Description
The documentation about Corporate Financial Analysis of Hindalco.
Corporate Financial Analysis of Hindalco
Contents
Corporate Governance Analysis and Stock Holder Composition .................................................................. 2 Share Holding Pattern ............................................................................................................................... 5 Conclusion ............................................................................................................................................. 6 Risk Profile..................................................................................................................................................... 6 Market Analysis of Risk and Return .......................................................................................................... 7 Slope of the Regression=1.2 ................................................................................................................. 8 Intercept of the Regression=-.08%. ...................................................................................................... 8 Inference from Jensons Alpha .............................................................................................................. 8 R-Squared of the Regression = 52.6% ................................................................................................... 9 Calculation of Market Value of Debt .................................................................................................... 9 Adjusted beta ...................................................................................................................................... 10 Cost of Equity ...................................................................................................................................... 10 Cost of Debt ........................................................................................................................................ 10 Cost of Capital ..................................................................................................................................... 11 Relevance of Costs of Equity and Capital ............................................................................................ 11 Capital Structure Choices ............................................................................................................................ 11 Current Financing Mix ............................................................................................................................ 11 Tradeoff on Debt Vs Equity ................................................................................................................. 12 Optimal Capital Structure ....................................................................................................................... 12 Firm Value Calculation and implied Growth ....................................................................................... 15 Valuation ..................................................................................................................................................... 16 Discounted Cash Flow Model.................................................................................................................. 16 Dividend Discount Model........................................................................................................................ 16 Asset Based Evaluation Model ................................................................................................................ 18 EVA Model of Valuation .......................................................................................................................... 19 McKinzie Model of Valuation .................................................................................................................. 20 Annexure ..................................................................................................................................................... 20 Discounted Cash Flow Working .............................................................................................................. 20 1
EVA Model Working ................................................................................................................................ 21 McKinzie Model ...................................................................................................................................... 24
Corporate Governance Analysis and Stock Holder Composition
The Aditya Birla Group is committed to the adoption of best governance practices and its adherence in the true spirit, at all times. The Company is fully compliant with the requirements of the prevailing and applicable corporate governance code and is committed to ensure compliance with any proposals for modifications, well ahead of their implementation timelines. Company’s Board comprises of 9 Non-Executive Directors with considerable experience in their respective fields. Of these, 6 Directors are Independent Directors. Clause 49 of the Listing Agreement as amended in April 2008 requires that if the Non-Executive Chairman of our Company is the promoter then at least half of the Board of Directors of such Company should consist of Independent Directors and we are in compliant with the above requirement of Clause 49 of the Listing Agreement. None of the Directors on the Board is a Member of more than 10 Committee or a Chairman of more than 5 Committee (as specified in Clause 49), across all the Company in which he/she is a Director. All the Directors have intimated periodically about their Directorship and Membership in the various Board Committees of other companies, which are within permissible limits of the Companies Act, 1956 and Corporate Governance Code. The details of the attendance of each Director at the Board Meetings held during the year and directorships, Membership/Chairmanship in Board Committees of other Companies are as follows:
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Hindalco’s Board of Directors plays the primary role in ensuring good governance and functioning of the Company. All statutory and other significant and material information including information as mentioned in Annexure IA to Clause 49 of the Listing Agreement is placed before the Board to enable it to discharge its responsibility of strategic supervision of the Company as trustees of the shareholders. The Company has procedure to inform board members about risk assessment & minimization procedure. The procedure is reviewed by the board to ensure that the company manages risks through means of a properly defined framework. The Board also reviews periodically the compliance of all applicable laws. The Members of the Board have complete freedom to express their opinion and decisions are taken after detailed discussion. The Audit Committee is endowed with the following powers: 1. To investigate any activity within its terms of reference. 2. To seek information from any employee. 3. To obtain outside legal or other independent professional advice. 4. To secure attendance of outsiders with relevant experience and expertise, if it considers necessary. The role of the Committee includes the following:
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1. Overseeing of the Company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees. 3. Approval of payment of fees for any other services rendered by the statutory auditors. 4. Reviewing, with the management the annual financial statements before submission to the Board for approval, focusing primarily on: a. Matters required being included in the Director’s Responsibility Statement to be included in the Board’s report in terms of clause (2AA) of Section 217 of the Companies Act, 1956. b. Changes, if any, in accounting policies and practices and reasons for the same. c. Major accounting entries involving estimates based on the exercise of judgment by management. d. Significant adjustments made in the financial statements arising out of audit findings. e. Compliance with listing and other legal requirements relating to financial statements. f. Disclosure of any Related party transactions. g. Qualifications in draft audit report. 5. Reviewing, with the management, the quarterly financial results before submission to the board for approval. 6. Reviewing, with the management, performance of statutory and internal auditors, and adequacy of the internal control systems. 7. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. 8. Discussion with internal auditors on any significant findings and follow up there on. 9. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. 10. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern.
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11. Looking into the reasons for substantial defaults in payment to the depositors, debenture holders, shareholders (in case of nonpayment of declared dividends) and creditor, if any. 12. Reviewing the following information: • Management discussion and analysis of financial condition and results of operations; • Statement of significant related party transactions (as defined by the audit committee), submitted by management; • Management letters / letters of internal control weaknesses issued by the statutory auditors; • Internal audit reports relating to internal control weaknesses; • The appointment, removal and terms of remuneration of the Chief internal auditor; • Risk Management Framework. 13. Reviewing any other areas which may be specified as role of the Audit Committee under the Listing Agreement, Companies Act and other statutes, as amended from time to time.
Share Holding Pattern
Share holding pattern of the company is shown below
The shares Holding Pattern shown above suggest that Promoters hold the large portion of the shares. Banks and Financial Institutions hold the next level. The percentage of shares held by
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the promoters is 36%. FIIs hold a convincing percent of shares in the companies holding. Company has gone for GDR especially because of the acquisitions it has made.
Shareholdings
2.53 13.11 9.17 10.33 16 2.62 Promoters 10.15 36.09 Mutual Funds Banks/FI FIIs Corporates Indiviudals NRI GDR
This shareholding pattern is in tune with Business Average of other companies. Conclusion The above facts suggest that ? ? Promoters and Government Banks control the operation of the company The proportion of shares is well distributed among different class of investors
Risk Profile
To analyze the Risk profile of the company stock price data and the performance of the NIFTY is considered. Below table compares the performance of stock with index.
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The above graph suggests that company is performing almost similar to that of the index. Below image compares the returns of the stock with that of the index
Market Analysis of Risk and Return
Hindalco is one of the Index shares in NIFTY. Regression has been run on the one year data of NIFTY and Stock Price to assess the risk of the shares.
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Hindalco Daily Returns Vs NIFTY Returns
25.00% 20.00% 15.00% 10.00% Axis Title 5.00% 0.00% -10.00% 0.00% -5.00% -10.00% -15.00% -20.00% Axis Title 10.00% 20.00% Hindalco Daily Returns Linear (Hindalco Daily Returns) y = 1.2065x - 0.0008 R² = 0.526
-20.00%
Slope of the Regression=1.2 This is Hindalco’s beta, based on the daily returns from 2008 to 2009. Intercept of the Regression=-.08%. This is a measure of Disney's performance, when it is compared with Rf (1-beta).The yearly risk free rate is used for calculating Jenson Alpha. Jensons Alpha is calculated using the formula Intercept – Rf(1-beta)
Beta(Adjusted) Risk free Rate(India) Intercept Jensons Alpha
1.06 12.00% -0.2801036 -0.2729036
Inference from Jensons Alpha The Jenson’s Alpha so obtained is negative which suggests that the company has underperformed when compared to the market. This is because of the impact of the financial crisis that occurred in the Economy. The negative value does not imply the company has underperformed and the investor should shy away from investment. Most of the industries in the Core Metal sector underperformed because of the falling or poor performance of the Real
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Estate Sector. The Economy is expected to perform which will make the company perform better in the near future. R-Squared of the Regression = 52.6% This statistic suggests that 52.6% of the risk (variance) in Hindalco comes from market sources (interest rate risk, inflation risk etc.), and that the balance of 47.4% of the risk comes from firm-specific components. The latter risk should be diversifiable, and therefore unrewarded in the CAPM. Calculation of Market Value of Debt Market Value of Debt is calculated using the prevailing interest rates applied to the firm and the future lease commitments are discounted to arrive at the present value of debt. Market value of debt and equity for the past five years has been taken to arrive at the unlevered beta of the firm. Interest Expense Book Value of Debt Interest Rate 3369.3 83,242.90 4%
Maturity(Years) Value(Cores) Weightages Secured Loans Non Convertible Debentures Cash Credit and Export Credit Rupee Term Loans Loans from Others 0.5 1 1 10 350 16.96 5346.26 0.01 0.042046032 0.002037431 0.64225434 1.20132E-06
Unsecured Loans Fixed Deposits Short Term Loans Other Loans Weighted Duration of Debt
10 1 10
1.13 2372.15 237.7 8324.21 2
0.000135749 0.284969985 0.028555262
Duration
Value(crores) Present Value of Lease 0.4 1.6 0.384439606 1.312080982
Lease Commitments 1 5
9
10
3.27
2.19901944 3.895540027
Market Value of Debt
83503.83501
Adjusted beta From the regression beta arrived out of running regression with NIFTY index value adjusted beta which is expected to be the beta of the firm in long run is arrived as 1.06 Cost of Equity For calculating the Cost of Equity of the firm Risk free rate is assumed to be 12% and Risk Premium is assumed to be 12%. The adjusted beta is used for the calculation. CAPM is used for determining the Expected Return of the Firm. Expected Return = Risk Free Rate + Beta * Risk Premium The table below shows the procedure for arriving at the cost of Equity
Beta(Adjusted) Risk free Rate(India) Intercept Jensons Alpha Unlevered Beta
1.06 12.00% 0.2801036 0.2729036 0.5245469
US Equity Risk Premium Country Equity Risk Premium (Moody) Risk Premium (India) Cost of Equity
5.50% 6.50% 12.00% 24.72%
Cost of Equity is arrived at 24.72% for the Hindalco using the regression beta of one year. Cost of Debt Hindalco’s Cost of debt can be arrived by using the EBIT and Interest expense and thereby determining the Interest Coverage ratio. Based on the rating table determined based on the interest coverage ratio cost of debt can be evaluated.
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1-Effective Tax Rate (Avg) Average Debt Average Equity Average D/E Ratio Average Interest Coverage Ratio Rating Country default Spread Default Spread Market Int Rate Marginal Tax Rate 1-Marginal Tax Rate Cost of Debt (Post Tax)
0.77734941 200,402.29 129,571.50 1.54665405 11.7561336 AA 0.40% 0.50% 12.90% 34% 66% 8.51400%
Cost of Capital Cost of Capital is determined by multiplying the weightages of debt and equity with their corresponding cost and adding it. Cost of Capital = (Debt/Capital) * Cost of Debt + (Equity/Capital)* Cost of Equity The value so obtained for Hindalco is shown below Current Debt Ratio Avg Cost of Capital Current Cost of Capital Relevance of Costs of Equity and Capital The costs of equity and capital become hurdle rates for Hindalco as a company, with different rates applying for different divisions. In using these rates,
? ?
