The document contains an income statement, balance sheet, and projections for a company. It shows a net loss in the current year due to high interest expenses. Projections indicate declining revenue but stable margins. The company has a going concern value of Rs. 13561.08 crores but also a 44.77% probability of distress within 5 years. Under distress, the equity value would be Rs. 0 but is currently underpriced at Rs. 8 per share.
The document contains an income statement, balance sheet, and projections for a company. It shows a net loss in the current year due to high interest expenses. Projections indicate declining revenue but stable margins. The company has a going concern value of Rs. 13561.08 crores but also a 44.77% probability of distress within 5 years. Under distress, the equity value would be Rs. 0 but is currently underpriced at Rs. 8 per share.
The document contains an income statement, balance sheet, and projections for a company. It shows a net loss in the current year due to high interest expenses. Projections indicate declining revenue but stable margins. The company has a going concern value of Rs. 13561.08 crores but also a 44.77% probability of distress within 5 years. Under distress, the equity value would be Rs. 0 but is currently underpriced at Rs. 8 per share.
The document contains an income statement, balance sheet, and projections for a company. It shows a net loss in the current year due to high interest expenses. Projections indicate declining revenue but stable margins. The company has a going concern value of Rs. 13561.08 crores but also a 44.77% probability of distress within 5 years. Under distress, the equity value would be Rs. 0 but is currently underpriced at Rs. 8 per share.
Debt equity ratio 2 1.5 Levered beta 1.913 1.62605 Ke 0.15565 0.1413025 Rating B BB Default risk premium 7% 6% Pre tax Kd 13% 12% Post tax Kd 9.75% 9.00% Wd 0.67 0.60 We 0.33 0.40 Kc 11.69% 11.05% PV of CF 252.62 206.28 Terminal Value PV of terminal value Going concern value 13561.08 Conditional PD 20% 15% Conditional Probability of survival 80% 85% Cumulative prob of survival 55.23% Cumulative Prob of distress 44.77%
Scenario 1: Going concern
Going concern value 13561.08 Less: Market value of Debt 5000 Equity Value 8561.08
Scenario 2: Distress Book value of invested capital 9500 Distress sale value (20%) 1900 Market value of debt 5000 Distress sale value of equity 0
Distress Adjusted value of equity 4728.54
Number of equity shares 300 Value per share 15.76 Market price of the share 8 Comment Underpriced Advise Buy/Go long Other Information Market value of equity 2400 Market value of debt 5000 debt equity ratio 2.083333333 WD 0.714285714 Unlevered beta 0.7652 Working note Tax rate 25% Rf 6% MRP 5% Rating B Default risk premium 7%
10% 5% 5% 90% 95% 95% Balance Sheet at T=0 (Rs. In Crores)
Uses of fund Fixed assets 10000 Current assets 2000 Less: Current liab 2500 Net Current Assets -500 Invested capital 9500 Source of fund 10% Long term debt 7000 Equity share capital(Rs 10 Face Value) 3000 P&L A/c Debit Balance -500 Net worth 2500 Invested capital 9500
Working note
Post tax Unlevered Firms Levered Beta D/E debt equity beta ratio
A 1.6 1.5 1.125 0.7529
B 1.9 2 1.5 0.76 C 0.9 0.2 0.15 0.7826 Average i.e. beta unlevered 0.7652 Scenario 1 Scenario 2 Scenario 3 Years Prob CF Prob CF Prob CF
