Valuation and Investment Banking

Unit – 1
Basic Concepts of Valuation
Dr. Usman Ghani
Faculty Profile:

Name: Prof. Usman Ghani

Qualification: PhD, MBA, MCom( F&C ), UGC NET(Management), AMFI Certified

Specialisation: Financial Management, Operations Research, Economic

Administration and Research Methodology

Academic and Research Experience:14 years

Industry Experience : 2 years

Course Teaching Learning Evaluation Plan (TLEP_1)
Week 1 Basic Concepts of Valuation

Quadrant 1 3. Watch the e-Learning content on “L1: Basic Concepts of Valuation” before the live session.
e-Content 4. Read the e-LM on “Unit 1: Basic Concepts of Valuation”.

Quadrant 2 1. Attend live session #1 on Basic Concepts of Valuation

e-Tutorial 2. Attempt solving the Practice MCQs & Case Study #1.

Quadrant 3 1. Take a pre-assessment on “Concepts of Valuation”

e-Assessment 2. Follow the additional learning plan to improve your competencies, based on the report of the pre-assessment.
3. Take the formative assessment for “L1: Concepts of Valuation”.
1. After the live session, repeat the formative assessment for “L1: Basic Concepts of Valuation” for self-
assessment.

Quadrant 4 1. Participate in collaborative learning by discussing the Practice MCQs & Case Study #1.

Discussions
Financial Statements
• Financial statements are formal records that provide an overview of the financial
activities and position of a business entity.

• They are crucial tools for assessing the financial health and performance of a
company.

• They help investors, creditors, and other stakeholders in making informed

decisions.

• The three primary financial statements are:

• Balance Sheet
• Income Statement
• Cash Flow Statement
Balance Sheet
XYZ Company
It provides a snapshot of a company's
Balance Sheet as of December 31, 20XX
financial position at a specific point in time, Assets:
- Cash: $50,000
showcasing its assets, liabilities, - Accounts Receivable: $80,000
- Inventory: $120,000
and shareholders' equity. - Property: $300,000
Total Assets: $550,000

Liabilities:
- Accounts Payable: $30,000
- Loans Payable: $100,000
Total Liabilities: $130,000

Shareholders' Equity:
- Common Stock: $200,000
- Retained Earnings: $220,000
Total Equity: $420,000

Total Liabilities and Equity: $550,000

Income Statement ( Profit and Loss Account )
XYZ Company
• It shows the revenues, expenses, Income Statement for the Year Ended
and profits or losses over a December 31, 20XX

specific period of time.

Revenue: $500,000
Cost of Goods Sold: $250,000
Gross Profit: $250,000
Operating Expenses:
- Selling Expenses $50,000
- Administrative Expenses $30,000
Total Operating Expenses: $80,000

Net Income: $170,000

Cash Flow Statement XYZ Company Cash Flow Statement for the Year
Ended Dec 31, 200X
Operating Activities:
- Cash from Customers: $480,000
• It details the sources and uses of - Cash Paid for Expenses: $200,000
cash over a specific period, Net Cash from Operating Activities: $280,000
Investing Activities:
categorizing cash flows into - Purchase of Property: -$50,000
- Sale of Investments: $20,000
operating, investing, and Net Cash Used in Investing Activities: -$30,000
financing activities. Financing Activities:
- Issuance of Common Stock: $30,000
- Repayment of Loans: -$40,000
Net Cash Used in Financing Activities: -$10,000
Net Increase in Cash: $240,000
Beginning Cash Balance: $50,000
Ending Cash Balance: $290,000
Meaning of Valuation
• Valuation refers to the process of determining the economic
value of an asset, company, or investment.

• It is a critical aspect of finance and investment decision-making,

as it helps assess the worth of an entity based on various
factors and methodologies.

• Valuation can be applied to a wide range of assets, including

stocks, bonds, real estate, and entire businesses.
Performance Assessment of an Entity
• Assessing the performance of an entity involves evaluating its
financial health, operational efficiency, and overall ability to generate
value for its stakeholders.
• Key Performance Measures are:
• Financial Ratios
• Key Performance Indicator (KPI)
• Earnings and Cash Flow Analysis
• Valuation Models
• Qualitative Factors
Financial Ratios
• Profitability Ratios: Measure the company's ability to generate profit.
• Examples: Return on Equity (ROE), Net Profit Margin.

• Liquidity Ratios: Assess the company's short-term financial health.

• Examples: Current Ratio, Quick Ratio.

• Efficiency Ratios: Evaluate how well the company utilizes its

resources.
• Examples: Inventory Turnover, Receivables Turnover.
KPIs
• Customer Satisfaction (CSAT): Measures the satisfaction level of customers
based on surveys or feedback.

• Net Promoter Score (NPS): Gauges the likelihood of customers recommending the
company's products or services.

• Customer Retention Rate: Indicates the percentage of customers retained over a

specific period.

• Revenue Growth: Indicates the rate at which a company's sales are increasing.
Earning and Cash Flow Analysis
• Earnings Per Share (EPS): Measures the company's profitability on a per-
share basis.

• Operating Cash Flow: Evaluates the cash generated or used by the

company's core operations.

• Operating Profit Margin: It measures the profitability of a company's core

business operations.
Valuation Models
• Discounted Cash Flow (DCF): Estimates the present value of a company's future cash
flows, considering the time value of money.

• Comparable Company Analysis (CCA): Compares the target company to similar publicly
traded companies to determine its relative value.

• Asset-Based Valuation: Calculates the value of a company based on its tangible and
intangible assets.

• Dividend Discount Model (DDM):Values a company based on the present value of its
expected future dividends.
Qualitative Factors
• Management Quality
• Market Positioning
• Brand Strength
• Industry Trends and Outlook
• Regulatory Environment
• Customer Relationships
• Supplier Relationships
• Innovation and Research and Development (R&D)
• Risk Factors
• Corporate Social Responsibility
Profitability and Growth
• The profitability and growth of an entity are two fundamental aspects of its financial
performance and overall health.

• Investors, analysts, and stakeholders closely monitor these factors to assess the
company's ability to generate returns and expand its operations.

• A balanced approach to profitability and growth is crucial for the sustainable success of a
business.

• Profitability ensures that the company can generate returns on its activities, while growth
indicates the potential for expanding market share and increasing value for stakeholders.
Profitability
• Net Profit Margin

• Return on Equity (ROE

• Return on Assets (ROA)

• Gross Profit

• Operating Profit Margin

Growth
• Revenue Growth

• Earning Growth

• Return on Investment (ROI)

• Market Share Growth

• Customer base Growth

• Geographical Expansion
Levers of Value
• The levers of value refer to the factors or strategies that organizations can employ to enhance
their overall value.

• These levers are essential for creating and sustaining value for shareholders, customers, and
other stakeholders.

• Different industries and companies may prioritize specific levers based on their business
models, competitive environments, and growth strategies.

• These levers are interrelated, and a comprehensive approach that considers multiple factors is
often necessary for sustained value creation.
Levers of Value
• Revenue Growth
• Profitability Improvement
• Cost Optimisation
• Market Expansion
• Product Innovation
• Customer Satisfaction
• Partnership and Alliance
Course Teaching Learning Evaluation Plan (TLEP_2)
Week 2 Risk and Return

Quadrant 1 2. Watch the eLearning content on “L2: Risk and Return” before the live session.
e-Content 3. Read the e-LM on “Unit 2: Risk and Return ”

Quadrant 2 1. Revise the “L1: Basic Concepts of Valuation” recording of the live Session
e-Tutorial 5. Attend live session #2 on “Risk and Return”.

Quadrant 3 2. Take the formative assessment for “L2: Retail banking & NRI Banking ”
e-Assessment 5. Repeat the formative assessment for “L2: Risk and Return” for self-assessment
6. Attempt solving the Practice MCQs & Case Study #2 on “Risk and Return”

Quadrant 4 5. Participate in collaborative learning by discussing the Practice MCQs & Case Study #2
Discussions
Valuation and Investment Banking
Unit – 2
Risk and Return
Dr. Usman Ghani
Faculty Profile:

Name: Prof. Usman Ghani

Qualification: PhD, MBA, MCom( F&C ), UGC NET(Management), AMFI Certified

Specialisation: Financial Management, Operations Research, Economic

Administration and Research Methodology

Academic and Research Experience:14 years

Industry Experience : 2 years

Course Teaching Learning Evaluation Plan (TLEP_2)
Week 2 Risk and Return

Quadrant 1 2. Watch the eLearning content on “L2: Risk and Return” before the live session.
e-Content 3. Read the e-LM on “Unit 2: Risk and Return ”

Quadrant 2 1. Revise the “L1: Basic Concepts of Valuation” recording of the live Session
e-Tutorial 5. Attend live session #2 on “Risk and Return”.

Quadrant 3 2. Take the formative assessment for “L2: Retail banking & NRI Banking ”
e-Assessment 5. Repeat the formative assessment for “L2: Risk and Return” for self-assessment
6. Attempt solving the Practice MCQs & Case Study #2 on “Risk and Return”

Quadrant 4 5. Participate in collaborative learning by discussing the Practice MCQs & Case Study #2
Discussions
Meaning of Risk
• Risk is a multifaceted concept that involves the potential for uncertain
outcomes

• It may have both positive and negative consequences.

• It is an integral part of various domains, including finance, business,

health, and everyday life.

• Understanding and managing risk is crucial for making informed

decisions and achieving desired outcomes.
Key Aspects of Risk
• Probability : Probability refers to the likelihood of a particular event
occurring.

