Annexure-v-cover page of academic task

Course Code: FINM551 Course Title: Corporate Finance-II

Course Instructor: Monika Kalani

Academic Task No: 1 Academic Task Title: Sobha Ltd.

Date of Allotment: 12/02/2021 Date of Submission: 26/12/2021

Students Name: Prachi Khetan

Student’s Roll no: RQ2140B55 Student’s Reg.no: 12102654

Learning Outcomes: To read the reports of the companies and extract financial information. You will learn to
calculate Cost of Capital of a Company, learn about Leverage and calculate Operating, Financial
I declare that this Assignment is my individual assignment. I have not copied it from any other student’s work
or from any other source except where due acknowledgement is made explicitly in the text, nor has any part
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1)Calculation of Cost of Capital and its Interpretation
DIVIDEND DISCOUNTING MODEL
COST OF EQUITY

Po= Share price today Ke =Cost of equity

D1= Dividend expected to be paid in next year g= Growth rate

FORMULA FOR DDM = P0=D1/Ke-g

2020 2019 2018
810.65=663.74/ 0.0490-g 810.65=136.47/16.55%-g 810.65=240.68/0.1485-g
39.72185-810.65g= 663.74 134.16-810.65g=136.47 120.38-810.65g=240.68
39.72185-663.74=810.65g 134.16-136.47=810.6g 120.38-240.68=810.65g
g= -6240.01815/810.65 g= -2.31/810.65 g= - 120.3/810.65
g= -0.76 g=0.028 g -0.148

COST OF DEBT
The calculation of cost of capital is done by taking total liabilities less Equity share capital less reserves and
surplus less Current Borrowings the result is long term borrowings. Then Current Borrowings and long-term
borrowings is summed up and then found the ratio for it. After getting the ratio interest on long-term borrowing
is calculated.
Interest on long term borrowing= long term borrowing*Ratio of long-Term borrowings*100

