Brand Valuation Framework for mergers and Acquisitions !!!

“If this business were split up, I would give you the land and bricks and

mortar, and I would take the brands and trade marks, and I would fare better than you.”

— John Stuart, Chairman of Quaker (ca. 1900)

In the age of  high business growth Companies prefer both organic and

inorganic path for expanding their businesses.  Either to enhance their

product offerings or to target newer markets  , companies are preferring

route of mergers and acquisitions.

During mergers and acquisitions one company buy target company. This

buy  out consist of two parts. One is the assets of the targets companies,

which are reflected in book value, while there is another component

that need be assessed is that is intangible, often referred as brand

equity. This intangible part at times is of equal weightage as that of

tangible assets part.

During Mergers and Acquisition how this is to be valued becomes

utmost important. The objective of this paper is to understand the

factors that determine the value of target firms’ brands in the context of

mergers and acquisitions.

In this paper we are developing a framework for measuring brand equity

in  case of Mergers and Acquisitions. This framework can be applied in

all those cases where brand equity is comprised of all similar assets as

assumed in this  paper.

Key Terms:  Brand Equity, Valuation, Merger and Acquisitions

This is abstract of the Term paper submitted for Brand Management subject by the Author at Department of Management Studies, IIT Delhi. This frame work has been developed by the Author under supervison of Dr Mahim Sagar, Astt professor, DMS, IIT Delhi.

2011: Indian Automotive Industry - Road Ahead !!!

Automobiles industry in India – Brief Overview

The Indian automobile industry, the seventh largest in the world, has demonstrated a phenomenal growth. The industry has grown significantly over the last ten years, during which industry volumes have increased by 3.2 times, from a level of 4.7 million numbers to 14.9 million numbers, according to Vishnu Mathur, Director General, Society of Indian Automobile Manufacturers (SIAM).
The industry, by virtue of its deep connects with several key segments of the economy, occupies a prominent place in the country’s growth canvas. It exhibits a strong multiplier effect and has the ability to be the key driver of economic growth. A robust transportation system plays a key role in a country's rapid economic and industrial development, and the well-developed Indian automotive industry justifies this catalytic role by producing a wide variety of vehicles, which include passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers, tractors etc.

Auto Industry in India – Growth Drivers

The automobile sector in India has been experiencing significant growth in the last few years on the back of factors that include:

• Favourable demographic distribution with rising working population and middle class Urbanisation
• Rising affluence of the average consumer as per capita income rises - According to McKinsey, the middle class in India will grow from 50 million to 550 million by 2025. With a tremendous growth in wealth as the economy grows, there will be significant increases in spending on discretionary items and consumer durables
• Increasing disposable incomes in rural agri-sector
• Overall GDP growth, with a rise in industrial and agricultural output
• Introduction of ultra-low-cost cars
• Increasing maturity of Indian original equipment manufacturers (OEMs)
• Availability of a variety of vehicle models meeting diverse needs and preferences – robust production
• Greater affordability of vehicles
• Easy finance schemes
• Favourable government policies

Indian Automobile market – Key statistics

India's automobile industry, currently estimated to have a turnover of US$ 73 billion, accounts for 6 per cent of its GDP, and is expected to hit a turnover of US$ 145 billion by 2016.
The automobile industry currently contributes 22 per cent to the manufacturing GDP and 21 per cent of the total excise collection in the country, according to Mr Praful Patel, Minister, Heavy Industries and Public Enterprises. In 2010-11, the total turnover and export of the automotive Industry in India reached a new high of US$ 73 billion and US$ 11 billion respectively. The cumulative announced investments reached US$ 30 billion during this period. He also said that the forecasted size of the Indian Passenger Vehicle Segment is nearly 9 million units and that of 2 wheelers, close to 30 million units – by 2020.
India achieved the position of the top growing passenger car market in the world during the January-June period in 2011, overtaking the US, which grew at 14.40 per cent, according to SIAM. In passenger vehicles, India was the fastest growing market at 18.20 per cent during the six month period.
India's automobile industry is expected to grow by 11 to 13 per cent in the fiscal year ending March 2012, according to Pawan Goenka, President, SIAM. The industry body said that Indian automakers sold 143,370 cars in June 2011.
The four-wheel passenger vehicle market has grown impressively at the hands of the new middle class, and there is huge opportunity, as market penetration remains low.

