Merger Valutation Report

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To

The Board of Directors, The Board of Directors,

Santecure Limited Sunshine Life Sciences Limited

Re: Recommendation of Fair Share Exchange Ratio for the purpose of proposed

merger of Sunshine Life Sciences Limited with Santecure Limited

Dear Sirs,

1. As requested by the managements of Sunshine Life Sciences Limited and

Santecure Limited, we have undertaken the valuation exercise of the shares of

Sunshine Life Sciences Limited and Santecure Limited, to recommend a fair

exchange ratio of shares for the proposed merger.

2. Content and Purpose

2.1 We have been informed that Board of Directors of the Companies are

considering a proposal for the merger of Sunshine Life Sciences Limited and

Santecure Limited, pursuant to the provisions of sections 391 to 394 of the

Companies Act, 1956 (now Companies Act 2013). Subject to necessary

approvals, Sunshine Life Sciences Limited will merge with Santecure

Limited, with effect from April 1, 2015. As per the draft scheme of merger,

equity shareholders of Sunshine Life Sciences Limited would, in consideration

for the merger, receive equity shares of Santecure Limited.

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2.2 In this connection, we have been requested by the management of the

companies, to submit a report, on our recommendation of the fair share

exchange ratio, for the proposed merger, for the consideration of the Boards of

the respective Companies. This report recommends, what in our opinion, is

fair and equitable share exchange ratio for the proposed merger.

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3.1 History and Overview Santecure limited is a Closely Held company that has been operational since April

2008. The main aim of the company is to Produce and Supply Generic medicines for

the common people in India, The Company owns Some Brand names for leading

over the counter drugs. it has its head office in Ahemdabad, Gujrat.

The Company is owned by a group of Medical and Lab professional and is a closely

held company. The company aims at producing quality medicines at affordable

rates to benefit the mass. Company s having a dedicated research team and

company holds two patents for its research work in the field of medicine.

The company, in its Seventh year of operations (FY 2014-15), achieved a turnover of

₹2788.95 Lakhs. It also increased the number of distributors and C&F agents and

showed 30% growth in its profits over the previous financial year.

3.2 Share Holding and Share Trading Santecure is public limited company with a share capital of 80000 shares out of

which a major portion is held by Medical Professional associated with the

Company. There is also some shareholding held by the Directors and employees of

the Company.

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3.3 Company Products, Development Initiatives and Supplier Network Santecure limited started as a Pharmaceutical company. Engaged in manufacturing

However, in the past two years company has expanded its reached all over India.

The company has also registered some new patents for its research work in

medicine. The company is engaged in large scale production of medicines.

Santecure Limited has been constantly innovating and adding value to existing

product line. with dedicated workforce the company has been able to produce at a

relatively less cost as compared to its competitors. The company is transferring this

benefit to the consumers by providing the drugs at cheaper rate and increasing its

sales and leaving the competition behind. The company has also increased its

production capacity to meet the expected demand.

3.4 LIST OF DIRECTORS

1. Mr. Om Kumar

2. Mr. Satyam Kumar

3. Mr. Manish Kumar

4. Mr. Bhagat Singh


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4.1 History and Overview

Sunshine Life Sciences Limited is a public company that has been operational

since April 2008. The main aim of the company is to expand its network to whole

of India and reach every City & Village of India. The Company has its head office at

Chennai

The company is a closely held company having formed by young entrepreneurs

and medical as well as sale professionals. The company is having few brands on its

name and has a huge sales Network, reaching almost every big city in inda.

Sunshine Life Sciences Limited in its seventh year of operations (FY2014-2015),

achieved a turnover of ₹ 544.74 lakhs. It also increased the number of its

agents and distributors.

4.2 Share Holding Sunshine Life Sciences is a public limited company with a share capital of

90000 shares out of which a major portion is held by the founders of the company.

There is also some shareholding held by the Directors and employees of the

Company.


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4.3 Company Products, Development Initiatives and Supplier Network

Sunshine Life Sciences Limited is a Pharmaceutical company, engaged in small

scale production of drugs as well as trading of drugs manufactured by other under

its own name..

