BULLS EYE CASE STUDY SAKAAR CAVINKARE

S.No Participant Name 1 Amritansh Rastogi 2 Ashish Ranjan 3 Sitanshu Mishra

College SCMHRD SCMHRD SCMHRD

AGENDA
FMCG Sector Analysis
Overview : Sakaar & CavinKare Valuation Synergy Deal Structure Potential Issues
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FMCG Sector Analysis

Current Market size = USD 29Bn1
25 44 74

YoY Growth(2010-11): Sales 15.3%, Operating Profit 12.4%, PAT 19.5%2 Rural Sector (2011) USD 9 Bn, Expected to become USD 100Bn by 2025 Penetration Rural/Semi Urban increased from 9.5% in 2000 to 51% in 2011 By 2025, India is poised to become the world's fifth-largest consuming country from the twelfth position in 2010

Next Growth Wave Comes From

Rural Market
Government rural spends: Up from USD 5bn in 2006 to USD 10bn in 2010 NREGA provided employment to ~50mn homes Growth in Minimum Support Price (MSP)

Increased Disposabl e Income

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Multiple Working Members Reduced Taxation 12%+ salary increase over past 5-6 years

Continued
Organized Retail
Adds to shelf space visibility Enhanced supply chain and penetration

Government Incentive

Tax holiday in Uttaranchal, HP, Assam and J&K Implementation of VAT and now movement to GST Change in FDI policies; 100% in Single brand and 51% in Multi Brand retail

Lifestyle and Premium Products

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Changing Lifestyle Rapid Urbanization Increase in brand-consciousness

PEST Analysis
POLITICAL GST Regime Transportation & infrastructure development in rural areas to help in distribution network Restriction in import policies Help for agricultural sector ECONOMIC High GDP growth (7-8%) Increased disposable income High Private Consumption Growth of Modern Retail Low Labour costs

PEST Analysis
SOCIAL Rural Employment Volume driven growth in rural market Major young population can increase revenue Indian culture, social and lifestyles are changing drastically 6 TECHNOLOGY Strong IT Infrastructure to enhance productivity and drive down cost FMCG major investing in IT

SAKAAR In a Nutshell
Growth
Sales increased by16% in 2011 Gross Profit declined from 36% to 34% Operating Profit declined by 1.2% to 13.8%
Product Beauty Products, 10%
Food Products, 30% Personal Care (Hair), 15%

Wise Revenue Breakup

Personal Care (Skin), 45%

Product Portfolio

Presence in 3 categories Personal Care, Food Products and Beauty Products Portfolio of over 20 brands Presence in more than 30 countries

Geographical Split for Revenue

Europe, 3% Africa, 10% Rest of Asia, 15% India, 70% RoW, 2%

Revenue = 3520 cr | Net Profit = 398 cr | Cash Flow =

CAVINKARE A Compelling Target

Growth
Sales 773 Cr - YoY Growth 28% NPM 4.6% D/E 0.52, ROE 23.77%, ROCE 18.86% Sales & Net Profit Margin
900 9.00%

800
700

8.00%
7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Mar 06 Mar 07 Mar 08 Sales Mar 09 NPM Mar 10

Product Portfolio

Personal Care, Foods, Dairy Products, Beverages Known for Chik Shampoo Introduction of Sachets

600 500 400 300 200 100

Operations

Operations in - SriLanka, Bangladesh, Nepal, GCC, Malaysia, Singapore Expansion plans for Africa and Other Gulf nations

Revenue = 773 Cr| Net Profit Margin = 4.6%| YoY Growth 28%

VALUATION
Weight CavinKare Sakaar

EV/Sales DCF

3 1

2202 1469

8363 11120

Equity value Swap Ratio

2019 4.5

9052

All figures are in Rs. Cr.

SYNERGY
Presence in hair care, food and personal care segment Opportunity to derive operational synergy Global presence Opportunity to cross sell in new markets

Strong rural presence in India

Increased Economies of Scale

Stable cash flow and strong growth prospects

R&D push for CavinKare with better funding capability of Sakaar

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Deal Structure
External Commercial Borrowing (ECB) and Debt

from Domestic Banks not permitted for acquisition. (RBI Guidelines) Deal Structure
Mode of Finance Equity Cash* Percentage 79% 21% Value (Rs. Cr) 1500 400

* Cash will be raised through sale of investments.

Sakaar Promoter Holding
Before Acquisition 72%
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After Acquisition 64%

Potential Issues
Acquisition Issues CavinKare - high promoter stake Possibility of Poison Pills and White Knight Takeover May lead to hostile takeover attempt and over bidding Integration issues Shadow of leader Improper Management Due diligence

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Q&A

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