COST OF RETAINED EARNING

Cost of Retained Earning=Actual dividend/Retained Earnings*100

INTERPRETATION
The overall interpretation of Cost of equity , cost of debt, cost of retained earing.
In calculation of cost of equity it is observed that the growth rate of the company was negative this has happened
because the profit after tax of the comapany has been declining because of which it was negative. The Ke of the
company compared to 2018 has been increases in 2019 and got declined in 2020.
Following the COVID-19 epidemic when the Indian government advised businesses to do so confident, SOBHA
is in a good position to get out unscathed from this problem. This will require flexibility leadership at all levels
of the organization with a renewed focus on efficiency and cost reduction. Following the COVID-19 epidemic
when the Indian government advised businesses to do soconfident, SOBHA is in a good position to get out
unscathed from this problem.. All of this would not have been possible without the strong support of our dedicated
staff of artists. They are the true flag bearers of SOBHA ethos for quality, enthusiasm, honesty, transparency and
integrity. For the 2019-20 Financial Year, Company has independent, acquired foundations revenues of
`38,304.87 million compared to `34,337.78 million last year, which is an increase of 11.5% y-o-y. Profit before
Taxes during the year were `4,410.78 million as against `4,319.08 million last year, an increase of 2.12% and
profits after tax on time the year was `2,894.79 million compared`2,865.25 million last year, namely, changed to
+ 1.03% per week. The Company's approved budget is `2,000,000,000 divided into 150,000,000 shares equal `10
each and 5,000,000 popular shares `100 each. In at the beginning of the year under review, issued, registered and
paid fees in full `948,458,530 is divided into 94,845,853 equals `10 shares each. There is no change issued,
registered and paid in full the Company's budget during the year under review. Sobha Limited is limited to the
community the company and its shares are listed National Stock Exchange of India Limited as well Company
rating BSE Limited There were no purchases made by Company at the time of review.
For the 2017-18 Financial Year, the Company, independently, received its gross income 26,496.88 million
compared to `22,273.72 million last year, an increase of 18.96% y-o-y. Profit before tax was `2,824.17 million
compared to` 2,249.55 million during the year, increasing 25.54% and Revenue after Taxes `1,939.41 million
compared to` 1,402.14 million, that is, increased 38.32% .The authorized shareholding of the Company is
`2,000,000,000 divided into 150,000,000 shares equal `10 each and 5,000,000 popular shares `100 each. In at the
beginning of the year under review, Issued, registered and paid fees in full `963,046,760 divided into 96,304,676
.equals `10 shares each. The result of a back purchase of the equitable share of 1,458,823 during the year,
disbursement, registration and payment of the Company from 31 March, 2018 `948,458,530 is divided into
94,845,853 equals `10 shares each. As of March 31, 2018, Board of Directors The Company has six directors
namely, four Non-Executive Independent Both directors are senior directors. The composition of the Board of
Directors is central compliance with SEBI Regulation 17 (Listing 32 Annual Report 2018 Information to our
shareholders Responsibilities and Requirements for Disclosure) Regulations, 2015 (Listing Rules) and Section
149 of the Companies Act, 2013. The company found what was needed announcements from Independent
directors meaning that they meet the conditions for this independence as contemplated in Section 149 (6) of
Companies Act, 2013 and Regulation 16 of Listing Regulations As of March 31, 2018, the Company has a variety
the series Secured Redeemable series Non-Convertible Debentures include `2,550,000,000 (Two hundred and
one Rupees fifty-five thousand). Company released debts to the tune `700,000,000 (Seventy Rupees million) in
the financial year 2017-18. Loans are listed on the BSE It is limited. Interest on the said credit cards paid on time
according to the relevant provisions of the Companies Act, 2013 and Listing Regulations. The company has
approved it and all applicable provisions of the List Rules for this list debentures.
In the year under review, the Company has subscribed to all equity shares of Sobha Construction Products Private
Limited thus making it a fully owned company of Sobha Limited. With this discovery, as in the day in this report,
the Company has six direct subsidiaries and subsidiaries The company has only one class of shares valued at `10
per share. Each catcher of equal shares is entitled to one vote per share. The company announces and pays the
dividend in Indian rupees. The budget proposed by the Board of Directors is subject to the approval of
shareholders following the Annual General Meeting. In the event of liquidation of the Company, the equity
shareholders shall be entitled to the acquisition the remaining assets of the Company, after the distribution of all
special prices. Distribution will be done on basis of equity shares hold by the shareholders. To achieve this goal,
the Company's financial management is, among other things, targeted to ensure that it meets the associated
interest rates and interest rates describe the financial structure requirements. Violations of financial contracts will
allow the bank immediate billing and borrowing. There have never been any violations of any financial
agreements interest-bearing loans and loans in the present. To achieve this goal, the Company's financial
management is, among other things, targeted to ensure that it meets the interest rates associated with interest-
bearing loans and loans describe the requirements for a financial structure. Violations of financial contracts will
allow the bank immediate billing and borrowing. There have never been any violations of any financial
agreements interest-bearing loans and loans in the present. No changes have been made to the objectives, policies
or procedures for financial management over the years ended 31 March 2020 and 31 March 2019 and31 March
2018. The retained earing was the highest in the year 2020 and less in the year 2019 and 2018 as comapared to
2020. In 2019 Sobha developers have the highest cost of debt.
The Board of Directors, subject to the approval of the shareholders at the ensuing Annual General Meeting are
pleased to recommend a dividend of ` 7 per equity share of ` 10 each. The real estate sector is capital intensive
and requires significant expenditure for land acquisition and development. SOBHA is subject to the risks
normally associated with debt financing and it may be required to dedicate a portion of its cash flows towards
repayment of its debt commitments. This 118 Annual Report 2018 Management Report may reduce the
availability of funds for other business purposes such as working capital expenditure and financing of acquisitions
and investments. It may not be possible to generate adequate cash flows to service principal and interest payments.
In certain cases, lenders also have the right to recall a loan. Such an event could impact SOBHA’s liquidity and
credit ratings.
2)Calculation of Expected return on Equity using CAPM and its Interpretation

Rm =Return on market
Rf= Return for risk free securities
Beta= Market risk indicator
R= Return required from ith security
I= Name of security

Formula = CAPM =Ri=Rf+ Beta (Rm-Rf) Calculated

Rm (Return on market) P1-P0/P0*100
2018 = 12274.90-10913.20/10913.20*100
2019 = 13970-12274.90/12274.90*100
2020 = 14628.50-13970/13970*100
Year 2018 Year 2019 Year2020
Ri=4+1.28*(12.48-4) Ri=4+1.278(13.81-4) Ri= 4+1.28*(4.71-4)
=4+1.28*(8.48) =4+1.28*(9.81) =4+1.28*(0.71)
=4+10.85 =4+12.55 =4+0.90
=14.85% =16.55% =4.90%

