Deloitte B-School Competition Campus Presentation

1. Submitted By:
Adit Grover 1301-502
Divya Arora 1301-337
Shantanu Prakash 1301-206
EXPANDING GEOGRAPHIES

2. Executive
Summary
Financials
Competitive
Positioning
Recommendat
ion MRO
Military Flight
Simulator
Financial Performance Competitive Position Proposed Strategy
To find out opportunities for growth
in the international markets
Strategic
Objective
Analysis
Analysed the income statement of the
company for 6 years and profitability of
each product/service
Analysed the Perceptual Map of the all
competitors and their future strategy
Identified critical drivers of growth
Market potential of all the product
services across geographies
To asses the financial performance of the
company & find out products/services to
be closed
To find out the competitive position of
Milco and which product/should be
focused
Insights
High growth rate, increasing profitability
and decreasing interest cost show strong
financial health of the company
Market potential in MRO because of
competitor D exiting the market &
higher margins
Retain all the products
Expansion in Commercial MRO &
Flight Simulators
Remain in the US for Construction
Facility
Recomme-
ndation
Commercial
MRO
Germany South Korea
Austria India
Military
Flight
Simulators
Saudi Arabia Turkey
China Russia
Strong competitive position in Military
Flight Simulators & its maintenance

3. Executive
Summary
Financials
Competitive
Positioning
MRO
Recommend
ations
Military Flight
Simulator
Assumptions
Expected growth rate of
sales revenue and cost of
goods sold
Tax Rate
Risk Premium: 2.5% Equity Risk Premium: 14.01%
International Risk premium: 4% Industry risk premium: 3.75%
Unlevered Beta : 0.99 Relevered Beta :1.95
Cost of Equity
Beta is calculated using Levered
Beta of peer set and the Unlevered
Beta is relevered using company's
debt-Equity Ratio
Income Statement
Other Assumptions
• Cost of Debt : 7.8%
• Scrap value of plant and Equipment is assumed to be zero.
• Market cap has been used while calculating debt-equity weights
• Debt is assumed to be constant post 2015
Particulars 2014 2015 2016 2017 2018 2019
Total Revenue 2,00,50,00,000 2,08,82,87,106 2,17,50,33,933 2,26,53,84,197 2,35,94,87,585 2,45,75,00,000
COGS 1,05,00,00,000 1095163955 1142270560 1191403375 1242649554 1,29,61,00,000
Gross profit 95,50,00,000 99,31,23,151 1,03,27,63,373 1,07,39,80,822 1,11,68,38,031 1,16,14,00,000
SG&A 40,10,00,000 41,76,57,421 43,50,06,787 45,30,76,839 47,18,97,517 49,15,00,000
EBITDA 55,40,00,000 57,54,65,730 59,77,56,586 62,09,03,983 64,49,40,514 66,99,00,000
Depreciation and Ammortization 10,10,00,000 10,64,00,000 11,18,00,000 11,18,00,000 11,18,00,000 11,99,00,000
EBIT 45,30,00,000 46,90,65,730 48,59,56,586 50,91,03,983 53,31,40,514 55,00,00,000
Interest 20,03,40,000 211470000 211470000 211470000 211470000 211470000
EBT 25,26,60,000 25,75,95,730 27,44,86,586 29,76,33,983 32,16,70,514 33,85,30,000
Tax 7,57,98,000 7,72,78,719 8,23,45,976 8,92,90,195 9,65,01,154 10,15,59,000
Net Profit 17,68,62,000 18,03,17,011 19,21,40,610 20,83,43,788 22,51,69,360 23,69,71,000

