CVR_final

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Cash Flow Projections

We have projected FCFE and FCFF for Punj Lloyd using the financial statements. We have estimated the

growth rate for the firm using the formula;

Expected Growth in net income= Equity reinvestment rate rate*Return on Equity

Where,

Equity reinvestment rate = (Capex- Depreciation+ Change in non-cash NWC-New Debt Issued+

Debt repaid)/Net Income

For calculating the growth rate we have used the arithmetic averages of the various values for the last

four years.

For projecting both the FCFF and FCFE, we have made the following assumptions:

yGrowth Rate has bee linked to the Reinvestment Rate till 2018, after that the growth rate hasbeen assumed to be 4% considering the growth of the Indian economy to be 4% afterwards

y For calculating the Reinvestment ratio the average values of all the parameters over the lastfour years have been used

y The net sales have been forecasted to grow at the calculated growth rate to take care of theaccounting manipulations

y CAPEX, change in NWC, Depreciation, New dwbt issued and debt repaid have been forecastedlinking them to the net revenue, the ratios which they had in 2010 have been maintained for

future years

y CAPEX has been assumed to be equal to depreciation from the year 2012y The terminal value has been assumed to be the value of the firm in 2018

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Income Statement Projections(Rs in Crs)

Profit and Loss

Statement

Mar

09(1

2)

Mar

10(1

2)

FY11 (E) FY12 (E) FY13

(E)

FY14

(E)

FY15

(E)

FY16(E) FY17

(E)

FY18

(E)

FY19(E

)

FY20(E

)

INCOME : 1 2 3 4 5 6 7 8 9

Sales Turnover 6,85

2

7,11

7

8,576 9,759 11,104 12,635 14,378 16,360 18,616 21,183 22,030 22,911

Excise Duty 0 0 0 0 0 0 0 0 0 0 0 0

Total Income 6,95

1

7,53

7

8,576 9,759 11,104 12,635 14,378 16,360 18,616 21,183 22,030 22,911

Sales growth 13.8% 13.8% 13.8% 13.8% 13.8% 13.8% 13.8% 13.8% 4.0% 4.0%

EXPENDITURE :

Raw Materials 2377 324

9

3259 3708 4220 4801 5463 6217 7074 8049 8371 8706

Power & Fuel

Cost

138.

42

125.

69

240.433

4574

273.585

4725

311.30

8632

354.23

3226

403.07

645

458.65

4391

521.89

566

593.85

691

617.61

119

642.31

564

As a % of

Operating

expenses

0.02

3

0.01

9

0.032 0.032 0.032 0.032 0.032 0.032 0.032 0.032 0.032 0.032

Employee Cost

Salaries,Wages &

Bonus

570 698 466 530 603 686 781 888 1011 1150 1196 1244

As a % of

Operating

expenses

9.37

%

10.6

4%

6.10% 6.10% 6.10% 6.10% 6.10% 6.10% 6.10% 6.10% 6.10% 6.10%

Other

Manufacturing

Expenses

1798 146

1

1458 1659 1888 2148 2444 2781 3165 3601 3745 3895

As a % of

Operating

expenses

29.5

4%

22.2

7%

19.10% 19.10% 19.10% 19.10% 19.10

%

19.10% 19.10

%

19.10

%

19.10

%

19.10

%

Selling and

Administration

Expenses

1074

.58

919.

15

878 999 1137 1293 1472 1674 1905 2168 2255 2345

As a % of

Operating

expenses

17.6

6%

14.0

1%

11.50% 11.50% 11.50% 11.50% 11.50

%

11.50% 11.50

%

11.50

%

11.50

%

11.50

%

Miscellaneous

Expenses

128.

15

109.

