Nomura Investment Banking

Case Study Competition

India Analytics Group

September 2015

Nomura Investment Banking

Case Study Contest

India Analytics Group

September 2015

STRICTLY PRIVATE AND CONFIDENTIAL

Copyright 2015 Nomura
This document is the sole property of Nomura. No part of this document may be reproduced in any form or by any means electronic, mechanical, photocopying,
recording or otherwise without the prior written permission of Nomura.

Golduin Retail
Case Study

STRICTLY PRIVATE AND CONFIDENTIAL

Copyright 2015 Nomura
This document is the sole property of Nomura. No part of this document may be reproduced in any form or by any means electronic, mechanical, photocopying,
recording or otherwise without the prior written permission of Nomura.

1. Company Overview
Golduin Retail is an online retailer founded by John Doe, a former partner at a large consulting firm
specializing in consumer/retail. In 2009, John started Golduin as a specialized online market for
high-end apparel and accessories.
The company now primarily targets the Globals, Climbers and Strivers population in China and
India alongside catering to its home geography, the United States. Buoyed by the growth of its
target segments, and the relative immunity of most of its operating geographies to the after-effects
of the Sub-Prime crisis, Golduin grew at a fast clip (CAGR of 59% from 2010-2015) and soon
expanded into electronics and appliances. It has since developed a strong presence in the
1
emerging markets of Asia, capturing market shares of 10.5% and 2.6% in India and China
respectively. Today, it has $1.2bn in revenue and ranks amongst the top 10 global e-commerce
players, in terms of GMV.
Golduin is headquartered in Dallas, TX, with regional offices in Shanghai, Bengaluru, Manila and
Jakarta. The company employs 7,000 people across the globe and has in-house IT support. It also
employs an entire department of data analysts devoted to tracking customer behavior on their
portal via clickstream data. In terms of online presence, the company has a website backed by
2
robust cloud support, across 6 different languages .
On starting up, Golduin won seed funding from Zartell Investments, a US-based fund known for its
conservative investment policies. Zartell also participated in subsequent rounds of funding, and
also brought another investor, Bereth Capital, on-board in Series A financing. As Golduin expanded
its footprint in Asia, it also got significant participation from investors focused on the Asia-Pacific
region, specifically from funds with dedicated consumer/retail portfolios. All these investors hold
equity shares with voting rights, as well as seats on the Board of Directors of the company (refer
Appendix 8(e)).
th

As of June 30 2015, the ownership pattern of the company is as follows:

Shareholding (pre-IPO)
Hetfield, 3%

Orome, 4%

Blue Hill, 3%
Zartell, 33%

John, 35%

Bereth, 22%

1
2

Market shares as of 30th June 2015.

Languages include English, Cantonese, Mandarin, Hindi, Tamil and Telugu.

a) Growth Path

United States
Golduin formulated a differentiating strategy that focused on customer satisfaction, and enhancing
customer experience. The strategy primarily centered on a high-end product portfolio, specializing
in the premium and luxury segments. This was instrumental in its gaining share in the target market.
Despite having a dedicated customer base, the higher cost of running an inventory-based model
led to consistent losses, prompting John to switch to a marketplace-based model. Also, John realigned his strategy to gradually shift focus towards the East, targeting emerging markets like India
th
and China. As of June 30 2015, Golduin is amongst top 20 players by GMV in the US market, and
has 1.5% market share by GMV.
China
Golduin entered China in October 2011 through the acquisition of Tarthe Retail, an electronics
portal catering to the commoditized electronics and appliances market, for $85m. This deal
facilitated the creation of a local presence and Golduin got a foothold in the burgeoning Chinese
market, along with access to a 40,000 strong vendor base.
Its second acquisition in China was in June 2014, when it acquired Manzel, an e-tailer focusing on
sports and fitness enthusiasts. The player was an established brand in the market and was
acquired for $360m inclusive of hefty premium. Its successful integration has contributed to
Golduins portfolio and vendor base in sports apparel and the fledgling wearables market. Golduin
now enjoys a top-5 market position in China, with a 2.6% market share by GMV.
India
Golduin always considered India to be a priority market, due to its rapidly increasing Internet and
smartphone penetration, and the growth in per capita disposable income. It made an entry into
India in March 2012, with the acquisition of KingsKross Tech, a portal that offered a virtual 3-D
fitting room and recommendation system to its members, in addition to a portfolio of designer wear.
The deal, worth $57m, was in line with Golduins prior strategy of providing high-quality user
experience. Additionally, it also gained 10,000 vendors for its portal in India, which was launched in
3 different regional languages.
Another acquisition was completed in March 2013, when Golduin bought out Sion Retail, a B2C
marketplace for apparel and accessories, in a deal worth $115m. This move increased its vendor
base in India to 50,000 and gave it a solid platform to compete with established players.
The high growth potential of the market has led John to affirm his commitment to the Indian growth
story (market share 10.5% by GMV).