Sunshine Life Sciences have a dedicated sales team and its has expanded its reach

significantly in the past few year and has been constantly growing.

The company has worked on developing its sales network and increasing its

production capacity through management .

During the year 2009-2010 the company has fetched many awards for its research

work. The Managing Director has fetched many nomination for its excellent

management work in the year 2011-12.

4.4 LIST OF DIRECTORS 1. Ms. Yukti Kumari 2. Mr. Ram 3. Mr. Ranbir Singh 4. Mr. Vikram Singh 5. Mr. Suraj Kumar

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5. Valuation Date Valuation for the purposes of determining Fair Exchange Ratio for proposed merger

is carried out as on 1st April, 2015. This Report is to be considered only in respect of

financial position of companies as on 31/03/2015 and all the closing balances as on

31.03.2015 have been taken as opening balance as on 01.04.2015.

6. BUSINESS VALUATION METHODS: The following are some of the business

valuation methods:

6.1 Discounted Cash Flow (DCF) Method

The Discounted Cash Flow (DCF) methodology expresses the present value

of a business as a function of its future cash earnings capacity. This

methodology works on the premise that the value of a business is

measured in terms of future cash flow streams, discounted to the present

time at an appropriate discount rate.

This method is used to determine the present value of a business on a

going concern assumption. It recognizes that money has a time value by

discounting future cash flows at an appropriate discount factor. The DCF

methodology depends on the projection of the future cash flows and the

selection of an appropriate discount factor.

When valuing a business on a DCF basis, the objective is to determine a net

present value of the cash flows ("CF") arising from the business over a

future period of time (say 5 years), which period is called the explicit

forecast period. Free cash flows are defined to include all inflows and

outflows associated with the project prior to debt service, such as taxes,

amount invested in working capital and capital expenditure. Under the

DCF methodology, value must be placed both on the explicit cash flows as

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stated above, and the ongoing cash flows a company will generate after the

explicit forecast period. The latter value, also known as terminal value, is

also to be estimated.

The further the cash flows can be projected, the less sensitive the valuation

is to inaccuracies in the assumed terminal value. Therefore, the longer the

period covered by the projection, the less reliable the projections are likely

to be. For this reason, the approach is used to value businesses, where the

future cash flows can be projected with a reasonable degree of reliability.

For example, in a fast changing market like telecom or even automobile,

the explicit period typically cannot be more than at least 5 years. Any

projection beyond that would be mostly speculation.

6.2 Balance Sheet Method or the Net Asset Value Method

The Balance sheet or Net Asset Value (NAV) methodology values a

business on the basis of the value of its underlying assets. This is relevant

where the value of the business is fairly represented by its underlying

assets. NAV method is normally used to determine the minimum price a

seller would be willing to accept and, thus serves to establish the floor for

the value of the business. This method is pertinent where:

· The value of intangibles is not significant;

· The business has been recently set up.

This method takes into account the net value of the assets of a business or

the capital employed as represented in the financial statements. Hence,

this method takes into account the amount that is historically spent and


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earned from the business. This method does not, however, consider the

earnings potential of the assets and is, therefore, seldom used for valuing

a going concern. The above method is not considered appropriate,

particularly in the following cases:

· When the financial statement sheets do not reflect the true value of

assets, being either too high on account of possible losses not

reflected in the balance sheet or too low because of initial losses

which may not continue in future;

· Where intangibles such as brand, goodwill, marketing infrastructure,

and product development capabilities, etc., form a major part of the

value of the company;

· Where due to the changes in industry, market or business

environment, the assets of the company have become redundant and

their ability to create net positive cash flows in future is limited.

6.3 Market Multiple Method

This method takes into account the traded or transaction value of

comparable companies in the industry and benchmarks it against certain

parameters, like earnings, sales, etc. Some commonly used parameters

are:

Earnings Before Interest, Taxes, Depreciation & Amortizations

(EBITDA).

