RBSA Advisors Presents Cost of Capital in India 5th Edition September2022

Cost of Capital In India
5th Edition
SEPTEMBER
2022
Valuation | Investment Banking
Restructuring | Transaction Services
Transaction Tax | Risk Consulting
Executive Summary
The minutes of the August 2022 Monitory Policy Committee Meeting highlighted the need for continued
rate hike to ensure monetary policy credibility. Members noted that while inflation may have peaked,
significant uncertainties, and upside risks warrant further rate hikes to anchor inflation expectations.
Members were wary of near-term upside risks to inflation stemming from (1) INR depreciation, (2) rise in
GST rates, and (3) uneven distribution of the southwest monsoon.
With the MPC expected to continue with rate hikes, it is needless to mention that such hawkish impulse
will continue to be felt both in the debt and the equity markets; resulting in a upside risk to Cost of Capital
in India.
We are delighted to present our “5th Edition on Cost of Capital”. The sample size for our study has been
deduced by analysing around 10 largest companies in each of the major sectors in India. Thirteen sectors
have been selected which represent ~55% of total Market Capitalization (“Market Cap”) in India (banking
sector excluded from our analysis).
We hope that this endeavor of Sectoral analysis of Cost of Capital helps give an insight into the risk profile,
risk mitigation mechanisms, capital budgeting and similar dynamics associated with each of the above
industrial sectors.
We wish that you find this report useful. Happy Reading...
Rajeev R. Shah
Managing Director & CEO
Cost of Capital in India - 5th Edition 02

Contents
01 Cost of Capital Study 04
02 Sectoral Analysis 08
Auto and Auto Components 10

Capital Goods 11
Consumer Durables 12
FMCG 13
Hotel 14
Information Technology 15
Infrastructure 16
Metals & Mining 17
Pharma and Healthcare 18
Power 19
Real Estate 20
Retail 21
Telecom 22
Cost of
Capital Study
Sector-wise Analysis
of Cost of Capital in India
Auto and Auto Capital Goods Consumer

Components Durables
FMCG Information Pharma and

Technology Healthcare
Infrastructure Hotel Power
Retails Metals & Mining Real Estate
Telecom

Sector-wise Analysis
of Cost of Capital in India
Methodology adopted for analysis:
The Listed companies are filtered as per sectors enlisted in the previous slide. The respective data related
to Debt, Interest Costs, Beta and Market Cap have been sourced from Capital IQ.
Kd used for analysis is pre tax Kd deduced by dividing LTM Interest Cost with the average of the
outstanding debt of the respective companies as on Jun 30, 2022 and Jun 30, 2021. The post tax. Kd is
arrived at by reducing the tax impact from the pre tax Kd. For the purpose of our analysis we have
assumed corporate tax rate to be 25.168%.
Ke is calculated using CAPM. Beta has been regressed over a period of five years i.e. July 1, 2017 - Jun 30,
2022. For the purpose of our analysis, we have considered annualized yield of 10 year zero coupon bond
as on Jun 30, 2022 issued by GOI to be the risk free rate (Source: www.ccilindia.com).
We have used the equity risk premium at 7% as per RBSA analysis. No additional Alpha has been
considered.
WACC is calculated by assigning respective weights of Debt and Market Cap to Kd and Ke.
The Pie Charts for every sector shows the total number of companies analysed for different ranges of Kd,
Ke and WACC
The total sample entries are plotted on a normal distribution bell curve to represent the median Kd, Ke
and WACC of the respective sectors.

