VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

LIMITED
The Board of Directors
Omshakthy Agencies ( Madras ) Private Limited.,
Chennai 600 032.
Dear Sir,
Sub: Valuation analysis of the enterprise of Omshakthy FIRE

Realty Private

Limited as per DFCF Methodology.

We refer to our engagement letter dated 27th May 2014 given by OM Shakthy
Agencies ( Madras) Private Ltd requesting us to carry out the Valuation of
Enterprise of Omshakthy Fire Realty Private Limited . In accordance with the
terms of the engagement, we are enclosing our report along with this letter. In
attached report, we have summarized our Valuation Analysis of the Company as
at 31 s t March, 2014 together with the description of methodologies used and
limitation on our Scope of Work. This Valuation Analysis is confidential and has
been prepared exclusively for the Management of Company. It should not be
used, reproduced or circulated to any other person, in whole or in part, without
the prior consent of V Narayanan & Co. Such consent will only be given after full
consideration of the circumstances at the time. We are aware that the
conclusion in this report may be used for the purpose of certain statutory
disclosure by Company and we provide consent for the same. Trust the above
meets your requirements.
Please feel free to contact us in case you require any additional information or
clarifications.
Yours Faithfully,
For and on behalf of
V NARAYANAN & CO.,
Chartered Accountants

Partner
V NARAYANAN & CO
CHARTERED ACCOUNTANTS

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VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

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Date: June 4, 2014
Place: Chennai

Contents
Executive

Page No
Summary

--------------------------------------------------------------------------

3
Purpose of Valuation ------------------------------------------------------------ -----------4
Industry Assessment ------------------------------------------------------------ -----------5
Company Assessment ----------------------------------------------------------------------6 to 10
Inventory

Assessment-----------------------------------------------------------------------

11 & 12
Valuation

methodology,

Approach

and

analysis

-----------------------------------------

13 to 15
Caveats ------------------------------------------------------------------------------ -----------16 & 17
Annexure: Projected Financials & Valuation

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VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

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Executive Summary
Omshakthy Agencies Limited has entered into a Equity Joint Venture Partnership
with one of the leading Private Equity Funds viz, FIRE CAPITAL INVESTMENTS
MAURITIUS PRIVATE LIMITED and formed a special purpose vehicle with 50% equity.
Through the SPV, a gated community residential layout is being developed within
the CMDA limits of Chennai spread over 40 Acres, at an estimated size of Rs.200 Cr.
The project launch commenced in July-2012. Response from Customers has been
very encouraging. The SPV will be wound up once the Project is completed and the
surplus will be shared between the Promoters.
the next 1 to 2 years.

V NARAYANAN & CO
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This project will get completed in

VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

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Purpose of Valuation
The Purpose of valuation is to value the Enterprise as at 01.04.2014 in order to
arrive fair value so that one segment of the share holders can buy the equity of the
other segment of the shareholder.
Scope of services
This valuation report has been prepared by M/s V Narayanan & Co.,
Chartered Accountants, to determine the fair value of enterprise of Company in
accordance with the Hybrid Method using both Discounted Free Cash Flow
Methodology and estimating the residual value of the inventory as on the date
of valuation.
The valuation exercise was carried out under the following limitations:

1. The Valuation analysis of enterprise is based upon the future projections of

company provided to us, which is based upon various assumptions made by
Company relating to the operations of its business and any change in the
assumptions may have an impact on the conclusion of this report.

V NARAYANAN & CO
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2. We have not made an appraisal or independent valuation of any of the
assets or liabilities of the Company and have not conducted an audit or due
diligence or reviewed / validated the financial data provided by the
management.

3. The scope of our work has been limited both in terms of the areas of the
business and operations which we have reviewed and the extent to which we
have reviewed them. There may be matters, other than those noted in this
Report, which might be relevant in the context of the transaction and which a
wider scope might uncover.

