Chanakya - Round 1 Cases

7/28/2019 Chanakya - Round 1 Cases

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Round 1 CaseletsRound 1 CaseletsRound 1 CaseletsRound 1 Caselets


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RULES & REGULATIONS FOR ROUND 1

There are 5 cases outlined below. You are required to solve a minimum of TWO casesand a maximum of THREE cases of your choice. However, the two best cases will be

considered for evaluation.

The analysis and recommendations for each case should be based on the case facts only. Reasonable assumptions, if any, should be stated upfront and based on the information

in the case.

All caselets carry equal weightage. The solutions of the caselets should be restricted to 2 pages. The solutions should only be submitted in the format specified in the attached template. The deadline for sending entries is 30th September, 2012 11:59 p.m. The answers should be mailed to [email protected]. The subject of the mail

should be Chanakya_Round1_CaseletNo1_CaseletNo2_CaseletNo3 (Example

Chanakya_Round1_2_4_5). The entries should be in pdfformat. The document should

be named as TeamName_CaseletNo1_2_3 (Example TeamX_2_3_5).

The results of the first round will be updated on the facebook page and will be mailed tothe individual teams that qualify as well. You can follow us on facebook at http://www.facebook.com/Chanakya.iimi and at

twitter at http://twitter.com/Chanakya.iimi

In any case of dispute, the decision of the organizing team will be final and binding.


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Caselet 1: NDC (Naren Diagnostics Clinic)

Dr. Naren is a popular and leading radiologist in India. Being a very successful practitioner, he is

also philanthropic in nature and tries to give as much free consulting services to the needy and the poor

as possible. Owing to these reasons he had progressively reduced giving his time to his own diagnosticclinic and trained several highly qualified and bright doctors to do his job in his absence.

Even though the assistant doctors (also referred as Consultants) were very experienced and

trained and presumably the best in the area, the patients who used to come to his clinic pushed and

preferred to meet Dr.Naren for his diagnostic analysis and his comments and he obliged the same. After

all, it was his clinic and he wanted to see each and every patient of his clinic. Typically, he used to go for

the health camps and government hospitals in the morning and late in the evenings and used to visit his

clinic in the afternoon from around 1PM to 5.30PM.

The centre opens at 10 AM in the morning. Out of the patients, 80% are new patients; while

30% are follow up patients. 80% of the new patients schedule an appointment before coming to the

hospital. In spite of scheduling, the waiting area of the clinic has never been empty; in fact it was always

crowded. In the room, the capacity of which was 25, at least 40-50 waited during the peak hours and

this created a lot of difficulties for the patients and the ones accompanying them. The others came

anytime of the day as they wished and the clinic accommodated them in between.

Dr. Narenfelt uncomfortable with the fact that people had to wait for such a long time to see

him and wanted to do something to improve it. On an average the patient spent around 3 hours in the

clinic, whereas the time taken to deal with a patient was around half an hour only. He had recently

purchased two additional radiology machines over the existing one to improve the situation. He also felt

that proper scheduling of appointments by his receptionist could also improve the situation. He had

heard his son, Guha, doing his MBA from CIMCI (Celebrated Institute of Management in Central India),

talking about how waiting line models helped in understanding and reducing queues in various systems.

Dr. Naren was ready to invest heavily in some software that would help him schedule the patients

better. He was also pondering about purchasing another radiology machine if required. He approached

his son to help him make the decision. Guha knew that his father was a very noble man and wanted to

give him the most economical suggestion. He spent the next week observing the flow of patients in the

clinic. He also collected a lot of relevant data. These notes and data collected have been provided to you

asAppendices 1-5.

Guha, being very shrewd in Operations and with adept knowledge in application software, he

figured out the issue at hand in a couple of days. When he gave his recommendations to Dr. Naren, the

father was very proud of his son. What do you think were his recommendations?


