VOLUME 03BEACON ISSUE 01JANUARY 2015 1

VOLUME 03BEACON ISSUE 01JANUARY 2015

ContentsABOUT US

OUR TEAM

INDUSTRY ANALYSIS

COMPANY ANALYSIS

BRAND ANALYSIS

GUEST LECTURE ON PRIVATE EQUITY: AN EVENT REPORT

CONCEPT OF THE MONTH: GE McKINSEY MATRIX

VOLUME 03BEACON ISSUE 01JANUARY 2015 1

OUR PRESENCE

ABOUT US

VISION

The SIMCON - SIMSREE consulting club is an initiative started in 2012 for those students in pursuit of excellence in management consulting and strategic management. Aimed at creating awareness among the students about consultancy as a discipline, the club strives to maintain strong relations with top consultancy firms and provide platform to craft highly skilled & competent consultants from SIMSREE. The club is a resource for information about consulting and a place for students to obtain real-world consulting experience.

SIMCON provides an avenue of interaction among faculty, students and alumni through competitions, live projects, guest lectures, and conclaves. For this purpose the club has also been publishing its monthly newsletter – BEACON (BE A CONSULTANT) and maintains a FACEBOOK PAGE where latest news and development in the consulting industry are posted.

MISSIONTo create awareness amongst the students about consulting industry & its latest trends.

To maintain strong relations with top consultancy firms.

To provide platform to craft highly skilled & competent consultants from SIMSREE.

To provide exposure to students via competitions, live projects, guest lectures & conclaves.

Contributions invited:To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is YOU. We invite articles, research papers, and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your entries to simcon.simsree@gmail.com.

Best Regards,SIMCON - SIMSREE CONSULTING CLUB

VOLUME 03BEACON ISSUE 01JANUARY 2015 2

SANANDAN DESHPANDE

NIKHIL RAO

Ameya MAHABAL

Deepesh Jethwani

PRATHAMESH INDANI

SUSHIL GURAV

TEJAS SHAH

OUR TEAM

VOLUME 03BEACON ISSUE 01JANUARY 2015 3

TELECOM INDUSTRYINDUSTRY ANALYSIS

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India - the second-largest telecom market with a subscriber base of 933 million by the end of FY14, saw the fastest growth in new mobile-phone connections with 18 million net additions in the third quarter of 2014.

Telecommunication services is one of the prime support services needed for rapid growth and modernization of various sectors of the economy. According to TRAI reports, Gross Revenue (GR) of Telecom Service Sector for the QE Jun-14 increased by 3.63% over the previous quarter to Rs. 62919 Crore while Adjusted Gross Revenue (AGR) increased by 6.91% over the previous quarter to Rs. 43852 Crore. The year-on-year (Y-O-Y) growth in GR and AGR over the same quarter in last year has been 9.88% and 13.49% respectively.

Current ScenarioThe number of telephone subscribers in India increased to 942.95 million at the end of Jun-14, registering a growth of 1.07% over the previous quarter and an year-on-year (Y-O-Y) growth of 4.41% over the same quarter of last year. The overall teledensity in India increased to 75.80 as on 30th June, 2014 from 75.23 as on 31st March, 2014.

With a net addition of 10.41 million subscribers during the quarter, total wireless subscriber base increased from 904.51 million at the end of Mar-14 to 914.92

0

200

400

600

800

1000

Urban (in million) Rural (in million)

Jun-14Jun-13Jun-12Jun-11Jun-10

219.09

452.60

298.05

587.94

343.76

621.76

357.61

383.18

545.48

559.77

Broadband Internet subscribers increased to 68.83 million at the end of Jun-14 from 60.87 million at the end of Mar-14 with quarter growth of 13.07%.

Industry Landscape

PlayersThe market share of telecom operators of the telecom companies reflects the fragmented nature of the industry, with as many as 13 players. As of 30th June, 2014, Airtel led the market with 22.55% market share, Vodafone (18.02%), Idea (14.74%), Reliance (11.67%), BSNL (11.40%), Aircel (7.75%), and Tata (6.83%), with the remaining share being held by other smaller operators.

Porter’s 5 Force Analysis1. Threat of New EntrantHuge barriers to entry in form of large economies

Rural Urban Telecom Subscription Trend

of scale, low product differentiation, large capital requirements, heavy switching cost to buyers, and unfavorable government policies in form of high license costs, spectrum usage charges, exit barriers etc. and presence of 6-7 players in each region dissuades new players from entering the market.

