Value Creation Via Divestitures

Strictly Private & Confidential

August 2009
Value Creation via DIVESTITURES

Presented By: Varun Goenka

JM Financial Services P Ltd.

Agenda ~ Part I
Introduction ~ Restructuring (( Reminiscience of past experiences ))
Introduction ~ Restructuring Reminiscience of past experiences

Case study ~ How Divestitures discover Market Cap.
Case study ~ How Divestitures discover Market Cap.

Case Study -- Value Creation through listing
Case Study Value Creation through listing

Nicholas Piramal India Ltd
Nicholas Piramal India Ltd

Reliance Industries Ltd

Bharat Forge
Bharat Forge

Other Cases
Other Cases

Case Study –– Control & Ownership
Case Study Control & Ownership

Sterlite
Sterlite

TV 18 India Limited
TV 18 India Limited
Strictly Private & Confidential 1

Introduction
Corporate restructuring encompasses two distinct groups of activities;

Business Restructuring :

Expansions – including mergers and consolidations, tender offers, joint ventures, and acquisitions;
Contraction – including sell offs, spin offs, equity carve outs, abandonment of assets, and liquidation.

Financial Restructuring :
Value Re-engineering - Subsidiarisation, De-subsidiarisation.
Ownership and control – including the market for corporate control, stock repurchases program,
exchange offers and going private;


Does Restructuring create value?

The key principle behind corporate restructuring is to create shareholder
value over and above that of the sum of the parts.

Corporate Restructuring creates value only if:
Value of the combined entity as a result of the corporate restructuring is greater than
the sum of value of individual companies.
C>A+B Value creation

C<= A + B Value destruction


Reminiscence of Demerger-Divestiture ~ to name a few……

Demerger of ‘ L&T and Ultra-tech.’ ( 2x+ post-demerger ).
Demerger of ‘Godrej Consumer Products from Godrej Inds.’ ( 2x + post-demerger )
Demerger of ‘ Wockhardt Life-sciences from Wockhardt ‘ ( 2x + post-demerger )
Demerger of ‘ Hexaware & Aptech ‘. ( 60%post-demerge )
Demerger of ‘ Sterlite Optical from Sterlite Inds. ‘ ( 50% on listing post-demerger ) ,
Demerger of ‘ UB into United Brewries & UB Holdings ‘ . The stock was a multi-bagger in the subsequent years.
Demerger of ‘ Reliance Communications from RIL Ltd. ‘ has created around 100k cr of Market Cap. for its
investors. something which the core Reliance took over 10 years to create.
Demerger of ‘ GTL Infra. From GTL ‘ ( 2x post-demerger )
Demerger of ‘ Great Offshore from GE Shipping ‘. ( 50%ish post-demerger )
Demerger of ‘ Network18 from TV18 ‘. ( 2x + post-demerger )
Demerger of ‘ Zee Group co.s from Zee Tele Ltd. ‘ ( 50%+ post-demerger )
Demerger of ‘ Sujana Tower from Sujana Metal ‘ ( 2x post-demerger )
Demerger of ‘SPARC from Sun Pharma ‘ ( 20% ish post-demerger )
Case of Negative returns – ‘ ABB & ABB Alstom Power ‘ ( but far-better business focus & visibility ) , ‘ Sygenta
from Novartis ‘

( Timing of transaction execution VS Demerger-announcement & eventual announcement of Record-date has made substantial
difference towards ultimate return )
( Current Market Capitalization of the above events are a different case-in-point.)


How Spin- Offs Expand PE’s & Discover Market Capitalization !
~ Simple Case Study / Illustration
The below ‘ arithmetic ‘ is an actual event , nonetheless can be taken as a ‘ hypothetical example ‘ too .

Have assumed the following financial situation for a company that we shall call “Split up Ltd” that is into two businesses Cement (capacity of 1 million ton at
Standard EV taken at US $ 100 per ton) and a full fledged construction business.

Workings :
Book value is Net worth divided by number of shares so we have Rs 900 crores/ 10 crores = Rs 90
EPS is Net profit/ No. of shares = Rs 100 crores/Rs 10 crores = Rs 10 per share.
RoE is Net profit/Net worth = Rs 100 crores/Rs 900 crores = 11.11%%
Since the RoE is at 11.11% we have assumed a PE of 12 for the stock.
Market price = EPS x PE = Rs 120 (Rs 10 x 12)
Market Capitalization is equal to number of shares x Market price = 10 crores x Rs 120 = Rs 1200 crores.


How Spin- Offs Expand PE’s & Discover Market Capitalization ! …..CONTD I…
Now for “Split up Ltd” company we assume:

That capital is equally divided between the Construction & Cement division.

Companies are assumed to be debt free. In any case debt will not affect the calculations. That the construction division ( Net profit Rs 90
crores ) is feeding the cement division ( Net Profit Rs 10 crores )

The management after deliberation splits the company into two different companies with a equal share capitals and assets.

Two shares of the parent company were exchanged for one share each of the cement division and the construction division.

The share capital and book value will therefore be divided between the two companies.
Split up Construction Ltd – Equity of Rs 50 crores
Split up Cement Ltd – Equity of Rs 50 crores.


How Spin- Offs Expand PE’s & Discover Market Capitalization ! …..CONTD II…
Workings:
Equity share capital was halved so 50% of Rs 100 crores gives us 5 crore shares.
Net worth was halved so 50% of Rs 90 crores means that the net worth is Rs 45 crores.
RoE is Net profit/Net worth = Rs 90 crores/Rs 450 crores = 20%
Since the RoE is at 20% we have assumed a PE of 20 for the stock.
Market price = EPS x PE = Rs 360 (Rs 18 x 20)
Market Cap. is equal to number of shares x Market price = Rs 5 crores x Rs 360 = Rs 1800 crores.

We now analyze the financials of Split up cement Ltd after the split :


How Spin- Offs Expand PE’s & Discover Market Capitalization ! …..Conclude…
Workings:
Equity share capital was halved so 50% of Rs 100 crores gives us 5 crore shares.
Net worth was halved so 50% of Rs 90 crores means that the net worth is Rs 45 crores.
RoE is Net profit/Net worth = Rs 10 crores/Rs 450 crores = 2.22%
In this case the stock will not sell for a PE determined price because the enterprise value will hold the stock up. This is so because
companies that make losses do not sell for free. The enterprise value is Rs 345 crores
Market price = Enterprise value/No. of shares = Rs 345 crores/Rs 5 crores = Rs 69
Market Capitalization is equal to Enterprise value = Rs 345 crores.

The Cement business which was valued at negligible value as it contributed only Rs 2 to the EPS and was valued at Rs 2(EPS) x
12(PE) = Rs 24 per share was suddenly valued at Rs 69 per share at an Enterprise value of Rs 345 crores.
The PE of the construction business which was valued at Rs 8 (EPS) x 12 (PE) = Rs 96 expanded from 12 times to 18 times and the
EPS went up from Rs 8 per share to Rs 18 per share thus giving it a value of Rs Rs 360.= 18(EPS) x 20(PE).