• Uncertainty : Uncertainty is the lack of complete knowledge or

predictability about future events or outcomes.

• Volatility : Volatility measures the degree of variation in the price of a

financial instrument over time, indicating the level of risk and
uncertainty.
Systematic Risk
• It is also known as market risk or non-diversifiable risk,

• It is the inherent with the overall market or economy.

• It affects the entire market or a large segment of it, rather than specific
assets or securities.

• It can not be eliminated through diversification because it is inherent in the

broader market dynamics.

• It is beyond the control of individual investors or companies and is

influenced by macroeconomic factors.
Determinants of Systematic Risk
• Interest Rate
• Inflation
• Political Stability
• Economics
• Unemployment
• Government Regulations
Unsystematic Risk
• It is also known as specific risk, idiosyncratic risk, or diversifiable risk

• It is the risk associated with individual assets or specific sectors of the

market.

• Unlike systematic risk, it is unique to a particular company, industry, or

asset.

• This type of risk can be reduced or eliminated through diversification by

holding a portfolio of uncorrelated assets.
Types of unsystematic Risk
• Business Risk

• Operation Risk

• Management Risk

• Financial Risk

• Industry specific Risk

Methods of Risk Computation
• Probability Analysis

• Standard Deviation

• Value at Risk (VaR)

• Sharpe Ratio

• Beta Coefficient

• Scenario Analysis
Pricing Risk
• Pricing risk involves determining the appropriate compensation
or premium for assuming the risk associated with an investment,
financial transaction, or business decision.

• The goal is to adequately compensate for the potential losses or

adverse outcomes that may occur due to the inherent
uncertainty and variability of the risk.
Hurdle Rate
• It is also known as the discount rate or required rate of return

• It represents the minimum acceptable rate of return that an

investment must achieve to justify its undertaking.

• It serves as a benchmark for evaluating the attractiveness of

investment opportunities

• It helps companies allocate capital efficiently.

Risk-Adjusted Return
• Companies assess the risk-adjusted return of investment
opportunities by considering both the expected return and the
associated risk
• Investments offering higher returns relative to their risk profile
are more likely to meet or exceed the hurdle rate
• Investments that meet or exceed the hurdle rate are given
priority
• Investment failing to meet the hurdle rate may be deferred or
rejected in favor of more attractive opportunities
Risk and Hurdle Rate Relationship
• Higher Risk, Higher Hurdle Rate : Investments with higher levels of risk
are expected to deliver higher returns

• Risk Adjustment of Hurdle Rate: hurdle rate can be adjusted to reflect

the specific risks associated with an investment

• Risk-Free Rate Component : Foundational component of the hurdle rate

• Risk Premium Component: Rate of Return over and above risk-free rate
Impact of Debt-Equity Ratio (D/E) on Risk
• Higher D/E Ratio, Higher Financial Risk

• Impact of Interest Expenses

• Sensitivity to Economic Downturns

• Credit Risk

• Dilution and Value Erosion

• Dividend Stability
Course Teaching Learning Evaluation Plan (TLEP_3)

Week 3 Building Blocks of Valuation

Quadrant 1
2. Watch the eLearning content on “L3: Building Blocks of Valuation” before the live session.
e- Content 3. Read the e-LM on “Unit 3: Building Blocks of Valuation”

Quadrant 2
1. Revise the “L2: Risk and Return” recording of the live Session
e-Tutorial 5. Attend live session #3 on “Building Blocks of Valuation”

4. Take the formative assessment for “L3: Building Blocks of Valuation”

Quadrant 3
6. Repeat the formative assessment for “L3: Building Blocks of Valuation” for self-assessment
e-Assessment 7. Attempt solving the Practice MCQs & Case Study #3 on “Building Blocks of Valuation”

Quadrant 4 8. Participate in collaborative learning by discussing the Practice MCQs & Case Study #3
Discussions
Valuation and Investment Banking
Unit – 3
Building Blocks of Valuation
Dr. Usman Ghani
Faculty Profile:

Name: Prof. Usman Ghani

Qualification: PhD, MBA, MCom( F&C ), UGC NET(Management), AMFI Certified

Specialisation: Financial Management, Operations Research, Economic

Administration and Research Methodology

Academic and Research Experience:14 years

Industry Experience : 2 years

Course Teaching Learning Evaluation Plan (TLEP_3)
Week 2 23 March - 29 March 2024 Risk and Return
Week 3 Building Blocks of Valuation
Quadrant 1 2. Watch the eLearning content on “L2: Risk and Return” before the live session.
Quadrant
e-Content1 3. Readthe
2. Watch e-LM oncontent
theeLearning “Unit 2:onRisk
“L3: and Return
Building ” of Valuation” before the live session.
Blocks
3. Read the e-LM on “Unit 3: Building Blocks of Valuation”
e- Content
Quadrant 2 1. Revise the “L1: Basic Concepts of Valuation” recording of the live Session
e-Tutorial
Quadrant 2 5. Attendthe
1. Revise live session
“L2: #2Return”
Risk and on “Risk and Return”.
recording of the live Session
5. Attend live session #3 on “Building Blocks of Valuation”
e-Tutorial
Quadrant 3 2. Take the formative assessment for “L2: Retail banking & NRI Banking ”
e-Assessment 5. Repeat
4. Take the formative
the formative assessment
assessment for “L2: Blocks
for “L3: Building Risk and Return” for self-assessment
of Valuation”
Quadrant 3
6. Attempt
6. Repeat thesolving the
formative Practice MCQs
assessment for “L3:&Building
Case Study
Blocks #2 on “Risk for
of Valuation” Return”
andself-assessment
e-Assessment
7. Attempt solving the Practice MCQs & Case Study #3 on “Building Blocks of Valuation”
Quadrant 4 5. Participate in collaborative learning by discussing the Practice MCQs & Case Study #2
Discussions
Quadrant 4 8. Participate in collaborative learning by discussing the Practice MCQs & Case Study #3
Discussions
Building Blocks of Valuation
• Valuation in finance typically involves determining the present value
of an asset, investment, or company

• The building blocks of valuation can vary depending on the specific

context

• These building blocks are often used in combination or in different

proportions depending on the nature of the asset or company being
valued and the specific requirements of the valuation exercise.
Dividend Discount Model
• It is a method used to value the equity of a company by
discounting its future dividends to their present value.

• The basic premise behind the DDM is that the intrinsic value of
a stock is determined by the present value of the cash flows it
generates for its shareholders, namely dividends.

• Gordon Growth Model (Single Stage)

• Two Stage DDM

Gordon Growth Model (Single Stage)
• The Gordon Growth Model is suitable for companies with stable and predictable
dividend growth rates.

• It assumes that dividends grow at a constant rate indefinitely.

• The formula for the Gordon Growth Model is:

P = D0 ( 1 + g) / (r – g)
Where, P = Intrinsic value of the stock
D0 = Most recent dividend per share
r = Required rate of return (cost of equity)
g = Dividend growth rate
Two-Stage Dividend Discount Model
• The Two-Stage DDM is suitable for companies with an initial period of high
growth followed by a stable growth phase.

• It assumes different growth rates for different periods.

• The formula for the Two-Stage DDM typically involves estimating dividends for
the high-growth phase and stable-growth phase separately and then discounting
them back to their present value.
Bond Valuation
• Understand Bond Terms
• Coupon Rate
• Calculate Future Cash Flows
• Determine Discount Rate
• Yield to Maturity ( YTM)
• Calculate Present Value
• Sum the Present Value of Future cash flows
Bond Valuation Cont…
• If the coupon rate is equal to the yield to maturity, the bond will be
priced at par value

• If the coupon rate is lower than the yield to maturity, the bond will be
priced at a discount, and

• If the coupon rate is higher than the yield to maturity, the bond will
be priced at a premium
Bond Valuation Cont…
𝐶 𝐶 𝐶 𝐶+𝐹𝑉
Bond Price = + + +……..+
1+𝑟 1+𝑟 2 1+𝑟 3 1+𝑟 𝑛

C = Coupon payment

r = Discount rate (yield to maturity)

n = Number of periods until maturity

FV = Face value of the bond

Book Value Approach to Valuation
• The book value approach to valuation is a method used to
determine the value of a company based on its balance sheet.
• It involves analyzing the company's assets and liabilities to
calculate its net worth, which is also referred to as its book value.
• The book value approach can be used for various purposes,
including determining the value of a company for investment or
acquisition.
Asset-based valuation
• Asset-based valuation is a method used to determine the
value of a company based on the value of its assets.