2. Threat of SubstitutesWith emergence of wireless devices and other

million at the end of Jun-14, a growth of 1.15% over the previous quarter and an year-on-year (Y-O-Y) growth of Wireless subscribers for Jun-14 is 4.76%.

Total number of Internet subscribers has increased to 259.14 million at the end of Jun-14 from 251.59 million at the end of Mar-14, a quarterly growth of 3.00%. Out of the total internet subscribers Wired Internet subscribers are 18.55 million whereas Wireless Internet subscribers are 240.60 million. Number of

technological breakthroughs, the market share of wireline companies has dwindled. Some of the

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substitutes like IP Telephony, Email, and Instant Messaging etc. has also reduced the volume of voice traffic of the wireless telecom operators. However there are no commercially viable substitutes available as of now. Hence threat of substitutes is low.

3. Bargaining Power of SuppliersAlthough it might appear that the telecom equipment

suppliers have considerable bargaining power over telecom operators, it is not the case. Large number of equipment manufacturers combined with enough vendors dilute the bargaining power. 4. Bargaining Power of CustomersThe low differentiation between the services provided

by the telecom operators and low cost of switching for retail customers backed by Mobile Number Portability has resulted in the services being treated by customers as a commodity. Although the customers are price takers in the market, their bargaining power is moderate on account of the ease of switching. The business customers will however find it difficult to switch to alternative service provider.

5. Competitive RivalryThe industry is highly fragmented with 15 players such that there exists as many as five-six players in one region. With low product and service differentiation, lower prices and innovative services are means of attracting new customers. This tends to drive the margins and profits down. In addition the high exit barriers in form of regulations and specialized equipments has increased the overall competition.

Impact Analysis1. 3G intra-circle roaming agreementsThe Supreme Court, in December 2014, refused to stay a telecom tribunal order that had overturned a government ban on telecom companies sharing their high-speed networks through intra-circle roaming agreements they had signed in 2011. While the final decision in this matter is pending, the 3G intra-circle roaming agreement is legal for now.

2. TRAI’s recommendation to the government to explore alternative options to spectrum allocationTRAI has stated in its report that there would be a big crisis if more spectrum is not made available before auctions are conducted. At present there is only 184 MHz spectrum in the 900 MHz band, an amount of spectrum currently held by operators whose licenses are up for renewal in 2015-16, 104 MHz spectrum available in the 1800 MHz band as a back-up as was the case in the auctions held in February 2014. In such a scenario, if the operators fail to win back their 900 MHz band spectrum, they will be forced to close down their services. Even if they win it back, the exorbitant price will prevent them from investing further in services and network.

3. Clarity on M&A and exit proceduresThe government should set out clear rules on M&A and exit procedures including the manner in which customers, who form one of the key stakeholders of M&A, should move from one company to another.

The telecom carrier Bharti Airtel had entered into Rs 700 crore-deal to buy the subscribers and assets of Loop Mobile in Feb 2014. The DoT however raised concerns that the proposed slump sale would flout MNP rules causing a revenue loss to the government as the users wouldn't be paying the stipulated Rs. 19 fee to change operators. Loop also owed government about Rs. 800 crore in form of spectrum and other charges.With Loop’s license expiring on November 29th 2014 and no clearance coming from DoT despite Loop agreeing to pay the porting charges for its customers, the proposed acquisition was called off. The failure on part of DoT and TRAI to give timely reply to the concerned stakeholders has resulted in a Rs. 700 crore loss to the banks.

Challenges1. High DebtThe low penetration of telecom services and expensive spectrum licenses requires players to take up huge

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amounts of loan for infrastructural development and operations. As per Capitaline, the total industry debt as a percentage of assets is as high as 56.2%.

2. Falling Average Revenue per UsersSince the peak in 2008 of Rs. 264 per user per month, the average revenue per user has decreased considerably. However post 2012 when it bottomed to Rs. 97 per user per month, the ARPU has recovered on the back of favourable market conditions.

3. Intense competition due to highly fragmented nature of the industryDespite the cancellation of licenses by Supreme Court, the number of players is still high at 15. With limited spectrum and high number of players, the competition is intense which has often resulted in price wars among the players.

