The IB League -2016

STG campus case study

Team MVM
Mithilesh Waghmare
Maitreyi Marlewar
Vishwas Dwivedi

Executive summery

OBJECTIVE

ANALYSIS

RECOMMENDATION

Industry
analysis

Buyer analysis
and strategy

To
understand
the FMCG
sector

Target
analysis

To analyze
Godrej
Consume
Products Ltd
(GCPL)the
buyer

Consolidation
Product innovation
Premiumisation
Product
customisation
Brand consciousness
Increasing hiring
from tier 2/3 cities

Selected
target

Analyze the
target
companies

Expanding horizons
Focus on rural
market
Expanding
distribution networks
Third party
manufacturing
Rising importance of
small sized packs

Valuation of
Buyer

To
identify
potential
target

Synergies

Analysis of sector
reports to gain insights
on how the sector is
progressing, what are
the key opportunities
and challenges in the
sector

Focus on enhancing
presence in Africa
Reducing carbon
footprint and eco
friendly products
Increasing private
label penetration

Assumptions

Valuation
analysis

Analysis and
valuation of
acquirer and target
Assumptions for
valuation
depending on
trends so far

Jyothy Laboratories has put up a strong performance over the years led by the
strong brand equity of its products (the cash cow brand for the company), with
the segment stagnating (4% sales growth in Ujala fabric whitener in FY16),
The Companies is spending much on brand awareness and market penetration.
Earnings growth remaining high, we believe there is lots of scope for operating
margin expansion and margins are likely to remain above industry.
Therefore we recommend the Godrej Corp to acquire Jyothy Laboraties.

Executive summery

Industry
analysis

Buyer analysis
and strategy

Target
analysis

Selected
target

Valuation of
Buyer

FMCG overview:
The organised fast moving consumer goods (FMCG) is the 4th-largest manufacturing sector in India.
The sector is expected to grow at a CAGR of 14.6 % till 2020
Tier II and tier III cities account for nearly 30 % of industry's turnover and are growing at twice the pace of tier I
cities.
Logistics costs account for 8-9 %of FMCG sales
Sector has a simple manufacturing process but a complex distribution network
The fundamentals of the sector remain strong and there is still significant growth potential, given the low
penetration and consumption rates for many FMCG categories.

Synergies

Percentage
Impact of GST change in
rollout on FMCG
cost
Change
Logistics costs

0.8-1.2 %

Down

Dismantling of
check posts

0.5-0.7 %

Down
Down

Warehousing costs
Transportation
costs
3rd party logistics
penetration

Threat of New
Bargaining Power
Entrants
of Customers
(Medium) Competitive (High)
Rivalry
Bargaining Power(High)
Substitute Products
of Suppliers
(High)
(Low)

FMCG sector break up by R evenue

Hair care
Foods
Health supplement s
Oral care
OTC and Et hicals
Home care
Digestives
Skin care

Revenue contribution
35%
Urban
Rural

65%

Ref: CRISIL's Report

Assumptions

25-30 %
1%

Up

Up

Impact of GST rollout on FMCG in

long run:
Greater opportunities for large
distributors who have the capabilities to
handle distribution networks and have
the capabilities to secure and operate
large warehouses.
Lead to global optimization rather than
local optimization
There isn't major investment on
automation of warehouses. Only thing
fixed in warehouses are the racks

Macro economic growth drivers for FMCG:

GDP growth increasing to 7.6 %in fiscal year 2016, from 7.2 %in fiscal year 2015.
The Consumer Price Index is expected to fall within the range of 5-6 %
Wholesale Price Index, virtually nil
Our Current Account Deficit is also under control
Implementation of transformative structural reforms such as the Goods and Services Tax,
however, is imperative to fast track economic growth and boost consumer confidence.
Renewed focus on agriculture and rural sectors by the government is expected to increase rural
disposable income.
The implementation of the Seventh Pay Commissions recommendations is also expected to
propel consumer demand.

Executive summery

consolidati
on

Product
innovation

Premiumisation

Industry
analysis

Buyer analysis
and strategy

Target
analysis

Selected
target

FMCG companies are consolidating their existing business

portfolio which is leading to divestments, mergers and acquisitions

Expanding
horizons

Some companies have been innovating or customising their

existing product portfolios for new consumer segment.

