112-0516-017

October, 2012
Internal Version for BBS Used Only

YANTHI HUTAGAOL
BILLY UTAMA

PT. MARTINA BERTO : IPO VALUATION

It was September 2010, more than a year since PT Martina Berto’s owners decided to take
the company to another level of its life cycle, to be a public company. Almost all necessary
requirements for going public had been prepared. PT Martina Berto’s management had
worked flat out to prepare all documents and appointed advisors required by Badan
Pengawas Pasar Modal dan Lembaga Keuangan (Bapepam LK) to register PT Martina Berto
initial public offerings (IPO). It was a massive work for the management. However, Bryan
Tilaar, President Director of PT Martina Berto, Samuel Pranata, cousin of Bryan Tilaar, who
was also director of Martha Tilaar Group, and independent professional directors thought that
those hard works were worthy. He believed by taking PT Martina Berto going public was the
right way for the company to achieve its vision as a leading company in beauty and spa
industry in Indonesia. Getting fresh cash from IPO for funding its long term strategic plan was
one thing, but imposing a good corporate governance practice in the company was the main
reason for Bryan why going public was chosen. He believed that good corporate governance
would ensure the company sustainability.

With PT Trimegah Securities, as the appointed underwriter for the IPO, Bryan had to make a
decision on the offer price of PT Martina Berto’s shares. This was not an easy task. Setting
the price too low could result in portraying the company in a low position. However, if the
price was too high, it would turn off the investors’ demand to buy the shares. Bryan Tilaar
knew very well about the company’s performance and potency. In 2009, the company’s
operating income had grown more than 40% from the 2007, even much higher than the
growth of Consumer goods industry. With company’s development plan, he was sure that the
company future was promising. However, he realized that what he knew was not all needed
to price the IPO. He needed to discuss this matter with management of Trimegah Securities,
who had a vast experience on pricing IPOs in Indonesia capital market.

PT Martina Berto

The business was inspired by Mrs. Martha Tilaar’s passion on beauty and health product
based on Indonesian traditional herbs and formula. She had a vision to promote “local
wisdom to go global”. She started her business from a garage beauty salon. It attracted
many customers, especially on the beauty products. The growth of the business continued, so
that the Tilaar family decided to enlarge the business with other partners. Then, PT Martina
Berto was established in 1977 by Dr HC. Martha Tilaar, Mr. Bernard Pranata and Ms. Theresia
Harsini Setiady. The company’s main business was to produce and market the traditional-
based-formula beauty and herbal products.

In partnership with Kalbe Group family, the first factory was built in 1981 in Pulogadung
industrial estate. It produced beauty and health products with “Sariayu-Martha Tilaar” brand.
Despite heavy in-flow of imported beauty products to Indonesia, PT Martina Berto’s

Yanthi Hutagaol and Billy Utama prepared this case from field and published sources. BBS cases are developed solely as the basis for
class discussions. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
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112-0516-017 PT. MARTINA BERTO : IPO VALUATION

management saw a potential growing demand for traditional-formula-based products. It

brought the company to build the second factory in 1986. The company enjoyed the growing
demand of their products, especially in beauty products. Consequently, in 1995 they had to
build the third factory in Gunung Putri, Bogor. This factory was specialized in producing
traditional-based formula herbal product.

To widen the business, PT Martina Berto acquired PT Cedefindo, a contract manufacturing

company, in 1993. This acquisition helped Martina Berto group as a one stop service for
internal interests, from manufacturing to logistic business.

The Indonesian economic crisis in 1998 had put massive blow outs for numerous companies.
Although it was struggling, PT Martina Berto survived the crisis. However, its partner, Kalbe
Group family, decided it was time to focus on its main business. The partner left the
company; therefore, PT Martina Berto was fully operated by the Tilaar family.

Surviving the economic crisis, the business growth continued. In 2006, the management
started thinking to diversify their products to meet the demands from various life style groups
in Indonesia. The company increased their activities in research and development activities.
They have launched products under various brands, such as “Belia” for teenagers, “Biokos”
for mature ladies, “Mirrabella” for middle class, “PAC” for premium class, and other brands
(IPO research report, 2010). The company’s potency to growth was real and acknowledge by
financial institutions, so that in 2006, company secured a large long-term loan from bank.
The research and development activities supported by financial resources had enabled
company to grow as could be seen in the increasing figures in its income statement and
balance sheet (see Exhibit 1 and 2). To widen the market, the company started to export
the products to Europe (Greece and Ukraine) and Asia (Japan, Hong Kong and Taiwan).