81

99 113 128 146 166 189 215 245 255 265

As a % of

Operating

expenses

2.11

%

1.67

%

1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%

Less: Pre-

operative

Expenses

Capitalised

0 0 0 0 0 0 0 0 0 0 0 0

Operating

expensebefore

depreciation

6086 656

3

7633 8685 9883 11245 12796 14560 16568 18853 19607 20391

As a % of sales 0.89 0.92 0.89 0.89 0.89 0.89 0.89 0.89 0.89 0.89 0.89 0.89

Depreciation 119 133 183 208 237 270 307 349 398 452 471 489

Operating

expense

6,20

6

6,69

6

7,816 8,894 10,120 11,515 13,103 14,910 16,966 19,305 20,077 20,880

EBIT 745 841 760 865 984 1,120 1,274 1,450 1,650 1,878 1,953 2,031

Interest 251 429 515 515 515 515 515 515 515 515 515 515

PBT 495 413 246 350 470 605 760 936 1,136 1,363 1,438 1,516

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Tax Rate 34% 34% 34% 34% 34% 34% 34% 34% 34% 34% 34% 34%

PAT 327 272 162 231 310 400 502 617 749 900 949 1001

Valuation by FCFF method

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Operating Income= 841 760 865 984 1,120 1,274 1,450 1,650 1,878 1,953 2,031

Operating

Income(1-tax rate)=

555.3042 501.7

276

570.9

08

649.627

3274

739.2

008

841.1

25

957.1

03

1089.

073

1239.2

3862

1288.

808

1340.

36

CAPEX= 225.93 276.4

519

314.8

234

358.520

9266

408.2

836

307.1

059

349.4

51

397.6

348

452.46

2411

470.5

609

489.3

833

Change in NWC= -117.4 42.11

381

42.11

381

42.1138

073

42.11

381

42.11

381

42.11

381

42.11

381

42.113

8073

42.11

381

42.11

381

Depreciation= 132.68 183.1

874

208.4

461

237.187

5293

269.8

92

307.1

059

349.4

51

397.6

348

452.46

2411

470.5

609

489.3

833

FCFF= 579.4542 366.3

493

422.4

169

486.180

1227

558.6

953

799.0

112

914.9

892

1046.

959

1197.1

2481

1246.

694

1298.

247

Ke= 0.159362428 WACC=

0.112046

Present Value of

FCFF=

579.4542 329.4

372

341.5

825

353.532

0387

365.3

287

469.8

279

483.8

148

497.8

172

511.86

6817

Present Value of

firm after termianl

Year=

17304.11031

Total Value of

firm=

21236.77167

Sensitivity Analysis for Firm value with expected growth rate and WACC

21236.77167 13.78843669 13 12 11 10 9 8 7 6 5 4

0.11204614 21236.77167 21236.77

21236.77

21236.77167

21236.77

21236.77

21236.77

21236.77

21236.7717

21236.77

21236.77

0.12 19402.12583 19402

.13

19402

.13

19402.1

2583

19402

.13

19402

.13

19402

.13

19402

.13

19402.

1258

19402

.13

19402

.13

0.13 17534.72535 17534

.73

17534

.73

17534.7

2535

17534

.73

17534

.73

17534

.73

17534

.73

17534.

7254

17534

.73

17534

.73

0.14 16021.64799 16021

.65

16021

.65

16021.6

4799

16021

.65

16021

.65

16021

.65

16021

.65

16021.

648

16021

.65

16021

.65

0.15 14767.87658 14767

.88

14767

.88

14767.8

7658

14767

.88

14767

.88

14767

.88

14767

.88

14767.

8766

14767

.88

14767

.88

0.16 13709.92258 13709

.92

13709

.92

13709.9

2258

13709

.92

13709

.92

13709

.92

13709

.92

13709.

9226

13709

.92

13709

.92

0.1 24895.04751 24895

.05

24895

.05

24895.0

4751

24895

.05

24895

.05

24895

.05

24895

.05

24895.

0475

24895

.05

24895

.05

0.09 29214.59508 29214

.6

29214

.6

29214.5

9508

29214

.6

29214

.6

29214

.6

29214

.6

29214.

5951

29214

.6

29214

.60.08 35622.83472 35622

.83

35622

.83

35622.8

3472

35622

.83

35622

.83

35622

.83

35622

.83

35622.

8347

35622

.83

35622

.83

0.07 46198.4751 46198

.48

46198

.48

46198.4

751

46198

.48

46198

.48

46198

.48

46198

.48

46198.

