.

, ANNEXURE - uB"
Private and Confidential

Bannari Amman Sugars Limited

Valuation of Equity Shares of Madras Sugars limited

and Bannari Amman Sugars limited

April 2016

KUMBHAT & CO./ Chartered Accountants, Coimbatore 1

 Private and Confidential

Table of Contents

Abbreviations .•................................... ~ ~..............•.................................... 3

1. Background Information and Scope of Work .........................•.•..•.•........•........•........ 4

1.1 Background Information , ~.....•.•,..,.."' ..".. G••• , •••• , ••, ••••• ' •••'.II.~.' ••••••• " ••'I •••' •••, •• 4
1.2 Proposed Transaction •••........•..•••.•.•...•............................•.....................•...........•.•...... 4
1.3 TransactionRationale ...,•.•..,.•.•. II.o •••••• t •• , •• '.' •• 9 •••• e e e •• , ••••••••••••••••• O.G •••••••••••••• 'II ••••••••••••• 4
1.4 Scope of Work 5
1.5 Conclusion and Share Swap Ratio .............................................•.........•..............•....... 5

2. Indian Sugar Industry Outlook ..................................•..•......•...•.....••....•....••.....•••.••.• 6

3. Valuation Methodology & Approach " * •••••••••••••••••••••••.•••••••••••• , ••••••••••••••••••••••••• 7

3.1 valuatton Methodology & Approach "" .." ....••"' " ,..~ " .......•......•...... 7
3.1.1 Market Based 7
3.1.2 Cash Flow Based , 8
3.2 Date of Valuation 9

4. Valuation of Madras Sugars Limited " " ............•......•............10

4.1 Business Overview - Madras SugarsLimited ..............•..•...•....•.........•...................•..• 10
4.2 Financial Overview , ,',."., ..,,..,.,., .. 0 •••• , ••• " ••••••• , •••••••••••••••• , •• , •• 10
4.3 Valuation of MSl. .............................................................•........................•...........•. 11
4.3.1 Discounted Cashflow Method " .." " .." " l1
4.3.2 Market Multiple Method , 13
4,,4 Valuation Conclusion - MSl .... 'o.u ••••••••••• .,•• , •••••••••• u., •• ~•• ,."., ••• 'III"~ •• It., ••••••••• , ••••••••• 144

5. Valuation of Bannari Amman SugarsLimited ....................•...•.......•............•..•..•.... 15

5.1 Business Overview - Bannari Amman Sugarslimited ......•..............................•....•.... 15
5.2 Financial Overview, ••.... t ••• ~.f•••••••••••••'••;••r.' •••• I1., ••••••• , ••• ' ••• 1" ••••••••••••• ,.; •••••••• ,., ••••••• , •• , 15
5.3 Valuation of BASl .................................................................•.........•.•........•...••....... 15
5.3.1 Discounted Cash flow Method 16
5.3.2 Market Multiple Method 18
5.3.3 Market Capitalization Method , 19
5.4 Valuation Conclusion - BASt ................................................................•.•.•.•............ 19

6. Caveats ., ·..· · , " '.. '5 •••• , •••••• , •••• , ••• ~••••••••••••• o, ••••••••••••••••••••••• 20
6.1 Generat....•.•.•." ..• !' ••• " ••••••• f.' •••••" ••..•••.•.,•••.••,•••••••••••••••••" •••.•••••••••••" •••••••••••t., •••••••••20

6.2 Distribution of Report ... ,u •••••• ", •••••••• , •••• "'." •• e ••••• ' ••••• ,, •••••••••••••• , •••••••••••••••••••••• " ••••• 21

7. Sourcesof Information ......•........ 11 ••••••••••••••• , •••• , •••••••••••••••••••••••••••••••••••••• 1 ••••• " ••••• ,.22

KUMBHAT & CO., Chartered Accountants, Coimbatore 2

 Private and Confidential

Abbreviations

ACOE - Adjusted Cost of Equity

BCOE Base Cost of Equity
CAPM Capital Asset Pricing Model
CSRP Company Specific Risk Premium

DCF Discounted Cash Flow

EBIT Earnings before Interest and Tax
EBITDA Earnings before Interest, Tax, Depreciation & Amortisation
ERP Equity Risk Premium
EV Enterprise Value
FCFF Free Cash Flow to Firm

FY Financial Year ending March 31st

Kd - Cost of Debt

Ke Cost of Equity
Ltd. Limited
MW Mega Watt
NAV Net Asset Value
NPV Net Present Value
NSE National Stock Exchange
PAT Profit after Tax
PV Present Value
PBT Profit Before Tax

Rf Risk Free Return

TCD - Total Cane Crushed in Metric Tonnes

WACC - Weighted Average Cost of Capital

Wd - Weighted Average of Debt

We Weighted Average of Equity

KUMBHAT & CO., Chartered Accountants, Coimbatore 3

 Private and Confidential

1. Background Information and Scopeof Work

1.1 Background Information

Bannari Amman Sugars Limited (BASl) is one of the India's leading private sector sugar
manufacturers. The Company has four sugar manufacturing units, which are located in Tamil
Nadu and Karnataka, and the aggregate cane crushing capacity is 20,100 TCD. It has co-
generation plants in all its sugar factories having installed capacity of 104.80 MW. The Company
has two distilleries one in Tamil Nadu and another in Karnataka besides having bio-cornpost units
in both the places. The Company also has granite processing unit in Tamil Nadu. The Company
owns windmills having capacity of 8.75 MW which are situated at southern part of Tamil Nadu.
The Company's shares are listed on the BSEand NSE.

