HANAH & Associates, Chartered Accountants

Balrampur Chini Valuation Report

Executive Summary on Business Valuation of Balrampur Chini Mills Limited

As of September 30, 2008 _________________________________________________________________

Prepared for: Managing Director, Shree Renuka Sugars Limited

Reference Letter no SRSL/INVEST/22-C Dated-29th October.2008 Subject-Valuation of Balrampur Chini Mills Limited.

Prepared by: HANAH Associates, Chartered Accountants 199/90 P Block, Connaught Place, New Delhi 110001 _________________________________________________________
The information contained herein is of a confidential nature and is intended for the exclusive use of the persons or firm for whom it was prepared. Reproduction, publication or dissemination of all or portions hereof may not be made without prior approval from HANAH Associates, Chartered Accountants.

Valuation Report

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HANAH & Associates, Chartered Accountants

Balrampur Chini Valuation Report

Shri Renuka Sugars Limited has engaged us vide their engagement letter reference SRSL/INVEST/22C Dated 29th Oct.2008 for valuation of Balrampur Chini Mills Limited (BCML) as on 30.09.2008 for the purpose of acquisition of majority stake on going concern basis. Prime information source for the valuation is Annual Reports of BCML, Industry Reports and Projections provided by Shri Renuka Sugars Limited and other industry information provided by Shri Renuka Sugars. Some of the important point w.r.t BCML is as under BCML is Uttar Pradesh based Sugar Mill Company having presence in Distillery (Industrial Alcohol) and Power (Bagasse based power plan). Sugar and Sugarcane prices are considered to be very sensitive in India due to involvement of huge population of cane growers and daily consumption product for even Below Poverty Line people. Sugar is also a product included in computation of Wholesale Price Index (WPI), which in turn used for computation of inflation. Some of the important point w.r.t BCML is as under:BCML is Uttar Pradesh based Sugar Company having 9 factories with a total capacity of 73500 TCD of Cane Crushing, 320 KLPD of Distillery (Industrial Alcohol including Ethanol) and 179.85 MW of Bagasse based Power Plant. Average Mill size of BCML is 8200 TCD (Ton Crushing Daily) against Industry Average of 3500TCD Average Sugar yield for BCML is 10.14% against Average for East U.P. sugar Mill of 10.08% Some of the important issue w.r.t Sugar Industry (Including Specific to Sugar Industries based at Uttar Pradesh) is as under : Sugar and Sugarcane prices are considered to be very sensitive in India due to involvement of huge population of cane growers and daily consumption product for even Below Poverty Line people. Sugar is also a product included in computation of Wholesale Price Index (WPI), which in turn used for computation of inflation. Central Government fixes Statutory Minimum Price (SMP) payable for sugar cane to sugar cane growers. Some states including State of Uttar Pradesh fixes State Advised Price (SAP) which is significantly above the SMP. Uttar Pradesh Sugar Mills Association has filed a case against Uttar Pradesh Government on fixing higher State Advised Price (Minimum price to be paid by Sugar Mills for cane to the farmers in Uttar Pradesh) without any economical consideration. BCML has prepared their accounts for the year 2007-08 on the basis of interim order of Honble Supreme Court for paying Rs. 110 per Quintal for sugar Sugar Season 2007-08 against State Advised Price of Rs. 125 per Quintal.

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HANAH & Associates, Chartered Accountants

Balrampur Chini Valuation Report

We have considered both the scenario i.e the one in which BCML Wins the litigation on the fixation of State Advised Price & the one in BCML Looses the litigation.

We have been advised to consider 50% probability of confirmation of order in favour of Sugar Mills and 50% probability of liability to pay full State Advised Price. VALUATION Valuation has been done using Asset Based Valuation Method, Discounted Cash Flow Method, Comparable Company Method and Market Approach Method. ASSET APPROACH In Asset Based Valuation method Replacement Cost based Asset value has been found to be more suitable and valuation accordingly comes to Rs. 123.53 per Share (including Location Premium of 10%). In this 50% liability towards differential cane price has been considered after making suitable adjustment for inventory revaluation due to cane price differential. BCML also has some interest free loans; those have also been recomputed to reflect their advantageous feature. DISCOUNTED CASH FLOW In Discounted Cash Flow Method future expected earnings are discounted with Weighted Average Cost of Capital (WACC) to derive the Present Value of the Business. For this purpose projections have been provided by the Shri Renuka Sugars till 2013-14. Projections have been provided for both the scenario i.e. in case cane price differential case goes in favour of BCML and in case it goes against BCML. In Projections, Sales growth of 4% p.a. for sugar has been considered i.e. in line with Past 6 Years actual sugar consumption growth of India of 4.2%. Sales of Power and Industrial Alcohol (Including Ethanol) have been considered @ 10% and 20% respectively. Power demand in India is expected to be higher than anticipated Power Supply till 2020 hence growth of 10% appears to be achievable. Industrial Alcohol growth of 20% appears reasonable considering huge appetite for Bio-fuel internationally (Refer Chapter 5.1 of Main Report). Weighted Average Cost of Capital has been considered as per accepted practices i.e. actual cost of Debt and calculated cost of equity. Cost of Equity has been considered to be Risk Free rate of Return plus Risk premium. Risk Premium has been computed on the basis of Nifty returns over last 14 years (that is the maximum period of data availability). A further premium has been added for smaller company (BCML not being a Nifty company. This premium has been calculated on the basis of excess return given by CNX 500 over a period of last 9 Years (Maximum period of availability of data) over Nifty.