4751

46198

.48

46198

.48

0.06 67175.95663 67175

.96

67175

.96

67175.9

5663

67175

.96

67175

.96

67175

.96

67175

.96

67175.

9566

67175

.96

67175

.96

0.05 129723.6998 12972

3.7

12972

3.7

129723.

6998

12972

3.7

12972

3.7

12972

3.7

12972

3.7

129723

.7

12972

3.7

12972

3.7

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Valuation by FCFE method

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Net Income= 272 162 231 310 400 502 617 749 900 949 1001

CAPEX= 225.93 276.45

19

314.823

4

358.5209

266

408.28

36

307.10

59

349.45

1

397.63

48

452.462

411

470.56

09

489.38

33

Change in

NWC=

-117.40 42.113

81

42.1138

1

42.11380

73

42.113

81

42.113

81

42.113

81

42.113

81

42.1138

073

42.113

81

42.113

81

Depreciation= 133 183 208 237 270 307 349 398 452 471 489

New Debt

Issued=

565.15 786.09

85

515 515 515 515 515 515 515 515 515

Debt Repaid= 429 515 515 515 515 515 515 515 515 515 515

FCFE= 433.00 298.26 82.80 146.56 219.08 459.39 575.37 707.34 857.51 907.08 958.63

Ke= 0.159362428 WACC

=

0.11204

6

Present Valueof FCFE=

432.9954 257.2616

61.60143

94.05173222

121.2613

219.3256

236.9373

251.2434

262.714636

Present Value

of equity after

Terminal Year

7599.353412

Total value of

Equity =

9536.745834

Number of

outstanding

shares=

332095745

Estimated

Price of Shares

in the market=

287.1685644

Sensitivity Analysis of Share price with Ke and Expected growth rate

287.1685644 13.78

844

13 12 11 10 9 8 7 5 4 3 2

0.159362428 287.1

686

267.1

808

243.1696

512

220.5

865

199.3

589

179.4

173

160.6

952

143.129

247

111.2

255

96.77

438

83.25

255

70.60

959

0.15 308.5

294

286.9

602

261.0526

758

236.6

899

213.7

933

192.2

876

172.1

008

153.164

141

118.7

815

103.2

128

88.64

873

75.03

465

0.14 335.4

985

311.9

319

283.6297

14

257.0

2

232.0

164

208.5

364

186.5

012

165.835

145

128.3

258

111.3

479

95.46

98

80.63

175

0.13 368.1

254

342.1

415

310.9415

938

281.6

133

254.0

61

228.1

933

203.9

229

181.166

048

139.8

777

121.1

971

103.7

318

87.41

561

0.12 408.4904

379.5148

344.7290817

312.0372

281.3321

252.5112

225.4767

200.13489

154.1756

133.3912

113.9653

95.82356

0.11 459.8

573

427.0

73

387.7231

906

350.7

507

316.0

337

283.4

558

252.9

054

224.276

068

172.3

783

148.9

2

127.0

026

106.5

418

0.1 527.6

585

489.8

454

444.4697

607

401.8

467

361.8

347

324.2

988

289.1

096

256.143

62

196.4

143

169.4

308

144.2

295

120.7

125

0.16 285.8

284

265.9

398

242.0476

332

219.5

762

198.4

533

178.6

098

159.9

797

142.499

693

110.7

515

96.37

06

82.91

421

70.33

222

0.17 266.4

312

247.9

782

225.8076

103

204.9

521

185.3

45

166.9

222

149.6

229

133.388

404

103.8

935

90.52

876

78.02

032

66.32

179

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0.18 249.6

47

232.4

358

211.7545

924

192.2

973

174.0

