hvn 12 and Cognizant present

Chanakya Chanakya 2012

Round 1 Caselets

RULES & REGULATIONS FOR ROUND 1

There are 5 cases outlined below. You are required to solve a minimum of TWO cases and 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 chanakya.ahvan@gmail.com. The subject of the mail should be Chanakya_Round1_CaseletNo1_CaseletNo2_CaseletNo3 (Example Chanakya_Round1_2_4_5). The entries should be in pdf format. 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 to the 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.

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 diagnostic clinic 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. Naren felt 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 as Appendices 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?

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 of medicines 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 Reception Nurse Scanning Consultant Dr.Naren Counselor Total Min 1-2 5 12 6 2-3 2 28-30

Appendix 3 No of Patients - Day wise

Day Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 No.of.Patients 101 99 102 96 105 103 97

Appendix 4 Average Waiting Time

Waiting Time Less than 1 hour 1-1.5 hours 1.5-2 hours 2-2.5 hours 2.5 to 3 hours 3-3.5 hours 3.5 to 4 hours No. of Patients 2 8 12 18 22 26 14

Appendix 5 No of patients in the system Day wise

Time 11.00 AM 12.00 AM 13.00 PM 2.00 PM 3.00 PM 4.00 PM 5.00 PM Day 1 7 17 34 28 24 19 5 Day 2 8 20 35 28 24 16 4 Day 3 7 18 34 31 29 20 7 Day 4 9 17 34 29 25 19 6 Day 5 8 19 35 31 29 21 7 Day 6 8 19 37 31 27 20 6 Day 7 7 17 32 28 24 18 5

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 and industrial 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 rationale was 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 Particulars 2011-12 (Act) 2012-13 E Pre Acq Pre Acq Post Acq Total Income 290.4 450 1000 EBIDTA 47.5 81 180 PAT 19.4 49.5 110 Equity Capital 9.4 9.67 9.67 Reserves 90.8 Net Worth 100.2 Net Profit Margin (%) 7% 10-11% 10-11% 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 (Rs. In Crores) 2013-14 E Pre Acq Post Acq 585 1300 105.3 234 64.4 182 9.67

11-12%

14-15%

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 $25Mn raised from Indian lenders; another $25Mn to be raised from PE players by selling stake in Take Care. Option 2 Deferred Payment Option - Take Care could negotiate with the seller party for a Deferred Payment Option. Payment would be made in three instalments following a down payment of 50%. The schedule for payment is as follows: Payment Tranche 1st Tranche 2nd Tranche 3rd Tranche 4th Tranche # USD/INR @ Rs. 54/$ % of Payment 50.00% 16.67% 16.67% 16.67% Million $ 37.5 12.5 12.5 12.5 Rs. in Crs 202.25 67.5 67.5 67.5 Months due in Down Payment in 3 Months 6 Month post 1st Tranche 12 Months post 1st Tranche 18 Months post 1st Tranche

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.

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 of ABC, the Tragik washing powder. Tragik is positioned as a mass market product and is priced at Rs. 25 per 100 gram pack. TV ads of Tragik promote 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, Magik was launched in Bhau and Mr. X decided to start stocking and selling Magik in the same month. Magik is 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 a sharp decline in the sales of Tragik and 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 Tragik from 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.

Exhibit 1: Demographics of Bhau Age & Sex As of Jan 2012 Percentage of Population Male 22% 53% 26.50% 56.00% 24.50% 57% 15% 56.78% 12% 59.45% *Average monthly income per household - Rs. 12000

Age Group <18 18-25 25-40 40-60 >60

Sex Female 47% 44.00% 43.00% 43.22% 40.55%

Exhibit 2: Demographics of Bhau Education Profession/Education level Student + unemployed youth Unskilled worker Skilled worker Housewife Service /other jobs Small time businessman Established businessman Primary School 4% 8% 0 7% 0% 0% 0 Secondary school (10) 4% 6.50% 8% 6% 3% 2.80% 0 High School (12) 2.70% 0 8% 9% 5% 5% 0 Some College Post graduate graduate 2.20% 0.20% 0 0 0 0 0% 0% 9% 3% 5% 0% 1.40% 0.20% As of Jan 2012

