Submitted by: Group 3, Section S3

1. Anirvaan Ghosh 12DM-0222. Dharma Teja 12FN-0433. Jency John 12DM-0654. Sameer Doda 12DM-1265. Sarthak Mukkar 12IB-0416. Sourabh Dang 12FN-1337. Tripti Bansal 12FN-146

INFRATECH LIMITED DOWNGRADING

Was incorporated in 26th March 1993 as Lanco Constructions Limited, 24th Nov 2000 the Company name was changed to Lanco Infratech

LITL has been driving growth in the domains of (EPC), Power, Solar and Infrastructure over the last two decades

Successfully completed projects-Kondapalli (700mw) in AP, Udupi (2x 660 mw) Karnataka, Anpara (2x600mw) UP……..

LANCO Resources Australia has acquired Griffin Coal Mining Company &carpenter mine management, with capacity of 20 mtpa.

Became a listed entity in November 2006 following the IPO of shares.

ABOUT COMPANY

Financial DataFull Year Mar'12 RATIOS NP-Latest 4 Qtrs

FV BV CMP MCap NP EPS Div % Int. Cov EPS P/E Sep'12 Jun'12 Mar'12 Dec'11

Unit Curr. Unit Curr. Unit Curr. (Rs. Cr) (Rs. Cr) Unit Curr. Unit Curr. (Rs. Cr) (Rs. Cr) (Rs. Cr) (Rs. Cr)

1 14.9 14.74 3534.65 120 0.5 0 1.2 0 0 7.2 -47.39 -8.24 24.7

LANCO’s FallCRISIL downgraded LANCO credit rating to D from BB-/CRISIL A4+

Rs. 800 cr of debt obligation in 2012-13 with the overall debt of over Rs. 13,000 crore

Need Rs. 600 cr extra funds to meet working capital in 3 power projects

All these above funds requirement has lead to high interest cost

Continues to have large exposure to under-implementation projects

Lanco reported a net loss of Rs 455 crore for the first six months ended September

Legal battle with Perdaman Chemicals and Fertilisers Ltd & Griffin power over CSA

High raw material cost

Capacity growth at all plants done based on assumed coal linkage with Coal India

Under Utilization of capacity of power plant due to low fuel supply

Default from state-run electricity distribution companies

Power sector is in dire state of investment

Under capacity of Griffin coal block

Low power tariff

Behind The Scene

ANALYSIS

Lanco Infratech have an Bank exposure of over Rs. 9000 Cr.

Taking 4500 cr as base for calculation

We are not considering depreciation for calculation conveneince

Standalone figures taken to keep Indian operations as basis for comparison

Long term PLR in China is 4-6% p.a. With Lanco infratech having low a D/E , we assume interest rate of 4% p.a.

Corporate tax rate is 30%

Analysis has been conducted only for one year

Operating Margin CAGR for Lanco Infratech is 15.5%

ASSUMPTIONS:

PROFIT & LOSS STATEMENT  9/30/2012 6/30/2012 12-Mar 11-Mar 10-Mar 9-Mar 8-Mar

Operating Profit 521.37 585.66 648.57 818.65 866.29 567.12 314.32PBDIT 533.78 662.83 712.83 830.12 977.81 582.18 342.35Interest 314.39 769.13 505.12 337.74 197.94 138.61 34.47PBDT 219.39 -106.3 207.71 492.38 779.87 443.57 307.88

Depreciation 279.87 255.36 101.44 72.06 59.77 40.53 11.62Other Written Off     0 0 0 0 0Profit Before Tax -60.48 -361.66 106.27 420.32 720.1 403.04 296.26

Extra-ordinary items     0 -0.59 0 0 0.83PBT (Post Extra-ord

Items) -60.48 -361.66 106.27 419.73 720.1 403.04 297.09Tax 62.59 21.83 -9.41 141.41 233.72 138.17 96.91

Reported Net Profit -123.07 -383.49 115.67 278.32 486.38 264.87 200.18

Debt-Equity (1.25) 1.14 0.99 0.81 0.55 0.24Interest Cover (4.67) 1.21 2.24 4.64 3.91 9.62

FINANCIAL LEVERAGE

2.433018825 3.431852 1.685933628 1.253812 1.312487319 1.1119592

FINANCIALS

CURRENT

Amount (Rs.