Opportunities1. Virtual Network Operators (VNOs) The objective of NTP-2012 to deliver high quality seamless broadcasting, data, multimedia and voice services on converged networks for enhanced service delivery to provide superior experience to users can be achieved through unified license. An alternative strategy is to facilitate resale at the service level, both wholesale and retail by introduction of virtual operators. The present licensing regime in India permits operators to both lay the network and provide services. Because of technological developments, namely, it is now possible to delink the underlying networks from the provision of services.

2. Interconnection Usage Charges (IUC)The design of the IUC regime needs to balance disparate interests so that investments in network expansion and upgradation are incentivized while at the same time enhancing competition and consumer interest. There is a consensus amongst economists and regulators that interconnection prices based on cost

0

10

20

30

40

50

60

FY 14FY 13FY 12FY 11FY 10

34.8

49.5

53.3

56.2

54.8

0

50

100

150

200

250

300

FY 14FY 13FY 12FY 11FY 10FY 09FY 08

264

205

131

100 97105 113

Total Industry debt as % of Total Assets (Source: Capitaline)

ARPU in INR per user per month (Source: TRAI)

are most likely to lead to such desirable outcomes. If interconnection charges are set “extremely low” it will lead to inefficient players entering the market. On the other hand, if the interconnection charges are set “too high” it will deter the entry of efficient players as the existing service providers may concentrate only on maximizing payments from other service providers. In turn, consumers may end up paying more than they need to.

3. Increasing Internet PenetrationIndia is the third largest country in terms of internet users behind China and U.S. Indian Internet users will surpass the number in the U.S. by the end 2015. It is estimated that India will have around 500 million

internet users by 2018 almost twice that of users in U.S. A PwC report expects that by end of 2015, 4G subscriber base will touch 10-15 million driven by affordable smartphones, competitive pricing and superior network experience. PwC also expects the data market to witness price war where the players will eye for a market share with a long term goal of retrieving the infrastructural costs.

ConclusionThe rapid strides in the telecom sector have been facilitated by liberal policies of the Government of India that provide easy market access for telecom equipment and a fair regulatory framework for offering telecom services at affordable prices. An exponentially growing market with huge revenue potential, makes India a lucrative market for telecom operators. With the industry on firm footing, timely clearances from the government, clarity in taxation, and reforms can bring about another telecom revolution in the country.

References: IBEF, TRAI, The Hindu Business Line. Live Mint, Financial Express, Economic Times, Business Standard.

For detailed report and all industry analysis from previous Beacons, please visit: http://simconblog.wordpress.com

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IDEA CELLULARCOMPANY ANALYSIS

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The third largest telecom operator by subscriber base, Idea's net profits has risen by nearly 95% in FY14. With pan India license, the company provides GSM-based mobile telecommunications services in 22 service areas in India and 3G services to 20 service areas.

Public holdings Kumar Mangalam Birla

Grasim Industries Ltd Hindalco Industries Ltd

Birla TMT Holdings Pvt. LtdAditya Birla Nuvo Ltd

IDEA CELLULAR SHAREHOLDING PATTERN (%)

57.72%

23.29%

7.88%

6.35%

4.75%

0.01%

Idea Cellular, popularly called as Idea is an Indian mobile network operator company. Idea started its operations in 1995 when it first acquired its licenses for providing GSM-based services in Gujarat and Maharashtra circles. Idea is pan-India integrated GSM operator providing services of 2G, 3G and 4G and also ISP license. It is regarded as amongst top 3 operators in India and amongst the top 10 operators all around the world. It has traffic of nearly 1.5 billion minutes a day. Idea has nearly 4500 exclusive outlets and 7000 call centre seats. Idea is listed on BSE and NSE.

As of March 2014, Idea’s market share is 16.1% and the customer base has been expanded to 136 million. Net profits of FY 13-14 have risen by nearly 95%. The company provides GSM-based mobile telecommunications services in 22 service areas in India and 3G services to 20 service areas. The company has its GSM mobile service in Andhra Pradesh, Bihar-Jharkhand, Delhi-NCR, Gujarat, Haryana, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh-Chhattisgarh, Maharashtra-Goa, Mumbai, Orissa, Punjab, Rajasthan, TamilNadu-Chennai, UP-East and UP-West telecom circle.

