Financial Model and ValuationNiharika Consumer Products LimitedA Case Study for Financial Modeling & Valuation

About the Author

About the Model

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0 Initial Issue Author 20121 Revision post comments Author 20132 Issued for usage in FM course Edupristine 20133 Minor updates / corrections and year update Author 14-04-2015

Shashi Bhushan did his schooling from Delhi Public School at Bokaro Steel City, a small town in the state of Jharkhand. With special interest in Mathematics, Physics and Finance, he completed his B. Tech. Degree in Mechanical Engineering from Indian Institute of Technology (IIT), Hauz Khas, New Delhi and MBA (PGDM) from Indian Institute of Management (IIM), Ahmedabad where he specialized in Finance. He has over 14 years of experience spread across large Project Management, Management Consulting, Investment Banking, Mergers & Acquisitions, Corporate Finance, Strategy Formulation and Fund Raising.

This model has been prepared solely to serve as a basis for demonstration of various techniques and steps involved in Financial Modeling leading to Valuation. It doesn’t depict efficient or inefficient handling of a situation by an individual or corporate. All the historical information has been taken from publicly available sources and forward looking projections are based on judgments of the author. This is not an investment thesis and not intended to form a basis for any investment decisions.

All rights reserved. No part of this document may be produced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the author or Pristine.

Financial Model and ValuationNiharika Consumer Products Limited

Shashi Bhushan did his schooling from Delhi Public School at Bokaro Steel City, a small town in the state of Jharkhand. With special interest in Mathematics, Physics and Finance, he completed his B. Tech. Degree in Mechanical Engineering from Indian Institute of Technology (IIT), Hauz Khas, New Delhi and MBA (PGDM) from Indian Institute of Management (IIM), Ahmedabad where he specialized in Finance. He has over 14 years of experience spread across large Project Management, Management Consulting, Investment Banking, Mergers & Acquisitions, Corporate Finance, Strategy

This model has been prepared solely to serve as a basis for demonstration of various techniques and steps involved in Financial Modeling leading to Valuation. It doesn’t depict efficient or inefficient handling of a situation by an individual or corporate. All the historical information has been taken from publicly available sources and forward looking projections are based on judgments of the author. This is not an

All rights reserved. No part of this document may be produced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the author or Pristine.

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Assumption SheetFiscal year ends 31st MarchYear Tracker 1 2 3 4 5 6 7 8 9 10

Unit FY11A FY12A FY13A FY14A FY15A FY16P FY17P FY18P FY19P FY20PRevenue Drivers

Pricesy-o-y growth ratesSoap 12.5% 11.1% 5.0% 4.8% 5.0% 3.0% 2.0% 2.0% 2.0%Hair Colour 6.7% 10.0% 4.5% 3.3% 4.0% 6.0% 6.0% 6.0% 6.0%Detergents 12.0% 11.6% 8.0% 7.4% 5.0% 3.0% 2.0% 2.0% 2.0%CAGR w.r.t first yearSoap 12.5% 11.8% 9.5% 8.3% 7.6% 6.8% 6.1% 5.6% 5.2%Hair Colour 6.7% 8.3% 7.0% 6.1% 5.7% 5.7% 5.8% 5.8% 5.8%Detergents 12.0% 11.8% 10.5% 9.7% 8.8% 7.8% 6.9% 6.3% 5.8%

Volumesy-o-y growth ratesSoap 15.0% 11.3% 18.8% 18.4% 15.0% 15.0% 15.0% 15.0% 15.0%Hair Colour 6.7% 5.3% 5.6% 4.3% 5.0% 5.0% 5.0% 5.0% 5.0%Detergents 14.3% 8.7% 6.3% 5.4% 15.0% 15.0% 15.0% 15.0% 15.0%CAGR w.r.t first yearSoap 15.0% 13.1% 15.0% 15.8%Hair Colour 6.7% 6.0% 5.9% 5.5%Detergents 14.3% 11.5% 9.7% 8.6%

Raw Material Cost DriversPrices

y-o-y growth ratesAcid 0.0% 2.9% 7.1% 9.3% 5.0% 5.0% 4.0% 4.0% 4.0%Speciality chemicals 21.6% 11.1% 6.0% 3.8% 5.0% 5.0% 5.0% 5.0% 5.0%Ordinary chemicals 47.1% 12.0% 7.1% 16.7% 13.0% 14.0% 14.0% 15.0% 15.0%Perfumes 8.3% 7.7% 7.1% 6.7% 7.5% 7.5% 7.5% 7.5% 7.5%CAGR w.r.t first yearAcid 0.0% 1.5% 3.3% 4.8%Speciality chemicals 21.6% 16.2% 12.7% 10.4%Ordinary chemicals 47.1% 28.3% 20.8% 19.8%Perfumes 8.3% 8.0% 7.7% 7.5%

