balrampur sugar mills

HANAH & Associates, Balrampur Chini Chartered Accountants Valuation Report

Valuation Report of 49

Business Valuation of Balrampur Chini Mills Limited As of September 30, 2008 _________________________________________________________________ Prepared for: Managing Director, Shree Renuka Sugars Limited Reference Letter no –SRSL/INVEST/22-C Dated-29th October.2008 Subject-Valuation of Balrampur Chini Mills Limited.

Prepared by:

HANAH Associates, Chartered Accountants 199/90 P Block, Connaught Place,

New Delhi – 110001 _________________________________________________________

The information contained herein is of a confidential nature and is intended for the exclusive use of the persons or firm for whom it was prepared. Reproduction,

publication or dissemination of all or portions hereof may not be made without prior approval from HANAH Associates, Chartered Accountants.



1. INTRDODUCTION & OBJECTIVE… ....................................................................................... 4

2. EXTERNAL & INTERNAL SOURCES OF INFORMATION………………………………..6

3. ASSUMPTIONS AND LIMITING CONDITION………………………………………………7

4. COMPANY BACKGROUND…………………………………………………………………….8 4. 1. Company Identification ................................................................................................................................. 8 4. 2. Nature and History of the Company………………………………………………………………………..8 4. 3. Stock Classes and Ownership ........................................................................................................................ 8 4. 4. Management Team ......................................................................................................................................... 9 4. 5. Product Information...................................................................................................................................... 11 4. 6. Segment Wise performance ........................................................................................................................ 11 4. 7. Current Operations ...................................................................................................................................... 12 4. 8. Company Expectations................................................................................................................................. 15 4. 9. Balrampur – Technology & Infrastructure, Quality & Production Expectations ....................................... 15 4.10. Risk & Concern – BCML’s Response ......................................................................................................... 15 5. ECONOMIC AND INDUSTRY CONDITIONS ....................................................................... 17

5. 1. General Economic Conditions and Outlook ............................................................................................... 17 5. 2. Industry Conditions and Outlook................................................................................................................. 20 6. HISTORICAL AND NORMALIZED FINANCIAL STATEMENTS..................................... 23

6. 1. Summary Historical Income Statements .................................................................................................... 23 6. 2. Summary Historical Balance Sheets ............................................................................................................ 23

7. ANALYSIS OF NORMALIZED FINANCIAL STATEMENTS ............................................. 24

7. 1. Business Financial Ratio Analysis ............................................................................................................... 24 8. VALUATION OF BALRAMPUR CHINI MILLS LIMITED ................................................ 26

8. 1. Overview of Valuation Approaches and Methods....................................................................................... 27 8. 2. Book Value ................................................................................................................................................... 27 8. 3. Net Asset Value ............................................................................................................................................ 28 a) Computation of Replacement Cost of Plant & Machinery & Other Assets................................................ 29 b) Computation of Fair Value of Interest Free Loans...................................................................................... 30 c) Quantification of Contingent Liability in Financial Term .......................................................................... 30 d) Premium for Locational Advantages ........................................................................................................... 31 e) Computation of Net Asset Value using Replacement Cost ........................................................................ 31 8. 4. Liquidation Value......................................................................................................................................... 32 8. 5. Discount & Capitalization Rate Estimates-Capitalisation Rate .................................................................. 32 a) Modified CAPM Model ............................................................................................................................... 33 b) Risk Free Rate (Kf) ...................................................................................................................................... 33 c) Beta ............................................................................................................................................................... 33 d) Return from Market Portfolio (Km) & Small Stock Premium (Ks) ........................................................... 34 e) Calculation of WAC..................................................................................................................................... 36 8. 6. Discounted Future Earnings ......................................................................................................................... 23 a) Why we have given Projections & did two different scenarios writing for DCF Valuation –Impact of Litigation on DCF valuation..................................................................................... 37



b) Summary Income Statement Projections ..................................................................................................... 38 c) Summary Balance Sheet Projections ........................................................................................................... 39 d) Overview of Projection Assumptions .......................................................................................................... 40 e) Revenue & Expense Assumptions ............................................................................................................... 41 f) Total General & Administrative Expenses, Interest & Taxes ..................................................................... 41 g) Dividends Assumptions & Retained Earnings............................................................................................. 41 h) Fixed Asset & Depreciation Expenses Assumptions .................................................................................. 42 i) Terminal Value & Growth Rate Assumption .............................................................................................. 42 j) Discounted Future Earnings Value Calculations......................................................................................... 43 8. 7. Comparative Company Method ................................................................................................................... 45 a) Identification of comparable company ........................................................................................................ 45 b) Comparable Companies EV/Sales Multiples Method ................................................................................. 45 8. 8. Market Approach (Market Value Method omparative Company Method.................................................. 47 8. 9. Business Value of BCML ............................................................................................................................ 48



CHAPTER 1 – INTRODUCTION & OBJECTIVE Our objective was to estimate the Fair Value for Controlling Stake of Balrampur Chini Mills Limited (BCML) as of September 30, 2008. It is primarily engaged in the business of Sugar, Ethanol and allied products. The standard of value used in our valuation of Balrampur Chini Mills Limited is Fair Value. Fair Value is the price, in cash or equivalent, that a buyer could reasonably be expected to pay, and a seller could reasonably be expected to accept, if the business were exposed for sale on the open market for a reasonable period of time, with both buyer and seller being in possession of the pertinent facts and neither being under any compulsion to act.

The purpose of this valuation is to determine the price band per share for our client Shree Renuka sugars for Acquiring Controlling Stake in the Balrampur Chini. Our client Shree Renuka Sugars (SRSL) founded in October 1995 manufactures sugar, energy, ethanol and bio fertilizers in an integrated plant in North Karnataka, India. It is the largest producer in coastal India, with main operations in the states of Maharastra & Karnataka. SRSL is currently the leader in fuel ethanol in India with a 20% market share and is making a strong strategic move to consolidate its leadership position in the Bio fuels space via organic & inorganic route. With an able management and robust vision, Shree Renuka Sugars today is one of the fastest growing sugar manufacturers in the country. Shree Renuka Sugars Ltd in its aims to become the most efficient and market driven integrated processor of sugarcane & Ethanol in the world, is interested in expanding its operations & sees synergy in acquiring BCML .This acquisition will allow SRSL to make strong in roads in the northern part of the country which in future will be the main hub for Ethanol consumption. Our opinion of Fair Value relied on a “value in use” or going concern premise. This premise assumes that the Company is an ongoing business enterprise with management operating in a rational way with a goal of maximizing shareholder value. Our analysis considers those facts and circumstances present at the Company at the Valuation Date i.e. 30thSeptember, 2008. Our opinion would most likely be different if another Valuation Date was used. To arrive at our conclusion of Fair Value, we performed the following procedures:

Collected the Company’s relevant historic financial statements. Analyzed the historic financial statements by calculating financial ratios in order to identify

trends. Compared the Company’s financial ratios to industry guideline data to identify any significant

variances. Assisted management in preparing a 6 year projection of the financial statements based on

management’s assumptions as to the Company’s future outlook. Developed risk-adjusted Discount Rates to apply to the Company’s historic and projected

earnings, respectively. Collected and analyzed transactional data from comparable companies within the same industry. Adjusted historic earnings to eliminate the effects of excess and discretionary expenses, non

operating revenues and expenses, and non-transferable revenue streams.



Applied Asset, Income, Market, and Comparable Company Multiple valuation approaches to determine an estimate of Total Entity Value. The following methods were considered under each approach:

1. Asset Approach

Book Value, Net Asset Value, and Liquidation Value 2. Income Approach

Discounted Future Earnings. 3. Comparable Company Multiple Approach

Enterprise Value to Sales Multiple, 4. Market Approach

Weighted Average Historical Prices of the shares.

Selected the most reasonable Total Entity Value from the range of values established in the Valuation methods and then applied any appropriate discounts & Premiums to arrive at our conclusion of the estimated Fair Value of per equity share of BCML.



CHAPTER 2– EXTERNAL & INTERNAL SOURCES OF INFORMATION To aid us in our analysis of the Company, we consulted a number of publicly available sources of information. Numerous financial publications and databases were consulted including Reports from CII & Leading consulting & financial firms, Business Statistics, Standard & Poor’s Industry Surveys. The sources of information, which have been furnished to us by the management of the Company, are as under:

1. Background of the Company.

2. Debt Profile of the Company.

3. Details of Performance of the Comparable Sugar Companies in India.

4. Memorandum of Articles and Articles of Association of the Company.

5. Analysts / Investors Conference Call transcript.

6. Audited accounts of the Company for the year ended September 30, 2006, 2007 and 2008.

7. Projections of BCPL from the year ended 30th September 2009 to 2014.

8. Other relevant details such as history of the Company, its promoters, shareholding pattern,

past & present activities, future plans &prospects, other relevant information and data.

9. We have also received the necessary explanations and information, which we believed

were relevant to the present valuation exercise from the executives and management of the

Company and the Client.



CHAPTER 3– ASSUMPTIONS AND LIMITING CONDITIONS This valuation is subject to the following assumptions and limiting conditions:

Public information, estimates, industry and statistical information contained in this report have been obtained from sources considered to be reliable. However, we independently did not verify such information and make no representation as to the accuracy or completeness of such information obtained from or provided by such sources. Possession of this report, or a copy thereof, does not carry with it the right of publication of all or part of it nor may it be used for any purpose by anyone other than those enumerated in this report without the written consent of the HANAH & Associates, Chartered

Accountants. This report and the conclusion of value arrived at herein are for the exclusive use of our client for the sole and specific purposes as noted herein We are not required to give testimony in court, or be in attendance during any hearings or

depositions, with reference to the company being valued, unless previous arrangements have been made.

Financial information of the subject company is included solely to assist in the development of a value conclusion presented in this report and should not be used to obtain credit or for other purpose. Because of the limited purpose of the information presented, it may be incomplete and contain departures from generally accepted accounting principles. We have not audited, reviewed or compiled this information and express no assurance on it The conclusion of value arrived at herein is valid only for the stated purpose as of the date of the valuation and may not be used out of the context presented herein. This valuation assumes that the Company will continue to operate as a going concern, and that the

character of its present business will remain intact. The valuation contemplates facts and conditions existing as of the valuation date. Events and

conditions occurring after that date have not been considered, and we have no obligation to update our report for such events and conditions.

It is assumed that there is full compliance with all applicable central, state, and local environmental regulations and laws unless non‐compliance is stated, defined, and considered in the report The conclusion of value arrived at herein is based on the assumption that the current level of management expertise and effectiveness would continue to be maintained, and that the character and integrity of the enterprise through any sale, reorganization, exchange, or diminution of the owners’ participation would not be materially or significantly changed Neither the professionals who worked on this engagement nor HANAH Associates, Chartered

Accountants have any present or contemplated future interest in Balrampur Sugar Mills Limited, any personal interest with respect to the parties involved, or any other interest that might prevent us from performing an unbiased valuation. Our compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report.