019

156.8

089

140.6

615

125.505

516

97.96

216

85.47

79

73.79

096

62.85

822

0.19 234.9

678

218.8

423

199.4633

608

181.2

289

164.0

808

147.9

636

132.8

243

118.612

12

92.77

722

81.06

398

70.09

658

59.83

475

0.2 222.0

11

206.8

435

188.6138

742

171.4

587

155.3

234

140.1

562

125.9

07

112.528

401

88.20

29

77.17

106

66.83

971

57.17

108

0.21 210.4

832

196.1

677

178.9604

432

162.7

655

147.5

315

133.2

096

119.7

528

107.116

318

84.13

5

73.71

015

63.94

552

54.80

554

0.22 200.1

549

186.6

026

170.3111

683

154.9

765

140.5

501

126.9

857

114.2

392

102.268

055

80.49

212

70.61

175

61.35

559

52.69

003

0.23 190.8

445

177.9

799

162.5138

626

147.9

546

134.2

563

121.3

751

109.2

691

97.8981

073

77.20

973

67.82

077

59.02

36

50.78

639

0.24 182.4

056

170.1

642

155.4461

896

141.5

898

128.5

515

116.2

897

104.7

644

93.9377

428

74.23

596

65.29

291

56.91

232

49.06

396

Valuation by DDM method

Sensitivity Analysis

Stable Growth Rate

1.74 3.0% 3.5% 4.0% 4.5% 5.0%

12% 2.48 2.57 2.67 2.78 2.91

Cost of Equity 13% 2.21 2.28 2.35 2.44 2.53

14% 1.99 2.04 2.10 2.17 2.24

15% 1.81 1.85 1.90 1.95 2.00

16% 1.66 1.69 1.73 1.77 1.81

Valuation by Multiples

The peer group of Punj Lloyd includes:

2010 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E Terminal value

Dividends 4.990 5.449 5.949 6.496 7.093 7.745 8.457 9.234 10.082 88

V of Dividends 4.700 4.426 4.169 3.926 3.698 3.482 3.280 3.089 26.914

Value of the Firm 58 Crores

Value

er Share 1.74 Rupees

1.74 7.0% 8.0% 9.0% 10.0% 11 .0%

12% 3.70 4.38 5.53 7.82 14.68

Cost of Equity (Ke) 13% 3.07 3.50 4.15 5.22 7.37

14% 2.62 2.91 3.32 3.92 4.93

15% 2.29 2.49 2.76 3.14 3.71

16% 2.03 2.17 2.37 2.62 2.98

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y Gammon Indiay Hind Constructions (HCC)y IVRCLy NCC

The values for each firm were calculated as below:

Calculation of ratios

Price Sales ratio Price Earnings Ratio

P/E As of 29/07/2011

Gammon India 9.5

Hind. Construct. 27.7

IVRCL 10.5

NCC 12

Average 14.925

Value per Share 47.27

Price BookValueP/BV As of 29/07/2011

Gammon India 0.630


IVRCL 0.830

NCC 0.790

Average 0.863


2

e

ar

e

ap

a

h

V Sale

P

Pr

e

29!

"

!

2

#

$

a% %

&

a ' ( ) 0 1 2 3 4' ( ' 5 6

2

) 0

7

)

2

1 5

) ( 1 6 )

2

8

7

1 ( 3 ) 6

2

4 8 1 5 '

2

3

7

1 ' 6

2

4 1

' 6 )

2

8 '

5

7

H

&

.

ru

. ) ( 3 ' 1 27

6 ' ( 5 1

7

2

' 6 ' 5 5

2

8 ) 1 ( '

7

8

2

1 5 8 ( 4 1 1

2

) 6 1

7

3

2

5 0 8 4 '

2

0 0 5 4

2

) ' 8 6

V9

@

' ( 4 ' 8

2

8 )' ( 4 4 6

2

7

1' 4 1

2

8 48 ( ' 6 0

2

7

63 ( 1 0 )

2

) 5 3 0 3

2

' 43 1 6

2

5 5

7

)

2

04 )

A

' ( 3 8 6

2

' 5 ' ( 5

7

)

2

5 ) ' 0 0

2

4 5 8 ( ) 6 8

2

8 ) 1 (

7

3 0

2

' 4 4 6 '

2

4 3 1 0

2

6 4 ' 0 0

2

4

7

8

Pu

j@

l

B

&

8 ( 3 6 8

2

6 6 ) ( 8 8 4

2

8 ) ' 5 '

2

) 1 3 ( 4 3 5

2

6 5

7

( ' ' 4

2

4 0 0

7

1

2

6 3 5 1 '