b) Current Situation
Golduin turned profitable in 2014, although it still has high levels of cash burn. It needs further
funding to expand its operations and achieve its long term goals. None of the investors are keen on
the idea of taking on further leverage, as it could impose restrictive covenants on the cash flow.

Additionally, both Zartell Investments and Bereth Capital have decided to re-align their respective
portfolios, and want to partially exit their holdings in the company. This has provided Golduin an
opportunity to address some of its current issues in a single move.
After much deliberation, Golduin has decided that going public is the best way forward.
The Board of Directors and the Corporate Finance department have decided to extend a Request
for Proposal to a group of renowned investment banks, inviting pitches about possible valuations
and marketing avenues for Golduin. This process will decide which bank gets the mandate for the
IPO.

2. Operational Overview
Golduin Retail operates a marketplace model with emphasis on B2C i.e. the company provides a
platform for its vendors and customers to interact in a controlled ecosystem. Third party services
add value to the platform by facilitating interaction between the participants. These third party
services include logistics and the payment services provider. However, Golduin only adopted the
marketplace model in 2011. Prior to that, it operated through an inventory-based model wherein the
company bought and stocked products from its vendors before selling to customers, leading to
greater control over the product. While it allowed the group to respond effectively to customer
inquiries and ensured better post purchase experience, it involved higher capital requirements for
tying down inventory, higher risk due to inventory markdown and logistical complexities.
The shift to a marketplace model has helped the company achieve profitability. The model brings
together a large, fragmented base of buyers and sellers, allowing better price discovery. In addition
to this, Golduin maintains a close check over the vendors for quality assurance. This is done by
referring to the customer feedback forms and the results of Lot Quality Assurance Sampling. It is
also trying to speed up deliveries with the introduction of fulfillment centers, in which the company
stocks the fastest selling products in its own warehouses. Golduin earns an additional commission
on this service that it provides to the vendors. There are 10 hubs all over its operating geographies
dedicated to this service.

3. Functional Overview
Golduin generated $1.2bn in revenues from its operations across the globe in 2015. China remains
the most critical market with a contribution of c.44%, which is expected to increase rapidly. US
accounts for c.49%, and India contributes c.7%. However, Golduin continues to strive to expand in
the emerging markets (refer appendix (a)).
The primary streams of revenue include:

Vendors

The vendors that wish to display their goods on the portal are liable to pay a fixed
annual registration fee to the company

Vendors are also liable to pay a transaction fee proportionate to the value of orders
received through the companys portal

Vendors may also use the companys fulfillment centers for faster delivery to their
customers. They are charged a small facilitation fee for this service

Advertisements

Vendors have the option of listing with the company as premium sellers. This enables
them to gain preferential visibility in search results

They are charged on the basis of the number of clicks received by each advertised
product

Customers

Customers can choose to sign up for premium services (same-day delivery, exclusive
launches) for a fixed annual subscription fee

Key Parameters
Particulars

USA

China

India

134,050

197,724

112,602

Annual registration fee charged to vendor ($)

