GROUP II BUSINESS APPRAISERS

BUSINESS VALUATION REPORT

Prepared for

CLIENT ENERGY & INFRASTRUCTURE PRIVATE LIMITED

Hyderabad

9TH February 2011

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 CONTENTS

S. No Particulars Page
1 Terms of reference 3

2 Standard and Premise of Value 3

3 Scope of the Report 3

4 Valuation Date 4

5 Sources of information 4

6 Circulation of report 4

7 Statement of Limiting conditions 4

8 Business description 5

9 Valuation 6-10

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 1. Terms of reference
Group II Appraisers has been retained by CLIENT ENERGY & INFRASTRUCTURE PRIVATE
LIMITED, Hyderabad to estimate its fair business value on a marketable, controlling
ownership basis as of December 31, 2010.
The purpose of the valuation is to provide an independent assessment of the value of the
business in order to offer the subject business for sale. This valuation report is therefore
intended for the use of CLIENT ENERGY & INFRASTRUCTURE PRIVATE LIMITED only.

2. Standard and Premise of Value

In this valuation report the fair market value has been taken to be the standard of value.
‘Fair Market Value’ is defined as the expected price the subject business would change
hands from a willing seller to a willing buyer, both having knowledge of all relevant facts, in
an arms length transaction.
This valuation was carried out under the fundamental premise of value in continued use as a
going business concern. This, in our opinion, represents the best use of the business assets
of the subject business.

3. Scope of the Report

This valuation report has been performed on a limited scope basis and is not a self
contained comprehensive report.
We have not audited the financial statements of CLIENT ENERGY & INFRASTRUCTURE
PRIVATE LIMITED. The financial statements have been provided by the management and it
has been assumed that these statements are true and fair. In addition the management has
also provided the financial forecast of income and expenses for the current financial year
2010-11 and the following four financial years. Our valuation process and recommendation
of value is based on historical and projected financial data and information provided to us
by the company which we have assumed are true and correct.

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 4. Valuation date
The recommended enterprise value contained in this report is not intended to represent
the value of the subject business or of its equity share (common stock) at any time other
than the valuation date which is December 31, 2010. Changes in internal and external
environment of the subject business may result in a current value recommendation being
substantially different from the value stated in this report. We assume no responsibility for
these changes whatsoever that occur subsequent to the valuation date.

5. Sources of information
We have relied upon the following sources of information for this valuation exercise.
• Discussions and interviews with the management team of CLIENT ENERGY &
INFRASTRUCTURE PRIVATE LIMITED
• National and Regional, economic and power sector data available in the public
domain.
• Financial statements of the recent past three years have been reviewed to estimate
business performance and income generation capacity for the future.

6. Circulation of report
This report is intended for the internal use of CLIENT ENERGY & INFRASTRUCTURE PRIVATE
LIMITED to enable it to form an opinion on its business value on the specified date and its
circulation is limited to its Board of Directors and management team.

7. Statement of limiting conditions

• Our expression of value of the client is based on certain information and assumptions
and we do not offer any form of assurance in respect of its accuracy, reliability and
completeness.
• We have assumed that the client has complied with all government laws and
regulations.
• Title to all business assets of the client is assumed to be clear and marketable.

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• Nothing has come to our knowledge to cause us to believe that the facts and data set
forth in this report are not correct.
• The valuation covers only the financials of the existing operations of the client.
• The valuation is done on the principles applicable to a going concern under the premise
of value in continued use.
• The latest audited financial statements for the year ending 31st March 2010, provided to
us by the management, has been considered for purposes of arriving at the fair values
under the Net Asset Value, Price Earning Capacity Value and Discounted Cash Flow
Method.
• Interviews and correspondence with the Company’s management, a review of published
market date and any available public information relevant to the industry in which the
Company operates have also been relied upon by us in our valuation process.
• This report is not intended for the purpose of Investment by Overseas Corporate Bodies
as well as Foreign Investors.

8. Business Description
CLIENT ENERGY & INFRASTRUCTURE PRIVATE LIMITED was incorporated as a private limited
company under the Companies Act, 1956. The registered office of the company is situated
at Hyderabad. The company has successfully implemented the construction of 15MW Coal
based Power Plant near Visakhapatnam in Andhra Pradesh State and commenced
commercial production with effect from 1st April 2008. The Company has entered into
Power Purchase Agreement with State Government of Andra Pradesh to the extent of 75%
of its capacity and balance with some Private Consumers.

