Welcome to Our

Presentation

Air Berlins IPO

We are

Group: 12

Name

MBA ID

Barna Paul

17-563

Sifat Sadia

17-564

Saima Sultana

17-565

Case Overview
Low Cost Carriers

Analysis of Airline Industry

Porter's Five Forces Model

Analysis of Airline Industry Contd

PESTEL Analysis
Political

Economy is in stable situation now

Environmental regulation is very strict

Analysis of Airline Industry Contd

SWOT Analysis

Analysis of Airline Industry Contd

Risk Analysis (Business Risk)
Particulars
Degree Of Operating
leverage

2003 2004 2005

4.06
0.17

Revenue Variability (CV)

4.13
Variability in EBIT(CV)

17.56

Analysis of Airline Industry Contd

Risk Analysis (Financial Risk)

Year

2003

2004

2005

1.33

2.7

0.75

4.07

1.64

-3.05

Degree of
Financial
Leverage DFL
Interest
coverage ratio
(TIE)

You are with

Saima Sultana
ID: MBA 17-565

Problem Statement
Should the management of Air Berlin delay
the initial public offering (IPO)?
Would it be better to delay the offer by a week
or more? If so, what would potentially
happen?
Would it be most sensible to lower the range
of the offer price? If so, to what price range?

Alternative Courses of
Action

Relative valuation
Base case valuat

Analysis of Alternatives
Assumptions for valuation of base case
Assumptions
Revenues Growth rate

150%

Cost of Goods sold

70%

Tax Rate
Sales and marketing

20%

Research and
development

5.00%
5.00%

Depreciation

1.50%

Net Working capital

2.00%

CapEx

6%

Terminal Growth Rate

0.04

WACC

22%

Bankruptcy Cost

25%

Probability of Distress

8%

Analysis of Alternatives
Contd

Valuation of Base Case

Value of Enterprise

Add: Cash and Cash Equivalent

Less: Interest Bearing Debt
Less: Distress Cost
Value of Equity
No. of Shares
Value Per Share

712,014.54
189,051.00
380,983.00
29,904.61
490,177.93
10,000.00
49.02

Analysis of Alternatives
Contd

Valuation of Base Case (Simulation)

Forecast: Value Per Share
Forecast
Statistic
values
1,000,000
Trials
49.02
Base Case
51.06
Mean
48.35
Median
'--Mode
Standard
252.03
Deviation
63,519.85
Variance
0.0838
Skewness
3.62
Kurtosis
Coeff. of
4.94
Variation
-1,738.46
Minimum
1,968.01
Maximum
0.25
Mean Std. Error

Analysis of Alternatives
Contd

Valuation of Base Case (Sensitivity)

Analysis of Alternatives Contd

Valuation of Best and worst Case

Worst case
Value of
Enterprise
Add: Cash and
Cash Equivalent
Less: Interest
Bearing Debt
Less: Distress
Cost
Value of Equity
No. of Shares
Value Per Share

Best Case

641124
189051

Value of Enterprise

783596

Add: Cash and Cash

Equivalent

189051

Less: Interest Bearing

Debt
380,983.00
26927
422265
10000
42.23

380,983

Less: Distress Cost

32911

Value of Equity

558753

No. of Shares

10000

Value Per Share

55.88

You are with

Sifat Sadia
ID: MBA 17-564

Analysis of Alternatives
Contd

Assumptions for Valuation of Private Placement

Assumptions
RevenuesGrowthrate

20%

CostofService

62%

OperatingExpense

20%

TaxRate
Depreciation

28%
5%

NetWorkingcapital

3%

CapEx

9%

TerminalGrowthRate

0.04

WACC

16.44%

BankruptcyCost

30%

ProbabilityofDistress

10%

Analysis of Alternatives
Contd

Valuation of Private Placement

Value of Enterprise
Less: Floatation Costs (7%)

Add: Cash and Cash Equivalent

Less: Interest Bearing Debt
Less: Distress Cost
Value of Equity
No. of Shares
Value Per Share

1,535,016.90
10,500.00
189,051.00
367,033.00
46,050.51
1,300,484.40
22,500.00
57.80

Analysis of Alternatives
Contd

Valuation of Private Placement (Simulation)