2

8

7

' 6 3

2

' 0

7

6

PCS As of 29/07/2011

Gammon India 0.016


IVRCL 0.011

NCC 0.014

Average 0.012


8/6/2019 CVR_final

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Enterprise Value/EBITDA Enterprise Value/EBIT

EV/ EBIT 2010

Gammon India 5.85


IVRCL 5.75

NCC 5.83

Average 7.24

EV 6092.17


Enterprise Value/SalesEV/ SALES 2010

Gammon India 0.53


IVRCL 0.57

NCC 0.67

Average 0.73

EV 5187.96


Valuation Summary and Recommendations

Share price as on 29th July 2011: Rs. 70

Valuation Method Estimated Target Price Recommendation

DCF Valuation Method

y DDM Valuation 1.74 Selly FCFE Valuation 287.1685644 Buy

Comparative Multiples Method

y P/S 50.70 Buyy P/BV 92.44 Selly P/E 47.27 Buyy EV/ EBITDA 78.22 Holdy EV/ EBIT 83.42 Selly EV/S 56.19 Buy

EV/ EBITDA 2010

Gammon India 4.99


IVRCL 5.22

NCC 5.32

Average 6.08

EV 5919.33


8/6/2019 CVR_final

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Conclusion

Analysis of the valuation by the discounted Cash Flow methods

The market price at close to Rs. 68 is way below our valuation; this can be attributed to a very high riskperception of the company by the investors. But still the difference is very high which means the market

does not perceive the company to grow at the rate we have calculated using their reinvestment ratio.

Also since all the competitors of Punj are valued at almost the same relative value, we can say that the

market is a bit inefficient.

Analysis of the valuation by the multiples methods

All the multiples suggest prices very close to the market value, which is in-line with the implicit

assumption of the methods that the markets are efficient.

Analysis of the valuation by the Dividend discount Method

The DD method gives us a very low price because of the very small amount of dividends paid by the

company, which is natural because the company is growing very fast and is operating in a very volatile

environment, which obligates the company to maintain a low dividend level.

8/6/2019 CVR_final

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Appendix

Calculation for Ke and WACC

Beta Calculation

Result of 3 years regression

Covar of stock with market im 0.00461834

Variance of the Market m2

0.00037788

Beta (Covariance/variance) 12.2216561

Result of 1 years regression

Covar of stock with market im 0.000205

Variance of the Market m2

0.00012

Beta (Covariance/variance) 1.710643

D E 1 E F ata G unH

I loyF

Pa

Q Qon

Rn

Fia

I t F

Sin

Fustan

Construction R T RCI I t F U CC I t F

Ve

Wt for the

Xatest

Y

ear in crores 3503.0000 12

4.5600 2514.7000 1613.3200 1530.1800

a b c itY

for the X atestY

ear in crores 3577.0700 1 44. 000 1517.1800 1853.2600 2245.6600V

d

aratio 0.

7

3 0.6656 1.6575 0.8705 0.6814

I evere F Beta 1e f g h i

Ta p rate 0.3400

qnlevere

FBeta

E e r f i h

Calculations for Punj Lloyd

Target D/E ratio= industry average D/E 0.9709

Tax rate t 0.3400

Levered Beta (Proposed) L 1.5692

Risk free rate Rf 0.0809

Market Risk Premium Rm -Rf 0.0500

Cost of equity = Rf + beta * mkt risk premium Ke 0.1594

Post tax Cost of debt Kd(1-t) 0.0637

Debt D 3503.0000 in crores

Equity E 3577.0700 in crores

Debt + Equity D+E 7080.0700 in crores

WACC 0.1120

Total Debt 3503 2937.85 1367.65 1518.64

Interest 428.6800 250.5700 154.0600 100.1200

Cost of debt 0.1224 0.0853 0.1126 0.0659

Average cost of Debt 0.0966

Assumptions

1. Risk free rate considered is the interest rate on 30 year T-bond

2. Cost of debt is calculated as average interest rate paid by the firm over past 4 years with calculations shown

3. Marginal tax rates have been considered

8/6/2019 CVR_final

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Beta with 3 year NSE return 1.4385

Beta with 1 year NSE return 1.7106

Average 1.5746

Documents

CVR_final