Britannia

·         Market leader in bakery and biscuit business

·         Unorganized sector – 29%

·         Tax rate – 8-9% for <Rs 100/kg; 24% for > Rs 100/kg pre-GST

·         Now post GST, it is 18%; Britannia will benefit

·         Biscuit is organized, to enter with unorganized, entering into bakery biz with JVs – plan to enter into unorganized

·         Considering premium biscuit biz to tap into higher income streams

·         ITC

o   15% market share in biscuits

o   More rural (with parle)

·         Britannia is into urban

·         Strategies to tackle ITC and Parle

o   Britannia is strengthening its distribution to focus on rural

o   Improved mkting to penetrate hindi speaking area

o   Planning to import wheat as import duty decreased

o   First company to tie up with e-commerce (Amazon) to sell Good Day

o   Investments in R&D and capacity expansion

o   Setting up in Oman, Dubai and Mauritius with soft loans from govt of Oman

·         High PE not sustainable

·         Low debt

National Building Construction Corporation (NBCC)

·         PSU ; Navratna status -> invest upto 1000 crores without asking govt

·         Three biz : PMC, Real Estate Development and EPC

·         PMC – 85% of revenues

·         Order book of Rs 36000 Cr

·         Major client – Central Government, PSUs

·         They get orders by nomination process without competitive bidding

·         How does it secure its strategic advantage

o   Do international projects for other countries

o   2% of country’s population -> Govt project ; They have monopoly

o   They should get involved in the smart city project

o   They have expertise in green buildings which they can leverage on to enter into this segment

·         Is govt ownership drag on reinvestment plan?

o   Yes as they are restricted by the 1000 cr plan

o   Payout ratio -> 20%

·         What is its financial strategy?

o   Debt free company

o   Asset light model

Hero

With hindsight, its business strategy to severe its relationship with Honda was good or bad.  Justify using ROC and ROE.

·         Hero wanted tech expertise and Honda wanted a partner to enter India; Hence JV

·         Hero’s JV clause prevented them from entering into markets where Honda was already there. Hence, they severed

·         Although they expanded into 35 countries, sales have been flat

·         Their OM has also remained the same

·         ROE has reduced from 60% to 45%; ROCE also reduced. This shows it was a bad decision to drop JV

·         Honda had 13% market share at that time; it is now 26%; Hero had 50%; now dropped to 42%

·         Hero wanted to increase supply of components from Japan; royalty increased

·         Honda was not willing to share key tech with Hero

·         Scope of JV was limited to mfg as new product development is restricted to Honda

Should it continue with high dividend policy?

·         Debt free company

·         Payout ratio – 50%

·         Before breakup, they had 30%

·         At time of breakup, they had 109%

·         Post breakup, 50%

·         No it should not; Market share sliding; Honda going up; They have to reinvest into R&D and market expansion… Hence 50% payout is way too high

Maruti Suzuki

1.      Explain its business strategy.

·         Strategy to move from low cost car into an aspiring brand;

·         Visible by Nexa brand category

·         Will its growth be sustainable once EVs kick in at 2030 as Maruti doesn’t speak about EVs

·         Suzuki have collaborated with Toyota to bring EVs and battery technology; Suzuki wants EV tech; Toyota will piggyback on Maruti in India

2.      Explain its financial strategy.

·         Low debt and quick repayment due to high CFs

·         Payout ratio has been 30% and has been increasing which is high compared to other players

·         Uses its excess funds by investing in MFs and it believes in high cash from retained earnings to invest in capex

·         Higher ROE and ROCE; Yen denominated ROCE and ROE to figure out since lot of it goes back to Japan

Unlike other MNCs why has it pursued a low dividend policy?

·         To reinvest in capex

·         Comparing with FMCG MNCs which are inelastic, auto is elastic; Also, auto is cyclical. They don’t want to increase and then decrease owing to market conditions

Sudarshan Chemicals

1.      Explain its business and financial strategy.

·         48% from exports

·         Plans to go further global

·         Building capacity to meet demand due to housing for all

·         Market dominated by inorganic pigments; 20% is only organic

·         Sudharsan -> Organic (niche segment)

·         It is expected to go to 40% by 2020

·         Organic is more environmentally friendly;

·         Biz strategy

o   Direct Market Access instead of traditional selling to mfgrs (used to sell to Asian paints; now selling on its one)

o   Going global

o   Going to more specialized pigments (it has higher margins)

o   Inhouse captive plant in Roha to reduce power cost by 50%

o   Low cost of procurement at China by setting up a subsidiary thereby reducing operating costs

