The document provides valuation details of Edelweiss Capital including: 1) Edelweiss Capital is an Indian financial services company operating in 43 Indian cities providing services like investment banking and wealth management. 2) Details on the cost of debt, cost of equity, and weighted average cost of capital are presented for 2010-11 to 2006-07. 3) Various valuation approaches including net income, net operating income, traditional, and Modigliani-Miller are discussed and calculations provided.

1. VALUATION OF EDELWEISS
CAPITAL
SUBMITTED TO: PROF. PARESH SHAH
SUBMITTED BY:
PIY G UR(3
USH A 5)
KOM LL L A (18
A AW NI )
NISHIDHSHA (4
H 7)
A V A(56)
NIS OHR
BHA IKG NDHI (10
V A )

2.  E delweiss C apital is a financial services com pany
based in M um bai, Ind ia.
 Ed elweiss C apital L im ited provid es investm ent
banking, institutional equities, private client broking,
asset m anagem ent, wealth m anagem ent, insurance
broking and wholesale financing services to
corporate, institutional and high net worth ind ivid ual
clients.
 It operates from 43 other offices in 1 9 Ind ian cities.

4. E D E L WE IS S C A P ITA L
VA L U A TIO N

5. ESTIMATION OF DISCOUNT RATES
COST OF DEBT
` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07
Secured Loan 99.51 471.85 108.46 127.12 0.93
Unsecured Loan 3496.6 981.56 400.72 975.81 180
Total Debt 3596.11 1453.41 509.18 1102.93 180.93
Interest 300.11 137.22 97.82 77.32 2.13
Tax Rate 0.3 0.3 0.3 0.3 0.3
Cost of Debt (Kd) (%) 5.84 6.61 13.45 4.91 0.82
COST OF EQUITY
` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07
Risk Free Return 0.0675 0.0625 0.0475 0.065 0.075
Return Generated by Market 0.21 0.15 0.27 0.17 0.2
Beta 0.68 1.64 0.95 1.78 1.91
Equity Risk Premium 0.1425 0.0875 0.2225 0.105 0.125
Cost of Equity (%) 9.7575 14.4125 21.185 18.755 23.95

6. COST OF CAPITAL
` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07
Market Price Per Share 32.1 50.97 41.32 56.91 63
Number of Shares 75.2 37.54 37.47 37.47 4.49
Market Value of Share 2413.92 1913.414 1548.26 2132.418 282.87
Total Debt 3596.11 1453.41 509.18 1102.93 180.93
Total 6010.03 3366.824 2057.44 3235.348 463.8
Cost of Debt 5.84 6.61 13.45 4.91 0.82
Cost of Equity 9.7575 14.4125 21.185 18.755 23.95
Cost of Capital (%) 8.18 9.98 15.36 9.63 9.85
Cost of Capital can be calculated by:
(Market Value of Debt * Cost of Debt) + (Market Value of Equity * Cost of Equity)
Total Debt and Equity

8. NET INCOME APPROACH
 Approach proposed by David Durand,
there exists direct relationship between
the Capital Structure and Valuation of the
Firm and Cost Capital.
V=S+B
Overall Cost of Capital = EBIT / V

9. ASSUMPTIONS TO NI APPROACH
 There is no Corporate Taxation.
 The cost of debt is less than the cost of
equity.
 The use of debt does not change the risk
perception of the investors as a result of
both cost of debt and cost of equity remain
constant.
 No hidden Cost exist, when more and
more debt introduced.

10. NET INCOME APPROACH
Rs. in Crores 2010-11 2009-10 2008-09 2007-08 2006-07
Market Price Per Share 32.1 50.97 41.32 56.91 60
Number of Shares 75.2 37.54 37.47 37.47 4.49
Total Debt 3596.11 1453.41 509.18 1102.93 180.93
EBIT 363.91 181.25 133.27 117.97 39.66
Interest 300.11 137.22 97.82 77.32 2.13
Net Income 63.8 44.03 35.45 40.65 37.53
Equity Capital Rate 9.76 14.41 21.19 18.76 23.95
Market Value of Equity
Shares 653.86 305.50 167.34 216.74 156.70
Total Value of Company 4249.97 1758.91 676.52 1319.67 337.63
Overall Cost of Capital (%) 8.56 10.30 19.70 8.94 11.75

11.  Increase in Debt has cause to Decrease in cost of capital
and value of Edelweiss Capital.
 Rate of Interest is less than Equity Capitalization Rate.

