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This case study is related to start-up post-listing investment analysis. Through this case study, students will be able to perform the business analysis guided by the Venture Evaluation Metric tool, perform financial analysis using the discounted cash flow methods and perform investment analysis recommendation with justifications from the business and financial analysis performed above.

This case study sets out the study of a scalable start-up, Zomato, which is a successfully listed start-up firm in India. Despite the start-up development success in the pre-listing, the firm has exhibited a continuous unprofitable finance performance in the post-listing and has further experienced a volatile share price performance, both of which have puzzled existing and potential investors. In addition, some analysts are in the opinions that the firm share price valuation have been inflated with overvaluation since in the initial public offering stage and remain traded with overvaluation in the market. Notably, considering the negative indicators mentioned above, investors are concerned about long-term sustainability of the firm business and financial performance. In the context of post-listing investment, the following questions are material to investors: What is the realistic growth trajectory for Zomato in the medium term? What is Zomato’s share fair value in the medium term? Can one see opportunities or risks ahead of investing in Zomato’s shares? What will be the investment strategy for new investors?

This case study is suited to bachelor’s and master’s level in business schools studying entrepreneurial finance analysis.

Teaching notes are available for educators only.

CSS 1: Accounting and finance.

The case was developed from secondary sources and interviews with a security analyst. The secondary sources include company annual reports, news reports, analyst reports, industry reports, company websites, stock exchange websites and databases such as Bloomberg and CMIE Prowess.

Increasing competition in product and capital markets has put tremendous pressure on managers to become more cost competitive. To address their firms' uncompetitive cost structures, managers may have to consider dramatic restructuring of their businesses. During 2014–2017, Tata Steel Ltd (TSL) UK considered a series of divestitures and a merger plan to nurse the company back to health. The case considers the economics of the restructuring plan. The case is designed to help students analyze a corporate downsizing program undertaken by a large Indian company in the UK and to highlight the dynamic role of the CFO and governance issues in family firms. It introduces students to issues surrounding a typical restructuring and provides students a platform to practice the estimation of value creation in a restructuring exercise. While some cases on corporate restructuring in the context of developed economies are available, there are very few cases written in an emerging market context. This case bridges that gap. TSL presents a unique opportunity to study corporate restructuring necessitated by a failed cross-border acquisition. It illustrates the potential for value loss in large, cross-border acquisitions. It shows how managerial hubris can prompt family firm owners to overbid in acquisitions and create legacy hot spots. In addition, the case can be used to discuss the causes of governance failures such as weak institutional monitoring and poor legal enforcement in emerging markets that could potentially harm minority shareholders.

The case was developed from secondary sources and interviews with a security analyst. The secondary sources include company annual reports, news reports, analyst reports, industry reports, company websites, stock exchange websites and databases such as Bloomberg and CMIE Prowess.

The case provides an introduction to how currency mismatches create exposures, why and how companies hedge (or do not hedge) those exposures, alternate valuation models and the use of foreign currency convertibles in funding a global expansion program. The case highlights the ambitious growth strategy of Wockhardt, a global biopharmaceutical company. In a bid to dominate the biopharmaceutical market, Wockhardt grew aggressively by acquiring companies all over the world. This expansion was funded by a mix of secured loans (bank borrowings) and unsecured loans including foreign currency (US dollar denominated) convertible bonds (FCCBs). Due to deteriorating business and economic conditions, the company experienced a sharp decline in profitability and stock price resulting in a debt overhang. The company had to restructure its capital structure in March 2009 to escape bankruptcy. Since FCCB holders did not agree to restructure the terms of the instrument, the company had to turn to senior lenders to restructure debt. The company’s management is faced with several options to deal with financial distress. The case asks students to evaluate those options. The case can be used to teach hedging foreign currency exposures, design of capital structure in rapidly evolving industries and dangers of financing R&D intensive ventures with convertible debt denominated in foreign currencies.

The case is based on secondary data sources. Information statements filed with the Securities Exchange Board of India, the company’s website, press releases and security analyst reports formed the basis for this case. Supplementary information was gathered from the CAPITALINE database, and websites of the Bombay Stock Exchange and the National Stock Exchange of India. Sources of information are documented appropriately in the case and teaching note. No names in the case have been disguised. The authors have no personal relationship with the company.

The case is suitable for courses in corporate finance, mergers and acquisitions, international financial management, corporate restructuring and valuation at the graduate level. It can also be used in executive education programs.

The case provides an introduction to how currency mismatches create exposures, why and how companies hedge (or do not hedge) those exposures, alternate valuation models, the use of foreign currency convertibles in funding a global expansion program and the alternatives in corporate restructuring. Suitable references are provided in the teaching note.

This case considers the unusual terms under which Rhone-Poulenc, the large French chemicals producer, acquired the U.S.-based Rorer Group, Inc., in August 1990. Set a year later, in August 1991, the case reviews the terms of the merger and the experience of the new entity in its first year, and invites the student to evaluate the “contingent value right” (CVR) issued by Rhone-Poulenc in the merger.

