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XYZ Company Limited Valuation Report: DUMMY Date Executive Summary INDUSTRY: XX XYZ Company Limited (hereinafter

XYZ Company Limited

Valuation Report: DUMMY

Date

Executive Summary

INDUSTRY: XX

XYZ Company Limited (hereinafter referred to as “XYZ” or “the company”) is a XX manufacturing company and markets its products under the brand name XX in the XX region of India.

Business valuation summary of XYZ

 

Multiple used

Equity value Rs mn

Value per share (Rs)

EV/tonne method

Rs 5,809 per tonne

EV/EBITDA method

4.5x

Discounted Cash Flow method

NA

Book value (FY10)

NA

Equity value of Rs 100 based on EV/tonne metric

EBITDA per tonne is Valuation factors in future capex plans The company has plans to
EBITDA per tonne is
Valuation factors in future capex plans
The company has plans to expand its grinding capacity from
mn tonnes to
half of FY12 and clinker capacity from
mn tonnes to
company intends to fund one-third of the capex of Rs
Key risks
Factors affecting raw material price realisations: XYZ currently enjoys higher…
Geographic concentration risks: The company’s plant is at a single location in XX
Summary of financials
Key forecast
(Rs Mn)
FY08
FY09
FY10
FY11E
FY12E
FY13E
FY14E
FY15E
Operating income
EBITDA
Adj Net income
EPS-Rs
EPS growth (%)
RoCE(%)
RoE(%)
Source: Company, CRISIL Forecast
Disclaimer:

The XX industry is inherently cyclical in nature and the most preferred valuation method for this industry is EV/tonne. As XYZ is a regional XX player, we are benchmarking it against the EV/tonne of the listed regional players, which are currently trading at Rs 4,840 per tonne of capacity. We have valued XYZ at a 20% premium to the listed regional players as XYZ enjoys significantly higher EBITDA per tonne. XYZ’s

(FY10) as against the industry average of Rs 1,255 during the same period. After

XYZ, the next highest EBITDA per tonne amongst the listed peers is ABC (ticker:, Rs 1,870) Rs 1,455. DCF and EV/tonne methodology give similar valuations, while EV/EBITDA gives a higher valuation. However, we note that EBITDA is highly sensitive to industry cycles and hence prefer to use EV/tonne.

mn tonnes by the second

mn tonnes. According to the management, the mn by internal accruals and the balance by debt,

for which it has already tied-up with banks. Accordingly, our valuation is based on the expanded capacity.

CRISIL has taken due care and caution in preparing this valuation report (report) solely for the internal use only of XYZ Company Ltd. (company) on the basis of the information / documents provided by the company and/or obtained by CRISIL from sources considered reliable. CRISIL does not guarantee the accuracy, adequacy or completeness of the information / documents / report and is not responsible for any errors or for the results obtained from the use of the same. CRISIL especially states that it has no financial liability whatsoever to the company / any other user of the report.

This report has to be read in full but especially with the statement of limiting conditions appearing in pages 2 & 3 of this report

Valuation Analysis – XYZ Company Limited

Valuation Analysis – XYZ Company Limited

Engagement Background

Scope and purpose

XYZ Company Limited (hereinafter referred to as “XYZ” or “the company”) is an integrated XX manufacturing company and markets its products under the brand name BBB in the XX region.

We understand that the management of XYZ wants to evaluate the business of the company for the purpose of internal analysis. In this regard, the management of the company has engaged CRISIL Limited (hereinafter referred to as CRISIL Research or CRISIL Equities) to conduct a report on a valuation analysis of the business of the company as at 21 July 2010.

This descriptive report is our deliverable against the same. Sources of information Industry and economy
This descriptive report is our deliverable against the same.
Sources of information
Industry and economy information
● Interviews with management of the company
● Press clippings and other publicly available information
● CRISIL Industry Research
● Other databases subscribed by CRISIL Research
Statement of limiting factors
Affecting valuation results

Company-specific information – All company-specific information, including but not limited to, past profit and loss accounts and balance sheet of XYZ Company, future profitability and cash flow projections and qualitative information on the company, were sourced from the management of the company, either in the written hard copy or digital form, or through a series of discussions with the management of the company. The information provided by the management of the company includes historical annual reports, company presentations and other relevant data.

It may be mentioned that the management of the company has been provided an opportunity to review our draft report as part of our standard practice to make sure that factual inaccuracies are avoided in our final report.

Valuation analysis and results are specific to the purpose of valuation and the valuation date mentioned in the report as agreed per terms of our engagement. It may not be valid for any other purpose or as at any other date. Also, it may not be valid if done on behalf of any other entity.

