Business Case Challenge for The

Maverick Season 3
Milco - Aerospace & Defense provider

By Team Aces IMT Ghaziabad

Mahashweta Chaudhuri
Anirban Sharma
Kaustuv Roy
1

Executive Summary
Overall financial health of Milco is good enough with sufficient cash and good financial
leverage
With the available data of demand for the products and services, the bottom-line of the
income statement improves year by year till 2019
Milco has dominant position in the Military Flight Simulator Segment with major market
share
Milco should exit from military facility construction as it has a high level of rivalry in both
US and global market
Milco should focus more on the Military Flight Simulation Instruction (as it has high impact
on the profitability) and MRO services (there will be scope of getting a good market share)
It should focus on JV with some smaller player

Financial Performances Income Statement

Profit & Loss statement
Year
Sales
COGS
SG&A
Gross Profit
Interest
Depreciation & Amortization
PBT
Tax Rate
Tax
PAT

(in Million USD)

2018
2019
2,361
2,458
1,244
1,296
472
492

2014
2,005
1,050
401

2015
2,090
1,097
418

2016
2,177
1,144
435

2017
2,268
1,194
454

554

575

597

621

645

670

59

63

57

51

46

40

153

160

160

160

160

160

341

352

380

409

439

470

15%

15%

15%

15%

15%

15%

51

53

57

61

66

70

290

300

323

348

373

399

Assumptions: considering the production plan increases linearly and it follows the
prediction availble.
1.
Interest Rate 3.3% (source WorldBank )
2.
Loan repayment in 10 years
3.
The investment of USD 150 mill is considered to be sourced from equity
having no interest to pay, hence not considered in the income statement
4.
Interest rate for long term debt (current portion) or short term loan 3.3%
5.
Interest is calculated on annual basis, as payment history is not available
6.
For depreciation, Average life considered 15 years

5,000

PAT

4,000

Tax

3,000

Depreciation

2,000

Interest

1,000

SG&A

0
2014

2015

2016

2017

2018

2019

COGS

Financial Performances Overall Health

Indicator

2014

2015

Industry

Remarks

Current Ratio

2.29

2.13

1.20

Its higher than industry

Quick Ratio

1.57

1.63

0.90

lower industry

Inventory Turnover

2.10

2.74

2.56

At par with, industry

Debt Equity Ratio

1.23

1.31

1.24

At par with, industry

Total Debt / Total Assets

44%

45%

24%

More debt burden

Total shareholders equity / Total Assets

36%

34%

28%

More equity oriented

Gross Profit Margin

25%

25%

32%

closer to industry

Net Profit Margin

14%

14%

13%

At par with, industry

Operating Ratio

72%

72%

59%

better than industry

Cost of goods sold Ratio

52%

52%

59%

At par with, industry

Return on Assets (RoA)

8%

8%

14%

Just below industry

Total Assets turnover

56%

55%

15%

better than industry

As a whole, Milco is perfoming moderately, with sufficient cash for

smoother operation and investing for the Future, they are strategically
aligned with long term mission
4

Products/Services Segment Analysis

Military Flight Simulator

MRO IT System

Military Flight Simulation

Instruction

Military Flight Simulator

Maintenance

Larger number of firms

providing similar service

Lesser number of firms in the

industry.

Fewer firms in simulator

industry, with some more
specializing in maintenance

MRO IT System Services

Military Facility
Construction

PORTERS FIVE FORCES

Degree of Rivalry

Only 5 players capturing

80%

Threat of new
entrants

High capital investment

and technology backing
required

Buyers power

Role of the Government in

setting prices

Simulators have high level of

Firms currently not in military customization and is difficult for
may be tempted for a ventures new comers to provide training on
the system

More vendors available to

buyers; hence buyers can
influence the market price

Buyers will have lesser influence

as simulators are customized and
specialized by manufacturer

Simulator components are

IT service requirements and
specialized, sold by few
Instructors limited to experience
Suppliers power
pricings are stable as per market
vendors to selected
in the army or simulator industry
vendors standards
manufacturers

Threat of
substitute

Simulators amongst latest

cost effective technology
for training

Possibility of used technology

becoming obsolete

Military simulators are specific to

requirements with high level of
customization

Considerable number of
Conventional market with
players in the market with
large number of players
similar market shares
System service industry is
Firms specializing in
prospering and firms may
hardware and software
Spurring growth attracts
look to cash in on
maintenance may seek
newer contractors
government projects such as
entrance
military
Manufacturers along with
Construction sites,
More options to the buyer in
specialized maintenance
structures largely
terms of available companies
firms give buyers more
controlled by US military
and services
options while choosing
and the Government
Suppliers can have
Materials are product/service Large number of suppliers
slight/moderate control in
specific and suppliers have catering to large number of
availability and pricing of
less control
consumers
hardware components
Closely tied to simulator
Linked with MRO IT
Substitutes for physical
market. Simulator market on Systems. Servicing market to
constructions and sites are
the rise for cost cutting
hold strong as long as IT
low
purposes
Systems market is growing

