Fourth, UBS assumes a loan-to-value of 70% with an average cost of debt of 7.5%, which is also on the optimistic side.
UBS has issued a report valuing Sembcorp Industries (SCI) at $7.65 per share, up from its last done share price of $6.13 on Nov 24. The rationale is that SCI could unlock $3.5 billion to $5.5 billion in proceeds from its Indian portfolio if it were fully monetised.
“Amid news reports that SCI is exploring acquisitions in Australia and Thailand, we consider how much proceeds the company could generate, and profits that could be recognised, in a potential capital recycling exercise. Our conclusion: We estimate that SCI could potentially unlock between $3.5 billion - $5.5 billion in gross proceeds if it were to fully monetise its India RE (renewable energy) portfolio. The actual amount recognised would depend on the stake that SCI eventually retains,” a recent UBS report says.
UBS assumes that the portfolio is valued as cash-generating. These assets are currently under construction. Secondly, the average feed-in-tariff (FiT) of Rs3/kWh reflects a mix of vanilla (< Rs3) and hybrid (> Rs3) renewable energy projects. The third assumption is an aggressive Ebitda margin of 90%, and profit margins of 25%. Projects take time to stabilise and this third assumption is extremely optimistic based on a short-term time frame.
