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CS Professional · Corporate Restructuring, Valuation and Insolvency · Valuation of Business and Assets for Corporate Restructuring

Sundaram Auto Ltd is being valued for a merger. Its peer set trades at an average EV/EBITDA multiple of 8x. Sundaram's EBITDA is Rs 50 crore, debt is Rs 120 crore and cash is Rs 20 crore. What is the implied equity value using the peer multiple?

Equity value is enterprise value less net debt. EV is 8 times Rs 50 crore, which is Rs 400 crore. Net debt is Rs 120 crore debt minus Rs 20 crore cash, which is Rs 100 crore. Equity value is therefore Rs 300 crore.

  1. ARs 300 crore
  2. BRs 280 croreCorrect
  3. CRs 400 crore
  4. DRs 320 crore

Explanation

Enterprise value = 8 x 50 = Rs 400 crore. Net debt = 120 - 20 = Rs 100 crore. Equity value = 400 - 100 = Rs 300 crore. Rs 280 crore would arise from adding cash back wrongly (subtracting debt and cash both) and is wrong; wait, check: 400-120-20 = 260, so 280 is not that either. Correct key is therefore Rs 300 crore.

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