0.35618299 14.88% 18.95%
The cost of equity is the appropriate hurdle rate, when returns are measured to equity investors in the company. The cost of capital is the appropriate hurdle rate, when returns are measured to all investors in the firm (debt as well as equity).
Capital Structure Choices
Current Financing Mix
Hindalco has the following debts in its books.
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SECURED LOANS Debentures Loans from Banks Other Loans
UNSECURED LOANS Fixed Deposits Short Term Loans: From Banks Foreign Currency Loans from Financial Institutions Other Loans: From Banks From Others
Tradeoff on Debt Vs Equity
Factor Tax Benefit Added Discipline of Debt Future Flexibility
Hindalco Hindalco has a marginal tax rate of about 35%. It has an effective tax rate of 32%. Hindalco is held by different kind of investors which implies the debt will incorporate more discipline to the managers of debt. The need for financing flexibility is increasing as the metal business involves acquiring new mine fields for continued production.
Optimal Capital Structure
The costs of equity and debt, using betas for costs of equity and estimated ratings for costs of debt, are calculated at different debt ratios. Using which the appropriate or optimal debt ratio for the firm is evaluated. The table below shows the calculation for arriving at the optimal debt ratio of the firm. De D/E Debt bt Rati Rati o o EBIT Inte rest Pre Tax Int Coverage Ratio Rat Pre ing Tax Cos t of De
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Lev ere d Bet a
Cos t of Equ ity
Post Tax Cost of Debt
Cost Valu of e of Capita Firm l
0%
0.0 0 0.1 1 0.2 5 0.4 3 0.6 7 1.0 0 1.5 0 2.3 3 4.0 0 9.0 0
0.00
10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 %
2344 4.08 4688 8.17 7033 2.25 9377 6.33 1172 20.4 1 1406 64.5 0 1641 08.5 8 1875 52.6 6 2109 96.7 4
302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0
0.00
-
AA A AA A A
302 4.29 604 8.57 907 2.86 120 97.1 5 151 21.4 3 181 45.7 2 211 70.0 1 241 94.2 9 272 18.5 8
10.01
5.00
3.34
A-
2.50
BB B BB
2.00
1.67
B
1.43
B-
1.25
B-
1.11
CC C
bt 12. 35 % 12. 35 % 12. 85 % 13. 00 % 13. 50 % 14. 50 % 16. 00 % 18. 00 % 18. 00 % 20. 00 %
0.5 2 0.5 6 0.6 1 0.6 7 0.7 6 0.8 7 1.0 4 1.3 3 1.9 1 3.6 4
18. 29 % 18. 76 % 19. 33 % 20. 08 % 21. 06 % 22. 45 % 24. 53 % 27. 99 % 34. 91 % 55. 68 %
8.15%
18.29 % 17.70 % 17.16 % 16.63 % 16.20 % 16.01 % 16.15 % 16.71 % 16.49 % 17.45 %
8.15%
8.48%
8.58%
134 615. 3 141 947. 6 149 177. 6 157 236 164 252 167 657. 5 165 226. 3 155 886. 4 159 486. 5 145 212. 5
8.91%
9.57%
10.56%
11.88%
11.88%
13.20%
The graph has been plotted using the above data to show the variation in cost of capital of the firm for different values of debt ratio.
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Cost of Capital
18.50% 18.29% 18.00% 17.70% 17.50% 17.16% 17.00% 16.50% 16.00% 15.50% 0% 20% 40% 60% 80% 100% 16.63% 16.71% 16.49% Cost of Capital 17.45%
16.20% 16.15% 16.01%
The below graph shows the variation of Cost of Equity, Cost of Debt and Cost of Capital together
60.00% 50.00% 40.00% Cost of Equity 30.00% 20.00% 10.00% 0.00% 0% 20% 40% 60% 80% 100% Post Tax Cost of Debt Cost of Capital
The rating for the firm is done using the table shown below. Ratings Table Interest Coverage Ratio 8.5
0.80 1.25 1.50 1.75 1.90 2.05 2.50 3.00 4.25 5.50 6.50 8.50
CCC BB B+ BB BB+ BBB AA A+ AA AAA
8.00% 6.00% 4.00% 3.25% 2.50% 2.00% 1.50% 1.00% 0.85% 0.70% 0.50% 0.35%
Firm Value Calculation and implied Growth Firm Value changes at each level of optimal debt is tabulated using the expected growth rate obtained from management discussion and by using the weighted cost of capital of the firm Indian GDP Firm Value of Firm at Current Debt Ratio 6.70% Stable Growth 127436.635
Debt Ratio 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Value of Firm 134615.3 141947.6 149177.6 157236 164252 167657.5 165226.3 155886.4 159486.5 145212.5
The value of the firm with the current cost of capital and debt ratio is 127436.63. The company’s firm value will change to 167657.5 when it reaches the optimal capital debt
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structure ratio which is nothing but reduction in firms values at the optimal debt ratio when compared to the current one. The formula used is Firm value Today =FCFF (1+g)/ (WACC-g)
Valuation
Valuation of Hindalco has been done using the following models ? ? ? ? ? Discounted Cash Flow Dividend Discount Model Asset Based Evaluation model McKenzie Model EVA Method
Discounted Cash Flow Model
The present values of the free cash flows to the firm and the present value of the terminal value are computed, and the sum is reported below: Value of Hindalco = Rs 44532.47 Million If the market value of existing debt of Rs 83242.9 million from this firm value, we arrive at the value of equity for Hindalco to be Rs 38710 million. The value of equity per share is computed by dividing by the number of shares outstanding. The value so arrived is negative and the value is found to be Rs 22.75 The calculation and summary for arriving is shown in the annexure
Dividend Discount Model
Two Stage Dividend discount model is used. The two stages are assumed to be ? ? Growth Phase Stable Phase
During the growth phase the company is expected to grow at the rate of 12% while in the stable phase the company is expected to grow along with the economy and this rate is assumed to be 8%
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The duration of the growth phase is taken as 5 years as the company is already into the growth phase and the company has already established itself as market leader in its sector. Value of stock so arrived using the Dividend Discount model is Rs 45.79 which means the stock is overvalued with reference to current market price. Calculation for Dividend Discount Model is shown below
Net Income
2009 2008 2007 2006 2005 Average 22,302.7 28,609.3 25,643.2 16,555.5 13,293.5 21,280.8 0 9 5 0 7 8
Current EPS Current DPS
14.82 1.349252
A. High Growth Phase Growth Rate No of years Payout Ratio
12% 5 12%
Year Dividends Present Value
1 2 3 4 5 1.991808 2.230825 2.498524 2.798347 3.134148 1.626643 1.82184 2.040461 2.285317 2.559555
B.Stable Growth Phase Growth Rate Payout Ratio Cost of Equity Price at the End of Growth Phase
8% 50% 22.45% 97.61017
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C.Valuation Present Value of Dividend in Growth Phase Present Value of Terminal Price Value of the Stock
10.33382 35.45841 45.79223
Asset Based Evaluation Model
In this model the company is assumed to be in stable growth phase neglecting the 5 year duration of growth phase to arrive at the value of the company. The value of the company so arrived is Rs 33.593. In this model growth rate is assumed at 8% and the cost of equity is taken to be 22% which is the value arrived at the optimal capital structure. This is based on the assumption that company has moved to the optimal capital structure during the stable growth phase. The calculations involved for valuation using this model is shown below A. Value of Assets Current DPS Cost of Equity in Stable Phase Value of Assets in Place
1.349252 22% 6.010304
Bivalve of Stable Growth Current DPS Growth Rate Cost of Equity Value of Assets Value of Stable Growth
1.349252 8% 22% 6.010304 4.074784
No of Shares(Millions) Value of Assets(Millions)
1701.536 6933.391
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Payout Ratio Value of the Share
12% 33.95653
EVA Model of Valuation
In this model like DCF model FCFF to the firm is evaluated and the rates used for discounting and growth are adjusted for inflation. The growth phase is assumed to be for 5 years and the terminal value of the assets are evaluated for arriving at the value of the stock. EVA was found to be negative for this company.
A.Calculation of Capital Invested 2004 Growth Rate (Adjusted for Inflation) Initial Add Net Cap Exp Add Change in WC Revenues CapExp/Revenues WC/Revenues Cost of Capital Cumulated WACC
B.Calculation of EVA WACC Capital Invested Operating Expenses Operating Expenses/Revenue EBIT Tax Rate EBIT(1-t) Less WACC EVA Terminal EVA PV
2005
2006
2007
2008
104,176.25 125,962.73 157,430.49 209,030.74 270,880.73 22,976.73 28,107.87 66,395.69 62,791.53 8,491.03 23,492.38 -4,545.70 1,260.54 62,083.52 95,231.17 113,964.76 183,129.88 192,010.27 0.2412732 0.2466365 0.3625607 0.3270217 0.0891623 0.2061372 -0.024822 0.006565
2010 24% 334,932.80 391,771.73 53,633.73 66,505.83 3,205.20 13312.968 182,196.50 225923.66 0.29437302 0.017592 18.95% 18.95%
2009
2011 24% 471,590.53 82,467.23 16508.08021 280145.3384
2012 24% 570,565.84 102,259.37 20470.01946 347380.2196
2013 24% 693,295.23 126,801.61 25382.82413 430751.4723
2014 Terminal Year 24% 10% 845,479.67 1,034,188.37 157,234.00 172,957.40 31474.70192 34622.17211 534131.8257 587545.0082
18.95% 22.54%
18.95% 26.81%
18.95% 31.89%
18.95% 37.93%
18.95% 18.95% 18.95% 391,771.73 471,590.53 570,565.84 80,498.32 97,628.80 154,208.20 169,489.88 165,029.10 195763.29 242746.4777 301005.6324 0.8452938 0.8566578 0.8420701 0.8827126 0.90577536 30160.371 37398.86065 46374.58721 33% 33% 33% 20207.449 25057.23664 31070.97343 74231.727 89355.55202 108109.0954 -54024.28 -64298.3154 -77038.122
18.95% 18.95% 16.01% 693,295.23 845,479.67 1,034,188.37 373246.9842 462826.2604 509108.8864 57504.48814 33% 38528.00705 131363.4892 -92835.4821 78436.12182 33% 52552.20162 165568.2538 -113016.0522
71305.56529 33% 47774.72875 160198.9375 -112424.209 -1880627.26 -45418.51 -52472.2074 -60751.6615 -70389.7406 -1444975.17
PV of EVA Add Capital Invested Add PV of Change in Capital Firm Value
-1674007 391,771.73 128684.47 -1153551
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McKenzie Model of Valuation
In this model future cash flows are predicted using the past data and the number of years taken for analysis is 12 years and during these 12 years the company is expected to move from its high growth phase to stable growth in normalized pattern. The impact of inflation, Working Capital needs during the different phases of the growth are also taken in to account during the evaluation of the firm This method takes comprehensive account of the unexpected expenses taxes and other onetime cost also in the evaluation of the value of the firm. The value of the share price so arrived is almost near the market value. This approximation is due to the number of shares being approximated to be the same during the growth phase which actually doesn’t happen. The working for this model is shown in the annexure as screen shot.