• This approach is particularly useful for companies with

significant tangible assets, such as manufacturing companies

• The asset-based valuation considers the company's assets

net of liabilities to determine its intrinsic value.
Earnings or Dividend based Valuation
• Price-to-Earnings (P/E) Ratio: The P/E ratio compares a company's
current stock price to its earnings per share (EPS)
• Earnings Multiple: Similar to the P/E ratio, earnings multiples
compare a company's earnings to its market value.
• Dividend Discount Model (DDM): The DDM calculates the present
value of all expected future dividend payments, discounted at an
appropriate rate
• Dividend Growth Model: This is a variation of the DDM that takes into
account the expected growth rate of dividends over time.
Valuation Through Financial Statements
• Comparable Company Analysis (CCA)

• Discounted Cash Flow (DCF) Analysis

• Asset-Based Valuation

• Ratio Analysis

• Relative Valuation
Valuation of Intangibles
• Cost Approach

• Market Approach

• Income Approach

• Relief from Royalty Method

• Multi-Period Excess Earnings Method (MPEEM)

• Option Pricing Models

• Reproduction Cost Method

Valuation of Assets
• Market Approach

• Income Approach

• Cost Approach

• Book Value

• Replacement Cost
Valuation Using Balance Sheet Components
• Total Assets: The total value of all assets owned by the firm.
• Total Liabilities: The total value of all debts and obligations owed by the
firm.
• Shareholders' Equity: The residual interest in the firm's assets after
deducting liabilities. It represents the owners' claim on the firm's assets.
• Net Working Capital: Calculated as current assets minus current liabilities,
representing the firm's liquidity position.
• Book Value of Equity: Shareholders' equity as reported on the balance
sheet, which may differ from the market value of equity.
• Tangible Assets: Physical assets with a finite useful life, such as property,
plant, and equipment.
Valuation Using Income Statement
• Revenue: Total income generated from the firm's primary operations.
• Operating Expenses: Costs incurred in the normal course of
business, including salaries, rent, utilities, and depreciation.
• Operating Income (EBIT): Revenue minus operating expenses,
representing the firm's operating profitability before interest and
taxes.
• Net Income: The bottom-line profit after deducting all expenses,
including taxes and interest.
• Earnings Per Share (EPS): Net income divided by the number of
outstanding shares, indicating the firm's profitability on a per-share
basis.
Valuation Using Cash Flow Components
• Operating Cash Flow (OCF): Cash generated from the firm's core
operating activities, excluding financing and investing activities.
• Investing Cash Flow: Cash flow related to investments in assets,
such as property, plant, and equipment, as well as acquisitions and
divestitures.
• Financing Cash Flow: Cash flow related to raising capital, repaying
debt, and paying dividends.
• Free Cash Flow (FCF): Operating cash flow minus capital
expenditures, representing the cash available to the firm after
maintaining or expanding its asset base.
Course Teaching Learning Evaluation Plan (TLEP_4)
Week 4 Cash Flow Approach to Valuation

Quadrant 1 2. Watch the eLearning content on “L4: Cash Flow Approach to Valuation” before the live session.
3. Read the e-LM on “Unit 4: Cash Flow Approach to Valuation
e-Content

Quadrant 2 1. Revise the “L3: Building Blocks of Valuation” recording of the live Session
5. Attend live session #4 on “Cash Flow Approach to Valuation”
e-Tutorial

Quadrant 3 4. Take the formative assessment for “L4: Cash Flow Approach to Valuation”
6. After the live session, repeat the formative assessment for “L4: Cash Flow Approach to Valuation”
e-Assessment for self-assessment
7. Attempt solving the Practice MCQs & Case Study #4 on “Cash Flow Approach to Valuation”

Quadrant 4 8. Participate in collaborative learning by discussing the Practice MCQs & Case Study #4

Discussions
Valuation and Investment Banking
Unit – 4
Cash Flow Approach to Valuation
Dr. Usman Ghani
Faculty Profile:

Name: Prof. Usman Ghani

Qualification: PhD, MBA, MCom( F&C ), UGC NET(Management), AMFI Certified

Specialisation: Financial Management, Operations Research, Economic

Administration and Research Methodology

Academic and Research Experience:14 years

Industry Experience : 2 years

Course Teaching Learning Evaluation Plan (TLEP_4)
Week 4 Cash Flow Approach to Valuation

Quadrant 1 2. Watch the eLearning content on “L4: Cash Flow Approach to Valuation” before the live session.
3. Read the e-LM on “Unit 4: Cash Flow Approach to Valuation
e-Content

Quadrant 2 1. Revise the “L3: Building Blocks of Valuation” recording of the live Session
5. Attend live session #4 on “Cash Flow Approach to Valuation”
e-Tutorial

Quadrant 3 4. Take the formative assessment for “L4: Cash Flow Approach to Valuation”
6. After the live session, repeat the formative assessment for “L4: Cash Flow Approach to Valuation”
e-Assessment for self-assessment
7. Attempt solving the Practice MCQs & Case Study #4 on “Cash Flow Approach to Valuation”

Quadrant 4 8. Participate in collaborative learning by discussing the Practice MCQs & Case Study #4

Discussions
Cash Flow Approach to valuation
• The Cash Flow Approach to valuation involves estimating the
present value of the future cash flows generated by an
investment or asset. This approach is commonly used in both
stock (equity) and debt valuation.

• The key difference lies in the specific cash flows being analyzed
(equity cash flows vs. debt cash flows) and the discount rates
used (cost of equity vs. yield to maturity)
Cash Flow Approach to Stock Valuation
• In equity valuation, the Cash Flow Approach typically involves
estimating the future cash flows available to equity investors
(shareholders) and discounting them back to their present
value.

• The most commonly used method within this approach is the

Discounted Cash Flow (DCF) method.
Discounted Cash Flow (DCF) Method
• Estimate Future Cash Flows

• Calculate Terminal Value

• Discount Cash Flows

• Determine Intrinsic Value

• Compare to Market Price

DCF Method Cont…
• Assume we are valuing Company XYZ's stock using the
Discounted Cash Flow (DCF) method. Here are the relevant
details:
• Forecasted Free Cash Flows for the next five years:
-Year 1: $10 million
-Year 2: $12 million
-Year 3: $15 million
-Year 4: $18 million
-Year 5: $20 million
• Terminal Value (Year 5) using the perpetuity growth method:
-Terminal growth rate: 3%
-Cost of equity (discount rate): 10%
DCF Method Cont…
(1 + 𝑔)
𝐹𝐶𝐹1 𝐹𝐶𝐹2 𝐹𝐶𝐹5 + 𝐹𝐶𝐹5 ∗
(𝑟 − 𝑔)
Intrinsic Value of Equity Stock = + 2
+ ⋯+
(1 + 𝑟) (1 + 𝑟) (1 + 𝑟)5

(1 + 0.03)
10 12 20 + 20 ∗
(0.10 − 0.03)
Intrinsic Value of Equity Stock = + + ⋯+
(1 + .10) (1 + .10)2 (1 + .10)5

= $261.08 million
Cash Flow Approach to Debt Valuation
• In debt valuation, the Cash Flow Approach focuses on
estimating the present value of the future cash flows associated
with the debt instrument.

• This approach is commonly used in valuing bonds and other

fixed-income securities.
Debt Valuation Cont…
• Estimate Future Cash Flows

• Determine Discount Rate

• Discount Cash Flows

• Calculate Present Value

• Compare to Market Price

Debt Valuation Cont….
• Assume we are valuing a bond issued by Company XYZ with
the following characteristics:

• Face value of the bond: $1,000

• Coupon rate: 5%

• Time to maturity: 5 years

• Market interest rate (yield to maturity): 6%

Debt Valuation Cont….
𝐶𝑜𝑢𝑝𝑜𝑛 𝐶𝑜𝑢𝑝𝑜𝑛 𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒 + 𝐶𝑜𝑢𝑝𝑜𝑛
Intrinsic Value of Equity Stock = + 2
+ ⋯+
(1 + 𝑦) (1 + 𝑦) 1+𝑦 5

50 50 1000 + 50
Intrinsic Value of Equity Stock = + 2
+ ⋯+
(1 + .06) (1 + .06) (1 + .06)5

= $548.70
Two-Stage Growth Model
• In the two-stage growth model, the company's cash flows are divided
into two distinct stages: an initial high-growth stage followed by a
stable growth stage. This model is appropriate for companies that
are expected to experience rapid growth initially but eventually settle
into a more sustainable growth rate.

• Stage 1 (High-Growth)

• Stage 2 (Stable Growth)

Two-Stage Growth Model
• The formula for the Two-Stage DDM typically involves estimating
dividends for the high-growth phase and stable-growth phase
separately and then discounting them back to their present value.
Three Stage Growth Model
• In the three-stage growth model, the company's cash flows are
divided into three distinct stages: an initial high-growth stage,
followed by a transitional stage, and finally, a stable growth
stage.
• This model is appropriate for companies that undergo
significant changes in growth rates over time.
• Stage 1 (High-Growth)
• Stage 2 (Transitional)
• Stage 3 (Stable Growth)
Three Stage Growth Model Cont….
• The formula for the three-stage dividend model is rather
intimidating, but simple to understand.
• Three-stage model requires only the value of the current
dividend, the expected rate of return, the dividend growth rates
and number of years over which the dividend growth rate is
expected to change.
Course Teaching Learning Evaluation Plan (TLEP_5)
Week 5 Valuation for Mergers and Acquisitions

Quadrant 1 2. Watch the eLearning content on “L5: Valuation for Mergers and Acquisitions” before the
e-Content live session.
3. Read the e-LM on “Unit 4: Valuation for Mergers and Acquisitions
Quadrant 2
e-Tutorial 1. Revise the “L3: Cash Flow Approach to Valuation” recording of the live Session
5. Attend live session #5 on “Valuation for Mergers and Acquisitions”
Quadrant 3 4. Take the formative assessment for “L5: Valuation for Mergers and Acquisitions”
e-Assessment 6. After the live session, repeat the formative assessment for “L4: Cash Flow Approach to
Valuation” for self-assessment
7. Attempt solving the Practice MCQs & Case Study #4 on “Cash Flow Approach to
Valuation”
Quadrant 4
Discussions 8. Participate in collaborative learning by discussing the Practice MCQs & Case Study #4
Valuation and Investment Banking
Unit – 5
Valuation of Mergers and Acquisition
Dr. Usman Ghani
Faculty Profile:

Name: Prof. Usman Ghani

Qualification: PhD, MBA, MCom( F&C ), UGC NET(Management), AMFI Certified

Specialisation: Financial Management, Operations Research, Economic

Administration and Research Methodology

Academic and Research Experience:14 years

Industry Experience : 2 years

Course Teaching Learning Evaluation Plan (TLEP_5)
Week 5 Valuation for Mergers and Acquisitions

Quadrant 1 2. Watch the eLearning content on “L5: Valuation for Mergers and Acquisitions” before the
e-Content live session.
3. Read the e-LM on “Unit 5: Valuation for Mergers and Acquisitions
Quadrant 2
e-Tutorial 1. Revise the “L4: Cash Flow Approach to Valuation” recording of the live Session
5. Attend live session #5 on “Valuation for Mergers and Acquisitions”
Quadrant 3 4. Take the formative assessment for “L5: Valuation for Mergers and Acquisitions”
e-Assessment 6. After the live session, repeat the formative assessment for “L5: Valuation for Mergers
and Acquisitions” for self-assessment
7. Attempt solving the Practice MCQs & Case Study #5 on “Valuation for Mergers and
Acquisitions”
Quadrant 4
Discussions 8. Participate in collaborative learning by discussing the Practice MCQs & Case Study #4
Valuation of M&A
• Valuation of mergers and acquisitions (M&A) can be approached
differently depending on whether the transaction is structured as a cash
deal or a stock deal.

