Equity Valuation Of Dscl
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- Pages: 29
Value Analysis Of D.S Construction Ltd.
As On 2nd April 2009
Nipun Mahajan Financial Analyst +91-9971319385
V alue A nalysis of D SCL Table of Contents Topic
Page No.
Background
3
Industry Analysis
4
Research Methodology
5
Valuation Methodology
6
Valuation of DSCL Valuation of EPC
7
Valuation of SPV
10
Valuation of Hydro Electric projects
26
Summary
28
Limitations
29
2|Page
V alue A nalysis of D SCL Background D.S Constructions Ltd. DSCL is a part of DS group of companies, came into existence in 1978. DSCL is a part of the USD 3 billion D S Group with interests in retail & trading, real estate development, hospitality, construction & infrastructure development across 5 continents, DSCL is a pioneer in BOT infrastructure development and engineering with projects under execution in the Highways, Expressways & Railway, Hydro Power and now pursuing Privatization of Airports & Ultra Mega Power Projects, Special Economic Zones, etc. in a short span of 5 years. It’s Business Engineering, Processing & Construction (EPC) business: It handles EPC business for various infrastructure projects, Special Purpose Vehicles viz. Roads, Railways & Urban infrastructure. Investment in SPV’s: DSCL has made investment in following eight Special Purpose Vehicles (SPV) Hydro Business: DSCL has recently got two hydro electric projects
3|Page
V alue A nalysis of D SCL Industry Analysis Key Characteristics Comparative low project risk. The infrastructure segment is expected to see investments of Rs 4356 billion till 2009, as compared to Rs 3320 billion According to a recent report by Cris Infac on Indian construction industry, government's spending on infrastructure has increased by 106 percent to Rs 8,163 billion in the tenth plan period compared to Rs 3959 billion during the ninth plan period. Competitive pricing due to competitive bidding in government projects. Implementation of the build-operate-transfer (BOT), build-own-operate-transfer (BOOT) mechanism by the government has generated interest from the private sector and a lot of projects in the road and hydropower segments are already underway. Over Rs 380 billion will be spent on hydropower projects, resulting construction contracts worth almost Rs 266 billion in the next five years.
Roads, urban infrastructure are expected to be still the key for investment in infrastructure sector.
4|Page
V alue A nalysis of D SCL Research Methodology The data collection includes both primary and secondary data collection methods. Primary Method: The profit & loss a/c & balance sheets for the year 2004-05 ,2005-06,2006-07 provided by DSCL. The financial models, projections along with industrial& business analysis are used to valuation. Secondary Method: Reports of various agencies such as CRISIL, RBI, FICCI etc. Websites referred: www.dsconstructions.com www.rbi.org.in www.ficci.com www.crisil.com
5|Page
V alue A nalysis of D SCL Valuation Methodology The Valuation of DSCL is classified according to the type of the business they are undertaking.
EPC
• Equity Valuation of EPV business for various SPV • Method Used market multiple i.e EV/EBDIT & PAT*P/E
SPV
• Equity Valuation of Investment made in Eight Projects • Discounting Cash Flow to Equity (DCFE) method
Hydro
• Equity valuation of Hydro power business
Equity Valuation of EPV
Equity Valuation of SPV
Equity VAluation of Hydro Electric Projects
6|Page
Equity Valuation of DSCL
V alue A nalysis of D SCL Valuation of DSCL I)
Valuation of EPC Business D S Constructions Ltd. through its ability to think BIG & DELIVER innovative and selective strategy has established itself as one of prominent player in the infrastructure development sector in India. DSCL is a pioneer in BOT infrastructure development and engineering with projects under execution in the Highways, Expressways & Railway, Hydro Power and now pursuing Privatization of Airports & Ultra Mega Power Projects, Special Economic Zones, etc. in a short span of 5 years.
The valuations approach: Therefore for the purpose of valuation of SPV business it is assumed that it as at par with the industry (construction-large turnkey projects) The market multiple method and P/E multiple of the industry (includes 10 players). Two methods have been used i. EV/EBDIT Multiple ii. P/E * PAT Since DSCL is considered to be at par with industry, the Industry EV/ EBDIT Multiple and industry P/E are treated as benchmark for the computation.
7|Page
V alue A nalysis of D SCL Method 1 Industry Data for 3 months (jan-mar08) Particulars Amount in Rs. Cr EBDIT 3621.54 Mkt. Capitalization 62437.00 EV/EBDIT Multiple EBDIT of DSCL
17.24 150
Market multiple EV Less Quasi equity treated as debt Net Value Less Illiquidity Discount @ 25% Equity Value
17.5 2625 563 2062 515.5 1546.5
Method 2 Industry P/E *PAT of DSCL Book Value Less Quasi equity treated as debt Net Value Less Illiquidity discount @25% Equity Value
53.88 45 2424.6 563 1861.6 465.4 1396.2
Therefore the value of DSCL EPV Business is estimated as Rs.1469.43
8|Page
V alue A nalysis of D SCL Notes: i. ii. iii. iv.
