Pagalguy Valuation

PaGaLGuY Valuation 2011
Pagalguy Valuation:
Suggest a price for Pagalguy.com if its IPO is to be brought out in December 2011.
Presented By: Ankit Natani NMIMS, Mumbai
Acknowledgements
To climb the ladder of success in any endeavor it is important to ensure that it is leaning against the right wall. This aptly demonstrates the importance of a good mentor in ones academic life as well as professional life. I would therefore take this as an opportunity to thank my guide Dr. Anupam Rastogi for providing me an opportunity to work on this project. I also thank Prof. Farzan Ness Ghadially and Prof. Amit Pandit without whose guidance this project would have been a daunting challenge. I also take this opportunity to thank the officials of other functions at Mr. Allwin Agnel, PaGaLGuY for his time and patience in taking me through the various nuances of the business in spite of time constraints. I thank them for considering this project significant to the interest of the company and worthy of being taken seriously. Last but not the least; I would especially want to thank my colleagues at work and friends who have helped in shaping up this project with their timely and valuable insights.
Table of Contents
Acknowledgements................................................................................................................................... 2 List OF Figures: .............................................................................................................................................. 4 Economic Analysis ..................................................................................................................................... 5 Industry Analysis ..................................................................................................................................... 10 Company Analysis ................................................................................................................................... 11 o o Financial Statements ................................................................................................................... 14 Valuation ..................................................................................................................................... 15 PE Multiple .................................................................................................................................. 15 DCF .............................................................................................................................................. 15
Conclusion: .............................................................................................................................................. 16 Bibliography: ........................................................................................................................................... 17
List OF Figures:
Figure 1: India literacy Rate -Source Census Of India ................................................................................... 6 Figure 2 : India Internet comsumption data ................................................................................................. 7 Figure 3: City Wise use of Internet in India................................................................................................... 8 Figure 4: Age wise distribution of Internet users ......................................................................................... 9 Figure 5: Comparitive analysis of Peer companies ..................................................................................... 13 Figure 6: Balance Sheet of last 5 years ....................................................................................................... 14
Economic Analysis
The Indian economy is the second fastest major growing economy in the whole world with the growing rate of the GDP at 9.4% in 2006- 2007. The economy of India is the twelfth biggest in the world for it has the GDP of US$ 1.09 trillion in 2007. Services Sector Growth Rate in India GDP has been very rapid in the last few years. The Services Sector contributes the most to the Indian GDP. The Growth Rate of the Services Sector in India GDP has risen due to several reasons and it has also given a major boost to the Indian economy. The Services Sector contributes the most to the Indian GDP. The Sector of Services in India has the biggest share in the country's GDP for it accounts for around 53.8% in 2005. The contribution of the Services Sector in India GDP has increased a lot in the last few years. The Services Sector contributed only 15% to the Indian GDP in 1950. Further the Indian Services Sector's share in the country's GDP has increased from 43.695 in 1990- 1991 to around 51.16% in 1998- 1999. This shows that the Services Sector in India accounts for over half of the country's GDP.
The Reasons for the growth of the Services Sector contribution to the India GDP The contribution of the Services Sector has increased very rapidly in the India GDP for many foreign consumers have shown interest in the country's service exports. This is due to the fact that India has a large pool of highly skilled, low cost, and educated workers in the country. This has made sure that the services that are available in the country are of the best quality and available at the competitive or even cheaper prices. The foreign companies seeing this have started outsourcing their work to India especially in the area of business services which includes business process outsourcing and information technology services. This has given a major boost to the Services Sector in India, which in its turn has made the sector contribute more to the India GDP. Education system is also another area on which Indian Economy is leveraging wildly. Last few years can be called Education Year for India. Literacy in India is key to socio-economic progress, and the Indian literacy rate grew to 74.04% in 2011 from 12% during the Independence in 1947. The 2011 census, however, indicated a 2001-2011 decadal literacy growth of 9.2%, which is the slower than the growth seen during the previous decade. There has been truly turn-around in policies and structure as a whole of Indian Education system. Specially since Congress has come into power, and more specifically Kapil Sibal has become the HR minister, many new path breaking initiatives have been announced both on lower education level as well as higher education level. In last 2-3 years, Number of IIT and IIMs have been tripled. Number of government schools has been increased and many reforms have been implemented to increase the standard of education. Infact, recently Kapil Sibal told media that it is seeking $400 billion from Government to pump in Indian Education System. He plans to build over 30,000 colleges and between 800 and 900 universities by 2020. Imagine that kind of numbers. Even if we are able to fulfill half of it, it would be a great achievement. If we talk about the literacy rate over the years, India has brilliant growth rate.
90 80 70 60 Literacy % 50 40 30 20 10 0 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011
Figure 1: India literacy Rate -Source Census Of India
Total (%) Male (%) Female (%)
Source: Census of India 20111 All the above mentioned players belong to the same area of the industry and target the audience which is looking for online aid for higher studies. The users of this industry are necessarily the young age students who want to prepare for higher studies like MBA in Indian and in foreign countries. They try to look for people with similar preference and want to learn from their experiences. Thus increasing the knowledge by sharing the information they know on online websites like mentioned above.
http://censusindia.gov.in/2011-prov-results/data_files/india/Final%20PPT%202011_chapter6.pdf