• It often requires careful analysis, consideration of various factors, and

often involves collaboration between financial advisors, legal experts, and
other professionals.

• Cash Deal

• Stock Deal
Cash Deal
• In a cash deal, the acquiring company offers to pay a certain
amount of cash for the target company's outstanding shares.
The valuation process for a cash deal typically involves:
• Determining the Offer Price:
• Discounted Cash Flow (DCF) Analysis
• Comparable Company Analysis (CCA
• Negotiation
Stock Deal
• In a stock deal, the acquiring company offers its own stock
(shares) as consideration for acquiring the target company. The
valuation process for a stock deal typically involves:
• Exchange Ratio
• Dilution Analysis
• Regulatory Approval
• Integration Planning
Price Earning Ratio
• The price-to-earnings (P/E) ratio is a widely used valuation metric that compares
a company's current stock price to its earnings per share (EPS). It provides
investors with insights into how much they are paying for each unit of the
company's earnings.

• He Formula for P/E ratio is :

P/E Ratio = Per Share Price/Earning Per Share

• Share Price: The current market price of the company's stock.

• Earnings per Share (EPS): The company's net income divided by the total
number of outstanding shares
Exchange Ratio
• The exchange ratio in a stock-for-stock merger or acquisition
determines how many shares of the acquiring company will be
exchanged for each share of the target company.

• It's a critical aspect of the deal negotiation and valuation process.

• Determining the exchange ratio involves assessing the relative value

of the two companies and the desired ownership structure post-
merger.
Valuation during the Purchase of a Division or Plant
• Valuation during the purchase of a division or plant involves
assessing the worth of the specific business segment or asset
being acquired.
• This process is essential for both the buyer and seller to
determine a fair price and negotiate the terms of the
transaction.
• Valuation during the purchase of a division or plant requires
careful analysis, collaboration between financial experts and
industry professionals, and consideration of various factors to
ensure a successful and mutually beneficial transaction.
Valuation during the Purchase of a Division or
Plant Cont…
• Identify the Division or Plant
• Gather Financial Information
• Select Valuation Methods
• Income Approach
• Market Approach
• Asset-Based Approach
• Perform Valuation Analysis
• Consider Synergies and Strategic Fit
• Negotiate Purchase Price
• Due Diligence
• Finalize Transaction
Course Teaching Learning Evaluation Plan (TLEP_6)
Week 6 Value Based Management

Quadrant 1 2. Watch the eLearning content on “L6: Value Based Management” before the live session.
3. Read the e-LM on “Unit 6: Value Based Management”
e-Content

Quadrant 2
e-Tutorial 1. Revise the “L5: Valuation for Mergers and Acquisitions” recording of the live Session
5. Attend live session #6 on “Value Based Management”
Quadrant 3 4. Take the formative assessment for “Unit 6: Value Based Management”
e-Assessment 6. After the live session, repeat the formative assessment for “L6:Value Based
Management” for self-assessment
7. Attempt solving the Practice MCQs & Case Study #6 on “Value Based Maagement”
Quadrant 4
Discussions 8. Participate in collaborative learning by discussing the Practice MCQs & Case Study #4
Valuation and Investment Banking
Unit – 6
Value Based Management
Dr. Usman Ghani
Course Teaching Learning Evaluation Plan (TLEP_6)
Value Based Management
Value-based management is focused on

• ensuring that corporations run consistently on value

• creating future value,

• managing business assets and human resources for value,

• aligning the interests of stakeholders,

• measuring success through company valuation.

Alcar Approach
• The Alcar approach is a method used in financial analysis to evaluate the
performance of a company's investments.

• It stands for "Adjusted Net Present Value (NPV), Less Cost of Acquisition, and
Replacement".

• This approach involves adjusting the NPV of an investment by subtracting the

cost of acquiring the investment and the cost of replacing it with a similar
investment.

• It helps in determining the true economic value generated by an investment after

considering these additional costs.
Alcar Approach - Example
• Suppose a company is considering an investment in a new
project that is expected to generate significant cash flows over
the next five years.

• The initial investment cost for the project is $1,000,000.

However, in addition to this initial cost, there are other costs
associated with acquiring and replacing the investment that
need to be considered.
Alcar Approach – Example Cont….
• Net Present Value (NPV): Let's say the NPV of the project is
calculated to be $500,000.
• Cost of Acquisition: In order to implement the project, the company
might incur additional costs such as legal fees, consulting fees, or
other transaction costs. Let's assume these acquisition costs
amount to $50,000.
• Cost of Replacement: These costs could include upgrades,
renovations, or other expenses to ensure the project remains viable.
Let's say the estimated cost of replacement is $100,000.
Alcar Approach – Example Cont….
• Using the ALCAR approach, we calculate the adjusted NPV as follows:

• Adjusted NPV = NPV - Cost of Acquisition - Cost of Replacement

= $500,000 - $50,000 - $100,000 = $350,000

• This adjusted figure provides a more accurate representation of

the economic value generated by the investment, as it takes
into account the additional costs associated with acquiring and
maintaining the project.
Economic Value Added (EVA)
• This approach, developed by Stern Stewart & Co., measures a
company's financial performance based on the residual wealth
calculated by deducting the cost of capital from its operating profit.

• In essence, EVA determines whether a company is generating

returns above or below its cost of capital.

• It's calculated as Net Operating Profit After Tax (NOPAT) minus the
cost of capital, multiplied by invested capital.
Economic Value Added (EVA) Cont….
• Suppose we have a company XYZ Inc. has an operating profit (NOPAT) of
$2,000,000 for the year. The company's total invested capital, including
both debt and equity, is $10,000,000. The cost of capital for XYZ Inc. is
10%.

• Economic Value Added (EVA) = NOPAT - (Cost of Capital * Invested

Capital)

• EVA = $2,000,000 - (0.10 * $10,000,000) = $2,000,000 - $1,000,000 =

$1,000,000
Economic Value Added (EVA) - Interpretation
• A positive EVA indicates that the company has generated returns above its
cost of capital. In this case, XYZ Inc. has created $1,000,000 of value for
its shareholders after covering the cost of capital.

• A negative EVA would indicate that the company has not generated returns
above its cost of capital, meaning it has destroyed value for its
shareholders.

• EVA is a useful metric for evaluating how efficiently a company is utilizing

its capital to generate profits. It provides a clear measure of value creation
that can be compared across different companies and industries.
Market Value Added (MVA)
• MVA assesses the difference between the market value of a
company and the capital contributed by investors, including both
debt and equity.

• It is calculated by subtracting the total capital invested in the

company from its market value.

• MVA reflects how much value a company has created for its
shareholders compared to the amount of capital invested.
Market Value Added (MVA) Cont….
Suppose, at the beginning of the year, the market value of ABC Corp's
equity (i.e., its total market capitalization) is $50,000,000. By the end of the
year, the market value of its equity has increased to $70,000,000.
Additionally, ABC Corp's total invested capital (both equity and debt) at the
beginning of the year is $40,000,000.

To calculate the Market Value Added (MVA) for ABC Corp, we use the
formula:
MVA = Market Value of Equity at End of Year - Total Invested Capital

MVA = $70,000,000 - $40,000,000 = $30,000,000

Market Value Added (MVA) - Interpretation
• In this case, ABC Corp has created $30,000,000 in market value for its
shareholders.
• A positive MVA indicates that the company has created value for its
shareholders beyond the capital invested in the business.
• A negative MVA would indicate that the company has not created value for
its shareholders, and its market value is less than the total invested capital.
• MVA provides insight into how well a company is performing in terms of
creating shareholder value. It reflects investor confidence and
expectations regarding the company's future performance and growth
potential.
Cash Flow Return on Investment (CFROI)
• CFROI is a metric used to evaluate the return a company

generates from its operating cash flow relative to its capital

investments.

• It measures the cash flow return as a percentage of the capital

invested in the business.

 Return on Capital Employed (ROCE)
• ROCE measures the profitability of a company by comparing its

operating profit to its capital employed (the total assets minus

current liabilities).

• It indicates how efficiently a company is utilizing its capital to

generate profits.
Return on Gross Investment (ROGI)
• ROGI is a measure of the efficiency of a company's
investments.