*Refer Annexure 1: Balance Sheet & Profit & Loss A/c of DSCL Illiquidity discount: Since the company is unlisted, the illiquidity discount is treated as 25%. The valuation is exclusive of quasi equity which is treated as debt. Applied EV/EBDIT multiple is 17.5
9|Page
V alue A nalysis of D SCL II)
Valuation of SPV Business
The valuation of SPV Business includes individual valuation of eight projects
DGSCL KMPE LS Raipur Express DSC Ventures Gwalior Jhansi Express Way VMPL Sandur Bypass Project
The Methodology: Method
FCFE=
DCFE
Discounted Cash Flow To Equity
Net Income + Depreciation Depreciation- Capital Expenditure-increase increase in Working Cap+debt Infusion Infusion- debt Repayments
The FCFE is discounted at expected rate of return by equity capital provider Discounting Rate Risk Free Rate + Market Risk Premium Interest Rate on Long Term Govt. Risk Free Rate =7.75 Securities Source (www.rbi.org.in) Beta ( Expected market return of the similar listed CompanyCompany Risk free Risk Premium= 4.25 Rate) Average Int. volatility
0.65
Discounting rate lower limit of the sector
11.35
Discounting rate upper limit of the sector
12.65
For valuation the discounting rate range is 10.5%-14% Project Time Period
Discounting Rate (%)
2 Years Old
10.5
1 Year Old
11.5
Up to 6 Months To Complete
12.5
6-12 Months to Complete
13.5
Above 1Year
14
Note: 1. Average 5 year construction sector equity return 2.The discounting rate varies from project to project 3. For risk premium average beta is 0.7 4.. Few projects of DSCL have already been completed & few are in WIP
10 | P a g e
V alue A nalysis of D SCL a) Delhi Gurgaon Super Connectivity Ltd.
D S Constructions Ltd. was awarded this project and commenced work in January 2003. It was the first BOT project to be awarded on a negative grant (INR 610.6 Million). The project envisaged conversion of the DelhiGurgaon Section of NH-8 into an access controlled 6/8-lane highway with service lanes across certain sections & strengthening of existing lane from Km 14.3 to Km 42, falling partly in Delhi and Haryana
PROJECT DGSCL PARTICULARS RS. Cr COST 1053 Equity Loan Grant (cash basis) Toll start date concession period ends
371 483 199 Jan-08 Jan-23
Share Capital Authorised Capital Paid Up Capital Share Holding D.S Construction Ltd Alphametic Investments Ltd, UK Jai Prakash Associates Ltd
11 | P a g e
164.2 144.26 % 79.08 19.51 1.41
V alue A nalysis of D SCL
FCFE projections Year End 31-mar
12 | P a g e
FCFE
2008
4
2009
83.1
2010
100.7
2011
119.1
2012
139.2
2013
178.18
2014
228.07
2015
291.92
2016
373.66
2017
478.29
2018
612.21
2019
783.63
2020
1003.04
2021
1003.04
2022
1003.04
2023
1003.04
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 12.5%. The project requires 4-6 months for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.1153.95 Cr.
V alue A nalysis of D SCL b) Kundli-Manesar-Palwal Expressway (KMPE)
The KMP Expressway, also known as the western peripheral expressway is the largest expressway project in the country on Build Operate Transfer (BOT) basis. Out of the total cost of INR 19,150 Million, a debt of INR 11,490 Million has been tied up through a consortium of 12 banks/financial institutions led by IDBI Ltd. KMP Expressway project on BOT basis envisages construction of the 135.6 Km, access controlled expressway from NH-1 near Kundli (Sonipat) crossing NH-10 at west of Bahadurgarh, crossing NH-8 at Manesar (Gurgaon) and joining NH-2 near Palwal (Faridabad). KMP Expressway Project PROJECT Particulars Total Cost Equity Loan
Concession period
In Rs./Cr 1950 801 1149 23 years 9 months Includes 36 construction months
Share Capital Authorized Capital Paid up cap
Rs.Cr 0.1 0.1
Share Holding Pattern D.S Constructions Ltd.