Value Creation through listing of distinct businesses
Objective
To list the shares of subsidiary company through allotment of shares of subsidiary company to the shareholders of parent
company pursuant to a scheme of arrangement.
Single Business Multiple Business
Entity Entity

Shareholders Shareholders Shareholders Shareholders
Distribution of Distribution of
shares of Y Co. shares of A, B,
to the & C Co. to the
shareholders of shareholders of
X Co. pursuant X Co. pursuant
to a scheme of to a scheme of
X Co. X Co. arrangement X Co. arrangement X Co.
(Parent) (Parent) (Parent) (Parent)

Listed Listed Listed Listed

100% 100% 100% 100%

B Co. C Co. B Co. C Co.
Y Co. Y Co. A Co. A Co.
(Subsidiary) (Subsidiary) (Subsidiary) (Subsidiary)
(Subsidiary) (Subsidiary) (Subsidiary) (Subsidiary)
Steel Telecom Steel Telecom
Tea business Tea business
Business Business Business Business
Unlisted Listed
Unlisted Unlisted Unlisted Listed Listed Listed

Stake held
Issue of consideration


Alternative Routes
Formation of a special purpose company (SPV) – A 100% subsidiary of parent company
Transfer investments (shares of Y Co.) from parent company to SPV pursuant to a scheme of arrangement and get shares of SPV
listed
Alternative 1A - Merge SPV into Y Co. at a later point in time and get Y Co. shares listed or Alternative 1B – Merge Y Co. into the
SPV at a later point in time, to be decided depending on tax and cost efficiency. Alternative 2 –Let only SPV remain listed without
any merger. Alternative1 is preferred purely from an administrative convenience rather than from a shareholder value
perspective.
Alternative 1
Transfer of Alternative 1A Alternative 1B
Formation of SPV
Investments to SPV*


Parent Co Parent Co Parent Co Parent Co

Listed Issue of Shares in Listed Listed Listed
Issue of Shares in
Consideration Consideration
100%
100% Listed SPV to merge into Y Y Co. to merge into
Transfer of Co. SPV
investment
SPV Y Co SPV SPV Y Co SPV Y Co

Unlisted Unlisted Listed Listed
- Merge SPV into Y Co, and get Y Co. - Merge Y Co, into SPV
shares listed - Investment of SPV in Y Co
Y Co
- As consideration Y Co issues shares will get cancelled. No
to shareholders of SPV i.e. Parent further shares will be
Unlisted
Co and its shareholders issued

*Structure under Alternative 2 shall be similar

Case Study - Nicholas Piramal India Ltd
Scheme of Arrangement between Nicholas Piramal India Ltd. (NPIL) and Kojam Fininvest Ltd. (KFL) for transfer of 53.76%
stake of Gujarat Glass Private Ltd. (GGPL) held by NPIL to KFL
Appointed Date – 01st July 2003, Effective Date – 22nd December 2003

Prior to Scheme of Prior to the Pursuant to a Scheme of KFL Merged into GGL
Arrangement Appointed Date Arrangement in 2007


NPIL NPIL NPIL NPIL

Listed Listed Listed Listed
53.76% 100% 0.5%
53.76% 0.28%
Unlisted

GGPL 53.76%
GGPL KFL GGPL KFL GGL*

Unlisted Unlisted Unlisted Listed Listed
Issue of Shares in Consideration
KFL was merged into GGL in 2007
pursuant to a scheme of Amalgamation
KFL was incorporated on 30th June 2003 NPIL transferred its stake in GGPL to
with a paid up capital of Rs. 5 Lakhs as KFL pursuant to a scheme of The shares of GGL held by KFL were
a wholly owned subsidiary of NPIL arrangement at book value cancelled pursuant to such
amalgamation
KFL issued its shares to the
shareholders of NPIL in the ratio of 1: 4 GGL issued its shares to the
as consideration of such transfer and shareholders of KFL in the ratio of 1:1
got listed GGL shares were listed in February
2008
Strictly Private & Confidential 12 *The company was converted into a public ltd. company in March 2007

Case Study - Nicholas Piramal India Ltd
Pre-Demerger Post-Demerger Present Market Cap.
EQ ( In Crs. ) 38 NICHOLAS PIRAMAL Nicholas Piramal @ 325 6778
Price-June03 62 EQ ( In Crs. ) 38 GGL @ 38 310
Market Cap. 1,177 Listing Price 130 Total 7088
Sensex 3,793 Nicholas Piramal - Market Cap. 2,470 Sensex ( 26 aug ’09 ) 15700
Sensex 4,709 M Cap.June’03-Date ( x ) 6x
KFL
EQ ( In Crs. ) 10
Listing Price 40
Market Cap. 40
Sensex 4,709
Total Market Cap. On
Demerger 2510
Incremental Market Cap 1,333
% Wealth Creation 113.3%


Case Study - Reliance Industries Ltd
As per the Scheme of De-merger, business of RIL was segregated into five undertakings as illustrated below. These
undertakings were hived off into four subsidiaries. Each of these subsidiaries issued its shares to the shareholders of RIL in
the ratio of 1:1
Appointed date – 01st September 2005, Effective date – 21st December 2005, Record date – 25th January 2006

Reliance Industries Ltd Shareholders


Coal based energy Gas based energy Financial Services Telecom Remaining
Undertaking Undertaking Undertaking Undertaking Undertaking

ASSETS
ASSETS ASSETS Building, Plant & Machinery, Vehicles
Building at Goa Building at Bandra (E), ASSETS and Equipment located at various
Mumbai Building in New Delhi locations
Shares in Receivables for capital leases
Reliance Energy Shares in Shares in
Reliance Power Reliance Patalganga Reliance Capital Shares in
Hirma Power Pvt Ltd Power Ltd Reliance General Insurance Reliance Communication Infrastructure Petrochemicals, Oil & Gas,
Jayamkondam Power Pvt Ltd Reliance Life Insurance Reliance Telecom Textiles and other business
Rleiance Thermal Energy Pvt Liabilities Reliance Infocomm
Ltd Related Loans Liabilities World Tel holding Ltd
Related Loans Preference shares of Reliance
Liabilities Telecomm
Related Loans
Liabilities
Related Loans

Reliance Energy Ventures Reliance Communications
Ltd Reliance Natural Resources Ventures Ltd
Reliance Capital Ventures
Ltd (formerly Global Fuel
Ltd
Management Services Ltd.)


Case Study - Reliance Industries Ltd (Contd)
Scheme of Arrangement between Reliance Industries (RIL) and Reliance Capital Ventures Ltd. (RCVL) for demerger of
financial services undertaking to RCVL
Scheme of Arrangement between RCVL and Reliance Capital Ltd (RCL) for amalgamation of RCVL with RCL
Demerger Scheme - Appointed Date – 01st September 2005, Effective Date – 21st December 2005

Prior to Schemes of Pursuant to Scheme Pursuant to Scheme
Arrangement of De-merger of Amalgamation

Shareholders Shareholders Shareholders

RIL RIL RIL

Listed Listed Issue of Shares Listed
De-merger of
42.70% Financial Services in Consideration
Undertaking
RCVL merged into
42.70%
RCL RCL RCL
RCVL
RCL RCVL
Listed Listed Listed
Listed
Issue of Shares in Consideration

- RCVL was incorporated on 3rd September 2004 and the - RCVL was merged into RCL in 2006 pursuant to a
financial services undertaking of RIL was transferred scheme of Amalgamation
through the scheme of demerger to RCVL
- RCVL shareholding in RCL was cancelled pursuant
- RCVL issued its shares to the shareholders of RIL in the to such amalgamation
ratio of 1:1 as consideration of such transfer
- RCVL shareholders received shares of RCL in the
- RCVL got listed through the scheme of demerger ratio of 5:100