Sales

Price Earning

Although the Market Multiples method captures most value elements of a

business, it is based on the past/current transactions or traded values and


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does not reflect the possible changes in future of the trend of cash flows

being generated by a business, neither takes into account the time value of

money adequately. At the same time it is a reflection of the current view of

the market and hence is considered as a useful rule of thumb, providing

reasonableness checks to valuations arrived at from other approaches.

Accordingly, one may have to review a series of comparable transactions to

determine a range of appropriate capitalization factors to value a company as

per this methodology.

Practically this method becomes very difficult to use

because it becomes difficult to collect market value of comparable companies

So we have applied Price Earning (P/E) multiple, For this we have relied

upon the Index i.e. CNX Nifty P/E ratio due to the lack similar listed

companies, keeping in mind that the long term returns of the company will

be at par with the economy and given comparatively lesser weight to this

method .

6.4 We have used above Three methods for determining fair exchange ratio as

only one method cannot be relied. Followings are the two methods which

are used for determining fair exchange ratio:

1. Exchange ratio based on Net Assets Value (NAV)

2. Exchange ratio based on Discounted Cash Flow (DCF)

3. Market Multiple Method

Below weights have been assigned to different methods. Weights assigned are

our personal judgments.

1. Exchange ratio based on Net Assets Value (NAV) 40 %

2. Exchange ratio based on Discounted Cash Flow (DCF) 40 %

3. Market Multiple Method 20 %


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7.1 Our report is subject to the scope , limitations detailed hereinafter as

such the report is to be read in totality and not in conjunction with the

relevant documents referred therein.

7.2 Our work does not constitute an audit or certification of the historical

financial statements including the working results of the companies

referred to in this report accordingly we are unable to express an opinion

on the fairness or accuracy of any financial information referred to in this

report. Valuation analysis and results are specific to the purpose of valuation

and the valuation date mentioned in the report. Report is as per agreed

terms of our engagement, it may not be valid if done on behalf of any other

entity.

A valuation of this nature involves consideration of various factors including

those impacted by prevailing market trends in general and industry trends

in particular. This report is issued on the understanding that the companies

have drawn our attention to all the matters which they are aware of

concerning the financial position of the companies and any other matter

which may have an impact on our opinion on the fair equity share

exchange ratio for the proposed merger including any significant

changes that have taken place or are likely to take place in the

financial position of the companies subsequent to the proposed

appointed date for events and circumstances occurring after the date of

this report

In the course of the valuation we were provided with both written and

verbal information we have however , evaluated the information provided

to us by the companies through broad inquiry analysis and review but

have not carried out a due diligence or audit of the information

provided for the purpose of this engagement our conclusions are based

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on the assumptions and other information given by/on behalf of the

companies we assume no responsibility for any errors in the above

information furnished by the companies and consequential impact on the

present exercise.

Our report is not, nor should it be construed as our opinion or

certification, the compliance of the proposed merger with the provisions

of any law including companies taxation and capital market related

laws or as regards. Any legal implications or issues form such proposed

marker.

This report is prepared only in connection with the propose of

amalgamation exclusively for the use of the companies and for

submission to any regulatory/ statutory authority as may be required

under any law.

8. Distribution of Report

The information contained herein and our report is confidential. It is intended only

for the sole use and information of the companies, and only in connection with the

proposed merger as aforesaid including for the purpose of obtaining requisite

approvals. Any person /party intending to provide finance/ invest in the

shares/businesses of any of the Companies, shall do so, after seeking their own

professional advice and after carrying out their own due diligence. This report

shall not be distributed to anyone else without prior permission of XYZ &

Associates. Report is strictly personal and confidential.

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RECOMMENDATION OF FAIR EXCHANGE RATIO

9.1 It is important to note that in case of merger valuation the attempt

is not to arrive at the absolute values of the shares of each company. Our

exercise is to work out relative values of shares of the companies .

9.2 In the ultimate analysis , valuation will have to involve the

exercise of judicious discretion and judgment taking into account all

the relevant factors. There will always be several factors e.g. present and

prospective competition, yield on comparable securities and market

sentiments etc. which are not evident from the face of the balance

sheets but which will strongly influence the worth of a share. This concept

is also recognized in judicial decisions.