Weighted Average
Cost of Capital - Jun-2022
Sectorial differences in availability of capital and cost of raising such capital is caused on account of various
factors enlisted herewith:
Capital structure choices peculiar to

Particulars Rate Sector
each sector e.g. Asset-heavy sectors like
Infrastructure and Realty tend to have Min 4.8% Pharma
Kd
more debt in their books.
(Pre Tax) Max 10.9% Capital Goods
Government Policies Min 10.4% FMCG
Ke
Risk perception of the investor Max 17.0% Real Estate
Min 10.4% FMCG

Restrictions in various sectors for Foreign WACC
Direct investments (FDI) and restrictions on Max 15.2% Real Estate
debt investments by Foreign Institutional
Investors (FIIs)
Presented herewith are the weighted average Kd, Ke and WACC across the 13 sectors.
17.0%
16.5%
15.9%
15.8%
18.00%
15.2%
14.8%
14.5%
14.3%
13.8%
13.8%
13.6%
13.6%
16.00%
13.5%
13.3%
12.9%
12.3%
12.2%
12.0%
11.7%
11.7%
11.6%
14.00%
11.5%
11.3%
11.3%
10.9%
10.9%
10.9%
10.9%
10.7%
10.5%
10.4%
10.4%
12.00%
9.5%
8.4%
10.00%
7.4%
7.4%
7.4%
7.2%
6.9%
8.00%
5.6%
5.0%
4.9%
6.00%
4.00%
2.00%
0.00%
CG
el
re
er
ls
om
ds
n
ne uto
g
g
ur
at
ia
le
ai
ot
in
ca
oo
lo
s
FM
st
ed
ct
c
ab
t
nt
Po
in
po A
Re
lth
no
le
lE
lG
ru
M
M
ur
m nd
Te
ea
ch
st
ita
D
&
Re
Co o a
ra
H
Te
er
p
s
f
al
Ca
ut
In
um
an
io
et
A
at
M
ns
a
rm
m
Co
ar
fo
Ph
In
Kd (Pre-tax) Ke WACC

Sectoral
Analysis
Interpretation of Charts
All the major 13 sectors have been represented by the pie chart and Normal Distribution
working in the ensuing slides whose interpretation is given below -
Pie Chart interpretation
The Pie Charts for every sector shows the total number of companies analysed for different ranges of Kd,
Ke and WACC. E.g. For Automobile & Ancillaries sector, Kd pie chart says
It implies 2 It implies 5
It implies 1 It implies 2
<2% 6% companies 10% companies 10%
companies companies
have Kd in have Kd in
(1) have Kd less (2) (5) (2) have Kd more
the range of the range of
than 2% than 10%
2%-6% 6%-10%
Normal Distribution Curve interpretation

The total sample entries are plotted on a normal distribution bell curve to represent the median Kd, Ke
and WACC of the respective sectors. Ke/Kd/WACC is represented on the X-Axis and normal distribution
working on the Y-Axis.

AUTO &
AUTO COMPONENTS
Kd(Pre Tax)
1 6.00
2
2 5.00
4.00
3.00
5
2.00
1.00
-
<2% 6% 10% >10%
0% 5% 10% 15% 20% 25% 30%
Ke
2 1 20.00
15.00
2
5
10.00
5.00
-
<12% 14% 16% >16% 10% 12% 14% 16% 18% 20%
WACC
2
4 30.00
1
20.00
3
10.00
-
<11% 12% 13% >13% 10.0% 11.0% 12.0% 13.0% 14.0% 15.0%
After analyzing the top 10 companies, the weighted average Kd (pre tax), Ke and WACC of the sector is at
10.9%, 15.8% & 12.9% respectively.

CAPITAL
GOODS
Kd (Pre Tax)
1 8.00
3
6.00
1 5
4.00
2.00
<4% 8% 12% >12% -

0% 5% 10% 15% 20% 25% 30%
Ke
2 20.00
3
15.00
2
3 10.00
5.00
-
<12% 14% 16% >16%
10% 12% 14% 16% 18% 20%
WACC
1
3 25.00
2 20.00
15.00
4
10.00
5.00
-
<12% 14% 16% >16%
10% 11% 12% 13% 14% 15% 16% 17%
10.9%, 13.8% & 13.6% respectively;

CONSUMER
DURABLES
Kd (Pre Tax)
2 1 8.00
6.00
2
5
4.00
2.00
<4% 8% 10% >10% -

0% 5% 10% 15% 20% 25%
Ke
1
25.00
3
20.00
15.00
6
10.00
5.00
-
<11% 12% 14% >14%
10% 12% 14% 16% 18% 20%
WACC
1
2 25.00
2 20.00
15.00
5
10.00
5.00
-
<12% 13% 14% >14%
11% 13% 15% 17% 19%
7.4%, 13.5% & 13.3% respectively.

