deloitte -maverick

1. Maverick Business Challenge

2. Executive
Summary
Industry
Highlights
Industry Highlights
Financial Analysis
Competitive
Position
Recommendation
• Includes information about the current Aerospace and Defense market scenario, the problems faced
by the industry, the Aerospace and Defense country wise share in the global context , revenues ,
operating profit and operating profit margin made by top 100 A&D contractors in 2014 etc.
Financial Performance
• Forecasting of Milco revenue on the basis cost CAGR, Revenue CAGR, Sales unit CAGR.
• Ratio and Dupont analysis of Milco in respect to industry
• Identified the segment which is not performing well and you may exit from it on the
basis of ROCE keeping the WACC benchmark in mind.
Competitive Analysis
• Analysis of various competitors of Milco based on their revenues in the business in which Milco
operates.
• SWOT analysis to asses the market conditions and what leverage does Milco have in the market
arena.
• Porter 5 Force Analysis to provide information about the competitiveness of global Aerospace and
Defense market.
Recommendations
• Suggestions based on financial and competitive analysis as to what business Milco should exit,
acquire and expand.
• 5 point strategy that Milco can consider to be profitable in this current declining market.

3. Executive
Summary
Industry
Highlights
 The top 100 A&D companies reports
$719bn in revenue and $66bn in
operating profit.
 Commercial Aerospace grew by 16%,
while defense aerospace grew by 4% in
terms of Operating Profit.
 Due to the declining budget spending
in United States and other developed
economies(which were affected by 2008
recession), the A&D companies are
suffering decline in revenues and profits.
 Top 20 A&D contractor's revenues
decreased by $5.8bn(2.5%).
 Only 3 of the Top 20 A&D contractor’s
experienced a revenue growth in 2013
compared to 8 in 2012 and 10 in 2011.
Top 100 A&D companies statistics
United States
UK, China, Russia, Japan, France
Financial Analysis
Australia,
Brazil,
Germany,
Italy, India,
Saudi Arabia,
South Korea,
Turkey,
Canada,
Israel
A&D market share
Summary(US $ billions) 2013 2012 Change
Revenue 719 692 4%
Operating Profit 66 60 10%
Operating Margin 9.24% 8.72% 0.52%
Competitive
Position
Recommendation

4. Executive Summary Industry Highlights Financial Analysis Competitive Position Recommendation
IN$MN FY14 FY15 FY16 FY17 FY18 FY19
Revenue 2005 2080 2162 2252 2350 2457
MFS 600 606 612 618 624 630
MRO IT Sys 300 324 350 378 408 440
MFSI 350 353 357 360 364 367
MFSS/M 400 404 408 412 416 420
MRO IT System S 230 247 266 286 307 330
MFC 125 146 170 198 231 270
GROSS MARGIN 48% 47% 47% 47% 47% 47%
MFS 40% 39% 39% 38% 38% 37%
MRO IT Sys 40% 40% 40% 40% 40% 40%
MFSI 66% 66% 66% 66% 66% 66%
MFSS/M 50% 50% 50% 50% 50% 50%
MRO IT System S 50% 50% 50% 50% 50% 50%
MFC 40% 42% 44% 46% 48% 50%
SG&A 401 416 432 450 470 491
EBIDTA 554 572 592 615 640 670
Depreciation 128 143 149 149 149 158
EBIT 426 429 443 466 492 512
NOPAT 298 300 310 326 344 358
Interest 65 69 69 69 69 69
PBT 361 360 374 397 423 443
PAT 252 252 262 278 296 310
Note: 1) Revenue is calculated based on Cost CAGR, Revenue CAGR , Unit CAGR of
every stream. SG&A is 20% of revenue. 3)Depreciation is calculated using asset proportion.
Interest rate is taken 3.62% based on average of companies' interest rates having Market cap
between $3 B to $9 B in airline and defence industry as given cap is $6.25 B.
Milco has better
measures than
Industry.
MFS is expected to
increase by 1% even
though the U.S.
MFS Market is
dipping
Better Net Margin
Lower asset quality
EBIT(%) REVENUE(%)
notes: MFS=Military Flight Simulator, MFSI= Military Flight Simulation Instruction, MFSS= Military Flight Simulator
Maintenance

5. Segmental Metrics (USD Million) Revenue EBIT %Revenue EBIT% F14 Cash ROCE Revenue CAGR EBIT CAGR
MFS 600 87 30% 20% 18% 0.01 -5%
MRO IT Sys 300 44 15% 10% 8% 0.06 9%
MFSI 350 127 17% 30% 22% 0.01 0%
MFSS/M 400 108 20% 25% 17% 0.01 1%
MRO IT System S 230 57 11% 13% 10% 0.06 8%
MFC 125 4 6% 1% 2% 0.13 68%
Notes: Cash ROCE is calculated as (EBIT+ depreciation)*(1-tax Rate) as numerator and for denominator Capital employed calculated using PP&E ratio (3:3:3:3:3:5)
allocation.
MFS/MFSI/MFSSM
MFS :better Cash ROCE (18%) near to WACC(20%)
MFS :accounts 30% Revenue and 20%EBIT
5 players in top 80%, less competition
Negative or less EBIT CAGR & less Revenue CAGR
MRO IT Sys/Sys S
Accounts 15% revenue and 10% EBIT
6% Revenue CAGR and 9% EBIT CAGR.
Two business lines: Sys/Sys S accounts
together 21% revenue and 13% EBIT
Three business lines accounts 67% revenue and
65% of EBIT
MFSI ,MFSSM have better ROCE Not good Cash ROCE
MFC
Merely 2% Cash ROCE and not have any
similar business lines
Accounts only 1% of EBIT and 6% of Revenue
Highest EBIT CAGR and Revenue
CAGR
Cash ROCE must be higher or
approx. equal to WACC =20%
Does it accounts maximum revenue
and EBIT of business
 Are Segment related to each other
or not?
MAY Exit
MFC
Segment
MFC
Segment
Judgment Criteria
Executive
Summary
Industry
Highlights
Financial
Analysis
Competitive
Position
Recommendation

