COURSE NAME: Business Valuation

PROJECT TOPIC: Nilkamal

Submitted by
Name of the Students
Aakanksha Thete 15F101
Antony Attakoran 15F110
Rajgopal 15F140
Balabhadruni
Sachin Kulkarni 15F142
Swetha R 15F156

Term 4-2016
Industry Analysis
Domestic consumption is the primary driver for the plastic furniture industry. A measure to gauge
this consumption is the private final consumption expenditure. The private final consumption
expenditure has increased to 7.6% in 2015-16. The domestic consumption is expected to rise on
account of good rainfall, which would lead to improved agriculture. Due to the 7th pay commission
there will be increase of 23.55% in the salaries of government employees and pensioners. It will
affect approximately 1 crore government employees.

The accommodative monetary policy will drive the investments of firms. This will foster the demand
for material handling equipment.

About Nilkamal
Nilkamal is the world’s largest manufacturer of moulded furniture. The material handling segment
being the top contributor, contributes to 49% of Nilkamal’s total revenue. Material handling
equipment includes crates, palates, ice boxes, fish tubs, waste management tools etc.

Plastic moulded furniture contributes 39%. There is a wide variety of designs available in the chairs,
racks and trolleys, plastic sofas etc.

The company has 9 manufacturing plants, of which one is in Colombo, Sri Lanka and the rest are in
India. Their combined production capacity is close to 1, 00,000 MTPA. These plants are located near
all the major metro cities and tier 2 cities. For example the plant in Noida is merely 50 KMs, the plant
in Sinnar is 180kms away from Mumbai. This proximity helps to tap the market effectively. Following
map shows the factories:
Nilkamal also has a very strong distributor network. They have 12,000 dealers all over the country.
This will enable them to tap the consumers over the whole country.

Nilkamal is also one of the first Indian furniture companies to launch stores which exclusively cater
to home décor. They have named them @home.

ESTIMATION OF SALES GROWTH

Nilkamal primarily operates in 3 segments namely- Material Handling, Furniture and Mattresses.
Growth drivers of each of the segments:
Material Handling: The primary driver for this is the number of warehouses in the country. Since
majority of the equipment is used in the agricultural and industrial warehouses the demand
forecast for material handling equipment is based on their growth. We got the warehouse
forecast details from the Crisil report and used the figures to forecast the material handling
revenue details.
(in bn square foot)
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 P 2017-18 P 2018-19 P
Agriculture warehousing 0.560 0.566 0.571 0.577 0.583 0.589 0.560 0.566 0.571
Industrial Warehousing 0.900 0.972 1.050 1.134 1.224 1.300 0.900 0.972 1.050
Total 1.460 1.538 1.621 1.711 1.807 1.889 1.460 1.538 1.621
The total billion square foot value of the warehousing is obtained, and this data is used to
forecast this segment’s revenue for the years’ 2017-19.
Furniture: The revenues for this segment varies based on the final consumption expenditure,
whose values for the years 2011-16 are shown in the table below.
 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 P 2017-18 P 2018-19 P
Final
consumption
expenditure 5.1E+07 5.4E+07 5.8E+07 6.2E+07 66430656 72010831 78715140 86043599
Mattresses: Mattresses contribute to a minimal 3.8% to Nilkamal’s revenue. Also, since this
segment is highly fragmented, we have assumed a revenue growth rate of 5% for this segment.
Each of the growth drivers for the segments were found to have a high R 2 (values shown in excel)
with the revenue and hence, these values were used to forecast the individual segment’s
revenue growth for the years 2017-19.
Segment 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 P 2017-18 P 2018-19 P
Material Handling 697.6039 800.7587 898.883 919.4471 931.6107 979.3907 1078.032 1208.303 1344.495
Furniture 668.4649 767.3109 861.3365 881.0417 892.6972 938.4814 999.2863 1063.054 1132.758
Mattress 53.96114 61.94038 69.5305 71.12118 72.06206 75.75794 79.54584 83.52313 87.69929
Total reveues 1420.03 1630.01 1829.75 1871.61 1896.37 1993.63 2156.864 2354.88 2564.953

Porter’s 5 forces
Threat of New Entrants- HIGH

 Low entry barriers- Skills and material is the main resource in the business. The business
does not need high capital requirements
 No legal or regulatory barriers to enter the industry
 New market entrants would not be able to benefit from the economies of scale to the same
extent that the well established players do in the initial stages of operation. Hence, access to
distribution channel is difficult. It can be argued, that although the threat of new entrants
into plastic material handling and furniture in general is significant, the threat of new
entrants to pursue cost leadership strategy is insubstantial due to immense role of the
economies of scale.

Threat of Substitutes- Low

 The threat of substitute in the material handling products is relatively low as plastic offers
cheaper, light weight and durable products.
 Though there exist many substitute in furniture products like 1. Glass 2. PHB Bio composites
3. Liquid Wood 4. ECM BIOFILM, cost advantages and accessibility for plastic furniture is
much more as of now in Indian market compared to these new substitute. The main
substitute still remains wooden furniture but there exists a segment with growth
opportunity for plastic furniture.