FMCG
Kd (Pre Tax)
1 1
15.00
3
10.00
5
5.00
<4% 6% 10% >10% -

0% 5% 10% 15% 20%
Ke
2 20.00
1 5 15.00
2 10.00
5.00
-
<11% 12% 14% >14%
8% 10% 12% 14% 16%
WACC
3 25.00
3
20.00
15.00
2 2
10.00
5.00
-
<10% 11% 12% >12%
8% 10% 12% 14% 16%
9.5%, 10.4% & 10.4% respectively;

HOTEL
Kd(Pre Tax)
1 25.00
2 20.00
15.00
2
10.00
5.00
<4% 8% 10% >10% -

3% 4% 5% 6% 7% 8% 9%
Ke
1 1 25.00
20.00
1
15.00
2
10.00
5.00
-
<16% 17% 18% >18%
12% 13% 14% 15% 16% 17% 18% 19%
WACC
1 1 15.00
10.00
3
5.00
-
<12% 14% 16% >16%
7% 10% 13% 16% 19%
After analyzing the top 5 companies, the weighted average Kd (pre tax), Ke and WACC of the sector is at 7.2%,
16.5% & 14.8% respectively.

INFORMATION
TECHNOLOGY
Kd (Pre Tax)
2 12.00
3
10.00
2 8.00
6.00
3
4.00
2.00
<4% 8% 10% >10% -

3% 8% 13% 18%
Ke
1
1 30.00
25.00
6 2 20.00
15.00
10.00
5.00
-
<11% 12% 13% >13%
10% 11% 12% 13% 14% 15% 16%
WACC
2
3 30.00
25.00
20.00
5 15.00
10.00
5.00
-
<12% 14% 16% >16% 10% 11% 12% 13% 14% 15% 16%
7.4%, 12.3% & 12.2% respectively;

INFRASTRUCTURE
Kd (Pre Tax)
1
6.00
4 5.00
3
4.00
3.00
2 2.00
1.00
<6% 9% 12% >12% -

0% 5% 10% 15% 20% 25% 30%
Ke
1
15.00
4 3
10.00
2
5.00
-
<12% 16% 18% >18%
10% 12% 14% 16% 18% 20% 22% 24%
WACC
2 15.00
4
2 10.00
2
5.00
-
<10% 12% 14% >14%
6% 8% 10% 12% 14% 16% 18% 20%
After analyzing the top 10 companies, the weighted average Kd (pre tax), Ke and WACC of the sector is at 5%,
15.9% & 11.5% respectively;

METALS &
MINING
Kd (Pre Tax)
1
2 8.00
6.00
4
3 4.00
2.00
<4% 6% 10% >10% -

0% 5% 10% 15% 20% 25%
Ke
1
4 15.00
3
10.00
2
5.00
<12% 14% 16% >16% -

4% 9% 14% 19% 24%
WACC
1
20.00
3
3 15.00
10.00
3
5.00
-
<10% 12% 14% >14%
5% 7% 9% 11% 13% 15% 17%
6.9%, 14.5% & 11.3% respectively.

PHARMA &
HEALTHCARE
Kd (Pre Tax)
1
2 20.00
15.00
4
3
10.00
5.00
<2% 4% 8% >8% -
0% 2% 4% 6% 8% 10%
Ke
1 1
20.00
3 15.00
5
10.00
5.00
-
<10% 12% 14% >14%
8% 10% 12% 14% 16% 18%
WACC
2 2 40.00
30.00
20.00
6
10.00
-
<10% 12% 14% >14%
8% 9% 10% 11% 12% 13%
4.9%, 12.0% & 10.9% respectively.

