- Location / proximity for business/airport/main
streets
Channels
Hospitality - Hotels
Revenue Drivers
- Lodging- Accommodation (Primary)
- Food & Beverage
- Travel and Tourism
- Entertainment – In Room, Casino, Cruise, Gaming
- Laundry
- Transportation
• Most people make their decision based on the
lodging/accommodation prices. There is an
opportunity to jack-up the ancillary prices.
• Measured in terms of max occupancy x fill rate x
tariff.
• Types of rooms can be different - suites, deluxe,
economy, dormitory. Floor plans should be as per the
expected occupancy.
• Rack rate - the published normal rate of the room.
• Different prices for corporate customers.
Cost Drivers
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Fixed costs:
Land/Property lease
Wages and benefits
AMCs for equipment
SG&A
Utilities
Maintenance; Renovation every 6 years on avg
Room items: furniture’s, TV, ACs etc + replacements
Variable costs:
Housekeeping
FnB
Toiletries
Laundry
Free upgrades?
Agent booking fees / commission
Customers
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Family/ leisure travelers VS Business guests
Long-stay guests VS Short-stay guests
Premium guests VS Economy guests
Drivers for customers:
- Room tariff
- Reviews
- Amenities
- Wi-Fi
- Food reviews
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Direct:
- Own website
- Online Travel agencies: Booking.com, Expedia,
Trivago etc
- Offline travel agents
- Corporate bookings
- Mobile application
- Telephonic bookings
- Tours - Thomas Cook etc.
Indirect:
- Tour guide offices
- Magazines
- Tourism guides: Tripadvisor, Lonely Planet etc.
Key Economic Drivers
Economic:
- Disposable income
- GDP Growth
Seasonality:
- Holiday season
- Summer break
Extreme price elastic. Weekend v/s Weekday rates
are different
Legislation/Govt
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Taxes are step-wise bracketed on room tariff
Health & safety; Labor laws
Environmental protection
Trends and Insights
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Big competition from property renting options such
as Airbnb.
Serving the millennials.
Adopting technology
International visitors
Focus on health and well-being
Eco-friendly hotels
Business hotels, budget no frill hotels
There are seven main branches of the hospitality
industry. Front office, service, marketing and sales,
and accounting comprise the front of the house
positions, or those most visible to the public.
Others are housekeeping, restaurant staff,
maintenance
Guest experience is paramount. Bad reputation can
greatly impact profitability.
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Automotive
Revenue Drivers
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Factors affecting new car sales: changes in style,
engineering, safety, quality, cost and availability of
gasoline, financing, and insurance
Tactics to stimulate demand: discounts and cash
rebates, (dealers’ discounts,) financing at lower
interest rates, eliminating options on a model to
offer a low-priced alternative.
Ancillary services such a stereo sets in the cars,
airbags, seat covers, and other accessories have
higher margins
After sales of parts is a huge revenue generator
Price increases are limited. Rising competition in NA
and Europe has restricted manufacturers’ pricing
power
Demand, sales rise during sustained economic
growth and plentiful employment."
Secondary market for cars
Life of a car
Key Economic Drivers
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Disposable income with the growing population
Availability of auto financing
Oil prices
Steel prices
Legislation/Govt
•
Consciousness about pollution. Certain states
provide tax subsidies to those manufacturing/selling
electric cars.
Trends and Insights
•
Electric/hybrid cars and trucks are becoming
increasingly popular. All automakers are developing
the technology: ethanol, methanol, natural gas, and
electricity derived from batteries or solar power
However, growth of charging stations is an essential
requirement for the growth in business
Extremely competitive. The US is the world’s most
competitive automarket
Detroit Three losing market share: GM, Ford, and
Chrysler. The top three foreign companies have a
combined US market share of 41.5%: Toyota,
Honda, and Nissan
US market is becoming saturated. China overtook
US as the biggest market for automotive long time
ago.
Cars:
- Luxury car
- Economy/value cars
- Sports cars
Trucks:
- Light
- Medium
- Heavy
Industry if projected to grow at a high rate with the
increase in the disposable income with the middle
class.