• Scheme of Arrangement between Reliance Industries (RIL) and Reliance Natural Resources Ltd. (RNRL) for de-merger of gas
based energy undertaking to RNRL
• De-merger Scheme - Appointed Date – 01st September 2005, Effective Date – 21st December 2005

Prior to Scheme of Pursuant to a Scheme of De-merger Post Scheme of De-merger
Arrangement

Shareholders Shareholders Shareholders

RIL RIL RIL

Listed Listed Listed

100% 100%
Reliance
Issue of Shares in Patalganga
Reliance Power Ltd RNRL
Consideration
RNRL Patalganga
Power Ltd Listed
100%
Unlisted Unlisted
RNRL
Reliance
Listed Patalganga
Power Ltd
- RNRL was incorporated on 24th April - RNRL issued its shares to the shareholders of RIL in the
2000 with a paid up capital of Rs. 5 ratio of 1:1 as consideration of such transfer
Lakhs as a wholly owned subsidiary
- RNRL shares were be listed pursuant to such scheme
of RIL
- RIL Shareholding in RNRL was cancelled pursuant to the
scheme

RIL RELIANCE Inds. RIL @ 2020 320,000
EQ ( In Crs. ) 1,394.15 EQ ( In Crs. ) 1394.2 RCOM @ 260 54, 000
Price-Jan '06 850 Listing Price 730 RNRL @ 80 13,300
Market Cap. 118,490 Market Cap. 101,762 RCAP @ 820 20,200
Sensex 10,370 Sensex 10,735 Total 407,500
RELIANCE CAPITAL RELIANCE COMMUNICATION Sensex ( 26 aug ’09 ) 15,700
EQ ( In Crs. ) 245.63 EQ ( In Crs. ) 611.5 M Cap.Jan’06-Date ( x ) 3.2x
Price-Jan '06 450 Listing Price 300
Market Cap. 9,950 Market Cap. 36,660
Sensex 10,370 Sensex 10,735
RNRL
EQ ( In Crs. ) 611.57
Listing Price 17.5
Market Cap. 2,269
Sensex 10,565
RELIANCE CAPITAL
Listing Price 500
Market Cap. 10,436
Sensex 10,735
Total Market Cap. - Demerger 151,127
Incremental Market Cap. 22,687
% Wealth Creation 19.1%


Case Study - Bharat Forge
Bharat Forge – Significant Group Company holdings and non core assets
BF Utilities – All businesses apart from forging business demerged into BF Utilities

EQ ( In Crs. ) 18.83 BHARAT FORGE BHARAT FORGE @ 225 5,000
Price – Aug 01 12 Listing Price 10
BF UTILITIES @ 890 3340
Market Cap. 250 Market Cap. 200
Total 8,340
Sensex 2,812 Sensex 3,279
Sensex ( 26 aug ’09 ) 15,700
BF UTILITIES LTD
Listing Price 18 M Cap.Jan’06-Date ( x ) 33x

Market Cap. 54
Sensex 3,279
Total Market Cap.- Demerger 254

Incremental Market Cap. 4
% Wealth Creation 2%


Some more cases….
ZEE TELEFILMS SUJANA METAL
GE SHIPPING GTL

EQ ( In C rs. ) 190.34 EQ ( In C rs. ) 43.35 EQ ( In C rs. ) 85.69 EQ ( In C rs. ) 38.83
EQ ( In Shares ) 19.03 EQ ( In Shares ) 43.3 EQ ( In Shares ) 8.56 EQ ( In Shares ) 3.88
Price 240 Price - Dec ' 06 300 Price 140 Price 110
Market C ap. 4567.2 Market C ap. 12990 Market C ap. 1198.4 Market C ap. 426.8

Post-Demerger Post-Demerger Post-Demerger Post-Demerger

GE SHIPPING ZEE Entertainment GTL Sujana Metal Products Ltd.
EQ ( In C rs. ) 152.27 EQ ( In C rs. ) 43.36 EQ ( In C rs. ) 85.3 EQ ( In C rs. ) 25.99
EQ ( In Shares ) 15.22 EQ ( In Shares ) 43.36 EQ ( In Shares ) 8.53 EQ ( In Shares ) 5.20
Listing Price 225 Listing Price 275 Listing Price 150 Listing Price 30.8
GE Shipping - Market C a 3424.5 Market C ap. 11924 GE Shipping - Market C ap 1279.5 Sujana Metal - Market C ap 160

GREAT OF F SHORE WWIL GTL Infra. Sujana Tower
EQ ( In C rs. ) 38.12 EQ ( In C rs. ) 21.72 EQ ( In C rs. ) 320 EQ ( In C rs. ) 19.41
EQ ( In Shares ) 3.81 EQ ( In Shares ) 21.72 EQ ( In Shares ) 32 EQ ( In Shares ) 3.88
Listing Price 730 Listing Price 130 Listing Price 40 Listing Price 140
Market C ap. 2781.3 Market C ap. 2823.6 Market C ap. 1280 Market C ap. 543

Total M.C ap.On Total M.C ap.On Total M.C ap.On
Demerger 6205.8 ZEE News Demerger 2559.5 Demerger 703
EQ ( In C rs. ) 23.98
Incremental Market
Incremental Market C ap Incremental Market C ap
C ap 1638.6 EQ ( In Shares ) 23.98 1361.1 276.5
% Wealth C reation 35.9% Listing Price 40 % Wealth C reation 113.6% % Wealth C reation 64.8%
Market C ap. 959.2

DISH TV
EQ ( In C rs. ) 42.82
EQ ( In Shares ) 42.82
Listing Price 110
Market C ap. 4710.2

Total M.C ap.On
Demerger 20417
% Wealth C reation 57.2%

PRESENT MARKET CAP.
ZEE Entertainment 8250
PRESENT MARKET CAP. WWIL 900 PRESENT MARKET CAP. PRESENT MARKET CAP.
GE Shipping 3950 Zee News 1000 GTL 2840 Sujana Metal Products 85
Great Offshore 2000 Dish TV 4370 GTL Infra. 3500 Sujana Tower 100
Total 5950 Total 14520 Total 6340 Total 185

M.C ap (x) - PD to M.C ap (x) - PD to M.C ap (x) - PD to
M.C ap (x) - PD to Aug'09
Aug'09 130% Aug'09 112% Aug'09 529% 43%


Case Study - Sterlite
Listing

1993 1997 2000 2002 Aug 2007
Rights cum Merger of Demerger of Acquisition of ADR $2 bn
Public Issue Sterlite Sterlite optic HZL from GoI
communications from Sterlite
with Sterlite

1993 1996 1997 1998 2000 2001 2002 2003 2007

1996
Sterlite
1998 2001 2003
Communications
IPO Setup as a Indal Hostile Acquisition of $1 bn Vedanta
subsidiary takeover bid Balco from GoI Listing


Three Tier Structure

Vedanta

Sterlite

Balco Hind Zinc Sterlite Energy Vedanta Alumina

Copper Mines


Value Creation journery..
Promoter Holding Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08
Indian Promoters 1.5% 1.5% 0.0% 0.0%
Malco 0.0% 4.6% 7.1% 7.1% 4.7% 4.6% 4.6% 3.61%

Twinstar Holding 35.4% 35.4% 55.1% 60.2% 73.6% 72.3% 72.3% 56.98%
PAC 1.6% 1.6% 4.3% 4.0%
Employee Trust 0.0% 7.4% 11.5% 7.0% 3.2% 3.2% 3.2% 2.51%

