ipo valuation and design sunbeam

7/29/2019 IPO Valuation and Design Sunbeam

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Valuation And IPO Design


Submitted By:

Ankita Banerjee (11BSPHH010140)

HanmantKawale (11BSPHH011151)

ArpitTandon (11BSPHH010183)

Harsh Dugar (11BSPHH010324)

Sri Harsha (11BSPHH011177)

Investment Banking (Section-B)


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Contents

EXECUTIVE SUMMARY ................................................................................................................... 3

INTRODUCTION ................................................................................................................................. 4

SUMMARY OF FINANCIAL DATA .................................................................................................. 6

INDUSTRY OVERVIEW ..................................................................................................................... 9

RISK FACTORS ................................................................................................................................. 11

ISSUE DETAILS ................................................................................................................................. 21

CAPITAL STRUCTURE .................................................................................................................... 25

OBJECTIVE OF ISSUE ...................................................................................................................... 26

BASIS FOR ISSUE PRICING ............................................................................................................ 33

MANAGEMENTS DISCUSSION AND ANALYSIS ...................................................................... 40


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EXECUTIVE SUMMARY

This project covers valuation of Sunbeam Auto Pvt. Ltd. and proposed IPO structure. It also covers

the industry analysis and risk factors associated with their business. A brief description of the major

findings of the project are given below-

Type of Issue- 100% Book Build Issue Size- Rs. 120 crore Basis for pricing- Discounted Cash Flow and Relative Valuation Price by DCF- Rs. 513.81 Price by Relative Valuation (Floor Price)- Rs. 450 Cap Price- Rs. 540 ( 20% above floor price) Price band- Rs. 450- 540 Face Value: Rs10 per share Total number of shares offered to public- 2666667


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INTRODUCTION

Business Overview

Sunbeam was incorporated as a subsidiary of Highway Industries in the year 1987. It is a part of the

international Hero group of Industries. Post the family arrangement among the Munjals in May 2010,

Sunbeam continues to be managed by Mr. Ashok Munjal, representing the Dayanand Munjal group.

Sunbeam is one of the major players in the aluminium die-casting business. Sunbeam specializes

In manufacturing smaller and mid-size die cast components for two-stroke engines and for the

automobile Industrymainly for the Indian sector. With around 4,000 employees and annual sales of

approximately US$ 0.7 billion, Sunbeam Auto Pvt. Ltd. belongs to the fifth largest die casting

company in India and one of the top 100 in the world.

The credibility of the company can be judged by its strong customer base which includes players likeHero Motor Corp Ltd. (HMCL), Maruti Suzuki Ltd., Munjal Showa Ltd., Visteon Powertrain Control

Systems (India) Pvt, Ltd., Hero Briggs & Stratton Ltd., Sona Koyo Sterring Systems Ltd., Danaher

of USA, Denso (India) Ltd., Sun Petri Limited, Diamler Chrysler AG of Germany, to name a few.

Sunbeam is the principal supplier of ADCCs to HHML and presently supplies a major portion of

HHMLs requirements of crank cases, cylinder heads, brake levers, clutch levers, cylinder case

covers, grips, and holders.

The plant has a casting capacity of 41,555 tonnes per annum and is located close to HMCLs

Gurgaon and Dharuhera (Haryana) plants, and MSILs Gurgaon plant. Another new plant is set in

Bhiwadi in the year 2011 to increase the plants castings capacity by 3000 tonnes. The company has

a R&D department located at Gurgaon which is fully equipped modern Metallurgical Laboratory

approved by Government of India. The company follows a zero defect approach and use of upgraded

technology.

Sunbeam also has a technical tie-up with Honda Foundry, Japan, to manufacture pistons for HMCL.

Sunbeam has also been awarded with the ISO 9002 and QS 900 Certificate by BSI, UK.


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Strengths

Ability to identify the exact need of the automobile sector and providing customized solutionsto all clients from time to time

Promoted by one of one of the strongest players in the Automobile Industry- Hero Group The company has a credit rating - AA-/Stable/P1+ reaffirmed by CRISIL in 2011. The company is very versatile as it is able to cater to the needs of both 2 and 4 wheeler

manufacturers, the major segment of Indian automobile Industry

Motivated towards innovation and delivering high quality products Located in the city of Gurgaon, which is a hub for automobile industry Long term association with major domestic players of the country


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SUMMARY OF FINANCIAL DATA

Financial Statements for Year 2007-11

Income Statement (in Crs)

Year Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

INCOME :

Sales Turnover 998.73 937.41 919.14 979.89 1259.15

Excise Duty 158.52 156.2 136.42 135.46 174.06

Net Sales 840.21 781.21 782.72 844.43 1085.08

Other Income 4.09 8.45 9.46 6.13 7.88

Stock Adjustments 7.38 -2.29 6.21 7.18 9.22

Total Income 851.68 787.37 798.39 857.74 1,102.19EXPENDITURE :

Raw Materials 613.82 538.98 549.08 605.56 770.03

Power & Fuel Cost 49.58 50.16 49.87 53.35 67.85

Employee Cost 29.18 32.15 36.49 34.95 44.44

Other Manufacturing Expenses 95.51 97.13 101.57 104.95 133.46

Selling and Administration Expenses 12.48 14.66 12.99 14.34 18.23

Miscellaneous Expenses 0.49 1.87 2.01 1.58 2.01

Less: Pre-operative Expenses Capitalized 0 0 0 0 0

Total Expenditure 801.06 734.95 752.01 814.74 1,036.03

Operating Profit 50.62 52.42 46.38 43 66.16

Interest 5.56 7.85 8.79 0 0

Gross Profit 45.06 44.57 37.59 43 66.16

Depreciation 27.07 30.05 24.73 21.5 24.28

Profit Before Tax 17.99 14.52 12.86 21.5 41.88

Tax 7.63 8.55 7 8.47 12.42

Fringe Benefit tax 0.22 0.24 0.26 0 0

Deferred Tax -3.05 -3.55 -2.57 0 0

Reported Net Profit 13.19 9.28 8.17 13.03 29.46

Extraordinary Items 0.04 0.8 -0.57 0 0

Adjusted Net Profit 13.15 8.48 8.74 13.03 29.46


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Adjst. below Net Profit 2.34 -0.44 -1.56 -0.1 0.17

P & L Balance brought forward 62.67 74.94 80.91 69.22 89.72

Statutory Appropriations 0 0 0 0 0

Appropriations 3.26 2.87 18.3 -7.57 4.29

P & L Balance carried down 74.94 80.91 69.22 89.72 115.06

Dividend 1.66 1.66 1.38 1.66 3.32

Balance Sheet (In Crs)

Year Mar-07 Mar-08 Mar-09 Mar-10 Mar-11

SOURCES OF FUNDS :

Share Capital 5.53 5.53 5.53 5.53 5.53

Reserves Total 92.54 99.43 104.43 115.42 141.19

Equity Share Warrants 0 0 0 0 0

Equity Application Money 0 0 0 0 0

Total Shareholders Funds 98.07 104.96 109.96 120.95 146.72

Secured Loans 48.02 44.07 42.64 20.04 51.76

Unsecured Loans 15 14.98 14.26 54 0

Total Debt 63.02 59.05 56.9 74.04 51.76

Total Liabilities 161.09 164.01 166.86 194.99 198.48APPLICATION OF FUNDS :

