AQUA Logistics Limited Case Study Solution
This case study revolves around an Indian company named AQUA Logistics Limited which was incorporated as aprivate limited company and became public limited in the year 2010. This company hasa strong equity position and investments globally by acquiring the relative companies through diversification in the form of subsidiaries and associate company. However, company started to face leverage issues and the profits of the company were converted into losses due to the poor performance of its subsidiaries which resulted in the divestiture strategy for the company by selling its SBU’s in loss.
Company has strong expertise of delivery system, cliental base as well as global presence which makes it an attractive firm for the acquisition by the other firms. This leads to the evaluation on the basis of DCF valuation and other valuation methods. The results of the DCF show that the company has a strong future in cash flows on the basis of high growth rate in its revenues. The AQUA Company has an opportunity to outperform its industry on the basis of CAGR and book value of its debt to equity.
Company’s discount rate is 12.96% which shows the sensitivity with respect to growth rate because; these two variables determine the optimum value of the firm. Growth rate is set at 5% on the basis of GDP growth rate. However, multiples are calculated by taking industry averages and comparing themwith the company’s performance.
Critical Issues faced by Indian Logistics Sector:
Indian Logistic sector was a major contributor for the increasing GDP of the economy and it was contributing at around 13%. However, the Logistic sector was facing critical issues which include the problems related to the poor infrastructure and lack of capability to manage the expansion of growing economy of Logistics sector. This resulted in the increasing turnover, inefficiency and increasing cost of operations without proper management and control over it.
Two major categories of problems include the inefficiency due to the external factors and internal issues. However, inefficiency due to the external factors was the consequence of heavy traffics on roads, lack of adequate resources, ineffective warehouses and inefficient value chain functions. On the other hand, internal issues were related to the high cost of operations due to the selection of costly medium of transport i.e. road transport.
This resulted in high cost because the conditions of the roads were unfavorable due to heavy traffic and poor infrastructure and taking too much time in delivering the product which is known as transit time. Moreover, the other related problems were heavy consumption of fuel, excessive requirements of documentation, changing regulations of state and weak regulations of government to collect taxes which resulted in spending less on developing the infrastructure of the Indian economy. This also resulted in heavy freight costs due to the fragmented industry of India which was high as compared to the developed countries.
Significant Attributes:
Continuous growth in logistics network which was integrated by Aqua Logistics for leveraging the benefits and changing with the external environment made it a significant attribute in Aqua Company to get acquired in Logistics sector. It is followed by the global presence and better equity position of the company which attracts the acquirer to enjoy the benefits by consolidating with Aqua Limited.
Moreover, the strong base of its assets and the latest technology used for delivery system makes the company stand out in the industry which attracts the acquirer for merging with this company. This also leads to better relationship with its clients and increasing the customer base which will result in the economies of scale and this will lead to the synergy generated from the operations for both the companies.
This may result in the synergy of capabilities and strength in functional departments for both the companies with value addition in their services and making the services better and effective by use of effective medium of transport.
Value Drivers:
It is necessary for the acquirer to first look at the value drivers before acquiring the target company so that it may be able to forecast its estimated value for getting the maximum benefit from the deal.
Forecasting of the cash flows
The most effective value driver for ALL is forecasting of the cash flows. It shows the effectiveness and efficiency of management to maintain the liquidity position and maintain its revenues. This will lead to the valuation of a company if it is sold and the available risk over it. There is inverse relationship between losing the risk of cash flows and the price paid for acquiring the target company.
Diversity in Customers:
It is necessary to evaluate the customer base of the target company as it helps in maximizing its revenues and benefits from the synergy. If the customers are contributing significantly in company’s revenue, then they should be given importance. If they are lost, then the company will lose its significant portion of sales. Moreover, with the change of ownership, they may lose confidence and trust in company and this may result in liquidity issues for the company.................
This is just a sample partial work. Please place the order on the website to get your own originally done case solution.
Related Case Solutions & Analyses:
Information Use by Managers in Decision Making: Team Exercise
Differences and Diversity Issues: Selected Vignettes
Johnsonville Sausage Co. Video
Otis Elevator Co.: China Strategy (A)
Game Store
Taran Swan at Nickelodeon Latin America
AN ANALYSIS – DISRUPTIVE V/S INNOVATIVE DELIEMMA
Sales Force Integration at FedEx (A)
Lyric Dinner Theatre
Revolution at Oticon A/S (A) Vision for a change competent organization