Economic & Industry overview

The US economic crisis in 2008, showed its impact on the world economic growth that slowed
down in 2009. Indonesia was not excluded from the impact. Indonesian economic growth in
2009 was 4.6%, down from 6% in 2008 (see Exhibit 3). However, Indonesian economic was
in better position compared to the average of world economic.

While the world economic was still struggling to recover in 2009, Indonesian capital market
recorded a high performance. The composite index IHSG increased by 87% from 2008 (see
Exhibit 4). Damodaran (2009) estimated Indonesian risk premium in 2008 and 2009, of
12.88% and 9%, respectively.

On the early 2010, Indonesian economic showed signs of recovery. On the first quarter of
2010, the GDP increased at 5.6% compared to 4.6% growth rate in the same quarter in
2009. This positive trend was also shown in the capital market that recorded the highest
IHSG of 2,800 in November 2010. In the first quarter 2010, IHSG had increased by 7.8%
from previous quarter.

Based on the fundamental macroeconomic indicators, the central bank, Bank of Indonesia,
was optimistic on the economic growth. It estimated that in 2012, economic would grow at
6%, with inflation rate was targeted at 5%±1 (see Exhibit 3). However, the optimistic
figure was shadowed by a new thread of European sovereign-debt crisis that later on put
significant impacts on the world economics.

In Indonesia Stock Exchange (IDX), beauty and spa business was included in the consumer
goods industry. The home care product industry segment included skincare, hair care, make-
up, fragrance, and toiletries. This industry segment was attractive since the demand of the
products is relatively inelastic. In the last 15-year, the global sales increased at 4.5% CAGR.

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According to Euro Monitoring International, the industry was predicted to grow at around 7%
annually in 2010 – 2015.

Home care product industry in Indonesia had a potential growing market, supported by
increasing consumption of middle class households. In 2009, the industry recorded total sales
(domestic and exports) of US$ 1.9 billion (see Exhibit 5). It was expected that the industry
would grow in line with the life style changes, especially in the consumption of beauty
products. In the industry, PT Martina Berto had to compete with multi-national giant
companies, such as PT Unilever Indonesia and PT Procter & Gamble Indonesia. However,
those two giants produced a portfolio of general home care products, in which beauty
(personal care) products were parts of them. Both companies (PT Unilever Indonesia and PT
Procter & Gamble Indonesia) took 42.4% market share of the industry in 2010. In the beauty
product industry alone, Martina Berto’s close competitors were PT L’Oreal Indonesia and PT
Mustika Ratu that only focused on producing beauty (personal care) products. In 2010, PT
L’Oreal Indonesia had 3.9% market share of home care products, while PT Martina Berto had
2.5% market share. At the time of PT Martina Berto was preparing its IPO, PT Mustika Ratu
was already listed in Indonesia stock exchange (see Exhibit 6).

The IPO process in Indonesia Stock Exchange (IDX)

Likewise other public companies, PT Martina Berto should comply to all regulations set by
BAPEPAM-LK and Indonesia Stock Exchange IDX). IPO process required a long and daunting
preparation. Before putting the shares listed in IDX, a company should meet the requirement
as a public company as set by the IDX authority:
1. Had been operating for at least 12 months
2. Had at least Rp 5,000,000,000 (five billion rupiah) of net tangible asset
3. Had received an Authentic Without Exception opinion from public accountant
registered in BAPEPAM-LK for its latest audited annual financial report
4. Would sell at least 50,000,000 (fifty millions) shares or 35 (thirty five) percent of its
total issued shares (depend on which one is the smallest number)
5. Would have at least 500 (five hundred) shareholders

If all requirements above could be met, the company should submit its registration statement
of intention to public offering to BAPEPAM-LK. According to SK Ketua BAPEPAM-LK No.KEP-
42/PM/2000, the submission of registration statement should include supported documents
including:
1. offering prospectus,
2. initial prospectus (required for a company choosing book-building as its IPO
marketing method),
3. public offering timetable,
4. a specimen of the security, audited financial statements,
5. auditor’s comfort letter to certify any changes in company’s financial position after
the audited financial statements,
6. management explanation regarding any projections (forecasts) disclosed in the
prospectus,
7. Report of legal evaluation and opinion of the company.
8. Curriculum vitae of all commissioners and directors
9. Underwriting agreement (if any),
10. Custody agreement (if any),
11. Initial agreement with stock exchange

This registration statement excluded information regarding offer price and effective listing
date.

