The document provides an analysis of MILCO's business case challenges. It analyzes MILCO's financial health, product portfolio, and competition. For the product portfolio, it uses a GE-McKinsey matrix to evaluate products based on industry attractiveness and business strength. It finds that MILCO should divest its military facility construction business and invest in growing its military flight simulation businesses. It also recommends that MILCO look for partnerships and acquisitions to expand into new markets and products.

1. Business case Challenge Analysis for
“The Maverick” Season 3
TEAM: NM Paladins
NMIMS Mumbai
*Please open in full screen mode
Team Members
Bhuvan Malik
Piyush Jain
Sujatha Gnanasekher

2. Executive Summary
OBJECTIVE #3
ANALYSIS METHODOLOGY
FINDINGS
RECOMMENDATION
Source: Maverick Case
OBJECTIVE #1
To assess MILCO’s overall Financial
health and Performance
ANALYSIS METHODOLOGY
On the basis of given revenue data,
Balance Sheet and income
Statement of MILCO, we found the
Operating Margins and Profitability
Margins, Leverage capabilities,
Future Projection till 2019 for the
company
FINDINGS
It was found that MILCO was having
good Operating Margins as per A&D
Industry standards, but problem
with WACC and SG&A expense
which are too high.
RECOMMENDATION
In order to retain profits in the
declining A&D industry bring in
continuous technological
innovations through R&D and
improve operational efficiency
through organic and inorganic route
OBJECTIVE #2
To analyze MILCO’s Product Portfolio
and suggest exit options
ANALYSIS METHODOLOGY
We analyzed MILCO’s products and
services based on Market Share,
Growth trends, Projected Margins
and constructed a GE-McKinsey
Nine-Box Matrix to assess each
offering based on Industry
Attractiveness and Business Strength
FINDINGS
We found that all of the MILCO’s
offerings have significant growth
potential over the future except
Military Facility Construction(MFC)
RECOMMENDATION
MILCO should divest MFC as its
NOPAT is very low, market share is
less than 1% and high competition
intensity; use the proceedings to
reduce high cost debt so as to
improve the leverage position
To assess MILCO’s Competition and
suggest measures for future growth
We assessed MILCO’s 5 given
competitors based on Revenue of the
companies, Market Share in each of
MILCO’s Product/Service offerings
and future growth and investment
strategies of the competitors as given
in the case
MILCO has competition from smaller
niche players in the industry.
Opportunities exist for MILCO to
grow inorganically as well as
expanding in Emerging Economies
Look for JVs and M&A with niche
companies to grow market share.
Expand in growing economies of
Asia, Middle East. Look for growth in
Civil Aviation forming alliances with
Top OEMs, Airlines etc.

3. Aerospace & Defense Industry: An Overview
19%
2012 2017 2022
26
%
Defense Spending Budget 2013 ( USD Bn)
6
5
4
3
2
1
Civil Aviation Training &
Simulation Market
Key Growth Drivers
Source: Alix Partners Report, Team SAI 2012-13 Report, Deloitte Global A&D Industry Outlook
612
126
43
45
46
49
53
56
76
0 200 400 600 800
France
Germany
India
Japan
UK
Saudi Arabia
Russia
China
USA
• Top 20 spenders’ defense budget more
than 1.31 trillion
• Middle East countries like Saudi Arabia and
Oman, and regional arms race in Asia
fuelling this growth
• Global growth expected to maintain a
3.3% CAGR through 2022
• $49.5B industry to grow to $68.4B by
2022
• New Entrants and bankruptcies in US
market fuelling M&A deals
• Key growth requirements will be access
to capital, willingness to invest Long-term
and strong coverage in emerging
economies
41
%
33
%
36
%
33
%
31
%
33
%
33
%
34
%
Region Americas Europe Asia
CAGR 0.90% 2.90% 6.10%
• Market expected to double in next
20 years
• 517,000 pilots needed to be trained
in the next 20 years
• Market will be worth USD 25 Billion
by 2032
• Asia Pacific, Middle East, China and
Latin America key growth areas
4.8
3.6 3.6
5.1
4.8
5.4
5 5 5
743 771 798 839 880 937 984 1033 1085
0
1200
1000
800
600
400
200
0
Market Size(USD Billion) % Growth
22% 59%
US Europe Asia
• Economic Growth – Global economy
expected to grow between 4.4% and
4.6% till 2020
• Environmental concerns – Will fuel
replacement market as airlines are
committed to improve average fuel
efficiency by 1.5% per annum until 2020
• Focus on fuel efficient and clean
technology – As oil cost make 30-40%
of the airline cost, coupled with
fluctuating oil prices due to unrest in
middle east has led to demand for fuel
efficient planes
• Growth of Low cost carriers(LCC) in
developing economies
• Network expansion by operators
Region Wise Market Share
Market Size = USD 900 Billion
Global MRO Industry
A&D Market Size and Growth