4. Executive
Summary
Financials
Competitive
Positioning
MRO
Recommend
ations
Military Flight
Simulator
Financial Analysis
Which Product to Exit?
Product/Service Gross Profit(2014) Gross Profit (2019) CAGR
US Market
Trend (2014-
2015)
Retain
Product
Military Flight Simulator 24,00,00,000 23,40,00,000 3.88 3
MRO IT System 12,00,00,000 17,60,00,000 6.33 3
Military Flight Simulation Instruction 23,00,00,000 24,15,00,000 4.25 1.12
Military flight Simulator Service/Maintenance 20,00,00,000 20,99,00,000 4.25 1.75
MRO IT System Services 11,50,00,000 16,50,00,000 6.17 1.15
Military Facility Construction 5,00,00,000 13,50,00,000 12.50 125
All products are to be
retained since Gross
Profit is increasing
phenomenally & CAGR
is also high
Financial Health
Multiples 2014 2019
EV/ EBITDA 13.81x 11.41x
EV/Sales 3.8x 3.11x
• Milco is expected to expand from 2014-2019
• Increased Interest coverage by 15% from 2014 to 2019
and reduced Operating margin indicates decreasing
interest cost
• Decreasing CR suggest reducing working capital cycle
Financial Performance
• 14 % increase in Account Receivable and 20% increase in
Accounts Payable indicates longer cash conversion cycle
• With shareholder's equity remaining constant, it shows
that the debt amount in increasing in capital Structure.
Particulars Industry Company
Net Profit Margin 8.20% 10.90%
ROE 0.214 0.170
ROA 6.30% 12.6%
• Net Profit Margin is higher than industry
average indicating the business is
performing better than its peer
• ROE is less than the industry average
indicating that the company is offering
less returns to its investors as compared
to its competitors
Ratios 2014 2015
Operating Margin 23% 22%
Interest Coverage 2.26 2.21
Current Ratio 3.2 2.8
Particulars
2014(In
$m) 2015(In $m)
Account Receivable 700 800
Accounts Payable 500 0.170

5. Executive
Summary
Financials
Competitive
Position
MRO
A
Competitor D : Low Market share
Expected to exit MRO
Competitor E : Low Market share
Fragile Competitors
MRO Market
*Bubble size represents market share
**Construction Facility has been ignored considering no
competitor data given and also low market share
MilitaryFlightSimulatorsMarket
B
Milco
CD
E
Competitor A : High Market share
in Simulators
Major Competitors
Mild Competitors
Competitor B : Low market share
in MRO
Competitor B : Low market share
in MRO
Milco has a higher market share than all the given
competitors and has wider product portfolio
Competitor A Competitor B Competitor C Competitor D Competitor E
International
Market
MRO Focus Expanding IT Leaving Market( Share up
for grab)
Civilian Focus
Additional Market Share :
MRO IT System Services
MRO IT System
A
MRO Market
MilitaryFlightSimulatorsMarket
B
Milc
o
E
Reasons:
-Competitor D exits the market
-Focus of E on Civilians
-Increased demand of MRO
-Gross margin :40%
-Low cost of services
Recommend
ations
Military Flight
Simulator
C

6. Executive
Summary
Financials
Competitive
Positioning
MRO
Recommend
ations
Military Flight
Simulator
Expansion to International Markets
Strategy:
MRO
Market
Military
Flight
Simulators
Marketing
Customer
Channel
Services/Lon
g term
relationship(
S/LG)
Based on the service requirement and target market in specific geography ,following pillars can be chosen as
per need
New Service Model Entry of Competition Mature Markets
Customer
ChannelS/LG
Customer
ChannelS/LG
Customer
ChannelS/LG
Primary Focus Secondary Focus
Drivers of Growth
• Next Generation Intelligence
• Surveillance
• Investment in ISR technologies
• Expansion in Unmanned Combat Vehicles(UCV)
• Private equity investors are ready to sell their shares
• Low cost product up gradation
• Air sea power

7. Executive
Summary
Financials
Competitive
Positioning
MRO
Recommend
ations
MRO Industry
Strengths
- Outsourcing by leading
defense spending nations
-Procurement and
modernization
-Force readiness initiatives
Weakness
ThreatsOpportunities
-MRO workload
brought the under the
government depots in
US
-US and European
economic crises
-Pooling of defense
resources
-Increasing average age of
aircrafts globally
-Defense budget cuts: More
demand of MRO
-Long cycle times
-Performance based
contracts: Low margin
-Technology driven
rise in MRO costs
Why MRO?
40%
21%
17%
22%
The Global Commercial Aircraft MRO
Market-By Type
Engine
Component
Line
Heavy
26.40%
22.60%
6.80%
5.00%
5.10%
3.70%
30.40%
The Global Commercial Aircraft MRO Market-
By World Region
Asia -Pacific
W.Europe
Middle East
Latin America
E.Europe
Africa
North America
• Outsourcing creates opportunities
• Commercial MRO going to be a
major sector
• Demand growing in Asia Pacific
Global Military
MRO Market :
US $ 60.7
billion
Market size
growth
CAGR : 2%
Global
Commercial
MRO Market :
US $ 59.2
billion
Market size
growth
CAGR :4.1%
Airlines spend an average of US $870
in direct maintenance costs for every
flight hour.
VS.
Greater opportunity
3.2%
Air Fleet Growth
4.4%
Passenger Fleet
Growth
Military Flight
Simulator
Recommend
ations
Key Takeaways

