XYZ Company Limited Date Valuation Report: DUMMY 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 EV/tonne method Rs 5,809 per tonne EV/EBITDA method 4.5x Discounted Cash Flow method NA Book value (FY10) NA Equity value Rs mn Value per share (Rs) Equity value of Rs 100 based on EV/tonne metric 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 EBITDA per tonne is (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. Valuation factors in future capex plans The company has plans to expand its grinding capacity from mn tonnes to mn tonnes by the second half of FY12 and clinker capacity from mn tonnes to mn tonnes. According to the management, the company intends to fund one-third of the capex of Rs 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. 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: 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
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 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. 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 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. Statement of limiting factors Affecting valuation results 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. This report has to be read in full but especially with the statement of limiting conditions appearing in pages 2 & 3 of this report 2
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. 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. Others 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. This report has to be read in full but especially with the statement of limiting conditions appearing in pages 2 & 3 of this report 3
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 statement of limiting conditions appearing in pages 2 & 3 of this report 4
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 statement of limiting conditions appearing in pages 2 & 3 of this report 5
Company Positioning Positioning of the company vis-avis peers; geographic presence sales mix/market share This report has to be read in full but especially with the statement of limiting conditions appearing in pages 2 & 3 of this report 6
SWOT Analysis Strengths Weakness xx xx Opportunities Threats xx xx This report has to be read in full but especially with the statement of limiting conditions appearing in pages 2 & 3 of this report 7
Financial Summary Revenues to grow at a XXXX. Revenues Table Key forecast (Rs Mn) FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E Net Revenues % growth (Y-o-Y) Source: Company, CRISIL Equities Estimates Installed Capacity Grinding Capacity (MTPA) Additions Clinker Capacity Additions FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E Particulars Capacity Cost (Rs mn) Expected commissioning date Cement grinder,000 MTPA FY12 Clinker,000 MTPA FY12 Power plant MW FY12 Total capacity post expansion Cement grinder Clinker Power plant MTPA MTPA MW This report has to be read in full but especially with the statement of limiting conditions appearing in pages 2 & 3 of this report 8
XYZ s PAT margin and return ratios to.. Debt-to-equity to remain at comfortable levels 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. Trends in Total Debt and Debt-Equity Ratio FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E Total Debt (Rs Mn) Debt-Equity Source: Company, CRISIL Equities Estimates Going forward, we expect the company s total debt-equity to peak in FY11E at x and then decline to x in FY12E and x in FY13E, respectively. This report has to be read in full but especially with the statement of limiting conditions appearing in pages 2 & 3 of this report 9
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 Multiple used Equity Value Rs mn Value per share (Rs) EV/Tonne Method Rs5,809 per tonne EV/EBITDA Method 4.5x Discounted Cash Flow Method - Book Value (FY10) - AN EXPLANATION OF ALL METHODS USED This report has to be read in full but especially with the statement of limiting conditions appearing in pages 2 & 3 of this report 10
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 This report has to be read in full but especially with the statement of limiting conditions appearing in pages 2 & 3 of this report 11
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 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 FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E This report has to be read in full but especially with the statement of limiting conditions appearing in pages 2 & 3 of this report 12
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CRISIL Independent Equity Research Team Mukesh Agarwal magarwal@crisil.com +91 (22) 3342 3035 Director Tarun Bhatia tbhatia@crisil.com +91 (22) 3342 3226 Director- Capital Markets Analytical Contacts Chetan Majithia chetanmajithia@crisil.com +91 (22) 3342 4148 Sudhir Nair snair@crisil.com +91 (22) 3342 3526 Sector Contacts Nagarajan Narasimhan nnarasimhan@crisil.com +91 (22) 3342 3536 Ajay D'Souza adsouza@crisil.com +91 (22) 3342 3567 Manoj Mohta mmohta@crisil.com +91 (22) 3342 3554 Sachin Mathur smathur@crisil.com +91 (22) 3342 3541 Sridhar C sridharc@crisil.com +91 (22) 3342 3546 Business Development Contacts Vinaya Dongre vdongre@crisil.com +91 99 2022 5174 Sagar Sawarkar ssawarkar@crisil.com +91 98 2163 8322 Client Servicing Client Servicing clientservicing@crisil.com +91 22 3342 3561 CRISIL s Equity Offerings The Equity Group at CRISIL Research provides a wide range of services including: Independent Equity Research IPO Grading White Labelled Research Valuation on companies for use of Institutional Investors, Asset Managers, Corporate Other Services by the Research group include CRISINFAC Industry research on over 60 industries and Economic Analysis Customised Research on Market sizing, Demand modelling and Entry strategies Customised research content for Information Memorandum and Offer documents
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