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The Board of Directors
Omshakthy Agencies ( Madras ) Private Limited.,
Chennai 600 032.
Dear Sir,
Sub: Valuation analysis of the enterprise of Omshakthy FIRE
Realty Private
We refer to our engagement letter dated 27th May 2014 given by OM Shakthy
Agencies ( Madras) Private Ltd requesting us to carry out the Valuation of
Enterprise of Omshakthy Fire Realty Private Limited . In accordance with the
terms of the engagement, we are enclosing our report along with this letter. In
attached report, we have summarized our Valuation Analysis of the Company as
at 31 s t March, 2014 together with the description of methodologies used and
limitation on our Scope of Work. This Valuation Analysis is confidential and has
been prepared exclusively for the Management of Company. It should not be
used, reproduced or circulated to any other person, in whole or in part, without
the prior consent of V Narayanan & Co. Such consent will only be given after full
consideration of the circumstances at the time. We are aware that the
conclusion in this report may be used for the purpose of certain statutory
disclosure by Company and we provide consent for the same. Trust the above
meets your requirements.
Please feel free to contact us in case you require any additional information or
clarifications.
Yours Faithfully,
For and on behalf of
V NARAYANAN & CO.,
Chartered Accountants
Partner
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
Page 1
Contents
Executive
Page No
Summary
--------------------------------------------------------------------------
3
Purpose of Valuation ------------------------------------------------------------ -----------4
Industry Assessment ------------------------------------------------------------ -----------5
Company Assessment ----------------------------------------------------------------------6 to 10
Inventory
Assessment-----------------------------------------------------------------------
11 & 12
Valuation
methodology,
Approach
and
analysis
-----------------------------------------
13 to 15
Caveats ------------------------------------------------------------------------------ -----------16 & 17
Annexure: Projected Financials & Valuation
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
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Executive Summary
Omshakthy Agencies Limited has entered into a Equity Joint Venture Partnership
with one of the leading Private Equity Funds viz, FIRE CAPITAL INVESTMENTS
MAURITIUS PRIVATE LIMITED and formed a special purpose vehicle with 50% equity.
Through the SPV, a gated community residential layout is being developed within
the CMDA limits of Chennai spread over 40 Acres, at an estimated size of Rs.200 Cr.
The project launch commenced in July-2012. Response from Customers has been
very encouraging. The SPV will be wound up once the Project is completed and the
surplus will be shared between the Promoters.
the next 1 to 2 years.
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
Page 3
Purpose of Valuation
The Purpose of valuation is to value the Enterprise as at 01.04.2014 in order to
arrive fair value so that one segment of the share holders can buy the equity of the
other segment of the shareholder.
Scope of services
This valuation report has been prepared by M/s V Narayanan & Co.,
Chartered Accountants, to determine the fair value of enterprise of Company in
accordance with the Hybrid Method using both Discounted Free Cash Flow
Methodology and estimating the residual value of the inventory as on the date
of valuation.
The valuation exercise was carried out under the following limitations:
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
Page 4
3. The scope of our work has been limited both in terms of the areas of the
business and operations which we have reviewed and the extent to which we
have reviewed them. There may be matters, other than those noted in this
Report, which might be relevant in the context of the transaction and which a
wider scope might uncover.
Industry Assessment
Real estate industry in India is currently estimated to be $16 billion with a CAGR of
30%. In this sector is driven primarily by IT/ITeS, growing presence of foreign
businesses in India, the globalization
consumer class.
As real estate construction and values have expanded in India buoyed by healthy
economic growth, and coupled with a series of IPOs by property firms so in recent
years has India's property sector changed substantially. These trends of growth and
modernisation are set to continue, with some market participants forecasting that
real estate development in India will grow from US$12 billion in 2005 to US$90
billion by 2015.
Real Estate sector forms an important place in the Indian economy with a GDP
contribution of approximately 5-6%.
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
Page 5
1.
2.
3.
4.
5.
6.
7.