% 67
Apollo Enterprises Ltd UK 33
13 | P a g e
V alue A nalysis of D SCL Year End 31-mar
FCFE
2008
51.8
2009
-347.8
2010
-180.9
2011
26.9
2012
64.2
2013
84.7
2014
111.9
2015
147.7
2016
194.9
2017
257.3
2018
339.6
2019
448.3
2020
591.7
2021
781.1
2022
1031.0
2023
1361.0
2024
1796.5
2025
2371.4
2026
3130.2
2027
3130.2
2028
3130.2
2029
3130.2
2030
3130.2
14 | P a g e
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 14%. The project requires 2 years for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.468 Cr
V alue A nalysis of D SCL c) Lucknow Sitapur Highway The work involves improvement, operation and maintenance, including strengthening and widening of the existing 2-lane road into 4-lane from Km 413.20 to Km 489.13 on NH-24. The total number of structures is 92 including one major bridge, 4 minor bridges along with 5 vehicular underpasses. Once completed, the project will enhance the accessibility of Western UP, Uttaranchal, Northern Haryana, Punjab, Himachal Pradesh and Jammu & Kashmir to the East-West Corridor and the Golden Quadrilateral. Lucknow Sitapur Expressway Ltd PROJECT Particulars Total Cost Equity Loan Concession Period
Share Capital Authorized Capital Paid Up Capital
15 | P a g e
Rs.Cr 375.00 113.00 262.00 20Years Including 36 months of Construction Rs.Cr 1.00 1.00
V alue A nalysis of D SCL FCFE Projections Year End 31mar FCFE 2008 -33.10 2009 -31.30 2010 12.30 2011 19.80 2012 24.50 2013 31.85 2014 41.41 2015 53.83 2016 69.97 2017 90.97 2018 118.26 2019 153.73 2020 199.85 2021 259.81 2022 337.75 2023 439.08 2024 439.08 2025 439.08 2026 439.08
16 | P a g e
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 14%. The project requires 2 years for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.126.53 Cr
V alue A nalysis of D SCL d) Raipur Aurang Highway The work involves improvement, operation and maintenance, rehabilitation and strengthening of the existing 2-lane road into 4-lane starting from Km 239 to Km 282 on NH 6. This road project joined with Durg-Raipur Expressway, already completed by the Company, will be the first high speed urban expressway in Chattisgarh linking Raipur with the surrounding industrial areas.
Raipur Expressways PROJECT Particulars Total Cost Equity Loan Concession Period Share Capital Authorised Cap Paid Up Capital
17 | P a g e
Rs.Cr 262 79 183 25 years including 30 months of construction period Rs.Cr 1.00 1.00
V alue A nalysis of D SCL FCFE Projections Year End 31-mar
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
18 | P a g e
FCFE
-32.6 6.2 13.2 16.1 21.1 34.0 49.7 68.7 91.5 118.7 150.6 188.0 231.2 281.0 337.8 402.4 475.3 557.3 649.0 649.0 649.0 649.0 649.0 649.0
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 13.5%. The project requires 1 year for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.426 Cr
V alue A nalysis of D SCL e) DSC Ventures Private Ltd. The work entailed 4 laning of the existing 2-lane carriageway on the RaipurDurg section of NH-6 in Chattisgarh state. It connects Chhattisgarh with Vishakapatnam, one of the most important ports of India and Mumbai, the financial capital of the country, with Kolkata (Eastern / North Eastern Markets). This project has ensured that this important route is decongested thereby substantially speeding up the movement of goods and help in easing the flow of traffic into the region. Over 18,000 vehicles are using the highway every day. DSC Ventures Private Ltd. PROJECT
Particulars Rs.Cr Total Cost 114.00 Equity
36.05
Loan
77.95
Concession Period Ends Share Capital
march end 2015
Rs. Cr Authorised Cap 27.00 Paid Up Capital 27.00
FCFE Projections Year End 31-mar
19 | P a g e
FCFE
2008
15.7
2009
16
2010
18.5
2011
22.3
2012
21.5
2013
40.10
2014
61.25
2015
85.86
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 11.5%. The project is complete. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs. 56.15 Cr
V alue A nalysis of D SCL f) Gwalior Jhansi Highway The work on the project entails design, construction, development, finance, operation and maintenance of the project, including rehabilitation and upgradation from the existing 2 lanes to 4 lanes, of Gwalior-Jhansi section from Km 16 to 96 on NH-75 under North-South Corridor (NHDP – Phase II) in the states of Uttar Pradesh and Madhya Pradesh. The scope of work includes construction of three major bridges (1 two-lane Bridge and the other 2 are four-lane bridges), 21 minor bridges, 1 4-lane flyover, 99 culverts, a bypass at Takenpur & Dabar and Service Roads on each side of the highway. Project
Gwalior Jhansi Expressway Limited
Particulars Rs.Cr Total Cost 721.3 Equity
504.92
Loan
216.38
Concession Period Ends Share Capital
Rs.Cr
Authorised Cap
0.05
Paid Up Capital
0.05
Share Holding DS Constructions Ltd
20 | P a g e
mar end 2027
% 100
V alue A nalysis of D SCL FCFE Projections Year End 31-mar FCFE 2008 40.9 2009 -45.6 2010 -86.1 2011 7.9 2012 10.8 2013 21.7 2014 36.2 2015 55.2 2016 79.5 2017 109.9 2018 147.3 2019 192.7 2020 246.9 2021 311.1 2022 386.3 2023 473.6 2024 574.4 2025 574.4 2026 574.4 2027 574.4
21 | P a g e
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 12.5%. The project requires 6 months for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.22.44 Cr
V alue A nalysis of D SCL g) Viramgam-Mahesana Gauge Conversion Project The Viramgam-Mahesana gauge conversion project is the first Railway BOT Project in India. This is one of the pilot projects for the Indian Railways The success of this project has in large extent determined the future of privately financed railway projects in India. The work envisaged is the conversion of the present Metric Gauge into Broad Gauge track between Viramgam and Mahesana in the Gujarat section of the Western Railway territory in India. The complete length of track is 65 Kilometers.