We have made no investigation of title to property, and assume that the owner’s claim to the property is valid. We have not attempted to confirm whether or not all assets of the business are free and clear of liens and encumbrances or that the entity has good title to all assets



CHAPTER 4– Company Background 4.1. Company Identification Balrampur Chini Mills Limited is one of the largest integrated sugar manufacturing companies in India. Its allied business consists of manufacturing and marketing of Ethyl Alcohol & Ethanol, generation and selling of power and manufacturing and marketing of organic manure. The Equity Shares of BCML are listed on stock Exchange at –

1. National Stock Exchange of India Ltd. 2. Bombay Stock Exchange 3. The Calcutta Stock Exchange Association Ltd.

Stock Code NSE symbol for BCML is BALRAMCHIN BSE Code for BCML is 500038 CSE Code for BCML is 12012 ISIN Number for BCML is INE119A01028 4.2. Nature and History of the Company Balrampur Chini Mills Limited (“BCML”) was incorporated in 1975 under the Companies Act as a wholly-owned subsidiary company of Balrampur Sugar Company Limited (Name changed to Balrampur Commercial Enterprises Limited) (“BCEL”). By an indenture of conveyance dated 21 February 1976, BCEL transferred to BCML the land, building and other assets and the entire staff of its Balrampur Sugar Factory with effect from 1 July 1975 . BCML ceased to be a subsidiary of BCEL with effect from 25 th June, 1979 and its shares were listed on the Calcutta Stock Exchange (CSE) in 1979. 4.3. Stock Classes and Ownership

Distribution of Share Holding as on 30th September, 2008 (Face Value: Re 1 each)

Shareholding Range

No. of Shareholders

% of Shareholders No. of shares % of Shareholding

Upto 10000 94316 99.31 28728420 11.24

10001-50000 487 0.51 10361382 4.06

50001-100000 59 0.06 4340635 1.70

100001-500000 67 0.07 15658665 6.13

500001-1000000 11 0.01 8286680 3.24

1000001 and above 38 0.04 188160528 73.63

Total 94978 100.00 255536310 100.00



PATTERN OF SHAREHOLDING AS ON 30th September, 2008 (Face Value: Re. 1 each) Category No. of

shares % of

Holding

Promoters' Group 91150890 35.67

Financial Institutions, Insurance Companies, Banks & Mutual Funds 61634324 24.12

Foreign Institutional Investors 52591177 20.58

Foreign Corporate Bodies through FDI NIL NIL

Private Corporate Bodies 11308434 4.43

NRI's 687272 0.27

Foreign Nationals 10775 0.00

Indian Public 38147638 14.93

Outstanding GDRs 5800 0.00

Total 255536310 100.00

4.4. Management Team Chairman Emeritus KAMAL NAYAN SARAOGI is a graduate in commerce. He promoted the company in 1975. He brings with him 41 years of experience in the sugar industry. He does not hold directorship in the company. Board of Directors

SURESH NEOTIA, Chairman, a law graduate from Kolkata University , is the co-founder and chairman of Gujarat Ambuja Cements Limited. He has wide interest in business and has served on the board of several leading Indian companies.

VIVEK SARAOGI, Managing Director, is the Ex-President of the Indian Sugar Mills Association and the Chairman of Indian Sugar and General Industry Export Import Corporation Ltd. Mr. Saraogi is a graduate in commerce.

MEENAKSHI SARAOGI, Joint Managing Director, is a graduate in Art. She looks after the factory operations and is the driving force behind the organisation. She has spent 26 years in the business and was awarded the Padmashree in 1994 for her contribution to the sugar industry.

SUDHIR JALAN, Director, is a commerce graduate and an MBA from IIM, Kolkata. He is the ex- President of FICCI (the Federation of Indian Chambers of Commerce and Industry) and serving on the Board of several Indian companies.

R.K. CHOUDHURY, Director, a leading advocate practicing mainly in Kolkata, has wide experience in the matters of taxation, corporate planning and international arbitration.

S.B. BUDHIRAJA, Director, is an independent management consultant, a gold medalist in Mechanical Engineering from the University of Roorkee . He was the youngest-ever Managing Director of Indian Oil Corporation from 1974-78. He has also been the Managing Director of IBP, Balmer Lawrie, and Indian Oxygen, during his career.

M.M. MUKHERJEE , Director, a university rank holder in Political Science from Calcutta University, he also holds an Associate diploma from Insurance Institute of India, Mumbai. He joined Life Insurance Corporation of India in 1966. In his long career in LIC spanning over 37 years, he has held various positions.

NARESH CHANDRA , Director, joined the Indian Administrative Service in 1956. He held many posts in Government of India and Government of Rajasthan. He was also Finance Secretary and Chief Secretary to the Government of Rajasthan, Advisor to Governor of J & K, Secretary and Cabinet Secretary to Government of India, Senior Advisor to Prime Minister of India, Governor of



Gujarat and Ambassador of India to the U.S.A. He was the Chairman, Committee on Corporate Governance set up by Union Ministry of Finance and Company Affairs.

KEDAR NATH RANASARIA , Whole-time Director, having more than 43 years experience in sugar industry. He is M.A. in (Sahityaratana), working with the Company since its inception. He was also the Secretary and Chief Executive of the Company.

KISHOR SHAH, Director cum Chief Financial Officer, is a commerce graduate and a member of the Institute of Chartered Accountants of India. He joined the services of the Company in 1994. He has 18 years of experience in accounts and finance including 12 years of experience in the sugar industry.

DR. ARVIND KRISHNA SAXENA, Whole-time Director, is M.Sc., Ph.D. (Botany) and having specialization in Industrial Mycology, Bio-composting, Mushroom Production and Processing from Horst, Holland. He has wide experience of 34 years and is associated with the Company since 2002. He is also in the Board of Directors of Indo Gulf Industries Ltd., a subsidiary of the Company. He held previously prestigious position in various organizations and was also associated with Scientific and research activities.

Overview of the background and qualifications of key personnel of BCML as on Sept 30,2008

Name Designation Remuneration

(In Rs.)

Qualification & experience

(in years)

Age (Years)

Date of commencement of

employment

Last Employer, Designation

Vivek Saraogi Managing Director 1,90,82,280 B.Com (Hons.), (21)

42 3rd July, 1987 None Meenakshi Saraogi

Jt. Managing Director

1,99,16,550 B.A. (26) 64 64 1st October, 1982 None Kishor Shah Director-cum-

CFO 64,90,667 B. Com., ACA,

(20) 44 24th January, 1994 Independent

consultancy K.N. Ranasaria

Wholetime Director

33,30,231 M.A(Sahityaratna),(45)

73 Service transferred from Balrampur Sugar Co. Ltd.

Balrampur Sugar CoLtd., Secretary

S.K. Agrawala Company Secretary

24,54,244 B.Com, AASM, FICWA, FCS (32)

53 20th January, 1995 Birla Cotton Spg. Mills Ltd., Secretary

Prem Kumar Shrawat

Executive President

32,24,030 B.Sc., Engineering (Mech.), (36)

61 8th April, 2004 New Swadeshi Sugar Mills, Executive V.P.

P.R. Singh Executive President

33,40,898 B.Com., PGDBM, LLB ,(43)

60 1st August, 2003 JK Industries Limited, Chief Executive

K.P. Singh Executive President

30,69,596 Diploma in Mech. Engineering (31)

51 16th September, 2002 Ghaghara Sugar Ltd, D.G.M. (Engg.)

R.L. Tamak Chief Executive -Operations

27,94,441 B.Sc (Hons) Ag, FSTA

44 9th June, 2005 DCM Shriram Consolidated Ltd, Joint Vice-president

N.K. Khetan Chief General Manager

30,11,912 B.Com., FCA, (24) 50 1st June, 1989 M/s M. Kumar Jain & Co., Partner

G.L. Khetan Chief General Manager

28,93,992 B.Com. (Hons), FCA, (25)

49 1st August, 1990 Hindustan Development Corporation, Manager-Accounts & Administration

S.K. Pandey Chief General Manager

25,40,668 B.Sc., A.N.S.I. Diploma, Diploma in Management, (33)

59 19th August, 2006 Chadha Sugar Mills, General Manager

H.S. Gangwar Chief General Manager

27,32,292 Dip. In Mechanical Engineering, A.N.S.I. in Sugar, (29)

52 20th May, 2006 Oudh Sugar Mills Ltd, Executive President

N. K. Agarwal Chief General Manager

28,82,690 Diploma in Mechanical Engineering, (26)

50 8th June, 2006 Bajaj Hindusthan Ltd, Vice-President



Organizational set upBALRAMPUR CHINI MILLS LTD

BOARD OFDIRECTORS

MANAGINGDIRECTOR

JT.MANAGINGDIRECTOR

WHOLE TIME DIRECTOR

DIRECTOR CUM CFO

COMPANY SECRETARY

CHIEF EXECUTIVE[OPERATIONS

GM- SALES & MKTG

GM- PURCHASE

EXECUTIVE PRESIDENT

CHIEF GENERAL MANAGER[UNITWISE]

WHOLE TIME DIRECTOR

GM-COMMERCIAL

GM-PRODUCTION

4.5. Product Information The chart below depicts the main & by products in sugar industry.

Sugar Industry By-Products

SUGARCANE

SUGAR MOLASES BAGASSE PRESS MUD

RECTIFIED SPIRIT BIOGAS EXPORTABLE

POWDERBIO

FERTILIZER

FUEL ETHANOL

INDUSTRIALALCHOL

PORTABLE ALCHOL

Emerging BusinessesPrimary By Products



4.6. Segment-wise Performance of BCML

Sugar: Revenue from the sugar segment constitutes the largest share of the aggregate revenue. Revenue from the segment contributed 75.08% to the Company’s total turnover in 2007-08, compared with 79.42% in 2006-07. Alcohol: Income from the alcohol segment contributed 10.27% of the Company’s revenue in 2007-08, compared with 8.07% in 2006-07 Cogeneration: Income from this segment contributed 14.55% of the revenue in 2007-08 as against 12.39% in 2006-07. Organic Manure: The segment’s contribution to total revenues stood at 0.10% in 2007-08, as against 0.12% in 2006-07.

