ITM EEC- Modeling - Valuations

8/3/2019 ITM EEC- Modeling - Valuations

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Particulars Rs.Sales

Less: - Cost Of Goods Sold

Opening Sock 600,000

Add:- Purchases 5,160,000

Less: - Closing stock 600,000

Gross Profit

Less: - Operating expensesAdministrative Expenses 136,000

Financial Expenses - Interest 90,000

Selling Expenses 44,000

Depreciation 200,000

NET OPERATING PROFIT

Add: - Non Operating Income

Less: - Non Operating Expenses

Net Profit Before Tax

Less: - Tax provision

Net Profit After tax

ABC Ltd.

Profit & Loss Statement as on 31st march 2010



Rs.6,000,000

5,160,000

840,000

470,000

370,000

110,000

-

480,000

240,000

240,000



Particulars Rs. Rs.SOURCES OF FUNDS

shareholder's fund

10% Preference share capital 200,000

10% Equity share capital (FV Rs.10/-) 1,000,000

General reserves 800,000

Borrowed funds

12% debentures

TOTAL FUNDS EMPLOYED

APPLICATION OF FUNDS

Fixed Assets

Investments

Working Capital (current assets - current liabilities)

Current assets

bank balance 100,000

Short Term investments 300,000

Debtors 200,000 400,000

Stock 600,000

1,400,000

Current liabilities

Creditors 60,000 120,000

O/s expenses 220,000

Income tax provision 260,000

600,000

TOTAL FUNDS EMPLOYED

ABC Ltd.

Balance sheet as on 31st march 2010



Rs.

2,000,000

1,400,000

3,400,000

2,600,000

-

800,000

3,400,000



Sr. No. Ratios

1 Gross Profit Ratio

2 Operating Profit Margin

3 Net Profit Margin

4 Return on Assets

5 Return on Capital Employed

6 Return on Equity

7 Net Working Capital

8 Current Ratio9 Quick Ratio

10 Debt to Equity

11 Debt to Capital

12 Debt to Asset

13 Asset Turnover Ratio

14 Inventory Turnover Ratio

15

16

17 Interest Coverage Ratio

18 Dividend Coverage Ratio

19 Debt Service Coverage Ratio

EPS

Coverage Ratios

Profitbality Ratios

Liquidity Ratios

Leverage Ratios

Efficieny Ratios

Debtors Turnover Ratio

Creditors Turnover Ratio



Derivation Value

Gross Profit/Sales*100 14% 14.00%

Operating Profit/Sales*100 6%

Net Profit/Sales*100 4%

PAT/Total Assets 6%

EBIT/Capital Employed*100 17%

PAT/ Shareholder’s Equity 12%

Current assets - Current liabilities 800000

Current assets/Current liabilities 2.333Current assets - Stock / Current liabilities 1.333

Total Debt/ Total Equity 0.700

Total Debt/ Shareholder’s Equity + Debt 0.412

Total Debt/ Total Assets 0.350

Net Sales/ Fixed Assets 2.308

COGS/ Average Inventory 8.600

Net Credit Sales/ Average Debtors 20.000

No. of days in a year/ Debtors Turnover 18

Net Credit Purchase/ Average Creditors 57.333

No. of days in a year/ Creditors Turnover 6

EBIT/Interest 6.333

Div Per equity Share/ Earning Per equity Share 0.417

Net operating income / Annual loan payment (P+I) 3.700

PAT/ No. of Shares 2.4

ABC Ltd.

Ratio Analysis



Method 1

COE 13.625%

Terminal Value 1603

1 2 3 4 5

50 60 68 76.2 1686.49

Equity Valuation 1073.01

Discount CF to Equity at Cost of Equity to get value of equity

Cost of Equity = 13.625%

Value of Equity = 50/1.13625 + 60/1.136252

+ 68/1.136253

+ 76.2/1.136

Method 2

Equity Value 1073

Debt Value 800

Firm Value 1873

Interest Rate 10%

Tax Rate 50%

COE 13.625%

COD 5% Pre-tax interest rate *(1-tax)

WACC 9.94%

Terminal Value 2363

1 2 3 4 5

90 100 108 116.2 2486.5

Firm Valuation 1873.47

Discount CF to Firm at Cost of Capital to get value of firm

Cost of Debt = Pre-tax rate (1- tax rate) = 10% (1-.5) = 5%

WACC = 13.625% (1073/1873) + 5% (800/1873) = 9.94%

PV of Firm = 90/1.0994 + 100/1.09942

+ 108/1.09943

+ 116.2/1.09944

+

Value of Equity = Value of Firm - Market Value of Debt

= 1873 - 800 = 1073

Note: Terminal Value

Last year CF*(1+g)/(r-g)

