ABC New Project Analysis
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Structuring a new Proposal ABC Ltd which is currently engaged in construction of commercial and residential is planning to enter into hospitality in two cities. The inherent risks of both businesses are different. For the new business, ABC requires approximately the following amount. The new project is named as ‘ABC TRANQUILITY’. The new project is expected to be completed by the end of 2018 and will start operationalisation by early 2019. Investment in Land – 80 Cr Construction - 600 Cr Plant & Machinery – 25 Cr Furniture and Fixtures – 35 Cr The financials of the parent company between 2009-10 – 2014-15 are available. The company has an average tax rate of 33% of pretax profit. 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Income 3000 4930 6900 7200 8140 11000 Contract2200 3100 4900 5700 6100 7700 EBIT 236 426 462 825 1405 2230 Dep 10 15 20 25 60 80 Fincost 65 140 170 295 495 660 PBT 161 271 272 505 850 1490 PAT 107 182 182 340 570 998 NW 200 382 564 904 1474 2472 Debt 500 1069 1410 2260 4127 6600 Total 700 1451 1974 3164 5601 9072 FA 100 371 456 860 2590 3792
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Transcript of ABC New Project Analysis
Structuring a new Proposal ABC Ltd which is currently engaged in construction of commercial and residential is planning to enter into hospitality in two cities. The inherent risks of both businesses are different. For the new business, ABC requires approximately the following amount. The new project is named as ABC TRANQUILITY. The new project is expected to be completed by the end of 2018 and will start operationalisation by early 2019. Investment in Land 80 Cr Construction - 600 CrPlant & Machinery 25 CrFurniture and Fixtures 35 CrThe financials of the parent company between 2009-10 2014-15 are available. The company has an average tax rate of 33% of pretax profit.2009-102010-112011-122012-132013-142014-15Income3000493069007200814011000Contract220031004900570061007700EBIT23642646282514052230Dep101520256080Fincost65140170295495660PBT1612712725058501490PAT107182182340570998NW20038256490414742472Debt50010691410226041276600Total70014511974316456019072FA10037145686025903792CA60010801518230430115280Total70014511974316456019072
The future cash flow projections of ABC are as follows from 2015-16 are as follows:123456Sales15800190002118025600 2986035600Expenses118001340015250180002130025600Dep908085858090Capex255540320610750950NCA230025002880332036504020FCFF215792858124714151820The parent company has about 20 lakh shares outstanding. The levered beta of similar companies in terms of asset and sales is 2.10. Similar companies have a debt equity ratio of 1.85. The 10 year yield is around 8% and the historical risk premium is around 8.30%. The parent company stake is held partly by two promoters, both having 50% share holding. The company prefers equity for the new project. They would like to know the current valuation and how to leverage on the same. You have recently been appointed as the consultant/advisor to the company for both analyzing the financials of the parent company as well as advising the company for the new project. Analyse the current financial health of the company and advise, if necessary. Your advisory services are required for structuring the new transaction. The minimum areas to focus in varying options are as follows:PEDebenture Public EquityTerm Loan