Segment-wise contribution in nett turnover

Segment-wise contribution to PBIT



4.7. Current Operations BCML has nine sugar factories located in Eastern U.P. having an aggregate crushing capacity of 73,500 tons per day.BCML Factory Units along with there capacities are as under –

BCML – Capacities at a glance

UNITS SUGAR

CAPACITY (TCD)

DISTILLERY (KLPD)

COGEN POWER (MW) INSTALLED

COGEN POWER (MW) SALABLE

BALRAMPUR 12,000.00 160.00 24.55 22.25 TULSIPUR 7,000.00 BABHNAN 10,000.00 60.00 3.00 3.00 HAIDERGARH 8,000.00 23.25 20.25 RAUZAGAON 5,000.00 25.75 16.00 AKBARPPUR 7,500.00 18.00 11.00 MANKAPUR 8,000.00 100.00 34.00 22.00 GULARIA 8,000.00 31.30 20.00 KUMBHI 8,000.00 20.00 11.00 TOTAL 73,500.00 320.00 179.85 125.50

The Factory locations are across the Uttar Pradesh as depicted below-

Factory Locations



Balrampur achieves highest operational efficiency in production. The sugar recovery is the highest in east U.P

Sugar Efficiency

Details of the cane crushing, production and recovery year to year in respect of existing Units are presented below: Cane Crushing, Production, Recovery



4.8. Company Expectations For the years 2008-09 & 2009-10, Company expects that sugarcane availability to reduce on account of lower cane cultivation, as a result of which it expect overall sugar production in the country to be below 20 million tonnes. Production in UP is likely to reduce by 15% to 20% while Maharashtra is expected to have a much sharper fall of around 30%. Companies’ facilities also would witness reduced cane availability which will impact BCML production around 15%. The consumption for sugar is likely to remain around the same level which is stable at around 23 million tonnes. Thus, the demand-supply mismatch should absorb sugar inventories bringing firmness into prices going ahead. Historically, the Company has maintained a strong balance sheet. The current debt equity ratio stands at 0.91 which is one of the best in the industry. Company haven’t undertaken any further expansion plans which would cause any additional debt on the balance sheet. Company have total outstanding long-term loans as of today of about Rs.1020 crore for which it has an average interest rate of about 8.5%.Company is borrowing its working capital at around 10.5% to 11%.And its requirement for working capital is about Rs.500 crore on an average. The Ethanol story should be in the positive light as despite this lower level of production, industry would be able to cater to the need of 10% provided it is an ongoing policy & in this regard BCML has already signed in contracts with oil majors to supply Ethanol at the rate of Rs.21.50 per ltr. These are long term contracts & are currently locked up to Sept.2009.Company expects around 20% revenues from ethanol in the coming years. Considering the fall in the production of Sugar in the year 2008-09 the average working days will come down from 132 in the year 2007-08 to 110 in the year 2009-10. It is expected that cane realisation shall be around 10.20 % in the FY09. 4.9. Balrampur – Farmer Relationship, Technology & Infrastructure, Quality & Production, Human Resources

Enjoys extremely good relationship with farmers in its command areas Company installs latest technology and machinery to achieve the highest operational result Latest machines, technology and infrastructure help team to produce finest quality sugar and

alcohol BCML has a team of dedicated, committed and trained professional comprising Engineers,

Chemists, Human Resource, Agriculturists, Finance, Accounts, Taxation & Administration. 4.10. Risk & Concern – BCML’s Response CYCLICALITY OF SUGAR INDUSTRY Response: Derisking Business Module BCML switched to integrated business model. Commissioned three distilleries [320 KLPD], seven Power Plants [saleable 125.50 MW] and integrated sugar complex at Haidergarh, Mankapur, Akbarpur, Kumbhi & Gularia to provide stability of revenue and profit



AGRICULTURAL-INDUSTRIAL CONFLICT Response: Sugar Industry’s farmer-miller-consumer partnership – a neat agricultural-industrial fit. BCML incentivized this partnership through timely remuneration, wider irrigation and subsidized fertilizers and improved variety of seed distribution. BCML increased crushing capacities ten times in last decade to strengthen its commitment FINANCIAL RISK Sugar Industry being cyclical, adequate funds may not be available for working capital or long term needs Response: BCML addressed its working capital and long term needs largely through internal accruals and low cost borrowings • Debt-Equity Ratio of 1.00 as at 30.09.2008 • Strong credit rating enables market borrowing at lower than market cost. [Highest Credit Rating for short term borrowing for 2500 Million Rupees from ICRA]



CHAPTER 5 – ECONOMIC AND INDUSTRY CONDITIONS

5.1. General Economic Conditions and Outlook Global sugar industry Production: The global sugar production increased at a CAGR of 2.5% from 148 million tons in 2002-03 to 168 million tons in 2007-08, led by Brazil (32.9 million tons). The global sugar production increased by 1.45% from 166.1 million tons in 2006-07 to 168.4 million tons in 2007-08. Developing countries were the key production drivers, accounting for 127.5 million tons, a 2.1% growth over 2006-07. Sugar production in the developed countries declined by 1.8% over 2006-07 to 40.4 million tons in 2007 08. Asian production declined to 65.8 million tons in 2007-08, following production declines in India and China. The global sugar industry is largely driven by Brazil (19.58% global share) followed by India.

Key Producing Countries

Consumption: World sugar consumption increased 2.78% to 159.1 million tonne in 2007-08 from 154.8 million tons in 2006-07, marginally above the 10-year average of 2.5%. It is estimated that 69% of the global production is consumed in the country of origin, while the balance is traded on global markets. Sugar consumption increased in China, following a strong The summarised position of the world’s production & supply during the period from 2002 to 2009 is mentioned below.



More than 65% of the total world sugar production was accounted for by the top 10 sugar producing countries, wherein India holds the second position behind Brazil in terms of sugar production. Although in the year 2007-08 supply has overridden the demand by 9.2mn tonnes but in the coming years fuel Ethanol is going to bring a new scenarios especially because of highly fluctuation crude prices.

Per Capita Consumption of Sugar in top ten sugar producing countries



Country-wise sugar production (million tons) 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 BRAZIL 23.80 26.40 28.20 26.90 31.60 32.90 INDIA 20.10 13.50 12.70 19.30 28.50 27.00 EU 18.70 17.10 21.60 21.40 17.80 16.70 CHINA 11.40 10.70 9.80 9.40 12.60 13.00 US 7.60 7.80 7.10 6.70 7.70 7.50 THAILAND 7.30 7.00 5.20 4.80 6.60 6.90 RUSSIA 1.60 1.90 2.30 2.50 3.20 3.00 INDONESIA 1.80 1.70 2.10 2.10 1.90 2.00 CUBA 2.30 2.60 1.30 1.20 1.50 1.50 Total 94.60 88.70 62.10 94.30 111.40 110.50

Source: MF Global Research Report Fuel ethanol: The world ethanol market is making rapid advances in scale and competitiveness. Its attractiveness is based on considerations of energy security, environmental benefits and growing economic viability. The two key drivers for the growing market size are the mandates in the US, India, Thailand and other countries as well as the ethanol-blending demand-supply dynamics, drivenby the competition between ethanol and gasoline in Brazil India ethanol programme: The Indian ethanol programme was restarted in 2006 with a 5% blend, where Oil Marketing Companies (OMCs) purchased ethanol at a fixed price for a three-year period. For 2008, around 360 million litres of ethanol was blended with petrol and this figure is expected to touch 480 million litres in 2009.In October 2007, the 5% blending was mandated by the Government of India, however the same has not been strictly followed due lack of availability of ethanol & prevailing low crude prices. Presently in India direct production from ethanol from sugarcane or food items is not allowed. In its new mandated bio fuels policy, the Indian Government has compulsorily a 20% blending of ethanol (E20) from 2017. This provided the auto industry with ample time to switch over to E20-compatible cars and two-wheelers for the India vehicle fleet to accept higher blends of ethanol by 2017. The above changes are going to see a growth @20% for 5 years in world bio Fuels supply for the period from 2008 to 2014



5.2. Industry Conditions and Outlook Indian Sugar Industry – Size & overview

India is the second largest sugar producing country in the world next to Brazil. Size : Rs. 360 Bn annually [ US$ 8 Billion ] Contributes Rs.30 Bn Crores to exchequer [ US$ 600 Million ] Comprises 7.5 per cent of India’s rural population Number of farmers 50 Million Rs.230 Bn payment to cane farmers every year [ US$ 5 Billion approx.] Comprehensive policy to encourage cogeneration of power India’s increasing power, alcohol and ethanol demand make co-products extremely attractive,

improves overall realization Over 550 sugar factories in India widely dispersed over UP, Maharashtra and other States



Ownership of sugar sector – 50% private sector and 50% in co-operative & Govt Sector Average crushing capacity about 3500 TCD Uttar Pradesh [North] and Maharashtra [West] produce 60% of sugar in India Cultivation of cane largely monsoon depended Sugar industry is seasonal where crushing season begins in October and ends in April/May Can play a major role in development of rural India About 2% of cultivable land is under sugar cane The Snap shot of the Production & Consumption during the period from 2002-03 to 2007-08 &

projections for the year 2008-09 are as under-

Production, Consumption & Closing Stock

The prices of sugar have been fluctuating & hence putting direct impact on the profitability of the companies .Prices of Sugar & Sugar cane ex factory during last decade was as under –



Indian Sugar Industry: Key Policies and Regulations

A. Ethanol - Government encouraging blending of alco-fuel with petrol

In India Ethanol is produced from surplus alcohol. Alcohol is produced from Molasses – a by product of sugar.

5% Ethanol blending with petrol has been made mandatory effective 1st Oct 2007. Ethanol being eco friendly could replace use of MTBE as an Oxygenate in fuel, thus lowering the

emission of green house gases Value of fuel Ethanol Rs. 600 Cr. – likely to go up to Rs. 3000 Cr Govt rationalizing indirect tax structure for smooth and free movement of Ethanol across States.

B. Co-generation attractive

Electricity Bill 2003 encouraging for power sector Sugar industry can generate 4000 MW surplus power by using bagasse a by product 100% captive power requirement currently generated from bagasse-fire boilers 10% of incremental power generation in the country to come from renewable energy source Govt to provide soft loans from Sugar Development Fund to encourage cogeneration at an interest

of 4% Power distributors in India have to buy a certain percentage of power from renewable energy

source as per 86 (1) (e) of Electricity Act 2003 Profits from power under cogen is tax free Cogeneration of power is non-cyclical business

C. Power from Bagasse

All sugar factories are equipped to generate power to meet their captive requirement of steam and power

Surplus bagasse available after meeting requirement for captive power generation is about 10% of cane crushed

Surplus bagasse can be sold to paper manufacturers or alternatively be used for power generation to be sold to grid / third party

BCML has long term Power Purchase Agreements in place with Uttar Pradesh Power Corporation Ltd for supply of surplus power generated. The present rate is Rs. 3.06 per KWH with an annual escalation of 4 Paise per KWH. This price is valid till 2009-2010.



