edelweiss capital final_3

8/3/2019 Edelweiss Capital Final_3

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VALUATION OF EDELWEISS

CAPITAL

SUBMITTED TO: PROF. PARESH SHAH

SUBMITTED BY:PIYUSH GAUR (35)

KOMAL LALWANI (18)

NISHIDH SHAH (47)

ANIS VOHRA (56)

BHAVIK GANDHI (10)


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2.93

111.69

-92.72

9.53-20.21

-150

-100

-50

0

50

100

150

Mar '07 Mar '08 Mar '09 Mar '10 Mar '11`inCrores

Net Increase / Decrease in Cash

0

10

20

30

4050

60

Mar '07 Mar '08 Mar '09 Mar '10 Mar '11

27.06 28.78 26.3734.2

58.73

`inCrores

Net Profit Trends


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ESTIMATION OF DISCOUNT RATES

` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07

Secured Loan 99.51 471.85 108.46 127.12 0.93

Unsecured Loan 3496.6 981.56 400.72 975.81 180

Total Debt 3596.11 1453.41 509.18 1102.93 180.93

Interest 300.11 137.22 97.82 77.32 2.13

Tax Rate 0.3 0.3 0.3 0.3 0.3

Cost of Debt (Kd) (%) 5.84 6.61 13.45 4.91 0.82

` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07Risk Free Return 0.0675 0.0625 0.0475 0.065 0.075

Return Generated by Market 0.21 0.15 0.27 0.17 0.2

Beta 0.68 1.64 0.95 1.78 1.91

Equity Risk Premium 0.1425 0.0875 0.2225 0.105 0.125

Cost of Equity (%) 9.7575 14.4125 21.185 18.755 23.95

COST OF DEBT

COST OF EQUITY


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0.00

10.00

20.00

30.00

2010-11 2009-10 2008-09 2007-08 2006-07

Percentag

e

Cost of Capital & Interest Rate

Overall Cost of Capital (%) Interest Rate (%)

0.00

10.0020.00

30.00

2010-11 2009-10 2008-09 2007-08 2006-07Percenta

ges

Cost of Capital

Cost of Debt Cost of Equity Cost of Capital (%)


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NET INCOME APPROACH

Approach proposed by David Durand,there exists direct relationship between theCapital Structure and Valuation of the Firm

and Cost Capital.

V = S + B

Overall Cost of Capital = EBIT / V


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ASSUMPTIONS TO NI APPROACH

There is no Corporate Taxation.

The cost of debt is less than the cost ofequity.

The use of debt does not change the riskperception of the investors as a result ofboth cost of debt and cost of equity remainconstant.

No hidden Cost exist, when more andmore debt introduced.


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NET INCOME APPROACH

` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07

Market Price Per Share 32.1 50.97 41.32 56.91 60

Number of Shares 75.2 37.54 37.47 37.47 4.49

Total Debt 3596.11 1453.41 509.18 1102.93 180.93

EBIT 363.91 181.25 133.27 117.97 39.66

Interest 300.11 137.22 97.82 77.32 2.13

Net Income 63.8 44.03 35.45 40.65 37.53

Cost of Capital (%) 8.18 9.98 15.36 9.63 9.85

Market Value of Equity Shares 522.19 439.31 544.61 391.38 369.50

Total Value of Company 4118.30 1892.72 1053.79 1494.31 550.43

Overall Cost of Capital (%) 8.84 9.58 12.65 7.89 7.21


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Increase in Debt has cause to increase in cost of capital

and value of Edelweiss Capital. Rate of Interest is less than Equity Capitalization Rate.


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NET OPERATING APPROACH

Approach proposed by David Durand, thevaluation of the firm and its Cost of Capitalare Independent of its Capital Structure.

The Market Value of debt is deducted fromthe total value of the firm and thedifference is the Market Value of Stock.


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ASSUMPTIONS TO NOI APPROACH

The overall Cost of Capital remains same for alldegree of debt equity mix.

The Market Capitalization Rate capitalizes theValue of Firm as a whole.

The use of less costly debt funds increases the

risk of Shareholders.There are no Corporate Taxes.

The Cost of Debt is constant.


