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NOTES TO THE CANDIDATES
1. The case describes the situation of a company. Please note that the situation is purely
hypothetical and used for instructional purpose only. Any resemblance to any real
company is purely incidental.
2. For best understanding of the case and to appreciate the results, the participants are
advised to develop the complete financial model on their own. However, owing to time
constraint, the participants would be given some pre-filled templates at various stages of
the training. The participants should be able to get from one template level to another in
the time prescribed in the class.
3. Participants should read the case carefully till the end to know the various assignments
based on the case
4. Participants should check their model at each stage with the next level of the template to
verify their approach.
5. Instructor would facilitate an interactive session
6. Participants should raise questions and challenge the approach
7. This case pack would be incomplete without the accompanying template sheets

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1. FINANCIAL MODELING CASE STUDY: FMCG SECTOR
Looking through the window of his office, Akshay was wondering how quickly time has passed by.
The day was pleasant with bright sunshine outside. With a mug of coffee in his hand, he was
looking at the day to day activities in the premises of Renuka Consumer Products Limited
(“RCPL”).
Akshay had just completed his MBA when his father expired in late 2004. Since then he had
taken control of RCPL, a company started by his father and named after his mother Mrs. Renuka
Devi.
RCPL, a popular name in one of the western states of India, operates in fast moving consumer
products segments. It manufactures and sells three products:
1. Soaps in packets of 100 gms
2. Hair colour in bottles of 250 ml
3. Liquid Detergents in the bottles of 500 ml
Since the time Akshay took control of the operations at RCPL, the company has grown leaps and
bounds. The volumes sold across each of the three categories of products have shown significant
growth over last five years.
Exhibit 1: Volumes sold over FY05 – FY09
Sales Volume (Units) FY05A FY06A FY07A FY08A FY09A
Soaps (100 gms packet) 187,500 215,625 240,000 285,000 337,500
Hair Colour (250 ml bottle) 281,250 300,000 315,938 333,750 348,188
Detergents (500 ml bottle) 131,250 150,000 163,125 173,438 182,813
Besides, RCPL has also managed to consistently increase the sale prices of its products primarily
because of lack of competition in the areas where it has achieved good marketability.
Exhibit 2: Sales Price Movement
Sales Price (Rs. / Unit) FY05A FY06A FY07A FY08A FY09A
Soaps (100 gms packet) 32 36 40 43 45
Hair Colour (250 ml bottle) 75 80 88 92 95
Detergents (500 ml bottle) 100 112 125 135 145
However, Akshay knows that things are no longer going to be as comfortable as they are right
now. Specially, in a situation when a leading listed player in the consumer products area has
announced plans to expand in the geographies where RCPL operates. Given the changing

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dynamics of the business, Akshay was thinking through the potential course of actions he can
take to counter the increasing competition.
As a first step he decided to take stock of the situation. He asked the chartered account for the
historical financial statements of the company.
Exhibit 3: Historical P&L Statement of RCPL
P&L Statement (Rs. Lakhs) FY05A FY06A FY07A FY08A FY09A
Revenues 402 486 578 664 748
Costs
Raw Material Cost 128 163 184 205 232
Manpower, Salary & Bonus Cost 51 58 72 86 94
Power cost 2 2 3 4 4
Packaging cost 9 10 12 14 16
Advertisement cost 20 41 42 44 46
Commission 20 24 29 33 37
Maintenance Cost 1 1 1 1 1
Insurance Premium 2 2 2 2 2
EBITDA 169 184 233 274 315
Depreciation 100 100 105 110 110
EBIT 69 84 128 164 205
Interest expense 60 59 56 53 50
PBT 9 25 72 112 156
Tax rate 34.0%
Taxes 3 9 25 38 53
PAT 6 17 48 74 103

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Exhibit 4: Historical Balance Sheet of RCPL
(Rs. Lakhs) FY05A FY06A FY07A FY08A FY09A
Sources of Funds
Shareholders Equity
Paid up Capital 550 550 550 550 550
Retained Earnings - 6 23 70 144
Profit for the year 6 17 48 74 103
Equity infusion during the year - - - - -
Total shareholders equity 556 573 620 694 797
Loan funds
Secured Loans - - - - -
Unsecured Loans 500 475 450 425 400
Total Loan Funds 500 475 450 425 400
Total sources of Funds 1,056 1,048 1,070 1,119 1,197
Usage of Funds
Fixed Assets
Gross Block 1,000 1,000 1,050 1,100 1,100
Accumulated depreciation 100 200 305 415 525
Net Block 900 800 745 685 575
WIP - - - - -
Investments 37 50 60 80 100
Current Assets (Excluding Cash)
Inventory 36 60 65 69 72
Account Receivables 33 52 55 60 51
Loans & Advances 10 14 15 20 16
Total Current Assets 79 126 135 149 139
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 Liabilities &
36 38 57 43 49
Provisions
Net Current Assets (Working
43 88 78 107 89
Capital)
Cash & Bank Balances 76 110 187 248 433
Total Usage of Funds 1,056 1,048 1,070 1,119 1,197