CHAPTER 6 – HISTORICAL FINANCIAL STATEMENTS

6.1. Summary Historical Income Statements Rs.in million F/Y Ended on March 31st F/Y Ended on September 31st 2004 2005 2006 2007 2008 Net Sales 6,993.80 8,127.30 18,984.20 13,917.10 14,635.40 Other Income 59.80 29.40 68.10 102.30 141.30 Total Income 7,053.60 8,156.70 19,052.30 14,019.40 14,776.70 Raw Material 5,494.50 4,717.60 9,404.70 12,809.90 10,141.60 (increase)/decrease in stock (1,097.00) (376.60) 2,812.30 (2,135.90) (1,236.60)Gross Profit 2,656.10 3,815.70 6,835.30 3,345.40 5,871.70 Expenditure 1,362.20 1,391.40 2,170.40 2,352.70 2,576.70 PBDIT 1,293.90 2,424.30 4,664.90 992.70 3,295.00 Interest 198.00 189.30 345.00 544.20 896.50 Depreciation 302.30 372.60 671.00 802.20 1,172.10 Profit before Tax extraordinary items 793.60 1,862.40 3,648.90 (353.70) 1,226.40 Extraordinary items - 223.30 - - - Pre-tax Profit 793.60 1,639.10 3,648.90 (353.70) 1,226.40 Tax 188.80 388.50 733.00 64.70 256.10 Post Tax Profit 604.80 1,250.60 2,915.90 (418.40) 970.30

6. 2. Summary Historical Balance Sheets Rs.in million F/Y Ended on March 31st F/Y Ended on September 31st Sources of Funds 2004 2005 2006 2007 2008 Sources of Funds Share Capital 231.80 189.70 248.10 248.20 255.60 Reserve & Surplus 4,687.80 2,565.50 8,810.10 8,393.50 9,895.30 Shareholders' Fund 4,919.60 2,755.20 9,058.20 8,641.70 10,150.90 Interest Free Loan 386.40 395.05 416.52 1.60 1,227.30 Interest Bearing Loan - 138.76 130.89 1,284.04 12,279.40 Total Loan Fund 386.40 533.81 547.41 1,285.64 13,506.70 Other Liabilities - - - - 92.00 Deferred Tax Liability (Net) 101.74 84.38 119.26 123.24 1,425.90 5,407.74 3,373.39 9,724.87 10,050.58 25,175.50 Application of Funds Fixed Assets 774.63 744.28 1,338.59 1,970.32 23,741.80 Less : Depreciation Block 237.01 200.32 301.92 382.53 4,981.70 Net Block 537.62 543.96 1,036.67 1,587.79 18,760.10 CWIP 15.59 1.87 295.25 332.18 70.50 Total Fixed Assets 553.21 545.83 1,331.92 1,919.97 18,830.60 Investments 45.26 0.97 0.21 3.43 54.90 Current Assets 586.01 492.35 472.78 735.73 8,766.10 Less : Current Liabilities & Provisions 205.84 145.51 237.06 389.29 2,493.90 Net Current Assets 380.17 346.84 235.72 346.44 6,272.20 Miscellaneous Expenditure 1.46 0.07 4.64 3.21 17.80 Total 980.10 893.71 1,572.49 2,273.05 25,175.50



CHAPTER 7 – ANALYSIS OF FINANCIAL STATEMENTS 7.1. Business Financial Ratio Analysis As part of the analysis, various financial ratios have been calculated from each year’s financial statements as presented in this report. These ratios measure, BCML’s liquidity positions, coverage capacity, leverage/capitalization, operating efficiency and equity performance. Business Financial Ratios:

FINANICAL PERFORMANCE RATIOS

BALANCE SHEET RATIOS



PER SHARE DATA (IN RS)

Financial Ratios Notes and Discussion of Trends:

Liquidity ratios-Current Ratio & Quick ratio of BCML measures the short-term ability of the company to meet its maturing obligations. Over the years company is able to maintain an excellent Current 7 Quick ratio as compare its peer company in sugar industry.

Coverage ratios measure the degree of protection for long-term creditors and investors and the margin by which certain obligations of a company can be met.

Leverage/capitalization ratios measure the amount of a company’s operations that are financed from debt versus financed from equity.

Operating ratios measure the efficiency and productivity of a company using the resources that are available and the returns on sales and investments.

Equity ratios measure the performance of assets and earnings in relation to common and preferred equity.



CHAPTER 8 – VALUATION OF BALRAMPUR CHINI MILLS LIMITED The objective of this analysis is to estimate the Fair Value of M/s BCML as of September 30, 2008 so as to determine the price band per share for our client Shree Renuka sugars for Acquiring Controlling Stake in the Balrampur Chini. This valuation was included for analysis and planning purposes only. It is not intended to be relied upon or used for tax purposes, any legal proceeding or controversy, or as an independent opinion of value or fairness. The standard of value used in our valuation of BCML is Fair Value. Fair Value is the price, in terms of cash or equivalent, that a buyer could reasonably be expected to pay, and a seller could reasonably be expected to accept, if the business were exposed for sale on the open market for a reasonable period of time, with both buyer and seller being in possession of the pertinent facts and neither being under any compulsion to act. There is a large number of factors to consider when estimating the common stock value of any business entity. These factors vary for each valuation depending on the unique circumstances of the business enterprise and general economic conditions that exist at the effective date of the valuation. However, fundamental guidelines of the factors to consider in any valuation have been established. The most commonly used valuation guidelines are derived from the Internal Revenue Service’s Revenue Ruling 59-60 (of USA-Internal Revenue Service, Revenue Rulling 59-60, 1959-1 C.B.237). Revenue Ruling 59-60 states that in the valuation of the stock of closely held businesses, the following factors, although not all inclusive, are fundamental and require careful consideration in each case:

a) The nature of the business and the history of the enterprise from its inception. b) The economic outlook in general and the condition and outlook of the specific industry in

particular. c) The book value of the stock and the financial condition of the business. d) The earning capacity of the company. e) The dividend-paying capacity. f) Whether or not the enterprise has goodwill or other intangible value. g) Sales of the stock and the size of the block of stock to be valued. h) The market price of stocks of corporations engaged in the same or a similar line of business

having their stocks actively traded in a free and open market, either on an exchange or over-the counter.

Based on circumstances unique to BCML as of September 30, 2008, additional factors have been considered. In addition to providing general valuation guidelines, Revenue Ruling 59-60 outlines other considerations and techniques for valuing the stock of closely held businesses. The techniques are commonly divided into general approaches, i.e., the Asset, Income, Market, and Other approaches. Specific methods are then used to estimate the value of the total business entity under each approach. Our conclusion of Fair Value is determined based on the results of these methods and the specific circumstances surrounding the interest being valued.



8.1. Overview of Valuation Approaches and Methods There are several commonly used and accepted methods for determining the value of equity shares. Considering the purpose of valuation, Subject Company is an unlisted company and other parameters in mind, we have considered the following valuation methods: As previously specified, various approaches have been used to value BCML. These approaches, described below, are the: 1) Asset Approach, 2) Income Approach, 3) Comparable Company Multiple, 4) Market Approach, The asset based valuation technique is based on the value of the underlying net assets of the business, either on a Book Value basis or Net Asset Value basis or Liquidation Value (realisable value) basis. This valuation approach is mainly used in case where the firm is to be liquidated i.e. it does not meet the “going concern” criteria or in case where the assets base dominate earnings capability. In case of a going concern normally the relative earning power is of importance therefore the actual realization of the operating assets is not contemplated and the net asset value is calculated based on the historical cost. The Asset Approach is generally considered to yield the minimum benchmark of value for an operating enterprise. Under Book Value Method Fixed assets and current assets are valued at book value, whereas investments have been valued at market price.Net Asset Value represents net equity of the business after assets and liabilities have been adjusted to their fair values. Lastly, the Liquidation Value of the business represents the net present value of cash flows from liquidating the Company’s assets and paying off its liabilities. The Income Approach serves to estimate the value of a specific income stream with consideration given to the risk inherent in that income stream. The most common methods under this approach is Discounted Future Earnings. The Discounted Future Earnings method discounts projected future earnings back to present value at a rate that reflects the risk inherent in the projected earnings. The Comparable Company Multiple serves to estimate the value of similar companies operating in the same industry that are either publicly traded, Enterprise value to Sales multiple has been used in our report. The Market Approach (Market Price Method) is used to get the Weighted Average Historical Prices of the shares of the company to be valued. 8.2. Asset Approach- Book Value Method The Book Value of BCML has been estimates to be Rs.976.01 crores thereby giving a value of Rs.38.19 per share. The calculation of net asset value of the company based on the book value as per the audited balances sheet as on 30th September 2008 is given below-



Calculation of Net Worth of the Company

Rs.in CroresParticulars Sep ' 08 Book Value Gross Block 2,374.18 Less : Accumulated Depreciation 498.17 Net Block 1,876.01 Capital Work‐in‐progress 7.05 Investments Market Value 5.49 Net Current Assets Current Assets, Loans & Advances 876.61 Less : Current Liabilities & Provisions 249.39 Contingent Liability‐Differential Cane Price Liability 37.30 Total Net Current Assets 589.92 Total (A) 2,478.47 Loan Funds Secured Loans 1,250.67 Unsecured Loans 100.00 Total (B) 1,350.67 Other Liabilities Other Laibilities 9.20 Deferred Tax Liability (Net) 142.59 Total (C) 151.79 Net Worth (A‐B‐C) 976.01 No. of Shares 25.56 Value per Share 38.19 As a valuation method, Book Value has many disadvantages. Balance sheets prepared in accordance with generally accepted accounting principles state assets and liabilities at historical cost and do not necessarily reflect individual values. In periods of increasing prices, the longer an asset or liability has been on the books, the less likely it is to reflect current value. Thus this method does not provide fair value to BCML. 8.3. Asset Approach- Net Asset Value The Net Asset Value of BCML is estimated to be Rs.2870.30 Crores thereby giving fair value of Rs.123.53 per share (including Location Premium of 10%).

An enterprise willing to grow has two options i.e. either to grow organically by improving efficiencies and increasing capacities or inorganically i.e. through merger, acquisitions and take-over. Though way of organic growth provide more flexibility to the existing business in terms of choice of location, manpower selection, choice of technology etc., inorganic growth path is considered to be significantly fast. When inorganic growth path is selected as alternate to organic growth, method of Net Asset Value based on replacement cost provides reasonable approximation of valuation to be considered (i.e. cost in case of alternate way of growth).