Auto parts manufacturers highly fragmented: produce original parts and accessories for new
vehicles, replacement parts, and accessories for
older vehicles, or both
Labor is often unionized and wields power
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Cost Drivers
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Costs breakdown: plants, raw materials, design,
production, labor, distribution, marketing, and
customer service.
Suppliers: number shrinking, due to globalization,
reduced volume from US automakers, high material
and labor costs.
Cost cutting tactics:
o higher unit production volume
o savings on parts and labor
o improved manufacturing efficiencies.
Recall Costs
Customers
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Individual customers
SMEs
Government
Rental companies
Segmentation
o Luxury, sports, economy
o electric v/s traditional diesel based
Channels
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Dealership-main channel (Fast consolidation recently)
Own stores
Online sales
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Industrial Goods
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Customers are different from end-users or
consumers.
Channels
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Primarily B2B / Sales Force driven
Trade Shows (air shows, etc.)
Tenders/RFPs
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Can sometimes also be Retailers and Wholesales
Key Economic Drivers
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Manufacturing is highly cyclical in most sectors
Tighter consumer spending has led to reduced
production and stagnant growth for the industry
Oil Prices
Legislation/Govt
Metrics & Key Terms
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Units shipped
$/unit
product categories
depreciation/equipment age
Inventory turns
Yield
Six-sigma
Revenue Drivers
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Diversity of customers
Volume (automotive: high, airplane manuf: low)
Lead-time
Emerging markets
Adjacent industries
New technologies/products
End-consumer demands
Products can be of varying types - low-end v/s highend, there could be multiple products within the
same facility/plant
For specialty products (non-commodity), price
elasticity exists. There are differentiated advantages
companies can develop.
Cost Drivers
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Outsourcing (potential quality issues)
Process efficiency
Supply chain management (inventory turns)
Labor (unions)
Raw materials/commodities
Channel management (ie. Auto dealers)
Marketing
Capital investment
Transportation
Customers
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OEM (original equipment manufacturer) – B2B
Metal: airplane, automotive, tool/die
manufacturing
Plastics: medical industry, machinery manufacturing
Infrastructure/Machinery: Government, Utilities,
Rail operators
Chemicals: pharmaceutical, process technology,
semiconductor manufacturing"
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Health & safety & Labor laws
Environmental protection
Shutting down factories - backlash from labor
unions and media
Tax subsidies
International - forex/ export/ import implications
Trends and Insights
Outsourcing
Shutting down inefficient plants
Mass-scale products v/s Customized products
Make to order, make to stock
For commodity products, Cost is the differentiator.
If no cost advantage, then differentiate on - short
delivery times, better after sales support, product
customization/variety etc / outsource for low cost
Main sectors:
- Electrical Equipment and Components
- Industrial Automation/ Heavy Machinery
- Construction and Engineering
- Aerospace &Defense
Capacity is a concern usually in cases
US manufacturing, traditional strength of US
economic growth, has suffered due to higher cost
structure (labor in many cases) as companies
outsource manufacturing to lower-cost regions of
the world
Emerging markets are key for growth as they are
quickly developing and increasing production
capacity for a variety of goods
Renewable Energy/Utilities
Metrics & Key Terms
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Megawatt hour: The basic industrial unit for pricing
electricity, equal to one thousand kilowatts of
power supplied continuously for one hour. One
kWh equals 1,000 watt hours. One kWh = 3.306
cubic feet of natural gas. An average household
uses 0.8 to 1.3 MWh/month
Load: The amount of electricity delivered or
required at any specific point or points on a system.
The load of an electricity system is affected by many
factors and changes on a daily, seasonal and annual
basis. Load management attempts to shift load
from peak use periods to other periods of the day
or year.
