MANAGEMENT FINANCIAL I
Take Home Assignment
Submission III
Submitted By: Roll No. B11076
a/Clearly mention all the long-term debt instruments issued by your company and its peer
(from their respective annual reports, etc.). Covenants/terms of the instrument could also
be mentioned and commented upon.
ELECON ENGINEERING LIMITED
Secured Loans1
Rs.(Lacs)
A) Loans and advances from
a) Working capital Loans
From Banks
15839.69
b) Long Term Loans
Term Loans
10,090.89
Corporate Loans
5160.00
B) HP from other banks
254.53
The long term debt instruments of Elecon Engineering Limited are as following the company has
not issued any bond or debentures. The long term loans are mixture of bank loans and term loans.
The details of the loan instruments are as following:
i) Fund Based and Non Fund Based Working Capital Facilities [3A(a) & (b)(ii)] granted by
Consortium of Banks consisting of State Bank of India (As Lead Bank), Bank of Baroda, Exim
Bank, Axis Bank Ltd., HDFC Bank Ltd., IDBI Bank Ltd. and Standard Chartered Bank are secured
by an equitable mortgage on the immovable properties and hypothecation of movable plant and
machinery and assets of the Companys Materials Handling Equipment Division and Gear
Division excluding certain assets specifically/ exclusively charged to other banks/ financial
institutions but including the whole of the Companys Currents Assets, inventories, receivables and
book debts ranking pari passu inter se.in respect of working capital facilities and guarantees
issued by them in favour of various clients of the Company.
Standard Chartered Bank was inducted in consortium on 28-09-2010 and documentation was
made on 30-04-2011.
ii) Term Loans [3A(b)(i)] obtained from Bank of Baroda, Exim Bank, Axis Bank Ltd., ICICI Bank
Ltd., Citi Bank N.A. and Vijaya Bank is secured by exclusive charge by way of Hypothecation on
specific assets for which payments were made out of the term loan.
iii) Capital Assets acquired on HP Loans from Banks [3B(a)] are secured by exclusive charge on
respective assets purchased
Unsecured Loans1
Short Term Loan
Loan and advances from others
Rs.(Lacs)
21562.29
126.69
TRF LIMITED
Secured Loans1
A. From Banks
i) Buyers Line of credit
ii) Cash Credit Account
iii) Short Term Loans
iv) Long term Loans
Rs. (Lacs)
Unsecured Loans1
Rs. (Lacs)
Nil
2854.62
6633
5040
9113
1. The Buyers credit from Banks is repayable at the end of around 180 days from the
drawdown dates. All the repayments are due in 2011-12.
2. Buyers line of credit, Cash Credit and Short Term Loans from Banks are secured by
hypothecation, ranking pari passu, of all tangible movable assets including in particular
stocks of raw materials other than those purchased under Bill Discounting (Components)
Scheme of Small Industries Development Bank of India(SIDBI), finished goods, work-inprogress, consumables,spares and other movable assets and book debts, outstandings
and all other receivables. Facilities from Canara Bank and Central Bank of India are also
secured, by hypothecation ranking pari passu, of fixed assets, present and future, except
on an asset hypothecated to SIDBI as first charge.
3. Long Term Loan from DBS Bank is secured by pari passu first charge on the fixed assets of
the Company.
4. Long Term Loan from Dena Bank is secured by pari passu first charge on the fixed assets
and second charge on the current assets
of the Company.
b/Clearly mention their available listing data of each of these instruments issued by your
company and its peer like the one discussed in class (from the appropriate stock exchange
website, etc.).
Since the company as well as its chosen peer, TRF Limited, do not have any bond or debentures
that is listed in the stock exchanges.1
c/Compute the yield to maturity of these instruments using the available market data. For
securities, you are not able to compute the YTM- mention reason behind the same.
Both Elecon Engineering Limited and TRF Limited do not have any Securities issued hence there
is no market record for the same.1
d/Comment about issues such as the credit ratings, current bond yields and their spreads
(vis-a-vis say, 10-year local Govt. securities, etc. to feasible extent). Please do this only for
your company.