POWER
Kd (Pre Tax)
1
25.00
4 20.00
3
15.00
2 10.00
5.00
<4% 6% 7% >7% -
1% 3% 5% 7% 9%
Ke
2 15.00
4
10.00
3
1
5.00
-
<12% 14% 16% >16%
10% 12% 14% 16% 18% 20%
WACC
1
15.00
2 4
10.00
3
5.00
-
<9% 12% 14% >14%
5% 7% 9% 11% 13% 15% 17% 19%
5.6%, 14.3% & 10.7% respectively;

REAL
ESTATE
Kd (Pre Tax)
1
8.00
4
3 6.00
4.00
2
2.00
<4% 8% 10% >10% -

1% 6% 11% 16% 21% 26%
Ke
1
3 20.00
2
15.00
10.00
4
5.00
-
<16% 18% 20% >20%
13% 15% 17% 19% 21% 23% 25%
WACC
1
3 20.00
3 15.00
3 10.00
5.00
-
<12% 14% 16% >16%
10% 12% 14% 16% 18% 20%
8.4%, 17% & 15.2% respectively.

RETAIL
Kd (Pre Tax)
30.00
2 2 25.00
20.00
15.00
1 10.00
5.00
<10% 11% 12% >12% -

8% 9% 10% 11% 12%
Ke
1 25.00
2 20.00
15.00
2
10.00
5.00
0.00
<10% 12% 14% >16%
10% 11% 12% 13% 14% 15% 16%
WACC
1 40.00
2
30.00
2 20.00
10.00
0.00
<12% 14% 16% >16%
10% 11% 12% 13% 14% 15%
After analyzing the top 5 companies, the weighted average Kd (pre tax), Ke and WACC of the sector is 10.9%,
11.6% & 11.3% respectively;

TELECOM
Kd (Pre Tax)
1 1 8.00
6.00
1
2 4.00
2.00
<4% 6% 8% >8% -
0% 5% 10% 15% 20%
Ke
1 15.00
2
1 10.00
1
5.00
0.00
<14% 16% 18% >18%
12% 14% 16% 18% 20% 22%
WACC
15.00
2 2
10.00
1
5.00
0.00
<10% 12% 14% >14%
10% 12% 14% 16% 18% 20% 22%
10.5%, 13.6% & 11.7% respectively;

SERVICES
Valuation Investment Banking (Category 1 Merchant Bank)
• Business & Equity Valuation • M&A Advisory:
• Valuation of Brands, Goodwill, Other Intangible Assets & • Sell Side & Buy Side
Intellectual Property • Domestic & Cross Border
• Valuation of Financial Securities, Instruments & Derivatives • Partner Search, Joint Ventures & Strategic Alliances
• Valuation of Industrial Assets and Plant & Machinery • Government Disinvestment & Privatization
• Valuation of Real Estate • Fund Raising - Equity, Mezzanine, Structured Finance & Debt
• Valuation of Infrastructure Assets & Specialized Assets (Corporate & Project Finance)
• Purchase Price Allocations (PPA) for Mergers & Acquisition (M&A) • Distressed Investment Banking - One-Time Settlement, Priority
• Impairment Studies for Tangible Assets and Interim Funding, Rescue Financing, and Buyouts
• Impairment Studies for Cash Generating Units, Intangible • Capital Market Advisory
Assets & Goodwill
• Mines, Mineral Advisory and Valuation
• Valuation of ESOPs and Sweat Equity
Transaction Services (Due Diligence)
• Valuation for Tax, Transfer Pricing and Company Law Matters • Buy side due diligence and closing due diligence
• Fairness Opinions • Vendor due diligence and vendor assistance
• Valuation under Insolvency & Bankruptcy Code (IBC) • Setting up and managing dataroom
• Determination of Swap Ratio under Mergers and Demergers • Advice on sale and purchase agreements (SPA) and business
• Valuation of Inventory / Stocks and Debtors / Receivables transfer agreements (BTA)
• Litigation and Dispute Valuation Services • Assistance in deal negotiation
Restructuring Risk Consulting