Annexure
Discounted Cash Flow Working
Return on capital 12.24% Equity Beta 0.87 Reinvestment Dividend Payout Ratio rate 12.00% 88.00% Debt Expected growth rate=ROC*RR 9.57% 10.77%
Year 1 2 3 4 5 6 7 8 9 10 11 12
EBIT(1-t) 23532.43 26066.14 28872.65 31981.33 35424.72 39238.86 43463.66 48143.34 53326.87 59068.51 65428.34 72472.93
Reinvestment FCFF 20708.54 2823.89 22938.20 3127.94 25407.93 3464.72 28143.57 3837.76 31173.76 4250.97 34530.20 4708.66 38248.02 5215.64 42366.14 5777.20 46927.65 6399.22 51980.29 7088.22 57576.94 7851.40 63776.18 8696.75
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Terminal Value
PV 2434.19 2324.19 2219.15 2118.87 2023.11 1931.69 1844.39 1761.04 1681.46 1605.47 1532.92 1463.64
13 80276.00 14 88919.22 15 98493.04 16 109097.67 17 120844.08 18 133855.21 19 148267.24 20 164230.99 21 181913.53 Value of Company Value of Debt Value of Equity Number of shares(million) VALUE of share
70642.88 78248.91 86673.88 96005.95 106342.79 117792.59 130475.17 144523.27 160083.91 44532.47 83242.90 -38710.43 1701.54 -22.75
9633.12 10670.31 11819.17 13091.72 14501.29 16062.63 17792.07 19707.72 21829.62
250198.63
1397.50 1334.34 1274.04 1216.47 1161.49 1109.00 1058.89 1011.04 12029.58
EVA Model Working
A. Calculation of Capital Invested 200 4 200 5 200 6 200 7 200 8 200 9 201 0 201 1 201 2 201 3 201 4 Ter min al Year 10%
Growth Rate (Adjusted for Inflation) Initial
24 % 104 ,17 6.2 5 125 ,96 2.7 3 22, 976 .73 8,4 91. 03 95, 231 157 ,43 0.4 9 28, 107 .87 23, 492 .38 113 ,96 209 ,03 0.7 4 66, 395 .69 4,5 45. 70 183 ,12 270 ,88 0.7 3 62, 791 .53 1,2 60. 54 192 ,01
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24%
24%
24%
24%
Add Net Cap Exp Add Change in WC Revenues 62, 083
334 ,93 2.8 0 53, 633 .73 3,2 05. 20 182 ,19
391 ,77 1.7 3 66, 505 .83 133 12. 968 225 923
471, 590. 53 82,4 67.2 3 165 08.0 802 1 280 145.
570, 565. 84 102, 259. 37 204 70.0 194 6 347 380.
693, 295. 23 126, 801. 61 253 82.8 241 3 430 751.
845, 479. 67 157, 234. 00 314 74.7 019 2 534 131.
1,03 4,18 8.37 172, 957. 40 346 22.1 721 1 587 545.
.52 Cape/Reve nues
.17 0.2 412 732 0.0 891 623
4.7 6 0.2 466 365 0.2 061 372
9.8 8 0.3 625 607 0.0 248 22
0.2 7 0.3 270 217 0.0 065 65
WC/Reven ues
6.5 0 0.2 943 730 2 0.0 175 92
.66
338 4
219 6
472 3
825 7
008 2
Cost of Capital Cumulated WACC
18. 95 % 18. 95 %
18.9 5% 22.5 4%
18.9 5% 26.8 1%
18.9 5% 31.8 9%
18.9 5% 37.9 3%
B.Calculati on of EVA WACC
Capital Invested
Operating Expenses
Operating Expenses/ Revenue EBIT
80, 97, 154 498 628 ,20 .32 .80 8.2 0 0.8 0.8 0.8 452 566 420 938 578 701
169 ,48 9.8 8 0.8 827 126
18. 95 % 391 ,77 1.7 3 165, 195 029. 763 10 .29 0.90 577 536 301 60. 371 33 % 202 07.
18.9 5% 471, 590. 53 242 746. 477 7
18.9 5% 570, 565. 84 301 005. 632 4
18.9 5% 693, 295. 23 373 246. 984 2
18.9 5% 845, 479. 67 462 826. 260 4
16.0 1% 1,03 4,18 8.37 509 108. 886 4
Tax Rate EBIT(1-t)
373 98.8 606 5 33% 250 57.2
463 74.5 872 1 33% 310 70.9
575 04.4 881 4 33% 385 28.0
713 05.5 652 9 33% 477 74.7
784 36.1 218 2 33% 525 52.2
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449 Less WACC 742 31. 727 540 24. 28
EVA
366 4 893 55.5 520 2 642 98.3 154
734 3 108 109. 095 4 770 38.1 22
070 5 131 363. 489 2 928 35.4 821
287 5 160 198. 937 5 112 424. 209 188 062 7.26 144 497 5.17
016 2 165 568. 253 8 113 016. 052 2
Terminal EVA
PV
454 18. 51
524 72.2 074
607 51.6 615
703 89.7 406
PV of EVA Add Capital Invested Add PV of Change in Capital Firm Value
-1674007 391,771.73 128684.47 -1153551
23
McKenzie Model
24
Income statement Revenues Operating expenses Depreciation Operating income Interest income Interest expense Earnings before taxes Revaluation of deferred income taxes Income taxes Net income
TABLE 1. HISTORICAL INCOME STATEMENTS 2003 2004 2005 2006 2007 -6 -5 -4 -3 -2 49856.2 -37642.4 -2642.2 -----9571.6 0.0 -1364.9 -----8206.7 62083.5 -48100.2 -3174.5 -----10808.8 2400.1 -1771.5 -----11437.3 95231.2 -74851.8 -4632.6 -----15746.8 2700.5 -1699.6 -----16747.7
TABLE 5. FORECASTED INCOME STATEMENTS 2008 -1 2009 0 1 2 3 4 5 6 7 8 9 10 11 12
113964.8 183129.9 192010.3 182196.5 212058.5 244630.7 272127.2 299911.4 327443.2 354129.9 379343.9 402445.9 422809.7 435494.0 448558.8 462015.6 -98048.3 -147175.0 -158444.3 -145500.3 -159043.9 -183473.0 -204095.4 -224933.5 -245582.4 -265597.4 -284507.9 -301834.5 -317107.3 -326620.5 -336419.1 -346511.7 -5166.8 -5528.0 -5878.1 -6443.4 -6918.7 -11471.1 -14145.9 -16684.5 -19359.7 -22117.5 -24893.4 -25979.7 -26524.9 -26452.9 -25455.4 -22858.3 --------------------------------------------------------------------------------------10749.7 30426.9 27687.9 30252.8 46095.9 49686.6 53885.9 58293.4 62501.1 66415.0 69942.5 74631.8 79177.6 82420.6 86684.3 92645.6 2439.1 3700.7 4929.4 6366.5 45.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -2251.7 -2423.9 -2806.3 -3369.3 -7298.7 -21084.3 -23948.9 -26224.7 -28443.8 -30554.4 -32503.3 -33005.1 -33092.4 -32746.8 -31648.6 -30455.0 --------------------------------------------------------------------------------------10937.1 31703.7 29811.0 33250.0 38842.5 28602.3 29937.0 32068.6 34057.3 35860.6 37439.3 41626.7 46085.2 49673.8 55035.7 62190.6 0.0 -15148.6 -----23694.0 ====== 0.0 -11154.9 -----17447.4 ====== 0.0 -11675.4 -----18261.6 ====== 0.0 -12506.8 -----19561.9 ====== 0.0 -13282.3 -----20774.9 ====== 0.0 -13985.6 -----21875.0 ====== 0.0 -14601.3 ------22838.0 ====== 0.0 -16234.4 ------25392.3 ====== 0.0 -17973.2 ------28112.0 ====== 0.0 -19372.8 ------30301.0 ====== 0.0 -21463.9 ------33571.8 ====== 0.0 -24254.3 ------37936.3 ======
0.0 -----8206.7 ======
4067.4 -----15504.7 ======
5748.3 -----22496.0 ======
4501.5 -----15438.6 ======
9403.0 -----41106.7 ======
1646.7 -----31457.7 ======
4600.5 -----37850.5 ======
Statement of retained earnings Beginning retained earnings Net income Common dividends Ending retained earnings
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
60986.3
60986.3 15504.7 -8836.8 -----67654.2
67654.2 22496.0 -14412.2 -----75738.0
75738.0 15438.6 3900.3 -----95076.9
95076.9 41106.7 -13046.4 -----123137.1
123137.1 31457.7 17141.9 -----171736.7
171736.7 235878.6 37850.5 23694.0 26291.5 -332725.6 ----------235878.6 -73153.0
-73153.0 17447.4 -26919.8 ------82625.4
-82625.4 18261.6 -25601.1 ------89964.9
-89964.9 -97018.8 -103614.3 -109577.3 -109852.5 -108618.6 -105854.2 -100587.8 19561.9 20774.9 21875.0 22838.0 25392.3 28112.0 30301.0 33571.8 -26615.8 -27370.4 -27837.9 -23113.2 -24158.4 -25347.5 -25034.7 -27962.1 ----------------------------------------------97018.8 -103614.3 -109577.3 -109852.5 -108618.6 -105854.2 -100587.8 -94978.1
-94978.1 37936.3 -40784.9 -------97826.7
TABLE 2. HISTORICAL BALANCE SHEETS -6 Operating cash Excess marketable securities * Trade receivables Other receivables Inventories Prepaid expenses Current assets Gross property, plant and equipment Accumulated depreciation Net property, plant and equipment Total assets 3031.4 0.0 5607.4 8103.7 10022.2 1008.8 -----27773.5 -5 2279.0 236.4 5611.1 7552.5 11913.4 1270.1 -----28862.6 -4 4009.7 422.2 7873.7 8498.8 23745.2 214.7 -----44764.3 -3 9172.9 2447.3 12484.0 7972.7 40950.9 0.0 -----73027.7 -2 6655.0 1188.1 15045.0 11742.2 43153.1 0.0 -----77783.4 -1 1469.8 623.0 15650.2 9794.6 50979.1 0.0 -----78516.7 0 8437.2 517.8 12012.2 15730.5 40701.4 0.0 -----77399.1