Total 38.5% 50.4% 78.1% 78.3% 81.5% 80.0% 80.1% 63.1%

Market Cap (Rs. Crs) 167 228 210 576 1606 4569 26158 50579
Events EWT+ Malco EWT+ Creeping Rights ADR
Malco+
Buyback


Case Study - TV 18 India Limited
Objective
Consolidate their media business which creates a Group structure (and reorganize capital its own capital) that is
expected to unlock significant shareholder value.
Pre Scheme Scenario
“CNBC Awaaz” and the general news English Channel – “CNN IBN” were held in promoter entities & legally not part
of the listed entity, due to government restrictions

TV 18 India Limited Promoter owned Holding company

CNBC TV 18 – English business news channel Awaaz – Hindi Business and Consumer Channel

Moneycontrol.com – Financial portal IBN – General News Channel(s)+ Portals

Commoditiescontrol.com –Commodity info portal

August 22, 2003 News Uplinking Guidelines-
Eligibility criteria for an applicant company desirous of uplinking news and current affairs TV channel(s) from India
It is registered / incorporated in India under the Companies Act, 1956;
Foreign direct investment in the applicant company does not exceed 26% of the total paid up capital *
Indian shareholder to hold at least 51% of the total equity (excluding the equity held by Public Sector Banks and
Public Financial Institutions as defined in section 4A of the Companies Act, 1956) in the new entity
TV18 was non compliant and hence would not have got necessary licenses to operate the business; its current
license on CNBC-TV18 was under threat
Reason for proposed restructuring
Compliance with uplinking norms
Forced restructuring allows opportunity to consolidate businesses for TV18 Shareholders


Case Study - TV 18 India Limited (cont’d)
Scheme
Demerger of Media Investment Undertaking
Merger of Indian News Business Undertaking of SGA News Limited
Consolidation of both AWAAZ and CNN IBN Channels
Existing shareholder of TV18 holding 10 shares of face value Rs 10 each would end up with
12 shares of face value Rs 5 each in Network Ltd
14 shares of face value Rs 5 each in TV18.
Shareholders of SGA News for every 1 equity share of face value of Rs 10 each would get 3.67 shares of face value of
Rs 5 each to
Mr. Raghav Bahl transferred 2,868,225 Equity shares of face value Rs.10/- per share (Prior to the Record date) to
Network 18 Media and Investments Limited pursuant to the Scheme
Implications
Creation of 2 listed entities
Network 18 would be the holding company for strategic and financial group investments and TV 18 would act as
the operating company
No effective dilution for TV18 Shareholders
30% Reduction in capital
Funding Options for Growth improve manifold


Case Study - TV 18 India Limited (cont’d)
EQ ( In Crs. ) 26.20 TV 18 TV18 @ 105 1,265
Price - Sep'06 600 EQ ( In Crs. ) 28.28 NW18 @ 100 1000
Market Cap. 1,572 Listing Price 630 Total 2,265
Sensex 12,962 Market Cap. 3,553 Sensex ( 26 aug ’09 ) 15,700
Sensex 14,403 M Cap.Jan’06-Date ( x ) 1.44x
NETWORK 18
EQ ( In Crs. ) 25.43
Listing Price 300
Market Cap. 1,524

Sensex 14,403
Total Market Cap.- Demerger 5,077

Incremental Market Cap. 3,505
% Wealth Creation 223%


Agenda ~ Part II

Current Opportunities
Current Opportunities

Kirlosker Oil Engines Ltd.
Kirlosker Oil Engines Ltd.

NDTV Ltd.
NDTV Ltd.

Electrotherm Ltd.
Electrotherm Ltd.

BF Utilities
BF Utilities


Current Opportunities……

1. KIRLOSKER OIL ENGINES Ltd. ~ FF Market Cap. 770crs.
Demerger – Core Business & Investment / JV’s into 2 separate listed entities.

2. NDTV Ltd. ~ FF Market Cap. 405crs.
Demerger – General Entertainment & News Entities into 2 separate listed entities.

3. ELECTROTHERM Ltd. ~ FF Market Cap. 190crs.
Demerger – Engineering & Steel business into 2 separate listed entities.

1.4. BF Utilities Ltd. ~ FF Market Cap. 1130crs.
Demerger – Infrastructure business & Investments into 2 separate listed entities.

( The Note assumes pre-knowledge of the companies and thus would not indulge in data or business
analysis , but purely on the corporate-action and forming an opinion towards the opportunity arising )


Demerger Case I ~ KIRLOSKER OIL ENGINES Ltd
Business :
Acknowledged leaders in Engines , Engine bearings , Engine Valves , Diesel generating sets & Iron grey castings. The
engines are preferred choice when it comes to powering Agricultural machinery , Construction & Material handling
machinery , Marine Applications and equipment used by Armed Forces.

Creation of 2 separate entities ;
1. Kirloskar Engines India Ltd. ( Resultant Co. ~ to hold the current core-operating businesses )
2. Kirloskar Oil India Ltd. ( Applicant Co. ~ to hold Investments & JV’s )

Objective :
1. To optimize ‘ Capital Structure ‘ , leading to improved Return Ratio’s – probable PE x expansion.
2. To provide ‘ visibility ‘ and ‘ resultant recognition ‘ to Investments & JV’s on books.

Business Highlights & Concerns :
1. Extending product range to – ‘Alternate Fuel based Engines‘ ~ which could in all probability be the next growth-
driver.
2. Behind the CAPEX curve.
3. Recent financial performance not very encouraging.

Historical Performance : ( Disclaimer – Only indicative of future and not extrapolable )
C-A-G-R >
1. Networth [ 3yr – 10.1% , 5yr – 18% , 8yr – 13.4% , 10yr – 12.7% ]
2. Sales [ 3yr – 14.8% , 5yr – 16.1% , 8yr – 12.8% , 10yr – 11.2% ]
3. EBITDA [ 3yr – 1.6% , 5yr – 16.5% , 8yr – 15.1% , 10yr – 11.2% ]
4. PAT [ 3yr - (16.7%) , 5yr – 10.4% , 8yr – 13.8% , 10yr – 22.1% ]
5. Market Cap. [ 3yr - (27%) , 5yr – 15.5% , 8yr – 42.8%% , 10yr – 32.7% ]