Gross Block

Less : Accumulated Depreciation 109.08 135.19 158.29 179 201.16

Less:Impairment of Assets 0 0 0 0 0

Net Block 111.68 99.96 87.47 86.91 134.47

Lease Adjustment 0 0 0 0 0

Capital Work in Progress 3.75 0.56 4.3 7.95 16.66

Investments 1.94 2.24 1.78 1.55 1.44Current Assets, Loans & Advances

Inventories 48.87 54.07 66.59 61.56 56.48

Sundry Debtors 100.92 101.54 97.55 133.67 143.41

Cash and Bank 3.08 3 3.1 6.88 4.25


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Loans and Advances 35.69 23.05 18.14 16.81 24.86

Total Current Assets 188.56 181.66 185.38 218.92 229

Less : Current Liabilities and

Provisions

Current Liabilities 140.42 120.93 115.35 124.04 183.94

Provisions 3.89 2.5 2.32 3.19 5.75

Total Current Liabilities 144.31 123.43 117.67 127.23 189.69

Net Current Assets 44.25 58.23 67.71 91.69 39.31

Miscellaneous Expenses not written off 0 0 0 0 0

Deferred Tax Assets 0 3.02 5.6 7.06 6.6

Deferred Tax Liability 0.53 0 0 0.17 0

Net Deferred Tax -0.53 3.02 5.6 6.89 6.6

Total Assets 161.09 164.01 166.86 194.99 198.48


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INDUSTRY OVERVIEW

Automobile industry is one of the highly growing sectors of India. Automobile industry mainly

comprises of two wheeler, three wheeler and four wheeler vehicles. Four wheelers may be further

segmented as passenger cars, utility vehicles (UV), commercial vehicles (CV) and tractors. TheIndian automobile market can be divided into 2 broad segmentspassenger vehicles and commercial

vehicles. The Indian passenger vehicles sector is the 9th largest in the world with a growth rate of

18% over the last 5 years. The commercial vehicle sector is the 5th largest market in the world and

the same has been growing at 27% over the last 5 years. The projected growth rate in both these

categories is around 10-15%.

Initially the vehicles were manufactured by Original Equipment Manufacturers from scratch.

With the increasing use of outsourcing, many companies use parts manufactured by specializedcompanies to achieve economies of scale. This gave rise to an entirely new industry of auto

components. Auto-components industry is a highly segmented industry with providers for different

types of auto parts, starting from lamps to the engines

The industry has been facing sequential drops in PBDIT margins due to high cost of raw

materials raw materials, energy and manpower. The drop in PBDIT margins was relatively sharper in

case of OEMs as they were unable to fully pass on the increase in input costs to customers due to

elevated competitive intensity. It was less for component manufacturer as they could pass on the costto the OEMs.

The industry has also been affected in the domestic production due to three major strikes at largest car

manufacturer Maruti Suzuki, limited off take in commercial vehicle and passenger car industry, lower

industrial activity and Euro crisis. Also high interest rates and inflation led to postponement of car purchases

(70% is funded by auto loans), skewed demand for diesel vehicles post the petrol price de-regulation and flat

industrial production (up by 2.8%) that impacted the demand for commercial vehicles in FY 2012. This

directly affected the auto ancillary industry too as it moves in tandem with the OEM demand. Thus the autoancillary industry's production growth was limited to 12% in FY 12 compared to 29% in FY 11.


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Size of the industry

According to the recent data released by the Society of Indian Automobile Manufacturers (SIAM),

The cumulative production for April-June 2012 registered a growth of 7.65 per cent over April-June 2011, manufacturing 1,700,675 vehicles in June 2012.

While Passenger vehicle segment grew at 9.71 per cent during April-June 2012, overallcommercial vehicle segment registered an expansion of 6.06 per cent year-on-year (y-o-y).

Two Wheelers sales registered a growth of 10.51 per cent during April-June 2012 whereinMopeds, Motorcycles and Scooters grew by 6.60 per cent, 6.79 per cent and 29.14 per cent,

respectively

.

1203(3) 1103(3) %Var 1203(12) 1103(12) %Var

Sales 16625 14183 17 59420 50366 18

OPM (%) 14.6 14.3 13.4 13.9

Operating Profit 2429 2024 20 7973 7001 14

Other Income 241 177 36 1103 952 16

PBDIT 2670 2200 21 9076 7953 14

Interest 304 215 41 1518 959 58

PBDT 2366 1986 19 7558 6994 8

Depreciation 567 461 23 2083 1814 15

Profit Before Tax 1799 1525 18 5475 5180 6

Tax 526 405 30 1535 1443 6

Net Profit 1273 1120 14 3940 3737 5


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RISK FACTORS

Internal Risk

Companys ability to maintain competitive position and to implement its business strategy is

dependent to a significant extent on senior management team and other key personnel.

The company depends on current senior management for the implementation of companys strategy

and the operation of companys day-to-day activities. Furthermore, relationships of members of

senior management are important to the conduct of business. Competition for experienced

management personnel in the auto ancillaries sector is intense, the pool of qualified candidates is

limited, and company may not be able to retain the services of senior executives or key personnel or

attract and retain high-quality senior executives or key personnel in the future. Consequently, there

can be no assurance that these individuals will continue to make their services available to us in thefuture. Any significant loss of senior management or key personnel could materially and adversely

affect the business, financial condition, results of operations and prospects.

General and industry-specific economic fluctuations could adversely affect the business,

financial condition, results of operations and prospects.

The business, financial condition, results of operations and prospects depend on a variety of general

economic and industry-specific factors. The auto ancillaries sector is highly fragmented and

competitive and is affected by changes in national, regional and local economic conditions, consumer

credit, taxation, unemployment and changing demographic trends. These factors are generally

beyond the companys control, and its ability to manage the risks they present is important to its

operations. Reduced order for any reason, increased costs of doing business or reduced prices for the

products as a result of these or other considerations could adversely affect the business, financial

condition, results of operations and prospects.

The business is labour-intensive and depends on dedicated and capable employees, and if it is

not able to continue to hire, train and retain qualified employees or if labour costs increase, the

business, financial condition, results of operations and prospects could be materially and

adversely affected.


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The company generates a majority of its revenues from HMCL. Any event negatively affecting

the performance in HMCL could have a material adverse effect on the companys overall

business andresults of operations.

Sunbeam generated about 74% of its revenues from HMCL in Fiscal Year 2011.it is expected that

this market will continue to account for a substantial portion of its revenues in the near future. If

HMCL experiences an event negatively affecting its industry, such as a local economic downturn, a

natural disaster, a contagious disease outbreak or a terrorist attack, or if the local authorities adopt

regulations that place additional restrictions or burdens on us or on the industry in general, the

overall business and results of operations may be materially and adversely affected.

Changes in preferences of customers that are largely beyond the control of Sunbeam could

adversely affect the business, financial condition, results of operations and prospects.

The business is particularly sensitive to changing automobile manufacturer companys preferences,

all of which may be caused by many factors that are generally beyond its control.

The company may be unable to accurately forecast demand for its products.

The supply of raw materials for the products is based primarily on forecasts and requirements

prepared by the key managers. These forecasts are based on past sales as well as anticipated demand,

which is based to a certain extent on the subjective assessment of the key managers. An inability toaccurately forecast demand for companys products would lead to excess supply or a shortage in the

supply of raw materials from the suppliers, which would have a material adverse impact on its

business, financial condition, results of operations and prospects.

Increases in costs could result in a loss of revenue and adversely impact companys business,

financial condition, results of operations and prospects.

Sunbeams profitability depends in part on its ability to anticipate and react to changes in the cost of

its supplies. Increases in the cost of important products could significantly increase its manufacturing

expenses. It has no control over fluctuations in the price and availability of raw material or variations

in products. If company is not able to obtain requisite quantities of quality raw materials at

commercially reasonable prices, its ability to provide the reasonable price be adversely affected.


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Its ability to raise capital for the future growth and expansion may be limited.