TABLE 6. FORECASTED BALANCE SHEETS 1 9403.5 0.0 18923.7 19535.5 48701.7 1301.0 -----97865.4 2 10847.9 0.0 21830.4 22536.1 56182.3 1500.8 -----112897.5 3 12067.2 0.0 24284.1 25069.2 62497.2 1669.5 -----125587.2 4 13299.3 0.0 26763.5 27628.8 68878.1 1840.0 -----138409.6 5 14520.2 0.0 29220.4 30165.1 75201.1 2008.9 -----151115.7 6 15703.6 0.0 31601.9 32623.5 81330.0 2172.6 -----163431.6 7 16821.7 0.0 33851.9 34946.3 87120.7 2327.3 ------175067.9 8 17846.1 0.0 35913.5 37074.6 92426.4 2469.0 ------185729.5 9 18749.1 0.0 37730.7 38950.5 97103.2 2593.9 ------195127.5 10 19311.6 0.0 38862.6 40119.1 100016.3 2671.8 ------200981.3 11 19890.9 0.0 40028.5 41322.6 103016.7 2751.9 ------207010.7 12 20487.6 0.0 41229.4 42562.3 106107.2 2834.5 ------213221.0
56679.7 -16069.9 -----40609.8 -----68383.3 ====== 3137.8 5800.9 1264.9 -----10203.5 20812.4 8490.4
66584.9 -19182.8 -----47402.2 -----76264.7 ====== 8073.3 7600.3 1363.7 -----17037.2 17572.7 9951.4
87727.9 -30693.4 -----57034.6 -----101798.8 ====== 5964.8 14274.6 2209.1 -----22448.5 32035.2 11297.0
104182.5 -35310.7 -----68871.8 -----141899.6 ====== 17832.0 19745.3 2250.3 -----39827.7 31202.3 12333.6
112526.6 -40563.3 -----71963.3 -----149746.7 ====== 6931.7 23080.2 4447.2 -----34459.2 66660.6 11258.0
126084.6 -46368.1 -----79716.5 -----158233.2 ====== 18787.9 20386.6 8561.2 -----47735.7 64498.0 13236.7
133930.7 -52416.5 -----81514.2 -----158913.3 ====== 23721.5 16139.8 2549.3 -----42410.6 59521.4 14106.7
181223.1 -58931.4 -----122291.7 -----220157.1 ====== 11904.3 25006.7 5245.2 -----42156.1 228564.0 22566.4 23.6 -73153.0 ------73129.4 -----220157.1 ====== 189905.3 126.6% 22.2%
205707.4 -67999.8 -----137707.6 -----250605.1 ====== 45712.8 28847.7 6050.9 -----80611.3 227426.5 25169.1 23.6 -82625.4 ------82601.8 -----250605.1 ====== 215706.6 126.6% 16.2%
226856.1 -77416.9 -----149439.2 -----275026.4 ====== 45485.3 32090.2 6731.0 -----84306.4 253610.5 27050.7 23.6 -89964.9 ------89941.3 -----275026.4 ====== 236205.2 126.6% 15.4%
247341.9 -86774.2 -----160567.6 -----298977.3 ====== 50722.1 35366.6 7418.2 -----93506.9 273682.7 28783.0
266701.4 284469.9 289099.3 289491.1 285618.2 276166.3 264500.4 271357.9 -95902.0 -104626.1 -112774.7 -119746.5 -125479.0 -129963.2 -133213.7 -136132.6 ----------------------------------------------170799.4 -----321915.0 ====== 54736.5 38613.2 8099.2 -----101448.9 293739.9 30316.9 179843.8 -----343275.3 ====== 58748.0 41760.2 8759.3 -----109267.4 311955.3 31606.3 176324.6 ------351392.5 ====== 62391.1 44733.5 9382.9 ------116507.5 314035.9 30678.0 169744.6 ------355474.2 ====== 62807.2 47457.8 9954.4 ------120219.3 314615.0 29234.9 160139.2 ------355266.7 ====== 62923.0 49859.1 10458.1 ------123240.2 310557.9 27299.1 146203.1 ------347184.4 ====== 62111.6 51354.9 10771.8 ------124238.3 298843.8 24666.5 131286.7 ------338297.4 ====== 59768.8 52895.6 11094.9 ------123759.3 287573.4 21919.2 23.6 -94978.1 -------94954.5 ------338297.4 ====== 274306.9 126.6% 17.9% 135225.3 ------348446.4 ====== 57514.7 54482.4 11427.8 ------123424.9 300247.8 22576.8 23.6 -97826.7 -------97803.1 ------348446.4 ====== 282536.1 126.6% 20.5%
Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Deferred income taxes Common stock * Retained earnings Total common equity Total liabilities and equity
28877.0 -----28877.0 -----68383.3 ====== 61317.5 39.1%
67654.2 -----67654.2 -----112215.4 ====== 67064.4 38.2% 25.8%
75738.0 -----75738.0 -----141518.6 ====== 84892.9 44.8% 30.6%
95076.9 -----95076.9 -----178440.5 ====== 117456.6 41.7% 16.2%
123137.1 -----123137.1 -----235514.9 ====== 121031.2 60.8% 32.9%
171736.7 -----171736.7 -----297207.0 ====== 128662.4 64.7% 25.7%
235878.6 -----235878.6 -----351917.3 ====== 139706.4 59.6% 27.5%
23.6 23.6 23.6 23.6 23.6 23.6 23.6 -97018.8 -103614.3 -109577.3 -109852.5 -108618.6 -105854.2 -100587.8 ----------------------------------------96995.2 -103590.7 -109553.7 -109828.9 -108595.0 -105830.6 -100564.2 ---------------------------------------298977.3 321915.0 343275.3 351392.5 355474.2 355266.7 347184.4 ====== ====== ====== ====== ====== ====== ====== 256192.5 126.6% 15.1% 275202.6 126.6% 14.9% 292755.9 126.6% 14.7% 297276.1 126.6% 14.1% 298062.0 126.6% 14.8% 294949.5 126.6% 15.6% 285057.7 126.6% 16.4%
Invested capital Debt/invested capital NOPLAT/invested capital (ROIC) * direct forecast
TABLE 3. HISTORICAL FREE CASH FLOW Free cash flow Revenues Operating expenses Depreciation EBIT Taxes on EBIT Revaluation of deferred income taxes Change in deferred income taxes NOPLAT Add back depreciation Gross cash flow Change in working capital (+ if increase) Capital expenditures (+ if positive) Gross investment Free cash flow -5 62083.5 -48100.2 -3174.5 -----10808.8 4312.5 -4 95231.2 -74851.8 -4632.6 -----15746.8 6138.6 -3 -2 -1 0
TABLE 7. FORECASTED FREE CASH FLOW 1 2 3 4 5 6 7 8 9 10 11 12
113964.8 183129.9 192010.3 182196.5 212058.5 244630.7 272127.2 299911.4 327443.2 354129.9 379343.9 402445.9 422809.7 435494.0 448558.8 462015.6 -98048.3 -147175.0 -158444.3 -145500.3 -159043.9 -183473.0 -204095.4 -224933.5 -245582.4 -265597.4 -284507.9 -301834.5 -317107.3 -326620.5 -336419.1 -346511.7 -5166.8 -5528.0 -5878.1 -6443.4 -6918.7 -11471.1 -14145.9 -16684.5 -19359.7 -22117.5 -24893.4 -25979.7 -26524.9 -26452.9 -25455.4 -22858.3 --------------------------------------------------------------------------------------10749.7 30426.9 27687.9 30252.8 46095.9 49686.6 53885.9 58293.4 62501.1 66415.0 69942.5 74631.8 79177.6 82420.6 86684.3 92645.6 4574.6 9901.0 2474.7 5769.4 -17977.4 -19377.8 -21015.5 -22734.4 -24375.4 -25901.9 -27277.6 -29106.4 -30879.2 -32144.1 -33806.9 -36131.8 0.0 0.0 2602.7 -----32911.5 11471.1 -----44382.6 0.0 1881.6 -----34752.0 14145.9 -----48897.9 0.0 1732.3 -----37291.2 16684.5 -----53975.7 0.0 1534.0 -----39659.6 19359.7 -----59019.4 0.0 1289.3 -----41802.5 22117.5 -----63920.0 0.0 -928.3 ------41736.6 24893.4 ------66630.1 0.0 -1443.1 ------44082.3 25979.7 ------70062.0 0.0 -1935.7 ------46362.6 26524.9 ------72887.5 0.0 -2632.6 ------47644.0 26452.9 ------74096.8 0.0 -2747.3 ------50130.1 25455.4 ------75585.5 0.0 657.6 ------57171.4 22858.3 ------80029.7
1461.0 -----16582.3 3174.5 -----19756.9
1345.6 -----23231.1 4632.6 -----27863.6
1036.6 -----16360.8 5166.8 -----21527.6
-1075.6 -----39252.2 5528.0 -----44780.3
1978.7 -----32141.3 5878.1 -----38019.4
870.0 -----36892.2 6443.4 -----43335.6
8459.7 -----36578.2 6918.7 -----43497.0
-1045.5 9966.9 -----8921.4 -----10835.5 ====== -5
8196.2 14265.0 -----22461.1 -----5402.5 ====== -4
20726.4 17004.0 -----37730.5 ------16202.9 ====== -3
483.1 8619.5 -----9102.6 -----35677.6 ====== -2
-122.0 13631.3 -----13509.3 -----24510.1 ====== -1
9246.3 8241.1 -----17487.4 -----25848.1 ====== 0
9421.3 47696.3 -----57117.6 ------13620.7 ====== 1
10385.4 26886.9 -----37272.4 -----7110.2 ======
8767.1 25877.5 -----34644.6 -----14253.3 ====== 3
8858.8 27812.9 -----36671.8 -----17303.9 ====== 4
8778.4 29591.5 -----38369.9 -----20649.5 ====== 5
8508.9 31161.8 -----39670.7 -----24249.3 ====== 6
8039.3 21374.3 ------29413.6 ------37216.4 ====== 7
7365.9 19399.7 ------26765.7 ------43296.3 ====== 8
6492.9 16919.5 ------23412.3 ------49475.1 ====== 9
4044.3 12516.7 ------16561.0 ------57535.8 ====== 10
4165.6 10539.0 ------14704.6 ------60880.9 ====== 11
4290.6 26796.9 ------31087.5 ------48942.2 ====== 12
Financial cash flow Incr(+)/Decr(-) in excess marketable securities After-tax interest income (-) Incr(-)/Decr(+) in shortand long-term debt After-tax interest
25
2
236.4 -1464.0 -1695.7
185.8 -1647.3 -12354.1
2025.1 -1487.9 -11034.4
-1259.3 -2257.4 -24558.0
-565.0 -3006.9 -9693.5
-105.2 -3883.6
-517.8 -27.7
0.0 0.0 -32671.0
0.0 0.0 -25956.5
0.0 0.0 -25309.0
0.0 0.0 -24071.6
0.0 0.0 -22226.8
0.0 0.0 -5723.7
0.0 0.0 -995.2
0.0 0.0 3941.2
0.0 0.0 12525.5
0.0 0.0 13613.2
0.0 0.0 -10420.3
42.9 -157225.4
26
doc_312223938.docx
The documentation about Corporate Financial Analysis of Hindalco.