Shareholding Pattern42.28% is held by the promoters of the company while the rest 57.72% is open to public. The major promoter holding includes Aditya Birla Nuvo with a 23.29% of shares while the lowest holdings include that of Mr. Kumar Mangalam Birla, chairman Idea Cellular. The other promoters include Birla TMT Holdings, Hindalco Industries and Grasim Industries. All the other Promoters are a part of Aditya Bila Group of companies.

IDEA CELLULAR'S NETWORK GROWTH

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0

20

40

60

80

100

FY14FY13FY12FY11FY10

34.137.9

50.9

60.0

83.3

Key Financials1. IDEA has shown a strong and robust growth in

EBITDA over the period of time. FY13-14 has shown a growth of 38.83% while a CAGR of 25% from 2010-14.

IDEA CELLULAR EBITDA GROWTH

0

5

10

15

20

FY14FY13FY12FY11FY10

9.59

7.2

10.1

19.7

NET PROFITS (in INR billion)

Particulars March 2014 March 2013Debt to Equity Ratio 1.14 0.80Asset Turnover Ratio 0.89 0.91Operating Profit Margin

27.78 23.19

Net Profit Margin 6.45 3.70EPS 5.09 2.47

2. Net Profits have risen to INR 19.7 bn from INR

10.1 bn. The year on year change is shown by the graph below:

3. With the wired broadband market still at the nascent stage in India there is a plenty of growth opportunity in this area. IDEA has consistently increased its non-voice data services.

Key Ratios

0

1000

2000

3000

4000

5000

6000

7000

8000

Data revenue(INR mn)

Q4FY14Q3FY14Q2FY14Q1FY14Q4FY136

8

10

12

Data revenue as % of service revenue

3874

4617

5416

6168

6193

6.6%

7.2%

8.7%

9.5%

10.1%

INCREASING SHARE OF DATA REVENUE

Competitor AnalysisIDEA ranks number 3 in terms of subscriber base and revenues. Major competitors of IDEA include Airtel, Vodafone and Reliance Comm. Currently Vodafone is the only foreign company in India in the telecom sector. The market capital, sales turnover and net profit of all the competitors is mentioned the table below:

Company Market Cap. Sales Turnover

Net Profit

Bharti Airtel 137,150.80 49,918.50 6,600.20Idea Cellular 52,608.28 26,179.47 1,689.31Reliance Comm.

19,927.19 11,176.00 730.00

Tata Comm. 12,141.00 4,376.40 542.43

VOLUME 03BEACON ISSUE 01JANUARY 2015 10

SWOT Analysis

Recent Market Happenings1. Drop in Oil Prices: Power and fuel contribute

towards nearly 15% of the operator’s cost. Diesel is used to run the towers. The recent fall in the global oil prices and a local fall in Diesel prices would increase the operating profits by 30-50 basis points for the telecom sector. The offset by savings on diesel though would not suffice the licencing costs of the firms.

2. Mobile Internet rate hikes: A recent hike by top companies in their mobile internet prices to lessen the debt ridden industry. The increase has been somewhere around 30%. IDEA has changed its 2G data pack (1GB limit) from Rs. 155 to Rs. 175

3. Separate Charges on VoIP data on 2G and 3G: Airtel had started charginsg separately for VoIP data over 2G and 3G. This has been one off condition where the operator defies the net neutrality principle of Obama and chooses to separately charge for VoIP. This change can trigger IDEA and Vodafone to follow the same. VoIP is any voice sent over the internet using 2G and 3G. This can be through video or voice calls made by using Skype, Viber, Google or any other application.

4. Reliance Jio entry into 4G: DoT has given Reliance Jio Infocomm Lmt. (RJIL) clearance in 6 circles for its 4G operations. RJIL is the only company

to acquire the spectrum during the $8 billion auction. It can definitely give them a first movers’ advantage over here. This is a potential threat for other telecom companies.

Recent Developments in IDEA Cellular• Dividend payout: IDEA has given out a dividend of

Rs 0.4/ share at face value (4%). A total of Rs 1554 mn of dividend is paid in the year 2014.

• Capital Expenditure: Infrastructure costs for 2G and 3Gsites and fibre cable transmission network added to the capital expenditure of Rs. 46,049 mn. It spent a Rs. 104,242 mn in spectrum auction held in February 2014. IDEA acquired a 5 MHz of spectrum in 900 MHz band and 60.2 MHz spectrum in 1800 MHz band.