Valuation analysis and results are also specific to the date of this report. A valuation of this nature involves consideration of various factors including those impacted by prevailing stock market trends in general and industry trends in particular. As such, CRISIL Equities’ valuation results are, to a significant extent, subject to continuance of current trends beyond the date of the report. We, however, have no obligation to update this report for events, trends or transactions relating to the company or the market/economy in general and occurring subsequent to the date of this report. We provide no assurance that a sale or acquisition deal can be completed successfully at or close to our recommended valuation within a particular time frame. Our valuation only represents the most likely price around which a deal can happen if more than one independently acting potential buyers/sellers are to be found after adequate efforts but within a limited timeframe after our analysis such that they have similar knowledge of the business being transacted and its environmental factors and who have no other strategic factors weighing upon their mind as regards potential of this business.

Valuation Analysis – XYZ Company Limited

Valuation Analysis – XYZ Company Limited

In the course of the valuation, CRISIL Equities was provided with both written and verbal information, including market, technical, financial and operating data. We have, however, evaluated the information provided to us by the company through broad inquiry, analysis and review (but have not carried out a due diligence or audit of the company for the purpose of this engagement, nor have we independently investigated or otherwise verified the data provided). Through the above evaluation, nothing has come to our attention to indicate that the information provided was materially mis-stated/incorrect or would not afford reasonable grounds upon which to base the report. We do not imply and it should not be construed that we have verified any of the information provided to us, or that our inquiries could have verified any matter, which a more extensive examination might disclose. The terms of our engagement were such that we were entitled to rely upon the information provided by the company without detailed inquiry. Also, we have been given to understand by the management that it has not omitted any relevant and material factors and that it has checked out relevance or materiality of any specific information to the present exercise with us in case of any doubt. Accordingly, we do not express any opinion or offer any form of assurance regarding its accuracy and completeness. Our conclusions are based on these assumptions, forecasts and other information given by/on behalf of the company. The management of the company has indicated to us that it has understood that any omissions, inaccuracies or misstatements may materially affect our valuation analysis/results. Accordingly, we assume no responsibility for any errors in the above information furnished by the company and their impact on the present exercise. Also, we assume no responsibility for technical information furnished by the company and believe it to be reliable.

Others
Others

We express no opinion on the achievability of the forecasts given to us. The assumptions used in their preparation, as we have been explained, are based on the management’s present expectation of both - the most likely set of future business events and circumstances, and the management’s course of action related to them. It is usually the case that some events and circumstances do not occur as expected or are not anticipated. Therefore, actual results during the forecast period may differ from the forecast and such differences may be material.

No investigation of the company’s claim to title of assets has been made for the purpose of this valuation and the company’s claim to such rights has been assumed to be valid. No consideration has been given to liens or encumbrances against the assets, beyond the loans disclosed in the accounts. Therefore, no responsibility is assumed for matters of a legal nature. The fee for the report is not contingent upon the results reported.

We owe responsibility to only the directors of the company that has retained us and nobody else.

CRISIL Equities does not accept any liability to any third party in relation to the issue of this valuation report.

Neither the valuation report nor its contents may be referred to or quoted in any registration statement, prospectus, offering memorandum, annual report, loan agreement or other agreement or document given to third parties without our prior written consent. We retain the right to deny permission for the same.

Valuation Analysis – XYZ Company Limited

Valuation Analysis – XYZ Company Limited

Key factors affecting projections and valuations

Key factors affecting RM prices

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Key factors affecting costs and profitability

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This report has to be read in full but especially with the

Valuation Analysis – XYZ Company Limited

Valuation Analysis – XYZ Company Limited

Industry Overview

XXXX is a regional play

An explanation on the Indian XXX industry – details on current peculiarities, trends, etc.

CHART

Source: CMA, CRISIL Equities

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

This report has to be read in full but especially with the

Valuation Analysis – XYZ Company Limited

Valuation Analysis – XYZ Company Limited

Company Positioning

Positioning of the company vis-avis peers; geographic presence – sales mix/market share

peers; geographic presence – sales mix/market share This report has to be read in full but

Valuation Analysis – XYZ Company Limited

Valuation Analysis – XYZ Company Limited

SWOT Analysis

Strengths

xx

Opportunities

xx

Weakness

Threats

xx

xx

• xx Opportunities • xx Weakness • Threats • xx xx This report has to be

Valuation Analysis – XYZ Company Limited

Valuation Analysis – XYZ Company Limited

Financial Summary

Revenues Table

Revenues to grow at a …………

XXXX

.