Changes in the operating plans, acceleration of expansion plans, lower-than-anticipated sales,

increased expenses or other events, including those described in this section, may cause us to seek

additional financing on an accelerated basis. Financing may not be available on commercially

acceptable terms, or at all. In addition, some of the facility agreements require us to seek the lenders

prior consent in order to incur additional indebtedness above certain thresholds. Additional financing,

if available, may involve significant cash payment obligations and covenants and/or financial ratios

that restrict its operational flexibility. Any failure to obtain financing in a timely manner or on

commercially acceptable terms could adversely affect the business, financial condition, results of

operations and prospects.

The company faces strong competition in its business.

The auto ancillary sector in India is subject to growing competition in the markets in which company

compete. There is increasing competition in respect of price, service and product quality. Itmay also

face competition from existing, experienced business willing to accept low margins on investment in

order to enter new markets A significant increase in competition, whether from one new competitor

or many, could exert downward pressure on prices, lower demand for the products and take

advantage of new business opportunities and a loss of market share, all of which would adversely

affect its business, financial condition, results of operations and prospects.

The indebtedness and the conditions and restrictions imposed by the financing agreements

could restrict its ability to conduct the business, which may adversely affect the business,

results of operations, financial condition and prospects.

As of December 31, 2010, sunbeam had consolidated secured indebtedness of Rs. 200.41 million,

and it may incur additional indebtedness in the future. The indebtedness (both current and future)

could have several adverse consequences, including, but not limited to the possibility that company

may be required to dedicate a portion of its cash flow towards repayment of debt, its ability to obtain

additional financing in the future may be impaired, and fluctuations in market interest rates may

adversely affect the cost of borrowings.


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Costs of compliance with health, safety and environmental laws are expected to be significant,

and the failure to comply with existing and new health, safety and environmental laws could

adversely affect the results of operations.

The business is subject to national, state and municipal laws and regulations, which govern the

handling and, as well as the discharge, emission, storage, handling and disposal of a variety of

substances that may be used in or result from its operations.

Companyrequires a number of approvals, licences, registrations and permits in the ordinary

course of its business, and the failure to obtain or renew them in a timely manner may

adversely affect its operations.

The company requires a number of approvals, licences, registrations and permits for the business.

Additionally, it may need to apply for renewal of approvals which expire, from time to time, as and

when required in the ordinary course. If it fails to obtain any applicable approvals, licences,

registrations and permits in a timely manner, it may not be able to expand the business on time, or at

all, which could affect the business and results of operations.

The insurance coverage may be inadequate, as a result of which the loss or destruction of assets

could have a material adverse effect on the financial condition and results of operations.

The company insures its property, equipment and product stock in India with major Indian insurancecompanies. The list of insured accidents includes risk of damage caused as a result of fire, gas and

other household explosions, flood and water main accidents, robbery and criminal activity,

vandalism and unlawful acts of third parties, power outages, terrorism and other similar events. The

amounts, coverage limits and deductibility provisions of insurance are determined, with a view to

maintaining appropriate insurance coverage on assets at a commercially reasonable cost and on

suitable terms. This may result in insurance coverage that, in the event of a substantial loss, would

not be sufficient to pay the full current market value or current replacement cost of its assets. Any

large uninsured loss orinsured loss which significantly exceeds the insurance coverage could

adversely affect its business, financial condition, results of operations and prospects.


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External Risks

A slowdown in economic growth in India could cause business to suffer.

The performance and the growth of the business are necessarily dependent on the health of the

overall Indian economy. As a result, any slowdown in the Indian economy could adversely affect the

business.

Indias economy could be adversely affected by a general rise in interest rates, inflation, natural

calamities, such as earthquakes, tsunamis, floods and drought, increases in commodity and energy

prices, and protectionist efforts in other countries or various other factors. In addition, the Indian

economy is in a state of transition. It is difficult to gauge the impact of these fundamental economic

changes on the business. Any slowdown in the Indian economy could adversely affect the business,

results of operations, financial condition and prospects.

Political instability or changes in the Government in India or in the Government of the states

where the company operates could cause us significant adverse effects.

The company is incorporated in India and all of its operations, assets and personnel are located in

India. Consequently, its performance and the market price and liquidity of the Equity Shares may be

affected by changes in exchange rates and controls, interest rates, Government policies, taxation,

social and ethnic instability and other political and economic developments affecting India. The

Government has traditionally exercised, and continues to exercise, a significant influence over manyaspects of the economy. Sunbeams business is also impacted by regulation and conditions in the

various states in India where is operates. The business, and the market price and liquidity of the

Equity Shares may be affected by interest rates, changes in Government policy, taxation, social and

civil unrest and other political, economicor other developments in or affecting India. Since 1991,

successive Governments have pursued policies of economic liberalisation and financial sector

reforms. However, there can be no assurance that such policies will be continued. Any political

instability could affect the rate of economic liberalisation, specific laws and policies affecting foreign

investment, the auto ancilliaries industry or investment in companys Equity Shares. A significant

change in the Governments policies, in particular, those relating to the automobile industry in India,

could adversely affect its business, results of operations, financial condition and prospects and could

cause the price of the Equity Shares to decline.


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A third party could be prevented from acquiring control over us because of anti-takeover

provisions under Indian law.

There are provisions in Indian law that may delay, deter or prevent a third party from attempting to

acquire control of the Company, even if a change in control would result in the purchase of the

Equity Shares at a premium to the market price or would otherwise be beneficial to investor.

Consequently, even if a potential takeover of the Company would result in the purchase of the Equity

Shares at a premium to their market price or would otherwise be beneficial to its shareholders, such a

takeover may not be attempted or consummated because of Indian takeover regulations.

Ability to raise foreign capital may be constrained by Indian law.

As an Indian company, the company is subject to exchange controls that regulate borrowing in

foreign currencies.Such regulatory restrictions limit the financing sources for the business operations

or acquisitions and other strategic transactions, and consequently could constrain its ability to obtain

financings on competitive terms and refinance existing indebtedness. In addition, company cannot

assure its investors that the required approvals will be granted to us without onerous conditions, or at

all.

Any downgrading of Indias debt rating by an international rating agency could have a

negative impact on its business, results of operations, financial condition and prospects.Any adverse revisions to Indias credit ratings for domestic and international debt by international

rating agencies may adversely impact companys ability to raise additional financing and the interest

rates and other commercial terms at which such additional financing is available. This could have a

material adverse effect on the business and future financial performance, ability to obtain financing

for capital expenditures, and the price of Equity Shares.

Regional hostilities, terrorist attacks or social unrest in India could adversely affect the

financial markets and the trading price of the Equity Shares could decrease.

Terrorist attacks and other acts of violence or war including those involving India, the United States

or other countries, may adversely affect the Indian and worldwide financial markets.


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Investment Risk

Regional hostilities, terrorist attacks or social unrest in India and South Asia or other

countries, could adversely affect the financial markets and the trading price of the Equity

Shares could decrease.

Terrorist attacks and other acts of violence or war including those involving India, the United States

or other countries, may adversely affect the Indian and worldwide financial markets. Increased

volatility in the financial markets, including economic recession, can have an adverse impact on the

economies of India and other countries.

There is no existing market for the Equity Shares, and it is known if one will develop. Stock

price may be highly volatile after the Issue and, as a result, investor may lose a significant

portion or all of his investment.