Revenue Drivers
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Population growth
Economic activity
Electricity prices
Profitability driven largely by government
regulations and fuel costs
95% of revenue from the generation, transmission,
and distribution of Alternating Current (A/C)
electricity
Steam, natural gas, and other byproducts from
generation are also sold
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Cost Drivers
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Variations in electricity demand – prod cost is
almost fixed
Availability of different generation sources
Fuel costs
Plant availability
Costs to build, finance, maintain, manage and
operate power plants and distribution lines
Seasonality; i.e. costs usually highest in summer
when more expensive generation is added to meet
higher demand
Customers
Residential
Commercial
Industrial and Transportation
Government – they sell to other regions/countries
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Prices usually highest for residential and
commercial consumers because it costs more to
distribute to them
Industrial consumers use more, and can receive it at
higher voltages (without having it stepped down)
Channels
Retail, Wholesale
Fewer than 1 percent of customer interactions in
the utilities industry are currently made via the
Internet, yet up to two-thirds could be
Slow development of connections between utility
Web sites and company back ends. Such
connections make it possible for consumers to do
real business on a Web site, such as check or pay a
bill, order new services or report a technical
problem
Legislation/Govt
Regulations on greenhouse gas emission likely
forthcoming
Tax concessions to renewable electricity suppliers
Power prices are government regulated
Trends and Insights
Renewables is a growing trend: Solar, wind, biofuels
etc. There are challenges with each i.e. Solar can
only be produced in states which have a lot of sun,
wind can usually only be on coast lines or other high
wind areas.
Significant upcoming investment in transmission
network
renewable generation, smart grids, and likely
nuclear generation
Two-way transmission grids are the future – give
back
Transmitted electricity is separated into two
categories, base load and intermittent electricity
o Base load electricity is expected to account
for the bulk of industry revenue [95%] (
Coal – 36%, Natural gas – 25%, Nuclear –
17%, Others – 17%)
o Intermittent electricity is generate from
renewable energy sources [5% revenue
share]
Generation: combined revenue of $80B. Highly
consolidated; the 50 largest companies earn over
85% of industry
Channels
Telecom
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Revenue Drivers
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Plain old telephone calls, and increasing text and
images. High- speed internet access, broadband
information services and interactive entertainment
The fastest growth comes from services delivered
over mobile networks.
Advertising income accounts for about 5% of total
industry revenue.
Revenue also comes from other telcom providers
using their networks (eg: international roaming)"
Subscriptions
Data services (SMS, email and internet access on
cell phones)
Mobile advertising
App stores
Pricing Plan is key (over usage, under usage etc)
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Cost Drivers
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Investment and investment-related costs are 65-70
percent of the costs of production
Wage shares are at about 25%
A notable part of the investments are what
economists refer to as “sunk costs”. These are long
term investments which can be used only for
specific economic activities.
FC:
- capital costs (equipment, infrastructure – cell
towers, network maintenance, stores)
- overhead
- utilities
VC: (Very Low)
- marketing & advertising
- salaries
- incremental cost
Customers
Residential and small business markets
The corporate market - less price-sensitive than
residential customers. Large multinationals,
premium
service buyers include those opting for high-security
private networks and videoconferencing
Average Revenue Per User (ARPU): Measure of
growth performance.
Pricing Plan should be customized as per customer
type
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Own Retail stores and partnerships: Own stores and
partnerships with other retail outlets such as
Walmart, RadioShack and Best Buy are significant
channels for mobile phone sales and service.
Online channels: Major carriers have online stores
for phone and service purchases. Mobile
applications are increasingly common for initiating,
managing accounts.
Direct Sales: for corporate customers
Legislation/Govt
Allocation of spectrums plays a huge role in cost
structures
Government often intervenes to stimulate
competition
Telecom act 1996
Trends and Insights
Expectations of always-on service everywhere
forcing operators to boost network capacity and
connectivity
Increased demand of a variety of new services like
mobile payment platforms and cloud computing
Revenue increase forecast for Internet services is
7.9% per annum till 2017 and for wireless telecom
to increase by 4.8% till 2017"
The industry has grown and evolved at an incredible
pace for the last 20 years. Mobile phone
penetration approaching 50% globally; Mobile
broadband subscribership has topped 200 million
worldwide; rollout of 3G networks in emerging
markets causing mobile broadband subscribers to
outnumber fixed- line broadband subscribers
Landscape is very competitive and wireless carriers
have undergone a wave of consolidation: In recent
times, Cingular acquired AT&T Wireless; Sprint
joined Nextel; and ALLTEL acquired Western
Wireless.
