profits.  Top 20 A&D contractor's revenues decreased by $5.8bn(2.5%).  Only 3 of the Top 20 A&D contractor’s experienced a revenue growth in 2013 compared to 8 in 2012 and 10 in 2011. Top 100 A&D companies statistics United States UK, China, Russia, Japan, France Financial Analysis Australia, Brazil, Germany, Italy, India, Saudi Arabia, South Korea, Turkey, Canada, Israel A&D market share Summary(US $ billions) 2013 2012 Change Revenue 719 692 4% Operating Profit 66 60 10% Operating Margin 9.24% 8.72% 0.52% Competitive Position Recommendation
  • 4. Executive Summary Industry Highlights Financial Analysis Competitive Position Recommendation IN$MN FY14 FY15 FY16 FY17 FY18 FY19 Revenue 2005 2080 2162 2252 2350 2457 MFS 600 606 612 618 624 630 MRO IT Sys 300 324 350 378 408 440 MFSI 350 353 357 360 364 367 MFSS/M 400 404 408 412 416 420 MRO IT System S 230 247 266 286 307 330 MFC 125 146 170 198 231 270 GROSS MARGIN 48% 47% 47% 47% 47% 47% MFS 40% 39% 39% 38% 38% 37% MRO IT Sys 40% 40% 40% 40% 40% 40% MFSI 66% 66% 66% 66% 66% 66% MFSS/M 50% 50% 50% 50% 50% 50% MRO IT System S 50% 50% 50% 50% 50% 50% MFC 40% 42% 44% 46% 48% 50% SG&A 401 416 432 450 470 491 EBIDTA 554 572 592 615 640 670 Depreciation 128 143 149 149 149 158 EBIT 426 429 443 466 492 512 NOPAT 298 300 310 326 344 358 Interest 65 69 69 69 69 69 PBT 361 360 374 397 423 443 PAT 252 252 262 278 296 310 Note: 1) Revenue is calculated based on Cost CAGR, Revenue CAGR , Unit CAGR of every stream. SG&A is 20% of revenue. 3)Depreciation is calculated using asset proportion. Interest rate is taken 3.62% based on average of companies' interest rates having Market cap between $3 B to $9 B in airline and defence industry as given cap is $6.25 B. Milco has better measures than Industry. MFS is expected to increase by 1% even though the U.S. MFS Market is dipping Better Net Margin Lower asset quality EBIT(%) REVENUE(%) notes: MFS=Military Flight Simulator, MFSI= Military Flight Simulation Instruction, MFSS= Military Flight Simulator Maintenance
  • 5. Segmental Metrics (USD Million) Revenue EBIT %Revenue EBIT% F14 Cash ROCE Revenue CAGR EBIT CAGR MFS 600 87 30% 20% 18% 0.01 -5% MRO IT Sys 300 44 15% 10% 8% 0.06 9% MFSI 350 127 17% 30% 22% 0.01 0% MFSS/M 400 108 20% 25% 17% 0.01 1% MRO IT System S 230 57 11% 13% 10% 0.06 8% MFC 125 4 6% 1% 2% 0.13 68% Notes: Cash ROCE is calculated as (EBIT+ depreciation)*(1-tax Rate) as numerator and for denominator Capital employed calculated using PP&E ratio (3:3:3:3:3:5) allocation. MFS/MFSI/MFSSM MFS :better Cash ROCE (18%) near to WACC(20%) MFS :accounts 30% Revenue and 20%EBIT 5 players in top 80%, less competition Negative or less EBIT CAGR & less Revenue CAGR MRO IT Sys/Sys S Accounts 15% revenue and 10% EBIT 6% Revenue CAGR and 9% EBIT CAGR. Two business lines: Sys/Sys S accounts together 21% revenue and 13% EBIT Three business lines accounts 67% revenue and 65% of EBIT MFSI ,MFSSM have better ROCE Not good Cash ROCE MFC Merely 2% Cash ROCE and not have any similar business lines Accounts only 1% of EBIT and 6% of Revenue Highest EBIT CAGR and Revenue CAGR Cash ROCE must be higher or approx. equal to WACC =20% Does it accounts maximum revenue and EBIT of business  Are Segment related to each other or not? MAY Exit MFC Segment MFC Segment Judgment Criteria Executive Summary Industry Highlights Financial Analysis Competitive Position Recommendation
  • 6. Executive Summary Industry Highlights Financial Analysis Based on the data provided in the case, we calculated the revenues of each competitor in all the segments and here is our analysis.  We are the market leader in the services we provide  We have the maximum revenue ($2bn), followed by B,A,C,D,E in order. Segment wise competitor in all the segments is shown in the below table. IN $MN Market Size Milco A B C D E Segment Wise MFS 3000 600 450 0 0 0 0 A MRO IT Sys 2941 300 0 59 206 29 6 C MFSI 1750 350 88 0 0 0 0 A MFSS/M 1143 400 11 0 0 0 0 A MRO IT System S 1150 230 0 23 46 12 2 C MFC 125000 125 0 0 0 0 0 Not Applicable Others 0 549 1094 432 170 192 Total 2005 1098 1176 684 211 200 Competitor Ranking(Revenue) 2 1 3 4 5 Additional Market Share can be captured In: Recommendation Porter 5 Forces Analysis Competitive Position 1)MRO business line is less competitive :15 players account top 80%. current market share is not too large :15% and 11.5% of company revenue is current status. Can grab more share.  2)Secondly can go for the additional share in MFSI as 17.5% of company revenue is not too large and 5 players are there in market makes it less competitive.