India is one the of the fastest growing internet country in the world. In the recent times with the introduction of breakthrough technology in the house hole, the internet has become a commodity rather than a luxury in the recent past. The number of internet users worldwide is expected to touch 2.2 billion by 2013 and India is projected to have the third largest online population during the same time. India continues to be one of the fastest growing major telecom sectors in the world.
YEAR
Users Million)
(in Population % Pen.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2009 2010
1.40 2.80 5.50 7.00 16.50 22.50 39.20 50.60 40.00 42.00 81.00 100.00
109 109 109 109 109 109 109 111 111 113 116 117
0.10% 0.30% 0.50% 0.70%
Usage Source ITU ITU ITU ITU ITU
1.60% 2.10% 3.60% 4.50% 3.60% 3.70% 7.00% 8.50%

IWS ITU IWS IAMAI C.I. Almanac ITU C.I. Almanac
Figure 2 : India Internet comsumption data
Source: http://www.internetworldstats.com/asia/in.htm

There is a strong belief of the growth to remain bullish which is boosting the internet websites and services providers. Also with the indent of mobile telephony, there is whole new avenue to be trapped in this segment. There is a lot of growth in the urban region of the country with youth constituting the most of the internet users. However, there has been a high growth in the internet users in small cities and in town regions. The percent contribution of small towns and cities has increases from just 5% in 2000 to 36% in 2010. This shows the growth in internet users in across all the regions of the country which is a good for the online companies. Now the companies have equal access to the small regions of the country through internet.
Figure 3: City Wise use of Internet in India
Source: IAMAI Data

