COURSE NAME: Business Valuation

PROJECT TOPIC: Nilkamal

Name

of

Submitted by
the Students
Aakanksha Thete 15F10
1
Antony
15F11
Attakoran
0
Rajgopal
15F14
Balabhadruni
0
Sachin Kulkarni
15F14
2
Swetha R
15F15
6
Term 4-2016

Industry Analysis
Domestic consumption is the primary driver for the plastic furniture industry. A
measure to gauge this consumption is the private final consumption expenditure.
The private final consumption expenditure has increased to 7.6% in 2015-16. The
domestic consumption is expected to rise on account of good rainfall, which
would lead to improved agriculture. Due to the 7th pay commission there will be
increase of 23.55% in the salaries of government employees and pensioners. It
will affect approximately 1 crore government employees.
The accommodative monetary policy will drive the investments of firms. This will
foster the demand for material handling equipment.

About Nilkamal
Nilkamal is the worlds largest manufacturer of moulded furniture. The material
handling segment being the top contributor, contributes to 49% of Nilkamals
total revenue. Material handling equipment includes crates, palates, ice boxes,
fish tubs, waste management tools etc.
Plastic moulded furniture contributes 39%. There is a wide variety of designs
available in the chairs, racks and trolleys, plastic sofas etc.

The company has 9 manufacturing plants, of which one is in Colombo, Sri Lanka
and the rest are in India. Their combined production capacity is close to 1,
00,000 MTPA. These plants are located near all the major metro cities and tier 2
cities. For example the plant in Noida is merely 50 KMs, the plant in Sinnar is
180kms away from Mumbai. This proximity helps to tap the market effectively.
Following map shows the factories:

Nilkamal also has a very strong distributor network. They have 12,000 dealers all
over the country. This will enable them to tap the consumers over the whole
country.
Nilkamal is also one of the first Indian furniture companies to launch stores which
exclusively cater to home dcor. They have named them @home.

ESTIMATION OF SALES GROWTH

Nilkamal primarily operates in 3 segments namely- Material Handling,
Furniture and Mattresses.
Growth drivers of each of the segments:
Material Handling: The primary driver for this is the number of warehouses in
the country. Since majority of the equipment is used in the agricultural and
industrial warehouses the demand forecast for material handling equipment
is based on their growth. We got the warehouse forecast details from the
Crisil report and used the figures to forecast the material handling revenue
details.

The total billion square foot value of the warehousing is obtained, and this
data is used to forecast this segments revenue for the years 2017-19.
Furniture: The revenues for this segment varies based on the final
consumption expenditure, whose values for the years 2011-16 are shown in
the table below.

Mattresses: Mattresses contribute to a minimal 3.8% to Nilkamals revenue.

Also, since this segment is highly fragmented, we have assumed a revenue
growth rate of 5% for this segment.
Each of the growth drivers for the segments were found to have a high R 2
(values shown in excel) with the revenue and hence, these values were used
to forecast the individual segments revenue growth for the years 2017-19.

Porters 5 forces
Threat of New Entrants- HIGH

Low entry barriers- Skills and material is the main resource in the
business. The business does not need high capital requirements
No legal or regulatory barriers to enter the industry
New market entrants would not be able to benefit from the economies of
scale to the same extent that the well established players do in the initial
stages of operation. Hence, access to distribution channel is difficult. It can
be argued, that although the threat of new entrants into plastic material
handling and furniture in general is significant, the threat of new entrants
to pursue cost leadership strategy is insubstantial due to immense role of
the economies of scale.

Threat of Substitutes- Low

The threat of substitute in the material handling products is relatively low

as plastic offers cheaper, light weight and durable products.
Though there exist many substitute in furniture products like 1. Glass 2.
PHB Bio composites 3. Liquid Wood
4. ECM BIOFILM, cost advantages
and accessibility for plastic furniture is much more as of now in Indian
market compared to these new substitute. The main substitute still
remains wooden furniture but there exists a segment with growth
opportunity for plastic furniture.