Viramgam Mahsena Projecy Limited
Project Particulars Total Cost Equity Loan
Rs.Cr 102.00 27.00 63.00
Concession Period Ends Share Capital Authorized Capital Paid Up Capital
2017 Rs.Cr 27.00 27.00
Share Holding Pattern DS Constructions Ltd
% 100
FCFE Projections Year End 31-mar
FCFE
2008
5.50
2009
11.30
2010
13.56
2011
16.27
2012
19.53
2013
23.43
2014
28.12
2015
28.12
2016
28.12
2017
28.12
22 | P a g e
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 10.5%. The project is completed in 2004 The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.17.7 Cr
V alue A nalysis of D SCL h) Sandur Bypass Road Project The project entails the development of bypass road to Sandur Town, which will help in diverting the heavy iron ore traffic moving from mines situated in and around Sandur, away from the town. The Sandur Bypass will be a 2lane road with Earthen Shoulders on either side having three sections i.e. “Eastern Section” (8.583 km), “Northern Section” (6.943 km) and “Bhujanganagar Bypass” (0.072 km). Sandur Bypass Project Ltd Project
Particulars Total Cost Equity Loan
Rs.Cr 38.00 11.00 27.00
Concession Period Ends 2026 Share Capital Rs.Cr Authorized Cap Paid Up Capital
0.05 0.05
Share Holding % DS Constructions Ltd
23 | P a g e
100
V alue A nalysis of D SCL
FCFE Projections Year End 31-mar 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
24 | P a g e
FCFE 2.40 4.70 4.90 5.50 6.10 7.02 8.07 9.28 10.67 12.27 14.11 16.23 18.66 21.46 24.68 28.38 28.38 28.38 28.38 28.38
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 12.5%. The project requires 2 months for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.42.61 Cr
V alue A nalysis of D SCL Equity Valuation of Special Purpose Vehicles
Project DGSCL KMPE LS Raipur Exp DSC Ventures Gwalior Jhansi Exp Way Virangam Mehsana Sandhur Bypass Total less Illiquidity Discount @ 25% Net Value
25 | P a g e
Equity DSCL & its Effective Value affairs Stake Value (In Cr) 1153.95 79.08 912.54 468.00 96.1 449.75 126.53 91.5 115.77 426.00 96.4 410.66 56.15 100 56.15 22.44 100 22.44 17.70 100 17.70 42.61 100 42.61 2313.38 763.08 2027.63 506.91 1520.72
V alue A nalysis of D SCL
III)
Valuation of Hydro Electric Project
Projects in Hand 1. 260 MW Kutehr Hydro Electric Project (Chamba H.P)
Date of LOI Capacity Generation Nature of contract Concession period Investment
Jan 2007 260 MW (86.67 x 3) 1075.26 GWH Independent Power producer 40 Years Rs.1058.2Cr
The company has recently emerged as a successful Independent Power Producer by winning the bid to develop, construct and operate the Kutehr Hydro Project (260 MW) in the State of Himachal Pradesh amongst stiff competitive bidding by 8 National and International players. D S Constructions has made a bid for an up-front payment of INR 5.2 Million per MW for this project. The Company has already started the process of preparation of the Detailed Project Report and subsequently the construction work on this project will be completed over a period of 7 years from date of financial closure. The concession period for the project is 40 years. Under the contract, 12% of the power is to be given free to the State of Himachal Pradesh for the first 12 years, 18% for the 13th to 30th year, 30% for 31st to 40th year. DSCL can sell the remaining power to any State in India
26 | P a g e
V alue A nalysis of D SCL
2. 1000 MW Naying Hydro Electric Project
Date of LOI Capacity Generation Nature of contract Concession period Investment
Jan 200 1000 MW 4966.77 MU BOT 40 Years Rs.5000Cr
The Naying Hydro Electric Project will be constructed on the Siyom River in West Siang District of Arunachal Pradesh at an approximate cost of Rs. 5,000 crores through a SPV. The Project Cost anticipated as per Pre Feasibility Report is Rs. 3,100 crores. The SPV will have 89% equity participation by DSCL and 11% equity participation by the State of Arunachal Pradesh. The Company has already started the process of preparation of the Detailed Project Report and subsequently the construction work on this project will be completed over a period of 8 years. The concession period for the project is 40 years.
The Hydro projects are optimistically valued at Rs 270Cr till date Note: Current Status: DPR in Progress
27 | P a g e
V alue A nalysis of D SCL
Summary Valuation of DS Constructions Ltd.
28 | P a g e
Business Valuation of EPC Valuation of Investments in SPV Valuation of Hydro Business
Value Rs.Cr 1469.43 1520.72 270
Total Valuation
3260.05
V alue A nalysis of D SCL
Limitations The valuation is done on the basis of the data provided by the concern The reliance is shown on the audited and unaudited financial statements (may/may not be treated as benchmark for valuation). The use of historical data, projections and valuation on the basis of it may not accurate as uncertainty of future can’t be challenged.