Big 4 cellular players are AT&T, Verizon, T-Mobile
and Sprint Nextel
Cable companies attempting to capture wireless
customers through wireless service offerings of
their own
Retail
Revenue Drivers
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Promotions – retailers drive traffic through price
reductions and in-store displays
Consumer spending/confidence – retail industry is
leading indicator for economic conditions (discount
retailers generally do better in bad times than
specialty retailers)
Membership fees (for discount wholesalers)
Revenue/other metrics per square-feet
Different product segments can have different
profitability
Stores are sometimes ""known-for"" a particular
product line
Packaging size: large vs small
Cost Drivers
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Inventory management – critical to minimize cost,
increase response times and increase profitability
Inventory Turnover = Sales/Inventory or COGS/Avg
Inventory
Real Estate – number of stores and location
decisions are important given high fixed costs"
Largest expense for the industry is Cost of Goods
Sold which has increased due to weak sales
Employee wages account for 13%
Rental costs are 5%
Marketing costs are close to 10%
Industry costs are similar for most operators, but
vary between firms of different operating sizes and
specialties
Customers
Segmentation can be based on:
o Age Groups
o Average Spend - Frequent/Loyal customers v/s
one-time users
o Based on product-lines
o Based on income - premium buyers v/s value
buyers
Channels
Discount Wholesalers
Big Box Stores
Convenience Stores
Online / Mobile
Key Economic Drivers
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Pricing is the biggest driver
Aggressive Promotions can be helpful
Highly competitive
Local stores v/s nation-wide chains
Increasing competition from online retail : Amazon
Trends and Insights
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Expectations of always-on service everywhere
Many specialty retailers are selling services to
differentiate themselves from rivals:
o BestBuy–GeekSquad,
o Staples–CopyCenters,
o Pet Smart – Grooming and Training
High-end retailers can also compete on quality or
in-store experience. Eg:Nordstorm
Private label brands are increasingly common - they
have more profit margins but are perceived as lowquality
Customized products v/s mass production
Retail industry is comprised of the following subindustries:
– General merchandise
– Apparel
– Consumer electronics
– Home improvement
– Office supplies
– Drug retail
– Automotive retail
– Specialty
– Food retail
– Hypermarkets/ super-centers
Changes in consumer disposable income can cause
consumers to defer purchasing products from
retailers as industry is sensitive to changes in
economic activity
Seasonality exists: more shopping during holiday
seasons.
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Pharma
Revenue Drivers
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Prescription drugs per person
Dosage (Frequency)
High competition
Buy-in from Doctors prescribing the drug
Time to market / expertise
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Cost Drivers
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Usually high RnD
Variable Costs – certain ingredients can be costly
Sales and marketing is a huge cost driver.
Customers
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Primary customers are doctors
Secondary customers are Insurance companies
Consumers are patients
Drivers:
o - Cost
o - Ease of use
o - Effectiveness
Channels
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Prescription drugs through Hospitals and
Pharmacies
OTC drugs through CVS, Walgreens
Distributors/Intermediaries - Hospitals
Key Economic Drivers
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Key competitive driver is only thing: Product
Regulation is usually tight on drug release
Ageing population
Recovery of R&D investment within the patent
expiry period
Technological Advancements
Highly regulated - clinical trials take 4-5 years at a
minimum, can take 10+ years
Trends and Insights
Online Drug delivery
On phone/offline health advising
Increasing trends in Biotechnology based drugs:
Biologics/Biosimilars.
Usage can be varying - Oral: Tablets, Capsules, Syrups
- Injectable or through skin: Injections, patches,
through skins (balms)
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Ageing baby boomers population, driving increased
revenues
Patenting is extremely important. Plenty of
acquisitions happen over acquiring patents.
Price competition from generic drug manufacturers
- Generic manufacturers produce "copy-cat" drugs
when patents expire.