4. MILCO: Income Statement and Financial Analysis
Financial Health of MILCO
• EBIDTA margin = 47.6% and NOPAT margin=15.8%
which is less than WACC i.e. 20%
• Debt/Equity ratio = 1.38 which is quite high as
Source: Maverick Case, JP Morgan
industry avg. is < 1
• ROE= 19.5% which should please most of the
investors
• Price/Book value = 4.81 which implies that investors
have faith in this company’s future prospects
• Inventory while sales which means company is
improving its operational efficiency
(refer APPENDIX A for further details)
• Working Capital = Current Assets- Current Liabilities
= 900 Mn (+ve) shows MILCO’s ability to grow, expand
and take advantage of opportunities
• Current ratio = CA/CL = 1.77 shows that MILCO has
the ability to cover all its short term obligations
Particulars(2014) USD Billion Margins
Total Revenues $2.005
COGS $1.050
Gross Profit/EBIDTA $0.955 47.63%
SG&A Expense $0.401
Dep. & Amort. expense $0.101
PBIT $0.453
Tax@30% $0.14
NOPAT $0.317 15.82%
Key Assumptions
• SG&A expense has been taken as 20% of revenue as given in the case
• Depreciation & Amortization is taken product wise as given by lifespan and IP life respectively as per
case and methodology for Depreciation is assumed to be SLM(Straight Line Method)
• EV/EBIBTA for recent M&A deals in this sector is assumed to be 8.5x as per JP Morgan estimates

5. MILCO: Product Portfolio Analysis
Notes for GE-McKinsey Matrix:
Calculation details shown in Appendix B
Size of the circle represent the market size
Blue Pie in the circle represents Milco’s market share
Arrows Indicate the growth trend for the product
Source: Maverick Case and Mckinsey.com
Market Size
($ Billions)
Market
Growth
Trend in
2015
No. of
Players
Milco's
Market
Share (%)
Size in
Product
Portfolio
(%)
Product
wise
CAGR
(%)
NOPAT
in 2014
(%)
Military Flight
Simulator 3.00 down 5 20.0 30.0 1 10.50
MRO IT System 3.00 up 15 10.2 15.0 10 10.50
Military Flight
Simulation
Instruction 1.12 up 5 20.0 17.5 1 29.60
Military Flight
Simulator
Maintenance 1.75 flat 5 35.0 20.0 1 18.90
MRO IT System
Services 1.15 up 15 20.0 11.5 9 17.35
Military Facility
Construction 125.00 flat 100 0.1 6.0 21 2.80
Divest
MFC
*Least
share &
profit
*Heavy
Competit
ion
Invest in MFSI
*Highest Profit
*↑ Growth
* Lesser
Competition
Invest in MFSM
*Good Share
*Good Profit
* Less
Competition
Hold MFS
*Relatively
less profit-ability
*Good Share
*↓Growth
Invest in MRO
ITS. Service
*↑ Growth
* Good Profit
*Good CAGR
Hold MRO IT
System
*Relatively
less profit-ability
*↑ Growth