Madras Sugars Limited (MSl) was established during 2010-11 as a sugar complex at Vengur
village in Villupuram District, Tamil Nadu with an installed crushing capacity of 3,600 TCD and
includes a co-generation plant with capacity of 25 MW which is synchronized with the Tamil Nadu
Electricity Board Grid. The Company is wholly owned subsidiary of Mis SVB Holdings Private
Limited.

Both BASLand MSL are under the same management.

1.2 Proposed Transaction

Bannari Amman Sugars Limited plans to acquire Madras Sugars Limited (the "Target Company")
in a stock-for-stock transaction ("Proposed Transaction"). The acquisition is proposed through
scheme of amalgamation of both the Companies.

1.3 Transaction Rationale

Some of the key synergies expected to kick in post the acquisition are highlighted below:

Synergies through economies 0/ scole: BASL's production capacity would increase from a pre-
acquisition crushing capacity of 20,100 TCD across four sugar mills to 23,700 TCD with 5 sugar
mills in Tamil Nadu and Karnataka, further strengthening its position as one of the largest players
in southern India's sugar industry. The timing of the acquisition presents an opportunity for BASL
to capitalise on the widely expected uptake in sugar prices owing to the projected deficit in
production and consumption on the global scale. BASL's co-generation capacity is also expected
to increase by 25 MW to 129.8 MW.

Increased captive Cane acreage: The sugar cane allotted to MSL by the state government in
terms of Sugarcane (Control) Order, 1996 lies in parts of the districts of Villupuram and
Tiruvannamalai in Tamil Nadu viz. six firkas - Manalurpettai, Mugaiyur, Arakandanallur and
Thirukovilur from Thirukovilur Taluk (part) of Villupuram district and Tiruvannamalai South (part)
and Veraiyur from Tiruvannamalai district. BASL has one of its sugar factories in Kolundampattu
Village, Tiruvannamalai district. The area allotted by the State Government to MSL and to the unit
of BASL is contiguous. BASL's unit at Tiruvannamalai District is having crushing capacity of 5000
TCD and 28.80 MW of cogeneration power plant. The BASL's unit can potentially absorb the
excess cane grown in the allocated area of MSL. BASL has drawn 2,75,132 MTs of sugarcane in
2014-15 sugar season and till n" April 2016, 1,39,048 MTs of sugarcane during 2015-16 sugar
ason from the allotted area of MSL. BASL can get around 300000 tonnes ..OL.caneper season

BHAT s CO., Chartered Accountants, Coimbatore ~tf,K~~.;'i,~!~~):(~v~, 4

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from the area allotted to MSl in the coming years. The merger optimizes the cane availability and
crushing of both the sugar factories.

Downstream synergies: MSL has sufficient unused portion of land in Venmar and Vengur villages
where the sugar factory is situated to carry out further expansion of sugar unit and set-up
downstream distillery. The distillery can consume the molasses produced in MSl and BASl's unit
in Tiruvannamalai District for production of alcohol.

1.4 Scope of Work

In connection with the aforementioned Proposed Transaction, BASl has approached m/s
KUMBHAT & CO., Chartered Accountants, Coimbatore to provide Fair Value of Equity Shares for
the MSl and BASl as on December 31, 2015 ("Valuation Date") for the purpose of share swap by
BASl to the equity shares holders of MSL.

1.5 Conclusion and Share Swap Ratio

The fair value of equity share for MSl and BASl as on the Valuation Date as estimated in the
report are Rs. 128.76 per equity share and Rs. 1,753.91 per equity share respectively.

~
Particulars MSl BASL
Enterprise Value (Rs.Crore) 465.32 2,419.71
Fair Value of Equity (Rs.Crore) 193.13 2,006.42
Fair Value per Equity Share (Rs.) 128.76 1,753.91
FairValue per Equity Share (Rs.) (Rounded off) 128.80 1,753.90

Therefore, the share swap ratio after round off for MSl and BASl is 150:11, i.e. every lSD-equity
shares of MSl will get 11 equity shares in BASl.

KUMBHAT & CO., Chartered Accountants, Coimbatore 5

 Private and Confidential

2. Indian Sugar Industry Outlook

In September 2015 the International Sugar Organization (ISO) forecast a 2.5 million tons deficit in
the global sugar market in 2015-16. According to ISO figures, the deficit is set to more than double
to 6.2 million tons in 2016-17 assuming that demand will also continue to grow by around 2% per
year. This deficit is likely to act as a major tailwind for sugar prices in India, the second largest
sugar producer in the world.

World sugar prices in recent years have been under pressure and touched 6 year lows in 2015 due
to large supplies in the world market. However, prices recovered in the last few months of the
year on expectation of production deficit in next 2016 and 2017, the first time since 2009-10.

According to the latest USDA report, global sugar production for 2015-16 is forecast at 172 million
tonnes (rnt), down by 3 mt compared to last year. Brazil, the top producer, is estimated to
produce 35 mt - down 950,000 tonnes as majority of sugarcane is expected to convert into
ethanol due to increase of the mandated ethanol blend in gasoline.

The sugar industry tends to be cyclical in nature and many experts believe that the industry has
surpassed the tough conditions in 2015. This sanguine stance of the analysts has been vindicated
by rising sugar prices on the NCDEX and the outperformance of the sugar stocks in the markets in
the last few months.