FCFE

FCFE

DCF Valuation Illustration 1



254

+ (83.49+1603)/1.136255

= 1073

123.49+2363)/1.09945

= 1873



Method 1

COE 21% rf+B*(rm-rf)

G 5%

Terminal Value 9555 cf*(1+g)/(r-g)

1 2 3 4 5 6th

1010 1050 1134 1234 10900 1456

Equity Valuation 6970.08



Method 2

COE 21% rf+B*(rm-rf)

COD 10%

Tax 40%

Equity 1000

Debt 3000

G 5% WACC

Terminal Value 9555 cf*(1+g)/(r-g)

1 2 3 4 5 6th

1010 1050 1134 1234 10900 1456

Firm Value 6970.08



DCF Valuation Illustration 2

FCFE

FCFE



21%

21%

9.75%



Year CF Equity

1 100

2 120

3 140

4 160

5 180

6 200

Rf 6%

B 1.44

Rm 30%

COE ?

Growth Rate 30%

Terminal Value ?

PV of Equity Cash Flow ?

PV of Terminal Value ?

Equity Value ?

DCF Valuation of FCFE



Year CF Equity Post Tax Interest CF Firm

1 200 100 300

2 220 100 320

3 240 100 340

4 260 100 360

5 280 100 380

6 280 100 380

Rf 7%

B 1.2

Rm 22%

COE ?

Interest Rate 10%

Tax Rate 40%

COD ?

Equity 10000

Debt 20000

Total Capital 30000

WACC ?

Growth Rate 10%

Terminal Value ?

PV of Firm Cash Flow ?

PV of Terminal Value ?

Firm Value ?

DCF Valuation of FCFF



Sr. No. Particulars

1 No of Shares O/S 5.84

2 Cost Of Capital 10%

3 Tax Rate 40%

Before Acquisition

4 W Cap/ Revenue (%) 28%

Year 2008

After Acquistion

5 Revenue Growth upto 2013 (%) 6%

6 W Cap / Revenue (%) 24%

7 COGS / Revenue (%) 67.50%

8 S G & A /Revenue (%) 21.50%

9 Working Capital 154.84

Year 2008

10 Revenue 553

11 COGS -373.30

12 S G & A -118.90

13 Depreciation -21

14 Other Deductions -215 Taxable Income

16 Tax

17 NOPAT

18 After Tax Operating Cash Flow

19 Changes In W Capital

20 Capital Expenditure

21 Free Cash Flow To Firm (FCFF)

22 Terminal Value

23 Present Value Of Cash Flows (2009-2013)

24 Present Value Of Terminal Value

25 Enterprise Value

Assumptions

Free Cash Fl

SKII Tools

Target



1 Depreciation & Other Deductions are assumed to be at 2010 levels.

Depreciation is as per SLM

2 Durable Drill will invest in capital in SKII Tools only as replacemnet.

To reflect this new Cap Ex are assumed to equal to Depreciation

After 2010:

COGS/Revenue is 65%

SG&A comes downFCFF PAT+ Interest*(1-T) + D & A – C

Terminal Value CF(1+g)/(r-g)

3 After 2015 :

Growth rate is assumed to be zero.

Incrmntl W Cap is zero.

After Tax Operating Cash Flow & New Cap Ex is also same.



( Issued Capital)

(WACC)

(Effective Tax Rate) (t)

2009 2010 2011 2012 2013 2014

"G" After 2013 g (%) 0%

(Improvement)

67.00% 65.00% 65.00% 65.00% 65.00% (Improvement)

21.00% 20% 19% 19% 19% (Improvement)