  • 7. Executive Summary Industry Highlights Financial Analysis Competitive Position Selling off Military Facility Construction business Recommendation •Reason 1 : Return on capital employed(ROCE) is 2%. •Reason 2 : There are 100 companies fighting for top 80% of business. Too competitive. Expansion of MRO business through acquisition •There are 15 companies fighting for top 80% of business. •Competitor D is considering closing of MRO business. •Our market share for MRO IT system and MRO IT system service is not much considering 15% and 11.5% respectively. Expansion of Flight Simulator business •Revenue CAGR is only 1% and we are already market leader in this ,so can enter Globally. •There are only 5 competitors fighting for top 80% of business in U.S. markets, so chance to increase domestic share as well. •Can expand Military Flight Simulation Instruction as existing share 17.5% is not too large.
  • 8. There is an increase in defense budget in emerging economies (South East Asian countries). We can export our offering there. International Markets Commercial Markets Inorganic development through acquisitions Personal Security Solutions Cutting edge solutions There is an increase in number of people traveling via air in emerging economies resulting in increase in number of airplanes. We can increase our simulator and MRO business in these markets We can extend our offerings to other parts of govt., or get into a personal security business, thereby increasing our product portfolio. We can create solutions at individual level to prevent crimes like rape, theft, abduction etc. Investing in R&D in future technologies like cyber- security, UAV’s(Unmanned Aerial Vehicle), C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) ), big data and security etc. We can tie-up or form partnership with local vendors/OEM’s in emerging economies and foster our business in these markets. Executive Summary Industry Highlights Financial Analysis Competitive Position Recommendation
  • 9. REFERENCES http://defensecontractormarketing.com/2013-defense-news-top-100/ http://www.defensenews.com/article/20140803/DEFREG02/308030015/Blurred-Lines- Commercial-Defense-Sectors-Begin-Blend http://dupress.com/articles/additive-manufacturing-3d-opportunity-in-aerospace/? Siddharth Bhardwaj Mohit Singhal Rushi Dave (rushi_dave@scmhrd.edu) id=us:2el:3dc:dup706:eng:dup:3dopp http://www.researchmoz.us/the-global-military-simulation-and-virtual-training-market-2014- 2024-report.html http://www.deloitte.com/view/en_US/us/Industries/industry-outlook/ 482fbd7affa3c310VgnVCM1000003256f70aRCRD.htm http://global.sap.com/community/ebook/2013_03_24663/enUS/index.html#/page/3 https://www.link.com/media/press/pages/default.aspx https://www.link.com/media/press/Pages/20140722.aspx http://www.globalsecurity.org/military/world/spending.htm http://defensecontractormarketing.com/defense-industry-associations/ http://defensecontractormarketing.com/why-smart-defense-contractors-are-investing-in-international- marketing/ http://defensecontractormarketing.com/top-100-aerospace-companies-2013/ http://www.mckinsey.com/insights/manufacturing/defense_outlook_2015 http://www.digitaljournal.com/pr/2102020 http://www.newson6.com/story/25563347/the-global-military-simulation-and-virtual-training-market- 2014-2024-market-size-and-drivers-market-profile