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While the past performance looked phenomenal, he knew that he along-with his management
team has to constantly improve and think ahead of curve lest RCPL should be eaten by the
competition. He was well aware of the fact that however good his team might be, past
performances may not be sustained in future unless he does plan well in advance. He quickly
summoned his Sales and Marketing team to seek their inputs on the future sale price points for
the various products RCPL manufacture.
Excerpts from the discussion he had with his Sales & Marketing team:
“ .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 the expected 15% in
FY10 to 12% in five years time. 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. ..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 ”
“ .While RCPL has so far controlled the sale prices of these products at its will, the same
may not happen in future. It will be almost impossible to increase the prices of soaps and
detergents for the next two years and even beyond that, the increase will be limited to 2%
to 3%. Hair colour segment still has a possibility of seeing a price CAGR growth rate same
at historical levels ”
Akshay quickly realized that in the competitive world, revenue growth alone may not fetch the
desired shareholders’ value creation. He quickly turned his attention to the key cost elements in
the P&L statement. He knew that raw material was the key constituent of the total cost base.
There were just four categories of raw materials required for the operations of RCPL.
Exhibit 5: Raw materials requirement of key products of RCPL
100 gms 250 ml hair 500 ml
Raw Materials volume requirement (ml)
soap colour detergent
Acid 105 255 505
Specialty chemicals 10 12 25
Ordinary chemicals 5 8 15
Perfumes 10 5 12
Acids were the single primary key raw material in terms of quantum of consumption. Specialty
chemicals were added to achieve the desired colour and perfumes were added for fragrance.
Akshay quickly noticed the raw materials price trend from the exhibit overleaf provided to him by
the Materials Department

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Exhibit 6: Raw Materials Price movement
Raw Materials prices (Paise/ml) FY05A FY06A FY07A FY08A FY09A
Acid 7.7 8.8 9.2 9.5 10.0
Specialty chemicals 3.7 4.5 5.0 5.3 5.5
Ordinary chemicals 1.7 2.5 2.8 3.0 3.5
Perfumes 5.8 6.5 7.0 7.5 8.0
He quickly invited Mr. Rao, Head of Materials Department for a discussion on the prices of the
raw materials.
Excerpts from the discussion he had with Mr. Rao
“ For the acids, RCPL has entered into a long term contract with the leading supplier in
the region. Under the terms of the contract, acids will see a price escalation of 5% over the
next five years. For specialty chemicals, he has multiple vendors and due to high
bargaining power RCPL enjoys with the suppliers, the price rise in this segment will be
restricted to 5%. Ordinary chemicals will display a price rise of 15% to 16% over the same
time horizon while perfumes will display the historical CAGR in terms of its price
growth Power cost will display a growth rate in the range of 10% – 11%...”
As soon as the discussion was concluded and Mr. Rao left the room; a very commanding and
authoritative female voice shouted at him, “You never seem to keep track of time. It’s lunch time,
where had you been?”
From the authority and power in the voice, it was evident that the voice was of none other than
Raveena, Akshay’s wife. Raveena was Akshay’s childhood friend and was also his father’s
choice as his wife. The two got married in early 2005 when Akshay took control of RCPL and
Raveena of Akshay. A wife’s entry into the scene need not always be welcome when one is
thinking about the future, however this time Raveena’s entry was perfect in time. Raveena,
besides being Akshay’s wife, was also the HR head of RCPL. Over lunch, Akshay figured out that
his HR department had been quite cautious in growing the manpower in the organization.
Exhibit 7: Manpower in RCPL
Manpower (Nos.) FY05A FY06A FY07A FY08A FY09A
Manufacturing 28 30 35 40 40
Marketing 5 5 7 8 9
Corporate 2 2 2 3 3
Raveena told him that manpower count will remain the same for this year while she had budgeted
a headcount increase of 5% beyond. Knowing that he must be thinking of the cost control, she
anticipated his next question, thus displaying a quality rare in HR and provided information on the
monthly salary figures of the employees in different categories.