Corporate Financial Analysis of Hindalco
Contents
Corporate Governance Analysis and Stock Holder Composition .................................................................. 2 Share Holding Pattern ............................................................................................................................... 5 Conclusion ............................................................................................................................................. 6 Risk Profile..................................................................................................................................................... 6 Market Analysis of Risk and Return .......................................................................................................... 7 Slope of the Regression=1.2 ................................................................................................................. 8 Intercept of the Regression=-.08%. ...................................................................................................... 8 Inference from Jensons Alpha .............................................................................................................. 8 R-Squared of the Regression = 52.6% ................................................................................................... 9 Calculation of Market Value of Debt .................................................................................................... 9 Adjusted beta ...................................................................................................................................... 10 Cost of Equity ...................................................................................................................................... 10 Cost of Debt ........................................................................................................................................ 10 Cost of Capital ..................................................................................................................................... 11 Relevance of Costs of Equity and Capital ............................................................................................ 11 Capital Structure Choices ............................................................................................................................ 11 Current Financing Mix ............................................................................................................................ 11 Tradeoff on Debt Vs Equity ................................................................................................................. 12 Optimal Capital Structure ....................................................................................................................... 12 Firm Value Calculation and implied Growth ....................................................................................... 15 Valuation ..................................................................................................................................................... 16 Discounted Cash Flow Model.................................................................................................................. 16 Dividend Discount Model........................................................................................................................ 16 Asset Based Evaluation Model ................................................................................................................ 18 EVA Model of Valuation .......................................................................................................................... 19 McKinzie Model of Valuation .................................................................................................................. 20 Annexure ..................................................................................................................................................... 20 Discounted Cash Flow Working .............................................................................................................. 20 1
EVA Model Working ................................................................................................................................ 21 McKinzie Model ...................................................................................................................................... 24
Corporate Governance Analysis and Stock Holder Composition
The Aditya Birla Group is committed to the adoption of best governance practices and its adherence in the true spirit, at all times. The Company is fully compliant with the requirements of the prevailing and applicable corporate governance code and is committed to ensure compliance with any proposals for modifications, well ahead of their implementation timelines. Company’s Board comprises of 9 Non-Executive Directors with considerable experience in their respective fields. Of these, 6 Directors are Independent Directors. Clause 49 of the Listing Agreement as amended in April 2008 requires that if the Non-Executive Chairman of our Company is the promoter then at least half of the Board of Directors of such Company should consist of Independent Directors and we are in compliant with the above requirement of Clause 49 of the Listing Agreement. None of the Directors on the Board is a Member of more than 10 Committee or a Chairman of more than 5 Committee (as specified in Clause 49), across all the Company in which he/she is a Director. All the Directors have intimated periodically about their Directorship and Membership in the various Board Committees of other companies, which are within permissible limits of the Companies Act, 1956 and Corporate Governance Code. The details of the attendance of each Director at the Board Meetings held during the year and directorships, Membership/Chairmanship in Board Committees of other Companies are as follows:
2
Hindalco’s Board of Directors plays the primary role in ensuring good governance and functioning of the Company. All statutory and other significant and material information including information as mentioned in Annexure IA to Clause 49 of the Listing Agreement is placed before the Board to enable it to discharge its responsibility of strategic supervision of the Company as trustees of the shareholders. The Company has procedure to inform board members about risk assessment & minimization procedure. The procedure is reviewed by the board to ensure that the company manages risks through means of a properly defined framework. The Board also reviews periodically the compliance of all applicable laws. The Members of the Board have complete freedom to express their opinion and decisions are taken after detailed discussion. The Audit Committee is endowed with the following powers: 1. To investigate any activity within its terms of reference. 2. To seek information from any employee. 3. To obtain outside legal or other independent professional advice. 4. To secure attendance of outsiders with relevant experience and expertise, if it considers necessary. The role of the Committee includes the following:
3
1. Overseeing of the Company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees. 3. Approval of payment of fees for any other services rendered by the statutory auditors. 4. Reviewing, with the management the annual financial statements before submission to the Board for approval, focusing primarily on: a. Matters required being included in the Director’s Responsibility Statement to be included in the Board’s report in terms of clause (2AA) of Section 217 of the Companies Act, 1956. b. Changes, if any, in accounting policies and practices and reasons for the same. c. Major accounting entries involving estimates based on the exercise of judgment by management. d. Significant adjustments made in the financial statements arising out of audit findings. e. Compliance with listing and other legal requirements relating to financial statements. f. Disclosure of any Related party transactions. g. Qualifications in draft audit report. 5. Reviewing, with the management, the quarterly financial results before submission to the board for approval. 6. Reviewing, with the management, performance of statutory and internal auditors, and adequacy of the internal control systems. 7. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. 8. Discussion with internal auditors on any significant findings and follow up there on. 9. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. 10. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern.
4
11. Looking into the reasons for substantial defaults in payment to the depositors, debenture holders, shareholders (in case of nonpayment of declared dividends) and creditor, if any. 12. Reviewing the following information: • Management discussion and analysis of financial condition and results of operations; • Statement of significant related party transactions (as defined by the audit committee), submitted by management; • Management letters / letters of internal control weaknesses issued by the statutory auditors; • Internal audit reports relating to internal control weaknesses; • The appointment, removal and terms of remuneration of the Chief internal auditor; • Risk Management Framework. 13. Reviewing any other areas which may be specified as role of the Audit Committee under the Listing Agreement, Companies Act and other statutes, as amended from time to time.
Share Holding Pattern
Share holding pattern of the company is shown below
The shares Holding Pattern shown above suggest that Promoters hold the large portion of the shares. Banks and Financial Institutions hold the next level. The percentage of shares held by
5
the promoters is 36%. FIIs hold a convincing percent of shares in the companies holding. Company has gone for GDR especially because of the acquisitions it has made.
Shareholdings
2.53 13.11 9.17 10.33 16 2.62 Promoters 10.15 36.09 Mutual Funds Banks/FI FIIs Corporates Indiviudals NRI GDR
This shareholding pattern is in tune with Business Average of other companies. Conclusion The above facts suggest that ? ? Promoters and Government Banks control the operation of the company The proportion of shares is well distributed among different class of investors
Risk Profile
To analyze the Risk profile of the company stock price data and the performance of the NIFTY is considered. Below table compares the performance of stock with index.
6
The above graph suggests that company is performing almost similar to that of the index. Below image compares the returns of the stock with that of the index
Market Analysis of Risk and Return
Hindalco is one of the Index shares in NIFTY. Regression has been run on the one year data of NIFTY and Stock Price to assess the risk of the shares.
7
Hindalco Daily Returns Vs NIFTY Returns
25.00% 20.00% 15.00% 10.00% Axis Title 5.00% 0.00% -10.00% 0.00% -5.00% -10.00% -15.00% -20.00% Axis Title 10.00% 20.00% Hindalco Daily Returns Linear (Hindalco Daily Returns) y = 1.2065x - 0.0008 R² = 0.526
-20.00%
Slope of the Regression=1.2 This is Hindalco’s beta, based on the daily returns from 2008 to 2009. Intercept of the Regression=-.08%. This is a measure of Disney's performance, when it is compared with Rf (1-beta).The yearly risk free rate is used for calculating Jenson Alpha. Jensons Alpha is calculated using the formula Intercept – Rf(1-beta)
Beta(Adjusted) Risk free Rate(India) Intercept Jensons Alpha
1.06 12.00% -0.2801036 -0.2729036
Inference from Jensons Alpha The Jenson’s Alpha so obtained is negative which suggests that the company has underperformed when compared to the market. This is because of the impact of the financial crisis that occurred in the Economy. The negative value does not imply the company has underperformed and the investor should shy away from investment. Most of the industries in the Core Metal sector underperformed because of the falling or poor performance of the Real
8
Estate Sector. The Economy is expected to perform which will make the company perform better in the near future. R-Squared of the Regression = 52.6% This statistic suggests that 52.6% of the risk (variance) in Hindalco comes from market sources (interest rate risk, inflation risk etc.), and that the balance of 47.4% of the risk comes from firm-specific components. The latter risk should be diversifiable, and therefore unrewarded in the CAPM. Calculation of Market Value of Debt Market Value of Debt is calculated using the prevailing interest rates applied to the firm and the future lease commitments are discounted to arrive at the present value of debt. Market value of debt and equity for the past five years has been taken to arrive at the unlevered beta of the firm. Interest Expense Book Value of Debt Interest Rate 3369.3 83,242.90 4%
Maturity(Years) Value(Cores) Weightages Secured Loans Non Convertible Debentures Cash Credit and Export Credit Rupee Term Loans Loans from Others 0.5 1 1 10 350 16.96 5346.26 0.01 0.042046032 0.002037431 0.64225434 1.20132E-06
Unsecured Loans Fixed Deposits Short Term Loans Other Loans Weighted Duration of Debt
10 1 10
1.13 2372.15 237.7 8324.21 2
0.000135749 0.284969985 0.028555262
Duration
Value(crores) Present Value of Lease 0.4 1.6 0.384439606 1.312080982
Lease Commitments 1 5
9
10
3.27
2.19901944 3.895540027
Market Value of Debt
83503.83501
Adjusted beta From the regression beta arrived out of running regression with NIFTY index value adjusted beta which is expected to be the beta of the firm in long run is arrived as 1.06 Cost of Equity For calculating the Cost of Equity of the firm Risk free rate is assumed to be 12% and Risk Premium is assumed to be 12%. The adjusted beta is used for the calculation. CAPM is used for determining the Expected Return of the Firm. Expected Return = Risk Free Rate + Beta * Risk Premium The table below shows the procedure for arriving at the cost of Equity
Beta(Adjusted) Risk free Rate(India) Intercept Jensons Alpha Unlevered Beta
1.06 12.00% 0.2801036 0.2729036 0.5245469
US Equity Risk Premium Country Equity Risk Premium (Moody) Risk Premium (India) Cost of Equity
5.50% 6.50% 12.00% 24.72%
Cost of Equity is arrived at 24.72% for the Hindalco using the regression beta of one year. Cost of Debt Hindalco’s Cost of debt can be arrived by using the EBIT and Interest expense and thereby determining the Interest Coverage ratio. Based on the rating table determined based on the interest coverage ratio cost of debt can be evaluated.
10
1-Effective Tax Rate (Avg) Average Debt Average Equity Average D/E Ratio Average Interest Coverage Ratio Rating Country default Spread Default Spread Market Int Rate Marginal Tax Rate 1-Marginal Tax Rate Cost of Debt (Post Tax)
0.77734941 200,402.29 129,571.50 1.54665405 11.7561336 AA 0.40% 0.50% 12.90% 34% 66% 8.51400%
Cost of Capital Cost of Capital is determined by multiplying the weightages of debt and equity with their corresponding cost and adding it. Cost of Capital = (Debt/Capital) * Cost of Debt + (Equity/Capital)* Cost of Equity The value so obtained for Hindalco is shown below Current Debt Ratio Avg Cost of Capital Current Cost of Capital Relevance of Costs of Equity and Capital The costs of equity and capital become hurdle rates for Hindalco as a company, with different rates applying for different divisions. In using these rates,
? ?