India is incidentally has the worlds largest number of mobile users, currently around 600 million. With the indent of mobile internet and availability of low price internet services in India, it has become easy for the users to access internet at home and at cyber cafes. However, it has been seen that the trend of users on the basis of age has been more or less the same. On one hand, the usage of internet by non working women and declined from 10% to 7%, the usage of internet by college going students has increased from 23% in 2001 to 30% in 2010.
Figure 4: Age wise distribution of Internet users
Source: IAMAI Data Thus, there has been a large change in the profile of internet users over the last decade and college going students use the internet massively for their online activities
Summarizing the Economy condition, the growth in the GDP, the requirement in the skilled labor, the growth in the education sector and the growth in the Internet availability are beneficial for the industry.
Industry Analysis
Classification
The broad industry we are looking for Pagalguy is the Education industry as a whole. To be more precise, PagalGuy belong to a class of education provider for post graduate students who want to pursue MBA degree both in India and abroad. Moreover, all the education providing websites and the blogs can constitute the industry as a whole.
Market Type
The market is in nascent stage and there are a lot of opportunities for growth. The industry is open to entrance by the new competitors. There are little entry or exit barriers in the industry. The requirement of fund is minimal as compared to other industries with low capital requirement. The owner can shift from one domain to other domain and its easier to expand. The one distinguishing factor about this industry is its mode of expansion. The industry can just improve upon its advertising strategy and induce a few servers to provide better facilities to the users of the website. Thus there is a lot of scope for expansion with very little infusion of capital. The low amount of expenses and perpetual revenue structure improves upon the profitability ratios also. Thus the industry has high profitability and high yield on the funds invested. Attitude of the Indian Government has been quite supportive to promote the industry as a whole. Government
Labor conditions
Labor conditions have not been a problem for the industry. With so many entrepreneur coming up with new and innovative ideas to tap the market. Due to the large number of available IT professional in India, finding the right kind of labor has been easy for the industry. The entrepreneurs have been able to find the right kind of dedicated persons who willingly want to contribute to the education industry. So industry is secure in respect of finding the efficient labor.
Major players in the Market: The major players in this segment are www.Pagalguy.com www.TotalGadha.com www.Tcyonline.com www.Coolavenues.com www. MBAUniverse.com
Company Analysis
Quick handy facts about PaGaLGuY.com2
Indias biggest MBA website URL www.pagalguy.com Online community of over 4 Lakh MBA aspirants, students and alumni What is it about MBA aspirants interact with each other and with MBA students to get smarter at cracking CAT, GMAT, CET, XAT, etc and choosing the b-school that is right for them. MBA students from all top b-schools blog daily about their MBA life. Website gets 5 lakh+ unique visitors, 7 million+ page views per month B-school rankings at http://rankings.pagalguy.com Founded in 2002 by Allwin Agnel, Wharton MBA, 2008 Headquartered in Mumbai, India Major services and products: PaGaLGuY MBA News and Analysis portal, PaGaLGuY Forums, PaGaLGuY B-school Rankings, PaGaLGuY Connect
PaGaLGuY Introduction
PaGaLGuY is an online youth community, primarily targeting MBA aspirants in India. Allwin Agnel (MBA Wharton 2008), the founder of PaGaLGuY was featured on the Young Turks program on CNBC in May 2005. The firm was also nominated as one of the hottest start-ups in India by the Tata group. While it was not the first player in this space, PaGaLGuY can be credited with using unique ways to pioneer the large-scale development of its online community. PaGaLGuY gave its users a platform to voice their opinions and receive those of others on varied topics, from B-School entrance exams and choice of BSchools, to the latest happenings in politics and economics that are relevant for MBA interviews. Its high popularity today allows it to generate sufficient advertising revenues to keep the forum free for all users. It has become a catalyst for potential MBA aspirants in India, by providing high value examination preparation content, along with a large and supportive user community that engages in moderated discussions to addresses the concerns of all aspirants. Pagal-Guy is a Hindi-English phrase meaning crazy-guy the name stems from a popular Hindi phrase Pagal hai kya? (Are you crazy?) used on anyone who attempts to achieve the impossible.
http://www.pagalguy.com/about-us

Attempting to secure admission to the limited seats in the premier business schools in India through multiple attempts in the face of high odds is seen by many as a crazy endeavor. Allwin found this the perfect name for a site that gets the attention of motivated aspirants. Users of PaGaLGuY are called puys and believe that pagalpan (insanity) is what drives the community - the insanity to believe in oneself even after a number of failures, to freely help potential competitors across the country they dont know personally and to incessantly strive for one goal all this bonds the puys together!
The Evolution
As an MBA aspirant in 2002, Allwin Agnel found that the only online discussion forums available for MBA aspirants like him were Sify forum and Yahoo groups. Allwin did not find the Sify forum user-friendly with its limited utilities and the Yahoo group, Allwin observed, loaded its users with massive amounts of content as the number of participants grew. Faced with these shortcomings, Allwin decided to build a more usable online forum on PaGaLGuY.com, a site he owned. The first post on PaGaLGuY forum was made on September 2, 2002 by Allwin himself. The forum had topical threads that allowed MBA aspirants to read only what was relevant for them. The initial users were Allwins friends, but as the word spread about this useful forum, the registrations grew. Allwin and his friends provided initial publicity through word of mouth and on the Sify forums a form of viral marketing. Within twenty-two days the forum had exceeded thousand posts and by February 2003 it had over fifteen hundred registered users and had outgrown the capacity on the web-server. Till 2006, the forum and the website was funded entirely by Allwin and relied on chosen volunteers to moderate the discussions. There were no employees and minor investments were made by Allwin to improve the design and functionality, with features like file uploads and chat systems for users. Initially he made no attempt to commercialize the site. In 2006, as the market leader with the highest traffic in a fast-growing segment, the site had turned monetizable. Allwin struck online partnership deals with college festivals, giving them banner space on the portal in return for publicity on campus. From 2006 to 2008, banner advertisements were the primary source of revenue for PaGaLGuY. Most advertisements were from B-Schools, coaching institutes or youth brands that wanted to reach the youth audience on PaGaLGuY. The site soon became the most preferred medium for publicizing major business schools events. The popularity of the site ensured enough banner views and click-through to cover the cost of the servers and their maintenance. While the rate per page view remained relatively flat over the years, total revenues escalated as more users registered or non-registered saw more pages and spent more time on the site. Till 2006, PaGaLGuY was considered an elitist site, specifically drawing those who aimed at the national tests to enter the top tier business schools in India, or the GMAT to enter business schools abroad. Over time, this focus broadened with discussion threads on the state-level entrance exams in India as well. This broader focus drew more users from the smaller towns in India who were interested in joining local schools through the state level selection process. According to Apurv, the forum holds greater value for aspirants in smaller towns because of the dearth of knowledge resources as well as fellow aspirants in