• It evaluates the return generated from both tangible and

intangible investments relative to the total amount of investment
made.
Cash Value Added (CVA)
• ROGI is a measure of the efficiency of a company's
investments.

• It evaluates the return generated from both tangible and

intangible investments relative to the total amount of investment
made.
Course Teaching Learning Evaluation Plan (TLEP_7)
Valuation of and Investment Banking
Unit – 7
Valuation of start-Ups
Dr. Usman Ghani
Course Teaching Learning Evaluation Plan (TLEP_7)
Valuation of Start-ups
• Valuation of startups is a critical process in determining the
worth of a company, especially in the early stages when
traditional financial metrics may not fully capture its potential.

• It is essential to consider the stage of the startup, industry

dynamics, growth potential, and market conditions when
determining its valuation.
5x and 3x Ask Method
• This method is often used in early-stage startups where the
valuation is determined by multiplying the desired annual return
of investors (commonly 3x to 5x) by the projected revenue or
profit of the company.

• For example, if an investor wants a 5x return and the projected

profit of the startup is $500,000, the valuation would be $2.5
million ($500,000 x 5).
Exit Valuation Method
• This method estimates the potential value of a startup at the
time of exit, such as through acquisition or initial public offering
(IPO).

• It involves analyzing comparable transactions in the market or

estimating potential future cash flows to arrive at a valuation at
the time of exit.
Profit Multiple and Revenue Multiple
• These multiples are calculated by dividing the valuation of a
startup by its annual profit or revenue.

• For instance, if a startup is valued at $10 million and its annual

revenue is $2 million, the revenue multiple would be 5x ($10
million / $2 million).
Pre-money and Post-money Valuation
• Pre-money valuation refers to the value of a startup before any external
funding is received, while post-money valuation includes the value of
the startup after external funding is added.

• The post-money valuation is calculated by adding the investment

amount to the pre-money valuation.

• For example, if a startup has a pre-money valuation of $3 million and

receives $1 million in funding, the post-money valuation would be $4
million.
Discounted Cash Flow (DCF)
• This method estimates the present value of expected future

cash flows generated by the startup. I

• It involves forecasting cash flows over a certain period and

discounting them back to their present value using a discount

rate.
Market Comparable Method and Scorecard
Valuation Method
• Market Comparable Method: This method involves comparing the startup
to similar companies that have been recently sold or funded and using
their valuations as a benchmark.

• Scorecard Valuation Method: This method compares the startup to a

group of similar startups in terms of various factors such as market size,
team experience, product differentiation, and traction. A scorecard is then
used to adjust the average valuation of comparable startups based on
these factors.
Risk Factor Summation Method
• This approach involves identifying and assessing various risks associated
with the startup, such as market risk, technology risk, and execution risk,
and adjusting the valuation based on the level of risk.

• It provides a structured framework for evaluating and incorporating risk into

the valuation process for startups.

• By systematically assessing and quantifying risk factors, investors can

make more informed decisions and arrive at a valuation that reflects the
risk-return profile of the investment opportunity.
Course Teaching Learning Evaluation Plan (TLEP_8)
Valuation of and Investment Banking
Unit – 8
Private Equity and LBO Valuation
Dr. Usman Ghani
Course Teaching Learning Evaluation Plan (TLEP_8)
Financial Sponsors
• Financial sponsors are entities, typically private equity firms,
that invest capital in various businesses with the aim of
generating returns for their investors.
• These firms raise funds from various sources, such as
institutional investors, pension funds, endowments, and wealthy
individuals.
• Financial sponsors can engage in a variety of investment
activities, including leveraged buyouts (LBOs), growth capital
investments, distressed asset investments, and more.
Leveraged Buyout (LBO)
• It is a financial transaction where a company is acquired using a
significant amount of borrowed money, often with the assets of
the company being used as collateral for the loans.

• The buyer, usually a private equity firm or a group of investors,

typically contributes only a portion of the purchase price in
equity, while the rest is financed through debt.
Characteristics of a Strong LBO Candidate
• Stable Cash Flows

• Strong Management Team

• Asset-Light Business Model

• Growth Potential

• Defensible Market Position

• Good Exit Potential

Economics of an LBO
• In an LBO, a financial sponsor acquires a company using a
significant amount of debt financing, often with a relatively small
amount of equity.

• The goal is to increase the target company's value over a

period of time and then sell it at a higher price, generating
returns for the sponsor and its investors.
Key Economic Drivers of an LBO
• Leverage

• Operational Improvements

• Multiple Expansion

• Deleveraging

• Exit Timing
Primary Exit/Monetization Strategies
• Initial Public Offering (IPO)

• Strategic Sale

• Secondary Buyout

• Dividend Recapitalization

• Refinancing
LBO Financing
• LBO financing typically involves a combination of debt and equity.

• The debt component usually consists of senior debt, which has

priority in repayment and lower interest rates, and mezzanine debt,
which is riskier and has higher interest rates but provides additional
leverage.

• Equity financing comes from the financial sponsor and its investors.
LBO Financing Cont…
• Senior Debt: This is typically provided by banks or other financial
institutions and is secured by the assets of the target company. It has
lower interest rates and longer repayment terms compared to mezzanine
debt.
• Mezzanine Debt: This form of financing sits between senior debt and
equity in the capital structure. It is unsecured and often includes features
such as payment-in-kind (PIK) interest or warrants, providing higher
returns to lenders in exchange for increased risk.
• Equity: Financial sponsors contribute equity capital to the LBO, typically
ranging from 20% to 40% of the total purchase price. This equity
investment provides a cushion against potential losses and aligns the
interests of the sponsor with those of other stakeholders.
Course Teaching Learning Evaluation Plan (TLEP_9)
Valuation of and Investment Banking
Unit – 9
M&A Sale Process
Dr. Usman Ghani
Course Teaching Learning Evaluation Plan (TLEP_9)
Auctions
• Auctions are a method of buying and selling goods or services
through a competitive bidding process.

• They can be conducted in various formats, including

• traditional in-person auctions
• online auctions
• sealed bid auctions
Organizing and Preparation for Auction
• Identify the items to be auctioned: This could include physical goods, real
estate, artwork, intellectual property, or services.

• Determine the auction format: Choose whether it will be a live auction,

online auction, sealed bid auction, etc.

• Set the date, time, and location (if applicable) of the auction.

• Establish the terms and conditions of the auction, including bidding

increments, payment methods, and any applicable fees or taxes.

• Advertise and promote the auction to attract potential bidders.

First Round
• Bidders register: Interested parties typically register for the auction by providing
their contact information and, in some cases, a deposit or proof of funds.

• Auctioneer opens the bidding: The auctioneer begins the bidding process by
announcing the starting bid for the item and inviting bidders to place their bids.

• Bidding process: Bidders compete against each other by placing higher bids until
no one is willing to bid any further.

• Item sold to the highest bidder: Once the bidding stops, the auctioneer declares
the item sold to the highest bidder and records the winning bid amount.
Second Round
• If the item doesn't meet its reserve price (the minimum price set

by the seller), it may go to a second round.

• During the second round, the auctioneer may lower the reserve

price or open the bidding again to generate more interest and

potentially secure a sale.

Negotiations
• In some cases, after the auction ends, the highest bidder may

enter into negotiations with the seller to finalize the terms of the

sale.

• Negotiations can involve price adjustments, payment terms,

delivery arrangements, or other conditions.

Closing
• Once all terms are agreed upon, the sale is finalized, and the buyer
typically submits payment according to the auction's terms and
conditions.

• The seller transfers ownership of the item to the buyer, and any
necessary paperwork or documentation is completed.

• Depending on the auction format, there may be additional

administrative tasks, such as issuing invoices, receipts, or
certificates of authenticity.
Negotiated Sale
• A negotiated sale is a type of sale where the terms of the transaction
are negotiated directly between the buyer and the seller, without the
competitive bidding process of an auction.
• Negotiated sales are often used for high-value or unique items
where the seller wants more control over the sale process and
pricing.
• The negotiation process may involve multiple rounds of offers and
counteroffers until both parties reach a mutually acceptable
agreement.
Course Teaching Learning Evaluation Plan (TLEP_10)
Valuation of and Investment Banking
Unit – 10
LBO Analysis
Dr. Usman Ghani
Course Teaching Learning Evaluation Plan (TLEP_9)
LBO Analysis
• LBO analysis helps determine the maximum value a financial
buyer could pay for the target company.
• It generally provides a “floor” valuation for the company, and is
useful in determining what a financial sponsor can afford to pay
for the target
• For example, the amount of debt that needs to be raised and
financial considerations like the present and future free cash
flows of the target company, equity investors require hurdle
rates and interest rates, financing structure, and banking
agreements that lenders require.
Financial Structure of an LBO
• Equity

• Debt
• Senior Debt
• Subordinated Debt
• High-Yield Bonds

• Capital Structure

• Leverage
Equity
• Equity represents the portion of the purchase price contributed by the

private equity firm and other equity investors.

• The equity investors provide capital to acquire ownership of the target

company and expect a return on their investment.

• Private equity firms typically target a specific equity return, often in the

range of 20% to 30% per year, depending on the perceived risk and

potential of the investment.

Debt
• Debt financing is a key component of the financial structure in
an LBO. It involves borrowing funds from various sources to
finance a significant portion of the acquisition cost.