132.00 139.92 148.32 157.21 166.65

2009 2010 2011 2012 2013 2014

550 583 617.98 655.06 694.36

-368.50 -378.95 -401.69 -425.79 -451.34

-115.50 -116.60 -117.42 -124.46 -131.93

-21 -21 -21 -21 -21

-2 -2 -2 -2 -243.00 64.45 75.88 81.81 88.10

-17.20 -25.78 -30.35 -32.72 -35.24

25.80 38.67 45.53 49.09 52.86

46.80 59.67 66.53 70.09 73.86 73.86

22.84 -7.92 -8.40 -8.90 -9.43 0

-21 -21 -21 -21 -21 -21

48.64 30.75 37.13 40.19 43.43 52.86

528.59

151.94

328.21

480.15

w Calculation

Durable Drill

Acquirer



pex +/- Change in WC



Sr. No. Particulars

1 Growth pre merger till 2013 6% Growth after 2013

2 Cost Of Capital of Durable Drill 10%

3 Shares Outstanding 10

Year 2008 2009 2010 2011

4 D Drill FCF without acquisition (I) 32 33.92 35.96

5 Increase due to merger (%) (Estimate) 5% 15% 25%

6 D Drill FCF with acquisition (II) 33.60 39.01 44.94

7 Inc in FCF due to acquisition (II-I) 1.60 5.09 8.998 Terminal Value in 2013

Valuation Of Synergy Gains

9 PV of cash flows till 2013 25.19

10 PV of Terminal value 62.71

11 Total Value 87.90

Synergy Gains

Valuation of Durable Drill Pre & Post Acquisition

Acquirer



0%

2012 2013 2014

38.11 40.40

25% 25%

47.64 50.50

9.53 10.10 10.10101.00



Sr. No. Particulars

1 Value of SKII Tools under Durable Drill 480.15

2 Synergy Gains (Value of European system) 87.90

3 Total Gains (Operational Value of SKII Tools)

4 Excess Cash & Marketable Securities

5 Total Value Of SKII Tools to Durable Drill

6 Total Debt to SKII Tools -100

7 Pension Plan Under funding -20

8 Total Liabilities

9 Investment Banking & Legal Fees -610 Severance Payts to Employees after merger -23

11 Integration Budget -2

12 Total Acquisition Costs

13 Total Liabilities & Acquisition Costs

14 Net Value Of SKII Tools Equity to Durable Drill

15 Value of SKII Tools under Durable Drill per SKII share

SKII Tools

Target

Net Value of SKII Tools to Durable D



568.06

30

598.06

-120

-31

-151

447.06

76.55

urable Drill

Acquirer

ill



Sr. No. Particulars

1 No of Shares O/S 5.84 ( Lacs Issued Capital)

2 Cost Of Capital 12% (WACC)

3 Tax Rate 50% (Effective Tax Rate) (t)

Year 2010 2011 2012 2013

Ratios Current Estimates Estimates Estimates

Cal Given Given Given

Revenue Growth upto 2015 (%) 6% 6% 6%

W Cap / Revenue (%) 30% 24% 24% 24%

COGS / Revenue (%) 68% 65% 65% 65%

S G & A /Revenue (%) 22% 20% 20% 20%

Working Capital 165.90 140.68 149.12 158.07

Revenue 553.00 586.18 621.35 658.63

COGS -373.30 -381.02 -403.88 -428.11

S G & A -118.90 -117.24 -124.27 -131.73

Depreciation -21.00 -21.00 -21.00 -21.00

Other Deductions -2.00 -2.00 -2.00 -2.00

Taxable Income / EBIT 37.80 64.93 70.20 75.79Tax -18.90 -32.46 -35.10 -37.90

NOPAT 18.90 32.46 35.10 37.90

After Tax Operating Cash Flow 53.46 56.10 58.90

Changes In W Capital 25.22 -8.44 -8.95

Capital Expenditure -21.00 -21.00 -21.00

Free Cash Flow To Firm (FCFF) 57.68 26.66 28.95

Terminal Value 366.69

Present Value Of Cash Flows (2010-2015) 132.56

Present Value Of Terminal Value 208.07

Enterprise Value 340.63

F C F F C a l .

D C

F

R a t i o A n a l y s

i s

Skii Tools Durable D

Target Acquire

Free Cash Flow Calculation

I n c o m e S t a t e m e n t



2014 2015 2016

Estimates Estimates

Given Given

6% 6% 0%

24% 24%

65% 65%

20% 20%

167.56 177.61

698.15 740.04

-453.80 -481.03

-139.63 -148.01

-21.00 -21.00

-2.00 -2.00

81.72 88.01-40.86 -44.00

40.86 44.00

61.86 65.00 65.00

-9.48 -10.05

-21.00 -21.00 -21.00

31.38 33.95 44.00

366.69

rills

r



NPV

Parameters Figures

Rate of Discount 10% P.A

Initial Cost -10000`

Return for 1st Year 3000 `

Return for 2nd Year 4200 `

Return for 3rd Year 6800 `

NPV 1,188 `

SINCE NPV IS POSITIVE THE PROJECT CAN BE UNDERTAKEN

XNPV

Parameters Figures Date

Rate of Discount 8% P.A P.A.