• Long Distance and Other Services: IDEA is making a steady investment in fibre cables which will help them to tap into future potential of wireless broadband. The fibre cable transmissions have been expanded to 82,000 kms compared to 74,000 kms since last year.

References: IDEA Cellular, DNB, LiveMint, TelcomTalk, TRAI, EconomicTimes

For detailed report and all company analysis from previous Beacons, please visit: http://simconblog.wordpress.com

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NIKEBRAND ANALYSIS

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Founded by two visionary men who pioneered a revolution in athletic footwear, Nike has redefined the sportswear industry. In existence for over 40 years, today, Nike is the largest seller of apparel, athletic footwear, and equipment in the world. Like many companies of that era, Nike had a humble beginning.

Nike’s Origin

With change in strategy, Knight thought it prudent to change the name of the company. The brand Nike was introduced in 1972 to this end under BRS. The SWOOSH logo, a graphic design created by Caroline Davidson in 1971 for just $35, represents the wing of the Greek Goddess NIKE. In 1978, once the name Nike and Swoosh became synonymous, the company was eventually renamed to Nike.

The Innovation CurveThe company's innovation debut was in 1979 when it introduced air cushioning technology. The shoes featured a NASA engineer invented gas-filled plastic membranes that could be inserted into the sole for comfort during running. It kept up the revenue of Nike for long. But in mid 1980s the revenue started to dip mainly because the management did not take note of the aerobics boom. Nike's competitors had, however, by then developed their business in this segment.

In a bid to regain its edge Nike, in 1987, launched a new product named Air Max. The shoes had sole with two interdependent bags, having compressed air inside, which helps in absorbing shocks during running and jumping. In order to suit individual needs, Nike also customized the product by inserting bags of different sizes depending on the height and pressure exerted by customers.

The marketing campaign for Air Max was supported by TV ad having Beatles' Revolution as the soundtrack (Beatles song was being used in a TV ad for the first time). Riding on the success of this campaign, Nike launched an even more empowering series of ads a year later with the tag line "Just do it". The campaign featured Walt Stack, then 80-year old icon, running across the Golden Gate Bridge (Click to see the first “Just do it” commercial). Another campaign had three advertisements featuring young sportsman Bo Jackson who campaigned on the benefits of a new cross-training pair of Nike shoes. (Click to see Bo Jackman Just Do It Campaign)

Nike’s Current PortfolioNIKE’s brand portfolio also includes several brands developed or acquired by it. Most famous of them are:

• ‘Jordan’ – targets basketball-related products & named after basketball superstar Michael Jordan

• ‘Hurley’ – youth-focused brand targeted at action sports like surfing, skateboarding and many more

• ‘Converse’ – a wholly owned subsidiary brand dealing in apparel, casual sneakers, and accessories

Bill Bowerman (right) with an athlete from University of Oregon

Bill Bowerman, a nationally respected track and field coach at the University of Oregon, was constantly seeking ways to give his athletes a competitive advantage. Phil Knight, a talented middle-distance runner from Portland, had enrolled at Oregon in the fall of 1955. In span on time, while competing for Bowerman’s track program, they became best friends and both shared a view that the athletes deserved better running shoes than those available in the U.S. market at that time. Knight earned his MBA in finance from Stanford University after graduating from Oregon. It was here that he wrote a paper proposing quality running shoes be manufactured in Japan to compete with more established German brands.

Knight made a cold-call and persuaded the manufacturer of Tiger shoes - Onitsuka Co. in Kobe, Japan, to make him a distributor of Tiger running shoes in the United States. Having received the first set of sample shoes, Knight sent several pairs to Bowerman, hoping to make a sale. Bowerman, instead, stunned Knight by offering to become his partner, and to provide his design ideas to Onitsuka Co. They established Blue Ribbon Sports by pledging $500 each and placed their first order of 300 pairs of shoes in January 1964. In 1966, BRS opened the first retail store in Santa Monica, California.

After reaching $ 1 million mark in sales, the Blue Ribbon Sports parted ways with Onitsuka Tiger, and began to design and subcontract its own line of shoes.

VOLUME 03BEACON ISSUE 01JANUARY 2015 13

TargetingBroadly, NIKE has products for people from all age-groups: right from newborns & kids to teenagers, adults and even the old. For example, any new revolutionary designed footwear is generally released for all age groups. However, its core focus is on people in the age group of 18-35 years old.By opening women’s-only stores in California, Shanghai, etc., Nike has started expanding its presence in the women apparel market because of its untapped potential

PositioningNIKE positions itself as an athletic-wear brand that believes in an individual’s ability in being an athlete.