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NET OPERATING APPROACH

` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07

Number of Shares 75.2 37.54 37.47 37.47 4.49

Total Debt 3596.11 1453.41 509.18 1102.93 180.93

Cost of Capital (%) 8.18 9.98 15.36 9.63 9.85

EBIT 363.91 181.25 133.27 117.97 39.66

Total Value of Company 4446.19 1816.57 867.49 1225.28 402.82

Market Value of total Debt 3596.11 1453.41 509.18 1102.93 180.93

Market Value of Equity Shares 850.08 363.16 358.31 122.35 221.89

Interest 300.11 137.22 97.82 77.32 2.13

Equity Capitalization Rate 7.51 12.12 9.89 33.22 16.91


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The market value of the firm remains unaffected by the change incapital structure.

However, the with the increase in debt over previous years hasincreased the equity capitalization rate and value of EdelweissCapital over a period of time.


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TRADITIONAL APPROACH

The traditional approach is also known as theintermediate approach as it is the mean between twoextreme approaches of net income approach on onehand and net operating income on the another.

It believes in the existence of what may be calledOptimal Capital Structure.

By a judicious mix of debt and equity capital, it ispossible for the firm to minimize the overall cost of

capital and maximize the total value of the firm.


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TRADITIONAL APPROACH

` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07

EBIT 363.91 181.25 133.27 117.97 39.66

Interest 300.11 137.22 97.82 77.32 2.13

Net Income 63.8 44.03 35.45 40.65 37.53

Cost of Equity (%) 9.7575 14.4125 21.185 18.755 23.95

Equity Shares 653.86 305.50 167.34 216.74 156.70

Market Value of Debt 3596.11 1453.41 509.18 1102.93 180.93

Market Value of Company 4249.97 1758.91 676.52 1319.67 337.63

Overall Cost of Capital (%) 8.56 10.30 19.70 8.94 11.75


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Reduction in Interest rate is higher than reduction in costof equity.

In Year 2008-09, Increase in Interest Rate was higherthan Increase in Cost of Equity.


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MODIGLIANI-MILLER APPROACH

the value of the firm and its cost of capitalindependent of its capital structure, i.e.,the total value of the firm remain

unchanged inspite of the debt equity mixor the degree of leverage.

overall cost of capital is equal to the

capitalization rate of pure equity stream ofrisk class.


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MODIGLIANI-MILLER APPROACH

` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07

Total Capital Employed 4919.12 2763.55 1865.29 2453.29 631.05

Equity Capital 1323.01 1310.14 1356.11 1350.36 450.12

Total Debt 3596.11 1453.41 509.18 1102.93 180.93

Net Operating Income 363.91 181.25 133.27 117.97 39.66

Interest 300.11 137.22 97.82 77.32 2.13


Equity Earnings 63.8 44.03 35.45 40.65 37.53

Cost of Capital (%) 8.18 9.98 15.36 9.63 9.85

Market Value of Equity 779.50 441.29 230.75 422.21 381.19

Market Value of Company 4375.61 1894.70 739.93 1525.14 562.12

Average Cost of Capital (%) 8.32 9.57 18.01 7.74 7.06


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At any degree of leverage, the company's overall cost of capital (ko) and the

Value of the firm (V) remains constant. This means that it is independent of the capital structure.

The value of Edelweiss Capital is obtained by capitalizing the operatingearnings, discounted at an appropriate discount rate suitable for the riskundertaken.


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NET ASSETS VALUE METHOD

Net Assets Value = Total Assets (excludingMiscellaneous Expenditure & Debit balance of Profit &Loss account) Total Liabilities

OR

Net Assets Value = Share Capital + Reserves (excluding

revaluation reserves) Miscellaneous ExpenditureDebit Balance of Profit & Loss Account


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NET ASSET VALUE METHOD

` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07

Fixed Assets 3.75 3.1 4.6 7.68 1.29

Investments 1199.52 1153.61 1249.73 1059.23 247.93

Current Assets, Loans & Advances 3828.92 1786.22 682.81 1464.13 403.09

Total Assets 5032.19 2942.93 1937.14 2531.04 652.31

Current Liabilities 76.97 98.68 34.22 61.18 21.9

Provisions 36.09 80.71 39.38 18.18 0.31

Current Liabilities & Provisions 113.06 179.39 73.6 79.36 22.21

Unsecured Debt 3596.11 1453.41 509.18 1102.93 180.93

Total Debt 3709.17 1632.8 582.78 1182.29 203.14

Net Worth 1323.02 1310.13 1354.36 1348.75 449.17

Number of Equity Share 75.2 37.54 37.47 37.47 4.49

Value Per Share 17.59 34.90 36.15 36.00 100.04


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17.5934.90 36.15 36.00

100.04

0.00

50.00

100.00

150.00

2010-11 2009-10 2008-09 2007-08 2006-07

Amountin`

Value Per Share as per Net Assets Value Method

1323.02 1310.13 1354.36 1348.75

449.17

0

500

1000

1500

2010-11 2009-10 2008-09 2007-08 2006-07

`inCro

res

Net Worth as per Net Assets Value Method


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PROFIT EARNING CAPOTALIZATION

