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    Lady M Solution

    Uploaded by

    Rahul Venugopalan
    The document analyzes the break-even point, sales growth assumptions, and valuation of Lady M Confections. Under a 20% annual sales growth assumption, Lady M would cover its initial $10 million investment within 5 years. With actual 2012-2013 growth of 81.7%, opening a store in the WTC would be profitable. Using a discounted cash flow model, the equity value of Lady M is estimated to be $53.3 million, so a $10 million investment from a Chinese investor would represent less than 20% equity. Lady M should not accept the Chinese offer and can fund international expansion on its own.

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    Lady M Solution

    Uploaded by

    Rahul Venugopalan
    263 views4 pages
    The document analyzes the break-even point, sales growth assumptions, and valuation of Lady M Confections. Under a 20% annual sales growth assumption, Lady M would cover its initial $10 million investment within 5 years. With actual 2012-2013 growth of 81.7%, opening a store in the WTC would be profitable. Using a discounted cash flow model, the equity value of Lady M is estimated to be $53.3 million, so a $10 million investment from a Chinese investor would represent less than 20% equity. Lady M should not accept the Chinese offer and can fund international expansion on its own.

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    The document analyzes the break-even point, sales growth assumptions, and valuation of Lady M Confections. Under a 20% annual sales growth assumption, Lady M would cover its initial $10 million investment within 5 years. With actual 2012-2013 growth of 81.7%, opening a store in the WTC would be profitable. Using a discounted cash flow model, the equity value of Lady M is estimated to be $53.3 million, so a $10 million investment from a Chinese investor would represent less than 20% equity. Lady M should not accept the Chinese offer and can fund international expansion on its own.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    263 views4 pages

    Lady M Solution

    Uploaded by

    Rahul Venugopalan
    The document analyzes the break-even point, sales growth assumptions, and valuation of Lady M Confections. Under a 20% annual sales growth assumption, Lady M would cover its initial $10 million investment within 5 years. With actual 2012-2013 growth of 81.7%, opening a store in the WTC would be profitable. Using a discounted cash flow model, the equity value of Lady M is estimated to be $53.3 million, so a $10 million investment from a Chinese investor would represent less than 20% equity. Lady M should not accept the Chinese offer and can fund international expansion on its own.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    The Valuation and Financing of Lady M Confections

    Break Event Point Analysis of opening in WTC

    Fixed Cost Y1
    Rent 310600
    Utility 38644
    Labour 594750
    Contribution / unit 40
    BEP units 23600 Cash BEP
    Selling Price 80
    BEP Sales 1888000,00

    Including setup cost 5 yrs depreciation


    Depreciation 200000 Non cash item
    New fixed cost 1143994
    BEP units 28600
    Assuming Sales Growth
    20% sales growth Y1 Y2 Y3 Y4 Y5
    Revenue 1888000 2265600 2718720 3262464 3914957
    CoGS 944000 1132800 1359360 1631232 1957478
    Rent 310600 319918 329516 339401 349583
    Utility 38644 39803 40997 42227 43494
    Labour 594750 624488 655712 688497 722922
    Profit 6 148591 333135 561106 841479
    Initial investment uncovered 999994 851403 518268 -42839 -884317

    5% sales growth Y1 Y2 Y3 Y4 Y5
    Revenue 1888000 1982400 2081520 2185596 2294876
    CoGS 944000 991200 1040760 1092798 1147438
    Rent 310600 319918 329516 339401 349583
    Utility 38644 39803 40997 42227 43494
    Labour 594750 624488 655712 688497 722922
    Profit 6 6991 14535 22672 31438
    Initial investment uncovered 999994 993003 978468 955795 924357

    Assuming the initial capital expenditure of $10,000,000 the growth needed to break event would be

    Required growth rate 13,19%

    Sales growth reqd Y1 Y2 Y3 Y4 Y5


    Revenue 1888000 2137038 2418924 2737994 3099150
    CoGS 944000 1068519 1209462 1368997 1549575
    Rent 310600 319918 329516 339401 349583
    Utility 38644 39803 40997 42227 43494
    Labour 594750 624488 655712 688497 722922
    Profit 6 84310 183237 298871 433576
    Initial investment uncovered 999994 915684 732447 433576 0
    With the growth rate of Revenue from Lady M. Income Statement $4,132,517 in 2012 to $7,491,187 in
    2013 is 81,7% already exceeding the needed growth rate to break event point, and EBIT growth of 150%
    so Lady M. should open the shop in WTC.