Volume Conversion MatrixSoaps

Acid ml 105 105 105 105 105 105 105 105 105 105Speciality chemicals ml 10 10 10 10 10 10 10 10 10 10Ordinary chemicals ml 5 5 5 5 5 5 5 5 5 5Perfumes ml 10 10 10 10 10 10 10 10 10 10

Hair ColorAcid ml 255 255 255 255 255 255 255 255 255 255Speciality chemicals ml 12 12 12 12 12 12 12 12 12 12Ordinary chemicals ml 8 8 8 8 8 8 8 8 8 8Perfumes ml 5 5 5 5 5 5 5 5 5 5

DetergentsAcid ml 505 505 505 505 505 505 505 505 505 505

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Assumption SheetFiscal year ends 31st MarchYear Tracker 1 2 3 4 5 6 7 8 9 10

Unit FY11A FY12A FY13A FY14A FY15A FY16P FY17P FY18P FY19P FY20PSpeciality chemicals ml 25 25 25 25 25 25 25 25 25 25Ordinary chemicals ml 15 15 15 15 15 15 15 15 15 15Perfumes ml 12 12 12 12 12 12 12 12 12 12

Employee Cost DriversHead Count

y-o-y growth rates 5.0% 5.0% 5.0% 5.0%Average Salary

y-o-y growth ratesBonus as % of Salary 10.0% 12.0% 12.0% 12.0% 15.0%

Power Cost DriversTariff

y-o-y growth ratesConsumption in Production Process

y-o-y growth ratesPackaging Cost Drivers

Unit Costy-o-y growth rates

Other Cost DriversAdvertisement Cost % of Sales 7.3% 8.3% 7.0% 6.5% 6.0% 10.0% 11.0% 12.0% 13.0% 14.0%Commission % of Sales 4.9% 4.9% 4.9% 4.9% 4.9% 5.0% 6.0% 6.0% 7.0% 7.0%Maintenace Cost % of Sales 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%Insurance Premium % of Sales 0.5% 0.4% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%Admin & Misc Expenses % of Sales 8.5% 4.9% 4.9% 6.1% 5.9% 4.9% 4.7% 4.7% 4.0% 3.9%

Working Capital & Balance Sheet DriversItems having linkage with P&L

Provisions for Employees fund % of Employee Cost 13.4% 9.5% 9.7% 9.5%Commissions Payables days of commission 57 88 88 59Accounts Payables days of raw material cost 40 45 42 35Inventory (Days of raw materials cost) days of raw material cost 112 130 119 105Accouts Receivables days of sales 31 33 31 27

Other ItemsAdvances from customers INR Lakhs 7 7 7 7 7 7Insurance premium payable INR Lakhs 2 2 2 2 2 2[+] Loans & Advances INR Lakhs 16 16 16 16 16 16Investments INR Lakhs 140 140 140 140 140 140

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Revenue Build Up SheetFiscal year ends 31st MarchYear Tracker 1 2 3 4 5

Unit FY11A FY12A FY13A FY14A FY15ASales Price

Soap INR/ packet 16 18 20 21 22Hair Colour INR/ bottle 75 80 88 92 95Detergents INR/ packet 100 112 125 135 145

Sales VolumeSoap packets 421,875 485,156 540,000 641,250 759,375Hair Colour bottles 281,250 300,000 315,938 333,750 348,188Detergents packets 131,250 150,000 163,125 173,438 182,813

Segmental Revenue 834,375 935,156 1,019,063 1,148,438 1,290,375Soap INR Lakhs 68 87 108 135 167Hair Colour INR Lakhs 211 240 278 307 331Detergents INR Lakhs 131 168 204 234 265

Total Revenue INR Lakhs 410 495 590 676 763

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Costs Build Up SheetFiscal year ends 31st MarchYear Tracker 1 2 3 4 5

Unit FY11A FY12A FY13A FY14A FY15A Raw Material Prices

Acid paise/ ml 6.8 6.8 7.0 7.5 8.2Speciality chemicals paise/ ml 3.7 4.5 5.0 5.3 5.5Ordinary chemicals paise/ ml 1.7 2.5 2.8 3.0 3.5Perfumes paise/ ml 12.0 13.0 14.0 15.0 16.0

Raw Material VolumesAcid litres 182,297 203,191 219,642 240,023 240,023Speciality chemicals litres 10,875 12,202 13,269 14,753 16,342Ordinary chemicals litres 6,328 7,076 7,674 8,478 9,325Perfumes litres 7,200 8,152 8,937 10,163 10,163