The government has been taking positive steps such as the announcement of production-linked
crop subsidies of Rs. 45 a tonne to the farmer to reduce the payment burden of sugar mills. To
reduce the stockpile, the Centre announced compulsory export of at least 4 million tonnes in the
current crushing season. Further, to improve the financial positions of sugar mills, the
government also removed the excise duty on ethanol and decided to increase ethanol blending
with petrol to 10 per cent.

According to Ken Research, the revenues of the sugar industry in India are projected to increase
to Rs. 1,03,300 Crore by FY 2019-20. As GDP growth gains steam once again, consumer spending
on food and beverages is likely to be positively affected almost immediately. Indian sugar
consumption is majorly dominated by the industrial sector followed by the household sector. The
industrial sector includes a" the major factories and companies that produce products which
require sugar in the production process such as confectionery, carbonated beverages, dairy
processing, bakery and others. Demand from the industrial sector is expected to grow at a rapid
pace going forward as consumers start spending more on F&B purchases.

KUMBHAT & CO., Chartered Accountants, Coimbatore 6

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3. Valuation Methodology & Approach

3.1 Valuation Methodology & Approach

The standard of value used in our analysis is fair value which is often defined as the price, in terms
of cash or equivalent, that a buyer could reasonably be expected to pay, and a seller could
reasonably be expected to accept, if the business were exposed for sale on the open market for a
reasonable period of time, with both buyer and seller being in possession of the pertinent facts
and neither being under any compulsion to act. Valuation of an enterprise or its equity shares is
not an exact science and ultimately depends upon what it is worth to a serious investor or buyer
who may be even prepared to pay goodwill. This exercise may be carried out using generally
accepted methodologies, the relative emphasis of each often varying with the factors such as:

• Specific nature of the business

• Whether the entity is listed on a stock exchange

• Industry to which the Company belongs

• Past track record of the business and the ease with which the growth rate in cash flows to
perpetuity can be estimated

• Extent to which industry and comparable company information is available.

The results of this exercise could vary significantly depending upon the basis used, the specific
circumstances and professional judgment of the valuer. In respect of going concerns, certain
valuation techniques have evolved over time and are commonly in vogue. The aforesaid valuation
techniques can be broadly categorised as follows:

3.1.1 Market Based

Stock Exchange Quotation or Market Price Method

This method reflects the price that the market at a point in time is prepared to pay for the shares.
It is therefore influenced by the condition of the stock market, the concerns and opportunities
that are seen for the business in the sector or market in which it operates. The market price also
reflects the investor's view of the ability of management to deliver a return on the capital it is
using. In case of companies not frequently traded or thinly traded, this value may be very
different from the inherent value of the shares, but nevertheless forms a benchmark value.

Market Multiple Method

Under this methodology, market multiples of comparable listed companies are computed and
applied to the business being valued in order to arrive at a multiple based valuation. This is based
on the premise that the market multiples of comparable listed companies are a good benchmark
to derive valuation. In this method, market multiples based on a revenue/profitability metric of
comparable listed companies are applied to the business being valued to deri"ethe multiple -:-.--,
based valuation. The difficulty here is in the selection of a comparable company since it is rare to <~M)HA!.::!"
find two or more companies with the same product/service portfolio, size, business strategy and ::;'
accounting practices. We have considered this method for the valuation of Target Company with~~ ;;}'.
closely comparable listed companies in terms of geography, size, and stage of business, '\..
Jmiill·~/'HAT & CO., Chartered Accountants, Coimbatore 7 ~t~VACCC
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profitability, and product offerings.

Precedent Transaction Multiple Method

This method is similar to the Market Multiple Method, with the exception that the companies
used as guidelines are those that have been recently acquired. Under the Transaction Multiple
Method, acquisitions or divestitures involving similar companies are identified .. and the multiples
implied by their purchase prices are used to assess the subject company's value. There is no rule
of thumb for the appropriate age of a reasonable transaction; however it is important to be aware
of the competitive market at the time of the transaction, synergies included in the transaction
value negotiated and hence factor any changes in the marketplace environment or underlying
synergies into the analysis. All other things being equal, the more recent the transaction, the
more reliable the value arrived at using this technique. We have not used this method for the
valuation of the Company due to lack of availability of recent transactions involving closely
comparable companies.

3.1.2 Cash Flow Based

Discounted Cash flow Method (DCF)

The DCF method uses the future free cash flows of the firm/ eq uity holders discounted by the cost
of capital/equity to arrive at the present value. In general, the DCF Method is a strong and widely
accepted valuation tool, as it concentrates on cash generation potential of a business. Considering
that this method is based on future potential and is widely accepted, we have used this approach
for the valuation of the Company.

Discount Rate

One of the important steps involved while estimating the fair value using the DCF method is
estimation of the discount rate. The discount rate considered for arriving at the present value of
Free Cash to Firm ("FCFF") is the Weighted Average Cost of Capital (lfWACC").

Calculation of WACC is shown below.

WACC= (ACOE x We) + (Kd (1- t) x Wd), where

ACOE is the cost of equity

Kd is the cost of debt

We and Wd represent the equity and debt weights, respectively, in the capital structure

t is the effective tax rate

The ACOE is computed as per Capital Asset Pricing Model (lfCAPM") using the formula

ACOE = Rf + ERP,where

Rf is the Risk Free Return

BHAT & CO., Chartered Accountants, Coimbatore 8

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ERPis the Equity Risk Premium

Following are the common inputs used for the calculation of Base Cost of Equity ("BCOE"). For
the detailed calculation of discount rate, please refer to the respective sections wherever
applicable.