Industry Assessment
Real estate industry in India is currently estimated to be $16 billion with a CAGR of
30%. In this sector is driven primarily by IT/ITeS, growing presence of foreign
businesses in India, the globalization

of Indian corporate and rapidly increasing

consumer class.
As real estate construction and values have expanded in India buoyed by healthy
economic growth, and coupled with a series of IPOs by property firms so in recent
years has India's property sector changed substantially. These trends of growth and
modernisation are set to continue, with some market participants forecasting that
real estate development in India will grow from US$12 billion in 2005 to US$90
billion by 2015.
Real Estate sector forms an important place in the Indian economy with a GDP
contribution of approximately 5-6%.
V NARAYANAN & CO
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VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

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Growth Drivers

1.
2.
3.
4.
5.
6.
7.

Rapid urbanization : Urban population expected to touch 590 million by 2030

Decreasing Household size: Average H/h size fell from 5.4 in 1981 to 5.1 in 2000
Increasing working age population (Almost 64% in 16-64 age group)
Increasing income levels: Average salary levels increased by 13.5% in 2005
Easier access to mortgage, long tenure loans and tax incentives
Market structure is highly fragmented and unorganized
Regional players are expanding to achieve a Pan-India presence

Company Assessment

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About the city

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VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

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Chennai is the capital city of Tamil Nadu. It is a major commercial, cultural,

economic and
educational center in South India.
Known as the Detroit of Asia , it accounts for over 60% of the countrys
automobile exports.
The city is Indias second largest exporter of software, Information Technology
(IT) and
Information Technology Enabled Services (ITES),next to Banglore.
By the 2011 census, the city had 4.68 million residents making it the sixth
most populous city in India.
It is ranked 4th in hosting the maximum number of Fortune 500 companies of
India , next only to
Mumbai , Delhi and Kolkata.
Chennais economic development has been closely tied to its port and
transport infrastructure.
The city is served by two major ports namely Chennai Port (one of the largest
artificial ports and
Ennore Port. The Chennai port is Indias second busiest container hub after
Mumbai.
As the entertainment Capital of South ,it is also home to the large South
Indian Tamil film Industry.
The Sate Govt of TamilNadu ,after successfully establishing IT and Industrial
Parks , is in the process of setting up Financial investment of over USD2.5
Billion.

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Major Infrastructure Initiatives in the City

The residential real estate market of Chennai has witnessed significant

improvement in terms
of buyer interest, which has translated into higher transactions over the last one
year. Grand Southern Trunk (GST) Road, Sriperumpudur and Porur have witnessed
significant increase in terms of inquiries and conversions over the previous year.
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Capital Structure
The capital structure of the company as on 31/03/2014 is as under
(provisional)
Amount
in
Lacs
31/03/2014

Particulars
Authorized
(Equity share of Rs. 10 each with voting rights)
(Optionally Convertible Redeemable
Preference shares of
Rs.10 each)

4998.00

Issued, subscribed and paid up

(18,300 equity shares of Rs.10 each fully paid up with voting
rights)

18.30

(2,00,00,000 Optionally Convertible Redeemable

shares of Rs.10 each fully paid up

2.00

Preference
2000.00

Total

2018.30

Amount
Lacs

Historical income statement

Particulars
EBITD

Provision
al
2013-14

in

Audited
2012-13
2011-12

1903.88

3843.84

(51.90)

Finance cost

Depreciation

0.52

0.87

1.34

Profit Before Tax

1903.358

3842.97

(53.24)

Provision For Taxes

646.95

1230.05

0.03

1256.31

2612.92

(53.28)

Profit After Tax

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VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

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Amount
Lacs

Historical Balance Sheet

Particulars

Sources of funds
Share holders funds
Secured Loans
Unsecured Loans
Deferred tax liability