29 | P a g e
As On 2nd April 2009
Nipun Mahajan Financial Analyst +91-9971319385
V alue A nalysis of D SCL Table of Contents Topic
Page No.
Background
3
Industry Analysis
4
Research Methodology
5
Valuation Methodology
6
Valuation of DSCL Valuation of EPC
7
Valuation of SPV
10
Valuation of Hydro Electric projects
26
Summary
28
Limitations
29
2|Page
V alue A nalysis of D SCL Background D.S Constructions Ltd. DSCL is a part of DS group of companies, came into existence in 1978. DSCL is a part of the USD 3 billion D S Group with interests in retail & trading, real estate development, hospitality, construction & infrastructure development across 5 continents, DSCL is a pioneer in BOT infrastructure development and engineering with projects under execution in the Highways, Expressways & Railway, Hydro Power and now pursuing Privatization of Airports & Ultra Mega Power Projects, Special Economic Zones, etc. in a short span of 5 years. It’s Business Engineering, Processing & Construction (EPC) business: It handles EPC business for various infrastructure projects, Special Purpose Vehicles viz. Roads, Railways & Urban infrastructure. Investment in SPV’s: DSCL has made investment in following eight Special Purpose Vehicles (SPV) Hydro Business: DSCL has recently got two hydro electric projects
3|Page
V alue A nalysis of D SCL Industry Analysis Key Characteristics Comparative low project risk. The infrastructure segment is expected to see investments of Rs 4356 billion till 2009, as compared to Rs 3320 billion According to a recent report by Cris Infac on Indian construction industry, government's spending on infrastructure has increased by 106 percent to Rs 8,163 billion in the tenth plan period compared to Rs 3959 billion during the ninth plan period. Competitive pricing due to competitive bidding in government projects. Implementation of the build-operate-transfer (BOT), build-own-operate-transfer (BOOT) mechanism by the government has generated interest from the private sector and a lot of projects in the road and hydropower segments are already underway. Over Rs 380 billion will be spent on hydropower projects, resulting construction contracts worth almost Rs 266 billion in the next five years.
Roads, urban infrastructure are expected to be still the key for investment in infrastructure sector.
4|Page
V alue A nalysis of D SCL Research Methodology The data collection includes both primary and secondary data collection methods. Primary Method: The profit & loss a/c & balance sheets for the year 2004-05 ,2005-06,2006-07 provided by DSCL. The financial models, projections along with industrial& business analysis are used to valuation. Secondary Method: Reports of various agencies such as CRISIL, RBI, FICCI etc. Websites referred: www.dsconstructions.com www.rbi.org.in www.ficci.com www.crisil.com
5|Page
V alue A nalysis of D SCL Valuation Methodology The Valuation of DSCL is classified according to the type of the business they are undertaking.
EPC
• Equity Valuation of EPV business for various SPV • Method Used market multiple i.e EV/EBDIT & PAT*P/E
SPV
• Equity Valuation of Investment made in Eight Projects • Discounting Cash Flow to Equity (DCFE) method
Hydro
• Equity valuation of Hydro power business
Equity Valuation of EPV
Equity Valuation of SPV
Equity VAluation of Hydro Electric Projects
6|Page
Equity Valuation of DSCL
V alue A nalysis of D SCL Valuation of DSCL I)
Valuation of EPC Business D S Constructions Ltd. through its ability to think BIG & DELIVER innovative and selective strategy has established itself as one of prominent player in the infrastructure development sector in India. DSCL is a pioneer in BOT infrastructure development and engineering with projects under execution in the Highways, Expressways & Railway, Hydro Power and now pursuing Privatization of Airports & Ultra Mega Power Projects, Special Economic Zones, etc. in a short span of 5 years.
The valuations approach: Therefore for the purpose of valuation of SPV business it is assumed that it as at par with the industry (construction-large turnkey projects) The market multiple method and P/E multiple of the industry (includes 10 players). Two methods have been used i. EV/EBDIT Multiple ii. P/E * PAT Since DSCL is considered to be at par with industry, the Industry EV/ EBDIT Multiple and industry P/E are treated as benchmark for the computation.
7|Page
V alue A nalysis of D SCL Method 1 Industry Data for 3 months (jan-mar08) Particulars Amount in Rs. Cr EBDIT 3621.54 Mkt. Capitalization 62437.00 EV/EBDIT Multiple EBDIT of DSCL
17.24 150
Market multiple EV Less Quasi equity treated as debt Net Value Less Illiquidity Discount @ 25% Equity Value
17.5 2625 563 2062 515.5 1546.5
Method 2 Industry P/E *PAT of DSCL Book Value Less Quasi equity treated as debt Net Value Less Illiquidity discount @25% Equity Value
53.88 45 2424.6 563 1861.6 465.4 1396.2
Therefore the value of DSCL EPV Business is estimated as Rs.1469.43
8|Page
V alue A nalysis of D SCL Notes: i. ii. iii. iv.