0.35618299 14.88% 18.95%
The cost of equity is the appropriate hurdle rate, when returns are measured to equity investors in the company. The cost of capital is the appropriate hurdle rate, when returns are measured to all investors in the firm (debt as well as equity).
Capital Structure Choices
Current Financing Mix
Hindalco has the following debts in its books.
11
SECURED LOANS Debentures Loans from Banks Other Loans
UNSECURED LOANS Fixed Deposits Short Term Loans: From Banks Foreign Currency Loans from Financial Institutions Other Loans: From Banks From Others
Tradeoff on Debt Vs Equity
Factor Tax Benefit Added Discipline of Debt Future Flexibility
Hindalco Hindalco has a marginal tax rate of about 35%. It has an effective tax rate of 32%. Hindalco is held by different kind of investors which implies the debt will incorporate more discipline to the managers of debt. The need for financing flexibility is increasing as the metal business involves acquiring new mine fields for continued production.
Optimal Capital Structure
The costs of equity and debt, using betas for costs of equity and estimated ratings for costs of debt, are calculated at different debt ratios. Using which the appropriate or optimal debt ratio for the firm is evaluated. The table below shows the calculation for arriving at the optimal debt ratio of the firm. De D/E Debt bt Rati Rati o o EBIT Inte rest Pre Tax Int Coverage Ratio Rat Pre ing Tax Cos t of De
12
Lev ere d Bet a
Cos t of Equ ity
Post Tax Cost of Debt
Cost Valu of e of Capita Firm l
0%
0.0 0 0.1 1 0.2 5 0.4 3 0.6 7 1.0 0 1.5 0 2.3 3 4.0 0 9.0 0
0.00
10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 %
2344 4.08 4688 8.17 7033 2.25 9377 6.33 1172 20.4 1 1406 64.5 0 1641 08.5 8 1875 52.6 6 2109 96.7 4
302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0 302 72.5 0
0.00
-
AA A AA A A
302 4.29 604 8.57 907 2.86 120 97.1 5 151 21.4 3 181 45.7 2 211 70.0 1 241 94.2 9 272 18.5 8
10.01
5.00
3.34
A-
2.50
BB B BB
2.00
1.67
B
1.43
B-
1.25
B-
1.11
CC C
bt 12. 35 % 12. 35 % 12. 85 % 13. 00 % 13. 50 % 14. 50 % 16. 00 % 18. 00 % 18. 00 % 20. 00 %
0.5 2 0.5 6 0.6 1 0.6 7 0.7 6 0.8 7 1.0 4 1.3 3 1.9 1 3.6 4
18. 29 % 18. 76 % 19. 33 % 20. 08 % 21. 06 % 22. 45 % 24. 53 % 27. 99 % 34. 91 % 55. 68 %
8.15%
18.29 % 17.70 % 17.16 % 16.63 % 16.20 % 16.01 % 16.15 % 16.71 % 16.49 % 17.45 %
8.15%
8.48%
8.58%
134 615. 3 141 947. 6 149 177. 6 157 236 164 252 167 657. 5 165 226. 3 155 886. 4 159 486. 5 145 212. 5
8.91%
9.57%
10.56%
11.88%
11.88%
13.20%
The graph has been plotted using the above data to show the variation in cost of capital of the firm for different values of debt ratio.
13
Cost of Capital
18.50% 18.29% 18.00% 17.70% 17.50% 17.16% 17.00% 16.50% 16.00% 15.50% 0% 20% 40% 60% 80% 100% 16.63% 16.71% 16.49% Cost of Capital 17.45%
16.20% 16.15% 16.01%
The below graph shows the variation of Cost of Equity, Cost of Debt and Cost of Capital together
60.00% 50.00% 40.00% Cost of Equity 30.00% 20.00% 10.00% 0.00% 0% 20% 40% 60% 80% 100% Post Tax Cost of Debt Cost of Capital
The rating for the firm is done using the table shown below. Ratings Table Interest Coverage Ratio 8.5
0.80 1.25 1.50 1.75 1.90 2.05 2.50 3.00 4.25 5.50 6.50 8.50
CCC BB B+ BB BB+ BBB AA A+ AA AAA
8.00% 6.00% 4.00% 3.25% 2.50% 2.00% 1.50% 1.00% 0.85% 0.70% 0.50% 0.35%
Firm Value Calculation and implied Growth Firm Value changes at each level of optimal debt is tabulated using the expected growth rate obtained from management discussion and by using the weighted cost of capital of the firm Indian GDP Firm Value of Firm at Current Debt Ratio 6.70% Stable Growth 127436.635
Debt Ratio 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Value of Firm 134615.3 141947.6 149177.6 157236 164252 167657.5 165226.3 155886.4 159486.5 145212.5
The value of the firm with the current cost of capital and debt ratio is 127436.63. The company’s firm value will change to 167657.5 when it reaches the optimal capital debt
15
structure ratio which is nothing but reduction in firms values at the optimal debt ratio when compared to the current one. The formula used is Firm value Today =FCFF (1+g)/ (WACC-g)
Valuation
Valuation of Hindalco has been done using the following models ? ? ? ? ? Discounted Cash Flow Dividend Discount Model Asset Based Evaluation model McKenzie Model EVA Method
Discounted Cash Flow Model
The present values of the free cash flows to the firm and the present value of the terminal value are computed, and the sum is reported below: Value of Hindalco = Rs 44532.47 Million If the market value of existing debt of Rs 83242.9 million from this firm value, we arrive at the value of equity for Hindalco to be Rs 38710 million. The value of equity per share is computed by dividing by the number of shares outstanding. The value so arrived is negative and the value is found to be Rs 22.75 The calculation and summary for arriving is shown in the annexure
Dividend Discount Model
Two Stage Dividend discount model is used. The two stages are assumed to be ? ? Growth Phase Stable Phase
During the growth phase the company is expected to grow at the rate of 12% while in the stable phase the company is expected to grow along with the economy and this rate is assumed to be 8%
16
The duration of the growth phase is taken as 5 years as the company is already into the growth phase and the company has already established itself as market leader in its sector. Value of stock so arrived using the Dividend Discount model is Rs 45.79 which means the stock is overvalued with reference to current market price. Calculation for Dividend Discount Model is shown below
Net Income
2009 2008 2007 2006 2005 Average 22,302.7 28,609.3 25,643.2 16,555.5 13,293.5 21,280.8 0 9 5 0 7 8
Current EPS Current DPS
14.82 1.349252
A. High Growth Phase Growth Rate No of years Payout Ratio
12% 5 12%
Year Dividends Present Value
1 2 3 4 5 1.991808 2.230825 2.498524 2.798347 3.134148 1.626643 1.82184 2.040461 2.285317 2.559555
B.Stable Growth Phase Growth Rate Payout Ratio Cost of Equity Price at the End of Growth Phase
8% 50% 22.45% 97.61017
17
C.Valuation Present Value of Dividend in Growth Phase Present Value of Terminal Price Value of the Stock
10.33382 35.45841 45.79223
Asset Based Evaluation Model
In this model the company is assumed to be in stable growth phase neglecting the 5 year duration of growth phase to arrive at the value of the company. The value of the company so arrived is Rs 33.593. In this model growth rate is assumed at 8% and the cost of equity is taken to be 22% which is the value arrived at the optimal capital structure. This is based on the assumption that company has moved to the optimal capital structure during the stable growth phase. The calculations involved for valuation using this model is shown below A. Value of Assets Current DPS Cost of Equity in Stable Phase Value of Assets in Place
1.349252 22% 6.010304
Bivalve of Stable Growth Current DPS Growth Rate Cost of Equity Value of Assets Value of Stable Growth
1.349252 8% 22% 6.010304 4.074784
No of Shares(Millions) Value of Assets(Millions)
1701.536 6933.391
18
Payout Ratio Value of the Share
12% 33.95653
EVA Model of Valuation
In this model like DCF model FCFF to the firm is evaluated and the rates used for discounting and growth are adjusted for inflation. The growth phase is assumed to be for 5 years and the terminal value of the assets are evaluated for arriving at the value of the stock. EVA was found to be negative for this company.
A.Calculation of Capital Invested 2004 Growth Rate (Adjusted for Inflation) Initial Add Net Cap Exp Add Change in WC Revenues CapExp/Revenues WC/Revenues Cost of Capital Cumulated WACC
B.Calculation of EVA WACC Capital Invested Operating Expenses Operating Expenses/Revenue EBIT Tax Rate EBIT(1-t) Less WACC EVA Terminal EVA PV
2005
2006
2007
2008
104,176.25 125,962.73 157,430.49 209,030.74 270,880.73 22,976.73 28,107.87 66,395.69 62,791.53 8,491.03 23,492.38 -4,545.70 1,260.54 62,083.52 95,231.17 113,964.76 183,129.88 192,010.27 0.2412732 0.2466365 0.3625607 0.3270217 0.0891623 0.2061372 -0.024822 0.006565
2010 24% 334,932.80 391,771.73 53,633.73 66,505.83 3,205.20 13312.968 182,196.50 225923.66 0.29437302 0.017592 18.95% 18.95%
2009
2011 24% 471,590.53 82,467.23 16508.08021 280145.3384
2012 24% 570,565.84 102,259.37 20470.01946 347380.2196
2013 24% 693,295.23 126,801.61 25382.82413 430751.4723
2014 Terminal Year 24% 10% 845,479.67 1,034,188.37 157,234.00 172,957.40 31474.70192 34622.17211 534131.8257 587545.0082
18.95% 22.54%
18.95% 26.81%
18.95% 31.89%
18.95% 37.93%
18.95% 18.95% 18.95% 391,771.73 471,590.53 570,565.84 80,498.32 97,628.80 154,208.20 169,489.88 165,029.10 195763.29 242746.4777 301005.6324 0.8452938 0.8566578 0.8420701 0.8827126 0.90577536 30160.371 37398.86065 46374.58721 33% 33% 33% 20207.449 25057.23664 31070.97343 74231.727 89355.55202 108109.0954 -54024.28 -64298.3154 -77038.122
18.95% 18.95% 16.01% 693,295.23 845,479.67 1,034,188.37 373246.9842 462826.2604 509108.8864 57504.48814 33% 38528.00705 131363.4892 -92835.4821 78436.12182 33% 52552.20162 165568.2538 -113016.0522
71305.56529 33% 47774.72875 160198.9375 -112424.209 -1880627.26 -45418.51 -52472.2074 -60751.6615 -70389.7406 -1444975.17
PV of EVA Add Capital Invested Add PV of Change in Capital Firm Value
-1674007 391,771.73 128684.47 -1153551
19
McKenzie Model of Valuation
In this model future cash flows are predicted using the past data and the number of years taken for analysis is 12 years and during these 12 years the company is expected to move from its high growth phase to stable growth in normalized pattern. The impact of inflation, Working Capital needs during the different phases of the growth are also taken in to account during the evaluation of the firm This method takes comprehensive account of the unexpected expenses taxes and other onetime cost also in the evaluation of the value of the firm. The value of the share price so arrived is almost near the market value. This approximation is due to the number of shares being approximated to be the same during the growth phase which actually doesn’t happen. The working for this model is shown in the annexure as screen shot.