Bargaining Power of Buyers- High

(Price sensitivity of buyers, Relative bargaining power; cost of doing business
with other party & product differentiation)

This segment is relatively price sensitive and likely to go in for well-known

brands
The furniture market in India is highly fragmented with majority of the
revenue being generated from the local players. The unorganized sector,

which includes onsite carpenters, independent furniture manufacturers

and domestic retailers have accounted for nearly 85% of the furniture
market revenue in the country. The rest 15% is dominated by leading
players such as Godrej Interio, Home centre, Nilkamal, Durian Furniture,
Style Spa.
In material handling products like crates, pallets, storage cabinets are very
price sensitive and there are many organised and unorganised players in
these products. Automated storage solutions, electric range which are
unique in nature will not be sensitive to the price.

Bargaining Power of Suppliers- High

The polymer manufacturers and equipment manufacturers are key

suppliers in the plastic processing industries. There are only few players
like Reliance Industry limited, GAIL, IPCL etc. as the suppliers of raw
material.
Since the raw material is used by plastic processors for wide range of
products like polythene bags, plastic pipe, tarpaulins, buckets, furniture
etc. the bargaining power of the suppliers is high because it is an
oligopolistic market.

Rivalry among Existing Competitors High

There are only few established players in the plastic material handling and
furniture industry. But there is a large number of players in the unorganized
sector that increases the rivalry in industry.
The brand loyalty and consumer switching cost are also low in this industry
this intensifies the rivalry.
The products in the industry are undifferentiated and can be easily replicated
by other player.

Investment Rationale
Increasing revenue and earnings
The revenue has increased significantly over the past 5 years. It is expected to
grow further till 2019. The growth is supported by increased investment in fixed
assets. They have also started manufacturing innovative variations to their
products eg. Hybrid products. Nilkamal is market leader in two of the segments,
i.e. material handling and moulded furniture with 36% and 40% market share. Its
raw material prices depend on the crude oil prices internationally. There is a high
chances of the prices still going down. Thereby, profit margins will increase.
Nilkamals strong distribution network coupled by its manufacturing units in the
growth areas (golden quadrilateral) make this company an investment
destination.
According to the forecasts, the company would be debt free with in less time.
Interest to be paid can be saved. However, tax benefits would become minute.
The much awaited Goods and Services Tax will come into implementation.
Companies will treat warehouses as the strategic option instead of using as a
normal option.

Key Valuations
Revenue

Trend Analysis
2,000.00
1,800.00
1,600.00
1,400.00
1,200.00
1,000.00
800.00
600.00
400.00
200.00
0.00

1,613.88

1,658.30

1613.88

1658.3

1,792.91

1,879.46

1,437.10

1437.1

1792.91

1879.46

EPS

EPS
80
69.62

70
60
50
40

37.26

30

26.83

28.45

41699

42064

20.9

20
10
0

40969

41334

42430

Conclusion
Raw material consumed like polyethylene and poly propylene are the
major contributors to the cost incurred. The cost of Polyethlene and poly
propylene is expected to rise. Thus it would be better for the company to
increase its investment in raw material. It can also be noted that the value
of the stock as per our forecast is 1175.43324 .Thus we can see that
1175.43324 the stock is slightly over priced. In case it reaches a value
below you can buy the script.

Appendix
FORECASTING FOR THE YEAR 2017-19

References
Desk, E. W. (2016, July 26). The Indian express. Retrieved August 24, 2016, from
http://indianexpress.com/article/business/business-others/7th-pay-commissionallowances-to-pension-heres-everything-you-need-to-know/
In-line
Citation:
(Desk, 2016)
Nilkamal
plastics
(2016).
.
In
https://en.wikipedia.org/wiki/Nilkamal_Plastics
plastics, 2016)

Wikipedia.
Retrieved
from
In-line
Citation:
(Nilkamal

Limited, N. (2016). Plastic furniture manufacturer: Nilkamal plastic chairs and

plastic racks at high quality. Retrieved August 24, 2016, from
http://www.nilkamal.com/products/furniture/plastic-furniture/467 In-line Citation:
(Limited, 2016)
TRADING. (2016). FINAL CONSUMPTION EXPENDITURE - ETC. (% OF GDP) IN
INDIA.
Retrieved
August
24,
2016,
from
http://www.tradingeconomics.com/india/final-consumption-expenditure-etcpercent-of-gdp-wb-data.html In-line Citation: (TRADING, 2016)