ecommerce pitchbook nomura case study
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Ecommerce pitchbook nomura case study IAGTRANSCRIPT
IAG Case Study Golduin Retail
Phase II
Team Blankspace NMIMS Mumbai
Neha Butala Ruchita Sen
Agenda
Company Overview
Golduin’s Performance and Strategy
Industry Overview and Dynamics
Golduin’s Valuation
Use of Proceeds
Listing Locations
Risk Factors
Appendix
Company Profile
Company Overview
Consumer Electronics
Consumer Appliances
Apparel
2013 2009 2011
Switched to market place model Birth of
Goldruin Retail
Dec: Series A funding Zartell, Bereth ($41 M)
Entered China, acquisition of Tarthe Retail
Jan: Seed funding Zartell ($15M)
2010 2012 2014 2015
Series B funding Bereth, Blue Hill, Hetfield $65M
Mar: Entered India, acquired King Kross Tech
Nov: Series C funding Zartell, Bereth, Orome
($500M)
Mar: Acuired Sion Retail in India
Acquired Manzel – apparels company
Turned profitable
Global Revenue $1.2B
2016 2017 2018
2-3 fulfilment Centres with Investment of $45M
Raised $700m Through IPO issue
Introduced in-house payment system
Fifth-largest E-Commerce Company in GMV terms
Diversified into E-retailing
Rebranded as the Biggest brand hub
Founding John Doe, in 2009
Headquarters and Offices
Dallas, Texas
Regional offices in Shanghai, Bengaluru, Manila, Jakarta
Geographic Mix Present in US, China, India
Equity Partners Zartell Investments, Bereth Capital, Orome, Hetfield, Blue Hill
Timeline
Sectors Geographical Locations
Footwear
China 44%
US 49%
India 7%
*Revenue Breakdowns for 2015 by country
E-Commerce Market accounts for 6.5% of retail sales
Golduin Retail Business Model
Partners
Strong Collaboration with vendors, a count of 400,000+ Long term association with leading brands
Capability
Marketplace model for operational efficiency Strong business analytics team Plans to develop in-house payment system
Revenue Sources
Revenues from commissions Other income includes Vendors Annual Fee, Fulfillment Centre usage, Advertising, subscriptions
Market Segments
Catering to upper middle class, upper class in US For India and China, upper middle class and middle class segments between ages 13-58 using Internet
Management Team
CEO - 15 years in Consumers Appliance CFO - Qualified CPA, Previously head of audit ,control Sales Head - 10+ Years in Apparel sales experience
Value Proposition
Following differentiating strategy to focus on enhancing customer experience
Marketing Channel Distribution Channel
Operates with a marketplace model having 10 fulfillment centres in the operating geographies
Major Capital Investment made in fulfillment centres Switch to marketplace based model to reduce inventory costs Plans to develop an in-house payment system Cost of capital was low as financing was done through debt, funding rounds
Costs
All marketing channels used, reliance especially on social media networks
Channelizing resources by entering into high growth markets through acquisitions Focus on high growth markets like China, India
Growth Strategy
Differentiating strategy driven by a superior customer experience Competed with cost leadership strategy with focus on particular segments
Offering premium services for consumers for enhanced
Competitive Strategy
Industry Overview
Global Scenario
•E-commerce is changing the way people do their business •Trending Business Methods: Personalization and Mobility •Market Players tweak recommendations to making it more personal. Shopping has become more mobile and players are opting for more channels •Alibaba and Amazon are two major global players •Huge growth potential in the emerging markets India and China