    Value of Lady M Company


    Financial Projection - IS projections - FCFF
    FCFF EBIT*(1-t)+D&A-Del Capex-Del NWC 2012 2013 2014 2015 2016 2017 2018 2019
    Opt 2 PAT+D&A-Del Capex-Del NWC Sales 4132517 7491187 11000000 13200000 18480000 23100000 28875000 36093750
    Opt 3 Line by line projections in IS (-)CoGS 1303416 1632722 2397476 2876971,353 4027759,894 5034699,868 6293374,835 7866718,544
    Gross Profit 2829101 5858465 8602524 10323028,65 14452240,11 18065300,13 22581625,17 28227031,46
    (-)SGA 2449200 4342500 6376493 7519791,365 10342907,91 12697634,89 15583293,61 19118179,51
    (-)R&D 0 0 0 13200 18480 23100 28875 36094
    EBITDA 379901 1515965 2226031 2790037,282 4090852,195 5344565,243 6969456,554 9072758,193
    (-)D&A 41800 149007 24750 800000 47124 62370 82293,75 108281
    EBIT 338101 1366958 2201281 1990037,282 4043728,195 5282195,243 6887162,804 8964476,943
    (-)Tax 4421 74191 770448 696513 1415305 1848768 2410507 3137567
    PAT 333680 1292767 1430833 1293524 2628423 3433427 4476656 5826910
    %Change in Sales 0,4684 0,2000 0,4000 0,2500 0,2500 0,2500
    % of Sales
    CoGS 21,80%

    SGA 57,97% 57,97% 56,97% 55,97% 54,97% 53,97% 52,97%

    Capex 33000 1000000 55440 69300 86625 108281


    Depreciation 24750 800000 47124 62370 82294 108281
    5% rise in Depreciation 75 80 85 90 95 100

    Delta Sales 3508813 2200000 5280000 4620000 5775000 7218750


    Delta NWC 68000 42636 102325 89535 111918 139898
    1,94% 1,94% 1,94% 1,94% 1,94% 1,94%

    EBIT*(1-t) 1293524 2628423 3433427 4476656 5826910


    (+)D&A 800000 47124 62370 82294 108281
    (-)Del Capex 1000000 55440 69300 86625 108281
    (-)Del NWC 42636 102325 89535 111918 139898
    FCFF 1050889 2517782 3336962 4360406 5687012

    Terminal Value
    A perpetuity method g=4% 73931159,58
    WACC = 12%
    DCF discount 12% Rs. 938.293,51 Rs. 2.007.160,49 Rs. 2.375.183,89 Rs. 2.771.117,09 Rs. 3.226.963,49 Rs. 41.950.525,42
    EV (taking PV of cashflows) Rs. 53.269.243,90
    Investor investment 10000000
    %share 18,8%
    Debt 1017615
    Equity Value 52251628,9
    %share 19,14%

    B EBITDA multiple 12
    Year 2014 Terminal Value 26712372,82
    PV Rs. 15.157.317,72
    EV Rs. 26.476.036,19
    Debt 1017615
    Equity Value Rs. 25.458.421,19
    %share 39,28%

    Assuming opening in China would worth 1/3 of Equity value,


    Values in thousands
    Perpetuity Model
    Lady M equity value = 53270*(1/3 = 17756,66667

    a) Don't give stake in LMUS


    b) LMUS retains 25% in LMC = 13317,5
    Don’t give stake in LMUS
    c) LMUS retains 50% in LMC = 8878,333333
    Should give (10000-9053)/54315 = 1,70%

    Maximum share that can be given = (10000/17757) = 56,32%

    So Lady M fully capable of generating a profit and expand its market throughout the world. They should
    not take Chinese investor offer even if in 2019, the $ 10 million will be 1/3 Lady M equity value, and
    instead should considering entering the Chinese market, not by franchising.

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