Exhibit 3: Salary structure of the salesmen and the manager Basic Salary Sales Incentive Mr. X 15000 0.25% of total revenue generated Salesman 8000 1% of revenue generated (* minimum sales target - 200 units per week to one retailer)

Exhibit 4: Consumer Ratings * A - Nearest competitor to Tragik in value segment , **B - Nearest competitor to Magik in premium segment S.No 1 2 3 4 5 6 7 Items Price of the product Packaging Washing Efficiency Stain removal Gentle on the hands Fabric Whitening Willingness to buy Tragik 10 8 9 9 8 8 8 Magik 7 9 7 8 9 9 7 A 9 8 8 8 7 7 7 B 7 10 7 7 8 8 7

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-ofmouth. 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 for selecting 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 in Dystopia and what should the way forward for the organization be? Exhibit 1: Regulatory provisions for JV in countries evaluated by Fairworth Country Egypt Nigeria Indonesia Philippines Dystopia Max % stake in JV allowed 51% 75% 55% 60% 49% Special Terms At least RM 45% to be sourced locally At least RM 35% to be sourced locally 35% real estate taxes for property of JVs Mandatory to have 100% local RM and labour High taxes on JV (33%)

Exhibit 2: Financials for Fairworths current performance Current year Revenue Home Entered market Operating profit Home Entered market 8000 $m 1070 $m 1200 $m 32.1 $m

Exhibit 3: Categories in the apparel market in Dystopia Low Priced apparels for all Entry level apparel for working executives Premium apparel for middle class Super Premium Apparels for High Income Group Luxury Premium for all R 300 800 R 800 1400 R 1400 2200 R 2200 5000 R 5000 and above

Exhibit 4: Categories in the apparel market in Utopia Low Priced apparels for all Entry level apparel for working executives Premium apparel for middle class Super Premium Apparels for High Income Group Luxury Premium for all P 8 20 P 21 45 P 46 - 55 P 56 125 P 126 and above

Exhibit 5: Sales units in the two markets Utopia No of units 2,00,000 150000 1,00,000 Dystopia No of units 10,000 20,000 4000

Exhibit 6: Comparative performance of JVs Revenue Alpha BETA Operating profit Alpha Beta

Print tops Knitwear Bottoms

1000 $m 1020 $m 106 $m 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

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 17 new 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?

Exhibit 1 Company A 2000-2004 Profit 15% Y-o-Y 2005 Profit 8.5% 2006 Profit 4% 2007 Loss of 1.3% 2008 Loss of 2 .1% 120 million USD 7% Company B 2003-2008 Profit of 5% Y-o-Y Company C Average loss of 3.2% Q-o-Q for the past 6 quarters

Financial Performance Current Revenues Working Capital/ Revenues Capital Expenditure Depreciation Debt-Equity ratio

270 million USD 7%

75 million USD 6%

3.6 million USD 60%

4.06 million USD 30%

2 million USD 35%

Growth rate

Cost of Equity Cost of Debt Beta

Growth rate is expected to slow If properly managed expected down to less than 1% to grow at growth rate if more risks are not taken 12% 11% 8% 8% 1.5 1.25 Note: Profit/Loss is indicated as a % of revenues

Expected to grow at market rate 11.50% 8.00% 1.5

Exhibit 2: New Product Launches in the past few years

20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008

Exhibit 3: Some parts from Financials (in million USD) Swansong 2006 2007 1032 1155.84 24.25 98.8243 75.852 82.18022 39.216 48.6608 Pineapple 2006 2007 943 1018.44 27.81 30.4513 77.7975 82.28995 41.492 50.7183

Revenues R&D Working Capital Depreciation