Number of Users
GDP/Capital
Increasing Internet Penetration
Smartphone Penetration
Innovative payment products
Change in customer behavior
Cheap and reliable technology
Social Media
Push into International Market
Mobile Platforms Social Media
Analytics
Omni-channel service
Sharing Economy
SMAC
Virtualization
Global E-Tail Sales
0%
5%
10%
15%
20%
25%
0
500
1000
1500
2000
2014 2015 2016 2017 2018 US $ Billions Growth Rate
No of Internet users and penetration
46%
87%
19%
86%
53% 59%
0%
20%
40%
60%
80%
100%
0
200
400
600
800
China US India Japan Brazil Russia No of Users (Mn) Penetration (%) Sources: Euromonitor, Capgemini Report
Challenges faced by Industry
•Lack of governing structure •Integration of distinct technology •Majority of online retailers lack in digital marketing skills
Key Drivers Future of E-commerce
•The dynamics of the industry is constantly changing •The taxation policies are not specified •Cyber Security issues
7.30%
12.40%
0.00%
10.00%
20.00%
2015 2019
E-Tail Contribution to Global Sales
Golduin’s
Key Financial Metrics
77.31%* Gross profit Margin 2016-19
1.76* Current Ratio - 2015
17.30%* Avg Growth EPS 2016-19
14.19%* CAGR Revenue 2016-19
81.36%* Avg growth of RoE 2016-19
1.23* Debt-Equity Ratio 2015
0.00%
5.00%
10.00%
15.00%
-100 0 100 200 300 400
Re
ven
ue
Mar
gin
s
Revenue
India
US
China
Revenue/Margin Comparison
Key Performance Metrics
The size shows margin in the respective geographies
Return on Equity
Net Profit Margin-0.01
Asset Turnover- 0.95
Equity Multiplier- 2.22
Profitability
19 42 115 226 390
625 959
0 26 83.38
158.17
272.12
436.08
668.73
0
500
1000
1500
2000
2014 2015 2016 2017 2018 2019 2020
Operating profit Nopat
0.00
100.00
200.00
300.00
400.00
USA China India
Advertising revenue Buyers’ memberships Annual Registration fees
Revenue Sources
Commission Fees for fulfilment centres
Please refer Excel for detailed Income Statement
Dupont Analysis
Working Capital
0
50
100
2014 2015 2016 2017 2018 2019
Golduin’s Chinese Story
27%
15% 50%
8% 31%
19%
43%
7%
2019 2015
Sector Market Growth Driver
Company Growth
Commissions
Consumer Electronics 15% 21% 4.5%
Consumer Appliances 13% 19% 4.5%
Apparel 24% 29% 9.7%
Footwear 24% 30% 9.7%
Revenues Mix
Revenues Projections
GMV Projections
Current Market Size – 20.38 Billion Market Share 2.6% GMV Top 5 market position
High growth in Apparels, Footwear Segment
2077 2931 4214
5916 7889
10052 12971
16545 15709
2013 2014 2015 2016 2017 2018 2019 2020 2021
Golduin’s Strategy for China
Used Inorganic Expansion to gain entry Acquisition of Tarthe Retail, Manzel ensured prominence immediately in electronics, appliances market
Future strategy is to capture high growth Apparel and Footwear segments
Current Market Scenario
0
2000
4000
2013 2014 2015 2016 2017 2018 2019 2020
Consumer Electronics Consumer Appliances
Apparel Footwear
Other Income Figures in $Millions
* Please refer Excel for GMV Calculations
CAGR 43.02%
* Please refer Excel for Company Growth Rates
Golduin’s Indian Story
6% 4%
74%
16% 17%
11%
59%
13%
2019 2015
0
50
100
150
2013 2014 2015 2016 2017 2018 2019
Consumer Electronics Consumer Appliances
Apparel Footwear
CAGR 35.48%
Portfolio Mix
Revenue Projections
Sector Market Growth Driver
Company Growth
Commissions
Consumer Electronics 7.02% 2.7% 4.5%
Consumer Appliances 45.29% 6.3% 3.8%
Apparel 44.85% 39% 8.43%
Footwear 44.85% 39% 8.43%
Golduin’s Strategy for India
Current Market Scenario
Used Inorganic Expansion to gain entry Acquisition of: Kingscross Tech Sion Retail Strategy is to capture high growth Apparel and Footwear segments