Initial Cost -100000 ` 1/1/2007

Irregular Returns 20000 ` 8/1/2007




XNPV 17623 `

IRR


Initial Cost -10000 ` 1/1/1985

Return for 1st Year 3000 ` 1/1/1986

Return for 2nd Year 2500 ` 1/1/1987

Return for 3rd Year 4000 ` 1/1/1988

Return for 4th Year 6000 ` 1/1/1989





IRR 23.15%

NPV 0.00

Calculation of NPV

Calculation of X - NPV

Calculation of IRR



XIRR

Parameters Figures DateInitial Cost -100000 ` 1/1/2007





XIRR 22.60% `

MIRR


Initial Cost -10000 ` 1/1/1985

Return for 1st Year 3000 ` 1/1/1986

Return for 2nd Year 2500 ` 1/1/1987

Return for 3rd Year 4000 ` 1/1/1988




Return for 7th Year 1000`

1/1/1992Return for 8th Year 4500 ` 1/1/1993

6% Annual interest rate for borrowing Rs.10,00

8% Annual interest rate for the reinvested profi

IRR 23.15%

MIRR 14.26%

NPV @ IRR 0.00

NPV @ MIRR 2459.99

Calculation of XIRR

Calculation of MIRR



loan

s / Returns



Loan Amount 100000.00 Loan Amount 100000.00

Tenure 1.00 year Tenure 1.00

Instalments 12.00 Instalments 12.00

Interest Rate 12.00% per annum Interest Rate 14.45%Interest Rate 1.00% per month Interest Rate 1.20%

-8884.88 -9000.00

Note: What if Analysis with one data sensitivity

Interest Rate

-8884.88 -9000.00

12% -8884.88 12% -8884.88

13.50% -8955.20 13% -8931.73

15% -9025.83 14% -8978.7116.50% -9096.76 15% -9025.83

18% -9168.00 16% -9073.09

Years

-8884.88 -9000.00

2 -4707.35 6 -9000.00

3 -3321.43 7 -9000.00

4 -2633.38 8 -9000.00

5 -2224.44 9 -9000.00

6 -1955.02 10 -9000.00

Installemets

-8884.88 -9000.00

12 -8884.88 24 -4822.68

13 -8241.48 25 -4656.20

14 -7690.12 26 -4502.63

15 -7212.38 27 -4360.52

16 -6794.46 28 -4228.64

Note: What if Analysis with two data sensitivity (Matrix)

Case 1 -8884.88 24.00 36.00 48.00 60.00

12.00% -4707.35 -3321.43 -2633.38 -2224.44

13.50% -4777.70 -3393.53 -2707.63 -2300.98

15.00% -4848.66 -3466.53 -2783.07 -2378.99

16.50% -4920.24 -3540.44 -2859.70 -2458.45

What if Analysis What if Analysis


Case 1 Case 2

PMT PMT




18.00% -4992.41 -3615.24 -2937.50 -2539.34

Case 2 -9000.00 25 30 35 40

11.50% -4517.33 -3851.27 -3376.59 -3021.52

14.40% -4653.73 -3989.00 -3515.88 -3162.50

17.20% -4787.67 -4124.67 -3653.49 -3302.1720.00% -4923.81 -4262.96 -3794.13 -3445.28

22.20% -5032.29 -4373.43 -3906.73 -3560.10

Case 1 -8884.88 12.00% 13% 14% 15%

24 -4707.35 -4754.18 -4801.29 -4848.66

36 -3321.43 -3369.40 -3417.76 -3466.53

48 -2633.38 -2682.75 -2732.65 -2783.07

60 -2224.44 -2275.31 -2326.83 -2378.99

Case 2 -9000.00 13.00% 15% 16% 17%

34 -3531.75 -3628.39 -3677.28 -3726.54

40 -3093.97 -3192.14 -3241.89 -3292.08

45 -2819.51 -2919.01 -2969.51 -3020.50

50 -2600.88 -2701.76 -2753.02 -2804.83



year

per annumper month



East West North South

1 2 3 4 10 11 855

1 2 3

2 3 4 5

3 4 5 6 6

4 5 6 75 6 7 8

6 7 855 9

7 8 9 10

8 9 10 11

9 10 11 12

10 11 12 13

Sum 62 186 924 85

Profit

10% 6.2 18.6 92.4 8.5



13

4



5/5/2012 14:31

Index Current Change

Sensex 18130.98 17.83NSE Index 5449.1 7.15

Sr. No. Buy Date Segment Sector Scrip Name Qty Purchased

1 01.01.06 NSE IT / Software Infosys 100

2 02.02.06 NSE Pharma Dr. Reddy's 200

Anna's S



Buy Price Buy Value Weight % CMP Sell Value Brokerage Profit / Loss Strategic Decision

2000 200000 6% 2,786.45 278,645.00 1197 77448.4 Sell

1000 200000 6% 1,365.30 273,060.00 1183 71877.4 Sell

3077000 100% 551705 9071.76 -2534366.8

ecurities Pvt. Ltd.



Infosys NSE Friday, July 23, 2010 3:57:57 PM

Current Price Today's Change Volume

2,786.45 31.95 665387

Dr. Reddy' NSE Friday, July 23, 2010 4:00:08 PM

Current Price Today's Change Volume

1,365.30 15.4 1396959



Index Current Change

Sensex 18130.98 17.83

NSE Index 5449.1 7.15

World Indices

Nasdaq Comp 2,269.47 23.58

DowJones30 10,424.62 102.32S&P500 1,102.66 8.99

ITM EEC- Modeling - Valuations

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