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Manila Electric Company

In: Business and Management

Submitted By acaa
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Industry Analysis In its 110 years of service, Manila Electric Company (Meralco) has been one of the oldest and biggest companies to have survived in the Philippines. It is a company that distributes and supplies energy to industrial, residential and commercial markets in some areas of Luzon including Metro Manila, the entire provinces of Bulacan, Rizal and Cavite and parts of the provinces of Laguna, Quezon, Batangas and Pampanga. In addition, the company through its subsidiaries provides other services such as engineering, construction, information systems and technology, real estate and insurance. Porter’s Five Forces Threat of New Entrants Given the current position of Meralco, it is least likely to happen that competitors will enter its market since it would be difficult for them to compete with a company that is already established and trusted for more than a hundred years. Entrants who dare compete will be a lot farther from where Meralco is now, resulting to difficulty in gaining market share. Threat of Substitute Products or Services We are in a world where resources are limited. As to electricity, some of the alternatives for fossil fuels (commonly used for generating electricity) are solar panels, wind energy and water turbines. However, these are not good substitutes as of the moment since these energy sources are too expensive and have limited capacity. In addition, these sources though feasible still have lots of drawbacks that cannot be controlled yet. But with the advancing technology, these might be better sources of electricity in the long run. Bargaining Power of Customers Since Meralco is the sole provider of energy power to a wide area in the country, the company is not greatly affected by this force. Bargaining Power of Suppliers Meralco only buys electricity from Independent Power Producers (IPPs) that operate generating plants. Since the company is very dependent on its suppliers, it would be difficult to continue business if these IPPs would refuse to sell their electricity to Meralco. To address this concern, Meralco should start building strategic partnerships with its suppliers to ensure the stability of supply of electricity. In addition, the company should consider investing on electric generating plants so as not to be too dependent on its suppliers. Intensity of Competitive Rivalry Since Meralco doesn’t have any competitors in the areas it is serving, its customers are left with no choice but to avail of the company’s services. This advantage is made even greater by the fact that energy consumption has been continuously rising. SWOT Analysis Strengths  Brand equity: Meralco has already been known and trusted for a very long time. It has established itself as a reliable company.  Employee Development Programs: Meralco continuously provide seminars for its employees to further develop their personality and skills required in performing their jobs.  Outstanding operational performance: Though it has faced obstacles, the company continues to strive to be successful.

Weaknesses  Re-entry in power generation business: According to S&P, this would weaken the capital structure and financial risk profile of the company since it would result to additional debt to fund these new projects.

Page 1

Opportunities  Sole provider in the metro: Metro Manila is one of the populous cities in the world. This may serve as an opportunity for Meralco to make better products and services for its customers.  Increasing demand for electricity in some areas in the country: The company should consider venturing in areas that have no access to electricity yet.  Increasing energy consumption: Energy consumption is expected to increase with the rising temperature.  Customer Loyalty: To retain its customers, Meralco should still find ways to improve its customer relations programs.

Threats  Bargaining power of suppliers: Meralco has no control over its suppliers. They should have clear agreements to avoid misunderstandings.  Development of alternative products: Though it might be a small threat for now, the company must be alarmed by this fact since people nowadays continue to look for less costly substitutes.  Faulty equipment: Since the facilities of Meralco are mostly in the open area, the company must take extra precaution in dealing with this threat since any malfunction would result to inefficient and ineffective service.

As of the moment, Meralco is still the largest distributor of electricity in the country serving about 25% of the Philippine population. The company with its 6,701 employees continuously provides quality service to its more than 5 million customers in 22 cities and 89 municipalities. With its strong organic growth and 9,337 km2 footprint, Meralco accounts for almost 50% of the country’s gross domestic product (GDP). At the end of 2011, its sales revenues and market capitalization amounted to 256.8 billion and 278.6 billion respectively. Meralco is owned as follows: Financial Ratios Meralco (%) 27.2 P/E 14.23 EPS 10.76 ROI 24.44 ROE
5% Beacon Electric Asset Holdings, Inc. San Miguel Corporation PCD Nominee Corporation (Filipino) Social Security System PCD Nominee Corporation (Foreign)

Industry (%) 37.03 0.94 -5.21

7% 7%

26%

55%

References: (2013, May 3). Retrieved May 4, 2013, from Thomson Reuters: http://www.reuters.com/finance/stocks/overview?symbol=MER.PS Anonuevo, E. P. (2012, November 27). S&P lifts Meralco's credit rating, cautions against power generation venture. Retrieved May 4, 2013, from INTERAKSYON: http://www.interaksyon.com/business/49077/sp-lifts-meralcos-credit-rating-cautions-against-powergeneration-venture Corporate Profile. (n.d.). Retrieved May 4, 4, from Meralco: http://www.meralco.com.ph/company/pageabout-corporateinfo-corpprofile.html Manila Electric Company . (2013, May 3). Retrieved May 4, 2013, from Bloomberg Businessweek: http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=MER:PM Manila Electric Company (Meralco). (n.d.). Retrieved May 4, 2013, from FPH: http://www.fphc.com/MajorInvestments.php?ArticleID=36 Singson, C. (2012, June 26). Retrieved May 4, 2013, from Scribd: http://www.scribd.com/doc/98279707/Me-Ralco Page 2

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