"If the asset takes the form of fully paid shares, the valuation will take into account

not only the terms of the agreement but a number of other factors, such as

prospective yield, marketability, the general outlook for the type of business of the

company which has allotted the shares, the result of a contemporary prospectus

offering similar shares for subscription, the capital position of the company, so

forth. There may also be an element of value in the fact that holding of the shares

gives control of the company. If the asset is difficult to value, but is nonetheless of a

money value, the best valuation possible must be made. Valuation is an art, not an

exact science. Mathematical certainly is not demanded, nor indeed is it possible."

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9.3 In the light of the above and a consideration of all the relevant

factors and circumstances as discussed and outlined hereinabove

referred to earlier in this report in our opinion a ratio of fair

exchange in the event of merger of Sunshine Life Sciences Limited with

Santecure Limited would be

2 (Two) equity shares of Santecure Limited of ₹ 100 each fully paid for

every 9 (Nine) equity shares of Sunshine Life Sciences Limited of ₹ 100

each fully paid.

Thank You,

Yours Faithfully

ABC & Associates

Chartered Accountants

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SANTECURE LIMITED

CASH FLOWS

Amount in ₹ lakhs

S.No. Particulars 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

Audited Projected Projected Projected Projected Projected

1 Revenue

Sales (Net of Excise Duty) 2,788.95 3,625.64 4,640.82 5,847.43 7,133.87 8,417.96

Other Income 2.28 0.00 0.00 0.00 0.00 0.00

Total Income 2,791.24 3,625.64 4,640.82 5,847.43 7,133.87 8,417.96

YoY Growth 30% 30% 28% 26% 22% 18%

2 COGS 2,318.84 3,014.49 3,858.55 4,861.77 5,931.36 6,999.01

3 Gross Profits (1-2) 472.40 611.15 782.27 985.66 1,202.50 1,418.96

4 Indirect Expenses 336.51 437.46 559.95 705.54 860.76 1,015.70

a) Man Power Cost 51.19 66.54 85.18 107.32 130.93 154.50

b) Selling, Administrative & Other

Cost 285.32 370.92 474.78 598.22 729.83 861.19

5 EBIDTA 135.89 173.69 222.32 280.12 341.75 403.26

6 Interest on Borrowed Funds 43.58 56.66 72.52 91.38 111.48 131.54

7 EBDTA 92.30 117.03 149.80 188.74 230.27 271.72

8 Depreciation 3.14 2.83 2.54 2.29 2.06 1.85

9 PBT 89.16 114.20 147.25 186.45 228.21 269.86

10 TAX 28.84 35.29 45.50 57.61 70.52 83.39

11 PAT 60.32 78.91 101.75 128.84 157.69 186.47

Add

12 DEPRICIATION 3.14 2.83 2.54 2.29 2.06 1.85

13 NET CASH FLOW 63.46 81.74 104.30 131.13 159.75 188.33

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SUNSHINE LIFE SCIENCES S LIMITED CASH FLOWS

Amount in Lakhs

S.No. Particulars 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

Audited Projected Projected Projected Projected Projected

1 Revenue

Sales (Net of Excise Duty) 544.74 708.16 906.45 1,142.12 1,393.39 1,644.20

Other Income 0.04 0.00 0.00 0.00 0.00 0.00

Total Income 544.78 708.16 906.45 1,142.12 1,393.39 1,644.20

YoY Growth 30% 30% 28% 26% 22% 18%

2 COGS 502.14 652.78 835.56 1,052.81 1,284.42 1,515.62

3 Gross Profits (1-2) 42.64 55.38 70.89 89.32 108.97 128.58

4 Indirect Expenses 21.28 27.66 35.41 44.62 54.43 64.23

a) Man Power Cost 5.44 7.07 9.05 11.41 13.91 16.42

b) Selling, Administrative & Other

Cost 15.84 20.59 26.36 33.21 40.52 47.81

5 EBIDTA 21.36 27.72 35.48 44.70 54.53 64.35

6 Interest on Borrowed Funds 3.24 4.21 5.39 6.79 8.29 9.78

7 EBDTA 18.12 23.50 30.09 37.91 46.25 54.57

8 Depreciation 3.44 3.10 2.79 2.51 2.26 2.03

9 PBT 14.68 20.41 27.30 35.40 43.99 52.54

