There are two key questions in this thesis-
a) How much of the sale value will accrue to Binny and when?
b) How confident can one be in Binny management to dividend out the proceeds and not utilize it in some value destroying activity?
On the former here is a quick calculation:
The plan is to sell in 4 years, given the sluggish market I have assumed 6 years. As there is no more info, I am assuming equated sales over 6 years.
So the cash flow should look like this:
We calculate NPV as below:
And arrive at the potential mispricing in the listed equity. This is obviously sensitive to the discount rate assumed.
On part b) has the management returned any money to shareholders before or have they shown any inclination of expanding their real estate business? Any inputs on this will be appreciated.
Inputs on the DCF assumptions will also be appreciated.
Thanks to all boarders for the meticulous analysis!