Patents vs Exclusivity Agreements:
-Patents: Only one company can manufacture and
sell the drug
-Exclusivity: Govt. will only purchase from one
company"
Competitive products' patents expiry also poses a
threat of substitutes
Pending RnD cost should be considered
Aviation
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General
Key Players: Delta, United, American, Southwest
Industry Structure:
- Major Airlines: revenues > $1B
- National Airlines: revenues $100M-$1B
- Regional Airlines: revenues < $100M"
- New entrants common in low-cost model
Key Economic Drivers
Price is the major differentiator in competitive
landscape
Capacity optimization
Route optimization
Load Factor
Over booking
Change in fuel price swings profitability
Crude Oil price
Disposable income - employment rates
Forex risk on international routes (ticket vs fuel in
different currency)
New Trends
Nofrills, budget airlines (southwest), lowering VC
Lot of mergers consolidation happened due to low
margins, bankruptcy
More than 20 airlines have filed for bankruptcy in
the last decade
Insights
Potential problems of declining revenue
- Inefficient network: look at route profitability
and see if some of the routes could be
eliminated
- Poor use of fixed capacity: increase volumes to
tackle this issue
Aircraft leasing vs buying makes books asset light
Gate availability at airports is also a barrier to entry
on routes
Revenue Drivers
Passenger fares
Mail and cargo charges
Meals / alcohol in flights
In-flight entertainment
Extra baggage/seat prices
Ad Revenues
In flight merchandise sales
Seat Segmentation
Cost Drivers
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Fixed:
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Aircraft leasing
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- Airport Gate fees
- IT/Admin
- Salaried emploees - pilots, crew
- Hangars
- MnS
Variable Cost:
- Fuel
- Hourly employees - ground transport etc
- FnB COGS
On-time performance: costs due to refunds
Fuel: Fuel costs are highly volatile and can range
anywhere from 25% - 40% of the total cost for an
airline
Labor: Unionized
Pilots are difficult to replace
Frequent Flier program costs
Customers
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Segments:
- Leisure (highly price sensitive) v/s Business
(not price sensitive, hard to reach)
- People (individuals, businesses)
- Ticket class - Economy v/s Business
Freight
Travel websites, resellers
Channels
Internet – airline websites, online ticket resellers
Telephone – airline call center agents
Travel agents
Over-the-counter – walkups at airports
TMC - Travel management companies
Upstream - Aicraft mfg, fuel providers,
maintenance providers, catering providers, airport
operators
Legislation/Government Interference
Deregulated in 1978 - after that it became more
mass market and not just luxury
Private Equity
Cost Drivers + Synergies
Case Strategy
Two types of cases:
a. Valuation
b. Due Diligence
Valuation:
1. Find profits
2. Divide by discount %
3. Find company value
4. Add synergies – Revenue or Cost, Organic or Inorganic
5. Find valuation
6. Explain risks
Due Diligence:
1. Market sizing + attractiveness
2. Analyze the potential
3. Target v/s competitors
4. Growth prospects
5. Risks
Clarifying Questions
PE Fund:
1. Current portfolio – to assess synergies
2. Hurdle rate
3. Payback /hold period
4. Other bidders
Target:
Normal profitability clarifying questions.
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Insights
Exit Strategy in framework
IPO
Management team
Realization of synergies
Diversify customer/industry base
Revenue Drivers + Synergies
2 sources:
• ROI from investments
• Management fees
Ways to increase revenues:
• Time lapsed
• Identifying efficiencies/synergies
• New Management
Examples of Revenue Synergies:
• Cross-selling
• Price optimization
• Divide markets between similar portfolio comps
Costs:
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Investment expenses
Legal/tech/advisory assistance to firms
Travel
Labor (High) few people highly paid (Profit sharing
model)
Taxes
Cost Synergies:
• Bulk discounts from suppliers
• Shared management – remove overheads
• Shared office/Infrastructure/IT/Systems costs
• Eliminate double-marginalization
Key Metrics
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Payback period
Holding period – usually 5-6 years
ROI – usually 20-30%
NPV
IRR
Hurdle Rate
Key Risks in Deal Execution
1. Ability to execute – capital? Track-record of realizing
synergies? Experience in the industry?
2. Management considerations – Can we manage the
portfolio?
3. Others – will we be allowed regulatorily? Opportunity
cost? Industry risks?