10 TAX 4.50 6.31 8.44 10.94 13.59 16.23

11 PAT 10.18 14.10 18.86 24.46 30.40 36.31

Add

12 DEPRICIATION 3.44 3.10 2.79 2.51 2.26 2.03

13 NET CASH FLOW 13.62 17.20 21.65 26.97 32.65 38.34

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Terminal Value The terminal value (continuing value or horizon value) of a security is the present value at a future point in time of all future cash flows when we expect stable growth rate forever. Considering the Industry Type and the nature of business to which companies pertains, we assume a Business cycle of 18 year. Both the companies are established in 2008 and have been doing the very simililar business. In the initial phase of Business Cycle the companies has shown increasing growth rate, due to increasing rate of returns and now having constant returns, we expect that the at the end of business cycle the returns would settle down to at par with the Economy, which is expected to be 6.6% as the GDP growth rate Forecast for the year 2026. Refer to Annexure - 1 for GDP Forecast.

As the inflated growth rate is expected to settle down to the economic growth rate at end of the business cycle, we have considered the Inflows of 2025-26 for the calculation of Terminal Value.

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Calculation of Terminal Value Terminal Value = Cash Flows of 2025 -26 Expected Rate of Return - Growth

Terminal Value for Santecure Limited Expected Cash Flow for the year 2025 - 26 = 310.12 Expected Rate of Return = 19.17% Growth Rate = 6.6% Terminal Value = 310.12 19.17%-6.6% Terminal Value = 2467.174

Terminal Value for Sunshine Life Sciences Limited Expected Cash Flow for the year 2025 - 26 = 63.13 Expected Rate of Return = 19.17% Growth Rate = 6.6% Terminal Value = 63.60 19.17%-6.6% Terminal Value = 502.222

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As per Capital Asset Pricing Model (CAPM) the Expected rate of return can be derived as - Expected Rate of Return = Rf + β (Rm - Rf) Where - Rf = Risk Free Rate β = Beta Rm = Return on Market Hence Expected Rate of Return = 7.67 + 1.25 (16.87-7.67) = 19.17 % For the Above Calculation we have Considered - Risk Free Rate (Rf) = 7.67% The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time. It is the minimum return an investor expects for any investment because he or she will not accept additional risk unless the potential rate of return is greater than the risk-free rate. We consider Government Bonds and Securities as risk free and hence, The ZCYC rate as on 31st March, 2015 as published by The Clearing Corporation of India Limited. Refer to Annexure - 2 Beta (β) = 1.25 Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Considering the Risk Factor and Industry to which the company belong, Beta has been determined at 1.25, Return on Market (Rm) = 16.87 Market Return refers to the return on a Market Portfolio. For Market Rate of Return we have considered the Five Years Return of CNX Nifty computed as per Compounded Annual Growth Rate (CAGR), Refer to Annexure - 3

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SANTECURE LIMITED Discounted Cash Flow Per Share

Year Particulars Cash Flow P.V. Factor P.V.

Cash Flow

2015-16 Annual Cash Flow 81.74 0.839 68.59

2016-17 Annual Cash Flow 104.30 0.704 73.44

2017-18 Annual Cash Flow 131.13 0.591 77.48

2018-19 Annual Cash Flow 159.75 0.496 79.21

2019-20 Annual Cash Flow 188.33 0.416 78.36

2025-26 Terminal Value 2467.17 0.145 358.40

TOTAL CASH FLOW

735.48

NO. of Shares

80000 0.8

CASH FLOW / SHARE 919.34

SUNSHINE LIFE SCIENCES S LIMITED Discounted Cash Flow Per Share

Year Particular Cash Flow P.V. Factor P.V.