High growth in GMV over the years expected
GMV Projections
358 455 713 943 1133 1641 2319
3231
4987
2013 2014 2015 2016 2017 2018 2019 2020 2021
Current Market Size – 800 Million Market Share 10.5% GMV
High growth in Apparels, Footwear Segment
Ecommerce Sector booming in India
* Please refer Excel for GMV Calculations
Market Overview US Story
9%
19%
61%
11% 12%
13%
63%
12%
2019 2015
0
200
400
600
2013 2014 2015 2016 2017 2018 2019
Consumer Electronics Consumer Appliances
Apparel Footwear
CAGR 22.44%
Portfolio Mix
Revenue Projections
Sector Market Growth Driver
Company Growth
Commissions
Consumer Electronics 2.5% 2.5% 5%
Consumer Appliances 19% 19% 4.5%
Apparel 9% 9% 11.28%
Footwear 9% 9% 11.28%
Golduin’s Strategy for US
Current Market Scenario
GMV Projections
1647 2465
3672 4046 4469 4950 5497 6121
6835
2013 2014 2015 2016 2017 2018 2019 2020 2021
Current Market Size – 39866.66667 Billion
Market Share 1.5% GMV
Top 20 player by GMV
* Please refer Excel for GMV Calculations
Reducing Focus for Golduin Focussed on high customer satisafaction and premiumness to capture customer loyalty Future strategy is to focus on emerging markets like India and China as Growth rates are low
Market Overview Shareholding Pattern
Investor Pre- IPO Pattern
Post IPO Pattern
Zartell 33% 23%
Bereth 22% 12%
John 35% 26%
BlueHill 3% 3%
Hetfield 3% 3%
Orome 4% 4%
Float Shares - 29%
Total 100% 100%
33%
22%
35%
3% 3%
4%
Pre-IPO Pattern
Zartell Bereth John BlueHill Hetfield Orome Float
23%
12%
26% 3% 3%
4%
29%
Post IPO Pattern
Funding Round John Zartell Bereth Orome Hetfield Blue Hill Total Shares Price Per Share
Seed 135,000,000 15,000,000 - - - - 150,000,000 $ 1.00
A 112,500,000 30,000,000 7,500,000.00 - - - 150,000,000 $ 1.82
B 96,000,000 30,000,000 15,000,000 - 4,500,000.00 4,500,000 150,000,000. $ 3.94
C 52,500,000 49,500,000 33,000,000 6,000,000 4,500,000 4,500,000 150,000,000 $ 11.49
Total 35% 33% 22% 4% 3% 3%
Assumption: Initial $1 face value per share
Market Overview Revenue Estimation – Market Growth vs Company Targeted Growth
Country Consumer Electronics
Consumer Appliance Apparel Footwear
India 2.7%/10.39% 6.3%/14.26% 39%/49.40% 39%/49.4%
China 15%/25% 13%/23% 24%/35% 24%/35%
USA 2.5%/2.5% 19%/19% 9%/9% 9%/9%
489
750
1210
1426.61
1695.54
2023.48
2425.63
2921.59
3536.76
2013
2014
2015
2016
2017
2018
2019
2020
2021
Scenario 1: Golduin grows as per Market Growth Rate
Scenario 1: With company going forward with Market Growth rates, the company will not achieve the targeted revenue of $4billion. It will reach $2Billion by 2019. Scenario 2: Company will have grow more than the CAGR growth of the respective sectors, this would be done as Golduin tries to increase its market share in India and China by organic and inorganic growth so that the company sees higher growth than CAGR.
* Please refer Excel for detailed revenue projections in Scenario 1 and 2
Scenario 2: Golduin growth exceeds Market Growth Rate
489
750
1210
1539.00
1539.72
2488.65
3163.76
4021.99
4137.62
2013
2014
2015
2016
2017
2018
2019
2020
2021
Market Overview DCF Valuation
Assumptions in DCF Model
Assuming listing location USA •Risk Free rate =2.245%(USA Treasury bonds) •Tax Rate=30.3% •Equity Risk Premium-5.78% •Terminal Growth-3%
WACC -7% Enterprise Value -8.6bn Equity Value -8.609bn Share Value -$39.04
Assumption Revenue have been projected based on the target revenue of
the company
Increase in EBIT growth has been assumed to decrease over the years. Depreciation and working capital has been projected by studying comparable companies value. WACC is changing each year due to change in capital structure of the company.