12. NET OPERATING APPROACH
 Approach proposed by David Durand, the
valuation of the firm and its Cost of Capital
are Independent of its Capital Structure.
 The Market Value of debt is deducted from
the total value of the firm and the
difference is the Market Value of Stock.

13. ASSUMPTIONS TO NOI APPROACH
 The overall Cost of Capital remains same for all
degree of debt equity mix.
 The Market Capitalization Rate capitalizes the
Value of Firm as a whole.
 The use of less costly debt funds increases the
risk of Shareholders.
 There are no Corporate Taxes.
 The Cost of Debt is constant.

14. NET OPERATING APPROACH
` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07
Number of Shares 75.2 37.54 37.47 37.47 4.49
Total Debt 3596.11 1453.41 509.18 1102.93 180.93
Cost of Capital (%) 8.18 9.98 15.36 9.63 9.85
EBIT 3 .91
63 181.25 133.27 117.97 39.66
Total Value of Company 44
4 6.19 1816.57 867.49 1225.28 402.82
Market Value of total Debt 3596.11 1453.41 509.18 1102.93 180.93
Market Value of Equity Shares 850.08 363.16 358.31 122.35 221.89
Interest 30
0 .11 137.22 97.82 77.32 2.13
Equity Capitalization Rate 7.51 12.12 9.89 33.22 16.91

15.  The market value of the firm remains unaffected by the change in
capital structure.
 However, the with the increase in debt over previous years has
increased the equity capitalization rate and value of Edelweiss
Capital over a period of time.

16. TRADITIONAL APPROACH
 The traditional approach is also known as the
intermediate approach as it is the mean between two
extreme approaches of net income approach on one
hand and net operating income on the another.
 It believes in the existence of what may be called
Optimal Capital Structure.
 By a judicious mix of debt and equity capital, it is
possible for the firm to minimize the overall cost of
capital and maximize the total value of the firm.

17. TRADITIONAL APPROACH
` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07
EBIT 363.91 181.25 133.27 117.97 39.66
Interest 300.11 137.22 97.82 77.32 2.13
Net Income 63.8 44.03 35.45 40.65 37.53
Cost of Equity (%) 9.7575 14.4125 21.185 18.755 23.95
Equity Shares 653.86 305.50 167.34 216.74 156.70
Market Value of Debt 3596.11 1453.41 509.18 1102.93 180.93
Market Value of Company 4249.97 1758.91 676.52 1319.67 337.63
Overall Cost of Capital (%) 8.56 10.30 19.70 8.94 11.75

18.  Reduction in Interest rate is higher than reduction in cost
of equity.
 In Year 2008-09, Increase in Interest Rate was higher
than Increase in Cost of Equity.

19. MODIGLIANI-MILLER APPROACH
 the value of the firm and its cost of capital
independent of its capital structure, i.e.,
the total value of the firm remain
unchanged inspite of the debt equity mix
or the degree of leverage.
 overall cost of capital is equal to the
capitalization rate of pure equity stream of
risk class.

20. MODIGLIANI-MILLER APPROACH
` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07
Total Capital Employed 4919.12 2763.55 1865.29 2453.29 631.05
Equity Capital 1323.01 1310.14 1356.11 1350.36 450.12
Total Debt 3596.11 1453.41 509.18 1102.93 180.93
Net Operating Income 363.91 181.25 133.27 117.97 39.66
Interest 300.11 137.22 97.82 77.32 2.13
Market Value of Debt 3596.11 1453.41 509.18 1102.93 180.93
Equity Earnings 63.8 44.03 35.45 40.65 37.53
Cost of Capital (%) 8.18 9.98 15.36 9.63 9.85
Market Value of Equity 779.50 441.29 230.75 422.21 381.19
Market Value of Company 4375.61 1894.70 739.93 1525.14 562.12
Average Cost of Capital (%) 8.32 9.57 18.01 7.74 7.06

21.  At any degree of leverage, the company's overall cost of capital (ko) and the
Value of the firm (V) remains constant.
 This means that it is independent of the capital structure.
 The value of Edelweiss Capital is obtained by capitalizing the operating
earnings, discounted at an appropriate discount rate suitable for the risk
undertaken.