Domestic market share for 2010-11

India’s automobile industry is growing fast, but two wheelers remain a dominant category. More than 78 percent of motor vehicles on the road are two-wheelers, their popularity driven by low price, high fuel mileage, and an ability to drive efficiently through dense traffic. The share of different types of vehicles during 2010-11 was passenger vehicles (16.25), commercial vehicles (4.36), three wheelers (3.39), and two wheelers (76.00).

Recent Investments/ Trends

The auto industry has made huge investments in the country. As per 2008-09, the total investment of auto industry in India was Rs 60,952 crore (US$ 13.89 billion). Another Rs 78,000 crore (US$ 17.78 billion) of new investments have been announced by the auto industry out of which some have already been made and the rest will come up over the next 2-3 years. The industry, therefore, is keeping pace with the growing demand for vehicles in all segments.
The Karnataka government has cleared investment proposals amounting to more than Rs 8,662 crore (US$ 19.74 billion), which include the plans of Honda Motorcycle India plans for a manufacturing unit in the State. Mr Murugesh Nirani, Karnataka Industries Minister, has said that Honda Motorcycles and Scooter India would be investing Rs 1,350 crore (US$ 307.7 million) in Narsapur Industrial area of Kolar district of the State.
Demand for two-wheelers from six of the eight domestic mobike manufacturers rose 16 per cent in June to more than 880,000 units, compared to 761,000 units in June 2010.
Australia is looking at possibilities of building better relations between its world-class firms and rapidly growing Indian automotive industries with an objective to create new export opportunities.
Pune-based Force Motors has signed an agreement with Daimler AG, under which Daimler will supply technology for the development of a multi-purpose vehicle (MPV) by Force Motors
Swedish automobile manufacturer Volvo Cars Corp is looking at introducing corporate editions of its luxury sedans S60 and S80 to shore up volumes in the Indian automobile market.
French car maker PSA Peugeot Citroen has selected a site near Sriperumbudur, to the west of Chennai, in Tamil Nadu for setting up its car plant. The company is planning to invest Rs 4,000 crore (US$ 911.72 million) in an integrated automobile project.
Toyota has launched its first made-for-India small car, the EtiosLiva, in the intensely competitive hatchback segment. The car, priced between Rs 399,000 and 599,000 (US$9,094 and 13,653), will compete with Maruti Suzuki Swift, Hyundai i20, Volkswagen Polo and Ford Figo.

Auto industry in India – Government Initiatives

With the gradual liberalisation of the automobile sector since 1991, the number of manufacturing units in India has grown progressively.
Currently, 100 per cent Foreign Direct Investment (FDI) is permissible under automatic route in this sector including passenger car segment. The import of technology/technological upgradation on the royalty payment of 5 per cent without any duration limit and lump sum payment of US$ 2 million is also allowed under automatic route in this sector.
The automobile industry is delicensed, and import of components is freely allowed.
With an objective of accelerating and sustaining growth in the automotive sector and to steer,co-ordinate and synergise the efforts of all stakeholders, the Automotive Mission Plan (AMP) 2006-2016 was prepared. The plan aims at making India global automotive hub.The AMP 2006-2016 aims at doubling the contribution of automotive sector in GDP by taking the turnover to US$ 145 billion and providing additional employment to 25 million people by 2016.
In the long term, the government has expressed plans to follow a two pronged strategy for spurring automotive Research &Development (R&D). The first is aimed at addressing the existing infrastructure gap in the field domain of automotive testing and homologation through the Department’s flagship National Automotive Testing and R&D Infrastructure Project(NATRiP), which is being implemented at a cost of Rs 2,288 crores (US$ 521.5 million), and is expected to be completed by the end of 2012. The second part of the strategy is aimed at leveraging the investments being made in NATRiP facilities for collaborative R&D with the industry, especially for the small and medium enterprises (SMEs) in the auto component space.
Further, with the recent announcement of the launch of the National Mission for Electric Mobility and the setting up of the National Council and Board for Electric Mobility, Mr Patel emphasised on the commitment of the government for early adoption of electric vehicles, including hybrid vehicles, and the manufacturing of these vehicles and their components.
The government is considering setting up two automotive manufacturing hubs spread over 10,000 acres each in central and eastern India.The new hubs, aimed at consolidating India's position as an important destination for low-cost automotive production, will be in addition to the three existing zones — Haryana, Maharashtra and Tamil Nadu.

