Valuation of SAIF POWERTEC

LIMITED

Analysis of Financial Investment

Course Code: F-307

Prepared for:
Khairul Alam Siddique
Lecturer
Department of Finance
Faculty of Business Studies
University of Dhaka

Prepared by:
Fahmida Hoque
ID: 23-062

Section: A
BBA 23rd Batch
Department of Finance

February 12, 2020

i
 Letter of Transmittal

February 12, 2020

Khairul Alam Siddique

Lecturer
Department of Finance
Faculty of Business Studies
University of Dhaka

Subject: Submission of Report ‘Valuation of SAIF POWERTEC Limited’

Dear Sir:

With great pleasure and honor I am submitting my report titled ‘Valuation of SAIF POWERTEC
Limited’ prepared for the course ‘Analysis of Financial Investment (F-307)’. The report contains
different kinds of analysis and different types of valuation models to find out whether SAIF
POERTEC Limited stock is worth buying or selling. Though this report has been prepared for
educational purpose, it will be an effective one to achieve the goal in practical field.

I have tried my level best to accommodate as much information and relevant issues as possible
and follow the instructions that you have given us.

I would like to thank you for providing us with the opportunity to prepare this report.

Sincerely yours,

------------------------------
Fahmida Hoque
ID: 23-062

Section: A
BBA 23rd
Department of Finance
University of Dhaka

ii
Table of Contents
EXECUTIVE SUMMARY ............................................................................................................ v
Global Economic Analysis ............................................................................................................. 1
Global economic outlook ............................................................................................................ 1
Global power Outlook................................................................................................................. 1
Global Outlook: Bangladesh Perspective ................................................................................... 2
Macro –economic Analysis............................................................................................................. 3
Population Growth: ..................................................................................................................... 3
Bangladesh Investment: % of GDP ............................................................................................ 3
Per Capita Income Growth: ........................................................................................................ 4
Money Supply ............................................................................................................................. 5
Industry analysis ............................................................................................................................. 6
Current conditions of Industry .................................................................................................... 6
Sourcewise electricity production ............................................................................................... 6
Industry Growth opportunities and Trends: ................................................................................ 6
 Power Sector Master Plan ................................................................................................ 6
 Government’s Positive Attitude about Private Investment .............................................. 7
 Establishment of Multiple Power Plants: ......................................................................... 7
 Facilitating Renewable Energy Development .................................................................. 7
 Technology and Efficiency .............................................................................................. 7
 Capacity-building of the Workforce ................................................................................ 7
Industry Life Cycle ..................................................................................................................... 8
Five forces Model ........................................................................................................................... 8
Company Analysis ........................................................................................................................ 10
SWOT Analysis ........................................................................................................................ 10
porter’s Generic Strategies ........................................................................................................ 11
BCG Matrix .............................................................................................................................. 11
Company Valuation ...................................................................................................................... 12
Assumptions:............................................................................................................................. 12
Calculation: ............................................................................................................................... 12
Revenue................................................................................................................................. 12
Other Operating Expenses .................................................................................................... 12
Other Operating Income ....................................................................................................... 13
Current liabilities .................................................................................................................. 13

iii
 Beta calculations: ...................................................................................................................... 15
WACC Calculations: ................................................................................................................ 15
Change in Working Capital: ..................................................................................................... 16
Discounted Cash Flow Method:................................................................................................ 16
Relative Valuation: ................................................................................................................... 16
Appendix ....................................................................................................................................... 18

iv
 EXECUTIVE SUMMARY

A macro-economic analysis of Bangladesh indicated that with the increasing population and per
capita income, the need for power tech will ever be on the rise. The industry is in a growth stage
with the Government of Bangladesh taking pragmatic steps by 2021. The company has also gone
through strategic restructuring even though they have only two principal revenue generating
component.

The stock market of Bangladesh has been acting weird lately (not recently to be honest). Hence,
even though the company is in a good stage, the market return might state otherwise.

The stock is undervalued.

v
 Global Economic Analysis

Global economic outlook

Global growth is anticipated to upsurge from an estimated 2.6% in 2019 to 3.3% in 2020. That is
absolutely a good news for the over all development. Unfortunately, the global growth after 2019
has been forcasted to 2.6 percent imitating the wide-ranging grounded weakness observed during
the first half of the year. In specific, gobal trade growth in 2019 had also reviewed down a full
percentage.
Despite these headwinds, some indications emereged toward year end so that global growth may
be bottoming out. Moreover, monetary policy easing continued into the second half of 2019 in
several economies. Adding to the substantial support easing provided earlier in 2019, which might
help global activity recover in early 2020.

Global power Outlook

For overall development in one economy, power and energy have the largest impact. As current
investment in power is poorly aligned with future needs and challenges, the expected development
can not be achieved by different countries.
According to a servey, the investment in power sector dipped by 1% to just over USD 775 billion
in 2018. Investment in electricity networks alo edged down, although investmnent in battery
storage surged by 45% from relatively low base. Moreover investment in coal fired power declined
by nearly 3% to its lowest lowest level since 2004.