4/12

Appendix 1: Excerpts from the Notes made by Guha

Any patient first reports to the receptionist, who registers and arranges a new record-file for the

patient. In case of an old patient, the receptionist had to arrange the required docs in the order

required by the doctors. This process on an average took 1-2 minutes. They immediately reported

to one of the three nurses who went through the follow-up patients previous records or noted

down the complaints or initial observations of a new patient. This process typically took 5

minutes. Every new patient and around 95% of the follow up patients were sent for diagnostic

tests. After arranging and scanning the patient for around 2 minutes, the system took around 10

minutes to generate the report as required by the doctors. The machine was technologically

superior and had the ability to process any number of scan results simultaneously while scanning

another patient. Every patient had to meet one of the 3 assistant doctors next. They were called

consultants, and they analysed the results of the test and framed possible theories and

recommendations for treating the cases at hand. It took them around 6 min per patient. Finally, as

expected they got to see Dr. Naren who spent about 2 to 3 min with each of his patients. Before

leaving the clinic, each patient also had to meet the Counsellor, who explained the use ofmedicines and drugs as prescribed by the doctors in detail. He took around 1 to 2 minutes per

patient typically. The last patient was allowed to enter not later than 5PM, and the day ended for

the clinic around 5.30 PM.....

Appendix 2

List of Processes

Process Min

Reception 1-2

Nurse 5

Scanning 12Consultant 6

Dr.Naren 2-3

Counselor 2

Total 28-30

Appendix 3

No of Patients - Day wise

Day No.of.Patients

Day 1 101

Day 2 99

Day 3 102Day 4 96

Day 5 105

Day 6 103

Day 7 97

Appendix 4

Average Waiting Time

Waiting Time No. of Patients

Less than 1 hour 2

1-1.5 hours 8

1.5-2 hours 122-2.5 hours 18

2.5 to 3 hours 22

3-3.5 hours 26

3.5 to 4 hours 14

Appendix 5

No of patients in the system Day wise

Time Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7

11.00 AM 7 8 7 9 8 8 712.00 AM 17 20 18 17 19 19 17

13.00 PM 34 35 34 34 35 37 32

2.00 PM 28 28 31 29 31 31 28

3.00 PM 24 24 29 25 29 27 24

4.00 PM 19 16 20 19 21 20 18

5.00 PM 5 4 7 6 7 6 5


5/12

Caselet 2: Take Care of Take Care

Take Care Labs Ltd is a leading Indian manufacturer in the speciality chemicals and pharmaceuticals

space and has been growing steadily over the last two decades. The company went public in 2007 and

raised over Rs.80Cr while retaining 51% ownership of the company with the promoters. The range of

speciality chemicals it manufactures includes active ingredients for beauty care, health care andindustrial care. Customers of Take Care include many global players in cosmetics, toiletries,

pharmaceuticals and industry segments. Its manufacturing and distribution activities are spread in

South-East Asia, Latin America and Africa. The mission statement of the company reads - To become a

key global player in speciality chemicals and pharmaceuticals, always agile, with an enduring value

system.

In line with its global ambitions, the company is looking to increase its presence in USA and Europe. The

finance department of the company has sensed a prospective opportunity in a Europe based company.

It has presented the report to the MD, Take Care Labs.

On going through the report, the following facts were found Gross revenue exceeds USD 100 million. It

was a 46-year old profit making pharmaceutical division of a renowned European Group which

manufactured Active Manufacturer of Active Pharmaceutical Ingredients (APIs) and Intermediates for

pharmaceutical industry. It also markets in house expertise in generating pharmaceutical dossiers for

customers with limited R&D capabilities. It operates 2 cGMP Plants in Europe and 1 in Latin America also

approved by US FDA. It employs about 400 people with over 50% directly involved in production

The acquisition rationalewas described as Acquisition places Take Care Labs as a large manufacturer in

API space. Take Care Labs will inherit large Pharma accounts which will enhance FDF business. This will

lead to substantial leap in Revenues & Profitability. It will also result in optimization of manpower,

manufacturing and marketing resources to increase overall EBIDTA margin

Financial Performance of Take Care Labs Ltd (Rs. In Crores)

Particulars 2011-12 (Act) 2012-13 E 2013-14 E

Pre Acq Pre Acq Post Acq Pre Acq Post Acq

Total Income 290.4 450 1000 585 1300

EBIDTA 47.5 81 180 105.3 234

PAT 19.4 49.5 110 64.4 182

Equity Capital 9.4 9.67 9.67 9.67

Reserves 90.8

Net Worth 100.2

Net Profit Margin (%) 7% 10-11% 10-11% 11-12% 14-15%Long-Term Debt (Secured) 140

Working Cap Loans 83.5

Fixed Assets 148

CMP/Share (Latest) (Rs.) 115

Total No. of shares outstanding 139 Lakhs


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Following are the Fund raising options for financing the deal we suggest for the desired acquisition:

Option 1

Instant Payment Option - Take Care could raise $75Mn - the cost of acquisition - in 3 parts: a

$25Mn ECB Issue with the Target Companys assets offered as security; Rupee equivalent of $25Mnraised from Indian lenders; another $25Mn to be raised from PE players by selling stake in Take

Care.