In the Net Asset Value method, the net asset value is computed based on the latest available audited financial statements (in this case, audited accounts for the year ended 30th September 2008). The Net Asset Value method estimates value as the net cash remaining if all assets are sold in an attempt to get the best possible price for each asset and all liabilities are paid with the proceeds However, in this case we have computed Reinstated Net Asset Value (mainly based on depreciated / adjusted replacement value), which is helpful in decision making related to Acquisitions. 8.3. a) Computation of Replacement Cost of Plant & Machinery & Other Assets The starting point of this method is the valuation of the total assets that the company owns in piecemeal. Fixed assets have been revalued based on replacement cost for new capacity and depreciated to reflect depreciated replacement cost (This adjustment has been made to take care of further investment required in old plant to work efficiently).Going with the cost mechanics in the Sugar Industry it has been seen that ideal setup cost as on date for plant & Machinery across both sugar, distillery, and power are is as under –

Rs. 220 Crs.for 6000 TCD Greenfield project cost (for P&M)-For Sugar Mill Rs. 1 Crs.per KLPD for new capacity-For Distilleries Rs. 4.5 Crs.per MW for new capacity-For Power Plant

Going with the above Reinstatement Costs the Gross Replacement cost for Plant & Machinery of BCML have been computed as under –

CALCULATION OF REPLACEMENT COST OF PLANT & MACHINERY OF BALRAMPUR CHINI

Sugar Distilleries CO-Generation Organic

Manure

Unit of Measurement TCD KLPD MW MT Capacity 73,500.00 320.00 179.85 58,000.00 Gross Replacement Cost Rs./Crs 2,695.00 320.00 809.33 15.00 Average Age Years 7.00 5.00 5.00 3.00 Depreciation % 17.50 12.50 12.50 7.50 Depreciation Rs./Crs 471.63 40.00 101.17 1.13 Net Replacement Cost Rs./Crs 2,223.37 280.00 708.16 13.87 Total Rs./Crs 3,225.40 Remarks Note 1 Note 2 Note 3 Note 4 Note : 1 Rs. 220 Crs.for 6000 TCD greenfield project cost (for P&M) Note : 2 Rs. 1 Crs.per KLPD for new capacity Note : 3 Rs. 4.5 Crs.per MW for new capacity Note : 4 Based on the cost of recently constructed plant & Machinery

Value of Land has not been reworked as most of the land has been allotted with dedicated use for putting up Sugar Mill and can not be sold without seeking several approvals .Current assets and Current liabilities are valued at book value. Investments have been valued at market price (In this case investments are unquoted, hence cost has been considered as Market Price). Thus by using Replacement Cost Method the total value of assets of BCML got reflected at Rs.3948.96 as against Rs.1883.06 under book value method.



Rs./Crs. Book Value Reinstated Value Fixed Assets Land 78.26 78.26Buildings 409.16 409.16Plant & Machinery 1361.63 3225.40Others (Incl. CWIP) 34.01 34.01Total 1883.06 3746.83

8.3. b) Computation of Fair Value of Interest Free Loans The loan funds are deducted form total assets to reflect net assets belonging to Shareholders. In case of Balrampur Chini they have Some Interest Free Loans based on their Excise Duty Payment for previous periods. These loans have been provided by PSU Banks on the initiative of Government of India to cope up with the tough times being faced by Sugar Industries in terms of very low sugar prices and high inventories. These loans have been revaluated to reflect fair value (If interest is payable as per prevailing market interest rate). Interest rate has been considered at 13% p.a. which has been adjusted for tax @ 33.99% and effective interest rate of 8.58% has been considered to derive fair value of interest free loan liability.

Computation of Fair Value of Interest Free Loans Rs./Crs.SECURED LOANS Book Value Fair Value Interest Free Loans 122.73 92.21Interest Bearing Loans 1127.95 1127.95Total 1250.68 1220.16

Computation of Fair Value of Interest Free Loans

Repayment Schedule for Interest Free / Concessional Loans Rs./Crs.

GOI SBI PNB Loan Amount - Book Value 1.20 116.43 5.10 Rate of Interest Free Free Free 2008-09 0.40 - - 2009-10 0.40 - - 2010-11 0.40 58.22 2.55 2011-12 - 58.21 2.55 2012-13 - - - 2013-14 - - - Discounted Value @ 8.58% 1.02 87.36 3.83 Fair Value of Interest Free Loans 92.21 Book Value of Interest Free Loans 122.73

8.3. c) Quantification of Contingent Liability in Financial Terms Contingent liabilities, to the extent that they can be fairly expected to impair the net asset value of the company, are also deducted. In the case of Balrampur Chini they are fighting the case of State Advised Price of Sugarcane (for details refer company profile). 50% probability has been considered for differential payment and accordingly liability for the same has been considered. However, higher raw



material prices will also have impact on closing stock valuation (lead to increase in closing stock valuation). Net impact has been considered while computing Reinstated Net Asset Value.The working for the same is as under:

Quantification of Contingent Liability in Financial Terms Liability for Differential Price Unit Amount Sugarcane Processed Lac-Qtls 805.79 Differential Price Rs./Qtl 15.00 Differential Amount Rs./Crs. 121.27 Less : Impact on Stock Sugar Stock Lac-Qtls 31.62 Sugar Recovery % 10.16 Adjustment to be made Rs./Qtl 1.48 Adjustment to be made Rs./Crs. 46.68 Impact Net of Stock Adjustment Rs./Crs. 74.59 Probability of losing the case % 50.00 Net Impact adjusted for Probability Rs./Crs. 37.30

8.3. d) Premium for Location Advantage The replacement cost valuation does not consider any premium which needs to be assigned for strategic factory locations of BCML. A Sugar Factory achieves maximum capacity utilization only after 4-6 Years of its commissioning. The time is needed to convince farmers in nearby area to grow more sugarcane and educate them with latest and profitable variety of sugarcane. Factory of the size below 6000 TCD is not considered to be viable, due to fixed cost factor. Average factory size of BCML is 8200 TCD. Generally initially a factory is started with 5000-6000 TCD and after maturing cane growing in the area, capacity of the factory is increased. Normally this process takes a period of 5-6 Years. It is also noteworthy that there is restriction in movement of sugarcane and license for new sugar factory is given after considering the location of existing sugar factories in near by area. This also works as hindrance in putting new sugar factory in sugarcane matured areas. Considering this premium of 10% may be assigned for getting the benefit of having factories at matured sugarcane locations. 8.3. e) Computation of Net Asset Value of BCML using Replacement Value Basis The calculation of net asset value of the company based on the Replacement Value as per the audited balances sheet as on 30th September 2008 is given below The information for the purpose of Net Asset Value has been taken from Annual Report of Balrampur Chini Mill Limited. Basis for replacement cost have been taken from Industry Reports published by ISMA from time to time and other information available in public domain.



Calculation of Net Asset Value of Balrampur Chini using Replacement Value Basis

Calculation of Net Worth of the Company Rs.in CroresParticluars Sep ' 08 Sep ' 08 Book Value Reinstated Value Gross Block 2,374.18 Less : Accumulated Depreciation 498.17 Net Block 1,876.01 Capital Work‐in‐progress 7.05 3,746.83

Investments Market Value 5.49 5.49 Net Current Assets Current Assets, Loans & Advances 876.61 876.61 Less : Current Liabilities & Provisions 249.39 249.39 Contingent Liability‐Differential Cane Price Liability 37.30 37.30 Total Net Current Assets 589.92 589.92 Total (A) 2,478.47 4,342.24 Loan Funds Secured Loans 1,250.67 1,220.15 Unsecured Loans 100.00 100.00 Total (B) 1,350.67 1,320.15 Other Liabilities Other Laibilities 9.20 9.20 Deferred Tax Liability (Net) 142.59 142.59 Total (C) 151.79 151.79 Net Worth (A‐B‐C) 976.01 2,870.30 No. of Shares 25.56 25.56 Value per Share 38.19 112.30 Premium – As per Note Below @ 10% of NAV Nil 11.23 Adjusted Value per Share in Rs. 38.19 123.53

8.4. Asset Approach- Liquidation Method Liquidation Value is defined as the present value of the net cash remaining if all assets are sold in a quick and orderly, piecemeal sale and all liabilities are paid at face value with the proceeds. Under this method the appraised value of individual assets and liabilities have to be adjusted to reflect the value that could be obtained in a quick and orderly liquidation. A tax adjustment in the amount is then estimated based on the difference between the appraised value and the tax basis of assets and liabilities using an effective tax rate. In addition, estimated liquidation costs have to be deducted. The net result is the total entity value. In the present scenario as the company is a going concern & the valuation is with the objective of acquiring controlling stake in the company hence the Liquidation method looses its significance. Hence the method is ignored fro arriving at the price band for the shares of BCML. 8.5. Income Approach-Discount Rate Estimates (WACC-Weighted Average Cost of Capital)



For purposes of this analysis, various risk rates applicable to historic and projected earnings have been estimated. Generally stated, these risk-adjusted rates reflect the expected rate of return attainable on alternative investment opportunities with comparable risk. This discount rate, which is applied to the free cash flows, should reflect the opportunity cost to all the capital providers (namely shareholders and creditors), weighted by their relative contribution to the total capital of the company. This is commonly referred to as the weighted average cost of capital (WACC). We have derived the weighted average cost of capital (“WACC’’) from the Cost of equity calculated using the Modified Capital Asset Pricing Model (`CAPM’). Modified CAPM Model is based on a combination of risk factors including a Risk-Free Rate, a Market Equity Risk Premium, a Size Premium and other identifiable risk factors specific to the subject company. This Discount Rate represents the total return, in terms of cash flows and appreciation in value that an investor would require in order to make an equity investment in the subject company 8.5. a) Modified CAPM Model Expected return on equity = Kf + Beta * (Km-Kf) + Ks + Ksp

Where: Kf Risk free rate as on the valuation date Beta Beta measures the riskeness of an individual security in relation to market portfolio Km-Kf Expected equity risk premium on the market Km Average Return from Market Portfolio Ks Small Stock Premium Ksp Company Specific Risk Premium

8.5. b) Risk Free Rate (Kf) The risk free rate is generally based on the returns from long-term government bonds and securities. In a way it depicts a combination Economic Growth & Inflation Premium. These returns are used since they represent a very low default risk, are liquid (freely tradable) and include the expected long-term inflation premium. On the valuation date the risk free rate of return can be taken at 6.50% based on the current yield on long- term government securities in India.