DifferentiationThe ‘Swoosh’ logo and ‘Just Do It’ slogan directly create a sense of brand recall for NIKE. NIKE has differentiated itself from others by directly appealing the inner self of an individual as some of the common phrases people relate with NIKE are ambition, motivation, emotion & performance which are a testimony to the brand’s equity.

Beyond SportswearIn due course, even the hi-tech Air Max technology was found to be inadequate to entice customers. Nike needed something that would differentiate it in the long run. It had to be very appealing and also at once very distant from the core business. The focus was on gadgets. It had less to do with shoes and more to do with athletes. Nike's sales philosophy - if you have a body, you are an athlete - had enticed everybody who wanted to think of himself/herself as an athlete or wanted to get more athletic.

Nike introduced its first mass produced gadget, Nike + iPod Sports Kit, in the US market in 2006. It was a tool to measure the distance and speed of a run or a walk and was built on a virtually flawless partnership

Nike's Mission Statement

strategy. Nike was actually selling just a small electronic chip that had to be inserted in the shoe and a wireless connection device that had to be plugged to an iPod. All the calculation, storage, and integration was done by the iPod. It paved the way to a truly innovative future of the company.

An upgraded product, Nike + Sportband Kit (released in April 2008), no longer needed an iPod and could be connected to the computer directly to download the results. All the products designed post release of this kit were an enhancement of this concept. A Nike + Sportwatch was also introduced in combination with

Nike iPod Sport Kit

VOLUME 03BEACON ISSUE 01JANUARY 2015 14

the chip. In September 2010, Nike introduced a running app to be used in the latest iPhones. The running app used the phone's accelerometer and so there was no need of a chip in the shoe. Miles ahead of its competitors with a user community of more than six million people, Nike products were not only dressing up the athletes but also coaching the masses who wanted to be like athletes. The users of Nike+ can not only store and review their results in their computers or devices but also analyze and share them within the community.

Through apps, the customers are now more close to Nike. It can study them and communicate with them conveniently. Thanks to its technology leap, Nike was able to reduce advertising expenses by 40 per cent without compromising on efficiency and results.

Nike’s Social Media InitiativesIn 2008, Nike created its Facebook account. Today, Nike maintains a Facebook page for each sub-brand, running product specific promotions, featuring events in a particular sporting activity, and also providing information on the latest game of endorsed athletes. For example, a Facebook user who desires to know more about the latest football shoes or game can turn to Nike Football Facebook page.

Pairing up with Apple Inc. - a company known for its innovative products, helped Nike by increasing brand awareness and also reaching out to customers who were still in two minds about choosing their brands by bringing into its fold the Facebook fans of Apple. The tie-up with Apple was Nike's realization that most runners will use iPods or iPhones to listen to music while jogging. Apple’s iPhones and iPods thus came pre-installed with Nike+ app. With this, iPhone/iPod users can map out their running route and later share it with their Facebook friends.

Carrying forward the same strategy, Nike has separate Twitter handles for each of its sub-brands, sport category, countries and even cities. A key differentiator for NIKE is an independent customer support handle which aims to resolve customer issues at the highest priority and thus helping promote the image of the brand.

By numbers, Nike is ‘The most followed brand’ on Instagram. Almost all the media Nike has uploaded on the social media uses exotic landscapes with athletes and a motivational taglines to inspire and connect with their target audience. The brand’s action-oriented image of positivity aims to instill self-confidence in the minds of its followers.

One of the company's latest products is Nike FuelBand, a wristband that tracks user’s wrist movement, and calculates the amount of energy spent during a day by predicting the activities performed and the approximate amount of calories burned. However, because 100 calories burned by a person who weighs 100 kg is not the same as the same amount of energy burned by a person who weighs 50 kg, the number of calories spent is not a robust index of energy used. So, to create a platform where a group of people can compare their energy spent, Nike has come up a new index called Nike Fuel.

biggest selling point is the Nike + Fuelband Community on Facebook. The social media site is used by Nike to motivate its users to get fit. On this page, Nike sets a new challenge for its followers every week. It is here that Nike Fuel comes into play. Users can compare their accumulated Nike Fuel and comment on the challenge, motivate each other, share their difficulties and get suggestions on how to improve the general level of fitness. (Click here for Nike+ YouTube video that showcases Nike+ users’ efforts in 2014 and sets a challenge for 2015)