Bargaining Power of Buyers- High

(Price sensitivity of buyers, Relative bargaining power; cost of doing business with other party &
product differentiation)

 This segment is relatively price sensitive and likely to go in for well-known brands
 The furniture market in India is highly fragmented with majority of the revenue being
generated from the local players. The unorganized sector, which includes onsite carpenters,
independent furniture manufacturers and domestic retailers have accounted for nearly 85%
 of the furniture market revenue in the country. The rest 15% is dominated by leading players
such as Godrej Interio, Home centre, Nilkamal, Durian Furniture, Style Spa.
 In material handling products like crates, pallets, storage cabinets are very price sensitive
and there are many organised and unorganised players in these products. Automated
storage solutions, electric range which are unique in nature will not be sensitive to the price.

Bargaining Power of Suppliers- High

 The polymer manufacturers and equipment manufacturers are key suppliers in the plastic
processing industries. There are only few players like Reliance Industry limited, GAIL, IPCL
etc. as the suppliers of raw material.
 Since the raw material is used by plastic processors for wide range of products like
polythene bags, plastic pipe, tarpaulins, buckets, furniture etc. the bargaining power of the
suppliers is high because it is an oligopolistic market.

Rivalry among Existing Competitors – High

 There are only few established players in the plastic material handling and furniture industry.
But there is a large number of players in the unorganized sector that increases the rivalry in
industry.
 The brand loyalty and consumer switching cost are also low in this industry this intensifies the
rivalry.
 The products in the industry are undifferentiated and can be easily replicated by other player.

Investment Rationale
Increasing revenue and earnings

The revenue has increased significantly over the past 5 years. It is expected to grow further till 2019.
The growth is supported by increased investment in fixed assets. They have also started
manufacturing innovative variations to their products eg. Hybrid products. Nilkamal is market leader
in two of the segments, i.e. material handling and moulded furniture with 36% and 40% market
share. Its raw material prices depend on the crude oil prices internationally. There is a high chances
of the prices still going down. Thereby, profit margins will increase. Nilkamal’s strong distribution
network coupled by its manufacturing units in the growth areas (golden quadrilateral) make this
company an investment destination.

According to the forecasts, the company would be debt free with in less time. Interest to be paid can
be saved. However, tax benefits would become minute. The much awaited Goods and Services Tax
will come into implementation. Companies will treat warehouses as the strategic option instead of
using as a normal option.

Key Valuations

Revenue
 Trend Analysis
2,000.00 1,879.46
1,792.91
1,800.00 1,658.30
1,613.88
1,600.00 1,437.10
1,400.00
1,200.00
1,000.00
800.00
600.00
400.00
200.00
0.00
1,437.10 1,613.88 1,658.30 1,792.91 1,879.46

EPS

EPS
80
69.62
70

60

50

40 37.26

30 26.83 28.45
20.9
20

10

0
Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

Conclusion
Raw material consumed like polyethylene and poly propylene are the major contributors to
the cost incurred. The cost of Polyethlene and poly propylene is expected to rise. Thus it
would be better for the company to increase its investment in raw material. It can also be
noted that the value of the stock as per our forecast is 1175.43324 .Thus we can see that
1175.43324 the stock is slightly over priced. In case it reaches a value below you can buy the
script.

Appendix
FORECASTING FOR THE YEAR 2017-19
INCOME STATEMENT In Crore Rs.
FY 2012 2013 2014 2015 2016 2017E 2018E 2019E Assumptions
INCOME
Revenue From Operations [Gross] 1630.010 1829.750 1871.610 1896.370 1993.630 2156.864 2354.880 2564.953
Less: Excise/Sevice Tax/Other Levies 205.880 229.490 225.660 118.380 133.490 144.510 157.777 171.852 Considered Constant
Revenue From Operations [Net] 1424.140 1600.260 1645.950 1778.000 1860.140 2012.354 2197.103 2393.101
Taken slope of the % of sales
Other Operating Revenues 10.470 10.400 8.820 8.660 10.130 10.140 10.175 10.108
of previous 5 years
Total Operating Revenues 1434.610 1610.660 1654.770 1786.660 1870.270 2022.494 2207.278 2403.209
Other Income 2.490 3.220 3.530 6.250 9.200 9.200 9.200 9.200 Considered Constant
Total Revenue 1437.100 1613.880 1658.300 1792.910 1879.460 2031.694 2216.478 2412.409

EXPENSES

Cost Of Materials Consumed 554.800 636.970 597.330 687.620 647.810 697.314 732.603 769.486

Taken slope of the % of sales

Purchase Of Stock-In Trade 352.670 413.580 426.830 430.280 437.450 474.776 520.010 568.192
of previous 5 years