• Debt can be obtained from banks, institutional investors, or

through the issuance of bonds in the debt capital markets.
Capital Structure
• The capital structure of an LBO refers to the mix of equity and
debt used to finance the acquisition. It determines the leverage
ratio, which is the ratio of debt to equity in the transaction.
• The choice of capital structure depends on various factors,
including the target company's cash flow generation, asset
base, industry dynamics, and risk profile.
• A higher leverage ratio increases the potential returns to equity
investors but also amplifies the risk of financial distress,
especially if the target company fails to meet its debt
obligations.
Leverage
• Leverage magnifies the potential returns to equity investors in
an LBO by allowing them to control a larger asset base with a
relatively smaller equity investment.
• Leverage also increases the financial risk associated with the
investment, as higher debt levels entail higher interest
expenses and debt service obligations.
• The optimal level of leverage in an LBO depends on factors
such as the target company's cash flow stability, growth
prospects, and industry dynamics, as well as prevailing market
conditions and lender appetite for risk.
Valuation
• Valuation is a critical aspect of a Leveraged Buyout (LBO) analysis, as it
helps determine whether the acquisition of a target company is financially
viable and potentially profitable for the private equity firm and its investors.

• Several valuation methods can be employed in an LBO analysis, including:

• Comparable Company Analysis (CCA)

• Discounted Cash Flow (DCF) Analysis

• Transaction Multiples

• LBO Model Specific Adjustments

Returns Computation and Analysis
• Returns computation and analysis in an LBO is essential for evaluating the

potential profitability of the investment for the private equity firm and its
investors.

• The primary metrics used to assess returns in an LBO include:

• Internal Rate of Return (IRR)

• Multiple of Invested Capital (MOIC)

• Return on Investment (ROI)

Financing Structure Fee
• Arrangement Fee

• Commitment Fee

• Underwriting Fee

• Management Fee

• Transaction Fee

• Monitoring Fee
Assumptions in LBO Analysis
• Revenue Growth
• EBITDA Margins
• Capital Expenditures (Capex)
• Working Capital
• Tax Rates
• Discount Rate (WACC)
• Debt Financing Terms
• Cost of Equity
• Synergies and Cost Savings
Course Teaching Learning Evaluation Plan (TLEP_11)
Valuation of and Investment Banking
Unit – 11
Investment Banking Skills
Dr. Usman Ghani
Course Teaching Learning Evaluation Plan (TLEP_11)
Skills Valuation Modelling
• Skills valuation modeling is a method used by organizations to
assess and assign value to the skills and competencies of their
employees.

• It involves quantifying the impact of an employee's skills on the

organization's performance and overall value.

• It helps companies assess employee skills' impact, business

valuation determines a company's economic worth.
Process of Skills Valuation Modeling
• Identifying Key Skills

• Data Collection

• Quantification

• Analysis

• Decision-making
Benefits of SVM
• Better talent management.

• Improved workforce planning.

• More targeted training and development programs.

• Enhanced strategic decision-making.

Business Valuation
• Business valuation is the process of determining the economic value
of a business or company.

• It is crucial for various purposes, such as mergers and acquisitions,

selling a business, raising capital, or for legal purposes.

• Business valuation based on the skills of workers involves assessing

how specific skills within a company contribute to its overall value.
Pitch Book
• A pitch book is a document or presentation prepared by
investment banks, financial advisors, or companies.

• It typically includes details about a firm’s main attributes and

valuation analysis, which can help investors decide whether to
invest in a client’s business.

• It also helps secure potential deals, such as mergers,

acquisitions, or raising capital.
Contents of the Pitch Book
• Overview of the company.

• Financial performance.

• Industry analysis.

• Growth potential.

• Deal structure.

• Team information.

• Risks and mitigations

Teaser (or Executive Summary):
• Purpose: The teaser is the initial document used to introduce a company
to potential buyers or investors.
• It provides a high-level overview of the business, highlighting its key
attributes and value proposition.
Teaser Cont…
Contents:
• Company overview: Description of the business, its history, and operations.

• Financial summary: High-level financial figures such as revenue, EBITDA,

and growth trends.

• Market opportunity: Analysis of the market, industry trends, and growth

potential.

• Investment highlights: Key selling points that make the company attractive
for investment or acquisition.
Confidential Information Memorandum (CIM)
• Detailed company overview: History, products/services, markets
served, competitive landscape.
• Financial information: Audited financial statements, projections, key
financial metrics.
• Management team: Profiles of key executives and their roles.
• Strategic analysis: Market positioning, growth strategies, SWOT
analysis.
• Legal and risk factors: Pending litigation, regulatory issues, potential
risks.
• Transaction details: Terms of the deal, valuation, use of proceeds.
Non-Disclosure Agreement (NDA)
• An NDA is a legal agreement between the seller and potential
buyers/investors.

• It protects the confidentiality of the information shared during the due

diligence process.

• Before receiving sensitive information like the CIM, potential

buyers/investors must sign the NDA to ensure that they will not
disclose or misuse the confidential information.
Non-Disclosure Agreement (NDA) Cont..
• Identification of the parties involved (disclosing party and receiving
party).

• Definition of confidential information.

• Obligations of the receiving party to keep information confidential.

• Duration of confidentiality.

• Consequences of breach.
Data Room
• The data room is a secure online or physical repository where all relevant
documents and information about the company are stored for due
diligence purposes.

• Controlled access is granted to potential buyers/investors and their

advisors after they sign the NDA.

• Allows interested parties to conduct thorough due diligence on the

company, verifying the information provided in the CIM and assessing the
risks and opportunities associated with the transaction.
Data Room Cont…
• Financial statements and records.

• Legal documents: Contracts, agreements, leases, etc.

• Intellectual property information.

• Organizational documents: Bylaws, articles of incorporation, etc.

• Employee information: Contracts, benefits, organizational structure.

• Other relevant data: Market research, customer lists, supplier contracts.

Relationship Management
• Relationship management in investment banking involves building and
maintaining strong, long-term relationships with clients.

• These clients could be corporations, institutional investors,

governments, or high-net-worth individuals.

• Helps in understanding market trends and client preferences, leading to

better service and product development.
Relationship Management Cont…
• Understanding Client Needs: Relationship managers must deeply
understand the financial goals, challenges, and preferences of their clients.

• Regular Communication: Keeping in touch with clients through meetings,

calls, emails, and updates on market trends and opportunities.

• Providing Value: Offering insights, market intelligence, and tailored financial

solutions that add value to the client's business or investment strategy.

• Conflict Resolution: Addressing any issues or concerns promptly and

effectively.
Sales and Business Development
• Sales and business development involves identifying new business
opportunities, pitching services/products, and converting leads into client

• Growth of the business: helps in bringing in new clients and expanding the
client base.

• Helps in Revenue generation

• Helps in identifying new markets and opportunities for the firm's

services/products.
Sales and Business Development Cont…
• Market Research: Identifying potential clients and market segments.

• Lead Generation: Using various methods such as networking, cold calling,

attending conferences, and leveraging referrals.

• Pitching: Creating compelling presentations and proposals tailored to the

client's needs.

• Relationship Building: Developing trust and rapport with potential clients.

• Closing Deals: Negotiating terms, overcoming objections, and closing

transactions.
Negotiation Tactics
• Negotiation tactics in investment banking involve the art and science of
reaching mutually beneficial agreements between parties, whether it's for a
deal, transaction, or contract.

• Helps in securing favorable terms for the firm and its clients.

• Enables preserving and enhancing relationships during the negotiation

process.

• Helps in ensuring that the deal is mutually beneficial and sustainable in the
long term.
Negotiation Tactics Cont..
• Preparation: Thoroughly understanding the deal, the client's needs, and
potential areas of compromise.
• Active Listening: Understanding the other party's concerns and motivations.
• Creating Value: Finding areas where both parties can gain value, not just
focusing on price.
• Building Trust: Establishing trust and rapport to create a positive negotiating
environment.
• Leveraging Alternatives: Knowing your best alternative to a negotiated
agreement (BATNA) and using it effectively.
• Handling Objections: Addressing concerns and objections in a constructive
manner.
• Closing: Knowing when to close the deal and how to do it effectively.
Course Teaching Learning Evaluation Plan (TLEP_12)
Valuation of and Investment Banking
Unit – 12
Corporate Restructuring
Dr. Usman Ghani
Course Teaching Learning Evaluation Plan (TLEP_12)
Corporate Restructuring
• Corporate restructuring refers to significant changes in a
company's business operations, often undertaken to enhance
efficiency, profitability, or strategic focus.

• It is a complex process that requires careful planning, analysis,

and execution to achieve the desired outcomes while
minimizing risks and disruptions to the business.
Expansion
• Corporate expansion refers to the strategic initiatives undertaken by
a company to grow its operations, market share, and overall
business presence.

• It can take various forms, each with its own considerations and
benefits.

• Companies can expand organically by investing in their existing

operations.
Mergers and Acquisitions (M&A)
• Mergers: When two companies of roughly equal size come together
to form a new entity.

• Acquisitions: When one company (the acquirer) buys another

company (the target). This could be for strategic reasons like gaining
market share, technology, or talent.

• Amalgamation

• Take over
Types of Mergers
• Mergers: When two companies of roughly equal size come together
to form a new entity.

• Acquisitions: When one company (the acquirer) buys another

company (the target). This could be for strategic reasons like gaining
market share, technology, or talent.

• Amalgam
Tender Offers
• A tender offer is a proposal by an individual or entity to purchase a
substantial number of shares of a publicly traded company's stock.

• It is a formal offer to buy shares from existing shareholders at a

specific price, often at a premium to the current market price.

