FINANCIAL ANALYSIS & VALUATION

ABC Ltd which is currently engaged in construction of commercial and residential buildings, which has
relatively less unsold inventory. The company is planning to enter into hospitality in two cities. The
inherent risks of both businesses are different. For the new business, ABC requires approximately the
following amount. The new project is named as ‘ABC TRANQUILITY’. The new project is expected to be
completed by the end of 2018 and will start operationalisation by early 2019.

The financials of the parent company between 2009-10 – 2014-15 are available. The company has an
average tax rate of 33% of pretax profit.

Exhibit 1

Rs In Lakhs

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Income 3000 4930 6900 7200 8140 11000

Contract 2200 3100 4900 5700 6100 7700

OthExp 564 1404 1538 675 635 1070

EBITDA 236 426 462 825 1405 2230

Dep 10 15 20 25 60 80

EBIT 226 411 442 800 1345 2150

Fincost 65 140 170 295 495 660

PBT 161 271 272 505 850 1490

TAX 53 89 90 167 281 492

PAT 107 182 182 340 570 998

NW 200 382 564 904 1474 2472

Debt 500 1069 1410 2260 4127 6600

Total 700 1451 1974 3164 5601 9072

FA 100 371 456 860 2590 3792

CA 600 1080 1518 2304 3011 5280

Total 700 1451 1974 3164 5601 9072

Exhibit 2

The new investment details:

Investment in Land – 80 Cr

Construction - 600 Cr

Plant & Machinery – 25 Cr

Furniture and Fixtures – 35 Cr

The future cash flow projections of ABC are as follows from 2015-16 are as follows:

Exhibit 3

1 2 3 4 5 6

Sales 15800 19000 21180 25600 29860 35600

Expenses 11800 13400 15250 18000 21300 25600

Dep 90 80 85 85 80 90

Capex 255 540 320 610 750 950

NCA 2300 2500 2880 3320 3650 4020

FCFF 215 792 858 1247 1415 1820

The parent company has about 20 lakh shares outstanding. The levered beta of similar companies in
terms of asset and sales is 2.10. Similar companies have a debt equity ratio of 1.85. The 10 year yield is
around 8% and the historical risk premium is around 8.30%.

The parent company stake is held partly by two promoters, both having 50% share holding. The
company prefers equity for the new project. They would like to know the current valuation and how to
leverage on the same.

As an external consultant/advisor to the company you have been given the mandate for analyzing the
financials of the parent company as well as advising the company for the new investment and
structuring the transaction.