Prior to the Issue, there has not been a public market for the Equity Shares. It cannot predicted to

what extent investor interest will lead to the development of an active trading market on the Stock

Exchanges or how liquid that market will become. If an active market does not develop, investor may

experience difficulty selling the Equity Shares that are purchased. The Issue Price is not indicative of

prices that will prevail in the open market following the Issue. Consequently, investor may not be

able to sell his Equity Shares at prices equal to or greater than the Issue Price. The market price ofthe Equity Shares on the Stock Exchanges may fluctuate after listing as a result of several factors,

including the following:

Volatility in the Indian and other global securities markets

The performance of the Indian and global economy Risks relating to the business and industry, including those discussed in this Red Herring

Prospectus

Strategic actions by company or competitors Investor perception of the investment opportunity associated with the Equity Shares and

companys future performance


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Adverse media reports about company, shareholders or Group Companies Future sales of the Equity Shares Variations in quarterly results of operations Differences between actual financial and operating results and those expected by investors

and analysts

Ability to pay dividends in the future will depend upon future earnings, financial conditions,

cash flows, working capital requirements and capital expenditures.

The amount of future dividend payments, if any, will depend upon future earnings, financial

condition, cash flows, working capital requirements, capital expenditures and other factors. There

can be no assurance that company will be able to pay dividends. Additionally, company may be

prohibited by the terms of future debt financing agreements to make any dividend payments until a

certain time period as may be agreed with lenders.

There will be restrictions on daily movements in the price of Equity Shares, which may

adversely affect a shareholders ability to sell, or the price at which it can sell, Equity Shares ata particular point in time.

Equity Shares, once listed, will be subject to a daily circuit breaker imposed by the Stock Exchanges,

which will not allow transactions beyond specified increases or decreases in the price of Equity

Shares. This circuit breaker operates independently of the index-based, market-wide circuit breakers

generally imposed by SEBI on Indian stock exchanges. The percentage limit on circuit breakers will

be set at some point by the Stock Exchanges based on the historical volatility in the price and trading

volume of Equity Shares. As a result of this circuit breaker, no assurance may be given regarding

investors ability to sell his Equity Shares or the price at which he may be able to sell Equity Shares

at any particular time.


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There is no guarantee that the Equity Shares will be listed on the Stock Exchanges in a timely

manner or at all, and any trading closures at the Stock Exchanges may adversely affect the

trading price of Equity Shares.

In accordance with Indian law and practice, permission for listing of the Equity Shares will not be

granted until after those Equity Shares have been issued and allotted. Approval will require all other

relevant documents authorising the issuing of Equity Shares to be submitted. There could be a failure

or delay in listing the Equity Shares on the Stock Exchanges. Any failure or delay in obtaining the

approval would restrict his ability to dispose of his Equity Shares.

There can be no assurance that the Companys securities will continue to be listed on the Stock

Exchanges.

Pursuant to the listing of the Equity Shares on the Stock Exchanges, it will be required to comply

with certain regulations and/or guidelines as prescribed by SEBI and the Stock Exchanges. However,

in the event that company fail to comply with any of the aforesaid regulations and/or guidelines,

there can be no assurance that the Equity Shares will continue to be listed on the Stock Exchanges.

Investors will not be able to sell immediately on an Indian stock exchange any of the Equity

Shares purchased in the Issue.

The Equity Shares will be listed on the Stock Exchanges. Pursuant to Indian regulations, certainactions must be completed before the Equity Shares can be listed and trading may commence.

Investors book entry or demat accounts with depository participants in India are expected to be

credited within three working days of the date on which the basis of allotment is approved by the

Designated Stock Exchange. Upon receipt of final approval from the Stock Exchanges, trading in the

Equity Shares is expected to commence within 12 Working Days from the Bid/Issue Closing Date.

Company cannot assure that the Equity Shares will be credited to investors demat accounts, or that

trading in the Equity Shares will commence, within the time periods specified above. Any delay in

obtaining the approvals would restrict the investors ability to sell the Equity Shares.


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Any future issuance of Equity Shares may dilute shareholdings, and sales of Equity Shares by

Promoters or Promoter Group may adversely affect the trading price of the Equity Shares.

Any future equity issuances by company or sales of the Equity Shares by Promoters or Promoter

Group may adversely affect the trading price of the Equity Shares and the Companys ability to raise

capital through an issue of securities. In addition, any perception by potential investors that such

issuances or sales might occur could also affect the trading price of its Equity Shares. Additionally,

the disposal, pledge or encumbrance of the Equity Shares by any of Companys major shareholders,

or the perception that such transactions may occur may affect the trading price of the Equity Shares.

No assurance may be given that the Company will not issue Equity Shares or that such shareholders

will not dispose of, pledge or encumber their Equity Shares in the future.

Foreign investors are subject to foreign investment restrictions under Indian law that limit

Companys ability to attract foreign investors, which may adversely impact the market price of

the Equity Shares.

Under the foreign exchange regulations currently in force in India, transfers of shares between non-

residents and residents are freely permitted (subject to certain exceptions) if they comply with the

requirements specified by the Reserve Bank of India (RBI). If the transfer of shares, which are

sought to be transferred, is not in compliance with such requirements or fall under any of the

exceptions referred to above, then the prior approval of the RBI will be required. Additionally,shareholders who seek to convert the Rupee proceeds from a sale of shares in India into foreign

currency and repatriate that foreign currency from India will require a no objection/tax clearance

certificate from the income tax authority. The Company cannot assure investors that any required

approval from the RBI or any other Government agency can be obtained on any particular terms or at

all.


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ISSUE DETAILS

Eligibility for IPO

The Company is eligible for the Issue in accordance with Clause 2.2.1 of the SEBI DIP Guidelines as

explained under, with the eligibility criteria calculated in accordance with financial statements under

Indian GAAP:

The Company has net tangible assets of at least Rs. 300 Lacs in each of the preceding threefull years (of 12 months each) of which not more than 50% is held in monetary assets and is

compliant with Clause 2.2.1(a) of the SEBI DIP Guidelines;

The Company has a track record of distributable profits in accordance with Section 205 ofCompanies Act, for at least three of the immediately preceding five years and is compliant

with Clause 2.2.1(b) of the SEBI DIP Guidelines;

The Company has a net worth of at least Rs. 100 Lacs in each of the three preceding fullyears and is compliant with Clause 2.2.1(c) of the SEBI DIP Guidelines;

The aggregate of the proposed Issue size and all previous issues made in the same financialyear in terms of size (i.e. offer through the offer document + firm allotment + promoters

contribution through the offer document) is not expected to exceed five times the pre-Issue

net worth of the Company as per the audited balance sheet of the last financial year and is

compliant with Clause 2.2.1(e) of the SEBI DIP Guidelines.

The company has changed its name from Sunbeam Auto Ltd. to Sunbeam auto Pvt. Ltd. w.e.f19.05.2010, but there has been no change in the business activities.

In Crore 2011 2010 2009 2008 2007

Net tangible assets 190.95 148.47 154.06 154.03 160.55

Monetary assets 172.52 157.36 118.79 127.59 139.69Distributable Profits 29.46 13.03 8.17 9.28 13.19

Net worth, as restated 146.72 120.95 109.96 104.96 98.07


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Page | 22

Selection of IPO Process

The IPO process will be conducted through 100% Book Building Process. Reasons for the process

selection are stated below-

Sunbeam Auto Pvt Ltd is a unit of Hero Group and a major supplier to HMCL. Due to thesereasons its visibility in market is low. An auction process is better for companies which have

higher market visibility.

Due to low market visibility and sales turnover, chances of failure are higher than bigcompanies. This would be reduced in book building process as the underwriter has total

discretion in allocating shares and allowing allocations to be based on long-term relationships

between underwriters and investors.

Also the success of IPO can be judged as the book is built. Book building is also better than fixed price for the company as the prices will be fixed as per

the demand of the share.