Forecast: Value Per Share
Statistic
Trials
Base Case
Mean
Median
Mode

Forecast values
1,000,000
57.8
59.82
56.98
'---

Standard
Deviation

108.92

Variance
Skewness
Kurtosis

11,862.90
0.1829
3.67

Coeff. of
Variation

1.82

Minimum
Maximum
Mean Std. Error

-602.82
902.01
0.11

Analysis of Alternatives
Contd

Valuation of Private Placement (Sensitivity)

Analysis of Alternatives
Contd

Assumptions for Valuation of Operating Lease

Assumptions
Revenues Growth rate
Cost of Goods sold
Tax Rate
Sales and marketing
Research and
development
Depreciation
Net Working capital
CapEx
Terminal Growth Rate
WACC
Bankruptcy Cost
Probability of Distress

200%
70%
20%
5.00%
15.00%
1.50%
2.00%
6%
4%
25%
25%
2%

Analysis of Alternatives
Contd

Valuation of Operating Lease

Value of Enterprise
Add: Cash and Cash
Equivalent
Less: Interest Bearing
Debt
Less: Distress Cost
Less: Costs of Issuing IPO

3,500
998,025

13,775.30
17.502
5,600.00

Value of Equity

982133

No. of Shares

20,884

Value Per Share

47.028

Analysis of Alternatives
Contd

Valuation of Operating Lease (Simulation)

Forecast: Value Per Share
Forecast
Statistic
values
Trials
1,000,000
Base Case
54.39
Mean
57.14
Median
53.65
Mode
'--Standard
Deviation
310.67
Variance
96,514.32
Skewness
0.0764
Kurtosis
3.66
Coeff. of
Variation
5.44
Minimum
-2,166.27
Maximum
2,451.63

Analysis of Alternatives
Contd

Valuation of Operating Lease (Sensitivity)

Analysis of Alternatives
Contd

Assumptions for Valuation of IPO

Assumptions
Revenues Growth rate
Cost of Service
Operating Expense
Tax Rate
Depreciation
Net Working capital
CapEx
Terminal Growth Rate
WACC (2006-08)
WACC (2009-15)
Bankruptcy Cost
Probability of Distress

20%
62%
18%
28%
5%
3%
9%
0.04
16.44%
16.61%
25%
8%

Analysis of Alternatives
Contd

Valuation of IPO

Upper Range
Value of Enterprise
Less: Floatation
Costs
Add: Cash and Cash
Equivalent
Less: Interest
Bearing Debt
Less: Distress Cost
Value of Equity
No. of Shares
Value Per Share

2,623,547.5
7

Lower Range
Value of Enterprise

2,623,547.5
7

Less: Floatation Costs

44,500.00
189,051.00
350,433.00
52,470.95
2,365,194.6
2
32,500.00

44,500.00
Add: Cash and Cash
Equivalent
189,051.00
Less: Interest Bearing
Debt
350,433.00
Less: Distress Cost
Value of Equity
No. of Shares

52,470.95
2,365,194.6
2
35,833.33

You are with

Barna Paul
ID: MBA 17-563

Analysis of Alternatives
Contd
Relative Valuation
Value per share/ Sales per
share

0.40

Value/Cash flow

2.6

Value/EBIDTA

8.6

NAV per share

19.72

Recommendations
Value per
share ()

Debt to equity

Base case Valuation

49.02

66% , 34%

Private Placement

57.80

52%,48%

Operating Lease

54.39

66%,34%

IPO (2009) at the

offer price of 15

66.01

41%, 59%

IPO (2009) at the

offer price of 18

72.78

41%, 59%

Distribution of Share
Private Placement
Gross proceed

150,000.00

Flotation cost

10,500.00

Net proceeds

139,500.00

Offer Price
new share issued
Utilization of
Fund
purchase of air bus
(50%)
Debt repayment
(10%)
funding organic
growth (40%)
Net proceeds

IPO (2009)
Gross proceed

200,000.00

Flotation cost

34,000.00

Net proceeds

166,000.00

12.00
12500

Upper
Price

Offer Price

20.00

Lower
Price
15.00

69,750.00
13,950.00
55,800.00
139,500.00

new share
10,000,00 13,333,33
issued
0
3
No. of
Shares

32,500,00 35,833,33
0
3

Thank You

Any
Queries?