Financial Performance (Rs Cr) Quarterly Results (Rs Cr)
Year End 200903 200803 200703 200603 Period-Ended LTM 200906 200903 200812 200809 200806
Net Sales 2109.3 2155.2 1881.5 1394.1 Net Sales 2005.4 461.3 475.7 476.4 592.0 565.9
Operating Cost 1727.6 1776.2 1537.7 1138.1 EBITDA 283.0 80.1 110.4 42.3 50.1 68.5
Gross Profit 381.7 379.0 343.8 256.1 Depreciation 80.8 19.7 24.2 18.4 18.5 19.3
S,G&E 163.1 191.1 173.3 130.8 Op Income 202.2 60.4 86.3 23.9 31.6 49.2
EBITDA 218.6 187.9 170.5 125.2 Misc.Inc (Exp.) 64.0 5.6 2.3 20.4 35.6 1.8
Depreciation 80.4 43.9 40.6 29.2 Interest Exp 65.9 3.0 9.8 26.9 26.2 7.6
Operating Income 138.2 144.0 129.9 96.1 EBT 200.2 63.0 78.7 17.5 41.0 43.4
Other Inc (Expen) -25.2 -8.7 -6.9 -15.3 Taxes 71.0 20.3 29.7 7.5 13.6 13.9
Int./Dividend Income 104.7 71.5 130.6 174.5 Net Inc. (Reg) 129.2 42.8 49.1 10.0 27.4 29.5
Interest Expenses 37.6 19.7 14.4 9.7 Extra ord. Items 4.3 0.0 0.5 0.0 3.8 0.0
Earnings Before Taxes 180.1 187.1 239.3 245.6 Rep Net Inc 124.9 42.8 48.5 10.0 23.6 29.5
Taxes 62.2 66.3 59.0 42.7 EPS 6.7 2.2 2.5 0.5 1.4 1.5
Regular Net Income 117.9 120.9 180.3 202.9 EBITDA Margin 14.1 17.4 23.2 8.9 8.5 12.1
Extraordinary Items 2.4 2.4 26.6 83.2 Tax Rate 35.5 32.2 37.7 42.8 33.2 32.0
Reported Net Income 115.6 118.5 153.7 119.7 Net Margin (Reg) 6.4 9.3 10.3 2.1 4.6 5.2
Dividends 19.4 38.8 38.8 38.8 Sales Growth -3.0 -0.2 -19.5 4.6 -5.1
EPS 5.8 5.8 17.8 20.1 EBITDA Growth -27.5 160.8 -15.5 -26.9 -4.2
Net Worth 960.1 915.0 851.4 718.4 Earnings Growth -12.8 391.0 -63.5 -7.1 -18.6
Debt 349.0 342.9 106.3 67.0 EPS Growth -12.8 391.0 -63.5 -7.1 -18.6
Capital Employed 1309.1 1257.9 957.7 785.4 P/E (Annual) 9.4 5.6 20.7 13.7 14.4
Net Plant 654.8 646.0 274.9 169.4 Market Capital 2261.9 1602.7 1747.4 1024.1 1097.9
Cash 79.1 61.6 41.3 17.6 Shareholding Pattern
Marketable Securities 471.9 476.3 517.4 499.9 (AS ON 30-Jun-2009) Shares (%)
Ratio Analysis Foreign 19551911 10.1
Gross Margin 18.1 17.6 18.3 18.4 Institutions 20645189 10.6
EBITDA Margin 10.4 8.7 9.1 9.0 Govt Holding 0 0.0
Tax Rate 34.5 35.4 24.6 17.4 Non Promoter Corp. Hold. 6323574 3.3
Net Margin (Regular) 5.6 5.6 9.6 14.6 Promoters 120401625 62.0
Dividend Payout 16.8 32.6 21.8 19.4 Public & Others 27250081 14.0
ROE 12.3 13.4 19.6 18.7 Totals 194172380 100.0

ROC 9.0 10.7 17.6 17.1
Sales Growth -2.1 14.6 35.0 21.5
EBITDA Growth 16.4 10.2 36.1 39.4
Earnings Growth -2.5 -22.9 28.4 58.3
EPS Growth 0.2 -67.4 -11.7 -77.1
Dividend Growth -50.0 0.0 0.0 60.0
M Cap Growth -46.9 -9.4 -19.3 265.9
Invtry. Turnover(days) 25.5 26.3 22.9 23.6
Receivable Turnover
(days) 52.0 55.0 48.0 41.0
Payables Turnover
(days) 63.0 53.0 47.0 40.0
Market Capital (Rs Cr) 1097.9 2068.7 2282.8 2828.5
Net Debt 269.9 281.3 65.0 49.4 MARKET DATA (AS ON 14-Aug-2009)
Enterprise Value 1367.8 2350.0 2347.8 2877.9 Price (Rs) 107 52 W H/L(Rs) 120 / 30
P/E 9.5 17.5 14.9 23.6 Lat. P/E 16.6 Lat. EPS(Rs) 6.43
P/BV 1.1 2.3 2.7 3.9 Mkt. Cap.(Rs Cr) 2077.4 Shares(000) 194150
EV/EBIDTA (x) 6.3 12.5 13.8 23.0 Lat. BV(Rs) 49.5 Div. Yield (%) 0.93

INDUSTRY PEER-SET ~ Prespective

PRICE DATA RATIOS

Latest Market 52 Week High 52 Week Low Earnings Market Cap. /
Company Market Cap. RoE % (P/E) ( P/BV) (P/CEPS) EV / EBIDTA
Price (BSE) (BSE) Yield Sales

Cummins India 6606 334 343.8 148.2 9.1% 43.1% 15.2 4.7 13.8 10.2 2.0
Kirl. Oil Engine 2138 110 119.6 30 8.8% 22.7% 18.4 2.2 10.9 8.3 1.0
Greaves Cotton 764 156 170.5 50.1 11.9% 24.1% 13.6 1.9 9.5 6.7 0.7

AGGREGATE 9507 9.2% 33% 15.7 3.4 12.6 9.3 1.4

PROFIT / LOSS BALANCE SHEET

Year End Net Sales PBIDT PBIT Enterprise Networth Total Debt
Company PAT Cash Profit EBITDA % PAT %
[Latest] [Latest] [Latest] [Latest] Value [Latest] [Latest]

Cummins India 200903 3304 647 602 434 479 19.6% 14% 6629 1395 23
Kirl. Oil Engine 200903 2109 298 218 116 196 14.1% 9% 2487 960 349
Greaves Cotton 200806 1150 122 97 56 80 10.6% 7% 813 403 49

AGGREGATE 6563 1067 916 606 755 16% 9% 9929 2758 421

DISTRIBUTION of Metrics over Industry Peers INVESTMENT
Net Sales PBIDT PBIT Enterprise Networth Total Debt
Market Cap. PAT Cash Profit Quoted Investments Inv. / Mcap.
[Latest] [Latest] [Latest] Value [Latest] [Latest]

Company

Cummins India 69% 50% 61% 66% 72% 63% 67% 51% 5% 470 7%
Kirl. Oil Engine 22% 32% 28% 24% 19% 26% 25% 35% 83% 480 22%
Greaves Cotton 8% 18% 11% 11% 9% 11% 8% 15% 12% 46 6%

INVESTMENTS ( 27th Aug. '09 )

QUOTED EQUITY
Investment Company No of Equity Cost of Current Value of
Year End Current Price
Name Shares Inv. Investment
Kirl. Brothers 200903 11026185 9 189 208
Kirl. Ferrous 200903 65992000 163 23 155
Swaraj Engines 200903 2160000 0 301 65
Kirl.Pneumatic 200903 138222 2 364 5
Total 349 433

UNQUOTED EQUITY - Book Value / Hist. Cost QUASI Cash
Investment Company No of Equity Cost of Investment Company Cost Of
Year End Units
Name Shares Inv. Name Inv.
Toyota Kirloskar Mot 200903 77000000 156
Toyota Kirloskar Aut 200903 33750000 54 Birla Sun Life Cash 14975273 15
T G Kirloskar Automo 200903 5720000 19 DWS Insta Cash Plus 14963556 15
Kirloskar Toyoda Tex 200903 9256117 9 HDFC Cash Management 18809012 20
Total 238 Total 50

AGGREGATE

Value Discount factor % Discounted Value
Quoted Equity 433 70% 130
Un-Quoted Equity 238 70% 71
Quasi Cash 50 20% 40
AGGREGATE 721 241
Implied Inv. / Share ( Post-Demerger ) 249