• Insolvency Professional services as per IBC Strategic & Risk Advisory Services
• Turnaround Advisory and Business transformation • Techno Economic Feasibility Studies & Viability assessment
• Interim Management Services • Business Plan Review
• CRO (Chief Restructuring Oﬃcer) Services Technical Support Services
• Process Improvement and Financial Restructuring • Lender’s & Investor’s / Independent Engineer Services
• Outside NCLT – Restructuring Services • Technical Due Diligence, Technical Opinions
• Priority and Interim Funding • Chartered Engineers Opinion & Certification
• Process Advisors • Project Cost Investigation and Monitoring
• Pre-pack and Cross Border Insolvency Agency for Specialized Monitoring (ASM)
• Advisor to Committee of Creditors • Cash outflow / Inflow and project monitoring, Ensure the end
• Preparation of Resolution Plan and Information Memorandum usage of the Fund
• Independent Bid Evaluation Services Financial & Treasury Risk Advisory
• Assessment of risks - ALM, Credit, Market, Interest Rate &
Liquidity Risk
Transaction Tax • Asset Quality Review & Stress Testing
• Assessment of Expected Credit Loss
Deal Tax Advisory (Strategic, IBC, PE/VC)
Business Risk Advisory
• Tax Due-Diligence
• Risk based Internal Audits & Enterprise Risk Manangement (ERM)
• Tax Structuring
• Flow Chart Base Process Mapping & Process Excellence Studies (SOP)
• Deal Negotiation Review
• Compliances Studies, Assets management & Business support
• Transaction Documentation Review
• Post-Deal Integration
Corporate Restructuring Dispute & Litigation Support
• Group Restructuring
• Financial/Capital Restructuring • Valuation Services
Succession Planning • Damages & Loss of Profit Analysis
Holistic Implementation Support • Independent Expert testimony
• Merger/Amalgamation • Share Buyback • Anti-trust & Competition Advisory
• Demerger/Spin-off • Business Transfers • Post-Acquisition Disputes, Joint Venture & Shareholder Disputes
• Capital Reduction • Liquidation/Wind-up • Civil & Construction Disputes, Real Estate Disputes
• Intellectual Property Rights Dispute
23
CONTACT US
Management
Rajeev R. Shah Manish Kaneria Mitali Shah Ravishu Shah

Managing Director & CEO Managing Director & COO Managing Director & Head Managing Director
+91 79 4050 6070 Co - Head Valuation Banking & Restructuring Co - Head Valuation
rajeev@rbsa.in +91 79 4050 6090 +91 79 4050 6050 +91 22 6130 6093
manish@rbsa.in mitali@rbsa.in ravishu.shah@rbsa.in
Ravi Mehta Chetan Khandhadia Ajay Malik

Managing Director & Head Managing Director & Head Managing Director & Head
Transaction Tax Transaction Services Investment Banking
+91 22 6130 6052 +91 22 6130 6095 +91 22 6130 6015
ravi.mehta@rbsa.in chetan.khandhadia@rbsa.in ajay.malik@rbsa.in
Project Leader Research Analysts Creatives
Nitin Mukhi Darshit Shah Keyur Bhagatia / Tarun Vataliya

+91 79 4050 6074 +91 79 4050 6074 +91 79 4050 6033
nitin.mukhi@rbsa.in darshit.shah@rbsa-advisors.com keyur.bhagatia@rbsa.in
India Offices Global Offices
Mumbai Delhi Hyderabad Dubai