·         Financial strategy:

o   Reducing its D/E ratio

o   For expansion plan, it plans to finance 75% by debt

o   Payout -25 to 40%

o   ECBs in euros which is cheaper

2.      Does its valuation justify its business strategy and should its premium valuation be demolished?

·         Expanding capacity abroad

·         PE around 23 and is overvalued

·         Overvaluation justified owing to expansion and env friendly biz

Bajaj Finance

·         Subsidiary of Bajaj Finserv

·         45% of biz comes from consumer finance

·         Short term financing – 3 to 12 months

·         Low NPA

1.      Should it become a bank?

·         Advantage of bank

o   Low cost CASA deposits

·         Bajaj Finance is a deposit taking NBFC

·         NBFCs can’t take demand deposits ; CASA cost is low

·         Disadvantage of becoming a bank

o   CRR requirements not there in NBFCs while it is there in banks

o   SLR increases if you shift from NBFC to bank

o   Mandates you to have 25% rural branches which are unbanked

§  Increases investments

o   Priority sector lending norms are not applicable for NBFCs

·         IDFC, which was a NBFC before, after becoming a bank, it’s net interest income go down by 20%

Explain its business and financial strategy?

·         Biz strategy:

o   Diversified portfolio of lending

§  Risk in one sector diversified

o   Growing consumer finance segment

·         Financial strategy:

o   Reduced cost of funds through diversified borrowings

o   High net interest margins

DMart

 

·         EDLP

·         Low debt to equity as compared to its peer (0.7)

·         ROE is 21% way higher than peers

·         High asset turnover ratio

·         Owns stores; Asset heavy model; No rent which is around 5-10% of sales

1.      Would it go Walmart way?

·         Walmart stores are getting closed. Will it follow for D Mart?

2.      Explain its business and financial strategy?

Business strategy

·         Buy low; sell cheap

·         High inventory turnover

·         Low payment period to vendors to get bargaining power with suppliers to get a lower price

·         Owns stores; Asset heavy model; No rent which is around 5-10% of sales

·         Selective expansion

·         Low sales and marketing expenses

Financial strategy

·         Low debt

·         Revenue per sqft is high

·         Asset heavy business

·         Negative overall CF

o   Positive CFO

o   Negative CFI

3.      How does it effectively deal with competition from e-market?

·         Venturing into ecommerce

Amazon

·         Inventory based and market place

·         Amazon -> Hybrid model

·         They have their own retail called Cloudtail

·         As per regulations, not more than 50% from a single vendor

What is the business strategy of the company?

·         Cost leadership

·         Amazon reduced commission charges to sellers

What is its financial strategy?

·         Amazon US -> Amazon Eurasia -> Amazon APAC -> Amazon Seller Services

·         Amazon US no profits from 1997 to 2003

How is Amazon India going to be profitable?

·         Through Amazon Webservices although e-commerce is loss making

Major cost headers:

·         Promotion charges

·         Amazon fulfilment transportation

DHFL – Diwan Housing Finance Ltd

·         Housing credit has grown

·         Housing for all was a favorable factor

·         Growing urbanization

Explain business strategy of DHFL.  Is it supported by its financial strategy?

Biz strategy:

·         Grown through acquisitions and wanted to venture into different business streams ; complementary business (Asset Management, Life Insurance, Avanse, etc)

·         Sold off one business and received in compulsory convertible debenture so as to get equity later in that firm

·         Focus on tier 2 and tier 3 cities ; Lower income segment

·         Acquisitions to expand geographical reach and client acquisition   

·         Aiming to become a financial conglomerate

Finance strategy:

·         Initially bank borrowing

·         Moved to QIPs and NCDs to reduce cost of funds

·         Tied up with a consortium of banks to jack up loan book growth (tie-ups with commissions)

ICICI Prudential

·         Less than 1.5% world’s total insurance premium value

·         Insurance industry wants to hike it to 5%

·         Market dominated by LIC

·         Growth drivers:

o   Demographic dividend

o   Insurable population growth

·         Business strategy:

o   Expand their product offerings

o   85% of product offerings are ULIPs

o   Reduced grievance ratio (lesser than industry)

·         Financial strategy:

o   Persistency Ratio – Amount of business that a company can retain by renewed

o   Highest persistency ratio (for 13 months) among pvt sector

o   IRDA wants to cap expense ratio to prevent companies from increasing expense ratio and passing it on

§  Divide all expenses/net premium to get expense ratio

o    Expense ratio increased marginally despite steady growth

HDFC

1.      Explain its business strategy to raise additional Tier 1 capital from the Eurodollar market.

o   They raised money to enter into risky segments (agriculture loans and small ticket loans)

o   Tier-1 capital -> Core equity of the bank

o   Tier-2 capital -> Banks

o   Basel 3 – 11.5% Tier-1 capital to be held from FY19

o   HDFC feels the need to increase Tier-1 capital due to expected rise in NPA

o   CoCo contingent convertible bond -> converted if capital requirement falls below standards

o   CoCo bonds are risky and no takers in domestic markets

o   HDFC is hence going to Euro dollar market to get them

o   High yield acts as an impetus for foreign investors and cost of raising is low for HDFC

o   Bond issued by HDFC at lowest coupon rate due to lowest NPAs

o   Bond issued by HDFC at lowest coupon rate due to lowest NPAs