their immediate surroundings. Students and alumni of lesser-known B-schools opened new threads to provide information about their own school and to connect with aspirants.
The Competition
The cult status of PaGaLGuY has kept it well ahead of its three major competitors as shown by the comparative reach statistics in Figure 2. Coolavenues (started in 2000) is a content portal and with a discussion forum that is unmoderated and not as active today. MBAUniverse (2006) is primarily a content portal and covers events. Totalgadha (2006) has 30000 registered users in 2008 and operates two coaching centers. Competition has not been a serious concern so far at PaGaLGuY. Apurv says, At the end of the day, users will always go to a superior product and that is our strength. We have a strong belief in our team and people that we will always be a better product designers and ideators than others in this space, which we hope will get us by. Date No. of Ads per page Traffic Ranking Daily Reach (Percent) Daily Pageviews (Percent) Daily Pageviews per user Time on site (minutes) Search visits (percent) Pagalguy 5 570 0.0176% 0.00066% 4.29
5.64333
TotalGadha tcyonline coolavenues Dare2Compete

12,960 0.00%
757
0.009 0.00189 24 47.18 6.1
1795
0.0058 0.00045 8.8 13.628 11.2
12712
0.00% 0.00%
18.70%
0.00007% 6.9 9.28 12.70%
3.8
5.7483 11.50%
Figure 5: Comparitive analysis of Peer companies
The above table shows the competitive analysis of PaGaLGuY with respect to other prominent website in the same space in India. The PaGaLGuY ranks highest of all these websites with respect to the number of unique users per month. The above ranking has been calculated by calculating the weighted average of the number of unique users per month over a period of six months. Thus the ranking is a good measure of comparing the different websites over a period of time. The number of unique users per month of PaGaLGuY is 2,70,000 per month which is large number and most of the users are of the age group 0f 18-25. This is very high compared to the unique users of TcyOnline which is around 2,10,000 per month. The time spent by a single user on the website is also significantly high ranging around 5.6 minutes per visit. Thus PaGaLGuY enjoys a cult status in this market segment over its competitors.
Market Share
PaGalGuy has grown in leaps and bounds with more than 2, 46,510 members, 32770 discussion threads and 12,40226 posts ( as on 6th Oct 2010 ). The company enjoys market leadership status by capturing around 45% of the market share in this segment. There is no major strong player in this segment besides PaGaLGuY and the rest of industry is divided in many small players.
PaGaLGuY Valuation 2011 Financial Statements
Balance sheet as at 31/03/2010