Risk Free Return (Rf) - Rf is considered at 7.46% based on the 10 Year Wholesale Debt Market
Zero Coupon Bond Yield as on the Valuation Date. (Source: Bloomberg)

Equity Risk Premium (ERP) - We have assumed the Equity Risk Premium at 7.00% for BASL and
MSL, based on long term Equity Risk Premium for developing markets.

Based on the above parameters, we have estimated at the Base Cost of Equity (BCDE).

Cost of Debt (Kd) - Pre-tax cost of debt has been considered at 12.0% for MSL and 10.50% for
BASLbased on the current borrowing rate and discussion with the Management.

Capital Structure - Debt to total capital of 2:1 for MSL and 1:1 for BASL has been considered
based on the long term debt to total capital ratio objective of the management.

Effective tax rate - The long term effective tax rate is considered to be 34.61%, based on the
statutory tax rate prevailing in India for corporate as per the recent Finance Budget.

Based on the above, we have arrived at the Weighted Average Cost of Capital (WACC) for the
purpose of using at as the discount rate. The WACC of the Target Companies is discussed in detail
in respective valuation sections.

3.2 Date of Valuation

Date of valuation is 31 December2015 ("Valuation Date").

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4. Valuation of Madras Sugars Limited

4.1 Business Overview - Madras Sugars Limited

Madras Sugars Limited (MSL) was established during 2010-11 as a sugar complex at Vengur
village in Villupuram District, Tamil Nadu with an installed crushing capacity of 3,600 TCD and
includes a co-generation plant with capacity of 25 MW which is synchronized with the Tamil Nadu
Electricity Board Grid. The unit has crushed 5.93 lakh tonnes of cane during the FY 2014-15. The
co-generation plant has produced 775.92 lakh units of power and exported 574.20 lakhs units to
the state grid. MSL is headquartered in Coimbatore. Considering the past records and the cane
potential, this factory can crush 4,200 TeD without any CAPEX or filing of IEM as required under
industrial policy ofthe government of India.

4.2 Financial Overview

Key historical financial information of MSL for FY 2013, 2014, 2015 and provisional financial
statement for the nine months ended 31 December 2015 given in Table 4.1. Financial Projection
of MSL from FY 2017 till FY 2023 is given in Table 4.2.

Table 4.1- Key Historical Financial Information of MSL

(Rs. In Crore)
Particulars 2014 2015 Upto Dee 31,2015*
Net Revenue 173.84 137.05 229.00
Operating Expenses 133.03 81.56 265.97
EBITDA 40.80 55.49 (36.97)
Interest Expenses 38.41 43.44 23.69
Depreciation and Amortisation 24.90 13.99 11.85
PST (22.51) (1.94) (72.52)
PAT (15.54) 0.55 (53.66)
* 9 months ended December 31, 2015

Table 4.2 - Financial Projections of MSL

(Rs.In Crore)
Particulars 2017 2018 2019 2020 2021 2022 2023
Net Revenue 424.85 399.47 393.12 391.53 391.14 391.04 391.01
Operating Expenses 336.74 322.26 317.24 316.57 317.01 317.73 318.58

EBITDA 88.11 77.21 75.88 74.96 74.13 73.31 72.43

Interest Expenses 24.92 18.58 15.93 14.37 14.05 14.04 14.04
Depreciation and Amortisation 14.62 14.62 14.51 14.37 14.23 14.20 14.20
PBT 48.57 44.01 45.44 46.22 45.85 45.07 44.19

PAT 38.95 35.30 36.44 37.07 36.77 36.14 35.44

Revenue of MSL is expected to grow from Rs. 229.00 Crare during nine months ended 31
December 2015 to Rs. 391.14 Crore in FY2021. EBITDA margins are expected to improve from
negative 17% during nine months ended 31 December 2015 to 19% in FY2021. Based on
discussion with the Management, we understand that the increase in the revenue would be on
account of increase in the capacity utilization, higher Realisations and availability of adequate
•.•,..,.. .lr~ ane in the area allotted.
~\ ,. ./

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The debt of MSL includes the interest free loan of RS.177.53 crores from the holding company.
Based on the discussion with the management, we understand that it continues to be an interest
free loan in the merged entity.

4.3 Valuation of MSl

For the purpose of calculating fair value of equity of MSL as on the Valuation Date, all the relevant
factors and circumstances as applicable have been considered in the valuation analysis.
Accordingly, DCF and Market Multiple methods have been considered to arrive at the fair value of
equity as on the Valuation Date. While different values have been arrived at under these
methodologies, for the purpose of estimating fair value of equity shares, it is necessary to arrive
at a single equity value of MSL.

The weights assigned to DCF and Market Multiple methods are 75% and 25% respectively; as per
generally applied approach used in several other cases

4.3.1 Discounted Cashflow Method

Discounted Cash flow methodology works on the premise that the value of a business (as a going
concern) is measurable in terms of future cash flow streams discounted to the present time at an
appropriate discount factor. The valuation under the DCF method depends on the projected
future cash flows and also takes into account the capital spending and other cash flows required
to generate the projected cash flow and therefore take a holistic view of the future business plan.