Backward
integration

Despite slowdown ,consumers are willing to but premium goods at

higher prices in space of convenience, health and wellness

Focus on
rural
market

Consumers demand customisation in products.

towards Mass customisation of products is expected to

Product The trend

customisati
intensify .
on

Increasing brand conscious

to continuously focus on innovation,

Brand Companies are required

consciousn
customer engagement
ess

Expanding
distribution
networks

Third party
manufactur
ing

Valuation of
Buyer

Synergies

Companies are exploring the overseas markets and several

regional markets

For increasing profit margins, securing capacity and sources of

supply backward integration is becoming preferred strategy.

The focus is increasing towards rural as the contribution to the

sector from rural is rapidly increasing

To expand into rural markets distribution networks are being

focused.

Reservation of several items for SSI as well as additional tax

incentives have made this route popular.

Promotion
s and
offers

Rising
importance
of small
sized packs

Increasing
hiring from
tier 2/3 cities

Focus on
enhancing
presence in
Africa

Reducing
carbon
footprint and
eco friendly
products

Increasing
private label
penetration

Research
online
purchase
offline

Strategies
adopted

Trends in FMCG
Production
innovation

Ref: CRISIL's Report

Assumptions

Customisa
tion

Executive summery

Industry
analysis

Buyer analysis
and strategy

Extending
Extending leadership
leadership in
in our
our core
core
categories
categories and
and geographies
geographies
Accelerating
Accelerating innovation
innovation and
and renovation
renovation
Building
Building a
a future
future ready
ready sales
sales system
system
Making
Making our
our supply
supply chain
chain best
best in
in class
class
Building
Building an
an agile
agile and
and high
high performance
performance
culture
culture

Target
analysis

Selected
target

Valuation of
Buyer

Synergies

Assumptions

Buyer strategy :
To drive innovation led growth in the categories where we are leaders and have a
competitive advantage.
For Godrej the most important, thing is that they pursue accretive acquisitions that fit well
with our strategy and where they can add value.
Godrej looks for continue to look for acquisitions in our core geographies.
Company is not dependent on acquisitions for growth.
Also, from a funding point of view, we have a lot of cushion in our balance sheet to make
acquisitions that help us accelerate our growth trajectory.

Beyond
Beyond businessbusiness- Good
Good &
& Green
Green

6 Pillars of strategy

Home care

Personal
care

Asia

Hair care

Africa

Latin
America

3 by 3 strategy
3 by 3 strategy
3 by 3 approach - a presence in three business categories (personal care, hair care and home care) in three geographies (Asia, Africa and Latin
America).

Executive summery

Industry
analysis

Buyer analysis
and strategy

Godrej wants to continue to

strengthen our market share
Across categories, and deliver
industry leading profitable
growth.

Target
analysis

Scaling up our Africa

presence, accelerate our new
launches across geographies.

Selected
target

Valuation of
Buyer

Driving digital more strongly

and ramping up capabilities
will be key

Synergies

Assumptions

Deeper analytic approach to

making key decisions and
embed more leading edge
technologies and predictive
tools to improve performance.

key priorities present year

Shortfalls of previous year:
Company should have managed our overheads more tightly
On the innovation front, our pace of timely new launches could have been
better

Company

Buyer
Godrej (India)

Fabric Care Segment

Ezee

Dish Wash Segment

Household Insecticides

Good night, Hit

Personal Care

Godrej Expert, Blunt,

Renew,Nupur,Godrej
no.1,Cinthol,Protext

Food and beverages

Laundry Services& Other
Product
Other

Acer

changing operating model and approach, so as

to get more global:

important for us to leverage benefits of scale,

while retaining an entrepreneurial, agile and
empowered culture

focus is on sharing, collaborating

and cross-pollination

retain the operational autonomy of our local

businesses

Godrej doesnt want to become a multinational

company, but instead continue to leverage the
strong multi-local model that we believe is our
advantage.

Executive summery

Industry
analysis

Buyer analysis
and strategy

Target
analysis

Selected
target

Valuation of
Buyer

Synergies

Assumptions

Jyothy Laboraties
PERFORMANCE
CAGR (Over last 5
years) - 263%

DIVERSIFIED

Fabric Care Segment

Dish Wash Segment
Household Insecticides
Personal Care
Food and beverages

DISTRIBUTION NETWORK
Strong Distribution
Network- Go-to-market
strategy for rural centers

Strong Sales - 1978

Stockists
- 1400
Super Stockists - 260
Sub Stockists - 4000
Rural Outlet - 42200

Bajaj Corp
CAGR (Over last 5
years) 12.12%

Not Diversified

Less presence

Innovation

FINANCIALS
Revenue (USD Million)