Option 2

Deferred Payment Option - Take Care could negotiate with the seller party for a Deferred Payment

Option. Payment would be made in three instalments following a down payment of 50%. The

schedule for payment is as follows:

Payment Tranche % of PaymentMillion

$

Rs. in

Crs

Months due in

1st Tranche 50.00% 37.5 202.25 Down Payment in 3 Months

2nd Tranche 16.67% 12.5 67.5 6 Month post 1st Tranche

3rd Tranche 16.67% 12.5 67.5 12 Months post 1st Tranche

4th Tranche 16.67% 12.5 67.5 18 Months post 1st Tranche

# USD/INR @ Rs. 54/$

To avail the benefit of Deferred Payment Facility Take Care could offer the target company a Libor plus

additional 50 to 100 bps interest rate on the balance 50% to be routed through deferred payment.

After going through the report, MD, Take Care Labs decided to appoint Mumbai Consulting Group as a

consultant to help them going forward in the deal. You are working as M&A consultant for Mumbai

Consulting Group and you are responsible for Take Care Labs acquisition strategy. MD, Take Care Labs

has asked your comments on the deal and financing options.


7/12

Caselet 3: Tragik n Magik

Khan Bros is a small time stockist based in a remote tier 3 city of Madhya Pradesh, named Bhau. In the

month of January 2011, they sealed a contract with a startup company named ABC detergents which

manufactures and markets washing powder. Bhau is a small township and its customer demographics

have been tabulated in exhibit 1, 2. For the first nine months, Khan Bros stocked just one product ofABC, the Tragik washing powder. Tragikis positioned as a mass market product and is priced at Rs. 25

per 100 gram pack. TV ads ofTragikpromote the product primarily as a stain removing washing powder

and showcase the fact that Tragik is comparatively more efficient in removing dirt and stain than its

competitors in the value segment.

As a part of the contract, Khan Bros were supposed to employ a separate team dedicated to ABC

detergents. Consequently, they employed 4 salesmen and appointed Mr. X as the manager to supervise

them. The retailers in Bhau were divided into 4 segments based on geography and each salesman was

allocated one such territory. Salesmen did their rounds from 9am till 6pm and since Khan Bros were

short of resources, they did some mundane clerical jobs from 6:30pm-7:30pm. Salary structure of the

salesmen and the manager has been tabulated in exhibit 3 for your reference. Bhau being a small town,

retail outlets were typically mom & pop stores. Retailers characteristically had limited shelf space and

storage ability. Khan Bros had a buy back policy in place but adhered to a no credit policy for retailers. In

the month of September 2011, ABC launched a new washing powder Magik.

In October 2011, Magikwas launched in Bhau and Mr. X decided to start stocking and selling Magikin

the same month. Magikis positioned as a premium product and is priced at Rs. 45 per 100 gram pack.

TV ads of Magik show that Magik is much more gentle on the hands and also facilitates a superior

scrubbing/cleaning process and has ingredient 999 that makes the fabric shine after just one wash.

In January 2012, in a review meeting it was brought to the notice of Khan Bros. that there has been asharp decline in the sales ofTragikand a major portion of the stock remained unsold with the stockist.

The contract with ABC specified a no buy back policy and Khan Bros had to somehow dispose off the

unsold inventory. Consequently they escalated the matter to ABC and informed them that they would

reduce the order quantity for Tragikfrom Feb 2012.

Since, this was the only issue of dropping sales that they received from any stockist for Tragik, ABC

decided to hire a consultant to identify the problem and recommend a solution. You are the consultant

and Table 4 shows the ratings you got when you interviewed some of the end consumers of Bhau.