INTERPRETATION:
The Ri was the highest in the year 2019 and lowest in the year 2020. But there was less difference in the Ri of
year 2018 and 2019. Return form risk free securities remains same every year. The Rm of the company is being
calculated by taking the value closing market price It is calculated using the formula P1-P0/P0*100. Return
required from ith security of the company was 14.85% in the year 2018, in the year 2019 is 16.55% and in the
year 2020 it is 4.90%. the protection of the price in the market is more flexible. The return for risk free securites
is 4%. Return on market is substracted from Return for risk free securities and multiplied with Beta from which
the capital pricing asset model is calculated.
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return
on assets, particularly stocks. CAPM is widely used throughout the financial system to set risky securities and to
generate an expected return on assets in view of the risks and costs of those assets. Members of the ‘Promotional
Team’ as defined under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 as amended
from time to time. The company continues to upgrade the project spending cuts of power. Capital investment on
energy Conservation assets cannot be measured There is no incident of non-compliance with any law
requirements on any matter relating to the capital market and there are no restrictions imposed by any stock
exchange or SEBI during the last three years. The company complies with the applicable provisions of Rules,
Actions, Rules, Notices and circulars related to stock trading / SEBI / other legal authorities in all financial matters
markets. No fines or restrictions are impose to the Company in stock trading / SEBI / anywhere another official
authority related to the above.
The beta of the company is 1.28 which indicates that the price of protection is often more flexible than the market.
The company has only one class of shares valued at `10 per share. Each catcher of equal shares is entitled to one
vote per share. The company announces and pays the dividend in Indian rupees. The budget proposed by the
Board of Directors is subject to the approval of shareholders following the Annual General Meeting. In the event
of liquidation of the Company, the equity shareholders shall be entitled to the acquisition the remaining assets of
the Company, after the distribution of all special prices. Shareholders' distribution will be proportional to the
quantity of equity shares they own.
They also invest heavily in technological interventions to provide seamless solutions information to customers in
all contact areas. We have taken many steps to minimize the impact of this trend a problem for our company and
for the people. We have been able to achieve great progress in our efficiency by reducing costs and reviewing
our processes. And the efforts paid off a decrease in our total debt during the fourth quarter of the final funds
combined with the mark cash flow improvement. marketing channels with additional access to Channel Partners
and a focused presence in international markets. In land acquisition, we have tried to add international parcels to
make quick money to our product portfolio below costs. Our goal is to enhance our history throughout India as
we develop market share in existing cities of our portfolio. Consistent with the Company's records, including its
shareholder register / membership and other announcements the shareholders' discovery of the profit margin,
having the above shares should both be legal as well profitable stock ownership. The company controls its
financial structure and makes changes due to economic changes conditions and requirements of financial
agreements. Maintaining or repairing a financial structure, I the company may adjust the dividend payment to
shareholders, refund to shareholders or issue new ones. shares. The company monitors cash using the gear ratio,
which is a residual debt divided by the aggregate amount total credit. The company combines between residual
debt, interest-bearing loans, trade receivables and more financial liabilities (excluding debt under the JDA), cash
and bank balances. The company has received the required announcements from Independent directors meaning
that they meet the conditions for this independence as contemplated in Section 149 (6) of Companies Act, 2013
and Regulation 25 (8) Listing Rules. Their performance in the final fund is a testament to SOBHA's confidence
and resilience model. business foundations. Following initiatives such as last year's Salesforce launch, we put
ours in one place pan India marketing operations by establishing a centralized marketing team. This will bring
much-needed demand economy of quality in our customer acquisition system while reducing productivity costs.
3)Calculation of Financial, Operating and Combined Leverage and its Interpretation.

%change=Base Year-Current Year/Base Year*100

Operating Leverage= %Change in EBIT/%Change in Sales 2018-2019
%Change in EBIT=4319.08-2824.17/4319.08*100= 34%
%Change in Sales=35156-20006/35156*100=43%
Operating Leverage = 34%/43%=0.79
Financial Leverage= %Change in EPS/%Change in EBIT 2018-2019
%Change in EPS=30.23-22.68/30.23*100=24%
%Change in EBIT=4319.08-2824.17/4319.08*100= 34%
Financial Leverage= 24%/34%= 0.71%
Combined Leverage= Operating Leverage*Financial Leverage 2018-2019
0.79*0.71=0.56%

Operating Leverage= %Change in EBIT/%Change in Sales 2019-2020

%Change in EBIT=4410.78-4319.08/4410.78*100= 2.08%
%Change in Sales=38257-35156/38257*100=8.11%
Operating Leverage = 2.08%/8.11%=0.26
Financial Leverage=%Change in EPS/%Change in EBIT 2019-2020
%Change in EPS=30.52-30.23/30.52*100=0.95%
%Change in EBIT=4410.78-4319.08/4410.78*100= 2.08%
Financial Leverage= 0.95%/2.08%= 0.46%
Combined Leverage= Operating Leverage*Financial Leverage 2019-2020
0.26*0.46=0.12%