Key forecast

(Rs Mn) FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E Net Revenues % growth (Y-o-Y)
(Rs Mn)
FY08
FY09
FY10
FY11E
FY12E
FY13E
FY14E
FY15E
Net Revenues
% growth (Y-o-Y)
Source: Company, CRISIL Equities Estimates
Installed Capacity
FY08
FY09
FY10
FY11E
FY12E
FY13E
FY14E
FY15E
Grinding Capacity (MTPA)
Additions
Clinker Capacity
Additions
Expected
Particulars
Capacity
Cost (Rs mn)
commissioning date
Cement grinder
,000 MTPA
FY12
Clinker
,000 MTPA
FY12
Power plant
MW
FY12
Total capacity post expansion
Cement grinder
MTPA
Clinker
MTPA
Power plant
MW

Valuation Analysis – XYZ Company Limited

Valuation Analysis – XYZ Company Limited

XYZ’s PAT margin and return ratios to

Total debt-equity ratio to …

In FY10, XYZ’s total debt-equity ratio was 0.5x compared to 0.4x. The marginal rise in the ratio was due to the capex incurred by the company.

Debt-to-equity to remain at comfortable levels

Trends in Total Debt and Debt-Equity Ratio

FY08

FY09

FY10

FY11E

FY12E

FY13E

FY14E

FY15E

Total Debt (Rs Mn) Debt-Equity

then decline to x in FY12E and x in FY13E, respectively.
then decline to
x
in FY12E and
x
in FY13E, respectively.

Source: Company, CRISIL Equities Estimates

Going forward, we expect the company’s total debt-equity to peak in FY11E at

x and

Valuation Analysis – XYZ Company Limited

Valuation Analysis – XYZ Company Limited

Valuation

Valuation methodology

We have used the following methods for valuation:

Comparable company multiples

o

EV/EBITDA

o

EV/tonne

Discounted cash flow

● Book value Business valuation summary of XYZ Equity Valuation EV/Tonne Method EV/EBITDA Method Discounted
Book value
Business valuation summary of XYZ
Equity Valuation
EV/Tonne Method
EV/EBITDA Method
Discounted Cash Flow Method
Book Value (FY10)
Multiple used Equity Value Rs mn Value per share (Rs)
Rs5,809 per tonne
4.5x
-
-

AN EXPLANATION OF ALL METHODS USED

Valuation Analysis – XYZ Company Limited

Valuation Analysis – XYZ Company Limited
Income Statement (Rs mn) FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E Net sales Operating
Income Statement
(Rs mn)
FY08
FY09
FY10
FY11E
FY12E
FY13E
FY14E
FY15E
Net sales
Operating Income
EBITDA
Depreciation
Interest
Other Income
PBT
PAT
No. of shares
Earnings per share (EPS)
Balance Sheet
(Rs mn)
FY08
FY09
FY10
FY11E
FY12E
FY13E
FY14E
FY15E
Equity capital (FV - Rs 10)
Reserves and surplus
Debt
Current Liabilities and Provisions
Deferred Tax Liability/(Asset)
Minority Interest
Capital Employed
Net Fixed Assets
Capital WIP
Intangible assets
Investments
Loans and advances
Inventory
Receivables
Cash & Bank Balance
Applications of Funds
Source: Company, CRISIL Equities Estimates

Valuation Analysis – XYZ Company Limited

Valuation Analysis – XYZ Company Limited
Cash Flow (Rs mn) FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E Pre-tax profit Total
Cash Flow
(Rs mn)
FY08
FY09
FY10
FY11E
FY12E
FY13E
FY14E
FY15E
Pre-tax profit
Total tax paid
Depreciation
Change in working capital
Cash flow from operating activities
Capital expenditure
Investments and others
Cash flow from investing activities
Equity raised/(repaid)
Debt raised/(repaid)
Dividend (incl. tax)
Others (incl extraordinaries)
Cash flow from financing activities
Change in cash position
Opening Cash
Closing Cash
Ratios
FY08
FY09
FY10
FY11E
FY12E
FY13E
FY14E
FY15E
Growth ratios
Sales growth (%)
EBITDA growth (%)
EPS growth (%)
Profitability Ratios
EBITDA Margin (%)
PAT Margin (%)
Return on Capital Employed (RoCE) (%)
Return on equity (RoE) (%)
Dividend and Earnings
Dividend per share (Rs)
Dividend payout ratio (%)
Dividend yield (%)
Earnings Per Share (Rs)
Efficiency ratios
Asset Turnover (Sales/GFA)
Asset Turnover (Sales/NFA)
Sales/Working Capital
Financial stability
Net Debt-equity
Interest Coverage
Current Ratio

Source: Company, CRISIL Equities Estimates

Notes

Notes

Notes

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