Auto Industry in India – Road Ahead

The automotive industry is at the core of India’s manufacturing economy - India is all set to become one of the world’s most attractive automotive markets for both manufacturers and consumers. The resulting benefits to society, such as economic growth, increased jobs, and stability for families employed by the automotive industry, are significant.
The long-term potential for growth of the auto industry is very favourable, on account of low vehicle penetration in the country. As income levels rise and easy finance is available, the industry will continue to see a healthy growth rate. SIAM estimates that the growth of the auto industry in FY12 will be in the region of 12-15 per cent.
Exchange Rate Used: INR 1 = US$ 0.0227929, as on July 27, 2011

References: Society of Indian Automobile Manufacturers (SIAM), Press Information Bureau, Press Releases, Report by Booz & Company - Revving theGrowth EngineIndia’s AutomotiveIndustry Is on aFast Track, Automotive Component Manufacturers Association of India (ACMA)

Strategic Planning !!!

Strategic Planning is an umbrella that has following streams under it..

• Market analysis, which illuminates economic and political trends, industry and competitor factors and key value drivers. 
• Tools used for this purpose are PESTEL Framework, conjoint analysis and perceptual mapping
  
  
• Scenario analysis, which explores a limited set of future market scenarios based on the market analysis. 
• Tools used are HARVA Method
  
  
• Opportunity identification, which reveals innovative and attractive business opportunities in the future market. 
• SWOT Analysis, Abell's Framework
  
  
• Internal analysis, which uncovers distinctive capabilities, market focus and positioning, and performance anatomy that can drive high performance. 
• Competitive Advantage Mapping, DCF Model
  
  
• Strategy formulation, which provides strategic direction designed for the future, taking into account market opportunities, internal capabilities and future financial performance. 
• MPOG Frame work
  
  
• Organizational alignment, which translates strategy into action, providing a high-level roadmap of the realization process. 
• 
  
  
• Financial modeling, which predicts future financial performance of a given strategic direction, including net present value and future shareholder value.
• NPV, DCF Model, CAPM Model, Strategic Cost Management.

Above Mentioned are some of the tools available for different strategic Planning assignments.

Brand Management in Automotive Industry !!!

For the auto industry, 2011 has been a year of feverish growth. Worldwide, 58.9 million cars were sold in 2010, and this year, the figure is expected to rise to 62.1 million. Projections suggest sales in excess of 65 million passenger cars in 2012 and over 75 million units in 2015. Two factors are driving this growth: On the one hand, the economic recovery in classic European markets and the U.S. is taking hold in the wake of the slump in 2009. The socalled cash-for-clunkers initiative in Western Europe continued to influence sales well into the first half of this year. The other, more important factor is the expanding market in China. The demand for cars in the People’s Republic is considerable. Disposable incomes are steadily rising and market saturation relative to market potential is still thin. China’s global market share in cars sold has already climbed to 20.1 percent and is poised to keep increasing. Then again, China is not the only growth engine in the automobile market: India is moving in the same direction. The year 2011 also marks a major auto industry anniversary. In 1886, Carl Benz filed a patent for his motor vehicle. This event is considered to be the dawn of the modern automobile. Shortly thereafter, Gottlieb Daimler and Wilhelm Maybach followed suit. 