INTERPRETATION:
Earing per share is similar in the year 2020 and 2019 and less in the year 2018. Earing per share of the company
was highest in the year 2020 and lowest in the year 2018. EBIT of the company was highest in the year 2020
and lowest in the year 2018. Sales of the company was highest in the year 2020 and lowest in the year 2018.
The company show an increase every year in their sales, earning before interest and tax and in earning per
share.
Get results by using a loan as a source of income when investing to expand the company's asset base and make a
return on the risky investment. Leverage is an investment strategy for borrowing money in particular, the use of
various financial instruments or loans to increase the potential return on investment.
Profit can also refer to the amount of debt a company uses to finance assets. Leverage means the use of credit
(loans) to maximize returns from an investment or project. Investors use the power to maximize their purchasing
power in the market. Companies use the power of money to finance their assets — instead of taking stock to raise
money, companies can use credit to invest in a business in an effort to increase the number of shareholders.
The Operating Leverage is used to calculate the company's Break Even point and to help set appropriate sales
prices to cover all costs and to make a profit. Regardless of whether they sell any product units, companies with
a high degree of performance should pay a big amount of fixed costs each month. Lower-performing companies
may have greater expenditures that are directly proportional to their sales, but they may also have fixed costs that
they pay on a monthly basis. The use of credit to purchase extra assets is referred to as financial gain. Leverage
is used to maximize return on equity. However, too much of a profit increases the risk of failure, as it becomes
more difficult to repay the loan. Operating leverage of the firm in the year 2019-20120 is 0.79% and 2018-2019
is 0.26%
By separating the condition, you can see that DOL is communicated by the connection between amount, cost and
variable expense per unit to fixed expenses. Assuming operating pay is touchy to changes in the evaluating
construction and deals, the firm is relied upon to create a high DOL as well as the other way around.
In the year 2019-2020 company has a high level of operating influence gives a sign that the company has a high
extent of fixed operating expenses contrasted with its variable operating expenses. This implies that it utilizes
more fixed resources for help its centre business. It likewise implies that the company can get more cash-flow
from each extra deal while keeping its fixed expenses flawless. Thus, the company has a high DOL by making
less deals with high edges. Thus, fixed resources, like property, plant, and gear, get a higher worth without causing
greater expenses. Toward the day's end, the association's net revenue can grow with income expanding at a
quicker rate than deals incomes and in the year 2018-2019 the company has a low DOL proposes that the company
has a low extent of fixed operating expenses contrasted with its variable operating expenses. This implies that it
utilizes less fixed resources for help its centre business while supporting a lower gross margin.
The financial Leverage formula is measured as a measure of the total liability and net assets. As the value of debt
on assets increases, so does the value of money available. Financial interest allows when non-performing use of
credit generates greater profits than interest-related interest costs. Many companies use financial power instead
of earning a fair share of income, which would reduce the salary per share of existing shareholders.
Financial leverage in the year 2019-2020 is 0.71% and in the year 2018-2019 it is 0.46% which show the leverage
high in the year 2019-2020 and low in the year 2019-2018.Financial leverage is how much obligations that a
value utilizes for purchasing extra resources. Its fundamentally the extent of obligation in the capital construction
of the company. High level of financial leverage implies the company is utilizing more obligations. High level of
leverage shows higher financial risk. In the year company has used more debt and earned more.
Therefore, it can be said that in the year 2019-2020 the company has borrowed more in the form of operating and
financial leverage to earn high amount of profitability. Therefore, the combined leverage in the year 2019-2020
is more than the combined leverage in the year 2018-2019. In 2019-2020 it was 0.56% and in the year 2018-2019
it was 0.12%
REFERANCE
https://www.moneycontrol.com/india/stockpricequote/constructioncontracting-real-estate/sobha/SD6
http://keic.mica-apps.net/wwwisis/ET_Annual_Reports/Sobha_Ltd/SOBHA-2017-2018.pdf
https://finance.yahoo.com/quote/%5ENSEI/history?period1=1481932800&period2=1617148800&interval=1d
&filter=history&frequency=1d&includeAdjustedClose=true
https://www.sobha.com/wp-content/uploads/2020/10/159481050720200715.pdf
beta value as on 16th December 2021 was 1.28