POSITION AS
PER BCG
MATRIX

Products/Services Segment May exit

Military Facility Construction

Reasons
1.
Market diluted due to more number of players, with 100 players for 80% market share MILCO has ~0.7% share
2.
Least revenue earned per unit, 1000000 per unit, though it is expected to rise, still the product earns least revenue
3.
Possible saturation of military construction industry in coming years
4.
Little scope of expansion in international markets, as for construction local contractors are favored
5.
The growth of price per unit is expected to grow at 12%. In case of pessimistic scenario, if the price continues to be at same level, then the revenue
will drop 8%, as the revenue is highly sensitive towards the unit price of military facility construction.
1500

1400

SimInst_unit

SimServ_unit

Sim_unit

ITServ_unit

IT_unit

FaciCons_unit

Spider Chart
Profitability is least sensitive to the unit facility construction,
hence if there is more demand still there will be less change in
profitability. Hence, it is not worthy to produce more unit of
service.

1300

Porters Five forces

Degree of Rivalry Very High
Threat of new entrants High
Buyers power High
Suppliers power Very High
Threat of substitute Low

1200

NPV
1100

1000
-100%

-78%

-56%

-33%

-11%

11%

33%

56%

78%

100%

Competitive Position

For Military Flight Simulator, its instruction and service & maintenance

Position of MILCO is in top 3. As only 5 players in top 80% and MILCO has market share more than 20% for all products /
services - Flight Simulator, its instruction and service & maintenance
We can assume Milco is the market leader in this sector, with a dominant position

For IT System and its service

Position of MILCO is in top 7. As 15 players in top 80% and MILCO has market share more than 10% for both IT System and
its service
We can assume Milco is competing with the market leader and it can be the market leader if it can increase its market share with
implementation of efficient strategy

80%

Milcos Product

Maintenance

60%

Instruction

Military Flight Simulator

40%

6%
MRO IT System

12%
30%

Military Flight Simulation Instruction

Military Flight Simulator Maintenance

20%

MRO IT System Services

Product

20%
0%
Milco

Competitor A

Market for Simulator

15%
18%

Military Facility Construction

Products/Services Capture more share

More concentration on
MRO Sector
Military Flight Simulator Instruction
Capitalizing on possible exit of competitor D from MRO market

9.8% growth for MRO IT Systems

5% growth for MRO IT Services

Expand to emerging foreign markets taking advantage of growing trend of application of IT in the military

NPV with variation of units produced

800

1000

SimInst_unit

1400

SimServ_unit

400

ITServ_unit

80
0

IT_unit

300

FaciCons_unit

160
0

Downside

1600
400

Sim_unit

Upside

1200

Milco should capture more market share in Military Flight Simulation

Instruction, as

The profitability of the company is highly sensitive towards

the units of Military Flight Simulation Instruction service.
(shown in the Tornado chart)

The profitability is least sensitive to the market price of the

service per unit. If the price remains at same level then also
the impact is less than 2% on the profitability.

The profitability is also less vulnerable to the COGS per unit

of service.

300

SimInst_Unit Units of Military Flight Simulation Instruction

SimSer_Unit units of Military Flight Simulator Service/Maintenance
Sim_Unit Units of Military Flight Simulator
FaciCons Military faciltiy construction
ITServ_Unit Units of IT Services

With -100% to +100% variation

8

Recommendations

Mergers and Acquisitions

Competitor E seeking to enter military markets. Joint venture between MILCO and Competitor E
may provide mutual benefits

It should focus more on operation part to reduce its COGS

There are several player in the industry like Halldale, L-3 Link, CAE etc. They are provide simulator to
military flight as well as medical industry. So, Milco can diversify to these segment also. In this respect
they can collaborate with these organizations
R & D on Simulation products
Market predicted to expand owing to cost cutting efforts by the government
Developing new products to address latest threat scenarios
Expanding to global markets which need enhanced defense capabilities
The company should consider to outsource manufacturing of certain components to specialized providers
The company has good amount of cash; it can go for stock buybacks funded by the cash to improve
further upon the ROE