Annexure
Discounted Cash Flow Working
Return on capital 12.24% Equity Beta 0.87 Reinvestment Dividend Payout Ratio rate 12.00% 88.00% Debt Expected growth rate=ROC*RR 9.57% 10.77%
Year 1 2 3 4 5 6 7 8 9 10 11 12
EBIT(1-t) 23532.43 26066.14 28872.65 31981.33 35424.72 39238.86 43463.66 48143.34 53326.87 59068.51 65428.34 72472.93
Reinvestment FCFF 20708.54 2823.89 22938.20 3127.94 25407.93 3464.72 28143.57 3837.76 31173.76 4250.97 34530.20 4708.66 38248.02 5215.64 42366.14 5777.20 46927.65 6399.22 51980.29 7088.22 57576.94 7851.40 63776.18 8696.75
20
Terminal Value
PV 2434.19 2324.19 2219.15 2118.87 2023.11 1931.69 1844.39 1761.04 1681.46 1605.47 1532.92 1463.64
13 80276.00 14 88919.22 15 98493.04 16 109097.67 17 120844.08 18 133855.21 19 148267.24 20 164230.99 21 181913.53 Value of Company Value of Debt Value of Equity Number of shares(million) VALUE of share
70642.88 78248.91 86673.88 96005.95 106342.79 117792.59 130475.17 144523.27 160083.91 44532.47 83242.90 -38710.43 1701.54 -22.75
9633.12 10670.31 11819.17 13091.72 14501.29 16062.63 17792.07 19707.72 21829.62
250198.63
1397.50 1334.34 1274.04 1216.47 1161.49 1109.00 1058.89 1011.04 12029.58
EVA Model Working
A. Calculation of Capital Invested 200 4 200 5 200 6 200 7 200 8 200 9 201 0 201 1 201 2 201 3 201 4 Ter min al Year 10%
Growth Rate (Adjusted for Inflation) Initial
24 % 104 ,17 6.2 5 125 ,96 2.7 3 22, 976 .73 8,4 91. 03 95, 231 157 ,43 0.4 9 28, 107 .87 23, 492 .38 113 ,96 209 ,03 0.7 4 66, 395 .69 4,5 45. 70 183 ,12 270 ,88 0.7 3 62, 791 .53 1,2 60. 54 192 ,01
21
24%
24%
24%
24%
Add Net Cap Exp Add Change in WC Revenues 62, 083
334 ,93 2.8 0 53, 633 .73 3,2 05. 20 182 ,19
391 ,77 1.7 3 66, 505 .83 133 12. 968 225 923
471, 590. 53 82,4 67.2 3 165 08.0 802 1 280 145.
570, 565. 84 102, 259. 37 204 70.0 194 6 347 380.
693, 295. 23 126, 801. 61 253 82.8 241 3 430 751.
845, 479. 67 157, 234. 00 314 74.7 019 2 534 131.
1,03 4,18 8.37 172, 957. 40 346 22.1 721 1 587 545.
.52 Cape/Reve nues
.17 0.2 412 732 0.0 891 623
4.7 6 0.2 466 365 0.2 061 372
9.8 8 0.3 625 607 0.0 248 22
0.2 7 0.3 270 217 0.0 065 65
WC/Reven ues
6.5 0 0.2 943 730 2 0.0 175 92
.66
338 4
219 6
472 3
825 7
008 2
Cost of Capital Cumulated WACC
18. 95 % 18. 95 %
18.9 5% 22.5 4%
18.9 5% 26.8 1%
18.9 5% 31.8 9%
18.9 5% 37.9 3%
B.Calculati on of EVA WACC
Capital Invested
Operating Expenses
Operating Expenses/ Revenue EBIT
80, 97, 154 498 628 ,20 .32 .80 8.2 0 0.8 0.8 0.8 452 566 420 938 578 701
169 ,48 9.8 8 0.8 827 126
18. 95 % 391 ,77 1.7 3 165, 195 029. 763 10 .29 0.90 577 536 301 60. 371 33 % 202 07.
18.9 5% 471, 590. 53 242 746. 477 7
18.9 5% 570, 565. 84 301 005. 632 4
18.9 5% 693, 295. 23 373 246. 984 2
18.9 5% 845, 479. 67 462 826. 260 4
16.0 1% 1,03 4,18 8.37 509 108. 886 4
Tax Rate EBIT(1-t)
373 98.8 606 5 33% 250 57.2
463 74.5 872 1 33% 310 70.9
575 04.4 881 4 33% 385 28.0
713 05.5 652 9 33% 477 74.7
784 36.1 218 2 33% 525 52.2
22
449 Less WACC 742 31. 727 540 24. 28
EVA
366 4 893 55.5 520 2 642 98.3 154
734 3 108 109. 095 4 770 38.1 22
070 5 131 363. 489 2 928 35.4 821
287 5 160 198. 937 5 112 424. 209 188 062 7.26 144 497 5.17
016 2 165 568. 253 8 113 016. 052 2
Terminal EVA
PV
454 18. 51
524 72.2 074
607 51.6 615
703 89.7 406
PV of EVA Add Capital Invested Add PV of Change in Capital Firm Value
-1674007 391,771.73 128684.47 -1153551
23
McKenzie Model
24
Income statement Revenues Operating expenses Depreciation Operating income Interest income Interest expense Earnings before taxes Revaluation of deferred income taxes Income taxes Net income
TABLE 1. HISTORICAL INCOME STATEMENTS 2003 2004 2005 2006 2007 -6 -5 -4 -3 -2 49856.2 -37642.4 -2642.2 -----9571.6 0.0 -1364.9 -----8206.7 62083.5 -48100.2 -3174.5 -----10808.8 2400.1 -1771.5 -----11437.3 95231.2 -74851.8 -4632.6 -----15746.8 2700.5 -1699.6 -----16747.7
TABLE 5. FORECASTED INCOME STATEMENTS 2008 -1 2009 0 1 2 3 4 5 6 7 8 9 10 11 12
113964.8 183129.9 192010.3 182196.5 212058.5 244630.7 272127.2 299911.4 327443.2 354129.9 379343.9 402445.9 422809.7 435494.0 448558.8 462015.6 -98048.3 -147175.0 -158444.3 -145500.3 -159043.9 -183473.0 -204095.4 -224933.5 -245582.4 -265597.4 -284507.9 -301834.5 -317107.3 -326620.5 -336419.1 -346511.7 -5166.8 -5528.0 -5878.1 -6443.4 -6918.7 -11471.1 -14145.9 -16684.5 -19359.7 -22117.5 -24893.4 -25979.7 -26524.9 -26452.9 -25455.4 -22858.3 --------------------------------------------------------------------------------------10749.7 30426.9 27687.9 30252.8 46095.9 49686.6 53885.9 58293.4 62501.1 66415.0 69942.5 74631.8 79177.6 82420.6 86684.3 92645.6 2439.1 3700.7 4929.4 6366.5 45.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -2251.7 -2423.9 -2806.3 -3369.3 -7298.7 -21084.3 -23948.9 -26224.7 -28443.8 -30554.4 -32503.3 -33005.1 -33092.4 -32746.8 -31648.6 -30455.0 --------------------------------------------------------------------------------------10937.1 31703.7 29811.0 33250.0 38842.5 28602.3 29937.0 32068.6 34057.3 35860.6 37439.3 41626.7 46085.2 49673.8 55035.7 62190.6 0.0 -15148.6 -----23694.0 ====== 0.0 -11154.9 -----17447.4 ====== 0.0 -11675.4 -----18261.6 ====== 0.0 -12506.8 -----19561.9 ====== 0.0 -13282.3 -----20774.9 ====== 0.0 -13985.6 -----21875.0 ====== 0.0 -14601.3 ------22838.0 ====== 0.0 -16234.4 ------25392.3 ====== 0.0 -17973.2 ------28112.0 ====== 0.0 -19372.8 ------30301.0 ====== 0.0 -21463.9 ------33571.8 ====== 0.0 -24254.3 ------37936.3 ======
0.0 -----8206.7 ======
4067.4 -----15504.7 ======
5748.3 -----22496.0 ======
4501.5 -----15438.6 ======
9403.0 -----41106.7 ======
1646.7 -----31457.7 ======
4600.5 -----37850.5 ======
Statement of retained earnings Beginning retained earnings Net income Common dividends Ending retained earnings
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
60986.3
60986.3 15504.7 -8836.8 -----67654.2
67654.2 22496.0 -14412.2 -----75738.0
75738.0 15438.6 3900.3 -----95076.9
95076.9 41106.7 -13046.4 -----123137.1
123137.1 31457.7 17141.9 -----171736.7
171736.7 235878.6 37850.5 23694.0 26291.5 -332725.6 ----------235878.6 -73153.0
-73153.0 17447.4 -26919.8 ------82625.4
-82625.4 18261.6 -25601.1 ------89964.9
-89964.9 -97018.8 -103614.3 -109577.3 -109852.5 -108618.6 -105854.2 -100587.8 19561.9 20774.9 21875.0 22838.0 25392.3 28112.0 30301.0 33571.8 -26615.8 -27370.4 -27837.9 -23113.2 -24158.4 -25347.5 -25034.7 -27962.1 ----------------------------------------------97018.8 -103614.3 -109577.3 -109852.5 -108618.6 -105854.2 -100587.8 -94978.1
-94978.1 37936.3 -40784.9 -------97826.7
TABLE 2. HISTORICAL BALANCE SHEETS -6 Operating cash Excess marketable securities * Trade receivables Other receivables Inventories Prepaid expenses Current assets Gross property, plant and equipment Accumulated depreciation Net property, plant and equipment Total assets 3031.4 0.0 5607.4 8103.7 10022.2 1008.8 -----27773.5 -5 2279.0 236.4 5611.1 7552.5 11913.4 1270.1 -----28862.6 -4 4009.7 422.2 7873.7 8498.8 23745.2 214.7 -----44764.3 -3 9172.9 2447.3 12484.0 7972.7 40950.9 0.0 -----73027.7 -2 6655.0 1188.1 15045.0 11742.2 43153.1 0.0 -----77783.4 -1 1469.8 623.0 15650.2 9794.6 50979.1 0.0 -----78516.7 0 8437.2 517.8 12012.2 15730.5 40701.4 0.0 -----77399.1
TABLE 6. FORECASTED BALANCE SHEETS 1 9403.5 0.0 18923.7 19535.5 48701.7 1301.0 -----97865.4 2 10847.9 0.0 21830.4 22536.1 56182.3 1500.8 -----112897.5 3 12067.2 0.0 24284.1 25069.2 62497.2 1669.5 -----125587.2 4 13299.3 0.0 26763.5 27628.8 68878.1 1840.0 -----138409.6 5 14520.2 0.0 29220.4 30165.1 75201.1 2008.9 -----151115.7 6 15703.6 0.0 31601.9 32623.5 81330.0 2172.6 -----163431.6 7 16821.7 0.0 33851.9 34946.3 87120.7 2327.3 ------175067.9 8 17846.1 0.0 35913.5 37074.6 92426.4 2469.0 ------185729.5 9 18749.1 0.0 37730.7 38950.5 97103.2 2593.9 ------195127.5 10 19311.6 0.0 38862.6 40119.1 100016.3 2671.8 ------200981.3 11 19890.9 0.0 40028.5 41322.6 103016.7 2751.9 ------207010.7 12 20487.6 0.0 41229.4 42562.3 106107.2 2834.5 ------213221.0