Issue structure

As per DIP guidelines, for an IPO to be being conducted through 100% Book Building process, an

allotment structure has to be followed. Accordingly, the allotment structure is as follows-

Type of Investor Minimum Allocation

QIB 50%

Mutual Funds 5% of QIB

Balance for all QIBs including

Mutual Funds Remaining amount

Non-Institutional

Investors 15%

Retail Investors 35%


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Basis for Allocation

As per DIP guidelines by SEBI, if an issuer company makes an issue of 100% of the net offer to

public through 100% book building process then the following considerations need to be followed

for allocation of shares-

a) Not less than (35%) of the net offer to the public shall be available for allocation to retailindividual investors

b) Not less than (15%) of the net offer to the public shall be available for allocation to noninstitutional investors i.e. investors other than retail individual investors and Qualified

Institutional Buyers;

c) Not more than 50% of the net offer to the public shall be available for allocation to QualifiedInstitutional Buyers. Provided that, (50% of net offer to public) shall be mandatorily allotted

to the Qualified Institutional Buyers, at least 5% of which to Mutual Funds and the rest for all

QIBs, including Mutual Funds.

The allocation has been done on basis of the above guidelines along with the below stated factors-

QIBs generally quote higher prices as they do not have to pay upfront hence it will help inincreasing the share price.

As opposed to retail and non-institutional investors, QIBs are not permitted to withdraw theirbids until the day of allotment; this reduced the risk of failure of IPO.

Currently the equity of Sunbeam Auto Pvt. Ltd is completely held by Promoters- Mr. AshokMunjal and Mrs.NeelamMunjal through Munjal holdings (an investment company of Mr.

Ashok Munjal). As the IPO is the companys first exposure to equity funding it does not want

to dilute its stake in equity holdings. High allocations to retail investors will dilute the stake.

Also there is a high chance of transferability of shares by the retail investors. The company

wishes to have a stable capital structure in the near future.


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Page | 24

Issue Allocation

Public Issue of Equity Shares 2666667 Equity Shares of face value of Rs. 10 each

for cash at a premium of Rs. [] aggregating to Rs. []

Lacs

Of which:

Qualified Institutional Buyers Portion 5333334 Equity Shares of Rs. 10 each for cash at a

premium of Rs. [] aggregating up to Rs. [] Lacs

(Allocation on a proportionate basis)

Of which 5% is available for allocation to

Mutual Funds

[The unsubscribed portion, if any, in the MutualFund reservation will be available to QIBs]

Up to 266667 Equity Shares of Rs. 10 each for cash at

a premium of Rs. [] aggregating up to Rs. [] Lacs

Balance for all QIBs including Mutual funds

Up to 5066667 Equity Shares of Rs. 10 each for cash

at a premium of Rs. [] aggregating up to Rs. [] Lacs

Non Institutional Portion Not Less than 400000 Equity Shares of Rs. 10 each

for cash at a premium of Rs. [] aggregating up to Rs.

[] Lacs

(Allocation on a proportionate basis)

Retail Portion Not Less than 933334 Equity Shares of Rs. 10 each

for

Equity Shares outstanding prior to the Issue 5532210 Equity Shares of face value of Rs. 10 each

Equity Shares outstanding after the Issue 6416667 Equity Shares of face value of Rs. 10 each

Promoter contribution and Lock-In-Period

Currently the promoter has a stake of 74% (5532210 shares). It is assumed that the promoters have

diluted their stake to 50% for the public issue. The promoters will have 3,750,000 shares post issue.

As per SEBI guideline-4.11.1 the promoters have a lock in period of minimum 3 years post the

public offer. Total paid up capital post issue is Rs. 26666670crores. As the promoters have a

contribution of 50% of the total paid up capital, it satisfies the SEBI-guideline 4.1.1 of minimum

20% of post issue paid up capital by promoters.


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Page | 25

CAPITAL STRUCTURE

Face value for all shares has been fixed to Rs.10 in order to prevent dilution.

Aggregate value at

Face Value

Aggregate Value at

Issue Price

A

Authorized Capital

7500000 Equity Shares at Face Value

of Rs.10 each

75000000

B

Issued, subscribed and Paid-up

Capital Before Issue

5532210 Equity Shares at Face Value

of Rs.10 each

55322100

C

Issue to the Public in terms of this

Issue

2666667 Equity Shares at Face Value of

Rs.10 each

26666670

D

Equity Share Capital after the Issue

6416667 Equity Shares at Face value ofRs. 10 each

64166670

Proposed Stake dilution before and after the issue-

Promoter have diluted their stake in this public issue, promoter stake at post issue structure will be

come down from 76% to 50%.

74%

26%

Pre Issue Stake

Promoters

Stake

Non Issued

Capital

50%

14%

36%

Post Issue Stake

Promoters

Stake

Non Issued

Capital

Issued to Public


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OBJECTIVE OF ISSUE

Assumptions-

1. The project plan is made as per the current industry requirements2. Cost of each equipment required is assumed as per industry standards3. Exchange rate for Rupee conversions(equipment purchase) is assumed to be 55.66

The company intends to utilize the proceeds of the issue in the following way-

Currently the automobile industry is growing at a high pace and the trend is expected to be

maintained till 2020. Currently the company has a casting capacity of 41,555 tonnes per annum

increased by 3000 tonnes with the setup of new plant at Bhiwadi. However the production needs to

be stepped up to match the industry growth rate of 15%. It is planned to increase the production to66,833 tonnes per annum in future. The production capacity is planned to increase by 50% in next 5

years.

The company plans to increase the production level in the next few years. The plan is to

undertake a capacity expansion and modernization program at its existing plant at Bhiwadi,

Rajasthan. Additionally the company plans to purchase additional equipments for the facility. As

production has not started fully fledged, the same has been chosen for capacity enhancement. The

plan is to increase the capacity of the company to 66,833 MT per annum by 2017. The facility hasbeen also chosen as land is available near the site with no additional cost.

Total funds required for the project are approximately-

In Crore Phase I Phase II Phase III

Land 6

Building 7.7 2.2 1.1

Machine 51.1 14.6 7.3

Employee Cost 0.24 0.41 0.78 1.55

Power 0.85 1.445 1.615 1.7

Working Capital Requirement 16

*1.55 Cr allocated for employee cost after completion of Phase-III when capacity is fully used for

new plant


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Details of Cost of Project

The company plans to go for an expansion from the issue proceeds. For this the company has

planned to increase its production capacity to 66,833 over a period of 4 years. The basic project plan

is to increase the capacity of existing Bhiwadi plant in the first year, and subsequently build a new

plant which will be completed in phases. The new plant is planned to be built in Bhiwadi as the cost

of land is cheaper in that area. Also the machines can be used by both the factories while one is under

any maintenance activity.

Assumptions-

1. It is assumed that 70% of funds will be used in Phase-I, 20% in Phase-II and 10% in Phase-III.

2. Capacity utilization from the new plant will beExisting Capacity- 44555

MT

Year +2 Year +3 Year +4 Year +5

0.7 0.2 0.1 Full Utilization

Capacity Addition 31,189 8,911 4,456 66832.5

3. Cost associated to building, employee and machine are with respect to capacity utilization inthat year

Item wise Costing-

Land- Land will be purchased in Bhiwadi at an approximate price of Rs. 6 crore. Companyplans to buy the land required for the project in a single slot. This includes the expenses

towards Legal Fees, Stamp Duty, Registration and other miscellaneous expenses. It also

includes Rs. 1cr for land development which consists of land leveling, compound wall,

plantation, etc.