300

120

100

Commission charged for Apparel & footwear

products

11.28%

9.70%

8.43%

Commission charged for Consumer Appliances

products

4.5%

4.5%

3.8%

Commission charged for Consumer Electronics

products

5.0%

4.5%

4.5%

No. of active online buyers 2015 (in 000s)

4,400

6,490

3,696

Active annual online buyers who subscribe for

membership

7.0%

5.8%

2.0%

Annual subscription fees charged to customer for

membership ($)

77.6

50.7

22.6

Advertisement revenue per click ($)

0.48

0.15

0.1

No of clicks per year (m)

386.1

974.5

175.1

Fee charged to vendors for using fulfillment

centers

2.0%

2.0%

2.0%

No. of vendors

4. Management Outlook and Targets

Golduin ranks amongst the top 10 e-commerce companies globally. One of its biggest strengths is
the marketplace model that allows it to reach customers and vendors even in geographies where it
has no direct presence. The company has made investments in technology to make its portal more
user-friendly, and intends to continue doing so in the future to enhance user experience.
The company analyzes browsing and buying patterns using analytics engines, in order to provide
better recommendations and customize its offerings. It has achieved high ratings in customer
satisfaction surveys across all of its operating geographies.

Over the years the Golduin has developed an association with leading brands across geographies.
Long term relationships with these brands give the company the privilege of launching and listing
products exclusively on its platform. The success of these launches further has reinforced vendors
trust in Golduin. Additionally, Golduin is also targeting upcoming brands to help them reach a
broader audience and thus participate in their growth.
Future target and outlook

The company aims to capitalize on the rapid growth potential in emerging markets, particularly
India and China, by increasing market share
The company is targeting revenues of $4.0bn in the next 5 years
The management is partial to the idea of using inorganic expansion to gain leadership in new
or existing markets

Risks

The companys short spanning operating history makes it difficult to evaluate growth
prospects; historical growth may not be entirely indicative of future performance
The company faces intense competition from online retailers and brick-and-mortar stores in all
operating geographies, which may lead to pricing pressures and lower margins

5. Global Industry Outlook

E-commerce has developed into a mainstream retail channel, now accounting for c.6.5% of total
retail sales in the world. It is further expected to rise to c.10% by 2016. More than 12% of the
worlds 100,000 highest-traffic websites are e-commerce. Increased penetration of mobile phones
has given a boost to online shopping; the sale from mobile phones is expected to rise to 40% of
total e-commerce transactions by the end of 2015.
Major challenges to the industry that could affect growth include lack of governing structure,
integration of distinct technologies and cyber security.
China

Internet users in China are likely to reach c. 804m by 2019, up by 26% over 2014
The top 3 e-commerce players dominate the Chinese market, together accounting for 60% of
the market share by value
The apparel and footwear segment was reported to have a market size of $319.2bn as of
2014, with e-retail accounting for 14.5%. E-retail in this segment is expected to grow at a
CAGR of 24% through 2019
The consumer appliances market was reported to be worth $103.0bn ($22.8bn e-retail) while
the consumer electronics market was estimated at $169.0bn ($32.5bn e-retail) in 2014
E-retail of consumer appliances is expected to grow at CAGR of 13% and consumer
electronics at CAGR of 15% through 2019

India

The top 3 players in e-commerce hold a combined market share of 53% by value
The apparel and footwear e-retailing segment has a market size of $1.7bn, and is expected to
grow at CAGR of 39% through 2019
Consumer durables segment (including both appliances and electronics) has a market size of
$39.9bn with e-retail accounting for 2.3%
E-retail in consumer appliances and consumer electronics is expected to grow at a CAGR of
6.3% and 2.7% respectively through 2019
By 2025, the country is expected to become fifth largest consumer durables market in the
world

