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Financial Modelling for a Strategic Investment Case

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Submitted By darshana07
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STRUCTURE OF THE CASE
• Promoters start business in 2008 in the name of XYZ Ltd. They manufacture product A, B and C and are in the consumer electronics manufacturing industry.
• They pool capital worth Rs 10 crores from personal sources. This is the promoter’s contribution to the business. Equity shares worth 10 crores were issued to promoters, having face value of Rs 10. Shares were issued at par. The founders thus hold 100,00,000 equity shares in the company owning 100% equity in the business.
• In 2012, capital worth 30 crores infused by PE. 20 lakh new shares were issued to PE thus diluting the stake of the promoters from 100% to 83.33%, the PE owning the rest 16.67%.The face value of the Equity Shares of the Company is Rs. 10 each and the Issue Price is 15 times the face value of Equity Shares.The shares were valued as a multiple of 5 times the weighted average EPS for last three years i.e. 2010-2012 considering qualitative factors such as diversified business model and high growth prospects based on valuation of company. The weighted average EPS for 2010-12 is 3 (approx).
• Thus shares are issued to PE @ Rs150 per share (EPS 3* 5 times*face value of share 10)
• PE investment enables company to raise more loans. The capital thus raised, was also used for advertising and brand building thus increasing the net sales of the company by an average of 60%
• Company is raising Debt through Secured Loans hypothecated by company assets as well as Unsecured Loans and a Bank Revolver
• PE exits the business in financial year end of March 2015. It offers its stake for sale in the IPO that the company has planned in May 2015
• In May 2015 the company issues an IPO. The offer is both an offer for sale and fresh issue of shares to public. The IPO will provide liquidity to PE and raise capital for further expansion of business.
• Total 80,25,000 shares are issued to

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