Sensitivity Analysis-Terminal Growth
WACC Values
13336.45 5% 6% 7% 8% 9%
Pe
rpe
tuit
y gr
ow
th
1% 16115.02 12892.02 10743.35 9208.584 8057.511
2% 21699.43 16274.58 13019.66 10849.72 9299.758
3% 32868.26 21912.17 16434.13 13147.3 10956.09
4% 66374.74 33187.37 22124.91 16593.69 13274.95
5% -335703 83925.75 37300.34 23978.79 17668.58
Sensitivity Analysis-Enterprise Value
WACC Values
8609.414 5% 6% 7% 8% 9%
Pe
rpe
tuit
y gr
ow
th
1% 10287.5 8382 7106.5 6191.4 5501.9
2% 13557.2 10362 8439.3 7152.3 6229.2
3% 20096.5 13663 10438 8497.5 7199
4% 39714.4 20265 13770 10515 8556.7
5% -195701 49972 22656 14839 11129
Revenue Forecast
India, China and Usa Markets differ in the CAGR. The Valution of the company is done taking into consideration the GMV Transacted between the firms. Growth in other income is regressed in lieu with the increase in Revenue
Market Overview Trading Multiples
Assumptions: Funds Raised in IPO -$1 bn
Filing Range - 1-Year Forward P / E Multiples
Forward P/E Assumptions: Units 16.0 x 20.4 x 32.3 x 38.2 x
Forward Year 1 Net Income: $ M $ 226.9 $ 226.9 $ 226.9 $ 226.9
Implied Post-Money Equity Value @ Trading: $ M 3,640.1 4,634.1 7,330.2 8,669.1
Issuer - Existing Shares Outstanding: M Shares 150.000 150.000 150.000 150.000
Implied Offering Price per Share: $ as Stated $ 17.60 $ 24.23 $ 42.20 $ 51.13
Pro-Forma Shares Outstanding, Post-IPO: M Shares 182.0 178.5 174.6 169.9
Post-Transaction Shares Outstanding Calculations:
Primary Shares Issued in IPO: M Shares 56.8 41.3 23.7 19.6
Secondary Shares Sold in IPO: M Shares 17.4 12.7 7.3 6.0
Total Shares Issued or Sold in IPO: M Shares 74.2 53.9 31.0 25.6
Pro-Forma Shares Outstanding, Post-IPO: M Shares 206.8 191.3 173.7 169.6
Total Offering size 1306.691 1306.691 1306.691 1306.691
Primary Offering 1000 1000 1000 1000
Key Takeaways: Average Primary shares issued in an IPO- 35.3 Million
Average Secondary shares issued in IPO- 10.8 million Price band of shares $17.61 to $51.13
Average Implied offering of share - $34
Primary shares allocation - 77%
Secondary Share Allocation -23%
Multiples Baba us equity JD US Equity VIPS US
Equity MELI US Equity
AMZN US Equity
EBAY US Equity
iaci us equity
EBITDA FY+1 49,805.4 (551.9) 2,356.9 181.6 10,662.8 3,476.8 485.8
EV/ EBITDA FY+1 25.96x -424.72x 32.62x 25.75x 27.70x 10.73x 11.67x
P/E FY+1 32.34x - 38.20x 46.36x 129.20x 16.04x 20.42x
Market Overview Football Field Analysis
0
10
20
30
40
50
60
70
80
90
P/E Ratio('15)(20x-30x)
P/E Ratio('16)(20x-30x)
E/V EBITDA('15) E/V EBITDA('16) Perpetual Growth Downside
Perpetual Growth upside
WACC Downside WACC Upside
18.9
2.46
6.7
18.9
75.24
34.03
56.625
4.4
6.6
12.6
6.9
30.06
46.75
45.8
75.24
46.75
Fair share price of IPO- $40
Relative Valuation DCF Valuation
Market Overview Use Of Proceeds
Develop an In-house payment system
•For setting up a secure server and use SSL Technology for data encryption •For buying a system to process credit card payments and get an internet account with a bank merchant
Advantages: •More flexibility and autonomy •Setting up a system is a one time cost and it would save the processing fee In the long run •Advanced fraud detection system are better placed to mitigate brand and business risk •Enhance relationship through high value and stick service
Build fulfilment Centres
•With the increase in GMV in future, the number of fulfilment centres needed will Increase • An additional centre will lead to an increase in cost but it would be offset by increase in the other revenues component • Acquire selective control over inventory
Investing in Marketing campaign
Repayment of Outstanding Debt Inorganic Growth through Acquisitions
1
2
3
•Strategic acquisitions in India, China planned in the future for gaining market share •Primary concern is synergy with Golduin along with acquisition price, company profitability •Possible Acquisitions in detail in next slide
•India – Firstcry, FashionandYou •China - Vipshop
•Marketing campaigns required for customer acquisition, customer retention •Customer Acquisition: Use of Google Adwords, Facebook advertisements Offering Facebook and Twitter competitions Initial Registration discounts Referral Discounts •Customer Retention: Offers for repurchase on site Festival Discounts like Diwali Dhamaka Sale, Singles Day
•Golduin plans to retire long term debt by 2020 •Retiring debt will help in reducing interest expenses, and provide more flexibility in operations •Refer Debt Schedule for detail of debt repayments
5
4
Market Overview Evaluation of possible Indian Acquisitions
Indian Possible Acquisitions
Parameters for Selection*
Yepme Jabong Firstcry PepperFry FashionAnd You
Naaptol
11.5/18 11/18 14.5/18 10/18 13.5/18 10.5/18
Apparels Consumer Electronics
Acquisition Price(3)
Total (18)
Sector Growth(3)
Synergy(3)
Profitability(3)
Company Portfolio(3)
Differentiation(3)
Sector Furniture Baby Products Apparels Apparels