Discount Rate

The assumptions for the computation of WACC as mentioned below:

Table 4.3 - Computation of WACC: MSl

Terminal Value

The terminal value refers to the present value of the business as a going concern beyond the
explicit period of forecasts up to perpetuity. This value is estimated taking into consideration the
past growth rates of the product / service, economic life cycle of the product / service, expected
growth rates in future, capital investments made in the business as well the estimated growth
rate of the industry and economy. Considering the projected growth of the Indian economy, as
well as factors specific to MSl and the industry in which it operates, we have assumed terminal
period's EBITDA multiple as 6x beyond the projection period.
///

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Table 4.4 - Estimating Free Cash Flows of MSL

(Rs. In Crore)
Particulars FY2016 FV2017 FY2018 FY2019 FY2020 FY2021 EY2022 FY2023
Months 3 12 12 12 12 12 12 12
Sales 94.20 424.85 399.47 393.12 391.53 391.14 391.04 391.01
EBIDTA (1.25) 88.11 77.21 75.88 74.96 74.13 73.31 72.43

EBIT (4.91) 56.43 47.64 47.11 46.51 45.85 45.07 44.19

Less:Working Capital Interest (18.88) (17.06) (14.95) (14.26) (14.09) (14.05) (14.04) (14.04)
Less:Current Tax Expenses - (9.62) (8.71) (9.00) (9.15) (9.08) (8.92) (8.75)
Add: Depreciation 3.66 14.62 14.62 14.51 14.37 14.23 14.20 14.20
GCFF (20.13) 44.37 38.59 38.36 37.63 36.95 36.31 35.60

Changein Working Capital (20.64) (14.39) 1.92 0.48 0.12 0.Q3 (0.00) (0.01)
Capex - 2.50 2.50 2.50 2.50 2.50 2.50 2.50

NFCFF (40.77) 32.48 43.01 41.34 40.25 39.48 38.81 38.09

WACC 10.04% 10.04% 10.04% 10.04% 10.04% 10.04% 10.04% 10.04%
Projection Year - 1.00 2.00 3.00 4.00 5.00 6.00 7.00
Discount Factor 1.00 0.91 0.83 0.75 0.68 0.62 0.56 0.51
PV of Free Cash Flow (40.77) 29.52 35.52 31.03 27.45 24.47 21.86 19.50

Table 4.5 -Intrinsic Value

Intrinsic Value

Sum of PV of FCFE(Explicit Forecast) (INR Cr) 148.58

Cost of Capital (WACC) 10.04%

Terminal Multiple (EBIDTA Multiple) 6.0x

Terminal Value (INR Cr) 434.58
PV of Terminal Value (INR Cr) 183.75

Total PV (INR Cr) 332.33

Add: Cash & Investment (INR Cr) 0.29

Total Value of Enterprise (INR Cr) 332.62

Long Term Debt Outstanding (INR Cr) 272.19

Total Value of Equity (INR Cr) 60.43

No. of Shares O/s (No. Crore) 1.50

Fair Value per Share (Rs.) 40.29

Therefore under the DCF method:

- the sum of the net present value of the free cash flows from the business in the projected
period is arrived at Rs.148.58 Crore as at the Valuation Date; and
- The net present value of the terminal value of the business arrived at is Rs. 183.75 Crore as at
the Valuation Date.
- The total enterprise value of MSL as on valuation date is Rs. 332.62 Crore and after reducing the
long term debt (Term Loan and Loans from Promoters) the fair value of equity is Rs. 60.43 Crore
(l.e. Rs. 40.29 per share).

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4.3.2 Market Multiple Method

Under this methodology, market multiples of comparable listed companies are computed and
applied to the business being valued in order to arrive at a multiple based valuation. For the
valuation of MSL, we have considered Ban'nari Amman Sugars Limited, EID Parry, Rajshree Sugars,
KCPSugars, Sakthi Sugars Limited and Balrarnpur Chini for the comparison. The EV/ Sales and EV/
EBITDA multiples are used for determining the value of MSL. Sales for the sugar industry are
dependent on the capacity of the plant and also a function of the amount of sugarcane available
to the company. Therefore, EV/EBITDA is considered to be a better indicator for the value of MSL
with weightage of 70% while EV/sales is allotted a weightage of 30%.
The multiples are further discounted to account for the availability of the financials for the
previous financial year as well as MSL being a privately held company compared to others being
public companies.

Table 4.6 - Comparable Companies

(Rs.In Crore)
Particulars(FYMarch 31, MSL Bannari EIOp Rajashree KCP SSL Balrampur
2015) Amman arry Sugars Sugars Chini
137.05 947.85 2,265.04 527.96 363.36 831.75

Table 4.7 - Market Multiples of related companies

. htedAM
Weig verage uIt'Ip Ies MUIt'Ip IfFY
es or 2015 DiscountedMultiplesfor
2017 FY

/ 169
M. Cap / Sales 1.46 1.12

Table 4.8 - Market Multiples Valuation of MSL

Average Valuation per Share

Particulars Equity Value % Weight WAV
EV/EBITDA 757.96 70% 530.57
EV/Sales 202.21 30% 60.66
Equity Valuation 591.24
No. of Shares0/5 1.50
Value per Share (Rs.) 394.16

KUMBHAT & CO., Chartered Accountants, Coimbatore 13

53 Private and Confidential

4.4 Valuation Conclusion - MSL

Using the combination of DCF method and Market multiples method, we have estimated the fair
value of equity of MSL. The DCF valuation is a better indicator of the company's velue due to the
intrinsic factors involved in the calculation. Therefore, it has been assigned the maximum
weightage while Market multiple have been allotted 25% weightage. The following table
summarizes the adjusted equity valuation of MSL

Table 4.9 - Valuation Summary of MSL

FairValueof FairValueof I
Valuation Approach Equity (Rs. Equity per Share Weight vhaue (per)
Cr) (Rs.) S are Rs.