Crores)Proportion Cost Weighted

Cost

DEBT 4221.26 0.540 12.50% 6.7494

EQUITY 3596.53 0.460 18.40% 8.4648

TOTAL 7817.79   WACC 15.2143

CAPITAL STRUCTURE

CAPITAL ASSET PRICING MODEL

Beta Risk free return Average market return

2.4655 8% 12.20%

COST OF EQUITY: 18.4%

OPTION 1. Equity Infusion Either Through Fresh Equity Or Stake

Dilution

• Additional equity: Rs. 4500 cr.• Interest: 527.6575 • D/E : 0.52137

FINANCIAL MIX OPTION

 Amount (Rs.

Crores) Proportion Cost Weighted Cost

DEBT 4221.26 0.343 12.50% 4.2837

EQUITY 8096.53 0.657 18.40% 12.0944

TOTAL 12317.79   WACC 16.3781

OPTION 2. Issue Zero Coupon Bond For 5 Year

• Bond value : Rs. 4500 cr.• Interest: 527.6575 • D/E : 2.42491

FINANCIAL MIX OPTION

 Amount (Rs.

Crores) Proportion Cost Weighted Cost

DEBT 8721.26 0.708 6.05% 4.2837

EQUITY 3596.53 0.292 18.40% 5.3724

TOTAL 12317.79   WACC 9.6561

OPTION 3. External Commercial Borrowing From CDB @ 4%

• Bond value : Rs. 4500 cr.• Interest: 707.2942 • D/E : 2.42491

FINANCIAL MIX OPTION

Amount (Rs. Crores) Proportion Cost Weighted Cost

DEBT 8721.26 0.708 8.11% 5.7421

EQUITY 3596.53 0.292 18.40% 5.3724

TOTAL 12317.79   WACC 11.1145

  Option 1 Option 2 Option 3

Operating Profit 750 750 750

Interest 527.65 527.6 707.2942

Profit Before Tax 222.35 222.4 42.70581

Tax @30% 66.705 66.72 12.81174

Reported Net Profit 155.645 155.68 29.89407

PREFRENCE DIV 0 0 0

Earning fro shareholder 155.645 155.68 29.89407

NO. OF SHARES 539.7 241 241

EPS x10 2.88392 6.459751 1.240418

FINANCIAL LEVERAGE 3.37306 3.372302 17.56201

DEBT- EQUITY 0.52137 2.42491 2.42491

WACC 3.8944 5.7972 19.9869

FINANCIAL LEVERAGE, EPS, WACC & D/E

Option 1, has highest cost of capital, but scores well in other parameters

Option 2, in our opinion is the most suitable alternative

Option 3, will lead to highest financial leverage & high enough cost of capital. But considering the fact that large principal amounts to 2 billion USD. Hence it cannot be ruled out.

Our Summary & Recommendations

Fresh funds through cheap ECB

Raise funds through stake sales & refinancing maturing debt

To maintain regular coal supply lanco is enchancing Griffin coal capacity.

Central Government support

Tariff increase by State Electricity boards

Won the case in Australian courts enabling the company to revise its coal supply agreement (CSA) with Griffin Power

High operational Excellency

Mitigation Measures

http://crisil.com/ratings/ratings-rationales.jsp

http://www.capitaline.com/user/framepage.asp?id=1

http://www.moneycontrol.com

http://www.moneycontrol.com/news/business/lanco-infra-may-look-at-stake-sale-option-for-new-projects_803330.html

http://www.dealcurry.com/20121126-Lanco-Infratech-To-Raise-Funds-From-Chinese-Banks-And-FIs.htm

REFRENCES