900

800
145
700 130 150 150
180 135 130 125
15 170 160 30
600 120 122 15 25 40
17 40 50
(USD BILLION)

8 10 20 25
500
340 330
350 340 320
400 267 283 340 295 320 330
295
300

200
260 255 255 275 295 255
100 230 235 240 245 245 230

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Renewable Power Electricity Networks Nuclear Fossil Fuel Power

Moreover investment in coal fired power declined by nearly 3% to its lowest lowest level since
2004.After rising to a decade high in 2012, gas fired power spending slowed, notably in the Middle

1
East and North Africa region and in the United States. Final Investment Decisions (FIDs) for new
plants declined to their lowest level this century and retirements were at near record levels.
Nevertheless, the global coal power fleet continued to grow, due to net additions in developing
Asian countries. Renewable based power investment edged down by 1% as net additions to
capacity were flat and costs fell in some technologies but spending was also supported by plants
under development.

Global Outlook: Bangladesh Perspective

Global economic dynamics also hold implications for Bangladesh. For example, Chinese state-
owned power and utilities companies have been active in their search for suitable international
power utility and grid investment opportunities. FDI inflow to Bangladesh has been rising, and the
power sector accounts for around 14% of total FDI.

The sector as a whole account for more than two-thirds of global greenhouse-gas emissions, with
just over 40% of this stemming from power generation. Resource scarcity and the associated
geopolitics and economics of gas, oil, and coal supply are key factors shaping the power market
policy.

2
 Macro –economic Analysis

Population Growth:

Bangladesh is an overpopulated country and here the most common barrier for development is the
population. No economic development is possible unless this problem is managed properly. The
growth rate is 1.03% compared to 2018. Because of the increasing population growth, the necessity
for real estate service will grow up so the business has a positive growth with the increasing
number of population.

Population
165

160
number in mn

155

150

145

140

135
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Year

Bangladesh Investment: % of GDP

Bangladesh’s investment accounted for 31.6% of its Naominal GDP in june 2019, compared to a
ratio of 31.2% in the previous year.Bangladesh’s investment data reached an all time high of 31.6%
in june 2019 and a record of low is 4.7% in 1972. The good side is that the rate is increased in a
small amount every year. This actually indicates the increasing amount of investment and overall
economic development of a country as it involved in the investment in industry and infrastructure.

3
 Bangladesh's Investment: % of GDP

32.00%

31.00%

30.00%

29.00%

28.00%

27.00%

26.00%

25.00%
2012 2013 2014 2015 2016 2017 2018 2019

Per Capita Income Growth:

In 2019, Per capita income of Bangladesh jumped more than 9 percent to $1909 last fiscal year
from $ 1751. Undoubtedly the high amount of per capita income will improve the people spending
on electronics and other household infrastructure Which will make better life of the people.

Per Capita Income

$2,500.00

$2,000.00

$1,500.00

$1,000.00

$500.00

$-
2015 2016 2017 2018 2019
Axis Title

4
Money Supply:
The money supply is increasing yearly to meet up the demand of the vast population. The money
supplies also linked up with the inflation and the current inflation rate is 6.3%. This actually mean
that the money supply has also been increasing for greater investment. Thus the overall investment
will be grown up vastly.

Money Supply
2.5E+10

2E+10

1.5E+10

1E+10

5E+09

0
2015 2016 2017 2018 2019 2020

5
 Industry analysis
The power sector of Bangladesh has experienced considerable progress in meeting the demand for
electricity. Access, coverage, and level of consumption have significantly increased over the years.
Besides that, the energy use efficiency has been improving. All the institutions and industries
largely depends on the power sectors. So the larger amount of populations and developments fully
depended on the power sectors. The number of consumers are increasing and the system loss also
should be properly managed and for that this sector has immense impact.

Current conditions of Industry

Unit 2009 2018 2019

No. of Power Plants 27 134 134
Grid Capacity MW 4,942 18753 22,051
Highest Generation MW 3,268 10958 12,893
Total Consumers Million 10.8 30 34.3
Transmission Line Circuit KM 8,000 11122 11,650
Distribution Line KM 260,000 457000 532,000
Grid Substation Capacity MVA 15,870 36045 41,195
Access to Electricity % 47% 90% 94%
ADP Allocation BDT Billion 26.8 231 267.7
System Loss % 16.90% 11.87% 9.35%

Sourcewise electricity production

Sources No. of Plants Installed Share of total Plant wise

Capacity (MW) capacity(%) capacity (MW)
2019
Government 48 8845 59 184
Rental 20 1745 12 87
IPP 66 4452 30 67
Total 134 15042 100 112

Industry Growth opportunities and Trends:

There are huge opportunities for the development of vast power industry in Bangladesh because-
 Power Sector Master Plan:

As the energy source of the country heavily depends on the natural gas, Bangladesh government took a
target to diversify energy resources. This plan led the government to think about other resources and inviting
more private investment in this area so the growth is upgrading.

6
  Government’s Positive Attitude about Private Investment:
Government has shown commitment to create an investment friendly ecosystem by providing major
financial incentives for IPPs (Independent Power Producer)

 Establishment of Multiple Power Plants:

In order to meet the large demand for electricity, there are a number of private power industries.