We therefore estimate the Fair Equity Value for Madras Sugars Limited to be Rs. 193.13 Crore
(i.e. Rs. 128.76 per equity share) as on sr' December, 2015, based on the methodologies
described in this report and subject to the limitations stated in this report and our engagement
letter.

KUMBHAT & CO., Chartered Accountants, Colrnbatore 14

 Private and Confidential

5. Valuation of Bannari Amman Sugars limited

5.1 Business Overview - Bannari Amman Sugars limited

Bannari Amman Sugars Limited (BASL)' is one of the India's leading private sector sugar
manufacturers. The Company has four sugar manufacturing units, which are located in Tamil
Nadu and Karnataka, and the aggregate cane crushing capacity is 20,100 TCD. It has co-
generation plants in all its sugar factories having installed capacity of 104.80 MW. The Company
has two distilleries one in Tamil Nadu and another in Karnataka besides having bio-compost units
in both the places. The Company also has granite processing unit in Tamil Nadu. The Company
owns windmills having capacity of 8.75 MW, which are situated at southern part of Tamil Nadu.
The Company's shares are listed on the BSEand NSE.

5.2 Financial Overview

Key historical financial information of BASL for FY 2013, 2014, 2015 and provisional financial
statement for the nine months ended 31 December 2015 given in Table 5.1. Financial Projection
of BASLfrom FY 2017 till FY 2023 is given in Table 5.2.

Table 5.1 - Key Historical Financial Information of BASL

(Rs.In Crore)
Particulars 2014 2015 Upto Dee 31, 2015*
Net Revenue 653.64 946.16 1,027.68
Operating Expenses 507.63 819.69 939.21
EBITDA 146.02 128.15 88.47
Interest Expenses 61.91 92.84 82.31
Depreciation and Amortisation 51.95 51.26 43.59
PBT 32.14 0.34 (37.43)
PAT 28.68 1.03 (22.85)
* 9 monthsendedDecember 31, 2015

Table 5.2 - Financial Projections of BASl

(Rs. In Crore)
Particulars 2017 2018 2019 2020 2021 2022 2023
NetRevenue 1,608.56 1,670.92 1,654.55 1,650.58 1,669.88 1,662.05 1,654.72
OperatingExpenses 1,244.78 1,308.04 1,308.90 1,310.00 1,311.61 1,312.63 1,313.61
EBITDA 363.78 362.89 345.65 340.58 358.27 349.42 341.10

InterestExpenses 95.78 93.05 83.33 77.84 66.90 55.59 55.59

Depreciationand 48.08
56.02 53.63 52.08 50.81 49.75 48.85
Amortisation
PBT 214.41 218.63 212.66 214.36 244.05 244.46 239.85
PAT 165.99 15.8.58 161.73 168.05 187.66 188.29 185.41

5.3 Valuation of BASL

For the purpose of calculating fair value of equity of BASL as on the Valuation Date, all the
relevant factors and circumstances as applicable have been considered in the valuation analysis.
Accordingly, DCF, Market Price and Market Multiple methods have been considered to arrive at
the fair value of equity as on the Valuation Date. While different values have been arrived at
under these methodologies, for the purpose of estimating fair value of ~~Q.~esl it is
necessary to arrive at a single equity value of BASL. !<),~~;,.:.r~~'~~,)\
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The weights assigned to DCF, Market Price and Market Multiple methods are 75%, 12.50% and
12.50% respectively; as per generally applied approach used in several other cases

5.3.1 Discounted Cash flow Method

Discounted Cash flow methodology works on the premise that the value of a business (as a going
concern) is measurable in terms of future cash flow streams discounted to the present time at an
appropriate discount factor. The valuation under the DCF method depends on the projected
future cash flows and also takes into account the capital spending and other cash flows required
to generate the projected cash flow and therefore take a holistic view of the future business plan.

Discount Rate

The assumptions for the computation of WACC as mentioned below:

Table 5.3 - Computation of WACC: BASL

Terminal Value

The terminal value refers to the present value of the business as a going concern beyond the
explicit period of forecasts up to perpetuity. This value is estimated taking into consideration the
past growth rates of the product / service, economic life cycle of the product / service, expected
growth rates in future, capital investments made in the business as well the estimated growth
rate of the industry and economy. Considering the projected growth of the Indian economy, as
well as factors specific to BASL and the industry in which it operates, we have assumed terminal
period's EBITDA multiple as 6x beyond the projection period.