After submission of registration statement, BAPEPAM-LK would evaluate and declare the
eligibility of the company for public offerings.

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112-0516-017 PT. MARTINA BERTO : IPO VALUATION

In summary, the IPO process in IDX followed this procedure:

1. Submit a listing proposal to IDX with the necessary documents as mentioned above
2. IDX would have a 10 trading days to evaluate the documents and information are
sufficient and complete
3. IDX would give an approval letter of listing principles known as the Preliminary
Agreement of Securities Listing.
4. The company should deliver a Registration Statement to BAPEPAM-LK
5. If the Registration Statement was declared effective by BAPEPAM-LK, the company
could conduct a public offering.

The company needed around 6 months and 10 days to complete the IPO process (see
Exhibit 7). However, it could take up to two years from the management-shareholders
agreement for going public, to shares being traded in stock exchange. Most of the period was
used to prepare the required documents internally, and appointing the agents.

Setting the Martina Berto IPO Price

In the offering prospectus, PT Martina Berto disclosed the plan to use the net proceeds from
the IPO. It would be spent to build a new factory in Cikarang, to enlarge the production
capacity by renewing the equipments, to increase the working capital, and to repay the bank
loan from PT CIMB Niaga.

There were lots of factors considered when Bryan thought about the offering price of Martina
Berto’s stock. As the CEO, he had a proceed target from the IPO to fund the development of
a factory in Cikarang, replacement and addition of equipment and machinery, repayment of
CIMB Niaga loan, and working capital. He also had information of the industry P/E ratio,
which was around 8.04X -27.69X (see Exhibit 5). Being modest, Bryan wanted to use P/E
ratio of 14X. However, the underwriter advised him to use a lower P/E, considering that the
industry was dominated by two big well-established multi-national companies.

Besides using industry comparable ratio (P/E ratio), Bryan and management of Trimegah also
incorporate the company fundamental into the pricing process. From the two (2) weeks of
road show, they were optimist that many potential investors were interested to buy the
shares at IPOs. The potential investors did recognize the industry stable growth rate, and
even had strong belief in PT Martina Berto’s future. Moreover, in the recent years, capital
market showed a favor to stocks rather than bonds (see Exhibit 8).

Based on the optimism brought from the road show, last 3 years fundamental factors, and
the plan of net precede usage, PT Trimegah Securities constructed the financial forecasts of 6
years ahead (see Exhibit 9). PT Trimegah Securities was very positive about PT Martina
Berto’s future, so that they agreed to support the IPO with full-commitment agreement. The
estimation took the net proceed target into consideration. One of the proceeds usages is to
pay the bank loan. This plan would change the capital structure of PT Martina Berto, hence
changed the cost of capital of the company (see Exhibit 10).

Bryan was very excited about the IPO, not all because of the funds coming in from the IPO,
but eventually he could live his dream to be a CEO of well-govern company through being a
public company. He believed the company would sustain and prosper in years to come.

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Exhibits
Exhibit 1. PT Martina Berto Income Statement (in millions of Rupiah)

%
2005 2006 2007 2008 2009 (2009)
Sales 332,026 304,208 334,948 429,883 516,318 100%
COGS 137,593 127,253 150,220 196,452 248,243 48%
Gross profit 194,433 176,955 184,728 233,431 268,075 52%
Operating expense:
Sales 132,993 136,718 125,295 166,846 181,382 35%
General and administrative 61,732 58,885 47,872 51,715 58,792 11%
Total operating expense 194,725 195,603 173,167 218,561 240,174 47%
Income from operations (292) (18,648) 11,561 14,870 27,901 5%
Other income and expense:
Gain on sale of fixed assets
- net 757 220 699 238 3,604 1%
Income (loss) on foreign
exchange - net (2,368) 3,254 (502) (3,499) 2,603 1%
Interest income 1,104 1,748 760 981 978 0%
Interest expense (9,703) (12,931) (10,416) (9,769) (8,759) -2%
Others - net 434 559 1,533 1,220 710 0%
Other income (expense) -
net (9,794) (7,150) (7,926) (10,828) (864) 0%
Income before income taxes (10,086) (25,798) 3,635 402 27,037 5%
Income tax benefit (expense) -
net 2,913 6,243 (1,399) (1,366) (4,807) -1%
Minority interest 133 0.08 17 20 0.10 0%
Net profit (loss) (7,040) (19,555) 2,253 2,695 22,230 4%

EBITDA 7,147 (5,766) 20,053 19,545 42,205 8%

Source: PT Martina Berto financial statement

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Exhibit 2. PT Martina Berto Balance Sheet (in millions of Rupiah)