*Refer Annexure 1: Balance Sheet & Profit & Loss A/c of DSCL Illiquidity discount: Since the company is unlisted, the illiquidity discount is treated as 25%. The valuation is exclusive of quasi equity which is treated as debt. Applied EV/EBDIT multiple is 17.5
9|Page
V alue A nalysis of D SCL II)
Valuation of SPV Business
The valuation of SPV Business includes individual valuation of eight projects
DGSCL KMPE LS Raipur Express DSC Ventures Gwalior Jhansi Express Way VMPL Sandur Bypass Project
The Methodology: Method
FCFE=
DCFE
Discounted Cash Flow To Equity
Net Income + Depreciation Depreciation- Capital Expenditure-increase increase in Working Cap+debt Infusion Infusion- debt Repayments
The FCFE is discounted at expected rate of return by equity capital provider Discounting Rate Risk Free Rate + Market Risk Premium Interest Rate on Long Term Govt. Risk Free Rate =7.75 Securities Source (www.rbi.org.in) Beta ( Expected market return of the similar listed CompanyCompany Risk free Risk Premium= 4.25 Rate) Average Int. volatility
0.65
Discounting rate lower limit of the sector
11.35
Discounting rate upper limit of the sector
12.65
For valuation the discounting rate range is 10.5%-14% Project Time Period
Discounting Rate (%)
2 Years Old
10.5
1 Year Old
11.5
Up to 6 Months To Complete
12.5
6-12 Months to Complete
13.5
Above 1Year
14
Note: 1. Average 5 year construction sector equity return 2.The discounting rate varies from project to project 3. For risk premium average beta is 0.7 4.. Few projects of DSCL have already been completed & few are in WIP
10 | P a g e
V alue A nalysis of D SCL a) Delhi Gurgaon Super Connectivity Ltd.
D S Constructions Ltd. was awarded this project and commenced work in January 2003. It was the first BOT project to be awarded on a negative grant (INR 610.6 Million). The project envisaged conversion of the DelhiGurgaon Section of NH-8 into an access controlled 6/8-lane highway with service lanes across certain sections & strengthening of existing lane from Km 14.3 to Km 42, falling partly in Delhi and Haryana
PROJECT DGSCL PARTICULARS RS. Cr COST 1053 Equity Loan Grant (cash basis) Toll start date concession period ends
371 483 199 Jan-08 Jan-23
Share Capital Authorised Capital Paid Up Capital Share Holding D.S Construction Ltd Alphametic Investments Ltd, UK Jai Prakash Associates Ltd
11 | P a g e
164.2 144.26 % 79.08 19.51 1.41
V alue A nalysis of D SCL
FCFE projections Year End 31-mar
12 | P a g e
FCFE
2008
4
2009
83.1
2010
100.7
2011
119.1
2012
139.2
2013
178.18
2014
228.07
2015
291.92
2016
373.66
2017
478.29
2018
612.21
2019
783.63
2020
1003.04
2021
1003.04
2022
1003.04
2023
1003.04
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 12.5%. The project requires 4-6 months for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.1153.95 Cr.
V alue A nalysis of D SCL b) Kundli-Manesar-Palwal Expressway (KMPE)
The KMP Expressway, also known as the western peripheral expressway is the largest expressway project in the country on Build Operate Transfer (BOT) basis. Out of the total cost of INR 19,150 Million, a debt of INR 11,490 Million has been tied up through a consortium of 12 banks/financial institutions led by IDBI Ltd. KMP Expressway project on BOT basis envisages construction of the 135.6 Km, access controlled expressway from NH-1 near Kundli (Sonipat) crossing NH-10 at west of Bahadurgarh, crossing NH-8 at Manesar (Gurgaon) and joining NH-2 near Palwal (Faridabad). KMP Expressway Project PROJECT Particulars Total Cost Equity Loan
Concession period
In Rs./Cr 1950 801 1149 23 years 9 months Includes 36 construction months
Share Capital Authorized Capital Paid up cap
Rs.Cr 0.1 0.1
Share Holding Pattern D.S Constructions Ltd.