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New Trends
Investing in startups has high risk
Healthcare and tech are seeing high activity
PE commitments are being traded now
Deal sizes going up
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Legislation/Government Interference
Law can stop a deal from happening
New regulation -> Higher compliance costs
Retail Banking
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Types of Firms
Diversified Financial Services firms: large financial
conglomerates (e.g. JP Morgan Chase & Co.) which
combine insurance, securities, and lending
businesses
Consumer finance firms: primarily lend money to
consumers: mostly through small to midsized loans
($1,000 to $75,000). The main products include
home equity loans, credit card loans, etc.
PE/VC firms: invest in and help manage or guide
businesses with hopes of company growth
resulting in profits from a later sale
Microfinancing Firms: Operate on disbursing small
loans to relatively poor sections of society. High
interest rates due to high risks.
Insights
Risks, such as a sudden demand from many
customers to redeem their money
Customer Attrition Rate is imp to talk about
Change in saving behavior over time
New Trends
Still lot of presence of physical banks, teller etc.
Increasing use of ATMs and online services
Mobile channel growing rapidly
Prop trading has stopped on own assets after crisis
Demographic shift (baby boomer aging) creating
large market for retirement products
Revenue Drivers
Commercial Banks earn money by reinvesting
customer deposits in higher-yielding funds or
lending at higher rates and charging transaction
fees
Investment Banks charge fees for advising
corporate and governmental clients on mergers,
acquisitions, restructuring, and debt and equity
issuances
Insurance Companies earn money by taking in
monthly premiums from customers, who receive a
payout if an event occurs
Credit Card Companies (Visa / Discover) earn fees
from customers and merchants by handling the
complex processing necessary. AMEX does the
same, but also lends the customer money.
Banks would want to increase AUM (assets under
management) - offer more products, credit cards
etc
Cross Selling of products
Loan interests
Different type of loans - auto, home, education,
personal
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Spread between fed rates and interest rates
charged, interest given
Cost Drivers
Offshoring of various functions to reduce expenses
(e.g. call centers, back office functions)
People are a huge cost (Salary benefits etc)
Research cost if applicable (which company to
invest, trades to make etc)
Loss on investments (Defaults)
Branch costs for retail banks
Interest rates on deposits
ATM real estate costs
Customers
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Individuals
Corporate
HNI
Small and Med Businesses
Under 35 adopts tech faster
Microfinance - average 13k USD, usually we prefer
these customers to move towards traditional
credit, usually in underdeveloped or developing
countries. Typical banking solutions, loans and
educational programs, startup capital. As low as
100$ at times. Required to take a educational class
at first. Collateral not needed unlike usual loan.
Interest rates are high
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Economic Drivers
2008 - crisis
Illiquid assets are now looked down upon,
after the crisis
Employment rates drives up deposits
Govt interest rates drive deposits
Disposable income
Legislation/Government Interference
After the 2008 crisis, regulation has increased.
Regulators - Federal Reserve, Treasury dept
The US government intervened in 2007-09 to
lend money to banks, insurers, and other key
players to keep the financial system afloat.
The Dodd-Frank act, which has not been fully
implemented, includes new and consolidated
federal regulatory agencies, stricter capital
requirements for banks, and regulates the
trading of certain derivatives.
Key Players
JP Morgan Chase, Citigroup, Wells Fargo, Bank of
America, American Express, MasterCard, Morgan
Stanley
Media and Entertainment
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General
Create, license, distribute content
Fight for audience
Long known for conglomeration, multiple brands
Top 10 players - 35% rev
Very competitive with large players wielding great
power
Players: Disney, Netfix, NY Times, Comcast, Hulu,
WSJ, Vogue, Amazon Prime
Customers
Advertisers
Subscription customers
Pay by use customers
Viewers are the product for ad driven models
Internet service providers are imp stakeholders
now
Revenue Drivers
Sales, subscriptions
Ad Rev
Licensing, Distribution
If free content - then some microtransactions
charged - In-game purchases
Merchandise sales
Cost Drivers
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Fixed:
- Printing press
- Studios
Variable:
- Wages
- Tech
- Distribution
- Commissions
Creative talent is expensive
Netflix pays highest
Wages are - 40-50% of costs at times
Marketing is a large cost
Tech costs are rising with innovation
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New Trends
Netflix vs TV- on demand entertainment
Digital apps vs Newspapers
Digital Revolution - Lower barrier to entry
Piracy
Consumers want free content
Ad inventory is limitless.