KIRLOSKER OIL ENGINES Ltd. ~ Demerger
EXISTING - FY ' 2009

Share Capital ( Rs. crs. ) 38.83
No. of Shares ( crs. ) 19.42
Total Capital Employed 1309
Total Shareholder's Funds 960
RESULTANT ENTITY ~ 4 shares held Total Debt 349 DEMERGED ENTITY ~ 3 per 4 shares held
Market Price ( Rs. ) 110
KIRLOSKER OIL ENGINES Ltd. Market Capitalization ( Rs. Crs. ) 2136 KIRLOSKER ENGINES India Ltd.
( Existing Co. - Investments ) Enterprise Value ( Rs. Crs. ) 2485 ( Demerged Entity - Ongoing businesses )
( Auto Components + Engines )
Share Capital (Rs. crs.) 9.7 FINANCIALS
No. of Shares ( crs. ) 0.97 Net Sales 2273 Share Capital (Rs. crs.) 29.1
Other Income 105 No. of Shares ( crs. ) 14.56
INVESTMENTS PBIDT 298 Total Capital Employed ( Rs.crs. ) 787
Quoted Equity Inv. ( 50% dis. ) 430 215 PBIT 217.8 Total Debt 349
MF - Quasi Cash ( 20% dis. ) 50 40 PAT 113.5
Total Quoted Investments 480 255 FINANCIALS
RATIOS Net Sales 2065
Key UnQuoted Inv. - Value EPS 5.8 Depreciation 75
11% Toyota Kirlosker JV ( Approx.Valuation ) P/E 18.8 PBDIT 205
Book Value 155 P/B 2.22 Interest 38
2007-08 2008-09 Market Cap. / Sales 0.94 PAT ( 35% Tax ) 109
Sales 4100 3760 Earnings Yield ( EBIT / EV ) 8.8% Implied Cost of Debt ( % ) 10.8%
Profit 207 113 RoCE 8.7% RoCE 13.8%
% NP 5.0% 3%
No. of Cars 52800 53878 Market Value ~ Conservative Scenarios
Realization / Unit 776515 697873 Capital Structure ~ IF Cetirus Paribus PE x ( 10 -15 ) 1000-1500
Consld. Share Capital ( Remain Same ) 38.83 Market Cap. / Sales ( 0.5 - 1 ) 1030 - 2060
Maruti Suzuki benchmark ~ at discount No. of Shares ( Before ) 19.42 Earnings Yield - Conservative 9%-15%
PE x ( 20-30x ) 250 - 370 No. of Shares ( After ) 15.53 Per Share Range ( 1000-1500-2000 crs ) 68 - 103 - 137
MCap. / Sales ( 1- 2 ) 400 - 800 Reduction ( % ) 20%
Assumed 400 Value of 15 shares 1020 - 1545 - 2050
Demerger Ratio ( For Every 20 shares ) 1 :: 15
AGGREGATE Investment ( In crs. ) 655 Cost of Original Share Pre-D 2200.0
Investment / share ( Rs.) 675

Value of 1 share 675

POTENTIAL : [ Potential Demerged Agg. ~ ( for 20 shares > 1 resultant co. shares + 15 of to be listed co. shares ) - ( Current Inv. ~Rs. 2200 ) ] =
Increased visibility & Return ratios >> High MoS @ Rs. 85

Demerger Case II ~ New Delhi Television India Ltd.

Business : An integrated media conglomerate ~ News & Entertainment and end-to-end Media Services .

1. NDTV News +India Ltd.
2. NDTV Entertainment + India Ltd.

Objectives & Highlights :
1. De-conglomerization would make the organization leaner. “ Increase visibility & Investor confidence “.
2. Regulatory arbitrage would lead to ‘ Equity ‘ raising and eventual tackling of debt & costs.
3. Separate verticals with due focus / revenue models / consumer-market & investors.
4. Providing further visibility and clarity to the complex group structure / subsidiaries / ventures.
5. GE owned NBC Universal, a global media conglomerate, has acquired 26% stake in NDTV Networks Plc, a subsidiary of NDTV. NBCU has
invested $150m, valuing the company at $577m . NDTV Networks Plc, a subsidiary of NDTV, pans across businesses like GEC broadcasting, lifestyle
broadcasting, internet, Media Process Outsourcing, etc. NBC has an option to increase its stake to 50% in the next three years. NBC is a leading global
entertainment conglomerate panning across television broadcasting, cable distribution, film production and studio and theme parks & resorts. NBC
Universal owns a plethora of media labels like Universal television, NBC News, NBC Sports, CNBC, Universal Pictures, Universal Studios, etc.

CAGR > ( ADEX Data attached does show some market standing / acceptability )
1. Networth [ 3yr – 7.6% , 5yr – 5.3% ]
2. Sales [ 3yr – 30.3% , 5yr – 49% ]
3. EBITDA [ 3yr – 127.2% , 5yr – 374% ]
4. PAT [ 3yr - 606.4% , 5yr – 179.3% ]
5. Market Cap. [ 3yr - (27.3%) , 5yr – 0% ]

INFLEXION POINT : Transition of Industry from ‘ Analog to Digital ‘ ; substantial increase in subscription revenue & decrease in costs.
Consolidation of Industry , new entrants have made things further difficult. De-regulation / Free pricing.


INDUSTRY PEER-SET ~ AGGREGATE's
BALANCE SHEET PROFIT / LOSS
Capital
Company Market Cap. EV Year End Total A/L Gross Block Net WC Networth Total Debt Net Sales PBIDT PBIT PAT
Employed
1 Sun TV Network 10851 10920 200903 1518 1783 1027 623 1449 69 1106 804 583 340
2 Zee Entertainmen 8213 8789 200903 3975 4573 1893 2134 3400 576 2337 708 677 522
3 IBN Broadcast 1894 2024 200903 426 505 136 87 253 130 196 -52 -70 -92
4 TV 18 India 1242 1789 200903 1033 1488 365 76 486 547 596 -26 -75 -185
5 NDTV 1083 1788 200903 943 1217 349 230 261 705 492 -315 -467 -520
6 Zee News 960 1162 200903 442 611 113 343 241 202 540 101 92 45
7 T.V. Today Netw. 538 538 200903 293 448 157 98 293 0 274 68 49 34

AGGGRATE 24782 27010 8631 10624 4040 3591 6382 2228 5542 1287 789 144

Return Ratio ( %) Valuation Ratios QUALITATIVE

Holding Free Non-Promoter - Selling &
Earnings Yield Market Cap / Total Exp. / Employee
Company TTM End ROCE (%) RONW (%) P/E P/BV EV / Sales Float INSTITUTION / Admin. /
( EBIT / EV ) Sales Sales Exp. / Sales
(%) FF ( % ) Sales

1 Sun TV Network 200906 53% 23% 5.3% 31.9 7.5 9.8 9.9 23 46% 29% 11% 0%
2 Zee Entertainmen 200906 -12% -36% -3.4% -20.6 7.5 9.7 10.3 59 86% 75% 9% 219%
3 IBN Broadcast 200906 -3% -38% -4.2% -6.7 2.6 2.1 3.0 48 41% 136% 42% 97%
4 TV 18 India 200906 18% 15% 7.7% 15.7 2.4 3.5 3.8 48 64% 128% 38% 0%
5 NDTV 200906 23% 11% 9.1% 16.0 1.8 2.0 2.0 37 69% 192% 48% 169%
6 Zee News 200906 -33% -199% -26.1% -2.1 4.1 2.2 3.6 46 63% 84% 13% 241%
7 T.V. Today Netw. 200906 23% 19% 7.9% 21.5 4.0 1.8 2.2 44 44% 82% 28% 97%