 Facilitating Renewable Energy Development

Given our depleting reserves, diversifying our energy sources is of utmost importance. Facilitating
renewable energy development will require the involvement of the government, the utilities, and the
industry. The government will need to set targets for renewable energy deployment consistent with the
national energy strategies.

 Technology and Efficiency

Information technology (IT) solutions are key enablers for improving the efficiency of the power sector.
Considering the requirements of Bangladesh, we foresee that information and operational technologies shall
play a critical role in Bangladesh’s power sector.

 Capacity-building of the Workforce

To harness technological advances, capacity-building is important. This is especially the case with
frequent disruptive technologies in industries -- including utilities which create demand for wider
skill sets.

The power sector of Bangladesh is one of the most growing industry. The growth has been reached
to 28% in 2018 according to World bank data.

7
Industry Life Cycle

Bangladesh’s power sector is one of the fastest growing in South Asia. The growth in terms of
capacity addition has been remarkable -- increasing from 5% to 28% from 2012 to 2018 according
to the World Bank and the Bangladesh Power Development Board.

Five forces Model

Threat of Substitutes: Weak

Particular
High switching cost to substitutes

Threat of New Entrants: Moderate

Particulars
Very high Fixed cost acts like a barrier
Low switching cost to the competitors
Moderately high market growth leading to better opportunities for new entrants

Buyer Power: Moderate

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 Small to gigantic buyer
Buyer tendency to switch to the supplier
Low oligopoly threat

Competitive Rivalry: Moderate

Particulars
Highly tough to exit
Small number of competitors

Supplier Power: High

Particulars
High switching cost
Very large supplier’s size

9
 Company Analysis
SAIF POWERTEC LTD is one of the largest company of Bangladesh keeping its territory into the
world of engineering service of the energy sector of Bangladesh. It is occupied in sales and service
of construction, materials handling and power production equipment in Bangladesh by exclusive
agreement with world renowned producer. They have been registered & transformed to a private
limited company in 2003, before it was Saif powertec Corporation. SAIF POWERTEC diversify
its business activity by the passes of time. SAIF POWERTEC continued its business expansion
plan and have entered into world of renewable energy, plastic & polymer based manufacturing
plant & OEM supply.

SWOT Analysis

Strengths:

 Within a span of little more than two decades, whether it is energy based business of port
operation, they have become a renowned brand to be reckoned in Bangladesh.
 They have signed a contract with CPA for operation
 They got the contract for terminal Operation as Terminal Operator for Chittagong
Container Terminal (CCT). Total % numbers of berths are operated by them with
international standard
Weaknesses:

 Shortage of efficient workers

 Risk of severe natural calamities
Opportunities:

 Government’s Positive Attitude about Private Investment

 Establishment of Multiple Power Plants
 Technology and efficiency development
Threats:

 Increased risk of environmental hazard

 Increased investment in renewable and nuclear energy
 Natural calamities
 Climate policy

10
porter’s Generic Strategies

SAIF mainly involved in differentiation focus.

BCG Matrix

The company is in Star.

11
 Company Valuation
Assumptions:

Calculation:

Revenue:

Here average sales growth rate is assumed to be 0.2457. this is the average of the last 5years’
average positive growth of revenue.

Cost of Sales

The cost of sales is projected to 51% for next five years. This is calculated by finding the historical
average proportion of cost of sales.

Other Operating Expenses:

Other operating expence is forecast to decline by 10.7% each year they will be constent to this
rate.

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Other Operating Income:

SAIF POWERTEC is projected to decline by .9% and this will considered to be the same rate.

Depreciation Rate:

The depreciation rate is projected to be 35% and this is calculated by calculating the average of
depreciation rate.

Tax rate:

The projected tax rate is 25%. Next 5 years tax rate will be calculating by this rate.

Current Assets:

The projected Inventory average rate 32.6% and this rate will use for the last 5 years’ inventory
amount forecasting. Accounts receivables rate is 33.71% and advance and prepayment rate is
34.06% and other assets rate is 11.97%.

Current liabilities:
13
The average deferred tax liability is 27.2% forecasted for last 5 years, Accounts payable is 6.2%
and average accrued expense is 18.44%. lastly the workers profit payable rate is 3.1%.

Short term loan:

Average Short term loan is 70% which is forecasted for next 5years.

Equity& retained earnings:

The average share premium is projected to 33%, share money refundable rate id 1.12% and
retained earning average is 22.78%.

14
Beta calculations:
Beta is 1.55 and the market return is 2.99%

WACC Calculations:
WACC of SAIF POWERTEC is .055.

15
Change in Working Capital:

Net working capital in the first projected year is found to be positive because of higher growth
all the amount and the value of other years also positive.

Discounted Cash Flow Method:

The value of the share is 40.52 taka in this method.

Relative Valuation:
P/E Ratio:

16
P/B Ratio:

P/S Ratio:

Weighted average share price:

The share price is 177.55taka.

17
 Appendix
Pro forma Income Statement

Pro forma Balance sheet

18