1121, Building No. 11, 2nd Floor, 2nd Floor, IAPL House, 607, 6th Floor, Shangrila Plaza, 2001-01, Level 20, 48 Burj Gate Tower,
Solitaire Corporate Park, Chakala, 23 South Patel Nagar, Road No. 2, Opposite KBR Park, Downtown, Sheikh Zayed Road,
Andheri Kurla Road, Andheri (E), New Delhi - 110 008 Banjara Hills, PO Box 29734, Dubai, UAE
Mumbai - 400 093 M: +91 99585 62211 Hyderabad - 500 034 M: +971 52 382 2367
Tel: +91 22 6130 6000 Tel: +91 11 2580 2300 M: +91 90526 60300 +971 52 617 3699
Tel: +91 40 4854 6254 Tel: +971 4518 2608
Email: dubai@rbsa.in
Ahmedabad Bengaluru Singapore

912, Venus Atlantis Corp. Park, 104, 1st Floor, Sufiya Elite, 6001 Beach Road,
Anand Nagar Road, #18, Cunningham Road, #22-01 Golden Mile Tower,
Prahladnagar, Near Sigma Mall, Singapore - 199589
Ahmedabad - 380 015 Bangalore - 560 052 M: +65 8589 4891
Tel: +91 79 4050 6000 M: +91 97435 50600 Email: singapore@rbsa.in
Tel: +91 80 4112 8593
Gift City (IFSC) Abu Dhabi

Unit No. 16, Office No. 7, Unit No. 1102, Al Jamal Building,
Wing D GIFT Aspire Block 12, Al Ghatfah St, Al Danah,
Road 1-D, GIFT SEZ, Abu Dhabi
Gandhinagar - 382 355 M: +971 52 617 3699
M: +91 97243 43847 Email: abudhabi@rbsa.in
24

RBSA Advisors Presents Cost of Capital in India 5th Edition September2022

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

RBSA Advisors Presents Cost of Capital in India 5th Edition September2022

Uploaded by

Copyright:

Available Formats

Cost of Capital In India

We wish that you find this report useful. Happy Reading...

Cost of Capital in India - 5th Edition 02

01 Cost of Capital Study 04

Auto and Auto Components 10

Auto and Auto Capital Goods Consumer

FMCG Information Pharma and

Infrastructure Hotel Power

Retails Metals & Mining Real Estate

Cost of Capital in India - 5th Edition 05

Cost of Capital in India - 5th Edition 06

Capital structure choices peculiar to

Min 10.4% FMCG

Cost of Capital in India - 5th Edition 07

Pie Chart interpretation

Normal Distribution Curve interpretation

Cost of Capital in India - 5th Edition 09

Cost of Capital in India - 5th Edition 10

<4% 8% 12% >12% -

Cost of Capital in India - 5th Edition 11

<4% 8% 10% >10% -

Cost of Capital in India - 5th Edition 12

<4% 6% 10% >10% -

Cost of Capital in India - 5th Edition 13

<4% 8% 10% >10% -

Cost of Capital in India - 5th Edition 14

<4% 8% 10% >10% -

Cost of Capital in India - 5th Edition 15

<6% 9% 12% >12% -

Cost of Capital in India - 5th Edition 16

<4% 6% 10% >10% -

<12% 14% 16% >16% -

Cost of Capital in India - 5th Edition 17

Cost of Capital in India - 5th Edition 18

Cost of Capital in India - 5th Edition 19

<4% 8% 10% >10% -

Cost of Capital in India - 5th Edition 20

<10% 11% 12% >12% -

Cost of Capital in India - 5th Edition 21

Cost of Capital in India - 5th Edition 22

Restructuring Risk Consulting

Rajeev R. Shah Manish Kaneria Mitali Shah Ravishu Shah

Ravi Mehta Chetan Khandhadia Ajay Malik

Project Leader Research Analysts Creatives

Nitin Mukhi Darshit Shah Keyur Bhagatia / Tarun Vataliya

India Offices Global Offices

Mumbai Delhi Hyderabad Dubai

Ahmedabad Bengaluru Singapore

Gift City (IFSC) Abu Dhabi

You might also like