• Tender offers are regulated by securities laws to ensure fairness and

transparency in the process.

• It's often used in hostile takeovers.

Asset Acquisition
• Asset acquisition refers to the purchase of specific assets or a
business unit from another company, rather than acquiring the
entire company itself.

• This type of transaction allows the acquiring company to select

and purchase only the assets it deems valuable, without
necessarily assuming all of the seller's liabilities.
Process of Asset Acquisition
• Identification:
• The acquiring company identifies the assets or business unit it wishes to acquire.
• This could be based on strategic fit, growth opportunities, or operational synergies.
• Negotiation:
• The acquiring company negotiates with the seller on the terms of the acquisition.
• This includes the purchase price, payment terms, and any conditions of the sale.
• Due Diligence:
• It is conducted to assess the value and risks associated with the assets.
• This includes reviewing financial records, contracts, legal documents, and operational details.
• Agreement:
• Once both parties agree on the terms, a purchase agreement is drafted.
• This document outlines the details of the asset sale, including the assets being transferred,
purchase price, warranties, and any other relevant terms.
• Closing
• The assets are transferred from the seller to the acquiring company.
Joint Venture (JV)
• A joint venture is a strategic partnership between two or more
companies to collaborate on a specific project or business
activity.

• Joint ventures are typically formed when two companies come

together to combine their strengths, resources, and expertise to
achieve a common goal.
Joint Venture (JV) - Characteristics
• Partnership: Two or more companies join forces to pursue a specific
business opportunity or project.
• Shared Ownership: Each partner contributes resources, capital, or
expertise and shares in the risks and rewards of the venture.
• Limited Scope: Joint ventures are usually established for a specific
purpose and have a defined duration or objective.
• Separate Legal Entity: In many cases, joint ventures are structured
as separate legal entities, such as a new corporation or partnership,
to manage the venture's operations.
Challenges of Joint Venture (JV)
• Alignment of Interests: Ensuring all partners have aligned goals and
expectations.
• Management and Decision-Making: Managing the joint venture can be
complex when partners have different management styles or priorities.
• Cultural Differences: Companies from different cultures may face
challenges in working together.
• Legal and Regulatory Issues: Compliance with laws and regulations in
different jurisdictions.
• Exit Strategies: Determining how to exit the joint venture if it's no longer
viable or beneficial.
Contraction
• Contraction Strategy in corporate restructuring involve reducing
the size or scope of a company's operations.

• This can be done to improve efficiency, focus on core business

areas, or streamline operations.

• This can create value for shareholders but require careful

planning, consideration of legal and regulatory implications, and
managing the impact on employees and stakeholders.
Spin-Off
• A spin-off exists when a company creates a new, independent
company from a division or subsidiary of its existing operations.
• The new company becomes a separate entity with its own
management, assets, and liabilities.
• Existing shareholders of the parent company often receive shares in
the new company.
• It allows the new company to focus on its specific business line or
industry, unlocking value for shareholders, and improving overall
performance.
Split-off
• Similar to spin-off, split-off involves creating a new, independent
company.

• In a split-off, shareholders are given the choice to exchange their

shares in the parent company for shares in the new company at a
predetermined exchange ratio.

• It allows shareholders to choose whether they want to remain

invested in the parent company or receive shares in the new entity.
Divestitures
• Divestiture involves selling off a portion of a company's assets,
subsidiaries, or business units.

• This could be due to strategic reasons, such as refocusing on core

operations, reducing debt, or exiting unprofitable or non-core
businesses.

• It improves the financial health of the company, streamline

operations, or concentrate on core competencies.
Equity Carve-outs
• In an equity carve-out, a company sells a portion of its subsidiary's shares
to the public through an initial public offering (IPO).

• The subsidiary becomes a separate, publicly-traded company, but the

parent company retains a significant ownership stake.

• It helps raise capital for the parent company while maintaining control over
the subsidiary.
• Example: The equity carve-out of Ferrari by Fiat Chrysler Automobiles in
2015, where Fiat Chrysler retained a majority stake in Ferrari while selling
shares to the public.
Asset Sales
• Asset sales involve selling off specific assets, such as equipment, real
estate, intellectual property, or business units, to another company or
investor.

• Purpose: To raise capital, reduce debt, or eliminate underperforming or

non-core assets.

• Example: The sale of Nestlé's U.S. confectionery business to Ferrero

Group in 2018 to focus on healthier food and beverage products.
Course Teaching Learning Evaluation Plan (TLEP_13)
Valuation of and Investment Banking
Unit – 13
Tax Implication on Amalgamation and Demerger
Dr. Usman Ghani
Course Teaching Learning Evaluation Plan (TLEP_13)
Amalgamation
• Transferor Company (Amalgamating Company)
• Transferee Company ( Amalgamated Company)
• Amalgamation Regarded as Merger
• Amalgamation Regarded as Purchase
• Consideration
• Fair Value
• Pooling of Interests
Amalgamation Regarded as Merger
• When two or more companies combine to form a completely
new entity.
• When the assets and liabilities of the amalgamating companies
are pooled together to create a new entity.
• Shareholders of the amalgamating companies surrender their
shares in exchange for shares in the new, merged entity.
• When the legal consolidation of two or more entities occurs,
resulting in a new legal entity, it's considered both an
amalgamation and a merger.
Amalgamation Not Regarded as Merger
• If one company acquires another without forming a new entity or
combining assets and operations.
• If one company acquires a controlling interest (more than 50% of
shares) in another company but does not fully merge the two
entities.
• When two companies come together to form a new entity for a
specific project or venture, it's not considered a merger but an
amalgamation.
Taxation of Shareholders
• Capital Gains Tax:
• Shareholders may be subject to capital gains tax on any gains they
realize from the exchange of their shares in the amalgamating

• Tax Deferral:
• An amalgamation can offer tax-deferred treatment for shareholders.

• Dividend Tax:
• Dividends involved in the amalgamation may be subject to dividend
taxation.
Taxation of Amalgamating Company
• Tax Treatment of Assets/Liabilities:
• When the amalgamating company transfers its assets and liabilities to
the amalgamated company, there may be tax consequences.
• Loss Utilization:
• The amalgamating company may be able to utilize any tax losses it has
accumulated before the amalgamation.
• Tax on Gains:
• Any gains realized by the amalgamating company from the transfer of
assets can be subject to capital gains tax, unless there are specific
provisions for tax deferral or exemption.
Taxation of Amalgamated Company
• Continuation of Tax Attributes:
• The amalgamated company generally continues the tax attributes of the
amalgamating companies, such as tax credits, tax losses, and carryforwards.

• Tax on Future Profits:

• The amalgamated company will be subject to corporate income tax on its
future profits based on the tax laws of the jurisdiction.

• Tax Loss Carryforwards:

• If the amalgamated company inherits tax losses from the amalgamating
company, it can use these losses to offset its taxable income in future years.
Section 72A(1)
• Section 72A(1) of the Income Tax Act, 1961 deals with the carry
forward and set off of accumulated loss.
• This section allows for the carry forward and set off of unabsorbed
depreciation of the amalgamating company in the amalgamated
company.
• It applies when a company is amalgamated with another company,
and the amalgamation is in compliance with the conditions
prescribed under Section 72A.
Section 72A(1) Cont…
Conditions for Application:

• The amalgamation must be in accordance with the conditions laid

out in Section 72A.

• The amalgamated company continues the business of the

amalgamating company.

• The shareholders of the amalgamating company hold shares in the

amalgamated company.
Section 72AA
• This section specifically applies to amalgamation in certain cases where
the amalgamated company is a banking company.

• It allows for the carry forward and set off of accumulated loss and
unabsorbed depreciation of the amalgamating company in the case of
amalgamation of a banking company.

• It allows the amalgamated banking company to utilize the accumulated

loss and unabsorbed depreciation of the amalgamating banking company
for reducing its tax liability.
Section 72AA
Conditions for Application:

• The amalgamation must meet the conditions specified under

Section 72AA, which are specific to banking companies.

• Similar to Section 72A, the conditions generally include

continuity of business and shareholding patterns.
Demerger
• A demerger is a process where a company divides its business
operations into two or more separate entities.

• This division can occur for various reasons, such as focusing on core
operations, improving efficiency, or separating underperforming
units.

• The company that transfers the business is known as the "demerged

company," and the new company receiving the business is called the
"resulting company”.
Section 49(2C)
• Section 49(2C) of the Income Tax Act, 1961 in India deals with
the cost of acquisition of shares received by the shareholders of
the demerged company in exchange for their shares in the
demerged company.

• This provision helps in determining the capital gains tax liability

for shareholders when they eventually sell the shares of the
resulting company received in the demerger.
Taxation of Resulting Company
• The resulting company assumes ownership of the business
undertaking(s) received from the demerged company.

• The taxation of the resulting company after the demerger depends

on various factors such as its business activities, profits, losses, and
applicable tax laws.

• The resulting company will be subject to corporate income tax on its

profits generated from the transferred business undertaking(s) as per
the prevailing tax rates.
Taxation of Demerged Company
• The demerged company, which transfers its business undertaking(s), is
also known as the transferor company.

• Upon the demerger, the demerged company continues to exist but with
reduced operations or without the transferred business.

• The tax implications for the demerged company include:

• Recognition of any gains or losses on the transfer of business assets.

• Treatment of any accumulated losses or unabsorbed depreciation.

• Potential tax on any gains arising from the demerger.