Customer attention span is limited
Low ad prices
In-game advertisements
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3D? VR?
Hulu
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Economic Drivers
The economy plays a role in customer spending
But TV, internet access is less impacted by
downturns
Oil and Gas
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General
E&P - Exploration & Production
Products: Oil, Gas, refined products, services
Key Players: Exxon, BP, Transocean, Saudi Aramco
Upstream
- Steps: Exploration, Drilling, Well
Completion
- Most steps are contracted out
- Delays cost a lot - 500k/Day - charged to
contractors
- Overheating causes explosions
- Spills are expensive, environmental harm
- Upstream products: oil and gas
Downstream
- Steps: Production, Refining, Marketing
- Products - plastics, refined products etc
Revenue Drivers
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Economy
Supply, consumption and demand levels
Price of crude oil, influenced by OPEC
Drilling companies - provision and operation of rigs
Per day, per foot, all-inclusive rates
Other services - pressure pumping, wireline etc
Cost Drivers
Upstream:
- Exploration costs
- Production costs
- Rig utilization (downtime)
- Service contracts
Midstream:
- Transport and storage
Downstream:
- Refining
- Marketing
- Contracts with the Government
Key Metrics
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RIg Utilization
Rig dayrates
Daily margins
Cost per gallon
New Trends
Shale Oil rise has led to US becoming independent
on oil imports
Renewable energy threat
Demand is slowing down from emerging
economies
Tech advancements leads to lower exploration
costs
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Insights
Talk about leakages, spills
Safety
Environment
Renewable energy
Lobbying for and against
Fracking
People work in 2 shifts round the clock
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Customers
B2B: Manufacturers, power co, etc
Individual Customers
Channels
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Gas Stations
Wholesale B2B
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Key Economic Drivers
Too many stakeholders on a rig with not aligned
motives - lead to incidents
State-owned companies are unable to explore
reserves owned by them compared to public Cos
OPEC Decisions
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Legislation/Government Interference
BP Oil spill - higher regulation after that
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Consumer Packaged Goods
(CPG)
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General
High competition; low customer switching cost
Product types: food and beverages, clothing,
tobacco and household products, cosmetics
Players: PnG, Unilever, Clorox, Mondolez, Colgate,
Frito Lay, Pepsi, Coke, Private Labels
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Key Economic Drivers
Daily use goods don’t see high impact in
downturns
Luxury goods are hit
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Revenue Drivers
The volume of goods sold
Branded goods fetch you a price premium
Value vs premium brands
Packaging size is a rev driver
Freq of usage
CPG (short life); Durable Goods (long life)
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Cost Drivers
COGS - RM, packaging
Processing - labor, utilities
Sales and Marketing
Branding
Discounting
Plants
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Customers and Consumers
Customers: Retail stores
- Offline: Walmart, Target, Costco, small
convenience stores
- Online: Amazon
- Long-term contracts are signed. Important
to negotiate margins, shelf space,
placement etc.
- Retailers sell to Consumers (end users)
Consumers: End users
- Shelf placement is important with
customers
- High price sensitivity (low switching cost)
- Segments: Same as that of Retail:
o Age Groups
o Average Spend - Frequent/Loyal
customers v/s one-time users
o Based on product-lines
o Based on income - premium
buyers v/s value buyers
Channels
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Downstream
- Supply chain varies across Products and
brands
- Plants are owned operated or contracted
Upstream
- Online
- Retailers
- Distributors
New Trends
Private Labels: Retailers are partnering with CPG
companies to make low-cost private labels (high
margins for retailers)
Brand innovation necessary for differentiation
Innovation in packaging, ingredients colors
Flavor trends change fast
Frozen meals
Government/Non-Profit
Clarifying Questions
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Goals:
- Always ask for goal/Success criteria - as it
will be different from profits. Reach,
impact, awareness etc
Reach:
- Think big picture (society, country etc)
- Consider tradeoff between breadth vs
depth of reach
- quality vs quantity of program
Performance measures
- Always check for project feasibility – selfsustaining, else grant requirement will be
driven based on that
- People reach impact
- Funds raised
- Funds disbursed
- Geographical reach
- Financial goals
- operational goals
- Pre and post impact
Ask what/how is the model??