8. Executive
Summary
Financials
Competitive
Positioning
MRO
HighLow
HighLow
Hold
Heavy
Maintenance
Build
Harvest
Hold
Line
Maintenance
Milco’s Competitive Advantage
MROSegmentAttractiveness
Line Maintenance-Currently 15 % is outsourced, industry
to grow from $8 Billion to $11 Billion by 2017.
Component Maintenance - Currently 70 % is outsourced,
expected increase from $8 Billion to $11 Billion by 2017.
Engine Maintenance -Accounts to 35 % of maintenance
spend and expected to increase from US $ 17 Billion to US
$ 26 Billion by 2017.
Heavy Maintenance- From $9 Billion to US $ 13 Billion
;controlled by OEM’s
Notes- Assuming Milco has high competitive advantage as 3rd party service provider but less than OEM’s
Recommend
ations
Military Flight
Simulator
4.50% 4.20% 4.10%
3.20%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
MRO-Annual Growth by Type
2013-2022
Area of Expansion
Cumulative
market of US $ 28
Billion in 2017
(expected)
Austria,
Germany,
U.K.
CAGR 1.5% , Current Market Share
22.60%
Entering Mature Market Strategy:
• Using processes and tools to work
together with other partners in the
supply chain and integrating them
• Inter connecting automated systems
among all the Companies to optimize
the performance of the entire
network
CAGR 5.50% , Current Market Share 26.40%
Entering Emerging Market Strategy:
•Developing total care MRO service offerings.
•Developing specialized MRO service offerings
•Acquiring MRO companies that are a strategic fit
with the Milco
Hong Kong,
South
Korea,India
Expanding
Geographies
for MRO
•Component
Maintenance
•Engine
Maintenance

9. Executive
Summary
Financials
Competitive
Positioning
Military Flight
SimulatorMRO
Recommend
ations
Drivers of Growth of Flight Simulators
• Technology advanced simulator
• Flight training devices with added features
• Extensive computer based training
Increase in
market size:
6.3% CAGR
CAGR : Increase in Global
Military Flight Simulator
Market
US $ 12.6 billion (2024)
3.48%
Countries
Asia Europe
Saudi Arabia- Military Simulators
Market size growing by 8.16% CAGR
China – 13% increase in spending
Russia- 44% market growth in the
next 3 years
Turkey- Enter with collaboration
with Havelsan
Key Takeaways
• Expanding to 4 countries using partnerships &
M&A
• Step-by-step market expansion
• Saudi Arabia provides huge growing market
• Entering countries with low competition
U.S Defense budget cut help increase
demand for flight simulators

10. APPENDIX
Particulars 2014 Equity Risk Premium Calculation
Wacc 20 Year Rm Rf Rm-Rf
Rf 2.5 2014 9.738 2.47 7.27
Debt weight 0.22 2013 9.774 3.03 6.75
2012 10.509 1.76 8.75
1-tax rate 0.7 2011 10.687 1.39 9.30
Debt weight after tax 0.16 2010 11.655 3.29 8.36
Equity Weight 0.78 2009 10.651 3.84 6.81
International Risk Premium 4
Industry Risk Premium 3.75 2008 11.73 2.21 9.52
2007 10.804 4.02 6.78
2006 9.765 4.70 5.06
Beta
Calculation 2005 10.31 4.39 5.92
Company Levered Beta Debt percentage Equity percentage Tax Unlevered Beta 2004 8.772 4.22 4.55
Textron Inc 1.48 48.18 51.82 40% 0.95 Average Rm-Rf
7.18885
4545
Bombardier 1.17 77.1 22.9 40% 0.39
Boeing 1.01 38.51 61.49 40% 0.73
Airbus 0.81 42.53 57.47 40% 0.56
Embrace 0.39 38.39 61.61 40% 0.28
Relevering
Beta 1.95 Average 0.99