8.5. c) Beta Systematic risk is measured in the CAPM by a factor known as beta. Beta measures the Volatility of the changes in share prices of a company compared to the changes in the market for all listed company that make up that market. Systematic risk elements relating to the industry structure includes entry barriers, expected rivalry threat, substitution threat, and suppliers and buyers’ power threat. Beta of BCML is 1.230 & the same has been considered in Modified CAPM (the Average Industrial Beta of 1.364 -Average Beta of top 16 Sugar companies across the country)



Calculation of average industry Beta Co's Name Beta

Bajaj Hindusthan 0.491 Balrampur Chini 1.230 Bannari Amman 0.860 DCM Shriram Inds 1.560 Dhampur Sugar 1.200 Dharani Sugars 0.580 EID Parry 0.760 Jeypore Sugar 1.360 Kesar Enterprise 1.760 Rajshree Sugars 1.960 Sakthi Sugars 1.430 Shree Renuka Sug 0.390 Simbhaoli Sugars 3.540 Thiru Aroor. Su. 1.120 Triveni Engg Ind 1.380 Ugar Sugar Works 2.200 Average 1.364 Source for the Figures: Bloomberg.com 8.5. d) Return from Market Portfolio (Km) & Small Stock Premium (Ks) The opportunity cost to the capital provider equals the rate of return the capital provider expects to earn on other investments of equivalent risk. The expected rate of return from equity is taken on the basis of average of the year on year growth in terms of percentage of stocks under NIFTY 50 & CNX_500 during last 15 & 8 years respectively .The calculation of Average of Year on year growth is depicted as under:

Calculation of Avg Returns on CNX_500 since 2000 Year Open Close Avg. GrowthYOY in % terms 2000 1,205.00 912.85 1,058.93 (292.15) ‐24.24% 2001 912.85 700.60 806.73 (212.25) ‐23.25% 2002 700.60 772.85 736.73 72.25 10.31% 2003 772.85 1,531.35 1,152.10 758.50 98.14% 2004 1,531.35 1,804.90 1,668.13 273.55 17.86% 2005 1,804.90 2,459.20 2,132.05 654.30 36.25% 2006 2,459.20 3,295.05 2,877.13 835.85 33.99% 2007 3,295.05 5,354.70 4,324.88 2,059.65 62.51% 2008 5,354.70 2,295.75 3,825.23 (3,058.95) ‐57.13%

Total FOR 9 YEARS 154.44% 17.16% Source for the Figures: nseindia.com



To consider the movement of Nifty 50 since 1994 & for establishing its correlation with CNX_500 & thereby add small company premium following calculation have been done. The Size Premium is used as BCML is significantly smaller than the companies used in the formulation of the Market Equity Risk Premium.

Calculation of Avg Returns on NIFTY 50 since 1994 Year Open Close Avg. GrowthYOY in % terms 1994 1,083.74 1,182.28 1,133.01 98.54 9.09% 1995 1,182.28 908.53 1,045.41 (273.75) ‐23.15% 1996 908.53 899.10 903.82 (9.43) ‐1.04% 1997 899.10 1,079.40 989.25 180.30 20.05% 1998 1,079.40 884.25 981.83 (195.15) ‐18.08% 1999 884.25 1,480.45 1,182.35 596.20 67.42% 2000 1,480.45 1,263.55 1,372.00 (216.90) ‐14.65% 2001 1,263.55 1,059.05 1,161.30 (204.50) ‐16.18% 2002 1,059.05 1,093.50 1,076.28 34.45 3.25% 2003 1,093.50 1,879.75 1,486.63 786.25 71.90% 2004 1,879.75 2,080.50 1,980.13 200.75 10.68% 2005 2,080.50 2,836.55 2,458.53 756.05 36.34% 2006 2,836.55 3,966.40 3,401.48 1,129.85 39.83% 2007 3,966.40 6,138.60 5,052.50 2,172.20 54.77% 2008 6,138.60 2,959.15 4,548.88 (3,179.45) ‐51.79%

Total FOR 15 YEARS 188.44% 12.56% Avg of last 15 years on YoY Growth (1994 to 2008)‐NIFTY 50 ( A ) 12.56% Avg of last 8 years on YoY Growth (2000 to 2008)‐NIFTY 50 ( B ) 14.90% Avg of last 8 years on YoY Growth (2000 to 2008)‐CNX_500 ( C ) 17.16% Premium of CNX_500 Stocks over NIFTY 50 Stocks over last 8 years D = ( B‐C ) 2.26% Last 15 Years Year on Year Growth (1994 to 2008)‐CNX_500 (A + D) 14.82% Source for the Figures: nseindia.com Thus in the above calculation Km (Average Return from Market Portfolio) is taken as 12.56% & Ks (Small company premium) is taken as 2.26% No premium has been given for Company specific Risks as the same is already taken care because of choosing a broad base Index i.e. CNX_500 for calculating average return from the marker Portfolio.



8.5. e) Calculation of WACC Scenario – I

Modified CAPM Model-Computation of WACC Cost of debt % Cost of pre‐tax debt 13.00%Less: Income tax @ 33.99% ‐4.42%Post-tax cost of debt 8.58% Cost of equity: % Risk free rate‐Rf 6.50%Beta 1.23Average Return from Market Portfolio‐Rm 12.56%Small Stock Premium‐Ks 2.26%Company Specific Risk Premium‐Ksp

Scenario -If BCML Losses the Litigation on the matter of fixation of State Advised

Price (SAP).

Cost of equity 16.21%

Particulars Cost% Weights

Weighted cost % Debt 8.58% 58.95% 5.06%Equity 16.21% 41.05% 6.66%

Total 1.00 11.71% Scenario – II

Modified CAPM Model-Computation of WACC Cost of debt % Cost of pre‐tax debt 13.00%Less: Income tax @ 33.99% ‐4.42%Post-tax cost of debt 8.58% Cost of equity: % Risk free rate‐Rf 6.50%Beta 1.23Average Return from Market Portfolio‐Rm 12.56%Small Stock Premium‐Ks 2.26%Company Specific Risk Premium‐Ksp

Scenario -If BCML wins the Litigation on the matter of fixation of State Advised

Price (SAP).

Cost of equity 16.21%

Particulars Cost% Weights

Weighted cost % Debt 8.58% 57.09% 4.90%Equity 16.21% 42.91% 6.96%

Total 1.00 11.86% The WACC of Shree Renuka Sugars comes to 11.05% as against the WACC of 11.71% & 11.86% of BCML under two scenarios.WACC of Shree Renuka sugars is lower because of lower Beta as against that of BCML. Shree Renuka sugars have advised to consider higher WACC between BCML & Shree Renuka Sugars to get a conservative value. Accordingly for DCF Analysis WACC of BCML under two different scenarios have been considered.



8.6. Discounted Future Earnings The Discounted Future Earnings method arrives at an estimate of value by determining expected future earnings and then discounting those earnings back to present value using a discount rate that reflects the Uncertainty/time value inherent in those earnings. Projections have been made by the Management of Shri Renuka Sugars and have been reviewed by us. Projection has been done under two scenarios i.e. considering Sugarcane price dispute with U.P. Government going in favour and against the company. 8.6. a) Why we have given Projections & did two different scenario writing for DCF

Valuation –Impact of Litigation on DCF valuation

Central Government fixes Statutory Minimum Price (SMP) for Sugarcane. This is the minimum price which all sugar factories in India are required to pay to farmer for a defined sugar cane quality. Higher price has to be paid for better quality. In addition to this some of the State Governments (Including the state of Uttar Pradesh) fix State Advised Price (SAP). This is minimum price required to be paid by all the sugar factories in the state. Uttar Pradesh Government has fixed SAP at Rs. 125 per Quintal for sugar season 2007-08 and Rs.140 per Quintal for sugar season 2008-09. The Uttar Pradesh Sugar Mills Association and few other private mills challenged the SAP fixed by Government for the season 2007-08 and 2008-09. They have argued that cane prices fixed by the state government are not linked with downstream sugar realization and are therefore linked with the prevailing political climate than economical consideration.

Hon’ble Supreme Court in its interim order dated 08th Sep 2008 has fixed cane prices at Rs. 110 per quintal for the season 2007-08. Accordingly BCML has prepared its books of account considering cane price liability @ Rs.110/- per Quintal. The prices for season 2008-09 have been fixed at Rs. 125/- per quintal against SAP of Rs. 140 per quintal in other interim order of the Hon’ble U.P. High Court.

For the purpose of this valuation Shri Renuka Sugars has requested to consider 50% probability of winning and loosing the case.



8.6. b) Summary Income Statement Projections

Income Statement projections-Scenario I -In case BCML looses litigation Rs./Cr

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Net Sales 1947.43 2230.39 2204.11 2203.51 2725.36 3242.74Other Income 15.00 15.00 15.00 15.00 15.00 15.00Total Income 1962.43 2245.39 2219.11 2218.51 2740.36 3257.74Raw Material 1182.50 1154.80 1456.15 1690.30 1594.65 1577.20(increase)/decrease in stock 14.43 131.24 -69.69 -197.37 45.54 217.35Gross Profit 765.50 959.35 832.65 725.58 1100.17 1463.19Expenditure 278.00 300.00 324.00 350.00 378.00 408.00PBDIT 487.50 659.35 508.65 375.58 722.17 1055.19Interest 80.00 60.00 60.00 80.00 30.00 10.00Depreciation 120.00 122.00 124.00 126.00 129.00 132.00Profit before Tax extraordinary items 287.50 477.35 324.65 169.58 563.17 913.19Extraordinary items 0.00 0.00 0.00 0.00 0.00 0.00Pre-tax Profit 287.50 477.35 324.65 169.58 563.17 913.19Tax 98.00 162.00 110.00 58.00 191.00 310.00Post Tax Profit 189.50 315.35 214.65 111.58 372.17 603.19

Dividend (Incl. DDT Tax- 30%) 57.00 95.00 64.00 33.00 112.00 181.00Retained Profit 132.50 220.35 150.65 78.58 260.17 422.19

Income Statement projections-Scenario II - In case BCML wins litigation

Rs./Cr 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Net Sales 1947.43 2230.39 2204.11 2203.51 2725.36 3242.74Other Income 15.00 15.00 15.00 15.00 15.00 15.00Total Income 1962.43 2245.39 2219.11 2218.51 2740.36 3257.74Raw Material 1070.00 1049.80 1328.65 1547.80 1467.15 1457.20(increase)/decrease in stock 17.83 116.92 -64.44 -181.03 39.76 197.49Gross Profit 874.60 1078.67 954.90 851.74 1233.45 1603.05Expenditure 278.00 300.00 324.00 350.00 378.00 408.00PBDIT 596.60 778.67 630.90 501.74 855.45 1195.05Interest 80.00 50.00 40.00 45.00 10.00 0.00Depreciation 120.00 122.00 124.00 126.00 129.00 132.00Profit before Tax extraordinary items 396.60 606.67 466.90 330.74 716.45 1063.05Extraordinary items 0.00 0.00 0.00 0.00 0.00 0.00Pre-tax Profit 396.60 606.67 466.90 330.74 716.45 1063.05Tax 135.00 206.00 159.00 112.00 244.00 361.00Post Tax Profit 261.60 400.67 307.90 218.74 472.45 702.05

Dividend (Incl. DDT Tax- 30%) 78.00 120.00 92.00 66.00 142.00 211.00Retained Profit 183.60 280.67 215.90 152.74 330.45 491.05