Now, 125 years later, Daimler AG is one of the most successful automakers, and Mercedes has reclaimed the status of the world’s most valuable automotive brand in the Best Global Brands Ranking 2011. With its core Mercedes-Benz brand, the Daimler group is a benchmark innovator. For years, it has been pursuing research into fuel cells. Now hybrid vehicles are on the street, and an electric vehicle is in the pipeline. Together with specialty chemicals
manufacturer Evonik, Daimler established a joint venture for the production of lithiumion batteries that will power the Mercedes-
Benz electric car set to debut in 2012. Indeed, innovation permeates the entire automotive sector. For decades, the focus has been on innovation in product design, production methods, and technologies. But today, more and more automakers are also developing innovative mobility and rental-car share concepts. Daimler’s “Car2Go” mobility project, which resembles the archetypal car-sharing concept, is being launched in Canada, the U.S., and Germany. What’s new about the model, however, is that after it has
served its purpose, the vehicle can be parked anywhere within a defined geographical area. Meanwhile, Peugeot has already kicked off its “Mu” concept, and Volkswagen has entered the car-sharing market with its “Quicar” approach. These concepts are being buoyed by the changing mobility needs of young urban consumers. There are two positives to the initiative: not only are the vehicles
equipped with electric motors and therefore better for the environment, but beacuse users share the cars, the environmental impact is also lessened. For many of the world’s trafficplagued
big cities, this is one way to sensibly evolve personal mobility.
Some 125 years after the invention of the automobile, electric vehicles are beginning to roll off the assembly line, headed up by
the Nissan Leaf and soon followed by the Mitsubishi i-MiEV, Chevrolet’s Volt, the Opel Ampera, and the E6 developed by Build Your Dreams (BYD). And the strategies involved with the rollout of these innovative power train concepts have been noteworthy. With
the Prius, Toyota integrated its hybrid drive into a totally new model. This precedent inspired Audi and its e-tron sports car, and in mid-2011, BMW announced the “BMW i” as a sub-brand for the so-called Megacity Vehicle. Currently, branded sustainability concepts are being prioritized over sustainable brands. As such, it is not surprising that Toyota occupies the numberone slot among the Best Global Green Brands 2011, with VW and Honda ranking sixth and seventh, respectively. The positive rankings for automotive brands corroborate that innovations in sustainability have become a
hallmark for success in the sector. Taking it a step further: those makers who fail to anchor sustainability and ecological stewardship
in their brand values will be passed over by tomorrow’s consumers.
Another change suggests a turning point in the automobile’s 125-year heritage. Until recently, the U.S., Western Europe, and Japan were the big auto industry players, but now, the cars have a new center of gravity: China. Even if the Best Global Brands rankings do not yet list a Chinese brand, the country is literally turning the auto industry inside out. While joint ventures with foreign brands are still
dominant in China, the acquisition of Volvo by Geely implies international ambitions. So does BYD’s desire to collaborate with Daimler, and VW, and Shanghai Automotive (SAIC) has plans with the Roewe (formerly Rover) brand. Additionally, China’s Chery brand already has a presence in Eastern Europe with low-budget compacts. China is evolving its own auto industry—quickly,efficiently, and successfully.


Source: Interbrand Article over Automotive Industry 

Vishnu- Leadership Traits !!!

Vishnu is amongst the most popular manifestations of God in the Hindu pantheon. But curiously, there are very few Vishnu temples across India, the most popular, where he holds his four symbols, the conch-shell, the lotus, the mace and the disc, is that of Tirupati Balaji in Andhra Pradesh and Badrinath in Uttaranchal. Fewer still are temples of Narayan, the sleeping form of Vishnu, the most popular one being that of Padmanabhaswami in Thiruvanantapuram, Kerala. People mostly worship Vishnu in the form of Ram, the king and Krishna, the cowherd-charioteer. These are Vishnu’s forms when he walked the earth to reinstate order. Since Vishnu is the God responsible for sustaining the world and keep things running, one wonders if these different forms are indicative of the different roles a leader has to play as he leads a team or an organization.