- High

254.90
Sales growth % -12.16%
Net profit %
- 32.68%

Brand Extensions - Yes

Brand Building 12.17%
(Advertisement)
Expenditure on R&D - 0.091%

Innovation

- Low
Brand Extensions - Yes
Brand Building 17.22%
(Advertisement)

Revenue (USD Million)

139.2
Sales growth % -12.12%
Net profit %
- 10.33%

Expenditure on R&D - 0.025%

Zydus Wellness
CAGR (Over last 5
years) 6.23%

GROWTH DRIVERS

Innovation
Niche Product

Niche,mainly
Avaiable in urban
Markets

- Moderate
Brand Extensions - No
Brand Building 22.14%
(Advertisement)

Revenue (USD Million)

70.84
Sales growth % -6.23%
Net profit %
- 8.61%

Expenditure on R&D - 0.232%

5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0

3734.76

4137.51

DCF Valuation
Jyothy lab

870.21

Bajaj
Zydus w ellness

Jyothy lab

Godrej

314.89

388.16

Bajaj

Zydus w ellness

Godrej

Godrej+Jyothy

Godrej+Jyothy

WACC

11.00%
10.00%
9.00%
8.00%
Jyothy Lab

Bajaj Corp

Zydus Wellness

Godrej

Executive summery

Industry
analysis

Buyer analysis
and strategy

Target
analysis

Selected
target

Jyothy
Laboratories
Performance

Valuation of
Buyer

Synergies

Assumptions

Bajaj Corp Limited Zydus Wellness Limited

263%

12.12%

6.23%

Yes
Strong Distribution
Network

NO

Niche,

Moderate

Moderate

Low

High

Yes

Yes

No

Brand Building (Advertisement)

12.17%

17.22%

Expenditure on R&D
Revenue(USD Million)

0.091%
254.90

0.025%
139.2328

0.232%
70.84

Sales growth %

12.16%

12.12%

6.23%

Net profit %

32.68%

10.33%

8.61%

CAGR (Over last 5 years)

-

Diversified
Distribution Network
Growth drivers

Innovation
Brand Extensions

Financials

Niche ,mainly available urban Markets

22.14%

Market share of Jyothy laboratory products

Jyothy Laboratories Limited puts utmost emphasis on product and process
innovation. Through product innovation by constantly focus on enhancing the
quality of existing products and develop new ones that meet the expectation
generated by changing lifestyles of consumers.

77.60%

41.60%

8.30% 10.70%

15.50% 15.50%

36.00%

The Company has a state-of-the-art R&D centre at Mumbai, equipped with

advanced lab instruments enabling sustained experimentation and product
development.

Executive summery

Industry
analysis

Buyer analysis
and strategy

Target
analysis

Company Name

Jyothy Laboratories

Market Capitalization(March 2016)

Total Sales
Employees
Acquisition in 2011
Star Brand

5200cr
1644.73cr
5500
Henkel
Ujala Fabric Whitener is
available in 2.9 million
retail outlets.

Distribution Network
Stockists
Super Stockists
sub stockists

2016
1400
260
4000

Selected
target

Valuation of
Buyer

Innovation

Synergies

Assumptions

in Jyothy laboratories

Exo , 1st anti bacterial Dish wash bar in India ,solved problems are
stinking utensil which were vulnerable to bacterial infection
in the detergent category, where we launched Henko LINTelligent.
Maxo Fits All Machines Liquid Vaporiser bottle. The core idea was to
design a bottle that fits all the machines
Maxo Magic Card. We entered this category with a strong and a powerful
differentiator we call it the safety stand.
The safety stand is a simple innovative feature that lets consumers burn
the card without any risk of a burn

FMCG brand
extensions:
Brand
extensions

Launching
new product

are 5 times more successful

Increases sales by 30%
Contributors 30% to brand
sales

The keystone for Jyothy is differentiation every one of our products

has to have a USP, every single product is different and better than
other products in its class.
With each new launch Jyothy has targeted a new segment
The technology used in our manufacturing is of the highest quality.