Raw Material CostAcid INR Lakh 124 138 154 180 197Speciality chemicals INR Lakh 4 5 7 8 9Ordinary chemicals INR Lakh 1 2 2 3 3Perfumes INR Lakh 9 11 13 15 16

Total INR Lakh 138 156 175 206 225Headcount

Manufacturing Nos. 28 30 35 40 40Marketing professionals Nos. 5 5 7 8 9Corporate employees Nos. 2 2 2 3 3

Average Monthly SalaryManufacturing INR/month/per 10,000 10,500 11,000 11,100 11,700Marketing professionals INR/month/per 15,000 16,000 17,000 17,500 18,000Corporate employees INR/month/per 16,000 16,500 17,200 17,800 18,200

Total Employees CostSalaries INR Lakh 46 51 65 76 82Bonus INR Lakh 5 6 8 9 12

Total INR Lakh 51 58 72 86 94Power Cost

Tariff INR/ unit 3 4 4 5 5.3Consumption in Production Process Units 127,310 138,146 160,251 160,251 177,737Other Consumption Units 19,749 19,749 19,749 19,749 19,749

Total INR Lakh 5 6 7 9 10Packaging Cost

Soap INR/ unit 1.0 1.1 1.2 1.3 1.3Hair Colour INR/ unit 1.5 1.6 1.8 1.9 1.9Detergents INR/ unit 2.0 2.2 2.3 2.5 2.5

Total INR Lakh 11 13 16 19 21Advertisement Cost INR Lakh 30 41 42 44 46Commission INR Lakh 20 24 29 33 37Maintenace Cost INR Lakh 1 1 1 1 1Insurance Premium INR Lakh 2 2 2 2 2Admin & Misc Expenses INR Lakh 35 24 29 41 45

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Profit & Loss StatementFiscal year ends 31st MarchYear Tracker 1 2 3 4 5

(All figures in INR Lakhs unless stated otherwise) FY11A FY12A FY13A FY14A FY15A

Revenue 410 495 590 676 763

Operating Expenses

Raw Material Cost 138 156 175 206 245

[+] Employee Cost 51 58 72 86 94

[+] Power Cost 5 6 7 9 10

[+] Packaging Cost 11 13 16 19 21

[+] Advertisement Cost 30 41 42 44 46

[+] Commission 20 24 29 33 37

[+] Maintenance Cost 1 1 1 1 1

[+] Insurance Premium 2 2 2 2 2

[+] Admin & Misc Expenses 35 24 29 41 45

[-] Total Operating Expenses 293 326 373 440 502

117 170 217 236 261

[-] Depreciation 73 152 163 163 163

43 17 54 72 98

[-] Interest 23 63 81 78 75

[+] Other Income - - 2 8 15

20 (46) (25) 2 37

Taxes for the year

Current Tax 10 - 10 24 40

[+] Deferred Tax (3) (11) (18) (23) (27)

[-] Total Taxes for the year 7 (11) (8) 1 13

14 (35) (16) 1 25

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Balance SheetFiscal year ends 31st MarchYear Tracker 1 2 3 4 5

(All figures in INR Lakhs unless stated otherwise) FY11A FY12A FY13A FY14A FY15ALiabilities & Equity

Current Liabilities & ProvisionsCash Credit / Overdraft Utilization 25 53 47 72 55[+] Provisions for Employees fund 10 6 8 9 9[+] Advances from customers 5 8 12 4 7[+] Commission payable 4 4 10 6 6[+] Insurance premium payable 2 2 2 2 2[+] Accounts payable 16 18 25 22 25Total Current Liab. & Prov. 61 91 104 114 104

Non Current LiabilitiesSecured Loans - 300 285 270 255[+] Unsecured Loans 300 285 270 255 240[+] Total Non Current Liabilities 300 585 555 525 495

NetworthPaid Up Capital 200 300 300 300 300[+] Share Premium Account - - - - -[+] Retained Earnings 14 (21) (37) (36) (11)[+] Total Networth 214 279 263 264 289

Total Liabilities & Equity 574 955 921 903 888

Current AssetsCash & Cash Equivalent 21 10 62 87 101[+] Margin Money with Bank - - - 13 14[+] Inventory 36 60 65 69 72[+] Account Receivables 33 52 55 60 51[+] Loans & Advances 10 14 15 20 16Total Current Assets 99 136 197 249 254

Net Fixed AssetsGross Block 505 990 1,044 1,059 1,124[-] Accumulated Depreciation 73 226 389 552 715[+] Net Fixed Assets 432 764 655 507 409

[+] WIP 40 40 1 1 1[+] Deferred Tax Assets 3 14 33 56 84[+] Investments - - 35 90 140Total Assets 574 955 921 903 888

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