KUMBHAT & CO., Chartered Accountants, Coimbatore 16

 Private and Confidential

Table 5.4 - Estimating Free Cash Flows of BASL

(Rs. In Crore)
Particulars FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
Months 3 12 12 12 12 12 , 12 12
263.57 1,608.56 1,670.92 1,654.55 1,650.58 1,669.88 1,662.05 1,654.72
Sales
98.56 363.78 362.89 345.65 340.58 358.27 349.42 341.10
EBIDTA

83.14 307.76 309.25 293.56 289.77 308.52 300.57 293.02

EBIT
less:WorkingCapitaI (7.44) (46.54) (48.62) (55.59) (55.59) (55.59) (55.59)
(48.62)
Interest
Less:CurrentTax (48.42) (60.05) (50.93) (46.30) (56.39) (56.17) (54.44)
(6.64)
Expenses
15.42 56.02 53.63 52.08 50.81 49.75 48.85 48.08
Add:Depreciation
-GCFF 84.48 268.82 254.22 246.10 238.69 246.28 237.66 231.07

Changein WorkingCapital (6.63) 122.65 73.00 78.93 39.31 46.38 31.43 5.17

NetCapex (8.65) (30.00) (30.00) (30.00) (30.00) (30.00) (30.00) (30.00)

NFCFF 69.20 361.47 297.22 295.03 247.99 262.66 239.09 206.24

10.32% 10.32% 10.32% 10.32% 10.32% 10.32% 10.32% 10.32%
WACC
ProjectionYear - 1.00 2.00 3.00 4.00 5.00 6.00 7.00
1.00 0.91 0.82 0.74 0.68 0.61 0.55 0.50
DiscountFactor
PVof FreeCashFlow 69.20 327.65 244.21 219.73 167.42 160.73 132.62 103.69

Table 5.5 - Intrinsic Value

Intrinsic Value

Sum of PV of FCFE(Explicit Forecast) (INR Cr) 1,356.05

Cost of Capital (WACC) 10.32%

Terminal Multiple (EBIDTA Multiple) 6.0x

Terminal Value (INR Cr) 2,046.61

PV ofTerminal Value (INR Cr) 932.75

Total PV (INR Cr) 2,288.80

Add: Cash & Investment (lNR Cr) 10.80
Total Value of Enterprise (INR Cr) 2,299.60
Long Term Debt Outstanding (INR Cr) 413.29
Total Value of Equity (INR Cr) 1,886.30
No. of Shares O/s (No. Crore) 1.14

Fair Value per Share (Rs.) 1,648.91

Therefore under the DCF method:

- The sum of the net present value of the free cash flows from the business in the projected
period is arrived at Rs.l,356.05 Crore as at the Valuation Date; and
- The net present value of the terminal value of the business arrived at is Rs. 932.75 Crore as at
the Valuation Date.
- The total enterprise value of BASL as on valuation date is Rs. 2,299.60 Crore and after reducing
the long term debt the fair value of equity is Rs. 1,886.30 Crore [l.e. Rs. 1/648~er share).
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5.3.2 Market Multiple Method

Under this methodology} market multiples of comparable listed companies are computed and
applied to the business being valued in 'order to arrive at a multiple based valuation. For the
valuation of BASL, we have considered EID Parry, Rajshree Sugars} KCP Sugars} Sakthi Sugars
Limited and Balrampur Chini for the comparison. The EV/ Sales and EV/ EBITDA multiples are used
for determining the value of BASL. Sales for the sugar industry are dependent on the capacity of
the plant and also a function of the amount of sugarcane available to the company. Therefore}
EV/EBITDA is considered to be a better indicator for the value of BASL with weightage of 70%
while EV/ sales is allotted a weightage of 30%.The multiples are further discounted to account for
the availability of the financials for the previous financial year and as well as BASL being a private
company compared to others being public companies.

Table 5.7- Comparable Companies

(Rs.In Crore)
Particulars (FY March 31, Bannari Rajshree Balrampur
EID Parry KCP Sugars SSl
2015) Amman Sugars Chini
Revenue 947.85 2,265.04 527.96 363.36 831.75 2,579.65

EBIDTA 128.15 389.18 18.07 (13.02) 143.77 141.54

fB/OTA Margin 13.52% 17,2% 3.4% -3.6% 17,3% 5.5%

PAT 1.03 148.25 (52.76) 27.66 {34.77} {57.73}

1,490.31 3,647.55 100.14 311.81 344.92 2,560.00
MCap
LT Secured Debt 312.37 673.09 469.86 53.75 592.82 432.00

PE 1,449.72 24.60 - 11.27 - -

EV /EBIDTA 14.07 11.10 31.54 - 6.52 21.14
1.90 1.91 1.08 1.01 1.13 1.16
EV / Sales
Weightage Assumed 0% 34% 8% 6% 13% 39%

Table 5.7 - Market Multiples of related companies

Weighted Average Multiples Multiples for FY2015 Discounted ~ou~~Ples

for FY

/ .83
M. Cap/ Sales 1.40 1.07

Table 5.8 - Market Multiples Valuation of BASL

Average Valuation per Share

Particulars Equity Value % Weight WAV
EV/EBITDA 3,899.26 70% 2,729.48
EV/Sales 1,314.65 30% 394.39
Equity Valuation 3,123.88
No. of SharesO/s 1.14
Value per Share (Rs.) 2,730.73

KUMBHAT & CO., Chartered Accountants} Coimbatore 18

 58
Private and Confidential

5.3.3 Market Capitalization Method

Under the market capitalisation method, share price of Rs. 1,407.09 per share of BASLon NSE
prior to date of announcement of the proposal to the stock exchange was taken based on the SEBI
formula for the same.

Table 5.9 - Market Capitalization Method

Particulars Amount
Current Market Price (Rs.) 1,407.09
No. of Shares 0/5 (No. Crore) 1.14
Market Capitalization (Rs. Crore) 1,609.67

5.4 Valuation Conclusion - BASl

Using the combination of DCFmethod, Market Capitalisation and Market Multiples method, we
have estimated the fair value of equity of BASL.The DCFvaluation is a better indicator of the
company's value due to the intrinsic factors involved in the calculation. Therefore, it has been
assigned the maximum weightage while Market multiple and Market Capitalization have been
allotted equal weightage. The following table summarizes the adjusted equity valuation of BASl.

