Index
1. Debt and Equity of Livious Apparel up to
FY 2020
2. Valuation of the Livious Apparel
3. Price of stock of the Livious Apparel
4. Exchange ratio for equity exchange
5. Restructuring of distribution channel
6. Possibilities of reducing cost
7. Dealing with e-commerce business
Year on year change on Debt and Equity is calculated based in the requirement of further investment.
The detailed calculated is embedded in the embedded file at right.
Maintaining leverage at 1 is very important to ensure better return in equity.
We observe, through out five years, Livious can maintain Leverage close to 1.
Microsoft
Excel
Worksheet
Equity ($ Mn)
Debt ($ Mn)
After
Acquisition
2016
2017
2018
2019
2020
480
350
350.00
377.50
399.00
425.50
453.00
240
350
382.50
402.50
424.50
438.50
447.50
Year
Before
Acquisition
Equity ($ Mn)
Debt ($ Mn)
The calculation for the valuation is in the embedded Excel file from previous slide.
Total owners benefit approach is followed to calculate the value of Livious Apparel.
All the owners benefit over five years is converted to net present value to calculate the worth of the company.
The discount rate is calculated taking the weighted average of cost of debt and cost of equity for each year.
The cost of debt is assumed same as the interest rate of Moodys Baa-rated corporate bond rate.
The cost of capital is adjusted against the expected market return and the volatility, which is coming around 19.962% with the levered
Beta value at 1.28.
Hence if Livious Apparel agrees for a price of $ 490 Mn, Gaspier Jeans should proceed with the merger.
228.5
194.5
159.5
110.5
98.69
122.5
97.55
122.77
113.32
Owner's Benefit
NPV
127.63
Value of Livious
$831.01 Mn
Value of equity
$490 Mn
$240 Mn
7 Mn
Remaining value
$591.01 Mn
$70
7 Mn
$84.44
The EBIDTA to Revenue Share ratio for Livious is highest in Global retail and wholesale. This points to the fact that there is an
opportunity to increase Livious' presence in foreign markets.
Currently Livious has very few stores abroad. It can increase presence globally by leveraging on the already existing store network of
Gaspier (30000 stores worldwide)
We can observe that the wholesale operation in in America is profitable than Retail due to the EBITDA contribution to sale
contribution ratio, a plan to increase sales through the channel will help improving the margins and hence the shareholder value.
The deviation from the premium apparel producer to pursue the currently in vogue preference for cleaner and less embellished styles
can be pursued after merger with Gasper. The new positioning under Gasper catering to the new trend through the existing wholesale
channels of Livious without any dilution in the Livious existing positioning. So, all Livious Apparel retail discount outlets should carry
products from Gaspier Jeans.
Livious apparel full-price stores should not carry discounted products from Livious. The exclusivity of the premium products, specially
sportswares, from Livious should be highlighted in these stores. As we can see the share of sportswear is increasing year on year in
the revenue of Livious Jeans, it should have full-price stores carry sportswear only while outlets can carry discounted items only along
with products from Gaspier Jeans. That way, the premium full-price stores will position itself in the segment for premium sportswear
as well as Gaspier Jeand and discount outlets of Livious apprel will have a broader portfolio of apparel.
Livious Apparel has a more number of sales channel though they are very lean. Gaspier Jeans products should be pushed through
those channels as their product line is complementary.
Similarly, all retail stores of Gaspier Jeans can carry premium denim jeans from Livious as they are complimentary with the product
line of Gaspier.
The e-commerce platform is expected to expand in the near future, which is apparent from the increase in the sales through the
platform for Livious and the Industry datasheet. What is making the channel unattractive is the increasing dip in the EBITDA
contribution even when the sales contribution is increasing ( if one were to assume negligible increase in the average price of
apparels sold).
With boom in e-commerce segment Livious post merger should develop in-house e-commerce operation capacity and thereby
providing greater bargaining power to the third party e-commerce vendors such as Non Stop.
Gaspier Jeans wants to become an omni-channel retailer which does not have an e-commerce channel right now. So Gaspier can
take advantage of this e-commerce channel and sell product of Gaspier Jeans through e-commerce channels, in-house or third party,
of Livious Apparels. As rightly mentioned, e-commerce offers convenience to its customers that is not found in brick and mortar
stores. So in future, for an undifferentiated product like Gaspier Jeans, we may expect stagnation of growth if not reduction, from all
the current channels.
The company should also change the stance on e-commerce. Instead of only Non Stop, all the retailers interested to sell products of
Livious and Gaspier online, should be allowed to do so for competetive margin. The merger would provide the advantages of
economies of scale in form of increased volumes to the third party vendors and hence the sales commissions can be brought down
from the current 15% to a competitive rate without eating into the profits earned by the vendors.
Also the current inventory management system is to be restructured wherein the vendor holds merchandise on consignment thereby
making the merchandise unavailable to be put to sales through other medium. With the increasing adoption of sales through ecommerce the inventory management can be streamlined where the product can be shipped directly from the company warehouse as
and when an order is place. These moves will help improve the EBITDA contribution from sales through e-commerce sites and hence
increase the shareholder value.
Thank you.