1,978
Sales
team
members
0.6millio ensuring
n
Jyothy
Outlets Laboratori
reached es
through products
direct
are
sales
available
team
across
India

263%
Growth in
net
revenues
from 2011 to
2016,
CAGR of
21.3% over
5 years

1million
Outlets
reached
through
stockists

24
Manufacturi
ng clusters
across
India

Jyothy laboratories brief overview

Executive summery

Industry
analysis

Buyer analysis
and strategy

DCF Valuation
22%

Net operating
assets

$ 853.33mn

No. of Shares

Selected
target

Valuation of
Buyer

Synergies

Transaction Comparables

WACC

Equity

Target
analysis

Trade Comparables

Equity Value

$792.32 mn
181.11 Mn

Assumptions

EV/EBITDA

EV/Sales

Mean

931.09

1252.49

Min

339.81

549.16

Median

864.94

885.14

Max

2243.93

3257.21

EV/EBITDA

EV/Sales

P/E

Mean

1031.53

1825.09

1001.34

Min

584.34

1524.60

533.04

Median

1057.36

1685.73

995.31

Max

1325.94

2472.41

1502.40

Sensitivity Analysis of Value of Operating Assets- WACC &

Terminal Growth Rate
WACC
$853

7%

8%

9%

10%

11%

1%

929.03

843.68

779.67

729.88

690.05

2%

1048.52

929.03

843.68

779.67

729.88

3%

1227.75

1048.52

929.03

843.68

779.67

4%

1526.47

1227.75

1048.52

929.03

843.68

5%

2123.92

1526.47

1227.75

1048.52

929.03

Growth

Sensitivity

VALUATION
VALUATION ANALYSIS
ANALYSIS
USD Million

Valuation

Weightage

Equity Value

DCF Valuation
Trading P/E
Trading EV/EBITDA Forward
Trading EV/Sales Forward
Transaction EV/EBITDA
Transaction EV/Sales
Residual Income
Weighted Avg. Equity Value

60%
10%
5%
5%
5%
5%
10%
100%

512
100
52
91
47
63
124

Weighted Avg. Enterprise Value

$ 987.65

$ 850.42

Executive summery

Industry
analysis

Buyer analysis
and strategy

DCF Valuation

Target
analysis

Selected
target

Valuation of
Buyer

Transaction Comparables

Synergies

Assumptions

Trade Comparables
USD Million

WACC

10.6%

Operating
Assets

$3701.25 Mn

Equity

$8,035.00 Mn

No. of Shares

340.53 Mn

EV/EBITDA

EV/Sales

Mean

6672.51

4697.95

Min

2925.25

2162.69

Median

6564.13

4918.17

Max

13723.67

7101.47

EV/EBITDA

EV/Sales

P/E

Mean

7303.37

8750.92

6810.62

Min

4527.93

4963.34

3641.12

Median

7628.21

8486.74

6798.90

Max

9388.54

12235.99

10262.80

Sensitivity Analysis of Value of Operating Assets- WACC & Terminal

Growth Rate
WACC
$3,701

7%

8%

1%

4246.54

3846.84

9%

10%

3547.07 3313.91

11%

4839.36

4274.24

3870.59 3567.85

3332.38

3%

5728.59

4872.60

4301.95 3894.33

3588.62

4%

7210.64

5770.15

4905.85 4329.65

3918.08

5%

10174.75

7266.05

5811.70 4939.09

4357.35

Sensitivity

USD Million

3127.39

2%

Growth

VALUATION
VALUATION ANALYSIS
ANALYSIS

Weightage Equity Value

DCF Valuation
Trading P/E
Trading EV/EBITDA Forward
Trading EV/Sales Forward
Transaction EV/EBITDA
Transaction EV/Sales
Weighted Avg. Equity Value
Weighted Avg. Enterprise Value

60%
10%
7.50%
7.50%
7.50%
7.50%
100%

2220.75
681.06
547.75
656.32
500.44
352.35
$ 4,958.67

$ 4,757.37

Executive summery

Industry
analysis

Buyer analysis
and strategy

Target
analysis

Selected
target

Valuation of
Buyer

Synergies

Assumptions

30.0%
25.0%
Economies of scale
Operating
Market power
synergy
Complementary resources

Reduction in Operating
cost by 0.50%
Deeper market
penetration

20.0%
15.0%
10.0%

Jyothy
Godrej
Synergy

5.0%
Increase in economies of sale
Lower
Cost fixed cost

Increased
Synergy purchasing power from suppliers
Elimination of surplus facilities

Increased debt capacity

Financial
Greater cash flows
Lower Cost of Capital
synergy
Tax Benefits

0.0%

Reduction in overheads by
3 % of total employees
across 5 years

Tax Due to impairment of

Benefit Goodwill

Improvement in EBITDA Margin

Marketing and selling complementary

products
Cross-selling into a new customer base
Revenue Sharing distribution channels
synergy Access to new markets
Reduced competition