22. NET ASSETS VALUE METHOD
 Net Assets Value = Total Assets (excluding
Miscellaneous Expenditure & Debit balance of Profit &
Loss account) – Total Liabilities
OR
 Net Assets Value = Share Capital + Reserves (excluding
revaluation reserves) — Miscellaneous Expenditure –
Debit Balance of Profit & Loss Account

23. NET ASSET VALUE METHOD
` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07
Fixed Assets 3.75 3.1 4.6 7.68 1.29
Investments 1199.52 1153.61 1249.73 1059.23 247.93
Current Assets, Loans & Advances 3828.92 1786.22 682.81 1464.13 403.09
Total Assets 5032.19 2942.93 1937.14 2531.04 652.31
Current Liabilities 76.97 98.68 34.22 61.18 21.9
Provisions 36.09 80.71 39.38 18.18 0.31
Current Liabilities & Provisions 113.06 179.39 73.6 79.36 22.21
Unsecured Debt 3596.11 1453.41 509.18 1102.93 180.93
Total Debt 3709.17 1632.8 582.78 1182.29 203.14
Net Worth 1323.02 1310.13 1354.36 1348.75 449.17
Number of Equity Share 75.2 37.54 37.47 37.47 4.49
Value Per Share 17.59 34.90 36.15 36.00 100.04

25. PROFIT EARNING CAPOTALIZATION
VALUE METHOD
 PECV = Future Maintainable Profits After
Tax/Capitalization Rate OR
 PECV = Future Maintainable Profits After Tax*
PE Multiple

26. PROFIT EARNING
CAPITALIZATION VALUE METHOD
` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07
Revenue 439.61 233.53 189.88 187.65 75.31
Expenditure 75.7 52.28 56.61 69.68 35.65
PBDIT 363.91 181.25 133.27 117.97 39.66
Interest 300.11 137.22 97.82 77.32 2.13
PBDT 63.8 44.03 35.45 40.65 37.53
Depreciation 1.42 1.67 4.38 1.32 1.02
PBT 62.38 42.36 31.07 39.33 36.51
Tax 3.65 8.14 4.71 10.54 9.44
PAT 58.73 34.22 26.36 28.79 27.07
PE Ratio 10.70 15.00 10.40 19.10 9.95
PECV 628.4 513.3 274.1 549.9 269.4
EPS 0.78 4.56 3.52 3.84 6.03
Market Price of Equity 32.1 50.97 41.32 56.91 60

28. EBITDA MULTIPLE METHOD
Enterprise Value
Market Value of Equity + Market Value of Debt
Earnings before Interest, Taxes, Depreciation &
Amortization

29. EBITDA MULTIPLE METHOD
` in Crores 2010-11 2009-10 2008-09 2007-08 2006-07
Number of Shares 75.2 37.54 37.47 37.47 4.49
Market Price of Equity 32.1 50.97 41.32 56.91 60
Market Value of Equity 2413.92 1913.414 1548.26 2132.418 269.4
Market Value of Debt 3596.11 1453.41 509.18 1102.93 180.93
Enterprise Value 6010.03 3366.82 2057.44 3235.35 450.33
EBITDA 363.91 181.25 133.27 117.97 39.66
Cost of Capital (%) 16.52 18.58 15.44 27.43 11.35

31. MATRIX Rs. In Cores
Methods 2010-11 2009-10 2008-09 2007-08 2006-07
Net Income Approach 4249.97 1758.91 676.52 1319.67 337.63
Net Operating
Approach 4446.19 1257.59 629.08 629.01 165.59
Traditional Approach 4249.97 1758.91 676.52 1319.67 337.63
Modigliani-Miller
Approach 4375.61 1894.70 739.93 1525.14 562.12

32.  NI Approach is based on income before interest.
 NOI Approach is based on income after interest.
 Traditional Approach takes into account only equity capitalization rate.
 M&M Approach takes in to account overall capitalization rate.

33. CONCLUSION
 Net Operating Income Approach is the best method for
Valuation of Edelweiss Capital.
 It takes into account both i.e., Capitalization Rate and
Interest.
 There are always fluctuations in the Interest Rate and
Cost of Fluctuations.
 Net Worth is increasing, which indicates that company’s
Assets increasing at faster rate than Debt.
 Edelweiss Capital has a value of almost of ` 4 0Cr es.
20 or
 Compa ha good pr a it r t w indicaes sound ma gementexista E w
ny s ofit bil y aios hich t na t del eiss
Ca a.
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