Course Teaching Learning Evaluation Plan (TLEP_14)
Valuation of and Investment Banking
Unit – 14
Leveraged Recapitalization
Dr. Usman Ghani
Course Teaching Learning Evaluation Plan (TLEP_14)
Leveraged Recapitalization
• A leveraged recapitalization is a financial strategy where a company
takes on significant additional debt to pay a special dividend to
shareholders or buy back shares.

• This is often done when a company believes its shares are

undervalued, and it wants to increase shareholder value.

• When a company goes through a leveraged recapitalization, the

debt-to-equity ratio changes, which can impact the cost of capital.
Computation of Cost of Capital under
Alternative Debt Ratios
Computation of Cost of Capital under
Alternative Debt Ratios Cont..
Analysis and Interpretation
• As the company takes on more debt (moving from Scenario 1 to 3), the
WACC decreases.
• Lower WACC indicates cheaper financing and potentially higher NPV (Net
Present Value) projects.
• It helps the company understand the trade-offs between higher debt (lower
WACC but higher financial risk) and lower debt (higher WACC but lower
financial risk).
• It is essential to consider the company's risk tolerance, existing leverage,
and market conditions when making decisions about leveraged
recapitalization.
Bond Rating
• A bond rating is a grade assigned to a bond by credit rating
agencies.

• These ratings assess the creditworthiness of a bond issuer and

the likelihood that the issuer will default on its debt obligations.

• Bond ratings help investors make informed decisions about the

risk associated with investing in a particular bond.
Changing Bond Rating and Probability of Default
and Cost of Debt
• When a company changes its debt structure, such as through a
leveraged recapitalization, its bond rating and probability of
default can be affected.

• These changes, in turn, impact the cost of debt.

• The yield spread is the difference between the yield of a bond

and the yield of a benchmark security with the same maturity
but considered risk-free, typically a government bond.
Changing Bond Rating and Probability of
Default and Cost of Debt
• Bond Rating Downgrade:
• The company undergoes a leveraged recapitalization, and its
bond rating is downgraded to A.
• The new yield spread for an A-rated bond is 1.5% over the risk-
free rate.

• Change in Probability of Default:

• The probability of default is estimated to increase by 0.5% due to
the additional debt taken on in the recapitalization.
Calculation of cost of debt in case of change
in bond rating and probability of default
• Determine the Original Cost of Debt:

• This is the cost of debt before any changes in bond rating or probability of default.

• Estimate the New Cost of Debt:

• When the bond rating changes, you'll need to estimate the new cost of debt
based on the new rating and associated yield spread over the risk-free rate.

• Adjust for Probability of Default:

• If the probability of default changes due to the new debt structure, adjust the cost
of debt to reflect this change.
Merton Model
Merton Extension Model
• The Merton Extension Model is an extension of the previous model
that allows for the calculation of the implied asset volatility of a
company based on its observed equity and debt prices.

• This extension is particularly useful for estimating the asset volatility

of a company when the traditional Merton Model's assumptions do
not hold, such as when a company's equity is publicly traded but its
debt is not.
Merton Extension Model Cont..
• The Merton Extension Model uses the observed market prices of a
company's equity and publicly traded debt to estimate the implied
asset volatility.

• The model assumes that the firm's assets follow a geometric

Brownian motion and that the market values of equity and debt are
observable.
Assumptions of Merton Extension Model
• The firm's assets follow a geometric Brownian motion, dA=A(μdt+σdZ)
• dA = Change in asset value
• A = Asset value
• μ = Drift (expected return on assets)
• σ = Volatility of assets
• dt = Change in time
• dZ = Random shock (Wiener process)

• The firm's total value is the sum of the market value of equity (E) and the
market value of debt (D) : V=E+D
• The market value of debt (D) is observable : D=V−E
Assumptions of Merton Extension Model
Unlevered Beta (βu)
Levered Beta (βe)
• It reflects the volatility of the company's equity returns relative to
the market.

• It measures the volatility or systematic risk of a company's stock

returns relative to the market.

• It takes into account the financial leverage of the company,

meaning it incorporates the impact of the company's debt on its
equity returns.
Calculation of Cost of Equity(Re)
• Using Unlevered Beta:

Re​=Rf​+βu×(Rm​−Rf​)

• Using Levered Beta:

Re​=Rf​+βe×(Rm​−Rf​)
Where:
• Re​ = Cost of equity
• Rf​ = Risk-free rate
• Rm​ = Market return
Course Teaching Learning Evaluation Plan (TLEP_15)
Valuation of and Investment Banking
Unit – 15
Relevant Direct Tax Concepts
Dr. Usman Ghani
Course Teaching Learning Evaluation Plan (TLEP_15)
Slump Sale
• Slump sale refers to the sale of an undertaking/business as a
whole, without assigning values to individual assets and
liabilities.
• The consideration is generally paid for the business as a whole,
rather than itemized assets.
• The profit or gains arising from the slump sale are considered
capital gains, and taxation will be based on this.
Calculation of Capital Gains
• Capital gains = Sale consideration - Cost of acquisition of the
business - Cost of improvement (if any)

• Taxation of these capital gains can depend on whether it is a

short-term capital gain (if held for less than 3 years) or a long-
term capital gain (if held for more than 3 years).
Corporate Tax Rates
• As of the most recent data (2022), the corporate tax rate in
India for domestic companies is 25%.

• However, for newly incorporated domestic companies engaged

in manufacturing or production, the tax rate can be 15%
(reduced from 25%).

• Surcharge and Cess might apply based on the income level.

Section 115JB - Minimum Alternate Tax (MAT)
• MAT is a tax levied on companies that show a lower profit or no profit due
to various deductions, exemptions, and incentives provided under the
Income Tax Act.
• MAT rate is 15% of book profits as per the Companies Act adjusted for
certain items.
• Book profit is computed as per the books of accounts of the company,
adjusted for certain specified items.
• MAT Credit: Companies can carry forward MAT credit for up to 15 years
and set it off against regular tax liability in future years when regular tax
liability exceeds MAT.
Computation of Book Profit
• Book profit is computed as per the books of accounts of the
company and adjusted for certain specified items.

• Starting from net profit as per the profit and loss account (P&L).

• Adjustments (additions and deductions) are made to the net

profit to arrive at the book profit.
Additions to Net Profit
• Income Tax Paid or Payable
• Amounts carried to any reserves, by whatever name called
(except dividend reserve)
• Provision for unascertained liabilities
• Amount of depreciation debited to the P&L account
• Amount of deferred tax
• Certain exempt incomes
• Amalgamation adjustment
Deductions from Net Profit
• Amount of income exempt from tax
• Incomes subjected to a lower tax rate (like STCG taxed at a
lower rate)
• Amounts carried from any reserves to the P&L account (except
dividend reserve)
• Provisions made for meeting specific liabilities
• Dividends paid or proposed
MAT Credit Adjustment
• When a company pays MAT under Section 115JB, it is entitled
to a MAT Credit.

• This credit can be carried forward for a certain period and set
off against regular tax payable in future years when the regular
tax liability exceeds MAT.

• The adjustment for MAT Credit in arriving at Book Profit involves

adding back the amount of MAT Credit availed.
Example
Let's assume the following details for a hypothetical company:

Net Profit as per Statement of Profit and Loss: Rs. 1,00,00,000

Income Tax Paid or Payable: Rs. 15,00,000

Depreciation: Rs. 10,00,000

Exempt Income: Rs. 5,00,000

Dividend Paid: Rs. 2,00,000

MAT Credit Available: Rs. 3,00,000

Solution
• Step 1: Start with Net Profit
• Net Profit: Rs. 1,00,00,000

• Step 2: Add Back:

• Income Tax Paid: Rs. 15,00,000
• Depreciation: Rs. 10,00,000

• Step 3: Deduct:
• Exempt Income: Rs. 5,00,000
• Dividend Paid: Rs. 2,00,000

• Step 4: Add Back MAT Credit:

• MAT Credit Available: Rs. 3,00,000
Book Profit Calculation
• Starting Net Profit: Rs. 1,00,00,000
• Add: Income Tax Paid: Rs. 15,00,000
• Add: Depreciation: Rs. 10,00,000
• Total: Rs. 1,25,00,000
• Deduct: Exempt Income: Rs. 5,00,000
• Deduct: Dividend Paid: Rs. 2,00,000
• Add: MAT Credit Available: Rs. 3,00,000
• Book Profit (Section 115JB): Rs. 1,23,00,000
Scenario1(MAT Credit)
Company X has a regular tax liability of Rs. 20,00,000 for the financial year.

The company also has a MAT liability of Rs. 25,00,000 calculated under
Section 115JB.

Company X has MAT Credit available from previous years amounting to Rs.
10,00,000.
Calculation
• Regular Tax Liability: Rs. 20,00,000

• MAT Liability: Rs. 25,00,000

• MAT Credit Available: Rs. 10,00,000

• Scenario 1: Regular Tax < MAT:

• In this case, since the regular tax liability (Rs. 20,00,000) is lower than
the MAT liability (Rs. 25,00,000), the company will pay MAT of Rs.
25,00,000.
Calculation Cont..
• Scenario 2: Regular Tax > MAT:

• If the regular tax liability was Rs. 30,00,000, and the MAT liability
remained Rs. 25,00,000, the company can utilize its MAT Credit.

• Regular Tax Liability: Rs. 30,00,000

• MAT Liability: Rs. 25,00,000

• MAT Credit Utilized: Rs. 25,00,000 (to reduce MAT liability to zero)

• Balance Regular Tax Liability: Rs. 5,00,000 (after utilizing MAT Credit)