8/12

Exhibit 1: Demographics of Bhau Age & Sex

As of Jan 2012

Age Group Percentage of Population Sex

Male Female

60 12% 59.45% 40.55%

*Average monthly income per household - Rs. 12000

Exhibit 2: Demographics of Bhau Education

Profession/Education levelPrimary

SchoolSecondary

school (10)High School

(12)Some College

graduatePost

graduate

Student + unemployed youth 4% 4% 2.70% 2.20% 0.20%Unskilled worker 8% 6.50% 0 0 0

Skilled worker 0 8% 8% 0 0Housewife 7% 6% 9% 0% 0%

Service /other jobs 0% 3% 5% 9% 3%

Small time businessman 0% 2.80% 5% 5% 0%

Established businessman 0 0 0 1.40% 0.20%

As of Jan 2012

Exhibit3: Salary structure of the salesmen and the manager

Basic Salary Sales Incentive

Mr. X 15000 0.25% of total revenue generatedSalesman 8000 1% of revenue generated

(* minimum sales target - 200 units per week to one retailer)

Exhibit4: Consumer Ratings

* A - Nearest competitor to Tragik in value segment ,**B - Nearest competitor to Magik in premium segment

S.No Items Tragik Magik A B

1 Price of the product 10 7 9 72 Packaging 8 9 8 10

3 Washing Efficiency 9 7 8 7

4 Stain removal 9 8 8 7

5 Gentle on the hands 8 9 7 8

6 Fabric Whitening 8 9 7 8

7 Willingness to buy 8 7 7 7


9/12

Caselet 4: Fairworths

Fairworth is a leading retailer in Utopia looking to globalize. Within their home market, over a

period of 100 years Fairworth has established itself as the retailer of choice for individuals looking to

purchase apparel and accessories.

Fairworth has built expertise in achieving the best styling in its private label for apparel and

accessories, and in giving a great retail experience to its customers. In addition to that, they manage to

keep their advertising budgets fairly low. Customers were extremely satisfied with Fairworth .They

found a great retail experience in Fairworth. Due to these reasons the company had great word-of-

mouth. Due to local production they were also able to carry out continuous cost engineering. The

average price point of apparel sold was P 30.

Fairworth decided to enter emerging markets in a bid to expand along with capitalizing on their

expertise in their home market. They entered the country Dystopia where they formed a Joint Venture

with the company Alpha Ltd. Alpha Ltd is a well known retailer in Dystopia, well known for their stores

stocking apparel, fast moving consumer goods and consumer durables. Alpha Limited was responsible

for choosing the location and setting up the stores for Fairworth. Alpha was also responsible forselecting locations of the stores, merchandising and local marketing. The merchandise sold in the stores

was primarily imported. Fairworth adopted strict quality standards and margin standards. Average price

point of their sale in Dystopia was R 2500.

Five years into the Joint Venture, Fairworth finds itself faring badly in Dystopia.. However,

Fairworth finds that the kind of widespread adoption it received in its home market has eluded it in the

market of Dystopia. Mark Perot, the CEO of Fairworth tried to examine the various reasons why in spite

of bringing years of retailing expertise to the forefront, the company was unable to achieve success in

the Dystopian market. An offer from Beta Ltd had just come in to form a Joint Venture. Beta Ltd was yet

another prominent retailer in the Dystopian market. Beta Ltd primarily concentrated on apparel and

furnishing, and was positioned in the standard segment in the lifestyle category. Perot contemplated on

whether to replace Alpha Ltd with Beta Ltd so as to improve sales in Dystopia. What ails Fairworth inDystopia and what should the way forward for the organization be?

Exhibit 1: Regulatory provisions for JV in countries evaluated by Fairworth

CountryMax % stake in JV

allowedSpecial Terms

Egypt 51% At least RM 45% to be sourced locally

Nigeria 75% At least RM 35% to be sourced locally

Indonesia 55% 35% real estate taxes for property of JVs

Philippines 60% Mandatory to have 100% local RM and labour

Dystopia 49% High taxes on JV (33%)


10/12

Exhibit 2: Financials for Fairworths current performance

Current year

Revenue

Home 8000 $m

Entered market 1070 $mOperating profit

Home 1200 $m

Entered market 32.1 $m

Exhibit 3: Categories in the apparel market in Dystopia

Low Priced apparels for all R 300 800

Entry level apparel for working executives R 800 1400

Premium apparel for middle class R 1400 2200

Super Premium Apparels for High Income Group R 2200 5000

Luxury Premium for all R 5000 and above

Exhibit 4: Categories in the apparel market in Utopia

Low Priced apparels for all P 8 20

Entry level apparel for working executives P 21 45

Premium apparel for middle class P 46 - 55

Super Premium Apparels for High Income Group P 56 125

Luxury Premium for all P 126 and above

Exhibit 5: Sales units in the two markets Exhibit 6: Comparative performance of JVs