Cash Flow

2015-16 Annual Cash Flow 17.20 0.839 14.43

2016-17 Annual Cash Flow 21.65 0.704 15.24

2017-18 Annual Cash Flow 26.97 0.591 15.94

2018-19 Annual Cash Flow 32.65 0.496 16.19

2019-20 Annual Cash Flow 38.34 0.416 15.95

2025-26 Terminal Value 502.22 0.145 72.96

TOTAL CASH FLOW

150.71

NO. of Shares

90000 0.9

CASH FLOW / SHARE 167.45

Calculation of Expected Rate of Return DDDIIISSSCCCOOOUUUNNNTTTEEEDDD CCCAAASSSHHH FFFLLLOOOWWW PPPEEERRR SSSHHHAAARRREEE

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SANTECURE LIMITED NAV PER SHARE

S.No. Particulars Amount in Lakhs

1 Fixed Assets 13.58

2 Current Assets 1033.46

3 Deffered Tax Assets 0

4 TOTAL ASSETS A=(1+2+3) 1047.04

5 Loan Funds 329.22

6 Current Liabilities 552.38

7 TOTAL LIABILITIES B=(5+6) 881.60

8 Net Assets Value (A-B) 165.44

9 No. of shares 80000 0.8

10 NAV PER SHARE 206.80

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SUNSHINE LIFE SCIENCES LIMITED NAV PER SHARE

S.No. Particulars Amount in Lakhs

1 Fixed Assets 15.76

2 Current Assets 253.58

3 Deffered tax assets 7.99

4 TOTAL ASSETS(1+2+3) A 277.32

5 Secured Loans 49.06

6 Current Liabilities & Provisions 151.41

7 TOTAL LIABILITIES(5+6) B 200.47

8 Net Assets Value A-B 76.85

9 No. of Shares 90000 0.9

10 NAV PER SHARE 85.39

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SANTECURE LIMITED

Earning Per Share 75.40625

Price Earning Ratio 22.7

Market Price Per Share 1711.72

SUNSHINE LIFE SCIENCES S LIMITED

Earning Per Share 11.31

Price Earning Ratio 22.7

Market Price Per Share 256.66

For the Above Calculation P/E ration of Index - CNX Nifty has been considered as base as the P/E of similar listed entity is not available. For the Index P/E we have relied upon the report published by Indian Index Service & Products Limited. Refer to Annexure - 3

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DETERMINATION OF EXCHANGE RATIO

S.No. PARTICULARS

EXCHANGE

RATIO

1 BASED ON NAV 2.42

NAV per share of Santecure Limited 206.80 NAV per share of Sunshine Life

Sciences s Limited

85.39 2 BASED ON CASH FLOW 5.49

Cash Flow per share of Santecure Limited 919.34

Cash Flow per share of Sunshine Life Sciences s Limited 167.45

3 Market Multiple Method 6.67 MPS Santecure Limited 1711.72

MPS Sunshine Life Sciences s Limited 256.66

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WEIGHTS ASSIGNED TO ABOVE METHODS

S.No. PARTICULARS WEIGHT

1 NAV 40%

2 CASH FLOW 40%

3 MARKET MULTIPLE 20%

FINAL SHARE EXCHANGE RATIO

S.No. BASIS OF

EXCHANGE RATIO

Exchange Weight

Weighted

Ratio Exchange Ratio

1 NAV

2.42 40% 0.97

2 CASH FLOW 5.49 40% 2.20

3 MARKET MULTIPLE 6.67 20% 1.33

TOTAL 1.00 4.50

The Fair exchange ratio should be 2 shares of Santecure Limited for every 9 Shares held in Sunshine Life Sciences Limited.

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ZCYC as per The Clearing Corporation of India Limited.

31/Mar/15

Beta 0 7.6737

Beta 1 0.1276

Beta 2 -0.4406

Tau 1 0.5686

Beta 3 0.0410

Tau 2 1.0000

Maturity (Yrs) 31/Mar/15

30.0 7.67

Source : - https://www.ccilindia.com


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Source : - http://www.nseindia.com/


Merger Valutation Report

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