Great deal! I was left wondering about the financial impact on Exel.
- As Aapeli wrote, Exel owns 55% of the JV, meaning part of the margin leaks elsewhere. That is, EBIT shows everything, but it then disappears from EPS, so it doesn’t reach the owners.
- The material margin can be assumed to be around 20% for a deal of this scale, meaning a full 100 MEUR contract would have 20 MEUR of gross margin (GM) in about two and a half years (assuming deliveries start immediately).
- Fixed costs are hardly very high in India, so let’s disregard them directly for now.
- Out of the 20 MEUR share, Exel owners’ share would be 11 MEUR in total, 4.4 MEUR per year. Can probably be rounded down to 4 million when taking some fixed costs into account.
- If one considers that the strategy period’s target of 10% EBIT is calculated at a blended rate between two businesses, i.e., high-margin and low-margin, it can be assumed that the low-margin business generates at most a 10% EBIT level. If we simplify a bit and ignore scalability, that would mean at the EBIT level (note: includes the JV’s share) about 10 MEUR during the contract. It could very well be more, though. So, on an annual basis, this adds 4 MEUR to EBIT, of which less will naturally remain for the owners.
With this back-of-the-envelope calculation, the share coming to Exel’s owners on an annual basis is counted in the single-digit millions and presumably clearly below five million.