6. Executive
Summary
Industry
Highlights
Financial Analysis
Based on the data provided in the case, we calculated the revenues of each
competitor in all the segments and here is our analysis.
 We are the market leader in the services we provide
 We have the maximum revenue ($2bn), followed by B,A,C,D,E in order.
Segment wise competitor in all the segments is shown in the below table.
IN $MN Market Size Milco A B C D E Segment Wise
MFS 3000 600 450 0 0 0 0 A
MRO IT Sys 2941 300 0 59 206 29 6 C
MFSI 1750 350 88 0 0 0 0 A
MFSS/M 1143 400 11 0 0 0 0 A
MRO IT System S 1150 230 0 23 46 12 2 C
MFC 125000 125 0 0 0 0 0 Not Applicable
Others 0 549 1094 432 170 192
Total 2005 1098 1176 684 211 200
Competitor Ranking(Revenue) 2 1 3 4 5
Additional Market Share can be captured In:
Recommendation
Porter 5
Forces
Analysis
Competitive
Position
1)MRO business line is less competitive :15 players account top 80%.
current market share is not too large :15% and 11.5% of company revenue is current status. Can grab more
share.
 2)Secondly can go for the additional share in MFSI as 17.5% of company revenue is not too large and 5 players are there in market makes it
less competitive.

7. Executive
Summary
Industry
Highlights
Financial Analysis
Competitive
Position
Selling off Military Facility Construction business
Recommendation
•Reason 1 : Return on capital employed(ROCE) is 2%.
•Reason 2 : There are 100 companies fighting for top 80% of business. Too
competitive.
Expansion of MRO business through acquisition
•There are 15 companies fighting for top 80% of business.
•Competitor D is considering closing of MRO business.
•Our market share for MRO IT system and MRO IT system service is not much
considering 15% and 11.5% respectively.
Expansion of Flight Simulator business
•Revenue CAGR is only 1% and we are already market leader in this ,so can
enter Globally.
•There are only 5 competitors fighting for top 80% of business in U.S. markets,
so chance to increase domestic share as well.
•Can expand Military Flight Simulation Instruction as existing share 17.5% is
not too large.

8. There is an increase in defense
budget in emerging economies
(South East Asian countries). We
can export our offering there.
International
Markets
Commercial
Markets
Inorganic
development
through
acquisitions
Personal
Security
Solutions
Cutting
edge
solutions
There is an increase in number
of people traveling via air in
emerging economies resulting in
increase in number of airplanes.
We can increase our simulator
and MRO business in these
markets
We can extend our offerings to
other parts of govt., or get into a
personal security business, thereby
increasing our product portfolio.
We can create solutions at
individual level to prevent crimes
like rape, theft, abduction etc.
Investing in R&D in future technologies
like cyber- security, UAV’s(Unmanned
Aerial Vehicle), C4ISR (Command,
Control, Communications, Computers,
Intelligence, Surveillance and
Reconnaissance (C4ISR) ), big data and
security etc.
We can tie-up or form
partnership with local
vendors/OEM’s in emerging
economies and foster our
business in these markets.
Executive
Summary
Industry
Highlights
Financial Analysis
Competitive
Position
Recommendation

9. REFERENCES
http://defensecontractormarketing.com/2013-defense-news-top-100/
http://www.defensenews.com/article/20140803/DEFREG02/308030015/Blurred-Lines-
Commercial-Defense-Sectors-Begin-Blend
http://dupress.com/articles/additive-manufacturing-3d-opportunity-in-aerospace/?
Siddharth Bhardwaj
Mohit Singhal
Rushi Dave
(rushi_dave@scmhrd.edu)
id=us:2el:3dc:dup706:eng:dup:3dopp
http://www.researchmoz.us/the-global-military-simulation-and-virtual-training-market-2014-
2024-report.html
http://www.deloitte.com/view/en_US/us/Industries/industry-outlook/
482fbd7affa3c310VgnVCM1000003256f70aRCRD.htm
http://global.sap.com/community/ebook/2013_03_24663/enUS/index.html#/page/3
https://www.link.com/media/press/pages/default.aspx
https://www.link.com/media/press/Pages/20140722.aspx
http://www.globalsecurity.org/military/world/spending.htm
http://defensecontractormarketing.com/defense-industry-associations/
http://defensecontractormarketing.com/why-smart-defense-contractors-are-investing-in-international-
marketing/
http://defensecontractormarketing.com/top-100-aerospace-companies-2013/
http://www.mckinsey.com/insights/manufacturing/defense_outlook_2015
http://www.digitaljournal.com/pr/2102020
http://www.newson6.com/story/25563347/the-global-military-simulation-and-virtual-training-market-
2014-2024-market-size-and-drivers-market-profile