References: Forbes, Complex.com, Virginia.edu, Business Today, Nike.com, Sports.ru

For detailed analysis, please visit: http://simconblog.wordpress.com

Nike Fuelband

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15

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25

Instagram Twitter Facebook

PumaAdidasNike

22.6 4.3 10.8 19.7 1.7 3.0 13.8 1.1 0.7

Follo

wer

s in

Mill

ions

Nike's Presence on Social Media

VOLUME 03BEACON ISSUE 01JANUARY 2015 15

GUEST LECTURE ON PRIVATE EQUITYEVENT REPORT

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On 2nd November 2014, SIMCON organized a guest lecture by Mr. Anil Talreja, Partner at Deloitte Haskins & Sells. Mr. Talreja spoke on “Private Equity". a

Mr. Talreja started his lecture by giving the basic idea about Private Equity. He explained in very simple terms, how high net worth individuals and institutions make investments and acquire ownership in companies. a

After explaining the concept of Private Equity, Mr. Talreja compared the Private Equity investments in India with those in Western countries. The discussion mainly revolved around the Private Equity investments in family owned businesses. He explained why family owned businesses in India are somewhat skeptical about the involvement of an external investor in their business. a

Mr. Talreja then continued by explaining the structure of Private Equity investment. Though the structure is very complex in real life scenarios of Private Equity investments, he kept it simple by including only the most important blocks of the structure such as Investors, PE House, Management Company, Investment Company etc. a

Mr. Talreja talked briefly on Venture Capitals as well. PE and VC are similar as they both are in the business of buying low and selling high. But they are different on many parameters, one of them being the target companies. While Private Equities usually target mature and underperforming companies, Venture

Capitals usually target startups and early stage companies. a

Mr. Talreja then discussed about some real life case studies such as Vodafone tax evasion issue which the Supreme Court ruled it in favor of Vodafone. Then Sir talked about GAAR (General anti-avoidance rules) and stressed on the importance of its implementation in India. a

The lecture was very engaging wherein the students asked a lot of questions and Mr. Talreja answered them all. The students at SIMSREE found the lecture very beneficial. We thank Mr. Anil Talreja for taking time out and giving this very important lecture.

Some Key Take Aways

Difference between Private Equity and Venture Capital

Though theoretically, Venture capital is viewed as a segment of private equity, but for the purpose of making investment decisions, their characteristics are sufficiently distinctive for us to treat them as separate asset classes. These characteristics include target companies, deal structures, risk-reward profiles, tax benefits, minimum capital contributions, liquidity, control vs. minority share, investor expertise, etc. a

Private equity, simply, is capital that is invested in private companies or in a public company that is eventually delisted because the owners want to restrict

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the number and/or kinds of people who can invest in them and avoid the regulations that public companies have to abide by. Private equity investors tend to target companies which may be under-performing or under-valued, with an aim of improving their profitability and selling them for a return on their investment (capital gain) — or in some cases, splitting the company apart and selling their individual assets at a profit. a

Venture investors, on the other hand, aim for early-stage startups and expanding companies with fast-growth potential, with the goal of mentoring, nurturing and growing them as quickly as possible, then selling them through M&A deals or taking them public. VCs expect that most of the companies they invest in will fail, but that at least 1 investment will reap huge returns and make the entire fund profitable. Venture capitalists invest trifle amounts of money in dozens of companies, so this model works for them. But it will never work in PE, where the investment size is much larger and the number of investments is smaller – if even 1 company “failed,” the fund would fail. a

Family-run business' averseness to Private Equity

Indian companies which are mostly family-owned, have been averse to selling their stake and preferring to raise funds by borrowing from banks or going public. Global private equity firm KKR & Co LP co-founder Henry Kravis said buying controlling stakes in companies is "really tough" in emerging markets, particularly in India because of the prevalent family-owned business structure and its aversion to dilution of their equity stake in the company. Secondly family-run businesses tend to control how the business should be run. They also are reluctant to undertake significant restructuring of their operations, partly because they fear this could lead to a dilution of their distinctive culture and values. a

The PE players that operate in India deploy several measures to meet these challenges. PE funds operating in India, now, focus on evaluating, monitoring and strengthening corporate governance at their portfolio firms. a