% 67
Apollo Enterprises Ltd UK 33
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V alue A nalysis of D SCL Year End 31-mar
FCFE
2008
51.8
2009
-347.8
2010
-180.9
2011
26.9
2012
64.2
2013
84.7
2014
111.9
2015
147.7
2016
194.9
2017
257.3
2018
339.6
2019
448.3
2020
591.7
2021
781.1
2022
1031.0
2023
1361.0
2024
1796.5
2025
2371.4
2026
3130.2
2027
3130.2
2028
3130.2
2029
3130.2
2030
3130.2
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The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 14%. The project requires 2 years for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.468 Cr
V alue A nalysis of D SCL c) Lucknow Sitapur Highway The work involves improvement, operation and maintenance, including strengthening and widening of the existing 2-lane road into 4-lane from Km 413.20 to Km 489.13 on NH-24. The total number of structures is 92 including one major bridge, 4 minor bridges along with 5 vehicular underpasses. Once completed, the project will enhance the accessibility of Western UP, Uttaranchal, Northern Haryana, Punjab, Himachal Pradesh and Jammu & Kashmir to the East-West Corridor and the Golden Quadrilateral. Lucknow Sitapur Expressway Ltd PROJECT Particulars Total Cost Equity Loan Concession Period
Share Capital Authorized Capital Paid Up Capital
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Rs.Cr 375.00 113.00 262.00 20Years Including 36 months of Construction Rs.Cr 1.00 1.00
V alue A nalysis of D SCL FCFE Projections Year End 31mar FCFE 2008 -33.10 2009 -31.30 2010 12.30 2011 19.80 2012 24.50 2013 31.85 2014 41.41 2015 53.83 2016 69.97 2017 90.97 2018 118.26 2019 153.73 2020 199.85 2021 259.81 2022 337.75 2023 439.08 2024 439.08 2025 439.08 2026 439.08
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The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 14%. The project requires 2 years for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.126.53 Cr
V alue A nalysis of D SCL d) Raipur Aurang Highway The work involves improvement, operation and maintenance, rehabilitation and strengthening of the existing 2-lane road into 4-lane starting from Km 239 to Km 282 on NH 6. This road project joined with Durg-Raipur Expressway, already completed by the Company, will be the first high speed urban expressway in Chattisgarh linking Raipur with the surrounding industrial areas.
Raipur Expressways PROJECT Particulars Total Cost Equity Loan Concession Period Share Capital Authorised Cap Paid Up Capital
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Rs.Cr 262 79 183 25 years including 30 months of construction period Rs.Cr 1.00 1.00
V alue A nalysis of D SCL FCFE Projections Year End 31-mar
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
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FCFE
-32.6 6.2 13.2 16.1 21.1 34.0 49.7 68.7 91.5 118.7 150.6 188.0 231.2 281.0 337.8 402.4 475.3 557.3 649.0 649.0 649.0 649.0 649.0 649.0
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 13.5%. The project requires 1 year for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.426 Cr
V alue A nalysis of D SCL e) DSC Ventures Private Ltd. The work entailed 4 laning of the existing 2-lane carriageway on the RaipurDurg section of NH-6 in Chattisgarh state. It connects Chhattisgarh with Vishakapatnam, one of the most important ports of India and Mumbai, the financial capital of the country, with Kolkata (Eastern / North Eastern Markets). This project has ensured that this important route is decongested thereby substantially speeding up the movement of goods and help in easing the flow of traffic into the region. Over 18,000 vehicles are using the highway every day. DSC Ventures Private Ltd. PROJECT
Particulars Rs.Cr Total Cost 114.00 Equity
36.05
Loan
77.95
Concession Period Ends Share Capital
march end 2015
Rs. Cr Authorised Cap 27.00 Paid Up Capital 27.00
FCFE Projections Year End 31-mar
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FCFE
2008
15.7
2009
16
2010
18.5
2011
22.3
2012
21.5
2013
40.10
2014
61.25
2015
85.86
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 11.5%. The project is complete. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs. 56.15 Cr
V alue A nalysis of D SCL f) Gwalior Jhansi Highway The work on the project entails design, construction, development, finance, operation and maintenance of the project, including rehabilitation and upgradation from the existing 2 lanes to 4 lanes, of Gwalior-Jhansi section from Km 16 to 96 on NH-75 under North-South Corridor (NHDP – Phase II) in the states of Uttar Pradesh and Madhya Pradesh. The scope of work includes construction of three major bridges (1 two-lane Bridge and the other 2 are four-lane bridges), 21 minor bridges, 1 4-lane flyover, 99 culverts, a bypass at Takenpur & Dabar and Service Roads on each side of the highway. Project
Gwalior Jhansi Expressway Limited
Particulars Rs.Cr Total Cost 721.3 Equity
504.92
Loan
216.38
Concession Period Ends Share Capital
Rs.Cr
Authorised Cap
0.05
Paid Up Capital
0.05
Share Holding DS Constructions Ltd
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mar end 2027
% 100
V alue A nalysis of D SCL FCFE Projections Year End 31-mar FCFE 2008 40.9 2009 -45.6 2010 -86.1 2011 7.9 2012 10.8 2013 21.7 2014 36.2 2015 55.2 2016 79.5 2017 109.9 2018 147.3 2019 192.7 2020 246.9 2021 311.1 2022 386.3 2023 473.6 2024 574.4 2025 574.4 2026 574.4 2027 574.4
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The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 12.5%. The project requires 6 months for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.22.44 Cr
V alue A nalysis of D SCL g) Viramgam-Mahesana Gauge Conversion Project The Viramgam-Mahesana gauge conversion project is the first Railway BOT Project in India. This is one of the pilot projects for the Indian Railways The success of this project has in large extent determined the future of privately financed railway projects in India. The work envisaged is the conversion of the present Metric Gauge into Broad Gauge track between Viramgam and Mahesana in the Gujarat section of the Western Railway territory in India. The complete length of track is 65 Kilometers.
