final fadm presentation2

8/7/2019 final fadm presentation2

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Abhishek Kumar

Shubhjeet Gill

Pramod Semwal

Shavan Das

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PRESENTORS


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Enterprise value Is the intrinsic value of the company as a whole.

Sum of the value of the stakes of all the stake holders.

It includes, value of equity shares, preference shares, secured

and unsecured debt.


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FIRM VALUATION IN MERGERS AND

ACQUISITIONS

y Equity Valuation Models- Balance Sheet Valuation Models

Book Value: the net worth of a company asshown on the balance sheet.

Liquidation Value: the value that would bederived if the firms assets were liquidated.

Replacement Cost: the replacement cost of itsassets less its liabilities.


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Methods of enterprise/equity valuation

y There are primarily four approaches:-

1. Assets based valuation approach.

2. Relative valuation approach.3. Capitalization of earnings approach.

4. Cash flow based valuation approach.


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Assets based valuation approach

This approach assumes that the value of the company is the

sum total of the value of its individual assets.


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Relative evaluation approachIt involves valuing a company by comparing it with thevaluation of other companies in the same industry.

This is done using 2 approaches:-y Comparison with industry averages

y Comparison with comparable companies


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Comparison with industry

y In this approach, we compare the P/E ratio of the

company being valued with the average P/E ratio ofthe industry as a whole to which the company belongs.


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Comparison with companies

Yardsticks of measurements are:

Business modelsGrowth rates

Risk elements in the business

Debt to equity ratios

Dividend policies

Quality of management


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Capitalization of earnings

approachCompany is valued based on the multiples of its

accounting earnings.

Projected earnings of the companyBased on:-

y Cost equity

y Estimated pay out ratio

y Estimated growth rate in sales


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Cash Flow Based Evaluation

Approach

This is basically done on the

concept of NPV or DCF (discounted cash flow

method)


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LOGO

VALUATION OF A COMPANYVALUATION OF A COMPANY

The Power of Inner Strength


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RECENT SCENARIO

We believe that the near term macro-economicconditions for the cement industry haveimprovedsignificantly with :-

y softeninginterest rates, sharp correction in coal andpet coke.

y prices and firming up of cement prices due to strongdemand.

We also believe that due to :-

y healthierbalance sheets, moderate consolidation.

y use of more cost efficient technology.

y changein the macro environment

cement players willbebetter off compared to theearlierdown cycle.


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Major Players of Cement Industry in IndiaMajor Players of Cement Industry in Indiay UltraTech Cement Co Ltd.

y Grasim Industries Limited

y The India Cements Limited

y Century Textiles and Industries Limited

y Birla Corp Limited

yJaiprakash Industries Limited

y Lafarge

y Ambuja cement

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Others


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Company backgroundy Dalmia Cements (Bharat) Ltd (DCBL) was established in 1935.

y DCBL has two major business segments cement and sugar.

y The company started its cement operations in 1939.

y DCBL has a presence only in the southern region.

y The companys other product profile includes power, refractories and refractory

products, multilayer ceramic chip capacitors, industrial alcohol and others.

y DCBL has a current cement capacity of 3.5 MT with a plant in Tamil Nadu.

y The company is in the process of expanding its cement capacity by 4.5 MT by setting

up plants at Kadapa, Andhra Pradesh and Ariyalur, Tamil Nadu of 2.25 MT each.


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SWOT ANALYSISSWOT ANALYSISSTRENGTHSSTRENGTHS

Brand name

Sea transportation

Captive power plant

Fuel efficiency

WEAKNESSESWEAKNESSES

Cement industry is highly fragmented

Demand-supply gap, overcapacity

Increasing cost of production

High interest ratesPackaging

OPPORTUNITIESOPPORTUNITIES

Government infrastructure spending

Investment in industrial and

commercial projects

Commercial construction activity

THREATSTHREATS

Imports from Pakistan affectingmarkets in North India

Excess overcapacity can hurt margins

as well as prices

Consolidation through Mergers &

Acquisitions


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COMPARISON

ACC CEMENTS

Attribute Value Date

PE ratio 17.41 25/03/11

EPS (Rs) 59.59 Dec, 10

Sales (Rs crore) 2,088.86 Dec, 10

Face Value (Rs) 10

Net profit margin (%) 14.26 Dec, 10

Last bonus 3:5 02/04/96

Last dividend (%) 205 03/02/11

Return on average equity 17.31 Dec, 10


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Dalmia cement to demerged


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Dalmia cement to demerged

cement and power unit

y As a part of its restructuring plan, Dalmia Cement (Bharat)Limited plans to demerge its cement, power and refractorybusinesses into a separate entityDalmia Bharat Enterprises

Limited- which will be listed on the stock exchange by end ofthis year.

Dalmia Cement (Bharat) Limited will become a sugarcompany which will be renamed later. As a part of the

demerger, DBEL will issue one share of Rs 2 for every oneshare of the same amount owned by an investor in DCBL.

The cement and thermal power business will be managedunder DBEL as two separate subsidiaries - Avnija Propertiesand DCB Power Ventures.


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REASON OF DECLINE

y Regional player

The company has presence only in southern markets. Out ofthe expected 62 MT capacity addition at an all-India level in

FY10, around 47% is coming up in the southern region, whichwill lead to a worsening situation.

y High debt to equity

DCBL has total capex of around Rs 1250 crore and is funded

by debt of Rs 1100 crore and balance through internalaccruals.The company has debt equity ratio of 1.9 for FY09E,highest among our coverage industry.


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Cont..

y High exposure to equity investmentsDCBL has exposure to equity market investments on which ithad a notional loss of Rs 160 crore on its investment books ason December 31 2008.

y High debt to increase payoff periodThe company is adding capacity at nearly Rs 2778/tonne.80% of the capex has been funded through debt. The payoffperiod for the company after accounting for interest expense

and interest accrued during the moratorium period will beclose to six years.


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INVESTMENT CONCERN

y High debt to increase payoff periodThe company is adding capacity at nearly Rs 2778/tonne.80% of the capex has been funded through debt. The payoffperiod for the company after accounting for interest expense

and interest accrued during the moratorium period will beclose to six years.

y High exposure to equity investments

The company has exposure to equity market investments on

which it had notional loss of Rs 160 crore on its investmentbooks as on December 31 2008.


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CONCERNS CONT

y High-cost coal inventories procurement till Q4FY09

Dalmia had procured imported coal at nearly $190 per tonne.

We expect these high-cost coal inventories to be consumedby Q4FY09. Thus, it will depress the Q4FY09 earnings of thecompany. We expect the company to only benefit in terms ofcoal cost from Q1FY11 as imported coal prices have correctedby nearly 67.8% from their peak.


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CONCLUSIONWe believe Dalmia Cement being a regional player havinghigh debt/equity is more vulnerable to its peers in a downcycle.

Also we expect the return ratios of DCBL to decline below

WACC in the current down cycle.Factoring in concerns like lower return ratios, high leverageand presence in price sensitive markets of southern India, weexpect Dalmia Cement to continue to trade at a steep

discount to its replacement cost.Thus, we are initiating coverage on Dalmia Cement with anUNDERPERFORMERrating and a target price ofRs 81.


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LOGO

final fadm presentation2

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