8.6. c) Summary Balance Sheet Projections

Balance Sheet projections-Scenario I -In case BCML looses litigation Rs./Cr 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Sources of Funds Share Capital 25.56 25.56 25.56 25.56 25.56 25.56 Reserve & Surplus 1,047.44 1,267.79 1,418.44 1,497.02 1,757.19 2,179.38 Shareholders' Fund 1,073.00 1,293.35 1,444.00 1,522.58 1,782.75 2,204.94 Interest Free Loan 122.33 121.93 60.76 - - - Interest Bearing Loan 1,091.06 685.27 685.69 829.66 381.59 - Total Loan Fund 1,213.39 807.20 746.45 829.66 381.59 - Other Liabilities - - - - - - Deferred Tax Liability (Net) 100.00 50.00 - - - - Total 2,386.39 2,150.55 2,190.45 2,352.24 2,164.34 2,204.94 Application of Funds Fixed Assets 2422 2470 2519 2569 2620 2672Less : Depreciation Block 618.17 740.17 864.17 990.17 1119.17 1251.17Net Block 1803.83 1729.83 1654.83 1578.83 1500.83 1420.83CWIP 0.00 0.00 0.00 0.00 0.00 0.00Total Fixed Assets 1803.83 1729.83 1654.83 1578.83 1500.83 1420.83Investments 5.49 5.49 5.49 5.49 5.49 402.56Current Assets 934.07 810.23 894.13 1100.92 1070.02 862.55Inventories 594.07 465.23 539.13 740.92 700.02 487.55Sundry Debtors 50.00 55.00 60.00 65.00 70.00 75.00Cash & Bank Balance 40.00 40.00 45.00 45.00 50.00 50.00Advances 250.00 250.00 250.00 250.00 250.00 250.00Less : Current Liabilities & Provisions 357.00 395.00 364.00 333.00 412.00 481.00Liabilities 250.00 250.00 250.00 250.00 250.00 250.00Provisions 107.00 145.00 114.00 83.00 162.00 231.00Net Current Assets 577.07 415.23 530.13 767.92 658.02 381.55Miscellaneous Expenditure 0.00 0.00 0.00 0.00 0.00 0.00Total 2386.39 2150.55 2190.45 2352.24 2164.34 2204.94



Balance Sheet projections-Scenario II - In case BCML wins litigation Rs./Cr 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Sources of Funds Share Capital 25.56 25.56 25.56 25.56 25.56 25.56 Reserve & Surplus 1,173.13 1,453.80 1,669.70 1,822.44 2,152.89 2,643.94 Shareholders' Fund 1,198.69 1,479.36 1,695.26 1,848.00 2,178.45 2,669.50 Interest Free Loan 122.33 121.93 60.76 - - - Interest Bearing Loan 894.29 438.50 365.42 413.89 - - Total Loan Fund 1,016.62 560.43 426.18 413.89 - - Other Liabilities - - - - - - Deferred Tax Liability (Net) 100.00 50.00 - - - - Total 2315.31 2089.79 2121.44 2261.89 2178.45 2,669.50 Application of Funds Fixed Assets 2422 2470 2519 2569 2620 2672Less : Depreciation Block 618.17 740.17 864.17 990.17 1119.17 1251.17Net Block 1803.83 1729.83 1654.83 1578.83 1500.83 1420.83CWIP 0.00 0.00 0.00 0.00 0.00 0.00Total Fixed Assets 1803.83 1729.83 1654.83 1578.83 1500.83 1420.83Investments 5.49 5.49 5.49 5.49 101.17 928.83Current Assets 883.99 774.47 853.12 1043.57 1018.45 830.84Inventories 543.99 429.47 498.12 683.57 648.45 455.84Sundry Debtors 50.00 55.00 60.00 65.00 70.00 75.00Cash & Bank Balance 40.00 40.00 45.00 45.00 50.00 50.00Advances 250.00 250.00 250.00 250.00 250.00 250.00Less : Current Liabilities & Provisions 378.00 420.00 392.00 366.00 442.00 511.00Liabilities 250.00 250.00 250.00 250.00 250.00 250.00Provisions 128.00 170.00 142.00 116.00 192.00 261.00Net Current Assets 505.99 354.47 461.12 677.57 576.45 319.84Miscellaneous Expenditure 0.00 0.00 0.00 0.00 0.00 0.00Total 2315.31 2089.79 2121.44 2261.89 2178.45 2669.50

8.6. d) Overview of Projection Assumptions In preparing the preceding financial statement projections, management made various assumptions about expected future revenues, expenses, assets, liabilities and equity. These assumptions were made after considering the cyclical nature of the sugar industry, information available through national and international industry reports, price trends, expected demand growth etc. Assumption made as per projection details submitted by management is explained below. Projections have been made considering lower sugarcane processing during 2008-09 and 09-10 season i.e. low production high price scenario. Sugar Cane processing has been considered to improve during 2010-11 & 11-12 leading to decline in sugar prices and again upward trend in prices has been considered during 12-13 & 13-14. This is in line with past experience of Indian Sugar Industry where lower production leads to higher prices and in turn results in better sugarcane crop. This result in higher sugarcane crushing, leading to lower prices and in turn farmers moving out of sugarcane crop.



8.6. e) Revenue & Expense Assumptions Assumption for Revenue has been made considering turnaround in Sugar industry in season 2008-09 due lower sugarcane processing. Management of Shri Renuka Sugars believe the prices will further firm up in season 2009-10 due to lower carried forward stock of sugar and will fall thereafter. Then there will be two years of price fall before next round of recovery in prices. Prices of the sugar for the year 2008-09 have been considered based on average sugar price during the month of Jan-09. Management of Shri Renuka Sugars believe that actual realization during 2008-09 will be line with prices prevailing during the month of Jan-09. No further increase in sugar capacities have been considered, however in sales volume annual growth of 4% has been considered by the management of Shri Renuka Sugars.

Sugar Yield of 10.20% has been considered throughout the projection period against actual yield of 10.16% during 2007-08. This has been done on the assumption of improving sugarcane quality and trend of past few years.

Growth in sales of Power & Ethanol have been considered at 10% & 20% per annum respectively for next 6 years by Shree Renuka Sugars.

Other Income has been considered to remain at the level of 2007-08 as this is not core income and this should not influence valuation.

Raw Material which is mainly sugarcane prices are subject to judicial decision (explained in detail earlier), hence projections have been made under both the scenario considering loss of case by Sugar Mills and loss of case of Government. In case of raw material other than sugar cane increase has been considered for purchase of bagasse and molasses for Power and Industrial Alcohol.

8.6. f) Total General & Administrative Expenses, Interest & Taxes It has been assumed to grow @ 8% p.a. This is in line with past periods after making adjustment for new factories which have not been considered in projection. Interest outgo has been considered based on loan repayment and interest rate prevailing presently for each type of loan.

Tax has been considered at the rate of 33.99% i.e. presently applicable to Indian Companies. 8.6. g) Dividends Assumptions & Retained Earnings Equity Shares Dividend Payout has been considered @ 30% of PAT. This amount include amount to be paid towards Dividend Distribution Tax.

Retained Earnings-After distributing dividend rest of the 70% of the earnings have been assumed to be retained in the business for payment of debt during initial years and then to be retained as liquid investments.



8.6. h) Fixed Asset & Depreciation Expenses Assumptions Fixed Asset Purchases Fixed Asset Purchase has been considered to be 2% of existing fixed assets base. No fresh sugar capacities have been considered in fixed assets and only addition in Power Plant debottlenecking and Distilleries capacity addition has been considered. Depreciation In line with Fixed Assets an increase of 2%p.a. has been considered for Depreciation expenditure. No Fixed Asset has been assumed to be achieving 95% Depreciation level, in the absence of information with Shri Renuka Sugars. Investments have been considered at the level of 30.09.2008 till payment of loans. After repayment of the entire loan Profit has been assumed to be invested in other long terms investments (non interest yielding) e.g. strategic stakes etc. Inventories have been projected considering Opening Stock, Sugarcane processing, sugar yield, dispatches (based on 4% annual growth as per industry expectation) and balance has been taken as Stock. Power does not have any finished product stock. Industrial Alcohol stock has been considered at almost same level as in 2008 as it is insignificant part of total inventories. Sundry Debtors, Cash Equivalents, Advances and Current Liabilities have been projected approximately at 2008 end levels. 8.6. i) Terminal Value & Growth Rate Assumption For computation of terminal value 3% perpetuity growth has been considered over Base Free Cash Flow. Base Free Cash Flow for terminal value has been considered on the basis of average Net Operating Profit Less Adjusted Tax (NOPLAT). Average of last four years i.e. 2010-11 to 2013-14 has been considered to cover a complete sugar cycle, which is generally of 4-5 years. From NOPLAT outflow on account of Fixed Assets Addition have been reduced on the assumption that this much Cash Outflow will be required to attain 3% perpetuity growth. 3% perpetuity growth is considered to be very well attainable due to huge demand for alternate to fossil fuel, which is being provided through Industrial Alcohol by Sugar Industry. Even Per Capita Sugar consumption in India is very low compared to US, EU and Brazil (Refer Chapter 5.1 for Per Capital Consumption Chart). Terminal Value as a part of total valuation is high due to static nature of growth considered over a longer period hence projections have been made only for the period where higher demand of Industrial Alcohol (Incl. Ethanol) and Power has been envisaged and to cover one complete down cycle of the sugar industry.



8.6. j) Discounted Future Earnings Value Calculations DCF analysis has been under two scenario i.e considering Sugarcane price dispute with U.P. Government going in favour and in against the company. Scenario I-BCML Looses the litigation over fixation of sugar cane prices In case the company looses the litigation then the total Enterprise value stands at Rs.3935.71 crores & Equity Shareholder fund comes to Rs.2625.66 crores resulting in per share price around Rs.102.73 per share.

DCF Valuation -Scenario I- If BCML Looses Litigation on fixation of sugar prices Projections Terminal Value

Particulars/FY

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

Growth Rate 3%

Rs. in Cr CASH FLOWS A PBDIT 487.50 659.35 508.65 375.58 722.17 1055.19 B Depreciation 120.00 122.00 124.00 126.00 129.00 132.00 C Tax 121.28 177.33 126.93 82.36 195.75 304.65 D Change in Deffered Taxes ‐42.59 ‐50.00 ‐50.00 0.00 0.00 0.00 E N O P L A T 323.64 432.025 331.716 293.219 526.424 750.537 F Less: Increase in Working Capital 24.44 ‐161.84 114.90 237.79 ‐109.90 ‐276.47 G Less: Addition to Fixed Assets 40.77 48.00 49.00 50.00 51.00 52.00 H Net Free Cash Flows 258.43 545.865 167.816 5.4286 585.324 975.007 436.18I WACC J Discounting factor 11.71% 89.51% 80.13% 71.73% 64.21% 57.47% 51.45% 46.05%K Discounted Present Value 231.33 437.39 120.37 3.49 336.40 501.61 L Discounted Future Cash Flows for explicite Period 1630.58M Perpetuity Value 2305.13

N Total Value 3,935.71 O Less: Debt 1350.67P Add: Cash & Bank 35.13Q Add: Investment at market value 5.49

R Equity Shareholders Fund 2625.66 S Number of equity Shares 25.56T Value per share 102.73



Scenario II-BCML wins the litigation over fixation of sugar cane prices In case the company the litigation then the total Enterprise value stands at Rs.4801.66 Crores & Equity Shareholder fund comes to Rs.3491.61 crores resulting in per share price around Rs.136.60 per share.

