Capital structure dilemma at

SRM infrastructure Ltd

By:
Ashish – 20BSP0409
Kavepriya – 20BSP1055
Ravi vishwakarma- 20BSP1843
Satya – 20BSP2142
Vamsi chaitaniya – 20BSP2607
Vaishnavi – 20BSP3333
BACKGROUND OF THE CASE

• This case describes the capital structure of “SRM Infrastructure Ltd” and
its expansion policy, for which the company was faced with the decision
regarding capital requirement as well as sources of finance.

• Mr. R.K. Dandwani, VP of SRM Infrastructure Ltd.,

• It begins with a brief history of the company and then talks about various
financing alternatives suggested by different consultants.
PROBLEM

• SRM has bagged a infrastructure road project through tender which

was approved in January 2015 and work had to be completed within
4 years i.e., before 2019.

• Mr.Dandwani wants to get capital at the lowest cost. He asked for

detailed information about costing and financing of that project.

• He decided to seek expert advice from Mr. P.M Saxena, Finwiz

associates, and RMPG consultancy.
 EXPERT I

Mr. P.M SAXENA

Mr. P.M. Saxena taking into consideration of the NHAI report, he found
that debt will be easily available and also to be a cheaper source of
finance. And also from the industry reports observation, he has proposed
that debt be raised externally and the equity part of financing be met
through equity participation by the parent company SRM Infra.
 EXPERT II

FINWIZ ASSOCIATES

• Finwiz Associates worked upon the debt equity mix as suggested by

Mr. P.M.Saxena. But they believed that with market sources of capital
available, the company should rely on them along with internal equity.

• Finwiz Associates suggested that the project may be financed by

internal equity in the first year (as with no profits in the absence of
payments, it would be difficult to satisfy investors) and that it could raise
external equity via a public issue along with debt to finance the project
from the second year onward.
EXPERT III

RMPG CONSULTANCY

• It also affirmed heavily in favor of debt financing for the project.

They recommended that the project may be funded with debt and
internal equity in the first year, making the debt equity ratio 75:25.

• In 2nd year, additional debt funding may be sought and equity

may be sourced from external issue, making the overall debt
equity ratio 75:25. They believed that cost of debt remains
constant but equity could rise by 17% with external equity.

• In 4th year, increase in debt ratio to 78:22 was recommended.

Cost of equity in 2015 might further rise to 21%. The additional
debt financing would increase the average cost of debt to around
12% which the company would hear in the 4th year if it is
increased debt in the debt equity mix.
RECOMMENDATION

The RMPG recommendation will have the huge burden on the SRM
infra with the increase of the years and FINWIZ Associates
recommendation will have the stable and better internal and external
stability in the funding as they have taken the all aspects into
consideration and as for saxena recommendation he suggested
some good points about the funds but not considered the market
value and don't know alternative about the equity participation from
parent company if they don't agree.

We think choosing the FINWIZ ASSOCIATES Recommendation is

best for the SRM infra, as they Considered all the aspects of the
market and other government schemes and banks and other external
sources, without increase of the debt equity and the weighted
average cost.