2005 2006 2007 2008 2009

Assets
Cash and cash equivalents 13,517 19,359 14,405 15,940 13,491
Trade receivables 137,655 122,314 115,060 123,717 122,028
Other receivables 3,320 4,152 10,100 9,186 1,450
Inventories 46,915 48,305 47,928 52,654 68,058
Prepaid expenses 2,858 3,524 2,264 3,089 3,812
Advances 3,469 1,012 2,275 2,504 3,027
Prepaid taxes 3 8 - 5 0.9
Total current assets 207,737 198,674 191,672 207,095 211,868
Fixed assets - net 54,664 51,211 46,605 43,989 47,881
Deferred tax assets 13,265 20,548 20,018 19,870 9,447
Restricted time deposits 11,450 2,450 2,500 3,030 4,500
Tax claim 2,533 2,293 2,437 3,739 1,215
Other assets 460 372 286 1,676 1,960
Total assets 290,109 275,548 263,518 279,399 276,872

Liabilities & Equity

Trade payables 26,580 42,197 24,433 39,148 42,834
Other payables 8,806 2,185 2,637 2,691 3,959
Taxes payable 6,684 6,567 6,978 7,943 9,798
Accrued expenses 18,185 19,945 31,514 37,096 40,104
Current maturities of long-term
debt 57,877 19,105 19,283 20,953 23,413
Total current liabilities 118,132 89,999 84,846 107,831 120,108
Long-term debt 36,281 70,726 61,780 49,903 43,514
Estimated liabilities for employees'
benefits 20,138 27,610 27,587 30,198 22,442
Goodwill 217 192 167 142 116
Others 153 - - - -
Total liabilities 182,921 188,527 174,380 188,074 186,180
Minority Interest 609 608 0.7 381 0.4

Share capital 50,001 50,001 50,001 50,001 50,001

Retained earnings 56,988 36,822 39,546 41,353 40,691
Others (410) (410) (410) (410) -
Total equity 106,579 86,413 89,137 90,944 90,692
Total Liabilities & Equity 290,109 275,548 263,518 279,399 276,872

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Exhibit 3. Indonesian Economic and Estimation

Component 2008 2009 2010E 2011E 2012E 2013E 2014E

GDP 6 4.5 5.5 - 6.0 6.0 - 6.5 6.0 - 7.0 6.1 - 7.1 6.5 - 7.5
Consumption 5.3 4.9 4.5 - 5.0 4.8 - 5.3 4.6 - 5.6 5.0 - 6.0 5.6 - 6.6
Government 10.4 15.7 5.9 - 6.9 8.8 - 9.8 8.5 - 9.5 8.6 - 9.6 8.6 - 9.6
10.8 - 10.6 - 10.9 - 11.9 -
Investment 11.9 3.3 8.8 - 9.3 11.3 11.6 11.9 12.9
10.2 - 11.0 - 11.1 - 11.8 - 12.8 -
Export 9.5 -9.7 11.0 12.0 12.1 12.8 13.8
12.5 - 14.8 - 14.7 - 15.1 - 15.9 -
Import 10 15 13.5 15.8 15.7 16.1 16.9
Inflation 11.06 2.78 5.0 ± 1 5.0 ± 1 4.5 ± 1 4.5 ± 1 4.0 ± 1

Source: Bank Indonesia

Exhibit 4. IHSG Movements 2007 – 2009

Source: Created by writer with data from finance.yahoo.com

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Exhibit 5. Cosmetic Industry Comparisons

Debt
2009 Current to Debt to Operating Profit Revenue
ratio assets equity margin margin ROA ROE EPS PER growth
Mustika Ratu 7.18 1.4% 1.6% 12.0% 6.1% 5.7% 6.6% 49 8.04 12.3%
Mandom
Indonesia 7.26 0.0% 0.0% 13.3% 9.0% 12.5% 14.1% 620 13.06 12.0%
Unilever
Indonesia 1.04 0.0% 0.0% 23.1% 16.7% 40.7% 82.2% 399 27.69 17.1%

Martina Berto 1.76 24.0% 73.2% 5.4% 4.3% 8.0% 24.5% 222 N/A 20.1%
Average 4.31 6.3% 18.7% 13.5% 9.0% 16.7% 31.9% 323 16.27 15.4%
Median 4.47 0.7% 0.8% 12.7% 7.5% 10.3% 19.3% 311 13.06 14.7%