DCF Valuation -Scenario I- If BCML Wins Litigation on Fixation of Sugar Prices Projections Terminal Value

Particulars/FY

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

Growth Rate 3%

Rs. in Cr CASH FLOWS A PBDIT 596.60 778.67 630.90 501.74 855.45 1195.05 B Depreciation 120.00 122.00 124.00 126.00 129.00 132.00 C Tax 157.28 216.70 167.28 123.99 239.73 350.81 D Change in Deferred Taxes ‐42.59 ‐50.00 ‐50.00 0.00 0.00 0.00 E N O P L A T 396.73 511.969 413.623 377.746 615.722 844.244 F Less: Increase in Working Capital ‐121.23 ‐151.52 106.65 216.45 ‐101.12 ‐256.61 G Less: Addition to Fixed Assets 40.77 48.00 49.00 50.00 51.00 52.00 H Net Free Cash Flows 477.19 615.489 257.973 111.296 665.842 1048.85 526.16I WACC J Discounting factor 11.86% 89.40% 79.93% 71.45% 63.88% 57.11% 51.06% 45.64%K Discounted Present Value 426.61 491.93 184.33 71.10 380.26 535.50 L Discounted Future Cash Flows for explicite Period 2089.73M Perpetuity Value 2711.92

N Total Value 4,801.66 O Less: Debt 1350.67P Add: Cash & Bank 35.13Q Add: Investment at market value 5.49

R Equity Shareholders Fund 3491.61 S Number of equity Shares 25.56T Value per share 136.60

For the purpose of this valuation Shri Renuka Sugars has requested to consider 50% probability of winning and loosing the case. Considering the same the DCF valuation of BCML yields following conclusion-

Conclusion under DCF Valuation Measure Unit Scenario I Scenario II Average Enterprise Value Rs./Cr. 3,935.71 4,801.66 4,368.68 Equity Shareholders Fund Rs./Cr. 2,625.66 3,491.61 3,058.63 Value per Share Rs./Per Share 102.73 136.60 119.66



8.7. Comparative Company Method Under this method, value of the shares of a company is arrived at by using multiples derived from valuations of comparable company, as manifest through stock market valuations of listed company. This valuation is based on the principal that market valuations, taking place between informed buyers and informed sellers, incorporate all factors relevant to valuation. Relevant multiples need to be chosen carefully and adjusted for differences between the circumstances, Value of business is determined by applying appropriate multiple obtained by analyzing information related to various comparable companies. Comparable companies are obtained by applying logical judgments keeping factors such as Turnover, Products, Services, Business environment, Profit margins, Scale of operations etc, in mind. Outlier multiples e.g. negative multiple or very high/low multiple as compared to the industry average multiples are ignored. 8.7.a) Identification of comparable company In Comparable Company Method, there are very few listed large sugar mills in India. Shri Renuka Sugars, Bajaj Hindustan, Sakti Sugars and Triveni Engineering has been considered to be of comparable size of BCML. However, Shri Renuka Sugars and Sakti sugars are not operating in Uttar Pradesh, when cane pricing is significantly different hence multiple of those companies will not be comparable with BCML. Triveni is also engaged in Infrastructure and hence is a diversified company and hence also not comparable with BCML. Only company comparable with BCML is Bajaj Hindustan. Therefore the only company which can really act as a comparable company to BCML is Bajaj Hindustan. Bajaj Hindustan has posted losses during the year 2007-08 (Sep-08 ending), hence profit based multiples like -Equity Enterprise Value (EEV) to Profit after Tax (PAT) Multiple & Enterprise Value (EV) to Earnings Before Interest Tax Depreciation and Amortization (EBITDA) multiples can not be used and hence valuation has been done based on only EV to Sales Multiple of comparable company. 8.7.b) Comparable Companies EV/Sales Multiples Method

The Sale multiple is based on the premise that the value of a business is directly related to the quantum of its revenues generating capacity. The Sales are adjusted to reflect the sales of the business on a standalone basis (i.e. after deducting extraordinary or unusual items, or items of a non-recurring nature). The Sales multiple methods take into account the value or consideration paid by acquirers of similar businesses, or the Business value based on the market capitalization of the company on the reference date. The sales multiple is computed by dividing the total consideration paid (after adjusting for any debt assumed, investments made by the company and cash& bank available with the company) by the Sales to derive a multiple, which can be applied to the Sales figure of the business being valued. i.e. adjusted maintainable Sales are capitalized by an appropriate factor ("capitalization factor") to arrive at the business value.



As explained above only Bajaj Hindustan have been considered as Comparable company for the purpose of EV/Sales multiple for the purpose of valuation of BCML. The Financials of Bajaj Hindustan as on 30.09.2008 are as under –

Bajaj Hindustan as on 30.09.08 Rs/cr. Sales 1,756.28 PBDIT 218.54 Depreciation 187.22 PBIT 31.32 Interest 139.44 PBT (108.12) Tax (57.95) PAT (50.17) No. of Shares - Crs.Nos 14.14 Price as on 31.12.2008-Rs. 72.90 Market Capitalisation-Rs./cr 1,031.00 Debt as on 30.09.2008-Rs./cr 2,353.00 Enterprise Value-Rs./cr 3,384.00 EV/Sales 1.93

The calculation of equity share holder’s value of BCML based on the comparable company EV/Sales multiple methods is calculated below:

Appropriate EV to sales Multiple 1.93

Rs in Crore Particulars Amount Net Sales for the year ended 30th Sep 2008 1,463.54 Appropriate EV to sales Multiple 1.93 Enterprise Value 2,819.95 Add: Cash & Bank 150.00 Add: Investment at market value 5.49 Adjusted Enterprise Value 2,975.44 Less Borrowing 1,350.67 Equity Shareholders Value 1,624.77 Number of shares 25.56 Value per share = (C*D) (Rs) 63.57 Price Per Share 63.57

It could be observed that shareholders value calculated as per EV/Sales multiple methods come to Rs. 1624.77 Crores and value per share comes to Rs. 63.57 per share. It is pertinent to mention that Market price of the stock of Bajaj Hindustan does not lead us to the correct business enterprise value in the current market scenario.



8.8. Market Approach (Market Value Method)

Quoted prices are considered indicative of the perception of investors operating under free market conditions. Under this method, the valuation is done on the basis of share prices of a company quoted on the stock exchange. The Equity Shares of BCML are listed on stock Exchange at –

National Stock Exchange of India Ltd. NSE symbol for BCML is BALRAMCHIN Bombay Stock Exchange- BSE Code for BCML is 500038 The Calcutta Stock Exchange Association Ltd.

The trading transactions of the equity shares during last four years were analyzed into the following seven periods. The Daily, Weekly & monthly high & Low of share price along with there traded quantities have been considered in arriving at per share value for each of the seven period shown below-

Analysis of Prices of BCML over last 4 years have been done & the price movement of BCML shares is depicted below-

The analysis shows that there was huge variation in the prices of the shares of BCML over the last few years. Hence market price of the stock does not lead us to the correct business enterprise value in the current scenario.

Weighted Average Historical Prices of the shares of Balrampur Chini Period In nos Rs./Lacs Rs. Per share

Qty Value Average 2 Weeks 10338931 5,421.85 54.1026 Weeks 111806032 76,965.84 61.296 Months 455275003 313,910.78 68.95Highest Averaged Price 68.95 Indicative Price 68.95

Analysis of the Prices of Balrampur Chini during last 4 years Period In nos Rs./Lacs Rs. Per share

Qty Value Average 1 Years 916464902 731,050.44 79.772 Years 2128609761 1,731,758.83 81.363 Years 2779241088 2,428,645.93 87.394 Years 3095258182 2,729,374.51 88.18Maximum Price during last 4 Years - 20 April 2006 202.60Minimum Price during last 4 Years - 02 Dec 08 29.30



8.9. Business Value of BCML For the reasons set out earlier in this report, the valuation cannot proceed solely on the basis of what is known as historical profits or profits of past years. The present valuation exercise would have to proceed on a going concern basis and hence has to lay emphasis on cash generation capacity of the company. Shree Renuka Sugars will be going in for controlling stake in BCML & going with the shareholding pattern of BCML as mentioned below, they have to acquire the shares from Promoter’s Group, Financial institutions & FII’s hence it is presumed that they have to pay control premium to the extent of 10% over & above fair the value of shares. The same has been considered in the calculation Category No. of

shares % of

Holding

Promoters' Group 91150890 35.67

Financial Institutions, Insurance Companies, Banks & Mutual Funds

61634324 24.12

Foreign Institutional Investors 52591177 20.58

Enterprise Value, Equity Shareholders Fund & Price Per share under different methods is summarised below-

Conclusion under Business Valuation

Method Enterprises Value

Equity S/H

Fund

Value per

Share Premium Acquisition Price

Per Share Remarks

Rs./Cr. Rs./Cr. Rs./Per

Share Rs./Per Share Rs./Per Share

Asset Approach - Replacement Cost 4,342.24

2,870.30

112.30

11.23 123.53 Premium for

Location Advantage@10%

Discounted Cash Flows method 4,368.68

3,058.63

119.66

11.97 131.63 Premium for Controllable stake @10%

CCM EV Sales Multiple projected 2,975.44

1,624.77

63.57 6.36 69.93 Premium for Controllable stake @10%

Market Approach -Market Price (Highest average of last 4 years

3,604.55 2,253.88

68.95 6.90 75.85

Premium for Controllable stake @10%

PRICE BAND PER SHARE (Considering only NAV-Replacement cost Method & DCF Method) Rs.124 to Rs.132

Note - CCM & Market Approach methods needs to be ignored under the current Market Scenario. Hence the same is not considered in computing the price band. The same have been shown so as to give indicative prices as per Market as on date.



In the ultimate analysis, valuation will have to be adjusted by the exercise of judicious discretion and judgment taking into account all the relevant factors. There will always be several factors, e.g. quality and integrity of the management, present and prospective competition, marketability or lack of marketability and market sentiment etc. which are not evident from the face of the balance sheets but which will strongly influence the worth of a share. Based on the analysis done above, Shree Renuka Sugars can use the price band of Rs.124 to Rs. 132 per share. for Acquisition of controlling stake in Balrampur Chini Mills Limited

balrampur sugar mills

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