The case highlights the ambitious growth strategy of Suzlon, an Indian company specializing in non-conventional (wind) energy. In 2007, Suzlon announced the acquisition of REpower of Germany, one of the top wind power companies in the world. It issued zero coupon and coupon bearing foreign currency (US dollar) convertible bonds (FCCB) amounting to $760 million to finance the acquisition. These bonds were listed in Singapore. Due to deteriorating business conditions the company experienced a sharp decline in profitability and stock price resulting in a debt overhang. At the same time, the Indian rupee depreciated from INR44 to INR55 leading to losses on largely unhedged, foreign currency coupon payments. The company had to restructure its capital structure to escape bankruptcy. Since FCCB holders did not agree to restructure the terms of the instrument, the company had to turn to senior lenders to restructure debt. Eventually Suzlon had to sell-off REpower to reduce leverage.

The case is based on interviews of market intermediaries and published information. The information relating to the restructuring has been taken from the information statement filed with the Securities Exchange Board of India and the Stock Exchanges. The timeline of events were constructed from the information available in company press releases. Financial statements and other details are from the documents filed with the regulators and supplemented with the information available in Prowess database. The stock price and stock market index data are from the websites of Bombay Stock Exchange and the National Stock Exchange of India. Exchange rates, inflation and interest rates have been taken from Bloomberg and the Reserve Bank of India website. Valuation inputs like multiples are from Prowess database and security analyst reports. Sources of information are documented appropriately in the case and instructor’s manual. Although we interviewed the investment bankers involved in the restructuring we have not included any private information in the case to preserve confidentiality.

This case can be used in a corporate finance course or in a module on debt restructuring in a corporate restructuring course or in the financing module in an advanced corporate finance course or in an International Finance course. It can also be used to teach an integrated approach to valuation and financing in a valuation course.

The case highlights the rationale for issuing FX convertible debt, parity conditions in international finance and the use of alternate valuation models.

This case reviews the financial performance of the Fidelity Magellan Fund up to mid-1995. In essence, the Magellan Fund has managed to “beat the market” over time under three different fund managers despite its enormous size ($51 billion at the date of the case). The tasks for the student are to assess the adequacy of this performance, evaluate its likely sources, and opine on its sustainability. The case affords the opportunity to consider the appropriateness of various possible benchmarks in a risk-return framework and to assess the reasonableness of the efficient-markets hypothesis. The case can be used in an introductory finance course to present general information about equity markets and the behavior of large, sophisticated money managers.

In mid-June 2000, MicroStrategy CEO Michael Saylor is considering an investment of $125 million of convertible preferred stock in his firm by a group of private investors including Citadel Investment Group LLC. The offer comes at a difficult time for the company, because only three months earlier, its stock had reached a record price of $300 per share. At that point, the company had registered a $1 billion seasoned equity offering. Shortly thereafter, the company was forced to restate its earnings after running afoul of the SEC for its revenue-recognition practices. Although the restatement did not change the company's cash-flow position, it did result in an SEC investigation and the cancellation of the stock offering. In order to meet Saylor's ambitious plans for MicroStrategy, additional funding must be obtained. With public-market funding sources shut off, students must evaluate what the best course of action is for the firm at this moment. Students are asked to evaluate a new form of venture financing called private investments in public enterprises (PIPE). PIPEs differ from conventional floating-rate convertibles in that the conversion price in most cases can only be adjusted downward. The case considers both the pros and cons of these investments.

In August 2005, an investment manager of a hedge fund is considering purchasing an equity interest in a start-up biotechnology firm, Arcadian Microarray Technologies, Inc. The asking price is $40 million for a 60 percent equity interest. Managers of the firm are optimistic about the firm's future performance; the investment manager is more conservative in his expectations. He calls on the help of an analyst with her firm to fashion a counterproposal to Arcadian's management. The tasks for the student are to apply the concept of terminal value, interpret completed analyses and data, and derive implications of different terminal-value assumptions in an effort to recommend a counterproposal. Very little numerical figure-work is required of the student.

In January 1996, an investment manager of a hedge fund is considering purchasing an equity interest in a start-up biotechnology firm, Rocky Mountain Advanced Genome (RMAG). The asking price is $46 million for a 90% equity interest. Although managers of the firm are optimistic about its future performance, the investment manager is more conservative in her expectations. She asks an analyst to fashion a counterproposal for RMAG's management. The tasks for the student are to apply the concept of terminal value, interpret completed analyses and data, and derive implications of different terminal value assumptions in an effort to recommend a counterproposal. Little computation is required of the student. The main objective of the case is to survey many conceptual and practical challenges associated with estimating a firm's terminal value. Issues addressed include the concept of terminal value; the materiality of the terminal-value assumption; the varieties of terminal-value estimators and their strengths and weaknesses; taxation of terminal values; when to assume liquidation versus going-concern terminal values; choosing a forecast horizon at which to estimate a terminal value; the constant growth valuation model, its derivation, limiting assumptions of constant growth to infinity, and WACC > g; use of the Fisher Formula as a foundation for estimating growth rate to infinity; and using a variety of estimates to “triangulate” in on a terminal value.

The case highlights a $1.4 billion fraud committed by the founder of a NYSE listed, Information Technology Services firm in India. In response to the crisis, the Indian government appointed an interim board to find a strategic investor in the company. The case traces the events leading to the fall of the company. Students are asked to analyze the governance and intermediation failures, assess the financial position of the company and to estimate the intrinsic value of the company from an acquirer's perspective.