Distribution of Key Metrics ~ Assessment towards NDTV Relative Valuation

Capital
Company Market Cap. EV Total A/L Gross Block Net WC Networth Total Debt Net Sales PBIDT PBIT PAT
Employed
1 Sun TV Network 44% 40% 18% 17% 25% 17% 23% 3% 20% 62% 74% 237%
2 Zee Entertainmen 33% 33% 46% 43% 47% 59% 53% 26% 42% 55% 86% 363%
3 IBN Broadcast 8% 7% 5% 5% 3% 2% 4% 6% 4% -4% -9% -64%
4 TV 18 India 5% 7% 12% 14% 9% 2% 8% 25% 11% -2% -9% -129%
5 NDTV 4% 7% 11% 11% 9% 6% 4% 32% 9% -24% -59% -362%
6 Zee News 4% 4% 5% 6% 3% 10% 4% 9% 10% 8% 12% 31%
7 T.V. Today Netw. 2% 2% 3% 4% 4% 3% 5% 0% 5% 5% 6% 23%

Takeaways :
> NDTV has to substantially improve its Debt / Equity & Operating Costs.~ it definitely is at the bottom of the curve in this.
> There is scope for ' Equity Divestment ' by mgmt. ~ which would tackle debt & bring in strategic partners.

ADEX Data ~ Establishing Market Share / Acceptability

FY 2008 -09 ~ SPENDS ( In Million )
Network Q1 Q1 % Q2 Q2 % Q3 Q3 % Q4 Q4 % Total % Total
Star TV Network 5,218 58% 5,038 55% 4,574 51% 4,386 53% 19,216 54.4%
Zee TV Network 1,987 22% 2,136 23% 2,261 25% 1,885 23% 8,269 23.4%
NDTV Network 1,212 14% 1,407 15% 1,600 18% 1,410 17% 5,630 15.9%
CNBC Network 273 3% 289 3% 305 3% 259 3% 1,126 3.2%
SUN Network 257 3% 268 3% 300 3% 270 3% 1,095 3.1%
Grand Total 8,949 100% 9,137 100% 9,040 100% 8,210 100% 35,335 100.0%

FY 2008 -09 ~ Fixed Commercial Time ( In Seconds )
Network Q1 Q1 % Q2 Q2 % Q3 Q3 % Q4 Q4 % Total % Total
Zee TV Network 30,707,625 42% 31,579,238 42% 32,990,902 41% 30,798,725 39% 126,076,490 41.4%
Star TV Network 23,921,880 33% 23,965,847 32% 26,470,877 33% 26,778,031 34% 101,136,635 33.2%
NDTV Network 10,845,780 15% 11,282,984 15% 12,124,843 15% 12,726,557 16% 46,980,164 15.4%
CNBC Network 4,604,249 6% 4,608,064 6% 4,611,371 6% 4,496,442 6% 18,320,126 6.0%
SUN Network 2,702,234 4% 2,989,043 4% 3,327,674 4% 3,199,660 4% 12,218,611 4.0%
Grand Total 72,781,768 100% 74,425,176 100% 79,525,667 100% 77,999,415 100% 304,732,026 100.0%

Demerger Case III ~ ELECTROTHERM India Ltd.

Business :
Electrotherm India has been engineering metal melting industry since ’83. Current Product Range : Furnaces , Electro DI
Pipes , Steel-Special Steel & Stainless Steel , Electro TMT Bars , Transformers.

1. Electrotherm Steel Ltd. ( Applicant Co. ~ holding the traditional Steel business of co. )
2. Electrotherm Engineering Ltd. ( Demerged Entity ~ holding the Engineering & Projects division of co. )

Objective :
1. To give due focus and visibility to the firm’s ‘ Engineering & Project ‘ division.
2. The demerger leading to probable PE x expansion , hence adding to Market Value.

Business Highlights & Concern :
1. The Mgmt. may be getting over-ambitious and must manage debt. Demerger is imperative for the Engineering
division to detach from company debt.
2. Multiple domains / products to manage ~ focus and execution has to be monitored.

CAGR >
1. Networth [ 3yr – 172% , 5yr – 121% ]
2. Sales [ 3yr – 109% , 5yr – 123% ]
3. EBITDA [ 3yr – 123.6% , 5yr – 156.5% ]
4. PAT [ 3yr - 55.4% , 5yr – 263.4% ]
5. Market Cap. [ 3yr - 88% , 5yr – 378% ]


Financial Performance (Rs Cr) Quarterly Results (Rs Cr)
Year End 200803 200703 200603 200503 Period-Ended LTM 200906 200903 200812 200809 200806
Net Sales 1325.4 724.8 344.7 183.8 Net Sales 1738 440 478 357 463 385
Operating Cost 1059.5 578.9 283.7 162.9 EBITDA 248 78 58 52 59 66
Gross Profit 265.9 145.9 61.1 20.9 Depreciation 61 19 23 10 10 10
S,G&E 52.4 31.2 16.0 5.5 Op Income 187 59 36 42 50 56
EBITDA 213.5 114.7 45.0 15.4 Misc.Inc (Exp.) 13 4 7 2 1 1
Depreciation 31.9 17.9 7.1 0.9 Interest Exp 123 38 19 36 30 30
Operating Income 181.6 96.9 38.0 14.5 EBT 77 25 23 8 20 27
Other Inc (Expen) -6.3 -3.1 -8.3 -0.4 Taxes 25 8 8 2 7 9
Int./Dividend Income 6.9 2.8 1.8 2.2 Net Inc(Reg) 51 17 15 6 14 18
Interest Expenses 78.5 35.0 9.2 1.6 Extraord. Items 2 0 2 0 0 0
Earnings Before Taxes 103.7 61.5 22.3 14.7 Rep Net Inc 50 17 13 6 14 18
Taxes 40.9 17.8 10.1 1.2 EPS 45 15 13 5 12 17
Regular Net Income 62.8 43.7 12.1 13.5 EBITDA Margin 14 18 12 15 13 17
Extraordinary Items 0.1 0.1 0.0 0.0 Tax Rate 33 17 12 12 10 10
Reported Net Income 62.8 43.6 12.1 13.5 Net Margin(Reg) 3 4 3 2 3 5
Dividends 2.7 1.8 1.0 0.7 Sales Growth -8 34 -23 20 -10
EPS 55.6 46.2 22.9 28.1 EBITDA Growth 34 12 -12 -9 -7
Net Worth 372.7 206.8 31.7 21.7 Earnings Growth 14 157 -57 -25 4
Debt 829.0 390.1 214.1 89.0 EPS Growth 14 157 -57 -29 4
Capital Employed 1213.8 608.9 257.8 114.3 P/E (Annual) 3 2 7 5 5
Net Plant 554.3 278.4 152.7 71.5 Market Capital 255 230 252 139 111
Cash 62.2 41.0 21.2 8.8 Shareholding Pattern
Marketable Securities 2.1 0.1 0.1 0.0 (AS ON 30-Jun-2009) Shares (%)
Ratio Analysis Foreign 3484405 30.36
Gross Margin 20.1 20.1 17.7 11.4 Institutions 9900 0.09
EBITDA Margin 16.1 15.8 13.1 8.4 Govt Holding 0 0
Tax Rate 39.4 28.9 45.6 8.2 Non Promoter Corp. Hold. 1432248 12.48
Net Margin (Regular) 4.7 6.0 3.5 7.4 Promoters 3853075 33.58
Dividend Payout 4.5 4.3 8.5 5.3 Public & Others 2696746 23.49