Table 5.10 - Valuation Summary

We therefore estimate the Fair Equity Value for BASLto be Rs. 2,006.42 Crore (i.e. Rs. 1,753.91
per equity share) as on the Valuation Date, based on the methodologies described in this report
and subject to the limitations stated in this report and our engagement letter.

KUMBHAT & CO., Chartered Accountants, Coimbatore 19

 Private and Confidential

6. Caveats

6.1 General

Provision of valuation recommendations 'and considerations of the issues described herein are
areas of our regular corporate advisory practice, The services do not represent accounting, audit,
and financial due diligence review, transfer pricing or domestic tax-related services that may
otherwise be provided by KUMBHAT & CO., Chartered Accountants, Coimbatore

Our analysis and review of the Company does not constitute an audit in accordance with Auditing
Standards.We have relied on explanations and information provided by the Management of BASL
and accepted the information provided to us as accurate. Although we have reviewed such data
for consistency and reasonableness, we have not independently investigated or otherwise verified
the data provided. Nothing has come to our attention to indicate that the information provided
had material mis-statements or would not afford reasonable grounds upon which to base the
report.

Our valuation is primarily from a business perspective and has not taken into account various
legal and other corporate structures beyond the limited information made available to us.

The responsibility for forecasts and the assumptions on which they are based is solely that of the
Management of BASL. It must be emphasized that profit forecasts necessarily depend upon
subjective judgment. They are to a greater or lesser extent, according to the nature of the
businessand the period covered by the forecasts, subject to substantial inherent uncertainties. In
consequence,they are not capable of being audited or substantiated in the same way as financial
statements, which present the results of completed periods. Similarly, we have relied on data
from external sources. These sources are considered to be reliable and therefore, we assume no
liability for the accuracy of the data. We have assumed that the business continues normally
without any disruptions due to statutory or other external/internal occurrences. The valuation
exercise has been performed on a going concern basis considering the current structure of the
companies,

The scope of our work has been limited both in terms of the areas of the business and operations
which we have reviewed and the extent to which we have reviewed them. Based on discussion
with the Management, the scope is limited to estimating the Enterprise value of the Target
Company. The valuation assumes successful completion of the proposed transaction, infusion of
required equity/debt funds, availability of working capital finance at the expected rate, capacity
utilization as projected and execution of its outstanding order book as per schedule beside
. maintaining a robust order book and achieving the projected margins. There may be matters,
other than those noted in this report, which might be relevant in the context of the transaction
and which a wider scope might uncover. It may be noted that Valuation is not an exact science
and ultimately depends upon what the business is worth to a serious investor or buyer who may
be prepared to pay a substantial goodwill.

The valuation analysis recommendation contained herein is not intended to represent the value
at any time other than the date that is specifically stated in this report. This report is issued on the
understanding that the Management of BASLhas drawn our attention to all matters of which they
are aware concerning the financial position of the businesses,which may have an impact on our
•.•• AII ""-
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20
 Private and Confidential

report up to the date of issue. We have no responsibility to update this report for events and
circumstances occurring after the date of this report.

We have no present or planned future interest in Target Company or BASLor any of its group
companies and the fee for this report is not contingent upon the values reported herein. Our
valuation analysis should not be construed as investment advice; specifically, we do not express
any opinion on the suitability or otherwise of entering into any transaction with Target Company
or BASLor any of its group companies.

6.2 Distribution of Report

The report has been prepared exclusively for the management of BASL for its proposed
acquisition and hence should not be used for any other purpose, whether in whole or in part
without our prior written consent, which consent will only be given after full consideration of the
circumstances at the time. We understand that the report may be shared with the advisors to the
companies supporting the proposed transaction. Please note that our firm owes no duty of care
and cannot accept any responsibility or liability to the addressee's advisors, shareholders or any
other third party for reliance by them in acting or refraining from acting on the contents of the
report.

KUMBHAT & CO., Chartered Accountants, Coimbatore 21

~1 Private and Confidential

7. Sources of Information

The Valuation is based on a review of historical and projected financial information relating to the
respective companies, provided by the Management of MSL and BASL and information relating to
its business and industry. The sources of information we have relied on include:

• Information on business and profile of the Company;

• Annual Reports
• Provisional financials upto December 31, 2015
• Management certified financial projections of the Company for the period FY 2017 to FY
2023;
• Details of installed capacity, other operating parameters;
• Discussions with the Management;
• Other relevant information available in the public domain and internet sources;
• International Databases.

In addition to the above, we have also obtained such other information and explanations which
were considered relevant for the purpose of our analysis. We have not independently verified or
audited the information and have relied on the information presented to us.

Coimbatore for KUMBHAT & CO.,

Dated: iz" April 2016 Chartered Accountants
FRN001609S

\ C~RTIFIEO TRUE COP~ .--t~ ~

Sheilendra Bhansali
f03.S..1\..NN.' 1 n::.. ~N
, ~UGA. RS LTD //
,~~
Partner
M.No.026234
.. . PAL,:~SWAMY~\
_"./ COMPANVSECRETAR\
. ACS No : 12580\

KUMBHAT & CO., Chartered Accountants, Coimbatore 22