United States

USA is the second largest ecommerce market by retail sales and is expected to maintain this
position through 2019
The country had one of the highest internet user penetration of over 85% of the total
population in 2014
The dominance of the top 3 players is much less evident, with them accounting for 29%
market share by value; this points to a more oligopolistic and competitive market
The apparel and footwear segment has a market size of $328.4bn with e-retail accounting for
11.5%. E-retail in in the segment is expected to grow at CAGR of 9% through 2019
Consumer durables segment has a market size of $162.7bn with e-retail accounting for 27%
E-retail in consumer appliances is expected to grow at a CAGR of 19% and consumer
electronics at CAGR of 2.5% through 2019

6. Deliverables
The deliverables will be divided into 2 phases:

Phase 1 Executive Summary:

The executive summary must be a PowerPoint Presentation limited to 4 slides,

excluding cover, contents and appendix
Executive summary should include an equity story; any preliminary analysis to support
the same may also be included
Teams must also identify comparable companies that they would use for valuing the
company, with a brief rationale. This list of companies is by no means binding; other
companies can be used while performing actual valuations in Phase 2

Phase 2 Pitch Book:

Teams are required to submit a complete presentation not exceeding 25 slides

(excluding cover, contents and appendix), based on the deliverables outlined
Teams should provide all back-up, including any Excel sheets etc.
Valuation detailed valuation using relevant methods
Deal structuring and offering size According to the pre-IPO shareholding pattern and
the list of constraints provided (refer to Appendix (f)), analyse and suggest the
combination of primary and secondary components of the offering
Use of proceeds The Company is open to the idea of pursuing inorganic growth using
the proceeds from the offering. However, other uses for the proceeds have also been
identified. Suggest possible acquisition targets for Golduin, and clarify with a brief
rationale (detailed financial modeling not mandatory). Also suggest any other uses the
proceeds may be put to.

Listing location The management is amenable to list the company in any location
around the world. However, it must be noted that visibility in key geographies and
access to liquid capital markets remain strong motives for a public listing.

7. Financials 3
Income Statement
(All figures in $m, FYE June 30)
Net revenue
COGS
Gross Profit
SG&A
D&A
Income from operations
Interest expense
Pre-tax income
Income taxes
Net income

FY13
487
117
370
339
28
3
11
(8)
0
(8)

FY14
750
173
578
530
28
20
22
(2)
0
(2)

FY15
1,210
254
956
879
36
42
27
15
3
11

Notes:-

1.

Acquisitions were made in March 2013 (India) and June 2014 (China) worth $115m and $360m respectively

2.

Cost of goods sold (COGS) comprises of costs associated with payment processing, site operations and customer
support

3.

Selling, general and administrative expenses (SG&A) include employee salaries, expenses related to technology and
fulfillment centers (24m) and unique subscription expenses (31m)

4.

The effective tax rate for the company in 2015 was 30.3%

5.

All numbers are rounded up and can be different to actual due to the decimal differences

Company follows IFRS conventions

8

Balance Sheet
(All figures in $m, FYE June 30)
Assets
Cash & short term investments
Receivables
Inventories
Other current assets
Total current assets

FY13

FY14

FY15

261
9
3
2
276

252
10
2
4
268

389
20
1
6
417

Net property, plant and equipment

Intangible assets
Goodwill
Other assets
Total assets

384
143
35
29
867

368
345
116
29
1,126

379
328
116
34
1,274

Liabilities and shareholders equity

Short term debt
Accounts payable
Other current liabilities
Total current liabilities

79
19
5
103

150
27
8
185

184
40
12
236

Long term debt

Total liabilities

201
303

380
564

466
702

Shareholder's equity
Total liabilities and shareholder's equity

564
867

561
1,140

572
1,288

Notes:1.

Acquisitions were made in March 2013 (India) and June 2014 (China) worth $115m and $360m respectively

2.

The receivable days for the company has not increased more than 2 weeks on average since 2011 i.e. when the
company changed its business model to a marketplace type, thus as a whole the cash conversion cycle has been
reduced

3.

