Page 4 of Summary of Events

At the “2 Days Extensive Workshop on Private Equity ".

1st and 2nd August 2008, Hotel J W Marriot , Mumbai

 

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Session of Mr C S Nanda and Mr Sanjeev Maheshwari

 

 

First message to the Practising CA’s

CA Profession now wants us to be specialized.

“Attest function” CA’s must also do management consultancies

 

Message to the CA’s in the Industry 

If you have to be on the top, be the best

Add value

Be different

Specialize

 

For Both practicing and industry, CFO’s , Financial function, gives us the best limelight.

90% CA’s on top are due to their finance-connected functions.

 

But remember, Finance, is not merely funds raising, But also strategy how to generate funds

 

 

Anecdote by Mr Nanda

Man to doctor = “ I am down, with a strange illness”

Doctor                         = “ What happened ? “           

Man                 = “For 20 years, I see a dream, and it is the door to success, I am pulling, but it not opening up.  I am getting mad. Help me.”           

Doctor             = Today focus on the door    

Next day, he came again

Man                 = Again, I dreamt same dream. Again Door appeared.

For 2 hours I pulled on the door, then, I remembered, to “Focus on the door”

                        When, I focused, I saw a small slip on which was written - "push"  

                        I just gave a small push, and the “Door to opportunity opened       

 

Moral of the story :

We must know what is correct, and how it is to be done

If we don’t know the intricacies of the Private Equity market, we will never know how to click a correct deal.  So, prepare yourself

 

 

 

Next topic : Importance of “Pre-Due-Diligence”

 

Mr Nanda said, = “Due diligence(D.D., for short) is ok.” But actual real, pre-due diligence is most important. When DD comes, and if it finds that everything that he wanted to find out is readily available and also is ok/as per industry standard norms, he is very happy. This will increase the confidence level   .

 

If instead, the company calls the PE, before preparation, then it (may) create a bad word-of-mouth, of that company in the market.

 

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Next Case

Discussed a Case of a company à First PE happened at Rs.1500/share in Sep 2007.    

Then, the Stock Markets crashed.                            

Yet, after 6 month, when it wanted funding for the new project, it was able to sell further stake, (20% more of its equity), and this time not at lower, but at rate of Rs. 3500/Share.                            

Moral of the story : Yes it is possible  . If your company credentials are good, and if intentions are good, you can win, even against the market tide.                 

 

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Suggestion to bring money into the company “in Phases”.

Understand the cost first.

Understand what you have to give.

Go for phased money coming in.

Eagerness of lumpsum hints of some eagerness or even greed.

Prefer to plan to get funds in small bullets, example : Dilute just 5% every year , in 4 tranches. This way, you will get better valuations, in every successive tranche.

 

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New Development : Basel II Norms – Risk Complaince Officer

From Apr-08 Basel II norms, have been made applicable in some aspects.

And thus, in all listed co, a compulsory post of Risk Compliance Officer is required.         

They must calculate risks in the organization, and their mitigation steps being taken by the company.

Every organization ,  every business has some risks. There are Certain system risk         

Some are calculated risk, anyway business runs on risk. And some are system risk, personal risks, Governmental risks, competition risks,  the stakeholders want you to share the knowledge of those risks from you. So, that they can take an informed decision.

 

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Next Session on Valuations

 

 

The Core message of this session was that there are numerous methods of valuation, but the “Perfect Right figure” is in the Eyes and Hearts of the Two parties. 

 

Mr Lalit Chaudhary, Senior Vice President, & Head of Private Equity and Growth Capital at LEHMAN BROTHERS, India , shared the fancy and hugely varying price-tags people put, to the same company. For Example  : in a case, the price bids could be so varying as follows :-

 

Who thinks What ?

 

Rs/Share

 

Promoters thinks

200

Initial Quote of Promoter to intermediary

500

Intermediary to market

400

Intermediary to promoter

300

PE to Promoter / intermediary(initial Quote)

100

PE to self

200

 

So, from as low as Rs. 100 per share to as high at Rs. 500 per share.

 

Different methods were discussed, like

k   Discounted cash flow

k   Discounted dividend flow

k   Net asset valuation

k   Relative valuation

Each has its own merits and demerits, so, actually a combination of all the above is made. If more than 26%, I get control, and in that case, a control premium is also paid up.

 

His Message to the Directors and CFO’s present in the meeting was

If you already have a PE on board, then, getting funds for the next round of Capex becomes very very comfortable. Especially, if your corporate governance parameters are good, ERP is running fine, and your cash flows are positive. 

 

“Parta” System of Accounting

Today the PE’s calculate sustainability and valuations, much like the ancestral “Parta system” in Marwari Community in India . =è if you got Cash in your “galla”, (positive cash flows), then you are good, else you are not.

Period.

 

 

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