Viramgam Mahsena Projecy Limited
Project Particulars Total Cost Equity Loan
Rs.Cr 102.00 27.00 63.00
Concession Period Ends Share Capital Authorized Capital Paid Up Capital
2017 Rs.Cr 27.00 27.00
Share Holding Pattern DS Constructions Ltd
% 100
FCFE Projections Year End 31-mar
FCFE
2008
5.50
2009
11.30
2010
13.56
2011
16.27
2012
19.53
2013
23.43
2014
28.12
2015
28.12
2016
28.12
2017
28.12
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The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 10.5%. The project is completed in 2004 The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.17.7 Cr
V alue A nalysis of D SCL h) Sandur Bypass Road Project The project entails the development of bypass road to Sandur Town, which will help in diverting the heavy iron ore traffic moving from mines situated in and around Sandur, away from the town. The Sandur Bypass will be a 2lane road with Earthen Shoulders on either side having three sections i.e. “Eastern Section” (8.583 km), “Northern Section” (6.943 km) and “Bhujanganagar Bypass” (0.072 km). Sandur Bypass Project Ltd Project
Particulars Total Cost Equity Loan
Rs.Cr 38.00 11.00 27.00
Concession Period Ends 2026 Share Capital Rs.Cr Authorized Cap Paid Up Capital
0.05 0.05
Share Holding % DS Constructions Ltd
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100
V alue A nalysis of D SCL
FCFE Projections Year End 31-mar 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
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FCFE 2.40 4.70 4.90 5.50 6.10 7.02 8.07 9.28 10.67 12.27 14.11 16.23 18.66 21.46 24.68 28.38 28.38 28.38 28.38 28.38
The FCFE is projected after industry analysis, historical data and future potential estimates. The discounting rate is 12.5%. The project requires 2 months for its completion. The Equity Valuation of this project on the basis of discounting of FCFE projections till concession period is estimated at Rs.42.61 Cr
V alue A nalysis of D SCL Equity Valuation of Special Purpose Vehicles
Project DGSCL KMPE LS Raipur Exp DSC Ventures Gwalior Jhansi Exp Way Virangam Mehsana Sandhur Bypass Total less Illiquidity Discount @ 25% Net Value
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Equity DSCL & its Effective Value affairs Stake Value (In Cr) 1153.95 79.08 912.54 468.00 96.1 449.75 126.53 91.5 115.77 426.00 96.4 410.66 56.15 100 56.15 22.44 100 22.44 17.70 100 17.70 42.61 100 42.61 2313.38 763.08 2027.63 506.91 1520.72
V alue A nalysis of D SCL
III)
Valuation of Hydro Electric Project
Projects in Hand 1. 260 MW Kutehr Hydro Electric Project (Chamba H.P)
Date of LOI Capacity Generation Nature of contract Concession period Investment
Jan 2007 260 MW (86.67 x 3) 1075.26 GWH Independent Power producer 40 Years Rs.1058.2Cr
The company has recently emerged as a successful Independent Power Producer by winning the bid to develop, construct and operate the Kutehr Hydro Project (260 MW) in the State of Himachal Pradesh amongst stiff competitive bidding by 8 National and International players. D S Constructions has made a bid for an up-front payment of INR 5.2 Million per MW for this project. The Company has already started the process of preparation of the Detailed Project Report and subsequently the construction work on this project will be completed over a period of 7 years from date of financial closure. The concession period for the project is 40 years. Under the contract, 12% of the power is to be given free to the State of Himachal Pradesh for the first 12 years, 18% for the 13th to 30th year, 30% for 31st to 40th year. DSCL can sell the remaining power to any State in India
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V alue A nalysis of D SCL
2. 1000 MW Naying Hydro Electric Project
Date of LOI Capacity Generation Nature of contract Concession period Investment
Jan 200 1000 MW 4966.77 MU BOT 40 Years Rs.5000Cr
The Naying Hydro Electric Project will be constructed on the Siyom River in West Siang District of Arunachal Pradesh at an approximate cost of Rs. 5,000 crores through a SPV. The Project Cost anticipated as per Pre Feasibility Report is Rs. 3,100 crores. The SPV will have 89% equity participation by DSCL and 11% equity participation by the State of Arunachal Pradesh. The Company has already started the process of preparation of the Detailed Project Report and subsequently the construction work on this project will be completed over a period of 8 years. The concession period for the project is 40 years.
The Hydro projects are optimistically valued at Rs 270Cr till date Note: Current Status: DPR in Progress
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V alue A nalysis of D SCL
Summary Valuation of DS Constructions Ltd.
28 | P a g e
Business Valuation of EPC Valuation of Investments in SPV Valuation of Hydro Business
Value Rs.Cr 1469.43 1520.72 270
Total Valuation
3260.05
V alue A nalysis of D SCL
Limitations The valuation is done on the basis of the data provided by the concern The reliance is shown on the audited and unaudited financial statements (may/may not be treated as benchmark for valuation). The use of historical data, projections and valuation on the basis of it may not accurate as uncertainty of future can’t be challenged.
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