as per provided by the company to ROC. (figures in INR) 31,03,10 31,03,09 31,03,08 31,03,07 31,03,06
Sources of funds Paid-up capital Share application money (pending allotment) Reserves and surplus Secured loans Unsecured loans Deferred tax liabilities (Net) others Total Application of Funds Gross fixed assets (including intangible assets) Less: depreciation and amortization Net fixed assets Capital Work in progress Investments Deferred tax assets (Net) Current assets, loans and advances (a) Inventories (b) Sundry debtors (c) Cash and bank balances (d) Other current assets (e) Loans and advances Less: Current liabilities and provisions (a) Liabilities (b) Provisions Net current assets Miscellaneous expenditure to the extent not written off or adjusted Profit and loss account Others Total
Figure 6: Balance Sheet of last 5 years
100,000
100,000
100,000
100,000
6,333,260 0 0
2,796,761 0
541,572 20,053 0 661,625
0 0 0 100,000 0
0 0 0 0
6,433,260
2,896,761
1,707,946 570,457 1,137,489
1,498,631 196,278 1,302,353
258,492 22,583 235,909 0
0 0 0 0
0 0 0 0
17,250 0.219 0 2,591,682 3,476,652 5,058,380 2,807,861 3,060,332 5,258,521 20,000
15,750 0.116 1,763,447 1,159,934 944,198 299,271 2,019,650 1,548,658 30,000
0.087 418,107 589,653 43,895 0 350,689 315,250 385,716 40,000 0 50,000 0
0 0 0 0 0
0 50,000 50,000
0 6,433,260 2,896,761 661,625 0 100,000 0
PaGaLGuY Valuation 2011 Valuation o PE Multiple

The P/E ratio (price-to-earnings ratio) of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. The P/E ratio can therefore alternatively be calculated by dividing the company's market capitalization by its total annual earnings. The method indicates the value of similar companies in relation to different key ratios that is later compared to your business. Common key ratios are: EV/EBITDA and EV/SALES. The method is extremely useful in valuation of the companies which do have comparable companies listed on some bourse. Through this, its easier to estimate the value the industry accepted ratios perceived by the investors on the industry as a whole and for a company. I have used this method to calculate the net worth of PaGalGuY. However, there are no listed companies in India which I found comparable. The companies which belong to the same industry and listed on a bourse are big giant companies like Google, LinkedIn, Yahoo. LinkedIn has the same revenue source as PaGalGuY and this can be a good comparable company after some assumption on the PE multiple because of the difference in the two markets and the sheet sizes of the two companies. With my calculations, we get the net worth of the company to be somewhere around Rs. 7 Crore and the share price to be around Rs 7,000 per share. Refer to the excel sheet attached for the valuation purposes.
o DCF
Discounted cash flow (DCF) analysis is a method of valuing a project, company, or asset using the concepts of the time value of money. A DCF valuation is a method based on future cash flow discounted to present value. All the future incoming and outgoing cash flows are estimated to the best of information and the summation of all these cash flows are discounted by an appropriate discounting factor to get the net present value of the cash flows. This value is actually the net worth of the company.
The analysis is widely used within investment banking and company valuation. I have used the DCF method to estimate the net worth of the company. With my calculations, we get the net worth of the company to be somewhere around Rs. 6.2 Crore and the share price to be around Rs 6,200 per share. Refer to the excel sheet attached for the valuation purposes.
Conclusion:
The site is a host of around 1,60,000 subscribers and 2,70,000 unique users in the Sep11 which ranges from 1,20,200 to 700,000 unique users based on seasonal variations. The increase in number of subscribers and the number of page views can substantially improve the valuation of the company. I currently estimate the company to be valued at around Rs. 6.3 Crore using the DCF on the future cash flows. Because of the low number of outstanding share i.e. 10000 shares, the market price of each share comes out to be Rs.6500. With the increasing number of users, the increasing number of potential users i.e. the growth of MBA aspirants in India, and the popularity of the website among the users makes it one of the significant player in the industry. So Im bullish on the future growth prospects of the company and there can be substantial value addition in the valuation of the industry in future.
Bibliography:
PG business model discussion in 2004
http://www.pagalguy.com/forum/chit-chat-your-interests/3730-case-study-pagalguy-com-ka-2.html
Allwin Interview
http://dare.co.in/columns/business-insights/flipside-of-challenge-opportunity.htm
SWOT
http://www.scribd.com/doc/40969043/NPD-Case-I-V5
Domain results
http://who.godaddy.com/WhoIs.aspx?domain=pagalguy.com&isc=ALEXADOM
ROC / MCA links

http://www.mca.gov.in/DCAPortalWeb/dca/CompanyDetailsSRAction.do

Pagalguy Valuation

Încărcat de

Informații document

Descriere originală:

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Pagalguy Valuation

Încărcat de

Drepturi de autor:

Formate disponibile

PaGaLGuY Valuation 2011

Presented By: Ankit Natani NMIMS, Mumbai