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Possible Case Directions
Growth through existing platforms
Growth through new partnerships
Growth driven by policy changes
Growth using technology
Thought sharing to strengthen the industry
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Driving Change
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Steps:
1. Define scope
2. Define specific action steps
3. Define timelines and stakeholder
4. Prioritize
5. Assess impact
Ideas can be around:
1. Reach
2. Education
3. Conversion
4. Retention
5. Increasing contributions
Celebrity champion/endorsement
Focus Group studies
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Stakeholders
people who volunteer
people who donate
Corporates who donate (CSR)
people who are impacted
Govt (grants, subsidies)
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Organizers (some of them work on a nominal
salary)
Segment every stakeholder
Motivating volunteers/people –
- Reach out to Intrinsic values
- not motivated through money etc
- Person whom you might have to influence
(Parents) would be different from
impacted (children)
Can do Focused Group Studies to understand what
motivates people
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Revenue Drivers
Donations (HNI, Celebrity, foundations, Corporate)
Grants from big foundations
Some economic activity making the org selfsufficient
Sale of merchandize
Corporate tie-ups - CSR budgets
Celebrity endorsements
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Cost Drivers
HR costs - managing volunteers etc
Project related costs
Admin Costs
Operating Costs
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Terms to use in cases
Revenue Term - Funds/Dollars Raised
- Earning Income
Profits Term - Covering up the costs
Maximizing impact instead of Maximizing profit
Health Insurance
Overview
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What Payors Do
- Underwrite health insurance policies
- Provide admin services for self-funded
plans (e.g. employers providing benefits
with own funds)
- Help manage individuals’ care
Industry Stats
- Revenues/Profits: $707.4B/28.3B (4%)
- CAGR ‘07-’12 / ’12-’17: 2.8% / 5.1%
- Number of businesses: 927
Players - United Healthcare, Humana, Aetna,
WellPoint, Cigna
Products – Primary Plan Offerings
- Fee-for-service: Provider paid on one-off
basis; patient choice not restricted
- Health maintenance org: Payer and
provider integrated and pre-paid; cheaper,
but patient choice limited
- Preferred provider org: Mix of FFS, HMO
- High deductible: Lower premiums but
higher out-of-pocket obligation; patient
has incentive to use services efficiently
- Pharmacy benefits
Competitive Landscape:
- Several large, integrated players
- Some niche players in specific segments
- The top four payors have ~35% share; the
rest of the market is fairly fragmented
- Slow but steady consolidation expected to
continue given profitability issues
Trends
2008 crisis threatened solvency, illiquid assets
(AIG)
Company focus on managing risk and reducing
costs
Does not remain profitable is no compulsion to
take insurance (MGEC)
Govt has increased scrutiny on premium hikes
Reforms have led to increased loss ratio (spending
on health care/Premium)
Reforms have increased topline growth - more
people insured
Customers
Segments by:
• Individuals and Groups (via employers)
• Age
• Disease
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Differentiators
Steeper discounts on provider charges
Broader network coverage
Lower administrative fees
Add-on services (e.g. case management)
Attractiveness to individual consumers
Revenue Drivers
Revenue components:
• Premium
• Co-pay
• Co-insurance
• Deductible
• Insurance company invests premiums in markets
to generate cash flows
Definitions:
• Deductible - A deductible is the amount you pay
for health care services before your health
insurance begins to pay.
• Coinsurance - Coinsurance is your share of the
costs of a health care service. It's usually figured as
a percentage of the amount we allow to be
charged for services. You start paying coinsurance
after you've paid your plan's deductible.
• Copay - A copay is a fixed amount you pay for a
health care service, usually when you receive the
service. The amount can vary by the type of
service.
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Cost Drivers
Purchases of medical and Rx services/ products
comprise ~72% of costs; influenced by utilization
and cost inflation.
Relative to other sectors of healthcare, the health
insurance industry is neither capital nor labor
intensive.
Total health-related expenditures
Number of physician visits
Number of employed individuals
Age of population
Regulation and legislation