Company Assessment
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
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V NARAYANAN & CO
CHARTERED ACCOUNTANTS
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V NARAYANAN & CO
CHARTERED ACCOUNTANTS
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Page 9
Particulars
Authorized
(Equity share of Rs. 10 each with voting rights)
(Optionally Convertible Redeemable
Preference shares of
Rs.10 each)
4998.00
18.30
2.00
Preference
2000.00
Total
2018.30
Amount
Lacs
Particulars
EBITD
Provision
al
2013-14
in
Audited
2012-13
2011-12
1903.88
3843.84
(51.90)
Finance cost
Depreciation
0.52
0.87
1.34
1903.358
3842.97
(53.24)
646.95
1230.05
0.03
1256.31
2612.92
(53.28)
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
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Amount
Lacs
Particulars
Sources of funds
Share holders funds
Secured Loans
Unsecured Loans
Deferred tax liability
Provision
al
2013-14
Audited
2012-13
2011-12
4989.42
0.61
5774.92
0.53
4986.00
0.68
Total
4990.03
5775.44
4986.68
Application of funds
Net Fixed assets
Net Current assets
4.06
4985.97
4.31
5771.13
5.18
4981.50
Total
4990.03
5775.44
4986.68
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
Page 11
in
Inventory Assessment
Omshakthy Fire Realty Private Limited has developed a residential gated community
Kanopusof well demarcated plots ranging from 450 sq.ft to 4000 sq.ft at
Paruthipattu measuring at about 40.67 acres strategically located at 120 ft
Poonamalle Avadi State Highway No.55 and having close proximity to Avadi and
Ambattur Bus Stand and Railway Station.
The Company has been selling the residential plots at its gated community and
proposes to complete the entire sale of the plots by June, 2015.
The value of the undeveloped land at measuring about 34.20 acres has been
determined at Rs.75 lacs per acre being the realistic value of the plot as at March,
2014 , considering that inventory of the land parcel is not contiguous , thus the
total value of the inventory is estimated at Rs.2565 lacs.
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
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CHARTERED ACCOUNTANTS
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NAV method: The NAV is the total value of a company's assets less the total value
of its liabilities. If the NAV is divided by the number of shares, it gives the net assets
per share. This is the value of the assets that belong to each share.
Evidently, NAV method is based on historical costs of the assets as reflected in the
Books of accounts. In the absence of any revaluation of fixed assets, the balance
sheet values of assets may be far divorced from the current market price of the
assets
PECV method The PECV is to be calculated by capitalizing the average of the after
tax profits for the preceding three years at specified capitalization rates and
dividing the resultant figure by the number of shares. The capitalization rates will be
different for different industries, different functions like trading/ manufacturing and
the standing of the shares in the market.
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
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circumstance
while
the
other
circumstances.
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CHARTERED ACCOUNTANTS
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will
be
preferred
under
different
Since the purpose of valuation was to arrive fair value of the enterprise in order to
arrive buyout of either of the segment of the shareholders from the corresponding
segment, we have proceeded to value the enterprise based on availability of free
cash flow from the ongoing activity together with estimating the value of the unsold
inventory .
The DFCF to equity method expresses the present value of the business as a
function of its future
premise that the value of a business is measured in terms of future cash flow
streams, discounted to the present time at an appropriate discount rate (Cost of
Equity (KE)). The value of the business is arrived at by estimating the Free Cash
Flows (FCF) to equity and discounting the same at the KE. This is estimated by
forecasting the free cash flows available for the company (which are derived on
the basis of likely future earnings of the companies) and discounting these cash
flows to their present value at the KE. The DFCF methodology is considered to be
the most appropriate basis for determining the earning capability of a business.
It expresses the value of a business as a function of expected future cash
earnings in present value terms. The approach seeks to measure the intrinsic
ability of the business to generate cash.
For the purpose of valuation of enterprise in this transaction through DFCF
methodology, we have relied upon the projections provided by the management
for the year ending March 31 s t 2015 and June 30 t h 2015, duly supplemented by
discussions held with the management. The Cost of Equity has been determined at
11.72 per cent as per CAPM model.
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
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Caveats
1. This Valuation Report has been issued on the specific request of
Omshakthy Fire Realty Private Limited to ascertain the fair value of
the enterprise in order to arrive buyout of either of the segment of the
shareholders
from
the
corresponding
segment
This
Report
is
prepared exclusively for the above stated purpose and must not be
copied, disclosed or circulated or referred to in correspondence or
discussion with any other party. Neither this report nor its content
may be used for any other purpose without prior written consent of
M/s V Narayanan & Co.
with
the
management
of
Company
and
other publically
3. Although the beta for the Indian real estate players is in the range of
V NARAYANAN & CO
CHARTERED ACCOUNTANTS
Page 17
4. Although
every
effort
has
been
made
by
us
to
verify
and
herein
are
the
responsibility
of
the
contributors.
This
Report
is
issued
on
the
understanding
that
the
Management of O m s h a k t h y Fi r e Re a l t y P r i v a t e L i m i t e d
has
drawn our attention to all matters of which they are aware, which may
have an impact on our report up to the date of signature. We have no
responsibility
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V NARAYANAN & CO
CHARTERED ACCOUNTANTS
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