Both Elecon Engineering Limited and TRF Limited do not have any Securities issued hence there
is no market record for the same.1
Please take your expected rate of return as 13% for all type of firms for the below
questions.
e/ Intrinsic value of your company's shares using constant growth DDM model. Also,
compute the value for its peer using the same assumptions. Clearly talk about the
assumptions behind taking a certain growth rate, etc. Mention if the model is
good/applicable for your company or not. And a few other critical comments (such as why
is the current market price different from the computed intrinsic value, etc.).
ELECON ENGINEERING COMPANY LIMITED
Equity + Reserve
Net Income
Divdend
Year
& Surplus (Rs.
b
ROE
b*ROE
1
(Rs. Cr.)
payout ratio2
Cr.)
2010-11
87.9
394.6
22.09%
0.78
0.223
0.174
2009-10
66.2
326.1
24.54%
0.75
0.203
0.153
2008-09
57.5
275.4
28.38%
0.72
0.209
0.150
2007-08
67.2
236.72
24.24%
0.76
0.284
0.215
2006-07
54.9
187.9
9.88%
0.90
0.292
0.263
Growth
Rate=
Average
(0.174+0.15
3+0.150+0.2
15+0.263)=
0.191
ke
0.130
GDP
0.070
Growth conservative rate
Considering approach in estimation of growth rate of growth GDP Growth
appears
better
estimate that
bxROE
measure.
Dividend
Rs.
16.720
D(2011)=
D(2011)*(1
Dividend
+GDP
Rs.
17.890
D(2012)=
Growth
Rate)
Share price
D(2011)*(1
Rs.
298.17
(2011)=
+GDP
Growth
Rate)/(keGDP
Growth
Rate)
Current
Market
Price=
Decision
Rs.
69.75
TRF LIMITED
Year
Net Income
(Rs. Cr.)1
2010-11
2009-10
2008-09
2007-08
2006-07
-5.33
49.06
50.56
32.17
20.2
Growth
Rate=
ke
GDP
Growth
rate
Considerin
g
conservativ
e approach
in
estimation
of growth
rate of
growth
GDP
Growth
appears
better
estimate
that bxROE
Average
(0.22+0.51
+0.52+0.71
+0.73)=
Equity +
Reserve
& Surplus
(Rs. Cr.)
168.05
169.78
132.22
94.42
55.62
Divdend
payout
ratio2
b
ROE
b*ROE
301.25%
20.39%
16.96%
15.26%
19.14%
1.4796
0.8039
0.8473
0.8
0.8088
-0.032
0.289
0.382
0.341
0.363
-0.047
0.232
0.324
0.273
0.294
0.215
0.130
0.070
measure.
Dividend
D(2011)=
Dividend
D(2012)=
Share price
(2011)=
Rs.
D(2011)*(1
+GDP
Growth
Rate)
D(2011)*(1
+GDP
Growth
Rate)/(keGDP
Growth
Rate)
2.200
Rs.
2.354
Rs.
39.23
Current
Market
Price=
Decision
Rs.
317.9
f/ Intrinsic value of your company's shares using phased growth DDM model. Also compute
the value for its peer using the same assumptions. Clearly mention about the assumptions
behind taking a certain growth rate, etc. Mention if the model is good/applicable for your
company or not. And a few other critical comments (such as why is the current market
price different from the computed intrinsic value, etc.).
ELECON ENGINEERING LIMITED
Net Income (Rs.
Year
Cr.)1
2010-11
87.9
2009-10
66.2
2008-09
57.5
2007-08
67.2
2006-07
54.9
Estimate of
growth rate
Phase I
Phase II
Phase III
25%
10%
6%
Growth Rate
32.78%
15.13%
-14.43%
22.40%
5 years
5 years
Long run
The company Elecon Engineering Limited is affected by cyclicity of the industry. The growth rate has
increased to 32.78% from 15% last year. This is primarily due to delivery of project based consignments. In
the phased growth model we will consider this cyclicity effect. Based on the recent industry information,
the company has received large orders from BHEL and invested in profitable subsidiaries overseas and
therefore is expected to perform better in next 5 years. However, in the long run the growth rate is taken at
a conservative estimate of 10% for next 5 years and then at 6%.