6. MILCO: Competitors Analysis
Source: Maverick case
Revenue (in USD Million) *
2005
1097 1200
700
214 200
2500
2000
1500
1000
500
0
35
30
25
20
15
10
5
0
All Competitors Smaller
players than MILCO
based on Revenue
* Refer APPENDIX B for Revenue Calculation
Military Flight Simulator
MRO IT System
Military Flight Simulation
Instructio
Military Flight Simulator
Maintenance
MRO IT System Services
Military Facility
Construction
Product Wise Market Share
PRODUCT
MAJOR
COMPETITORS
Military Flight
Simulator A
MRO IT System C & B
Military Flight
Simulation
Instruction A
Military Flight
Simulation
Maintenance A
MRO IT System
Services C & B
Military Facility
Construction None
Competitor A
Plans to expand in
International
markets
MILCO would want
to focus on first
mover advantage,
Best Pricing and
Unmatched
Product/Service
Quality
Competitor B
Expansion plans in
MRO Offerings
MILCO can target
the company for a
JV to provide MRO
IT Systems &
Services directly to
Competitor B
Competitor C
Expansion plans in
MRO IT Solutions
MILCO could target
the company for
acquisition, form a
JV or seek growth
opportunities in
segment before
Competitor B starts
aggressively with
expansion plans
Competitor D
Considering close of
MRO Line
MILCO can acquire
their MRO IT
Systems & Services
business for a value
of USD 100 Million
Approx. (Refer
Appendix for
calculation)
Competitor E
Civilian Focus but
Seeks Military
Market
MILCO should try to
retain and grow its
market share in
Military by
providing Best
Quality products
and Services at
Competitive Pricing
Impact of each Competitor on MILCO and MILCO’s Recommended Plan of Action

7. Financial Projections
• EBIDTA = 48.5% , NOPAT = 20.55% which is
greater than WACC i.e. investors are making
money
• Acquiring Competitor D MRO IT & Service
segment and divesting Military construction
Facility business has helped to make business
profitable
• All segments except A,B have NOPAT>20%
• $150 Million Capex in 2019 will be spent
depending on segment performance or
otherwise acquiring new businesses such as
Healthcare Simulation or Mining Simulation
• SG&A expenses to be reduced from 20% in
2014 to around 15% in 2019 as per industry
norms
• Expand Product Military flight Simulation
by investing Capex USD 100 mm in 2016;
Market Share in this segment will increase to
30% by 2019
• WACC is expected to decrease by reducing
cost of debt while R&D expense to increase
to 10 % of revenues by 2019
• Military flight simulation will be the most
preferred segment
MILCO: Estimated Financials-2019
USD Billion Margins
Total Revenues $2.448
COGS $1.261
Gross Profit/EBIDTA $1.187 48.5%
SG&A Expense $0.367
Dep & Amort expense $0.101
PBIT $0.718
Tax@30% $0.22
NOPAT $0.503 20.55%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Military Flight
Simulator
MRO IT System Military Flight
Simulation
Most Profitable
segment
Military Flight
Simulator
Maintenance
MRO IT system
services
2019 Financials
Total Revenues Gross Profit/EBIDTA NOPAT
Source: Maverick case, Team Estimates
Key Assumptions

8. Management’s Top Priorities & Recommendations
CHALLENGES RECOMMENDATIONS
Source: Case Study, Deloitte A&D Industry Outlook Report
1
2
3
4
5
Reducing US
Defense Budget
• Reduce dependence on US Military Market
• Expand operations in Civil A&D Industry through MRO IT Services
• Establish operations in emerging economies in Middle East & Asia
Low Operating
Profits and ROI in
Core Offerings
• Reduce SG&A Expense ( Current: 20%; Industry Average: 13-15%)
• Divest Non-Profitable & Non-Core business of Military Construction Facility
• Supply Simulators to Pilot Training Institutes
• Reduce COGS by bringing in best Operational and Industry Practices
Competition From
New Entrants
• Increased investment on R&D to maintain technological edge
• Acquire MRO IT Systems business of Competitor D and gain Market Share
• JVs and M&A of niche technological companies in US as well as Emerging
Economies of Asia and Middle East
Rising Costs and
Operational
Efficiency Issues
• Substitution of Process Automation over Extensive Labor
• Implement Lean Manufacturing and Six Sigma initiatives
• Focus on Digital Product Development and Computer Aided Design
Sustain Profits and
Long Term Growth
in Declining A&D
Industry
• Application of Military Technological Innovations in Civil Aviation and
Emerging Economies
• Focus on next Generation ISR (Intelligence, Surveillance, Reconnaissance)
• Cyber Security and Adjacent Markets

