Institutional Equities - Online Share Trading

Institutional Equities
Exhibit 14: SOTP Valuation
Our mode of valuation
We have used the SOTP method for valuation of infrastructure stocks. We have valued core construction
business on a one-year forward PE and assigned the multiple at a discount to five-year historical average
based on company fundamentals and financial situation. We have valued the BOT (Build, Own, Transfer)
projects (like road, power, airport and metro rail) on either the P/BV method or DCF (discounted cash flow
method), depending on project visibility. For DCF valuation, we have taken cost of equity (CoE) of 15% to
17%, depending on the status of the project. We believe DCF is the best method to value infrastructure asset
portfolio, given its capital intensive and longer duration predictable cash flow. However, in some cases, we
have taken the P/BV valuation. Listed subsidiaries are valued at a 25% to 30% holding discount to their
current market prices.
Coverage universe
We initiate coverage on five companies with a Buy rating on IRB Infrastructure, Reliance Infrastructure,
GMR Infrastructure and IVRCL, as we believe they are best placed in terms of execution track record,
Balance Sheet strength and valuation parameters. Despite attractive valuation, we assign a Hold rating to
HCC as we believe that higher leverage and the Lavasa issue will cap any upside.
CMP Mkt Cap Construction Road Power Metro rail Airport Others Target Rating
Companies Rs Rsbn Rs/share Price (Rs)
IRB infrastructure 163 54.1 84.0 151.0 - - - - 235 Buy
Reliance Infrastructure 434 116 121.0 149.0 373.0 27.0 - 54.0 724 Buy
GMR Infrastructure 28 110.4 - 2.9 12.0 - 20.0 3.8 39 Buy
HCC 29 17.4 11.0 14.0 - - - 8.0 33 Hold
IVRCL 38 10 53.0 - - - - 6.0 59 Buy
Source: Bloomberg, Nirmal Bang Institutional Equities Research
7 Infrastructure Sector