Building- the detailed cost of building which will be completed in three phases is describedbelow-

Particulars Phase I (70%) Phase II (20%) Phase III (10%)

Tool Room 2.1 0.6 0.3

Machine shop 3.5 1 0.5

Quality Control Labs 1.4 0.4 0.2


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Power- the power expenses are calculated on a lump-sum basis.Phase I Phase II Phase III Full Capacity Utilization

Power 0.85 1.445 1.615 1.7

Employee CostsThe company plans to increase the capacity of existing plant in 2013. Accordingly the cost

incurred is 0.24 Crore. This has been taken into consideration taking into consideration of

total employee base of 1100 as per the profile. Employees are working on a 3 shift basis.

Assumption- 0.3 Crore has been kept for contingencies

Phase I Phase II Phase III Full Capacity Utilization

Employee Cost 0.24 0.41 0.78 1.55

Issue Expenses- Rs. 8.4 crores has been assumed to be issue expenses.


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Plant and Machinery-

Phase-I Phase-II Phase-III

ClassificationMachines

RequiredSupplier Quantity Cost Quantity

Total

CostQuantity

Total

Cost

Tool Room

High Speed

CNC

Vertical

Machining

Centers

DeckelMaho 40INR

10.6012

INR

3.188

INR

2.12

CNC

Digitizing

Machine

Cyclone

from

Renishaw,

UK

40INR

0.1112

INR

0.038

INR

0.02

Machine Shop

CNCTC -

31 A

Tapping

Center

Brither

Japan40

INR

10.4612

INR

3.148

INR

2.09

BMV-40-

TC-20

Vertical

Machining

Center

BFW

Banglore

40INR

4.34

12INR

1.30

8INR

0.87

DMC 63 V

Vertical

Machining

Center

Deckle V

Maho

Germany

50INR

11.3315

INR

3.405

INR

1.13

CNC

Turning

Center

Glide

Master

20INR

11.13

6INR

3.34

2INR

1.11

Other

Expenses

INR

2.23

INR

0.01

Total ExpenseINR

50.21

INR

14.40

INR

7.35


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Page | 30

Assumptions-

1. 10 lots of each machine required in first phase, 3 in second and 2 lots in third phase.2. Only 1 lot of last two components of Machine shop are required in phase-3 as they are for

machine room and the requirement is less.

3. The number of machine required depends upon the expected capacity increase.

Proposed Schedule of Implementation (time wise)- the entire project is expected to becompleted in a period of 3 years. The proposed schedule (time-wise) is given below-

S.No Activity Start End

1 Land Jan-2013 Mar-2013

2

Building

Phase I Mar-2013 Nov-2013

Phase II Nov-2013 Jul-2014

Phase III Jul-2014 Mar-2015

3

Plant and Machinery-

Order

and Delivery

Phase I Nov-2013 Feb-2014

Phase II Jul-2014 Sep-2014

Phase III Mar-2015 May-2015

4

Trial Production

Phase I Feb-2014 Apr-2014

Phase II Sep-2014 Nov-2014

Phase III May-2015 Jul-2015

5

Commercial ProductionPhase I Apr-2014

Phase II Nov-2014

Phase III Jul-2015


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Page | 31

Proposed Implementation (Cost Wise)-

S.No Particulars

01-Jan-2013

to

31-Mar-

2014

01-Apr-2014

to

31-Mar-

2015

01-Apr-2015

to

31-Mar-2016

01-Apr-2016

to

31-Mar-2017

1 Land 6

2

Building

Phase I 7

Phase II 2

Phase III 1

3

Plant and

Machinery-

Order

and

Delivery

Phase I 50.4 0 0

Phase II 14.4

Phase III 7.2

4

Employee

Cost

Phase I 0.24

Phase II 0.41

Phase III 0.78 1.55

5

Power

Phase I 1.6

Phase II 2Phase III 2

6

Working

Capital

Requirement

16


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Monitoring of Utilization of Funds

As the issue size is less than Rs. 500 crores, there is no requirement for appointment of monitoring

agency as per clause 8.17.1 of the SEBI (Disclosure and Investor Protection) Guidelines, 2008.

The utilization of the proceeds of the issue will be disclosed by the company under separate head in

the balance sheet from FY 2013-14 to FY 2016-17, clearly specifying the purpose for which such

proceeds have been utilized or otherwise disclosed in accordance with the disclosure requirements of

listing agreement with the stock exchange. also in the balance sheet from FY 2013-14 to FY 2016-

17, provide details, if any, and disclose in accordance with the disclosure requirements of listing

agreement in relation to all such proceeds of the issue that have not been utilized thereby also

indicating investment, if any, of such unutilized proceeds of the issue.


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Page | 33

BASIS FOR ISSUE PRICING

Company Valuations:

In view of companys potential growth opportunities, Sunbeam Auto Pvt Ltd has prepared the

corporate plan for capacity expansion. Sunbeam wanted to increase capacity of 50% at Bhiwadi plant

in Rajasthan so that it can capitalize on economies of scale by maintaining existing cost structure.

Sunbeam has decided to go public in order to meet fund requirements for capital expansion plan.

Estimated capital requirement to carry out the capital expansion will be INS Rs 120 Cr. Expansion

will be carried out in three phases.(mentioned in table below)

Valuation of sunbeam is carried out by two methods to arrive at price discovery for the public issue

A) FCFF by forecasting methodB) Relative Valuation Method

A)FCFF by forecasting method:In this method financial results were forecasted viz. income statements and balance sheet by taking

proper assumptions of economic factors like inflation effect, and prevailing trend in the cost structure

and benefits of economies of scale after expansion.

1. Sales Forecasting:Sales forecasting is carried out by considering the future expansion in capacity and price effect due toinflation.

Capacity Expansion plan: 50%capacity will be added into the existing capacity

Phase Phase-1 Phase-2 Phase-3

Year 2012 2013 2014 2015 2016

Proposed Capacity

Expansion

Capitalexpansionwill be inprogress

70% of additionalcapacity utilised

90% ofadditionalcapacityutilised

100%additionalcapacityutilised

Plant willon fullcapacity

Inflation Effect on price 1.05 % 1.05 % 1.05 % 1.05 % 1.05 %

Forecasted Sales in Cr. 1359.88 1982.70 2355.45 2671.08 2884.77


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Page | 34

2. Excise Duty: Net excise duty is calculated by considering the duty payables and duty receivableson exported items. Prevailing duty rates for CENVAT are 12% , and cess-3%. Net excise duty is

considered to be 14% sales and net sales calculated.

3. Other Income: It is forecasted on basis of past trend with sales, slope for the particular trend iscalculated and further figures are forecasted , also investment made during capital expansion also

considered.

4. Stock Adjustments: closing andopening stock of work in progress, raw material and finishedgoods stock in operating year is considered in calculations It is forecasted on basis of past trend

with sales, slope for the particular trend is calculated and further figures are forecasted.

5. Expenditures:It generally includes the raw material cost, power cost, employee cost, and other manufacturing

cost, and selling and distribution costs. It is assumed that future cost heads will follow the past

trend. Therefore the individual cast heads are forecasted on basis of past trend with sales, slope for

the particular trend is calculated and further figures are forecasted.

6.Interests Expenses: It is assumed that company will not add any debt in future five years as it hasenough fund through public issue and CFO to meet its requirements. Therefore its interest

expenses will cover the existing debt obligations only.

7. Depreciation Expenses:Depreciation expenses are calculated by considering the addition of new asset base in capital

expansion. New asset base have life of 15 years. Therefore depreciation expenses will be expenses

on old assets plus the expenses on new asset base.

8. Networking Capital:Working capital after expansion will also increase in proportion of sales, so heads under current

asset and current liabilities are forecasted by considering the turnover ratios. Cash and bank

balances are independent one and it is forecasted by considering the short term deposits in capital

expansion.