The sleeping Vishnu or Narayan is associated with a time when creation has not begun or is just about to begin. Vishnu sleeps on an ocean of milk that is still. No waves, no currents, no movement. He sleeps in the coils of a serpent with many hoods. Only when a Cobra is still can it coil itself and spread its hood. By showing Vishnu sleeping in the coils of a hooded serpent, the artist is clearly representing absence of movement. The name of the serpent, Adi Sesha or Ananta Sesha, alludes to time because Adi means what exists before the beginning, Sesha means what remains after the end and Ananta means endless. Thus the sleeping Vishnu represents that moment before creation when all is still. It is the time of dreamless slumber, Yoganidra, when Vishnu is not even aware of himself, let alone his surroundings. Only when he wakes up will creation begin – time will start to roll, space will unfold, the ocean will be churned.

The sleeping Vishnu alludes to latent leader within all people that has not yet expressed itself. This latent leader is awaiting self-discovery. Or the leader is preparing to lead. Before starting any project, a leader is Narayan – still, contemplating, making plans, thinking, observing, analyzing, preparing but not acting. Some leaders do not believe in planning at all – they just take the plunge and handle problems as they come along. Others plan too much and remain Narayan, sleeping, never waking up. The best method is to visualize the entire project through with the team – making notes of predictable problems and making contingency plans for the same and having done so, going ahead with the execution. Unpredictable problems being unpredictable cannot be anticipated.

When Narayan wakes up, he becomes Vishnu and sits alert on the hooded serpent at first and then when creation begins and plans start to get operationalized and resources start getting mobilized, he leaps on the back of his eagle, Garuda, that flaps its wings and travels above the skies and beneath the seas. Garudha holds a serpent (time) firmly in his talons – indicating the sense of urgency that every project demands. This is a leader supervising the execution of plans using his conch-shell to communicate his vision. His disc which rotates around his finger is a reminder to all that review is critical to ensure everyone is focused on the outcome. The mace and lotus are symbols of rewards and punishment that keeps everything on track. When all is well with the world, Vishnu returns to sit on hooded serpent and watch things unfold. But when trouble erupts he rides the eagle, to do battle against disruptive forces.

But even this is not enough. Different situations are associated with different problems each of which demand a different solution. Hence, the avatars.

• When the project is about rescuing an organization that is in the brink of collapse, he becomes the sensitive fish, Matsya, who navigates the boat full of life and wisdom to safety.
• When the project needs brainstorming and cooperation between opposing even hostile factions he becomes the stabilizing turtle, Kurma, which holds aloft the spindle that can be used to churn the ocean of life.
• When there are many ideas floating around but no base on which they can be applied or implemented, he becomes the boar, Varaha, plunging into the depths of the sea, getting his hands dirty, and bringing up the foundation (land or venture capital or regulatory changes), which can nurture all ideas.
• When rules are established but there are many finding ways to slip between the rules, he becomes the dreaded Nara-simha, part man, part lion, outsmarting the smart troublemakers and preventing any disruption within the organization.
  
  Dr DevDutt Patanaik, Chief belief Officer, future Group...

Automotive 2020 ( Clarity beyond chaos)....

The automotive ecosystem is in the midst of significant change, with increasing
challenges in consumer demands, technology development, globalization,
integration and collaboration. A new era is rapidly approaching in which the very
definition of personal mobility will change. Multi-modal transportation will become
increasingly common, and intelligent vehicles will cater to diverse consumer needs
for information, environmental responsibility and safety. Automotive companies are
racing to develop new business models to help them maintain responsible growth.
In this dynamic new age, we believe, a focus on the development of compelling
personal mobility solutions, retail transformation, global execution and extensive
partnering will be the keys to success in 2020.

