A PRESENTATION ON

SOLIDAIRE INFRASTRUCTURE

COMPANY

BY:- DEEPAK KUMAR MANISH SINGH NORANG LAL SUMIT LATHER

Introduction of the related industry Summarization of the case study SWOT Analysis Problems

CONTENTS

Infrastructure is the basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function. The term typically refers to the technical structures that support a society, such as roads, water supply, sewers, power grids, telecommunications, and so forth. Viewed functionally, infrastructure facilitates the production of goods and services; for example, roads enable the transport of raw materials to a factory, and also for the distribution of finished products to markets. In some contexts, the term may also include basic social services such as schools and hospitals. In military parlance, the term refers to the buildings and permanent installations necessary for the support, redeployment, and operation of military forces.

ABOUT INFRASTRUCTURE

Summarization of the case study

Solidaire Infrastructure Company has 3 business organized under 3 separate divisions. The cement division its manufacturing plant in Gujarat. It sells about 2/3 of its cement in Gujarat and the remaining quantity in Rajasthan and Gujarat, M.P. and Maharashtra. The power generation division, under a long term agreement, supplies ¾ its power generated to the government of Gujarat at an agreed price, which is periodically revised with mutual consent of the two parties. All three divisions are profitable and they have plans to expand their activities in the future.

Cement Division

Fertilizer division

Power division

Solidaire

Sales 700 450 350 1500

PAT 29 17 24 70

Assets 550 230 420 1200

Current assets 210 100 20 330

Equity(Market value) 1000

Debt 1800

(Rs. in million)

FINANCIAL DATA OF THE COMPANY

Company uses yield on 30 year government bonds as the risk free rate which currently is 5.6%.Its estimates show that the 30 year simple average of the sensex stock return is 17.6% and 30 year Govt. bonds yield is 7.8%.Current debt equity ratio is 1.8:1 and target debt equity ratio is 2.5:1.The company’s after tax average borrowing rate is 8%.

Employment and training opportunities in the field of construction.Private sector housing boom and commercial building demands. Construction of the multi building projects on the feasible locations in the country.Low cost well- educated and skilled labour force is now widely available across the country.Sufficient availability of raw material and natural resources inthe country is supportive for the industry.

SWOT ANALYSIS

STRENTH:

WEAKNESS:

Chances of Natural disadvantage are there.Distance between construction projects reduces business efficiency.Training itself has become a challenge.External allocation of large contracts becomes difficult.Lack of clearly define processes and procedures for construction and its management.Huge amount of money need to be invested in this industry .

 

OPPORTUNITIES:

continuous private sector housing boom will create more construction opportunities.Public sector projects through Public Private Partnerships will bring further opportunities.Developing supply chain through involvement in large projects is likely to enhance the chances in construction.Renewable energy projects will offer opportunities to develop skills and capacity in new markets.More flexible training delivery techniques are now available.Financial supports like loan and insurance and growth in income of people is in support of construction industry.

THREATS:

Long term market instability and uncertainty may damage the opportunities and prevent the expansion of training and development facilities.Political and security conditions in the region and Late legislative enforcement measures are always threats to any industry in India.Lack of political willingness and support on promoting new strategies.Natural abnormal casualties such as earth quake and floods are uncertain and can prevent the construction boom.

WACC

There are two formulas for calculating WACC(Weighted Average Cost of Capital):-

K0=WACC, Kd=cost of debt, T=tax rate, Wd= weight of debt, ke= cost of equity, We=weight of equityD=debt, E= Equity

General Formula for calculating WACC is..

Where k1,k2,… are component costs W1,w2,… are weights of various types of capital employed by the company.

Problems:

Estimate the company’s WACC.

Solution:First we have to calculate Ke by following Formula

=23.6%

Now for WACC:

0.0843Or 8.43%

State your position with regard to the choice between the single company wide, cut off rate versus the multiple divisional cut off rate.

Ans:- Because power division has steady flow of earnings and no uncertainty of demand. It also has a higher debt capacity so it can borrow 4 times of equity and has low operating risk and high debt capacity.Other division’s CEO said that power division should use firm’s WACC so that to ensure highly profitable projects will be accepted and the company will be able to maximize shareholders wealth.

The power division should use the firm’s WACC instead of its own.

THANK YOU….