Market Overview Use of Proceeds – Indian Target Acquisitions
About: Asia’s largest online portal for baby and kids products Sector Growth: India’s booming population with increasing disposable incomes makes baby product segment . Company Portfolio: Has tied up with 500 brands, offers over 90,000 products, over 100 retail stores pan India spread across 82 cities Profitability: Achieved Breakeven in 2012, anticipating 100% growth every year Differentiation: Entered into a segment which is highly unorganized and few organized players, offering premium brands
About: Offers premium apparel, footwear with discounts Sector Growth: With India’s potential in ecommerce, and apparel and footwear E-tail growth at 39% Company Portfolio: Partnered with high fashion and premium brands across fashion apparel, designer wear, handbags, footwear, watches, jewellery, fragrances and home décor. Holds 15+ new sale events per day, has a “Lounge” section that offers only exclusive designer brands Profitability: 5,500-6,000 orders on a daily basis with double digit growth monthly, currently averaging GMV of $4 million per month Differentiation: Entered as one of the earliest with flash sales model in India
Synergy and reason for Acquisition: Tap into the growth of baby and kids segment Has core strategy of premium products like Golduin Company has Wide Geographical Presence which will help Golduin increase its footfall
Acquisition Target # 1 Acquisition Target # 2
Synergy and reason for Acquisition: Excellent financials with exclusivity in brands in line with Golduin’s
strategy The company is looking to expand its merchandise making international
brands, a part of its portfolio, Golduin can provide sources
Target Acquisition Price: $75 Million
Target Acquisition Price: $50 Million
Market Overview
Chinese Possible Acquisitions
Parameters for Selection
Jumei Yihaodian Dangdang Vancl Vipshop
Evaluation of possible Chinese Acquisitions
Apparels Apparels Books, Apparels, Electronics Apparels Food, appliances, baby care
Acquisition Price(3)
Total (18)
Sector Growth(3)
Synergy(3)
Profitability(3)
Company Portfolio(3)
Differentiation(3)
Sector
10.5/18 10.5/18 11.5/18 11/18 14/18
Market Overview Use of Proceeds – Chinese Target Acquisitions
Profitability Synergy
Acquisition Target # 1
About: China’s largest ‘special offers’ e-commerce platform, flash sale website for apparel and cosmetics Sector Growth:24% is the estimated CAGR growth of apparel segement. Company Portfolio: Has tied up with 6000 brand partners, No. 8 internet retailer in China, Profitability: Achieved profitability in 2012-13, high growth rate every year, its sales by 135.5% from $692.1 million in 2012 to $1.63 billion in 2013, according to the 2014 China 500. Differentiation: Works as the only popular and known flash sale website in China offering deep discounts in clothes and cosmetics
Synergy and reason for Acquisition: Synergy in core strategy of customer satisfaction - Hasinvested in expanding warehouse facilities and logistics networks to better
service its customers
Entry into cosmetics – Golduin can leverage the brand alliances of Vipshop to enter into cosmetics segment
Immediate access to large customer base: Vipshop boasts of high customer loyalty and repeat purchases
Target Acquisition Price: $175 Million
Market Overview Possible Listing Locations
Requirements Usa NASDAQ (std 3)
India’ NSE China’s (SSE)
Golduin data
Paid in capital - $1.7m - -
Revenue $90m - - $1.2bn
Min Avg Market Cap
$850mn $4m
$7.8 m $1.27bn
Profitability - 3 Years 3 year profitable
1 year profitable
Listing in USA
Liberalisation of interest rates Emerging internet finance Service expansion plan Anticipated launch of
Shanghai –Hongkong connect New registration based
system
IPO Scenario till June 2015
•Shanghai has been the IPO powerhouse •It has been ranked first for the funds raised. •In 2Q15 all IPOs have risen the maximum 44% allowed on first trading day •Planning to launch an new market for Emerging industries
Access to the largest source of capital in the world Improves timeliness and cost of
capital of subsequent offerings Gives investors the opportunity
to realise and monetise the appreciation in the value of their investment
Offers access to US commercial paper markets through the establishment of a US credit rating
Many Ecommerce companies already listed
× Company would being subject to the strict US regulatory environment
× Compliance with the provisions of the Sarbanes-Oxley Act can be a time consuming and costly
× Results in the company being subject to the rigorous SEC accounting, disclosure and reporting requirements
Pros in Favour
Due to recent economic downturn ,the number of IPO applications and the capital raised will drop in the future according to CSRC and the single class share listing rule Is an added disadvantage.