Read Rich Report by IBM @ http://www-935.ibm.com/services/in/bcs/pdf/ibm_automotive_2020_study-clarity_beyond_the_chaos.pdf

Author:
By Sanjay Rishi, Benjamin Stanley and Kalman Gyimesi

Indian Auto Industry Review 2010

India's car sales surged 31% in 2010 as rising disposable incomes, new models and a robust economy drove more customers to showrooms to buy vehicles from Maruti Suzuki India Ltd. Hyundai Motor Co., Tata Motors Ltd. and other auto makers.

Sales climbed to 1.87 million cars from 1.43 million in 2009, the Society of Indian Automobile Manufacturers said Tuesday.

Total local vehicle sales in 2010 also rose 31% to 14.82 million from 11.32 million.

The industry body, however, expects vehicle sales growth in 2011 to moderate due to increasing lending rates and higher commodity prices, SIAM President Pawan Goenka said in Mumbai.

"Growth will not be as high as 30% that we saw last year. If we see a growth rate of 15%-18%, we should be happy," he said.

Still, India remains one of the fastest-growing automobile markets in the world as an expanding economy boosts disposable incomes among its estimated 350 million middle class population. Car sales are estimated to jump to 3.0 million units a year by 2016, according to SIAM.

The prospects of a promising future and stagnation in Europe and the U.S. has led auto giants such as Toyota Motor Corp., Volkswagen AG and Nissan Motor Co. to expand their presence in the South Asian country.

Sales also benefited from low interest rates as well as several model launches, mostly in the small-car segment, from Ford Motor Co., General Motors Co., Maruti, Toyota, and Tata Motors, among others.

"Despite this robust performance, vehicle penetration remains among the lowest in the world at only 14 vehicles per 1,000 people--nearly half the level prevailing in all of Africa," Carlos Gomes, an analyst at Scotiabank, said in a recent report.

He said global auto makers are flocking to India as half of the country's 1.2 billion population is less than 25 years old. The figure represents 610 million potential future car buyers, which is twice the size of the entire U.S. population and nearly two-thirds of the current global vehicle fleet of 965 million cars and trucks.

In December, local car sales climbed 29% to 148,681 autos from 115,337 a year earlier. Sales rose even though auto makers halted production at their factories for a week for annual maintenance.

Maruti Suzuki, a unit of Suzuki Motor Corp. and India's largest car maker by sales, sold 75,652 cars locally, up 21% from December 2009. It produces eight small car models, including the Swift, A-Star and Alto.

Hyundai Motor India Ltd., the second-largest car maker by sales, sold 26,006 cars in December, up 17% from a year earlier. December car sales at Tata Motors jumped 31% to 16,941 vehicles.

Mr. Goenka said SIAM expects input costs for the industry to rise 7%-10% this year. "If there is this kind of a price increase, I expect companies to raise vehicle prices by at least 3%-5%," he added.

Local sales of motorcycles in 2010 rose 27% to 8.66 million while those of scooters jumped 51% to 1.96 million. Truck and bus sales grew 45% to 652,692 vehicles.

In December, sales in the motorcycle segment increased 27% to 753,358 units, with market leader Hero Honda Motors Ltd. recording a 29% growth to 452,701 units. Second-ranked Bajaj Auto Ltd. posted a 13% increase to 165,470 motorcycles, while sales at TVS Motor Co. rose 31% to 44,598 motorcycles.

The scooters segment posted a 48% increase to 188,391 units in December. The gain was helped by higher sales of Honda Motorcycle and Scooters India, TVS Motor, Suzuki Motor and Mahindra Two-Wheelers Ltd.

Local sales of trucks and buses grew 27% in December to 61,880 units as companies such as Tata Motors, Ashok Leyland Ltd. and Mahindra & Mahindra Ltd. recorded rises.

Local truck and bus sales at Tata Motors grew 27% to 37,100 units while those at Ashok Leyland rose 16% to 6,411 units.

Source: Wall Street Journal