Provision
al
2013-14

Audited
2012-13
2011-12

4989.42
0.61

5774.92
0.53

4986.00
0.68

Total

4990.03

5775.44

4986.68

Application of funds
Net Fixed assets
Net Current assets

4.06
4985.97

4.31
5771.13

5.18
4981.50

Total

4990.03

5775.44

4986.68

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in

VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

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Inventory Assessment
Omshakthy Fire Realty Private Limited has developed a residential gated community
Kanopusof well demarcated plots ranging from 450 sq.ft to 4000 sq.ft at
Paruthipattu measuring at about 40.67 acres strategically located at 120 ft
Poonamalle Avadi State Highway No.55 and having close proximity to Avadi and
Ambattur Bus Stand and Railway Station.
The Company has been selling the residential plots at its gated community and
proposes to complete the entire sale of the plots by June, 2015.
The value of the undeveloped land at measuring about 34.20 acres has been
determined at Rs.75 lacs per acre being the realistic value of the plot as at March,
2014 , considering that inventory of the land parcel is not contiguous , thus the
total value of the inventory is estimated at Rs.2565 lacs.

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Valuation methodology, Approach and analysis

Valuation of the enterprise of the company has been done, by adopting the Hybrid
method using Discounted Free Cash Flow (DFCF) Method inrespect of ongoing
projects of the company, as well as considering the realistic estimate in respect of
the inventories representing undeveloped land owned by the company.
Finance theory recognizes four basic methods of valuation of shares, with many of
its deviants being in vogue in practice. These methods are:
i)
ii)
iii)
iv)

Net Assets Value (NAV) method

Profit Earnings Capacity Value (PECV) method
Discounted Free Cash Flow (DFCF) method
Market Approach (MA) method

NAV method: The NAV is the total value of a company's assets less the total value
of its liabilities. If the NAV is divided by the number of shares, it gives the net assets
per share. This is the value of the assets that belong to each share.
Evidently, NAV method is based on historical costs of the assets as reflected in the
Books of accounts. In the absence of any revaluation of fixed assets, the balance
sheet values of assets may be far divorced from the current market price of the
assets
PECV method The PECV is to be calculated by capitalizing the average of the after
tax profits for the preceding three years at specified capitalization rates and
dividing the resultant figure by the number of shares. The capitalization rates will be
different for different industries, different functions like trading/ manufacturing and
the standing of the shares in the market.

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VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

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DFCF Method DFCF valuation method is a popular method for valuation of shares,
used widely by stock analysts, worldwide. The main idea behind this method is that
a stock's worth is equal to the present value of all its estimated future cash flow.
DFCF method defines the value of the company as the present value of the
companys future free cash flows (FCF), discounted at the weighted average cost of
capital (WACC), plus the companys initial cash/ marketable securities. It uses
discounted cash flow valuation to get the fair value of the company based on the
projections of how much money will the company generate to investors in the
future. It involves estimating the future free cash flows and discounting them at a
particular discount rate.
DCF uses the concept of time value of money. All future cash flows are estimated
and discounted, at an appropriate rate, to give their present values. The sum of all
future cash flows, both incoming and outgoing, is the Net Present Value (NPV),
which is taken as the value or price of the cash flows.
Since valuation is essentially a forward looking exercise, DFCF is one of the most
acceptable valuation method used by Business valuers worldwide.
Market Approach Method In this method, the Historical EPS and Book Value as
per latest balance sheet are respectively multiplied by average PE and BV multiple
of BSE 100 Index respectively. A fixed discount of 40% is to be then applied. Higher
of the two valuations is chosen.
This method takes into account both the historical value of assets and the earnings
and brings in an element of market situations also.
Each of these methods has their advantages and disadvantages and are used under
different circumstances, in tune with their characteristics. It would be naive to say
one method is absolutely better than the other. One method may be suitable for a
particular

circumstance

while

the

other

circumstances.