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Page | 35

9. Cost of capital :Cost of capital is calculated be weighted average cost of debt and equity capital; in this cost of

debt for auto ancillary industry is found 13%, while cost of equity is calculated by CAPM method.

Here the asset beta for sunbeam is considered as industry beta and equity beta is calculated. Final

cost of capital arrived is 11.37%, by taking this rate, cash flows are discounted to get the present

value of intermediate cash flow. And further terminal cash flow.

Following assumptions have been made while making calculations considering the market trend:

Assumptions: Rates

Marginal Tax Rate 40.0%

Market Risk Premium 9.00%

Risk-Free Rate @20Yrs 8.28%

Cost of Debt 15.00%

Therefore, WACC has been calculated as:

10. Value of firm :Value of firm is the sum of intermediate value and terminal value, here the intermediate value,

calculated till year 2016 using the free cash flow to the firm. Free cash flow to the firm is

calculated by adjusting the net operating profit after tax by adding depreciation and subtracting

the net working capital and capital expenditure and terminal value is calculated by considering the

company will grow after yr 2016, in line with industry at 5% perpetual growth rate.

Debt/Value Debt/Equity Asset Beta Equity Beta Cost of Equity Cost of Debt WACC

35.3% 54.5% 0.36 0.56 13.32% 15.00% 11.79%


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11. Expected growth rate for the company:Sunbeams Auto Pvt Ltd. being a unit of Hero Motors Corp. Ltd. (HMCL) is a major supplier to

the company for its 2 wheeler automobiles. HMCL has contributed to about 47% (2009-10) and

44 %( 2010-11) to the companys revenue. Another major customer to the company is

Munjalshowa Ltd (sole suppliers of shock absorbers to HMCL) which had a share of about 17%.

From these facts it can be expected that the revenues will be in line to that of HMCL. But on

analyzing the financial statements it is found that the company has a negative growth in revenue

in year 2008 to 2010. Reasons being attributed to the same are-

Decrease in sales due to high raw material prices and reduction of excise duty during theperiod.

The company faced reduction in exports as an impact of recession Internal competition from another unit of Hero group-Rockman Industries Sunbeam was one of the suppliers to HMCL and also is a small sized company, hence the

growth rate is not in pace as that of HMCL.

On analyzing the growth trends in the auto part industry, it can be found that Sunbeam is inline with most of its peers. The year marks the impact of economic slowdown on the

automobile industry which brings a spiral effect on the performance of Auto part industry.

Data from Central Statistical Organization show growth in output of automobile ancillaries

slowed down sharply to 14.9% in April-November 2011, on a year-on-year basis, from 32.3%growth in the previous year. It is expected that the company will grow at a sustainable rate of

5% post expansion.


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Page | 37

B) Relative Valuation

Relative valuation is a simple way to unearth low-priced companies with strong fundamentals. As

such, investors use comparative multiples like the price-earnings ratio (P/E), enterprise multiple

(EV/EBITDA) and price-to-bookratio all the time to assess the relative worth and performance of

companies, and to identify buy and sell opportunities. In practice, the multiple of a company is

compared to multiples for a peer group of companies rather than just one. The peer group typicallyconsists of companies in the same industry group and of similar size, based on the assumption that

future earnings and risk premiums are identical or similar for such companies.

The trouble is that while relative valuation is quick and easy to use, it can be a trap for investors. A

general weakness of the relative valuation models is that the estimates are often based on accounting

data. Despite attempts to harmonize accounting regulations through the International Financial

Reporting Standards (IFRS)or local Generally Accepted Accounting Principles (GAAP), there is still

considerable room left for different interpretations. Therefore, even if indicators such as past

earnings and sales can be seen as perfect proxies for future earnings and all companies in a peer

group are in fact exposed to the same risks, there could still be differences in valuation multiples that

were simply caused by accounting differences rather than real economic differences.

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

2011.00 2010.00 2009.00 2008.00

Sunbeam Peer Sales Growth Rate

sunbeam

Alicon

Amtek

Sriram

Sundaram

Trinity
http://www.investopedia.com/terms/p/price-earningsratio.asphttp://www.investopedia.com/terms/e/ev-ebitda.asphttp://www.investopedia.com/terms/p/price-to-bookratio.asphttp://www.investopedia.com/terms/p/price-to-bookratio.asphttp://www.investopedia.com/terms/e/ev-ebitda.asphttp://www.investopedia.com/terms/p/price-earningsratio.asp


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Page | 38

Therefore, in the calculation of the selected company, the relative valuation technique is been used

while analyzing the following points:

1. Analysis of the variables taken.2. Selection of the competitors and basis of selecting them.3. Determination of the price as compared to Discounted Cash Flow (DCF).

The assumptions and decisions that have taken related to the calculation and determination of the

price of the share of the firm is in accordance with the prevalent guidelines and industry

norms/practices.

Peer Selection

Peer companies selected, i.e. Alicon Castalloy Ltd, Amtek Auto, Autoline Industries and Sundaram

Clayton, are shortlisted on the basis of similarity in their business with that of Sunbeam in case of

industry they are existing in, scale of operations and business model followed.

The Earnings Multiples such as P/E, P/S, P/BV and P/CF have been calculated for the competitors

(year-2011) using the Relative Valuation technique after forecasting the financial statements, i.e.

balance sheets and income statements for the years 2012 to 2016(for DCF). Price has been calculated

by taking the minimum, maximum and average of the competitors. Enterprise value multiples have

not been considered as this is a private company and finding its market value is difficult. EPS and

other variables for Sunbeam have been calculated using weighted average of last five years. Weights

have been decided based on current years sales as a percentage of sales of the previous year. Year

2011 has been considered as the base and other weights have been calculated taking it as a basis.

Comparable Companies

Equity Market

Value Net Debt Debt/Value Debt/Equity

Equity

Beta

Asset

Beta

Alicon 693,502,174 746600000 51.8% 107.7% 0.34 0.20

Amtek Auto 26,121,931,662 32,678,900,000 55.6% 125.1% 0.61 0.35

Autoline Industries 1,651,079,874 1,977,300,000 54.5% 119.8% 1.22 0.71

Sundaram Clayton 6,024,680,617 8,625,500,000 58.9% 143.2% 0.34 0.18

Average 8,622,798,582 11,007,075,000 55.2% 123.9% 0.63 0.36


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Page | 39

Results with reference to the financial statements of the peer companies selected, as follows:

The calculations related to Discounted Cash Flows have resulted in the price determination at INR

513.81 per share. Using this prices have been compared with by various earnings multiple calculated

to determine a price as close as possible to it. Therefore, based on the average weighted price

obtained by using the multiples P/E and P/CF i.e. INR 433.45 and INR 451.63 respectively it has

been decided to fix the price band as Rs. 450- 540 per share.

The price of the issue has been decided to be high although it is an IPO and as compared to its

competitors because the number of shares to be issued is taken to be only 0.26 crores, with the

promoters contribution diluted to reach a new level of 50%.

Sunbeam Auto Pvt. Ltd.Price (Average) Price (Min) Price (Max)

Weighted Average

EPS 27.41 433.45 107.18 1033.03

SPS 1753.67 1276.98 394.47 3008.86

BVPS 46.23 50.17 32.44 93.27

CF 73.64 451.63 154.58 848.57

AliconAmtek

Auto

Autoline

Industries

Sundaram

Clayton

Ind.

