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Advised a Japanese conglomerate on a joint venture in India

Engagement: SKP was engaged by a multinational company in the glass industry with annual sales of more than USD 2 billion for advising on a proposed joint venture with a target company in India.

As part of its proposed entry strategy for the Indian market, a Japanese conglomerate planned to invest in an Indian glass manufacturing company. The Indian company was a part of a larger group operating in multiple sectors such as glass manufacturing, foam manufacturing, design and installation of mechanical equipment.

The investor approached SKP to provide end-to-end assistance for the proposed transaction, including estimation of the fair value of the target company and intangible contributions by the Japanese conglomerate in the joint venture.

Solution/Value Addition

Our team stressed that a clearer picture on the business outlook was required based on the end-market assessment of the construction industry, automotive industry and the solar sector. We also took into account the availability of tax breaks for set-ups, state-wise incentives offered for setting up large manufacturing facilities, recent regulations in glass-making and the automotive industry (Competition Commission of India (CCI) order, High Court directives, etc.).

We also arranged for the client to meet with key management representatives from local car companies as well as state government officials in order to assess the business environment of various states.

The client was impressed with our understanding of the business and our in-depth research while conducting the business valuation, reviewing the term sheet and other advisory-related services. As a result, they consulted us on all strategic matters related to the industry, market and competition as well as target negotiations.

In order to estimate the fair value of the proposed joint venture, SKP analysed the price, major cost drivers, and demand and supply dynamics prevailing in the glass industry, which helped the client to evaluate its profitability and margins in the Indian market. Secondary and primary research related to pricing and cost was incorporated in the business model to estimate future cash flows. Other comparable companies’ profitability and pricing were also compared to estimate the normalised EBITDA margins.

Subsequently, the fair value estimate was obtained by applying several methodologies such as discounted cash flow, comparable companies, multiple and comparable transaction method. Furthermore, intangible contributions made by investors in terms of expanding customer reach, brand, external commercial borrowing (ECB) funding were evaluated and valued to derive the fair estimate of investor contribution. This is also helped the client to negotiate with the target company.