Comparison between Private Equity and VentureCapital

Private Equity Venture CapitalTarget industries

All industries, usually with established marketplace for the product or service

High-growth industries like high-tech, biomedical, alternative energy

ROI expectation

Depends on inherent risk of specific firm and industry. Target can be 20%/year over five years, more likely 10%/year or less

Many failures, some solid returns, a few spectacular successes. ROI is usually lower compared to PE

Liquidity horizon

6 to 10 years 4 to 7 years

Share acquired

Controling stake (often 100%)

Usually minority stake in company

Funding structure

Equity and debt Often equity only, but can be structured to fit needs of both partiesw

Investor active?

Investors may be passive with respect to management, unless purpose of acquisition is to improve company performance

Investors provide advice, connections, distribution; monitor cash burn; etc.

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CONCEPT OF THE MONTHGE McKinsey Matrix

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CONCEPT OF THE MONTHGE McKinsey Matrix

The GE-McKinsey matrix (also known as the GE multi-factor portfolio matrix or the Directional Policy matrix) is essentially a framework used to plan the portfolio of a business/organization. It was formulated by McKinsey for General Electric in the 1970s; hence the name. It helps decide: a• New products that an organization should add

(portfolio expansion)• New businesses/markets an organization should

invest in

Hence, it finds extensive use by Product Managers & Brand Marketers to devise future plans to help them understand where to invest their cash.

Organizations internally have Strategic Business Units which function as separate entities based on the segment of products they are working on. We plot Strategic Business Units (SBUs) or products on the McKinsey matrix as circles of varying centers and radii (as shown on page 22); which are supposed to convey the below information:• Size of the circle is an indicator of the market size• Pie-chart representation is an indicator of the

market share• An additional arrow added on the circle could be

an indicator of the expected future level of the circle

How does the McKinsey matrix help in making strategic decisions for a business?There are three ways in which you can allocate/modify the resource allocations to a Strategic Business Unit:

• GROW (Increase investment in)

1. Strong Business Units in Attractive industries 2. Average Business Units in Attractive industries 3. Strong Business Units in Average industries

• HOLD (Continue investment in) 1. Strong Business Units in Attractive industries 2. Average Business Units in Attractive industries 3. Strong Business Units in Average industries

• HARVEST (Reduce investment in/liquidate if required)

1. Weak SBUs in Unattractive industries 2. Average SBUs in Unattractive industries 3. Weak SBUs in Average industries

Is the GE-McKinsey matrix better than the BCG matrix?• The GE-McKinsey matrix uses market/industry

attractiveness (a broader concept dependent on multiple factors – market growth rate being just one of the factors) to measure if it is worth entering a particular market; against solely using market growth rate which is a skewed indicator as used by the BCG matrix.

• The GE-McKinsey matrix uses Business/Competitive strength (a broader concept which includes market share as one of its concepts along with many more) to understand how a strategic business unit can deal with its competition; against solely using market share which is a skewed indicator as used by the BCG matrix.

• Lastly, the GE-McKinsey matrix is a 3x3 matrix

The GE McKinsey Matrix

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allowing higher level of adding details for categorization – High, Medium & Low; against a 2x2 BCG matrix which categorizes it parameters directly as High or Low.

As Market Attractiveness & Business strength are broader concepts as compared to market growth rate & market share respectively, let us understand the factors they rely on and get impacted by.

Factors affecting Market Attractiveness

Factors affecting Business Strength of a SBU

Market size & growth rate

Market share & market share growth

Profitability Customer retention/loyalty

Barriers to entry Quality-oriented cultureChanges in demand Production capacitySegmentation & Differentiation of product

Strength of distribution chain

Trends in pricing Cost & Profit Margins compared to competitors

Rivalry from competition

Available assets & Financial resources

Macro-environmental factors (PEST Analysis)

Brand value

Having seem some of the distinct advantages of the GE-McKinsey matrix over the BCG matrix, it’s also important to understand that categorization of SBUs

as required by the GE-McKinsey matrix isn’t an easy job and thus it takes longer to construct than a BCG matrix. Also, it fails to take care of is the dynamic relationship between SBUs. For example, it is possible that a high-scoring SBU may in turn be dependent on a low-scoring SBU and hence it would be important to retain and increase investments in both.

References: McKinsey, QuickMBA, ChangingMinds