Beat the street_team_layman


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Beat the street_team_layman

  1. 1. Acquisition of EmamiBeat The Street Team LAYMAN Mohit Bhatia Navin Agarwal
  2. 2. Agenda• FMCG Industry• Emami- Brands & Shareholder• Emami- Financial Performance• GPRV Analysis• Valuation- Market Multiple• Valuation- DCF• Synergy• Fair Acquisition Price• Fund Raising Plan• Exhibits
  3. 3. FMCG Market India Market Size (US $ bn) Indian FMCG Market 74 Segments Baby care 2% Fabric care 12% 22% Food products 43 Hair care 5% Household 25 4% OTC products 4% 43% 8% Others Personal care 2008 2013E 2018E•The Indian FMCG sector, with a market size of US$ •The boom in various consumer25 billion (2007–08 retail sales), constitutes 2.15 per categories, further, indicates a latent demand forcent of India’s GDP. various product segments.• The FMCG market is set to treble from USD 25.1 •The upper end of very rich and a part of thebillion in 2008-09 to USD 74 billion in 2018. FMCG consuming class indicate a small but rapidlysector will witness more than 50 per cent growth in growing segment for branded products.rural and semi-urban India in current fiscal. •The middle segment, on the other hand, indicates•The industry is poised to grow between 10 to 12 a large market for the mass end products.per cent annually.
  4. 4. Emami-Snapshot of Power Brands
  5. 5. Shareholding Pattern Shareholding Pattern Non Promoter Shareholding Pattern Banks Fin. Inst. and 3.4% Insurance 8.8% Foreign (Promoter & 4.30% 0.01% Group) FIIs18.4% Indian (Promoter & 0.04% Group) Private Corporate Bodies Non Promoter 4.51% 13.76% (Institution) NRIs/OCBs/Foreign 69.3% Others Non Promoter (Non- Institution) General public
  6. 6. Why Emami Versus Other FMCG Companies? More than 80% of Emami’s products have Ayurvedic base.High gross margins, high barriers to entry, strong brandequity, mass acceptance and superior growth Huge brand creator with dominant market shareopportunities. Emami has an established track record of launching new brands and categories and transforming brands High growth potential - Performance of Emami’s products to block-buster brands.has been superior and most of the major categories haveoutperformed the industry average by wide margins.
  7. 7. Emami Over the YearsFinancial Performance The company has shown stupendous growth in the last two years. Net Income has risen by 84.6% in the last one year There has been a healthy ROE. The Assets and Cash has been increasing.
  8. 8. BCG Matrix for Emami Expanding Rural Innovation in Distribution Existing Products Celebrity Stars ? Endorsement to reach mass segment Heavy A&PGrowth MenthoPlus Fair n Handsome Investment HIGH Balm (FY 09) – (FY 09) – INR INR 510 mn 800 mn Navratna OilMarket (FY 09) – INR 1779 mn BoroPlus Cream Navratna Oil BoroPlus Cream MenthoPlus Fair n Handsome (FY 09) – (FY 98) – (FY 98) – Balm (FY 00) – (FY 06) – LOW INR 1433 mn INR 1100 mn INR 390 mn INR 35 mn INR 333 mn Cash Cows Dogs Focus on products Operations in with low competitive Relative Market Share Heavy Categories Intensity from MNC players
  9. 9. GPRV AnalysisThe Growth, Profitability, Risk and Valuation Analysis gives the following findings-• Emami is Valued at Par with the Peers• However the company is ranked higher than Peers with respect to Growth Potential• The Profitability too is at the higher side.• Emami ranks at par with peers w.r.t Risk Free Score
  10. 10. GPRV Analysis
  11. 11. Market Multiples All Values in Millions Enterprise Company Name Price EBITDA EPS 2011 EV/EBITDA Forward P/E value(5) Marico 133.15 4346.00 4.70 83055.27 19.11 28.33Godrej Consumer Products Ltd 417.36 6013.00 14.50 150556.40 25.04 28.78 Dabur India Ltd. 104.30 7710.00 6.90 180183.01 23.37 15.12 Overall Low 19.11 15.12 Overall Median 23.37 28.33 Overall High 25.04 28.78 Emami Ltd. 458.00 2852.42 13.89 70271.60 24.64 32.98Emami with an EV/EBITDA multiple of 24.64 is fairly valued with respect to its peers.