56679.7 -16069.9 -----40609.8 -----68383.3 ====== 3137.8 5800.9 1264.9 -----10203.5 20812.4 8490.4
66584.9 -19182.8 -----47402.2 -----76264.7 ====== 8073.3 7600.3 1363.7 -----17037.2 17572.7 9951.4
87727.9 -30693.4 -----57034.6 -----101798.8 ====== 5964.8 14274.6 2209.1 -----22448.5 32035.2 11297.0
104182.5 -35310.7 -----68871.8 -----141899.6 ====== 17832.0 19745.3 2250.3 -----39827.7 31202.3 12333.6
112526.6 -40563.3 -----71963.3 -----149746.7 ====== 6931.7 23080.2 4447.2 -----34459.2 66660.6 11258.0
126084.6 -46368.1 -----79716.5 -----158233.2 ====== 18787.9 20386.6 8561.2 -----47735.7 64498.0 13236.7
133930.7 -52416.5 -----81514.2 -----158913.3 ====== 23721.5 16139.8 2549.3 -----42410.6 59521.4 14106.7
181223.1 -58931.4 -----122291.7 -----220157.1 ====== 11904.3 25006.7 5245.2 -----42156.1 228564.0 22566.4 23.6 -73153.0 ------73129.4 -----220157.1 ====== 189905.3 126.6% 22.2%
205707.4 -67999.8 -----137707.6 -----250605.1 ====== 45712.8 28847.7 6050.9 -----80611.3 227426.5 25169.1 23.6 -82625.4 ------82601.8 -----250605.1 ====== 215706.6 126.6% 16.2%
226856.1 -77416.9 -----149439.2 -----275026.4 ====== 45485.3 32090.2 6731.0 -----84306.4 253610.5 27050.7 23.6 -89964.9 ------89941.3 -----275026.4 ====== 236205.2 126.6% 15.4%
247341.9 -86774.2 -----160567.6 -----298977.3 ====== 50722.1 35366.6 7418.2 -----93506.9 273682.7 28783.0
266701.4 284469.9 289099.3 289491.1 285618.2 276166.3 264500.4 271357.9 -95902.0 -104626.1 -112774.7 -119746.5 -125479.0 -129963.2 -133213.7 -136132.6 ----------------------------------------------170799.4 -----321915.0 ====== 54736.5 38613.2 8099.2 -----101448.9 293739.9 30316.9 179843.8 -----343275.3 ====== 58748.0 41760.2 8759.3 -----109267.4 311955.3 31606.3 176324.6 ------351392.5 ====== 62391.1 44733.5 9382.9 ------116507.5 314035.9 30678.0 169744.6 ------355474.2 ====== 62807.2 47457.8 9954.4 ------120219.3 314615.0 29234.9 160139.2 ------355266.7 ====== 62923.0 49859.1 10458.1 ------123240.2 310557.9 27299.1 146203.1 ------347184.4 ====== 62111.6 51354.9 10771.8 ------124238.3 298843.8 24666.5 131286.7 ------338297.4 ====== 59768.8 52895.6 11094.9 ------123759.3 287573.4 21919.2 23.6 -94978.1 -------94954.5 ------338297.4 ====== 274306.9 126.6% 17.9% 135225.3 ------348446.4 ====== 57514.7 54482.4 11427.8 ------123424.9 300247.8 22576.8 23.6 -97826.7 -------97803.1 ------348446.4 ====== 282536.1 126.6% 20.5%
Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Deferred income taxes Common stock * Retained earnings Total common equity Total liabilities and equity
28877.0 -----28877.0 -----68383.3 ====== 61317.5 39.1%
67654.2 -----67654.2 -----112215.4 ====== 67064.4 38.2% 25.8%
75738.0 -----75738.0 -----141518.6 ====== 84892.9 44.8% 30.6%
95076.9 -----95076.9 -----178440.5 ====== 117456.6 41.7% 16.2%
123137.1 -----123137.1 -----235514.9 ====== 121031.2 60.8% 32.9%
171736.7 -----171736.7 -----297207.0 ====== 128662.4 64.7% 25.7%
235878.6 -----235878.6 -----351917.3 ====== 139706.4 59.6% 27.5%
23.6 23.6 23.6 23.6 23.6 23.6 23.6 -97018.8 -103614.3 -109577.3 -109852.5 -108618.6 -105854.2 -100587.8 ----------------------------------------96995.2 -103590.7 -109553.7 -109828.9 -108595.0 -105830.6 -100564.2 ---------------------------------------298977.3 321915.0 343275.3 351392.5 355474.2 355266.7 347184.4 ====== ====== ====== ====== ====== ====== ====== 256192.5 126.6% 15.1% 275202.6 126.6% 14.9% 292755.9 126.6% 14.7% 297276.1 126.6% 14.1% 298062.0 126.6% 14.8% 294949.5 126.6% 15.6% 285057.7 126.6% 16.4%
Invested capital Debt/invested capital NOPLAT/invested capital (ROIC) * direct forecast
TABLE 3. HISTORICAL FREE CASH FLOW Free cash flow Revenues Operating expenses Depreciation EBIT Taxes on EBIT Revaluation of deferred income taxes Change in deferred income taxes NOPLAT Add back depreciation Gross cash flow Change in working capital (+ if increase) Capital expenditures (+ if positive) Gross investment Free cash flow -5 62083.5 -48100.2 -3174.5 -----10808.8 4312.5 -4 95231.2 -74851.8 -4632.6 -----15746.8 6138.6 -3 -2 -1 0
TABLE 7. FORECASTED FREE CASH FLOW 1 2 3 4 5 6 7 8 9 10 11 12
113964.8 183129.9 192010.3 182196.5 212058.5 244630.7 272127.2 299911.4 327443.2 354129.9 379343.9 402445.9 422809.7 435494.0 448558.8 462015.6 -98048.3 -147175.0 -158444.3 -145500.3 -159043.9 -183473.0 -204095.4 -224933.5 -245582.4 -265597.4 -284507.9 -301834.5 -317107.3 -326620.5 -336419.1 -346511.7 -5166.8 -5528.0 -5878.1 -6443.4 -6918.7 -11471.1 -14145.9 -16684.5 -19359.7 -22117.5 -24893.4 -25979.7 -26524.9 -26452.9 -25455.4 -22858.3 --------------------------------------------------------------------------------------10749.7 30426.9 27687.9 30252.8 46095.9 49686.6 53885.9 58293.4 62501.1 66415.0 69942.5 74631.8 79177.6 82420.6 86684.3 92645.6 4574.6 9901.0 2474.7 5769.4 -17977.4 -19377.8 -21015.5 -22734.4 -24375.4 -25901.9 -27277.6 -29106.4 -30879.2 -32144.1 -33806.9 -36131.8 0.0 0.0 2602.7 -----32911.5 11471.1 -----44382.6 0.0 1881.6 -----34752.0 14145.9 -----48897.9 0.0 1732.3 -----37291.2 16684.5 -----53975.7 0.0 1534.0 -----39659.6 19359.7 -----59019.4 0.0 1289.3 -----41802.5 22117.5 -----63920.0 0.0 -928.3 ------41736.6 24893.4 ------66630.1 0.0 -1443.1 ------44082.3 25979.7 ------70062.0 0.0 -1935.7 ------46362.6 26524.9 ------72887.5 0.0 -2632.6 ------47644.0 26452.9 ------74096.8 0.0 -2747.3 ------50130.1 25455.4 ------75585.5 0.0 657.6 ------57171.4 22858.3 ------80029.7
1461.0 -----16582.3 3174.5 -----19756.9
1345.6 -----23231.1 4632.6 -----27863.6
1036.6 -----16360.8 5166.8 -----21527.6
-1075.6 -----39252.2 5528.0 -----44780.3
1978.7 -----32141.3 5878.1 -----38019.4
870.0 -----36892.2 6443.4 -----43335.6
8459.7 -----36578.2 6918.7 -----43497.0
-1045.5 9966.9 -----8921.4 -----10835.5 ====== -5
8196.2 14265.0 -----22461.1 -----5402.5 ====== -4
20726.4 17004.0 -----37730.5 ------16202.9 ====== -3
483.1 8619.5 -----9102.6 -----35677.6 ====== -2
-122.0 13631.3 -----13509.3 -----24510.1 ====== -1
9246.3 8241.1 -----17487.4 -----25848.1 ====== 0
9421.3 47696.3 -----57117.6 ------13620.7 ====== 1
10385.4 26886.9 -----37272.4 -----7110.2 ======
8767.1 25877.5 -----34644.6 -----14253.3 ====== 3
8858.8 27812.9 -----36671.8 -----17303.9 ====== 4
8778.4 29591.5 -----38369.9 -----20649.5 ====== 5
8508.9 31161.8 -----39670.7 -----24249.3 ====== 6
8039.3 21374.3 ------29413.6 ------37216.4 ====== 7
7365.9 19399.7 ------26765.7 ------43296.3 ====== 8
6492.9 16919.5 ------23412.3 ------49475.1 ====== 9
4044.3 12516.7 ------16561.0 ------57535.8 ====== 10
4165.6 10539.0 ------14704.6 ------60880.9 ====== 11
4290.6 26796.9 ------31087.5 ------48942.2 ====== 12
Financial cash flow Incr(+)/Decr(-) in excess marketable securities After-tax interest income (-) Incr(-)/Decr(+) in shortand long-term debt After-tax interest
25
2
236.4 -1464.0 -1695.7
185.8 -1647.3 -12354.1
2025.1 -1487.9 -11034.4
-1259.3 -2257.4 -24558.0
-565.0 -3006.9 -9693.5
-105.2 -3883.6
-517.8 -27.7
0.0 0.0 -32671.0
0.0 0.0 -25956.5
0.0 0.0 -25309.0
0.0 0.0 -24071.6
0.0 0.0 -22226.8
0.0 0.0 -5723.7
0.0 0.0 -995.2
0.0 0.0 3941.2
0.0 0.0 12525.5
0.0 0.0 13613.2
0.0 0.0 -10420.3
42.9 -157225.4
26
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