Financial Model of a FMCG Company

Calculate the Share Price of NCPL based on the following information

Exhibit 1: Historical volumes of product portfolio

Sl. No. Parameter Unit FY11A FY12A FY13A FY14A FY15A

A Soap Packets 421,875 485,156 540,000 641,250 759,375
B Hair Colour Bottles 281,250 300,000 315,938 333,750 348,188
C Detergents Packets 131,250 150,000 163,125 173,438 182,813

Exhibit 2: Sales Price Movement

Sl. No. Parameter Unit FY11A FY12A FY13A FY14A FY15A

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

1. Soap segment has seen a high growth phase so far, but due to enhanced penetration in the rural
markets, this segment will see a tapering growth rate from 15% in to 12% in five years’ time.
2. Due to lack of fashion consciousness in the villages, hair colour segment will, at the best see a CAGR of
0.5% less than historical CAGR over a five period time frame.
3. Liquid detergents have gained popularity in the rural markets and will continue to display a growth
rate of 5% - 6% over the same time frame, very much in line with its growth rate last year.
4. While NCPL has so far controlled the sale prices of these products at its will, the same may not
happen in future. Growth rates have to taper down from 5% to 2 – 3% range in the coming years.
5. Hair colour segment still has a possibility of seeing a price CAGR growth rate same at historical levels.

Exhibit 3: Historical P&L Statement of NCPL (All Financials in INR Lakhs)

Parameter 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
EBITDA 117 170 217 236 261
Depreciation 73 152 163 163 163
EBIT 43 17 54 72 98
Interest on Debt 23 63 81 78 75
Other Income 0 0 2 8 15
PBT 20 (46) (25) 2 37
Taxes for the year 7 (11) (8) 1 13
PAT 14 (35) (16) 1 25

Exhibit 4: Historical Balance Sheet of NCPL (All Financials in INR Lakhs)

FY11A FY12A FY13A FY14A FY15A

Liabilities & Equity
Shareholders Fund
Paid Up Capital 200 300 300 300 300
Share Premium Account 0 0 0 0 0
Retained Earnings 14 (21) (37) (36) (11)
Total Networth 214 279 263 264 289
Non-Current Liabilities
Debt 325 638 602 597 550
Current Liabilities & Provisions
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 25
Total Current Liab. & Prov. 36 38 57 43 49
Total Liabilities & Equity 574 955 921 903 888

Assets
Net Fixed Assets
Gross 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
Investments 0 0 35 90 140
Current Assets
Cash & Cash Equivalent 24 25 95 156 199
Margin Money with Bank
Inventory 36 60 65 69 72
 Account Receivables 33 52 55 60 51
Loans & Advances 10 14 15 20 16
Total Current Assets 103 150 230 305 338
Total Assets 574 955 921 903 888
NCPL, a popular name in many of the western states of India, operated in fast moving consumer
products segments. It manufactured and sold three products:
1. Soap in packet of 100 gms
2. Hair color in bottles of 250 ml
3. Detergent in packet of 500 gms

Exhibit 5: Raw materials requirement of key products of NCPL

Raw Materials volume 100 gms soap 250 ml hair color 500 gms detergent
requirement (ml)
Acid 105 255 505
Specialty chemicals 10 12 25
Ordinary chemicals 5 8 15
Perfumes 10 5 12

Exhibit 6: Raw Materials Price movement

Raw Materials prices FY11A FY12A FY13A FY14A FY15A

(Paise/ml)
Acid 6.80 6.80 7.00 7.50 8.20
Specialty chemicals 3.70 4.50 5.00 5.30 5.50
Ordinary chemicals 1.70 2.50 2.80 3.00 3.50
Perfumes 12.00 13.00 14.00 15.00 16.00

For the acids, NCPL has now entered into a long term off-take agreement with the leading supplier in
the region. Under the terms of the contract, acids will see a price escalation of 5% for first 2 years and
4% thereafter till the tenure of off-take agreement. For specialty chemicals, he has multiple vendors and
due to high bargaining power NCPL enjoys with the suppliers, the price rise in this segment will be
restricted to 5%. Ordinary chemicals will display a price decline of 15% to 13% over the same time
horizon while perfumes will display the historical CAGR in terms of its price growth.

Exhibit 7: Manpower in NCPL

Manpower (Nos.) FY11A FY12A FY13A FY14A FY15A
Manufacturing 28 30 35 40 40
Marketing 5 5 7 8 9
Corporate 2 2 2 3 3
manpower count will remain the same for this year while she had budgeted a headcount increase of 5%
beyond.

Exhibit 8: Average monthly salary

Monthly salary FY11A FY12A FY13A FY14A FY15A

(Rs./employee)
Manufacturing 10,000 10,500 11,000 11,100 11,700
Marketing 15,000 16,000 17,000 17,500 18,000
Corporate 16,000 16,500 17,200 17,800 18,200
Bonus (% of salary) 10% 12% 12% 12% 15%
the employees would not receive any salary hike this year; however she had budgeted for 5% hike year
on year for the next five years. The firm will continue to pay 15% of the salary as bonus in the years to
come unless something unforeseen happens.

Exhibit 9: Power Cost

1.Power purchase tariff – Rs. 5.25 per unit

2. Power consumption in production process – 177,737 kWh
3. Power consumption in other offices and buildings – 19,749 kWh

most of the Discoms have proposed the highest year on year tariff hike of 8% - 10%

Exhibit 10: Packaging cost per unit

Packaging Cost (Rs. /Unit) FY11A FY12A FY13A FY14A FY15A

Soaps (100 gms packet) 1.0 1.1 1.2 1.3 1.3
Hair Colour (250 ml bottle) 1.5 1.6 1.8 1.9 1.9
Detergents (500 gms packet) 2.0 2.2 2.3 2.5 2.5
packaging cost will see a meager rise of 2% after remaining constant this year.

He had increased the budgetary allocation of advertising spend to 10% of sales this year and had
decided to raise it to ~ 14% gradually over next few years. Besides to prevent the retailers and salesman
from partnering with any new player in the area and to lure them to push NCPL’s products, he knew he
would have to gradually increase their commission to 7% from the current levels of 5%.

Exhibit 11: Historical Capital Expenditure and Depreciation

Sl. Parameter (Rs. Lakhs) Depreciation FY11 FY12 FY13 FY14 FY15
No. Rates
1 Capital Expenditure
A Land - - 50
100 50
B Plant, Machinery & Buildings 18.0% 400 400 10 10 10
C Laptops, Desktops & Mobiles 33.3% 10 10 5 5 5
D Furniture, Fixtures & Furnishings 15.0% 35 25 - - -
2 Book Depreciation 163 163
73 152 163

Project Department phased the capital spend in such a way that all the Projects except those belonging
to Plant, Machinery and Buildings (“PMB”) were complete by fiscal year end. Typically 10% of the PMB
projects (value wise) awaited final installation, testing and commissioning by year end.

Exhibit 12: Proposed Capital Expenditure Plan

Sl.No. Asset Class FY16P FY17P FY18P FY19P FY20P

1 Land 0 50 30 0 0
2 Plant, Machinery & Buildings 150 150 100 100 105
3 Laptops, Desktops & Mobile 10 5 5 5 10
4 Furnitures, Fixtures & Furnishings 30 0 0 0 10
Total 190 205 135 105 125

Other Data

Risk free rate 8.0%

Beta 0.8
Expected return from market 16.0%
Cost of debt 12%
Terminal Growth Rate 4%
Interest on cash and cash equivalent 8%
Tax Rate 30%
Face Value of Share 10
Market Price per share 25