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will

be

preferred

under

different

VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

LIMITED

Valuation How Done

Since the purpose of valuation was to arrive fair value of the enterprise in order to
arrive buyout of either of the segment of the shareholders from the corresponding
segment, we have proceeded to value the enterprise based on availability of free
cash flow from the ongoing activity together with estimating the value of the unsold
inventory .

Basis of Discounted Free Cash Flow Method (DFCF)

The DFCF to equity method expresses the present value of the business as a
function of its future

cash earnings capacity. This methodology works on the

premise that the value of a business is measured in terms of future cash flow
streams, discounted to the present time at an appropriate discount rate (Cost of
Equity (KE)). The value of the business is arrived at by estimating the Free Cash
Flows (FCF) to equity and discounting the same at the KE. This is estimated by
forecasting the free cash flows available for the company (which are derived on
the basis of likely future earnings of the companies) and discounting these cash
flows to their present value at the KE. The DFCF methodology is considered to be
the most appropriate basis for determining the earning capability of a business.
It expresses the value of a business as a function of expected future cash
earnings in present value terms. The approach seeks to measure the intrinsic
ability of the business to generate cash.
For the purpose of valuation of enterprise in this transaction through DFCF
methodology, we have relied upon the projections provided by the management
for the year ending March 31 s t 2015 and June 30 t h 2015, duly supplemented by
discussions held with the management. The Cost of Equity has been determined at
11.72 per cent as per CAPM model.
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VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

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Based on our Analysis of the Company and subject to our caveats as

further detailed in this report, the fair value of the enterprise may be
taken at Rs.29 crores.

Caveats
1. This Valuation Report has been issued on the specific request of
Omshakthy Fire Realty Private Limited to ascertain the fair value of
the enterprise in order to arrive buyout of either of the segment of the
shareholders

from

the

corresponding

segment

This

Report

is

prepared exclusively for the above stated purpose and must not be
copied, disclosed or circulated or referred to in correspondence or
discussion with any other party. Neither this report nor its content
may be used for any other purpose without prior written consent of
M/s V Narayanan & Co.

2. We have summarized the Valuation Analysis of the enterprise based

on the information as was provided to us pursuant to the meetings
held

with

the

management

of

Company

and

other publically

available information. We do not assume any responsibility for the

accuracy or reliability of such documents on which we have relied
upon in forming our opinion.

3. Although the beta for the Indian real estate players is in the range of
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VALUATION ANALYSIS OMSHAKTHY FIRE REALTY PRIVATE

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0.92 to 2.4, we have assumed the beta of the company on a lower
range of 0.25 as the company is in the process of liquidating its
business.

4. Although

every

effort

has

been

made

by

us

to

verify

and

corroborate each document and to ensure that no inaccurate or

misleading data, information, statement or opinion appears in this
document, we wish to make it clear that the information and data
appearing

herein

are

the

responsibility

of

the

contributors.

Accordingly, we do not accept any responsibility whatsoever for the

consequences of any such inaccurate or misleading information or
data, opinion or statement

5. We have no present or planned future interest in O m s h a k t h y Fi r e

Re a l t y P r i v a t e L i m i t e d and the fee for this Valuation analysis is not
contingent upon the values reported herein.

6. The Valuation Analysis contained herein is not intended to represent the

value at any time other than the date that is specifically stated in this
Report.

This

Report

is

issued

on

the

understanding

that

the

Management of O m s h a k t h y Fi r e Re a l t y P r i v a t e L i m i t e d

has

drawn our attention to all matters of which they are aware, which may
have an impact on our report up to the date of signature. We have no
responsibility

to update this report for events and circumstances

occurring after the date of this Report.

Annexures:
1. Valuation Discounted Cash Flow Method
2. Projected Financials of O m s h a k t h y Fi r e Re a l t y P r i v a t e L i m i t e d for
period ending on 31/03/2015 and 30/06/2015.
3. Provisional Financials for the year ending 31/03/2014
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4. Cash flow for the period ending 31/03/2014, 31/03/2015 and 30/06/2015.

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