Source: Companies financial statement and case writer analysis

Exhibit 6. PT Mustika Ratu Tbk Income Statement (in millions of Rupiah)

MRAT Peers
2008 2009 % %
Sales 307,804 345,576 100% 100%
COGS 136,448 150,456 44% 51%
Gross profit 171,356 195,120 56% 49%
Operating expense:
Sales 116,560 122,616 35% 26%
General and administrative 29,498 30,955 9% 9%
Total operating expense 146,058 153,571 44% 34%
Income from operations 25,298 41,549 12% 13%
Other income (expense) - net 6,544 (12,680) -4% -1%
Income before income taxes 31,842 28,869 8% 12%
Income tax benefit (expense) -
net (9,552) (7,852) -2% -3%
Net profit (loss) 22,290 21,017 6% 9%

Source: PT Mustika Ratu Tbk financial statement and case writer analysis

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112-0516-017 PT. MARTINA BERTO : IPO VALUATION

Exhibit 7. Time Table of IPO Process in IDX

Source: idx.co.id

Exhibit 8. Indonesian Government Bonds Yield (in Percent)

Govt. Bonds Yield
1-year 3-year 5-year 10-year 15-year
Dec 2008 11.72 12.79 12.91 13.12 N/A
Jan 2009 10.68 11.33 11.63 11.91 N/A
Feb 2009 9.97 11.50 12.00 12.78 N/A
Mar 2009 9.57 11.40 12.16 13.23 N/A
Apr 2009 8.87 10.36 11.08 11.99 N/A
May 2009 8.34 9.72 10.34 11.42 11.55
Jun 2009 7.80 9.21 9.78 10.81 11.79
Jul 2009 7.53 8.79 9.33 10.45 11.42
Aug 2009 7.37 8.91 9.53 10.53 11.39
Sep 2009 7.26 8.84 9.46 10.40 11.05
Oct 2009 7.20 8.57 9.20 9.98 10.59
Nov 2009 7.21 8.65 9.30 10.27 10.81
Dec 2009 7.04 8.23 8.97 10.07 10.78
Jan 2010 6.87 7.84 8.45 9.61 10.44
Feb 2010 7.01 8.00 8.41 9.68 10.52
Mar 2010 7.10 7.92 8.33 9.24 10.02

Source: Indonesia Bond Pricing Agency (IBPA)

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Exhibit 9. PT Martina Berto Financial Forecast (in millions of Rupiah)

2010E 2011E 2012E 2013E 2014E 2015E 2016E

Sales 587.9 705.5 825.5 965.8 1,110.7 1,277.3 1,468.9
% growth 13.9% 20.0% 17.0% 17.0% 15.0% 15.0% 15.0%
COGS (273.9) (326.5) (385.3) (449.7) (514.9) (589.9) (676.0)
Gross profit 314.1 379.0 440.2 516.1 595.7 687.4 792.8
% margin 53.4% 53.7% 53.3% 53.4% 53.6% 53.8% 54.0%
Operating expense (266.4) (306.8) 360.7 (415.2) (472.4) (537.7) (612.3)
Operating income 47.7 72.3 79.4 100.9 123.4 149.7 180.6
% margin 8.1% 10.2% 9.6% 10.4% 11.1% 11.7% 12.3%
Net interest income
(expense) (6.3) 3.9 9.9 8.5 10.2 12.6 15.6
Other income 0.6 - - - - - -
Income before tax 42.0 76.2 89.4 109.4 133.6 162.3 196.2
Net income 33.6 57.2 67.0 82.0 100.2 121.7 147.1
% margin 5.7% 8.1% 8.1% 8.5% 9.0% 9.5% 10.0%

Source: Trimegah Securities - IPO research report

Exhibit 10. Cost of Capital Forecast for IPO PT Martina Berto

IPO Cost of Capital
Debt (%) 10.0
Equity (%) 90.0
Tax rate 25.0
Risk-free rate 10.0
Debt margin 4.5
Post-tax cost of debt 10.9
Market risk premium 5.0
Beta 1.0
Cost of equity 15.0
WACC 14.6

Source: Trimegah Securities - IPO research report

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About the Author

Yanthi Rumbina Ianova Hutagaol finished her PhD degree in

Accounting from University of Glasgow, UK in 2005. She has been a
lecturer since 1990. She joined BINUS Business School (BBS) in 2008.
Besides actively teaching in undergraduate and postgraduate programs in
(BBS), she has also been facilitating several corporate trainings in
Financial Management. She has published several papers in various
journals.

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