VALUE METHOD

PECV = Future Maintainable Profits After

Tax/Capitalization Rate OR

PECV = Future Maintainable Profits After Tax*

PE Multiple


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PROFIT EARNINGCAPITALIZATION VALUE METHOD

` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07

Revenue 439.61 233.53 189.88 187.65 75.31

Expenditure 75.7 52.28 56.61 69.68 35.65

PBDIT 363.91 181.25 133.27 117.97 39.66

Interest 300.11 137.22 97.82 77.32 2.13

PBDT 63.8 44.03 35.45 40.65 37.53

Depreciation 1.42 1.67 4.38 1.32 1.02

PBT 62.38 42.36 31.07 39.33 36.51

Tax 3.65 8.14 4.71 10.54 9.44

PAT 58.73 34.22 26.36 28.79 27.07

PE Ratio 10.70 15.00 10.40 19.10 9.95

PECV 628.4 513.3 274.1 549.9 269.4

EPS 0.78 4.56 3.52 3.84 6.03

Market Price of Equity 32.1 50.97 41.32 56.91 60


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628.4 513.3

274.1

549.9

269.4

0.0

200.0

400.0600.0

800.0

2010-11 2009-10 2008-09 2007-08 2006-07

`inCrore

s

Profit Earning Capitalization Value

0.78

4.563.52 3.84

6.03

0

2

4

6

8

2010-11 2009-10 2008-09 2007-08 2006-07

Amount

in`

Earning Per Share


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EBITDA MULTIPLE METHOD

Enterprise Value

EV/ EBITDA Multiple

= -------------------

EBITDA

OR

Market Value of Equity + Market Value of DebtEarnings before Interest, Taxes, Depreciation &

Amortization


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EBITDA MULTIPLE METHOD` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07

Number of Shares 75.2 37.54 37.47 37.47 4.49

Market Price of Equity 32.1 50.97 41.32 56.91 60

Market Value of Equity 2413.92 1913.414 1548.26 2132.418 269.4


Enterprise Value 6010.03 3366.82 2057.44 3235.35 450.33

EBITDA 363.91 181.25 133.27 117.97 39.66

Cost of Capital (%) 16.52 18.58 15.44 27.43 11.35


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6010.03

3366.822057.44

3235.35

450.330.00

2000.00

4000.00

6000.008000.00

2010-11 2009-10 2008-09 2007-08 2006-07

`inCrores

Enterprise Value as per EBITDA Multiple Methodof Valuation

16.5218.58

15.44

27.43

11.35

0.00

10.00

20.00

30.00

2010-11 2009-10 2008-09 2007-08 2006-07

Amountin`

Enterprise Value / EBITDA


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MATRIX

Methods

(` in Crores)

2010-11 2009-10 2008-09 2007-08 2006-07

Net Income Approach 4118.30 1892.72 1053.79 1494.31 550.43

Net Operating Approach 4446.19 1816.57 867.49 1225.28 402.82

Traditional Approach 4249.97 1758.91 676.52 1319.67 337.63

Modigliani-Miller

Approach

4375.61 1894.70 739.93 1525.14 562.12


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NI Approach is based on income before interest.

NOI Approach is based on income after interest. Traditional Approach takes into account only equity capitalization rate.

M&M Approach takes in to account overall capitalization rate.


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CONCLUSION

Net Operating Income Approach is the best method forValuation of Edelweiss Capital.

It takes into account both i.e., Capitalization Rate andInterest.

There are always fluctuations in the Interest Rate andCost of Fluctuations.

Net Worth is increasing, which indicates that companys

Assets increasing at faster rate than Debt.

Edelweiss Capital has a value of almost of ` 4200Crores.

Company has good profitability ratios which indicatessound management exist at Edelweiss Capital.


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edelweiss capital final_3

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