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Exhibit 8: Average monthly salary
Monthly salary (Rs./employee) FY05A FY06A FY07A FY08A FY09A
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%
She also indicated that the employees have not received 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. The two had
finished lunch, post which she left the room without any debate; something you won’t expect at
least from an HR professional who has been queried about the “resources”.
Post lunch, it was time for a quick walk and he was joined by none other than Mr. Tibrewala, the
guy behind the operations of RCPL. Akshay was aware that the packaging of the end products of
RCPL was outsourced to another firm through a long term contract. Mr. Tibrewala clarified that
packaging cost will see a meager rise of 2% after remaining constant this year (with respect to
FY09). Besides, he promised to mail Akshay the historical packaging rates.
At times, our mailbox is so flooded with mails that we simply keep staring at it without knowing
which ones to open first. But Akshay was quite clear in his mind and he clicked open the mail
from Mr. Tibrewala as soon as he reached his office after the walk.
Exhibit 9: Packaging cost per unit
Packaging Cost (Rs. /Unit) FY05A FY06A FY07A FY08A FY09A
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 ml bottle) 2.0 2.2 2.3 2.5 2.5
Akshay knew that RCPL had not been an aggressive advertiser so far. However, in order to
increase penetration of the products and reach wider markets, advertisement-spend had to
increase. He has increased the budgetary allocation of advertising spend to 10% of sales this
year and he 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, he knew he would have
to gradually increase their commission to 7% from the current levels of 5%.
Having been through key items of revenues and growth, it was now time to interact with
Corporate Finance department about the future capital expenditure and their funding plans. The
firm had raised a debt of Rs. 500 Lakhs at an interest rate of 12% in FY05 to be repaid in 20
equal installments beginning FY06. The capital expenditure plans for the firm was as follows

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Exhibit 10: Capital expenditure plans
Rs. Lakhs FY10P FY11P FY12P FY13P FY14P
Capital expenditure 500 100 - 250 220
The firm depreciated all capex items using a straight line method over a period of 10 years.
Knowing the cash balance available with RCPL and good results so far in FY10, he realized that
no additional external funding will be required in order to carry out the planned expansion.
Having assimilated all the information now, Akshay was now wondering how to make use of them
to figure out the cash position of the company, its financial health and projected performance. He
was also thinking of a possible way of arriving at the valuation of the company his father had
created. He knew that he had a tough task in his hand. He was reminded of an investment
banker, Christopher, his batch mate from his MBA College. However, he did not want to employ
his services as he feared the magnitude of the fees. Eventually, he called him to seek information
on trading multiples of the listed companies in this sector and also an update on the recent M&A
or PE transactions that might have happened.
Gone are the days when investment bankers used to be working 100 hours a week. Thanks to
the recent downturn, bankers now enjoy some free evenings with their loved ones. However,
greed for fees never leaves them. Within minutes of the call, Akshay saw a mail from Christopher
who has concisely compiled the data he was looking for.
Exhibit 11: Trading multiples of the listed companies in FMCG sector
Comp M
EV* EV/Sales EV/EBITDA P/E β D/E
any Cap*
FY09 FY10 FY11 FY09 FY10 FY11 FY09 FY10 FY11
A 1,169 989 2.0 1.8 1.6 8.2 7.3 6.7 18.2 15.3 13.5 1.4 2.0
B 1,321 1,254 2.1 1.9 1.5 9.4 8.5 7.1 19.5 16.4 12.4 1.5 1.9
C 1,456 1,342 2.5 2.3 1.9 9.6 8.8 7.5 20.1 17.2 14.3 1.2 1.5
D 1,289 1,432 2.0 1.8 1.5 8.1 7.7 6.9 19.1 16.6 12.9 1.3 1.3
E 987 1,100 1.9 1.4 1.2 7.5 6.9 6.1 15.1 14.1 12.4 1.0 1.4
Note: *EV and M Cap in Rs. Lakhs
Exhibit 12: Transaction Multiples
Transaction Multiples
Recent Transactions in the same sector/ Industry
Year EV/sales EV/EBITDA P/E % stake
Co. X acquired Co. Y 2007 2.20 11.20 21.30 100%
PE firm F invested in Co. Z 2008 1.20 6.80 12.30 10%
Co. A acquired Co. B 2008 2.50 10.00 18.00 51%
PE investment in Co. G 2009 1.30 6.20 10.10 5%
Co. P acquired Co. Q 2009 2.40 12.00 18.10 26%

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Akshay has a voluminous and strenuous task at hand to determine the value of his firm.
However, he had been quick to break a big problem into a series of smaller problems to facilitate
his task.
Assignment 1
As a first step, prepare cash flow statements from the historical P&L and Balance sheet
statements for the period of FY05 to FY09
Assignment 2
Conduct ratio analysis based on financial statements available so far and examine the trends in
them. Besides, observe the growth rates and key trends in the revenue and cost items. Quickly
examine if revenue and cost build up are accurate.
Assignment 3
Identify key drivers of the revenue and cost. Prepare projected financial statements based on the
historical trends and the inputs gathered from various departments. Conduct what-if scenario and
check the sensitivity of the business model on various variables
Assignment 4
Based on projected financial statements, build a DCF model to arrive at an approximate equity
value of the firm. Examine this valuation with respect to the trading multiples and transaction
multiples in the industry