IPO Scenario after 2015
Comparison of listing in the three Countries
New e-IPO rules allow companies to list in 6 days.
Market sentiments are positive due to the current government
Expected IPO Perfromance to be better vs US, China
Cons Against Pros in Favour
Listing in China
Listing in USA
Pros in Favour Cons Against
× No Ecommerce player listed on NSE, Infibeam to issue IPO
× Investors does not have much idea about Ecommerce performance in Share Market
Market Overview Listing in USA
Golduin’s Current Situation
•John has 26% of shares does not have the majority control •The company was able to break even in the year 2015 so its been profitable for past one year. •Dual share holding is an option they don’t want to chalk out. •Its an USA company with 49% revenue from its domestic country. •Debt was raised in USA because of its lower cost. •The company plans for mergers and acquisitions in future.
Why USA
•It will allow John to maintain control of the company despite not owning significant portion of shares. •The dual share holding arrangement allows the company list new shares without giving over any new powers to shareholders •The New York listing gives an added trust to the investors because of the Reputation. •Having US dollar shares on US exchange will simplify future acquisitions for them by lessening the scrutiny. • It has one of the largest capital market liquidity in the world
Choosing between NASDAQ and NYSE
NASDAQ is more cost efficient and tech –savvy as compared to NYSE. The comparable companies like Amazon and Ebay are listed on it. So for Golduin NASDAQ is a better option
Past IPO performance
Alibaba which was listed on USA stock exchange,became the largest IPO ever. it sold additional shares on first day of trading itself and was able to raise a smashing $25bn.The shares priced at $68 jumped to as high as $99.7 on first trading day itself. Amazon .com ended $54mn richer as its IPO soared 30% above its opening Price.Even the pre-IPO price had been raised twice Ebay.com raised $63mn when the shares went up 163.2% and the company’s market cap hit $1.9bn when its competitors’ Onsale’s cap was $350.4 mn At the flag end of the day.
Availability of Capital on NASDAQ
NASDAQ has 3500 companies listed on which has $3.5trillion net worth.
Appendix
Shareholding Pattern
Funding Round Stake Bought (in %) Stake bought (in $) Shares purchased Valuation at the time
of buying
Seed 10% $15,000,000 15,000,000 $ 150,000,000.00
A 15% $41,000,000 $ 273,333,333.33
B 11% 65,000,000 $ 590,909,090.91
C 29% 500,000,000 $ 1,724,137,931.03
Assumption: Initial $1 Face Value per share
Funding Round John Zartell Bereth Orome Hetfield Blue Hill Total Shares Price per share
Seed 135,000,000 15,000,000 - - - - 150,000,000 $ 1.00
A 112,500,000 30,000,000
7,500,000.00 - - - 150,000,000 $ 1.82
B 96,000,000 30,000,000 15,000,000 -
4,500,000.00 4,500,000 150,000,000. $ 3.94
C 52,500,000
49,500,000 33,000,000 6,000,000 4,500,000 4,500,000 150,000,000 $ 11.49
Total 35% 33% 22% 4% 3% 3%