9. Appendix A
Source: CRISIL Research
Assets
2014
Values($
M)
2015
Values($
M) Liability and Equity
2014
Values($
M)
2015
Values($
M)
Cash $400 $500 A/P $500 $600
A/R $700 $800
Long term debt( current
portion) $200 $200
Inventory $500 $400 Long term debt $1,600 $1,700
Plant &
Equipment $2,000 $2,100 Shareholder's Equity $1,300 $1,300
Total
Assets $3,600 $3,800
Total Liability and
shareholder's Equity $3,600 $3,800
Balance Sheet
Depreciation Calculation(SLM)
Assets
2014
Values($MM)
Depreciation($M
M)
Tangible
Military Flight Simulator $300Dep@10Yrs $30.0
MRO IT System $300Dep@20Yrs $15.00
Military Flight Simulation Instruction $300Dep@25Yrs $12.00
Military Flight Simulator
Amort@25Y
Service/Maintenance $300
rs $12.00
MRO IT System Services $300
Amort@25Y
rs $12.00
Intangible Assets
Military Facility Construction Service $500
Amort@25Y
rs $20.00
Total Depreciation $101.0
GE-McKinsey Weighted Score Calculation Rating: 1 - Extremely Weak; 5 - Industry Average; 9 - Extremely Strong
The GE–McKinsey Product Portfolio Analysis - Customized Weighted Score Calculation
Industry Attractiveness
Weight Military Flight
Simulator
MRO IT
System
Military Flight
Simulation
Instruction
Military Flight
Simulator
Maintenance
MRO IT
System
Services
Military Facility
Construction
Market Growth 0.25 2 8 8 5 8 5
Market Size 0.25 4 4 2 2 2 9
Product Profitability(Gross Margin '14) 0.25 5 5 9 7 7 5
Industry Rivalry 0.25 7 5 7 7 5 1
Total Weighted Score 1.00 5 6 7 5 6 5
Business Unit Strength
Weight Military Flight
Simulator
MRO IT
System
Military Flight
Simulation
Instruction
Military Flight
Simulator
Maintenance
MRO IT
System
Services
Military Facility
Construction
Market Share 0.5 5 5 5 8 5 1
NOPAT in 2014 0.3 5 5 9 8 7 1
Product wise Growth(CAGR) 0.2 2 8 2 2 8 9
Total Weighted Score 1 4.4 5.6 5.6 6.8 6.2 2.6

10. Appendix B
Ratio Calculations
Debt/Equity 1800/1300 1.38
Price /Book Value 6.25/1.3 4.81
Return on Equity 254/1300 19.5%
Source: Maverick Case
Competitor D IT Business Valuation
Competitor Revenues Analysis
Competitor D
Segment
Company's Specific % of
Business
Overall Market
Share
Product
Revenue
MRO IT System 14% 1% 29411764.71
MRO IT System Services 4.50% 1% 11500000
Total Revenues 40.91
Approx as per industry EBITDA Margins 50%
Current Industry trends for M n A EV/EBIDTA Multipltes 6.8x(20% dis)
Fair Valuation 139.5
Fair value for acquiring competitor
D IT systems and services is
approx. USD 139 millions(Bolt-in
Acquisitions) which can done by
taking long term debt
Milco Competitor A Competitor B Competitor C Competitor D Competitor E
Product/Service
Company's
Specific % of
Business
Overall Market
Share
Milco
Product
Revenue
Company'
s Specific
% of
Business
Overall Market
Share
Product
Revenue
Company'
s Specific
% of
Business
Overall Market
Share
Product
Revenue
Company'
s Specific
% of
Business
Overall Market
Share
Product
Revenue
Company'
s Specific
% of
Business
Overall Market
Share
product
Revenue
Company'
s Specific
% of
Business
Overall Market
Share
Product
Revenue
Military Flight Simulator 30% 20% 0.6 41% 15% 0.45 0% 0% 0% 0% 0% 0% 0% 0%
MRO IT System 15% 10.20% 0.3 0% 0% 5% 2% 0.06 30% 7% 0.21 14% 1% 0.029 3% 0.20%0.006
Military Flight Simulation Instruction 17.50% 20% 0.35 8% 5% 0% 0% 0% 0% 0% 0% 0% 0%
Military Flight Simulation Maintenance 20% 35% 0.4 1% 1% 0% 0% 0% 0% 0% 0% 0% 0%
MRO IT System Services 11.50% 20% 0.23 0% 0% 2.50% 2% 7% 4% 4.50% 1% 1% 0.20%
Military Facility Construction 6% 0.10% 0.125 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Other 0% 50% 93% 63% 81% 98%
Total Revenues 2.005 B 1.097 B 1.2B 0.7 B 0.214 B 0.2 B