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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
8/6/2019 CVR_final
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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
8/6/2019 CVR_final
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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
8/6/2019 CVR_final
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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
Hind. Construct. 1.200
IVRCL 0.830
NCC 0.790
Average 0.863
Value per Share 92.44
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
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2
8 '
5
7
H
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.
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. ) ( 3 ' 1 27
6 ' ( 5 1
7
2
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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
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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
Hind. Construct. 0.007
IVRCL 0.011
NCC 0.014
Average 0.012
Value per Share 50.70
8/6/2019 CVR_final
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Enterprise Value/EBITDA Enterprise Value/EBIT
EV/ EBIT 2010
Gammon India 5.85
Hind. Construct. 11.53
IVRCL 5.75
NCC 5.83
Average 7.24
EV 6092.17
Value per Share 83.42
Enterprise Value/SalesEV/ SALES 2010
Gammon India 0.53
Hind. Construct. 1.15
IVRCL 0.57
NCC 0.67
Average 0.73
EV 5187.96
Value per Share 56.19
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
Hind. Construct. 8.77
IVRCL 5.22
NCC 5.32
Average 6.08
EV 5919.33
Value per Share 78.22
8/6/2019 CVR_final
8/10
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
Recommended