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HANAH & Associates, Chartered Accountants

Balrampur Chini Valuation Report

For computation of terminal value 3% perpetuity growth has been considered over Base Free Cash Flow. Base Free Cash Flow for terminal value has been considered on the basis of average Net Operating Profit Less Adjusted Tax (NOPLAT). Average of last four years i.e. 2010-11 to 2013-14 has been considered to cover a complete sugar cycle, which is generally of 4-5 years. From NOPLAT outflow on account of Fixed Assets addition have been reduced on the assumption that this much Cash Outflow will be required to attain 3% perpetuity growth. 3% perpetuity growth is considered to be very well attainable due to huge demand for alternate to fossil fuel, which is being provided through Industrial Alcohol by Sugar Industry. Even Per Capita Sugar consumption in India is very low compared to US, EU and Brazil (Refer Chapter 5.1 for Per Capital Consumption Chart). Terminal Value as a part of total valuation is high due to static nature of growth considered over a longer period. Accordingly projections have been made by Shri Renuka Sugars only for the period where higher demand of Industrial Alcohol (Incl. Ethanol) and Power has been envisaged to be super normal and to cover one complete down cycle of the sugar industry. Valuation as per DCF Method in case of decision of Cane Price Differential case going in favour of BCML comes to Rs. 136.60 and in case decision of Cane Price Differential case goes against BCML valuation comes to Rs. 102.73. On 50% probability of each scenario value per share comes to Rs. 119.66.

COMPARABLE COMPANY METHOD In Comparable Company Method, there are very few listed large sugar mills in India. Shri Renuka Sugars, Bajaj Hindustan, Sakti Sugars and Triveni Engineering have been considered to be of comparable size of BCML. However, Shri Renuka Sugars and Sakti sugars are not operating in Uttar Pradesh, when cane pricing is significantly different hence multiple of those companies will not be comparable with BCML. Triveni is also engaged in Infrastructure and hence is a diversified company and hence also not comparable with BCML. Only company comparable with BCML is Bajaj Hindustan. Since Bajaj Hindustan has posted losses during the year 2007-08 (Sep-08 ending), hence profit based multiples can not be used. Accordingly valuation has been done based on EV/Sales. Value per Share comes to Rs 63.57 per Share.

Market Approach (Market Value Method)

The trading transactions of the equity shares during last four years were analyzed into the following seven (ranging from 2 Weeks , 26 weeks , 6 Months, 1 -4 years) periods. The Daily, Weekly & monthly high & Low of share price along with there traded quantities have been considered in arriving at per share value for each of the seven period. The highest price of Rs.68.95 per share among the seven Weighted Average Historical Prices of the shares of has been considered.

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HANAH & Associates, Chartered Accountants

Balrampur Chini Valuation Report

Business Value of BCML

Enterprise Value, Equity Shareholders Fund & Price Per share under different methods is summarised belowShree Renuka Sugars will be going in for controlling stake in BCML & going with the shareholding pattern of BCML as mentioned below, they have to acquire the shares from Promoters Group, Financial institutions & FIIs hence it is presumed that they have to pay control premium to the extent of 10% over & above fair the value of shares. The same has been considered in the calculation
Category Promoters' Group Financial Institutions, Insurance Companies, Banks & Mutual Funds Foreign Institutional Investors No. of shares 91150890 61634324 52591177 % of Holding 35.67 24.12 20.58

Enterprise Value, Equity Shareholders Fund & Price Per share under different methods is summarised belowConclusion under Business Valuation
Method Enterprises Value Rs./Cr. Asset Approach Replacement Cost Discounted Cash Flows method CCM EV Sales Multiple projected Market Approach Market Price (Highest average of last 4 years 4,342.24 4,368.68 2,975.44 Equity S/H Fund Rs./Cr. 2,870.30 3,058.63 1,624.77 Value per Share Rs./Per Share 112.30 119.66 63.57 Premium Rs./Per Share 11.23 11.97 6.36 Acquisition Price Per Share Rs./Per Share 123.53 131.63 69.93 Premium for Location Advantage@10% Premium for Controllable stake @10% Premium for Controllable stake @10% Premium for Controllable stake @10% Remarks

3,604.55

2,253.88

68.95

6.90

75.85

PRICE BAND PER SHARE (Considering only NAV-Replacement cost Method & DCF Method)

Rs.124 to Rs.132

Note - CCM & Market Approach methods needs to be ignored under the current Market Scenario. Hence the same is not considered in computing the price band. The same have been shown so as to give indicative prices as per Market as on date.

Based on the analysis done above, Shree Renuka Sugars can use the price band of Rs.124 to Rs. 132 per share. for Acquisition of controlling stake in Balrampur Chini Mills Limited

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