With the acquisitions, the company had consolidated assets of Sion Retail in India and that of Manzel in China. Since
the business model has changed since 2011, few of the warehouses have been converted into fulfillment centers and
further fresh investments in the latter (refer PPE schedule)

4.

Intangible assets include software licenses, trademarks, copyrights related to the website

5.

Goodwill was accorded as and when the acquisitions took place

6.

Other assets include investments in securities held to maturity whereas other current assets include short term
investments whose maturities are greater than 1 year

7.

Short term debt includes short term borrowings and current maturities of long term debt: debt was raised and repaid
partially between 2013-15 for inorganic as well as organic growth, debt was raised in the US for acquisitions since
cost of debt was relatively lower as compared to India and China
a.

The company plans to retire its debt as follows:

2016 - $184m
2017 - $250m
2018 - $78m
2019 - $71m
2020 - $67m

8.

The company got funding of $56m (2010), $65m (2011) and $500m (2012) from private investors

9.

All numbers are rounded up and can be different to actual due to the decimal differences

8. Appendix
GMV breakdown by geography
China
31%
19%
50%

(% of total GMV)
Electronics
Appliances
Apparel and Footwear

India
25%
19%
56%

USA
20%
25%
55%

a) Revenue Breakdown
Revenues from commissions

China
(All figures in $m, FYE June 30)
Consumer Electronics
Comsumer Appliances
Apparel
Footwear
Total

FY13
30
18
84
14
146

FY14
41
25
122
20
208

FY15
59
36
177
27
299

India
(All figures in $m, FYE June 30)
Consumer Electronics
Comsumer Appliances
Apparel
Footwear
Total

FY13
4
3
13
3
22

FY14
4
4
18
4
31

FY15
8
5
28
6
46

FY13
20
19
75
18
131

FY14
27
28
119
28
202

FY15
37
41
193
35
306

US
(All figures in $m, FYE June 30)
Consumer Electronics
Comsumer Appliances
Apparel
Footwear
Total

Other revenues

(All figures in $m, FYE June 30)

China
India
US
Total

4
5

FY13
58
9
121
188

FY14
108
20
181
310

Includes commissions from vendors

Other revenues sources include subscription fees, advertisement revenues, fixed fees from vendors
10

FY15
231
37
292
560

b) Schedule for PPE

(All figures in $m, FYE June 30)

Beginning PPE
Capital investment in the year
Sale of assets 6
Depreciation
Acquisitions
Total

FY13
484
20
(120)
(25)
25
384

FY14
384
25
(90)
(21)
70
368

FY15
368
30
0
(18)
0
379

FY13
317
13
10
339

FY14
495
20
15
530

FY15
823
31
24
879

FY13
72
74
4
143

FY14
143
209
7
345

FY15
345
0
17
328

c) SG&A breakdown
(All figures in $m, FYE June 30)
General & Administrative expenses
Unique subscription expenses
Fulfillment centres
SG&A

d) Schedule for Intangible assets

(All figures in $m, FYE June 30)
Beginning Intangibles
Acquisitions
Amortization
Total

e) Funding rounds

Time Period Funding Round

Jan-10
Seed Funding

f)

Dec-10

Series A

Sep-11

Series B

Nov-12

Series C

Investor
Zartell
Zartell
Bereth
Bereth
Blue Hill
Hetfield
Zartell
Bereth
Orome

Stake Bought
10%
10%
5%
5%
3%
3%
13%
12%
4%

Stake Bought7 ($m)

15
41
65

500

Constraints for offering structure

Zartell Investments and Bereth Capital must divest a 10% stake each
Johns stake in Golduin must not fall beyond 26%
Free float post-offering must not exceed 40%

The company sold some warehouses as it converted from an inventory based model to a marketplace model. Some of those
warehouses were converted into fulfillment centers
7
Stake bought refers to the funds injected into the company
11

Disclaimer
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are fictional and provided for illustration purposes only and should not be relied upon for any other purpose.
Participating in this Contest does not amount to a job or internship offer or create an obligation on Nomura
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