Year
Dividend
Growth Rate
2011
16.72
2012
20.06
0.2
2013
24.08
0.2
2014
28.89
0.2
2015
34.67
0.2
2016
41.60
0.2
2017
49.93
0.1
2018
54.92
0.1
2019
60.41
0.1
2020
66.45
0.1
2021
73.10
0.1
2022
77.48
0.06
Share price
TRL LIMITED
Year
2011
2012
2013
Dividend
2.2
2.64
3.17
Growth Rate
0.2
0.2
2014
2015
2016
2017
2018
2019
2020
2021
2022
3.80
4.56
5.47
6.57
7.23
7.95
8.74
9.62
10.19
Share price
Year
2021
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
0.2
0.2
0.2
0.1
0.1
0.1
0.1
0.1
0.06
Rate
145.6427
Dividend
2.2
2.64
3.17
3.80
4.56
5.47
6.57
7.36
8.24
9.23
10.34
10.96
PV
128.887346
Growth Rate
PV
0.2
0.2
0.2
0.2
0.2
0.12
0.12
0.12
0.12
0.12
0.06
2.34
2.80
3.36
4.04
4.84
5.81
6.51
7.29
8.17
9.15
9.70
INTRINSIC VALUE
Decision
192.90
SELL
g/Intrinsic value of your company's shares using liquidation valuation method. Also
compute the value for its peer. Mention if the model is applicable/ok for your company or
not. And a few other critical comments (such as why is the current market price different
from the liquidation value, etc.).
ELECON ENGINEERING LIMITED
Number of shares
92861510
Nos.
Net worh
394.6
Rs.(Cr.)
Value per share
42.49
Rs.
Current Market Price
69.75
Rs.
Decision:
TRF Limited
Number of shares
11004412
Nos.
Net worth
168.05
Rs.(Cr.)
Value per share
152.71
Rs.
Current Market Price
317.90
Rs.
Decision:
h /Intrinsic value of your company's shares using relative multiples P/E method. Mention if
the model is applicable/ ok for your company or not. And a few other critical comments
(such as why is the current market price different from the computed value, etc.).
ELECON ENGINEERING LIMITED
P/E Ratio (Industry Average) 3
Current EPS 3
P/E Ratio X Current EPS
Current Market Price of Share
TRF LIMITED
P/E Ratio 3
Current EPS 3
P/E Ratio X Current EPS
Current Market Price of Share
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
12.66
9.47
119.89
69.75
12.66
0.76
9.62
317.9
i/Intrinsic value of your company's shares using relative multiples P/BV method. Mention if
the model is applicable/ok for your company or not. And a few other critical comments
(such as why is the current market price different from the computed value, etc.).
Price/ Book Value
Elecon Engineering Company Limited
TRF Limited
BHEL
Larsen & Tubro
Suzlon
Average
ELECON
TRF
1.
2.
3.
P/BV (Industry Average) 3
Book value of Elecon Engg Limited 3
BV X AVG(P/BV)
Current Market Price of Share
P/BV (Industry Average) 3
Book value of TRF 3
BV X AVG(P/BV)
Current Market Price of Share
Annual Report 2010-11
Money.rediff.com Reference taken from Website for the estimation of ratios
Moneycontrol.com Reference taken from Website for the estimation of ratios
Ratio
Ratio
Ratio
Ratio
Ratio
Ratio
1.64
2.08
4.03
3.95
0.98
2.54
Rs.
Rs.
Rs.
2.54
42.49
107.92
69.75
Rs.
Rs.
Rs.
2.54
152.72
387.91
317.90