  12. 12. DCF Model Assumptions Below are the base case assumptions: Projected 2010-2015 2015-2020 Terminal YearNet Sales Growth 18% 14% 6.0% DCF Result: RateEBIT Growth Rate 18% 14% 6.0% Firm Value= Rs. 72854 MillionCOGS/Net Sales 38% 38% 38% Value of Equity = Firm Value – Debt= % Rs. 70264 Mn Tax Rate 20% 25% 30% Value Per Share= Rs. 464/Share Weighted Average Cost of Capital (WACC) Notes: Cost of Equity (CAPM model) Market Price 354  Risk Free rate – 7.8% ( Auction of Government Bond 2020) Shares Outstanding Risk free rate 7.8% (in mln) 151.300 Beta -0.56 ( Source: Religare Technova) Market Risk Market Premium 6% Capitalization 53560 Cost of debt- Interest expense as % of Beta 0.56 borrowings calculated from income statement Cost of Equity 10.88% Net Debt 2591 Marginal Tax Rate- Calculated from F Y2010Cost of debt (pre- income statement tax) 8.50% Weight of Debt 4.99%Marginal Tax Rate 20.00% Weight of Equity 95.01% WACC 10.69%
  13. 13. DCF Valuation Sensitivity Analysis Share Price Sensitivity ( Cost of Share Price Sensitivity with equity & Terminal growth rate) Revenue Growth Rates700 520.00 588 499.00600 500.00500 464 480.00 420 464.00400 460.00 Share Price 440.00 432.00 Share Price300 420.00200 400.00100 380.00 0 16% 18% 20% 10.38%, 5.5% 10.88%, 6% 11.38%.6.5The DCF Share price has high sensitivity w.r.t The DCF Share price has relatively lessto terminal growth rate. sensitivity w.r.t to terminal growth rate.
  14. 14. Synergy In Merged EntityBoth HUL and Emami being firms in same industry will lead to following synergies postacquisition:•Cost Synergies: Utilizing each other’s distribution channels will help them save costs.Also, better utilization of manufacturing facilities will further save costs.•Growth Synergies: Emami utilizing the larger distribution network of XYZ will lead to its higherrevenue growth Cost Synergies Value of Cost & Growth SynergyCurrent EBIT Margin of XYZ= 32% 2020000Current EBIT Margin of Emami = 23%Post acquisition EBIT margin of 2010000combined entity = 32.8%Selling & Admin expenses = 11.6% (0.3% 2000000 Rs 234/decrease) ShareManufacturing expenses= 4.2% (0.2% 1990000decrease) Value of Merged firm 1980000 Equity Growth Synergies 1970000Increase in revenue growth rate of 1960000combined firms:2010-15:16.25% (XYZ Projected: 16%) 19500002015-20:12.25% (XYZ Projected: 12%) Without Synergy With Synergy
  15. 15. Fair Acquisition PriceUpper Bound: Rs. 699/Share which includes DCF value for emami and 100%anticipated synergiesLower Bound- Rs. 458 per share which is the current market price.Rationale for Fair acquisition Price:Synergy attributed to emami is in the range of 30-40% Range of Fair Acquisition Price = Rs.544-572Proposed Acquisition Structure:XYZ should go for 51% stake in Emami so as to have a majority stake holding in it.Following is the proposed structure:Promoter – 31% buyoutOffer price: 20% to non-promoter Emami investorsPremiumLower Price – 19%Higher price – 25%
  16. 16. Valuation Summary The overlapping range of EV/EBITDA is 24.77 to 25.04 Share Price range thus arrived is Rs. 460.5-465.6 After Adding Synergy Value the Share Price range is Rs 544- 572
  17. 17. Fund Raising PlanCurrent debt:equity = 0.007Interest Coverage (x)= 67.5Total Deal Amount = Rs. 4305.6 crores ( 51% stake at Rs 558)Suggested fund raising: 70% through fixed deposits of 1000 crores Rs. 3600 crore terminal loan from consortium of banks( Cost of debt = 6.5-7% { Term loan at 9-10% and Tax rate of 33%) )
  18. 18. THANK YOU
  19. 19. Exhibits
  20. 20. FinancialsFINANCIALS-• Consolidated Forecast Balance Sheet• Consolidated Forecast P& L Statement• Beta Calculation• Working Capital & Capex Calculation
  21. 21. FMCG Market India Urban Category wise Growth •A well-established distribution network spread Rural across six million retail outlets. 18% 19% 17% •Rural India accounts for close to one-third of the 15% 13% total consumption pie 9% 7% •Food products is the largest consumption category 5% in India, accounting for nearly 21 per cent of the country’s GDP•Demand will be driven by the rise in share ofmiddle class.•The BRICs report indicates that Indias per capitadisposable income, currently at US$ 556 perannum, will rise to US$ 1150 by 2015 - anotherFMCG demand driver. Spurt in the industrial andservices sector growth is also likely to boost theurban consumption demand.•The current share of organized retail is estimated tobe 4 to 5 per cent and is expected to increase by 14to18 per cent by 2015
  22. 22. Indian Consumer Demography• Large and growing youth population – India is among the worlds youngest nations, with a median age of 25 years – According to a study by the McKinsey Global Institute (MGI), Indian incomes are likely to grow three-fold over the next two decades and India will become the worlds fifth largest consumer market by 2025, moving up from its position in 2007 as the 12th largest consumer market.• Emergence of organized retail business – Approximately 315 hypermarkets are expected to come into existence in tier-I and tier-II cities across India by the end of 2011, riding on the boom in organized retail sector, says a joint study by consultancy firm KPMG and industry body, ASSOCHAM.• Growing urbanization – Indian cities are expected to add 379 million people to the consumer base for FMCG companies, as the urbanization rate is expected to increase from the current 30 to 45 per cent in the next 40 years.• Increasing disposable income – According to recent estimates, household income in the top 20 boom cities in India is projected to grow at 10 per cent annually over the next eight years.