GoodWill
Equity Purchase Price

Less Seller's Book Value

Plus writeoffexisting GoodWill

Total Allocable purchase

premium

$ 792.33 Mn
344.51
121.68
$569.50

Executive summery

Industry
analysis

Buyer analysis
and strategy

Target
analysis

Selected
target

Valuation of
Buyer

Synergies

Assumption

Bagged prestigious Western Railways at Ahmedabad BOOT contract for 10 years. Bagged prestigious
Delhi International. Airport Limited (DIAL) BOOT project for 15 years

Highlights of the company

Company Name
Market Capitalization(March
2016)
Total Sales

Jyothy Laboratories

Employees

5500

Assumptions
Increased By CARG 7.46%
for 2 years
Increased By CARG 11.28%
for 2 years
Increased by CARG 14.1%
and then innovative product
will cause increase in
revenue

More money in
R&D,Accepted to
Grow because of
Operational
Efficiency,Impact of
GST,Increasing
rural Demand,Good
Monsoon,Increased
by CARG

Deceased and then slowing

Increasing ,Election Impact,
Competition from pantanjali,
Increasing Crude Oil Prices

Constant

5200cr
1644.73cr

Sectors Break Up

Forecast
2021
2022

2017

2018

2019

2020

7.46%

7.46%

6.50%

6.60%

6.80%

% Growth
Household Insecticides

11.28%

11.28%

11.50%

11.60%

% Growth
Personal Care
% Growth
Laundry Services& Other
Product
% Growth
Operating Expenses

14.10%

14.10%

14.50%

6.60%

6.60%

5.00%
5.50%
86%

Fabric Care Segment

% Growth
Dish Wash Segment

% of Revenue

2023

2024

2025

2026

6.00%

6.00%

6.00%

6.00%

6.00%

11.80%

11.00%

11.00%

11.00%

11.00%

11.00%

14.60%

14.65%

14.00%

14.00%

14.00%

14.00%

14.00%

6.80%

6.50%

6.40%

6.00%

6.00%

6.00%

6.00%

6.00%

6.00%

6.50%

7.00%

6.50%
6.50%
76%

6.50%

6.50%

6.50%

Decrease because of GST, 10% deduction

Executive summery

Industry
analysis

Buyer analysis
and strategy

Target
analysis

Selected
target

Valuation of
Buyer

Synergies

Assumption

Highlights of the company

Company Name

Godrej

Market Capitalization(March
2016) cr

50758.24488

Total Sales

1392.270769

Make In India
Favorable Budget Income

rise
Good Monsoon,
Innovative
Impact of
Product,Reach to
GST
rural Market

Assumptions

Break Up

Constant growth

Forecast
2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

Revenue
% Growth

Operating Expenses

8.15%

10.00% 10.50% 11.00% 11.30% 11.30% 11.30% 11.30% 11.30% 11.30%

82.60%

% of Revenue

Tax

76%

Decrease because of GST, 6.6% deduction

30%

REFERENCES
http://www.godrejcp.com/about-us.aspx
http://www.godrejcp.com/investors.aspx
http://www.jyothylaboratories.com/invester.php
http://www.zyduswellness.in/financial.html
http://www.bajajcorp.com/investors.html
https://www.researchbytes.com/Landing_Page.htm
http://www.motilaloswal.com/research-search-listing.aspx?searchres=COM%7CJyothyLaboratoriesLtd
https://www.researchbytes.com/Jyothy-Laboratories-Limited-J0263.htm
http://www.motilaloswal.com/research-search-listing.aspx?searchres=COM%7CJyothyLaboratoriesLtd
https://www.researchbytes.com/Bajaj-Corp-Limited-B0742.htm
http://www.motilaloswal.com/research-search-listing/COM/Bajaj-Corp-Ltd/533229
https://www.researchbytes.com/Zydus-Wellness-Limited-C0047.htm
http://www.cii.in/
http://in.reuters.com/
https://www.pwc.in/assets/pdfs/rc-publications/innovation-in-fmcg.pdf
http://www.gartner.com
https://in.finance.yahoo.com
http://www.moneycontrol.com
http://www.bloomberg.com
http://www.ibef.org
http://pages.stern.nyu.edu/~adamodar/
http://www.business-standard.com
https://www.library.siu.edu.in/index.php

Thank You