Changes In Inventories Of FG,WIP And

-30.210 -32.550 19.160 14.990 -14.540 -5.340 5.514 18.363
Stock-In Trade
Employee Benefit Expenses 90.020 101.630 105.400 112.940 134.800 152.047 172.786 195.584
Finance Costs 39.680 42.970 41.420 31.980 17.850 11.245 3.470 -5.813
Depreciation And Amortisation Expenses 40.480 44.340 48.920 53.760 52.630 55.982 60.382 64.963 Based on Gross Block
Taken slope of the % of sales
Other Expenses 319.260 363.280 361.110 400.840 450.170 502.712 565.987 635.128
of previous 5 years
Less: Amounts Transfer To Capital
0.650 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Previous years' trend
Accounts
Total Expenses 1366.050 1570.230 1600.170 1732.390 1726.170 1888.735 2060.752 2245.903

Profit/Loss Before Exceptional,

71.050 43.650 58.130 60.510 153.290 142.959 155.726 166.506
ExtraOrdinary Items And Tax
Profit/Loss Before Tax 71.050 43.650 58.130 60.510 153.290 142.959 155.726 166.506
Tax Expenses-Continued Operations
Current Tax 14.350 9.020 16.050 24.350 55.750 52.037 56.684 60.608 Tax rate considered as 36.4%
Less: MAT Credit Entitlement 1.700 -1.550 -1.110 0.000 0.000 0.000 0.000 0.000
Deferred Tax 2.830 1.490 0.550 -6.330 -6.290 -6.290 -6.290 -6.290 Considered constant
Tax For Earlier Years -0.030 0.410 0.390 0.030 -0.060 0.000 0.000 0.000

Total Tax Expenses 15.450 12.460 18.100 18.050 49.400 45.747 50.394 54.318
Profit/Loss After Tax And Before
55.600 31.190 40.030 42.460 103.890 97.212 105.332 112.188
ExtraOrdinary Items
Prior Period Items 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Extraordinary Items 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Profit/Loss From Continuing Operations 55.600 31.190 40.030 42.460 103.890 97.212 105.332 112.188
Profit/Loss For The Period 55.600 31.190 40.030 42.460 103.890 97.212 105.332 112.188
BALANCE SHEET In Crore Rs.
FY 2012 2013 2014 2015 2016 2017E 2018E 2019E Assumptions
Sources Of Funds

Total Share Capital 14.92 14.92 14.92 14.92 14.92 14.92 14.92 14.92 Constant as previous years

Equity Share Capital 14.92 14.92 14.92 14.92 14.92 14.92 14.92 14.92

Previous yr's Reserves+

Reserves 389.52 414.18 447.82 477.51 570.06 667.27 756.78 794.83
Present yr's PAT
Networth 404.44 429.10 462.74 492.43 584.98 682.19 771.70 809.75
Divided debt into existing
Secured Loans 325.54 339.33 268.81 169.18 83.24 62.92 5.70 0.00 average ratios of secured
& unsecured loans

Unsecured Loans 0.45 15.00 0.00 0.00 0.00 0.00 0.00 0.00
Used plugged in technique
Total Debt 325.99 354.33 268.81 169.18 83.24 62.92 5.70 0.00 to infuse additional funds
required
Total Liabilities 730.43 783.43 731.55 661.61 668.22 745.11 777.40 809.75

Application Of Funds
Proportionate increase
Gross Block 608.11 657.35 691.79 688.42 698.28 746.42 805.09 866.17
wrt their revenues

Less : Accum. From depriciation

280.89 319.13 359.21 404.74 441.34 497.32 557.70 622.67
Depreciation expense in P&L Statement

Net Block 327.22 338.22 332.58 283.68 256.94 249.10 247.39 243.51
Taken slope of the % of
Capital Work in
5.09 4.21 2.15 1.36 4.51 4.28 4.16 4.01 Gross block of previous 5
Progress
years
No significant investments
Investments 25.30 25.30 25.56 25.56 25.62 25.62 25.62 25.62 in the subsequent years
(from annual report)

Inventories 272.91 305.26 300.63 276.67 296.49 320.77 350.21 381.46 % of previous year's sales
Taken as % of receivable
Sundry Debtors 195.69 229.74 217.55 231.55 257.59 283.64 309.68 337.31
days
Cash and Bank
20.46 24.49 18.05 8.20 10.95 10.95 10.95 10.95 Considered Constant
Balance
Total Current As sets 489.06 559.49 536.23 516.42 565.03 688.98 744.47 803.34
Loans and Advances 100.03 99.73 99.73 93.45 85.08 85.08 85.08 85.08
Fixed deposits 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Considered Constant
Total CA, Loans &
589.09 659.22 635.96 609.87 650.11 774.06 829.55 888.42
Advances
Taken as % of Cost of
Materials Consumed
Current Liabilities 192.40 217.01 235.78 229.00 239.94 249.03 270.52 293.15
(assuming the liabilities
are payables)
Provis ions 23.85 26.48 28.93 29.87 29.02 29.02 29.02 29.02 Considered Constant

Total CL & Provis ions 216.25 243.49 264.71 258.87 268.96 278.05 299.54 322.17
Net Current Assets 372.84 415.73 371.25 351.00 381.15 496.01 530.01 566.25
Total Assets 730.45 783.46 731.54 661.60 668.22 745.11 777.40 809.75
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