Manila Water Company Harvard Case Solution & Analysis

RESULTS

Above calculations show that the net earnings during the year 2003 to 2010 have been increasing and their impact is positive towards generating profits in the future cash flows. Terminal Value has been calculated $5193 million with the growth rate of 8%. Free Cash flows have been discounted back and their present values have been calculated during the years 2001 to 2010. Total Enterprise Value is 16516 pesos million.

TABLE-1

Scenario analysis for enterprise values as shown in table 1 is categorized into three different cases BEST, MODERATE and WORST. In the best scenario, risk free rate is considered to be 1.79%, beta 1.01% and market risk premium is 3% .In this case; enterprise values are on their peak as compared to Moderate and Worst scenario. Manila Water Company should take decisions for bidding with respect to different scenarios and make decisions for different possibilities in different scenarios condition. We can compare Moderate scenario with actual Current values through which Manila can look over the position regarding the bid.

ANALYSIS OF THE BID

The management of the Manila Water Company needs to take a deep look of the situation of Maynilad Water Services Inc. At the time of privatization,  the distribution of the zones was done on the basis of who could give the lower water rates to promote gains for the company and increase efficiency. The standards of privatization focused on to improve the levels of the service and the efficiency of the water supply system should be increased. However, now the situation is such that Manila water has turned into a profitable and impressive performance company in the East zone concession. However, Maynilad had failed. Since the year 2001, Maynilad was running in losses and had losses equal to P1.7 billion. The company was also highly levered P9.6 billion. The situation for the company worsened and the concession returned back in the hands of the company when it had $ 300 million debt on its balance sheet. Therefore, this is surely an opportunity for the management of Manila Company, to win this concession from the government. If we ignore the debt part of Manila Water Company, then the enterprise value of manila water company based on the equity part discounted at the company’s cost of equity is $ 24.405 million. If we add the current year debt part of $ 146 million, then enterprise value becomes $ 170 million. However, the bid for Maynilad is set at $ 56.4 million. This is a huge price looking at the risks in this project. The ratios for the Manila Water Company show that the performance of this company is improving over the years. Revenues are increasing and the number of households increasing is also increasing at an average rate of 12%. If the management goes forward to bid for this project, it needs to find out suitable source of financing because the current level of debt for the company is very high. It might face debt repayment issues in the future. Apart from that, the impacts of this acquisition would also be huge over Manila water company, therefore, the management needs to consider all these factors if it wants to win the West concession this time.

CONCLUSION

An original bidding process with regard to Manila’s water concessions was profitable; along with this the allocation of possibility was bringing greater entry to better quality water. But while PSP might have brought efficiencies, the result was a management and business muddle which can make the Manila experience a failure. It was turned primarily right into a tool for progressing and preserving exclusive, not public interest. Revenues and net profit is growing positive for the forecasted duration and Manila does not have the need for bidding the company because it creates a positive net income but Manila should take some serious actions and need to allocate the illegal connections that is a threat for the company and it also reduces 2/3 profit of the company..............................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Related Case Solutions & Analyses:

Chen Beibei Chooses a Franchise EDM (Energie du Mali) Urban Homesteading Assistance Board Unleashing Organizational Energy CCBN.com–2002 New Sector Alliance (A): An Entry into Health Care Olympus Optical Co. Ltd. (B): Functional Group Management The Hyundai Groups Chung Ju Young: Profile in Leadership Olympus Optical Co. Ltd. (A): Cost Management for Short Life Cycle Products Richardson Hindustan Ltd.: Gurcharan Das Video