Avg.Min Max

EARNING MULTIPLES

P/E 3.91 37.68 7.08 14.57 15.81 3.91 37.68

P/S 0.22 1.72 0.29 0.69 0.73 0.22 1.72

P/BV 0.90 0.72 0.70 2.02 1.09 0.70 2.02

P/CF 2.10 11.52 4.08 6.83 6.13 2.10 11.52

Amount to be Raised Rs. 120.00cr

Price per share through DCF Rs. 513.81

Closest Value (Relative Valuation) Rs. 450.00

Price Band Rs. 450-540

No of shares to be raised 2666667.00


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MANAGEMENTS DISCUSSION AND ANALYSIS

Overview

Sunbeam was incorporated as a subsidiary of Highway Industries in the year 1987. It is a part of the

international Hero group of Industries. Post the family arrangement among the Munjals in May

2010, Sunbeam continues to be managed by Mr Ashok Munjal, representing the Dayanand Munjal

group. Sunbeam is one of the major players in the aluminium die-casting business. Sunbeam

specializes

In manufacturing smaller and mid-size die cast components for two-stroke engines and for the

automobile

Industrymainly for the Indian. With around 4,000 employees and annual sales of approximatelyUS$ 0.7 billion, Sunbeam Auto Pvt. Ltd. belongs to the fifth largest die casting company in India and

one of the top 100 in the world.

The credibility of the company can be judged by its strong customer base which includes players like

Hero Motor Corp Ltd. (HMCL), Maruti Suzuki Ltd., Munjal Showa Ltd., Visteon Powertrain Control

Systems (India) Pvt, Ltd., Hero Briggs & Stratton Ltd., Sona Koyo Sterring Systems Ltd., Danaher

of USA, Denso (India) Ltd., Sun Petri Limited, Diamler Chrysler AG of Germany, to name a few.

Sunbeam is the principal supplier of ADCCs to HHML and presently supplies a major portion of

HHMLs requirements of crank cases, cylinder heads, brake levers, clutch leve rs, cylinder case

covers, grips, and holders.

The plant has a casting capacity of 41,555 tonnes per annum and is located close to HMCLs

Gurgaon and Dharuhera (Haryana) plants, and MSILs Gurgaon plant. Another new plant is set in

Bhiwadi in the year 2011 to increase the plants castings capacity by 3000 tonnes. The company has

a R&D department located at Gurgaon which is fully equipped modern Metallurgical Laboratory

approved by Government of India. The company follows a zero defect approach and use of upgraded

technology.

Sunbeam also has a technical tie-up with Honda Foundry, Japan, to manufacture pistons for HMCL.

Sunbeam has also been awarded with the ISO 9002 and QS 900 Certificate by BSI, UK.


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Factors affecting the Results of Operations

Implementation Risks involved in the expansion plans Availability of Labour Ability to successfully implement the strategy, growth and expansion plans Continuation of tax benefits available to us Exposure to market risks The outcome of any regulatory or legal proceedings that company is or might be involved in Environmental problems Contingent Liabilities Uninsured Losses Approvals from Government The changes in government policies and regulatory actions that effect companys business Disturbances in companys manufacturing facilities Uncertainty in Global markets Developments in Indian economy that ultimately affecting the business

Significant Accounting Policies

Company found that the below listed accounting policies as critical to the business operations and

also for the understanding of financial condition, presentation and results of the operations. A critical

accounting policy is one that is both important to the presentation of financial condition and results

of operations and requires management to make difficult, subjective or complex accounting estimates

and assumptions

The assumptions, estimates and judgements that the management is required to make are inherently

subject to a degree of uncertainty. These judgements are based on companys historical performance

and experience. The evaluation of accounting practices that would be appropriate in respect of

companys business, observation of trends in the auto ancillary industry, information with respect to

the customers, and information available from other sources which are independent as appropriate.

There is no assurance that companys judgement will prove to be correct or that same results are

reported in future periods will not differ from the expectations reflected in the accounting treatment

of certain items.


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Basis of Accounting

The Financial statements are prepared in accordance with the relevant accounting standards under the

historical cost convention on accrual basis and as a going concern with all the revenues considered

and the expenses accounted wherever possible in the accrual. The accounting policies are consistent

with those used in the previous year.

Dividend Policy

The company does not have any formal policy for dividend payment. However based on the

recommendation of board and approval by the majority of shareholders dividends may be declared at

the companys AGM. The recommendation of dividend will be at the boards discretion. The

dividends may be paid out of the profits of the company in the year in which dividend is declared or

out of undistributed profits or reserves of previous years or out of both. The Articles of Association

also gives right to the Board of directors to declare and pay interim dividend without shareholders

approval at AGM. All dividends may be paid in cash or may issue bonus shares to the shareholders

of the company that will be at the discretion of BOD.

The Declaration of dividend by Board of Directors and approval of shareholders will depend on

number of factors such as company operations, earnings, capital requirements, general financial

conditions, legal restrictions and also on many other factors relevant to Board of Directors.

Stakes in the company before and after the issue

The below graph gives the post and pre issue stakes for the Sunbeam Auto Pvt. Ltd. The pre issue

consists of only 26% belongs to promoters and there is 76% of the non-issued capital and after the

issue the structure would change where the promoters stake could reach 50% i,e major stake in the

company and where as 36% of the total non-issued capital is issued to the public. Still there is 14%

of non-issued capital in the firm which can be used in the future for a further public issue.


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0.00

0.02

0.04

0.06

0.08

Gross Profit Margin

Gross Profit

Margin

0.92

0.93

0.94

0.95

0.96

0.97

Operating Expenses Ratio

Operating

Expenses

Ratio

Profitability and operating expense ratios of the company over the past 5 years

Various profitability ratios of the company over the past 5 years are as follows which shows that the

company has the potential to prove that it will do much better in the coming future years

Mar

11(12)

Mar

10(12)

Mar

09(12)

Mar

08(12)

Mar

07(12)

Net Sales 1,102.19 857.74 919.14 937.41 998.73

Gross Profit Margin 0.06 0.05 0.04 0.05 0.05

Net Profit Margin 0.03 0.02 0.01 0.01 0.01

Operating Expenses Ratio 0.94 0.95 0.96 0.95 0.95

0

500

1000

1500

Net Sales

Net Sales

0.00

0.01

0.02

0.03

Net Profit Margin

Net Profit

Margin


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Future Prospects of the sunbeam auto Pvt. Ltd.

There were huge expansion plans to drive further growth of the company. The expansion isdone through internal accruals which enables the company to manage the overall risk. The

company is using its internal accruals or equity infusion for expanding its portfolio that

enables the company to manage its overall risk

Overall increase in the brand value of the company. The strong cash flows depicts thestrength of its brand and enable the company to manage its expansion plan without going for

too much of leverage

Hero Motor Corp. being the major player in the revenue generation of company. Sunbeamalso looking ahead not to be depended on only a single customer. Sunbeam would like to

improve on our brand to attract major customers in the auto industry. Company is also looking for major diversifications in future that is relating to the auto

industry as the company is sure of its sound knowledge on the industry and huge potential in

the companys resources.

Company may undertake projects, acquisitions, investments and strategic relationships in thefuture as a part of the growth strategy of the company. Company can do its level best to try

and have the acquisitions, investments and strategic relationships that will contribute to the

profitability of the company.

The company is planning to provide further better quality assurance so as to retain and attractnew players of the auto ancillary industry

R&D is one of the major parts that company is focused on as the company had that manpower and potential and that too with a minimum capital to be incurred.

Company is continuously trying and also will try to give a high ROI to its investors. The company is entitled to receive certain tax benefits and other incentives which it does not

avail currently but proposes to avail it in the future

Company is trying to explore inorganic growth opportunities which are believed to be agrowth and vale driver in its future strategic plan. The company believes that alliances in

the domestic markets and internationally will improve its competitiveness, further broaden

the companys offerings and to strengthen its market position

ipo valuation and design sunbeam

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