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 9. Valuation
We have applied three approaches to arrive at a measure of the value of the business.
These methods are
Net Assets Value Method
Price Earnings Capacity Value, and
Discounted Cash Flow Method
Each of the above said valuation methods use a specific procedure to arrive at a fair value of
the business enterprise. Since no business valuation method can be said to be definitive a
weighted average of the value arrived at on adopting the different methods is used to
determine the value of the business enterprise.

Value of the business

Method of valuation Amount (Rupees in lakhs)
Net Assets Value method 7885.30
Price Earnings Capacity Value method 5454.40
Discounted Cash Flow method 4570.53

Value per Equity share

Method of valuation Value per share (Rupees)

Net Assets Value method 40.02
Price Earnings Capacity Value method 54.54
Discounted cash flow method 45.70
Fair Value (Average of three methods) 46.75

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Net Assets Value method
The latest audited financial statements as on 31st March 2010 provided to us has been
considered for the purpose of arriving at the fair value under the Net Asset Value method.

Net Asset Value ( NAV) Method:

Rupees
in lakhs
Book value as
Particulars on 31.03.2010

Net Fixed Assets 9080.44

Current Assets

Stocks 1174.69

Receivables 1253.82

Deposits & other Current Assets 352.00

Cash & Bank Balances

27.26
Total assets (A) 11888.21

Current liabilities

Cash credit 1700.00

Other current liabilities 102.30

Loan funds
6083.00
Total liabilities (B) 7885.30

Net Assets (business value) 4002.91

No of equity shares (Numbers)

1,00,00,000
Value per share ( Rs) 40.02

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Price earnings capacity value method

We have considered the latest available audited financial statements as on 31st March 2010
provided to us for the purpose of arriving at the fair value under this method.

Price Earnings Capacity Value ( PECV) Method of Share Valuation

Particulars Rupees in Lakhs

Average profits before tax 985.68

Provision for tax ( at effective rate) 167.52

Average profits after tax 818.16

PECV @ 15% capitalization of Average post tax profit 5454.40

No of equity shares (Nos) 1,00,00,000

Value per Equity share ( Rs) 54.54

Discounted Cash Flow method

Discounting factor applied is the weighted average cost of capital (WACC) arrived at based
on the weighted average of cost of equity and cost of debt.

Cost of equity
Since it is a private company and shares have no market price, measuring the rate of return
expected on equity is a difficult and complex task. Cost of equity is equal to the return on
risk free securities plus the company’s systematic risk (beta) multiplied by the market risk
premium. In case of a listed company, we depend on the market price of the shares for
computing the beta. Non-availability of stock price information and very limited financial

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information makes the task of determining cost of equity difficult. In absence of information
as is the case with private firms, value of relevant beta is taken as 1. In these circumstances,
we have considered internal rate of return (IRR) as the expected return on equity and
accordingly taken the same as cost of equity.

Cost of Debt
The Pretax cost of debt is 12%.Considering the present tax rate of 33.99%, Post tax cost of
debt comes to 7.92% which is taken as cost of debt in the workings.
Post tax cost of debt = cost of debt ( 1-tax rate)

= 12% (1-33.99%)
= 7.92%
Weighted Average Cost of capital (WACC)

Component Cost % in capital WACC

structure
Equity 12% 34.54% 4.14
Debt 7.92% 65.46% 5.18
Total 100.00% 9.32
WACC 9.32%

Discounted cash flows

Discounted cash flows discounted with WACC, i.e., 0.941
Rupees in Lakhs
Year Free cash flows Discounted cash flows
0 2009-10 789.50 789.50
1 2010-11 896.78 820.33
2 2011-12 678.14 567.44
3 2012-13 852.81 652.76
4 2013-14 752.01 526.53
5 2014-15 450.22 288.35
Total 4419.46 3644.91

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Primary value
Primary value is the total of discounted cash flows i.e. Rs.3644.91 lakhs
Terminal value
The terminal value reflects the business conditions that will prevail over the long term.
Terminal value of business has been calculated as follows
Terminal value = {final year Cash Flow *(1+g)} / {Discount rate -g}
Average Growth rate (g) is assumed at 5% = 0.05
Final projected year cash flow = Rs.450.22 lakhs
Discount rate = 0.0932
Terminal value = Rs.10942.85 lakhs

Rupees in Lakhs
A)Primary value of firm 3644.91
B) Terminal value 10942.85
C) Present Value of Terminal Value 7008.62

D) Value of the firm (A+C) 10653.53

Less: Debt (Term Loans) 6083.00

Equity value of the firm 4570.53

No of equity shares 1,00,00,000

(No.)
Value per share (Rs) 45.70

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