ROE 21.7 36.6 45.4 87.9 Totals 11476374 100
ROC 6.9 10.1 6.5 20.1
Sales Growth 82.9 110.3 87.6 220.7
EBITDA Growth 86.1 154.7 192.2 756.1
Earnings Growth 44.0 259.9 -10.4 1702.7
EPS Growth 20.4 101.7 -18.5 1687.9
Dividend Growth 49.7 92.6 33.8 NA
M Cap Growth 21.1 183.9 287.3 882.2
Invtry. Turnover(days) 67.8 68.5 58.0 46.9
Receivable Turnover
(days) 56.0 46.0 40.0 39.0
Payables Turnover (days) 81.0 56.0 48.0 45.0
Market Capital (Rs Cr) 499.4 412.6 145.3 37.5
Net Debt 766.9 349.0 192.9 80.2 MARKET DATA (AS ON 17-Aug-2009)
52 W
Enterprise Value 1266.3 761.6 338.2 117.7 Price (Rs) 218.25 H/L(Rs) 332 / 76
P/E 8.0 9.5 12.0 2.8 Lat. P/E 5 Lat. EPS(Rs) 43.23
P/BV 1.3 2.0 4.6 1.7 Mkt. Cap.(Rs Cr) 250.33 Shares(000) 11470
Div. Yield
EV/EBIDTA (x) 5.9 6.6 7.5 7.6 Lat. BV(Rs) 390.39 (%) 1.09

ELECTROTHERM India Ltd. ~ Demerger
EXISTING - FY ' 2009

Share Capital ( Rs. crs. ) 11.25
No. of Shares ( crs. ) 1.12
Total Capital Employed 1412
Total Shareholder's Funds 437
Total Debt 1200
Market Price ( Rs. ) 220
Market Capitalization ( Rs. Crs. ) 246
Enterprise Value ( Rs. Crs. ) 1446

STEEL - Segment FINANCIALS ENGINEERING - Segment
Net Sales 1682
FINANCIALS Expenditure 1500 FINANCIALS
Net Sales ( ~76% ) 1295 PBIT 192 Net Sales ( ~21% ) 358
PBIT 137.3 Interest 115 PBIT 54.7
Interest 115 PAT 50.7 PAT 35.6
PAT 14.5
RATIOS
Capital Employed 1106 EPS 45.3 Capital Employed 143.3
RoCE 12.4% P/E 4.86 RoCE 24.8%
Earnings Yield ( EBIT / ~EV
) 9.50% P/B 0.56
Market Cap. / Sales 0.15
Comparable Ranges ~ Ratio's EV / Sales 0.86 Comparable Ranges ~ Ratio's
P/E 5 :: 10 Earnings Yield ( EBIT / EV ) 13.3% P/E 8 :: 15
P/B 0.6 : 1.5 RoCE 13.6% P/B 0.8 : 1.9
Market Cap. / Sales 0.3 :: 1 RoE 11.6% Market Cap. / Sales 0.3 :: 1
EV / Sales 0.6 :: 1.5 D/E 275% EV / Sales 0.5 :: 1.5
Earnings Yield ( EBIT / EV ) 8% :: ~15% Earnings Yield ( EBIT / EV ) 8% :: 12%
RoCE 10% :: 15% Demerger Ratio 1 :: 1 RoCE 18% :: 25%
RoE 12 % :: 20% Cost of Original Share Pre-Demerger 220 RoE 15 % :: 22%
D/E 1.2 :: 1.8 D/E 0.5 :: 0.8

Probable ~ Market Cap.>~ 150-200crs Probable ~ Market Cap.>~ 250-350crs

POTENTIAL : 2x+ [ Potential Demerged Agg. ~ ( Low PE / High Debt - Commodity Co. + High Growth / High RoCE EPC Co. )
- ( Current Inv. Rs. ~220 ) ] = Expanded PE x & Return ratios >> High MoS @ Rs. 180

‘ SPECIAL SITUATION ‘ Probables / Prespectives ~ 2009
2. Specific Case >> Hindustan Zinc ( Govt. Sell - Sterlite Buyout ) ; IDBI & IFCI ( Restructuring/Fund Raising/Asset
Sale etc. )

3. Open Offer Cases ( Orissa Sponge , Great Offshore , Zenotech )

4. Warrant Cases ( Fortis , Orbit , Kirlosker Ferrous , NCD’s )

5. Index Inclusion ~related to FF. ( Adani , NHPC , Oil India ) potential index inclusions ~3months from listing.

1. Amalgamation Case ( Amtek Goup , JP Hydro ....)

2. Holding Co. ~ Subsidiary IPO Case ( Godrej Prop. ~ Godrej Ltd. , Jindal Holdings ~ JSW Energy , Web18
~ TV18 , Life Insurers... )

3. Rights Issue ~ Substantial BS/PL Impact ( Adlabs , TV18 .. )

4. Potential EVENT Plays ( RIL/RNRL - Straddle / Vol. Trade, Cash Stripping in PSU's, FPO Arbitrage )

5. CAPEX Beneficiaries >> Power Ancillaries ( Equipment , Cables etc ) , Oil & Gas Infrastructure &
Equipment ( Pipes , Cylinders , Rigs , Maintenance ) ....

6. Stock Screeners ( Reminiscence ~ period Sep’08-Mar.’09 ) >> [ ( Net Current Assets + Quoted Inv. + Cash /
Market Cap. ) ; ( Normalized Earnings Yield ~2x Bond Yield ) ..........]


~Thoughts on Impact & Experience of Divestitures in the Real Economy………..

1. Divestiture of larger consumer-packs to “Re.1 Sachets ‘completely re-defined / re-created the target
consumer / industry pie / distribution reach.

2. Voluminous books like ‘Lords of the Rings ‘ – split into 3 separate entities , increased its affordability ,
sales & shelf life.

3. Tranch’ing / Divestiture of ‘Coupon & Principal ‘from bonds by Salomon Brothers created new
market & increased tax-efficiency.

4. Divestitures / M&A has increased/improved efficiencies – ‘ Credit Rating – leading to lower
borrowing cost , Supply chain & Integration benefits etc..

5. Pre-fabrication technology has re-defined the way ‘Construction ‘ is planned and executed, leading
to enormous benefits to all stakeholders on multiple-fronts.

6. Capital Structure – Differential Voting rights, Hybrid Instruments, Debt covenants ; have provided
huge lenience towards optimization of Asset/Liability cash-flow & duration match.

7. Indian Newspapers VS Tabloid’s of the West – Size of front page can drastically alter the entire
portfolio of ad-space offering / revenue.


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Varun Goenka
AVP – Capital Markets Group.
JM FINANCIAL FINANCIAL SERVICES P Ltd.
Apeejay House , Churchgate. Mumbai 400020.
M : 09004670600 / 022 67043037
@ varun.goenka@jmfinancial.in


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