Utopia Dystopia Revenue

No of units No of units Alpha 1000 $m

Print tops 2,00,000 10,000 BETA 1020 $m

Knitwear 150000 20,000 Operating profit

Bottoms 1,00,000 4000 Alpha 106 $m

Beta 122.4 $m

Exhibit 7: Typical Price break-up for Apparel

Design: 20% RM: 40% Labour: 15% Distribution Margins: 15% Contribution: 10%

**In case of imported garments only the last 2 are applicable


11/12

Caselet 5:Pineapple Digital

Eric Hertz had joined Pineapple Digital as CEO in June 2008. During his recruitment, he had impressed

the top management of the company with his plans to make Pineapple the largest Smartphone software

developer in the world.

As per AT Cielten, Pineapple Digitals, Humanoid Software held a 34% market share in the Smartphone

software market trailing Swansongs X-vision software which held a 39% market share. Swansong was

looking to acquire in the previous year a smaller firm but later dropped that idea. Eric Hertz knew that

the best way to achieve his goal was to acquire one of the smaller niche players in the market. His team

had shortlisted three target companies to choose from.

Company A boasts of a highly entrepreneurial culture with an aggressive CEO at the helm. It was known

to have acquired several smaller companies to advance its market share and research base. The

company had also pioneered the wildly popular Network Sharing feature but had lost ground as

competitors had quickly introduced even more advanced versions of the feature. The dynamic

leadership of the company and its history of innovation attracted Eric to this option.

Company B was a highly risk averse, conservative family-run company with core expertise in consumer

electronics. Because of its expertise in mass production, the company had developed highly efficient and

cost-effective systems. It also had an excellent reverse engineering team and was known to come up

with the fastest and most economical responses to new innovations. However, analysts predict that if

some investments in innovative technology are not done by the company it would find it very difficult to

compete.

Company C was medially conservative. While inclined towards risk free business it had been

adventurous occasionally. It was founded by a co-founder of Company B after a fall-out between the

owners. It inherits some of the same values as Company B. It caters to a small niche segment, but runs

the risk of losing this market to the bigger player which are rapidly permeating the entire market.

Exhibit 1 gives information for Company A,B &C.

The Smartphone market had witnessed explosive growth in the early 2000s. As Smartphone users had

grown the demand for better software and user experience had increased. Over the last 5 years, 4 out

of the 5 largest software developers in the world had entered the market. Some smart phone

manufacturers had also started developing their own software. Last year 17new products [Exhibit 2]

had been launched in this market with an average product life cycle of 7 months [Exhibit 3].

What should be the future course for Pineapple Digital?


12/12

Exhibit 1

Company A Company B Company C

Financial

Performance

2000-2004 Profit 15% Y-o-Y

2005 Profit 8.5%

2006 Profit 4%

2007 Loss of 1.3%2008 Loss of 2 .1%

2003-2008

Profit of 5% Y-o-Y

Average loss of 3.2%

Q-o-Q for the past 6

quarters

Current

Revenues 120 million USD 270 million USD 75 million USD

Working

Capital/

Revenues

7% 7% 6%

Capital

Expenditure -

Depreciation

3.6 million USD 4.06 million USD 2 million USD

Debt-Equity

ratio60% 30% 35%

Growth rateIf properly managed expected

to grow at growth rate

Growth rate is

expected to slow

down to less than 1%

if more risks are not

taken

Expected to grow at

market rate

Cost of Equity 12% 11% 11.50%

Cost of Debt 8% 8% 8.00%

Beta 1.25 1.5 1.5

Note: Profit/Loss is indicated as a % of revenues

Exhibit 2: New Product Launches in the past few years

Exhibit 3: Some parts from Financials (in million USD)

Swansong Pineapple

2006 2007 2006 2007

Revenues 1032 1155.84 943 1018.44

R&D 24.25 98.8243 27.81 30.4513

Working Capital 75.852 82.18022 77.7975 82.28995

Depreciation 39.216 48.6608 41.492 50.7183

0

10

20

2000 2001 2002 2003 2004 2005 2006 2007 2008

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