PUNJAB TURF CLUB BY: Prachi Bhandari (A012) Mayank Bhatia (A013) Nitin Gupta (A024) Parnika Jain (A027) Neha Mittal (A038) Pranab Parida (A041) Niral Shah (A053) Monisha Sharma (A055) Neha Singh (A056)
Oct 27, 2014
PUNJAB TURF CLUBBY:Prachi Bhandari (A012)Mayank Bhatia (A013)Nitin Gupta (A024)Parnika Jain (A027)
Neha Mittal (A038)Pranab Parida (A041)Niral Shah (A053)Monisha Sharma (A055)Neha Singh (A056)
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Agenda
• About Turf Club• Punjab Turf Club Specifications• Punjab Government Entities• Project Development Advisor• Laws• Public-Private Partnership• Project Evaluation• Risk Analysis
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Turf Club• Sports club primarily involved into
horse racing• Modern racing is a major venue for
legalized gambling• Three major types of racing:
Flat racing Steeple chasing Harness racing
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Horse Racing in India
• Racing is conducted on one or two centers on one day
• Centers in Mumbai, Pune, Bangalore, Hyderabad, Mysore, Kolkata, Chennai, etc.
• Betting is conducted at all centers for all other centers in India
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• Royal Western India Turf Club Limited – 7566 members ,600 Owners, 46 licensed
trainers and 80 jockeys as on 15th July 2010
– Has residential facility along with gym, lounge, restaurants, etc
– Two race courses:the Mahalaxmi Race Course, Mumbai 6, Arjun Marg, Pune
Turf Clubs In India
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November to April
Thursdays and Sundays are race days from November to March and Saturdays and Sundays in April
1400 horses in training at Mumbai housed in permanent stables
Mahalaxmi Race Course
July to October
Races are held on Saturdays and Sundays
Some of the horses are housed in temporary structures
Arjun Marg Race Course
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Stud Farms• Any land and building used for the
breeding and rearing of horses• Provides a secure and quiet
environment for horses and ensure that they are isolated from diseases
• Punjab has around a dozen of the 60 stud farms existing in the country and offers at least 200 racehorses out of the 1300 produced in the country every year
• Muktsar district is one of the biggest stud farms in India
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Stud Services
• Provides an outside source of revenue to a stud farm via the stud fees paidBreeding
• A necessity for a stud farm to prevent overcrowding
Selling horses for money
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National Horse Breeding Society India (NHBSI)
• Established in 1920 & meant to promote equestrian activities
• Represents interests of Indian thoroughbred breeders
• Ensured Horse breeding operations came under the agricultural ministry
• Society was able to get relief from governmental threat of closing down racing activity in 1953
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Indigenous Horse stud Book Authority of India (IHSBA)
• Recognized by the Ministry of Agriculture, Government of India
• Each Society continues to register its respective breeds in their jurisdictions
• Maintains separate stud books for each Indigenous breeds
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Indigenous Horse Society of India (IHSI)
• Founded on 19th March 1999• To document indigenous breeds like
Marwari (from Rajasthan), Kathiyawari (Kutch), Spiti (Kashmir), Jhanskari and Manipuri
• Worked on:o Lifting of export ban of indigenous horseso EU disease free zoneo Disease survey reportso National equine development boardo Grants for indegenous horses
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PUNJAB TURF SPECIFICATIONS
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Project• Initiated by Department of Animal
Husbandry, Punjab Infrastructure Development Board and Government of Punjab
• IL&FS IDC appointed as project development advisor
• Area: 150 acres (outskirts of Ludhiana)
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Turf Club Components
Monsoon Track
Winter Track
Equine Training Center-Trotting Rings, Bund
schools
Grand stand – Minimum capacity 3000 spectators, Standing -Seating
Stable- 1200
horses
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Components Contd..Betting Halls / system : Place where people will place bets• Information and communication system • Tote terminals• Bookies Ring
Veterinary Center : Maintains health and provides immediate medical care
Club House/Restaurants : Indoor sports facilities along with restaurant and cafeteria
Staff Residence : facilities for the syces and the other servicemen
Others : Water treatment plant, Lighting for night racing, Waste disposal etc
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Turf Club Layout
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Sources of Revenue
REVENUE STREAMS
Betting – Off and on course
Entry Fee
Gate Money
Facility Usage
Sales at restaurants
Boarding & Lodging
Sponsorship
Royalties
Mobile Usage
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PUNJAB GOVERNMENT ENTITIES
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Punjab Infrastructure Development Board(PIDB)
• Set up in 1998 under ‘The Punjab Infrastructure Development Bill, 1998’
• A High-powered committee
• It provides for
Chief minister -> Chairman
State finance Minister -> Vice- Chairman
Clear operating guidelines pertaining to projects and concessionaires
Legal basis for grant of concessions
Structures of public-private participation
Safeguarding interests of stakeholders
Dispute-resolution mechanisms
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Punjab Infrastructure Development Fund (PIDF)
PIDF
~ Rs. 190 Cr p.a.
Augmentation of existing infrastructure through direct
fund
Punjab infrastructure initiative fund
Punjab Gov.’s contribution to grant/viability gap funding in
priority infrastructure projects
Debt Servicing
Bonds or other debts
Rs. 1/ litre on petrol
1% fee on all agricultural products
Sources of funds for infrastructure development
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Department of Animal Husbandry
To improve genetic potential of livestock through scientific breeding
To provide efficient and effective health cover to the livestock wealth of the state
To provide improved feeding and management practices
To provide effective extension services in the field of Animal Husbandry.
Objectives:
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PROJECT DEVELOPMENT ADVISOR-IL&FS IDC
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IL&FS IDC
Wholly owned subsidiary of the Infrastructure Leasing & Financial Services Limited (IL&FS)
Intensive knowledge & experience in all the aspects of Infrastructure development
Provides assistance as Project Developer/Advisor to develop 'bankable' infrastructure projects through Public Private Partnerships (PPPs)
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IL&FS IDC
Project Development
Project Appraisal
Project Finance Training & Capacity Building
Project/ Programme
Management Consultancy
Services offered:
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LAWS
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Bye Law• Law of local or limited application passed
under the authority of a higher law specifying things may be regulated by the Bye Law.
• Also refers to the internal rules of a company or organization
Responsibilities of PIDB:Identification of projects
Arrangement of technical and financial consultancy services in the preparation of techno-feasibility studies, detailed project reports
Execution and implementation of infrastructure projects
Execution and supervision of work
Release of project related expenses
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Indian Horse Racing Legality
Indian horse racing industry is strictly regulated
Supreme Court of India ruled in 1996 that horse betting is not just luck-based, but also skill-based
Not illegal gambling according to the 1888 Police Act or the Gaming Act of 1930
According to 7th Schedule, Entry No. 34 of the Indian Constitution individual States have the full right and legitimate authority to make laws with respect to gambling and betting
Authority to the States to tax gambling and betting events or activities
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Horse Betting in India
• Offshore online betting sites offer many markets for Indian horse betting enthusiasts.– Ex- www.titanbet.com & www.bet365.com
• Punters are not allowed to bet online for Indian horse races
• Indian bettors can place bets on Tote or with trackside and off-course bookmakers
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CASE: Differentiating Horse Racing and Gambling
• In 1949, Tamil Nadu Legislative enacted law by which horse racing was brought within the definition of “gambling”
• Challenged by the club filing writ petition before the Madras High Court which was dismissed
• Supreme Court stated Horse racing is neither ‘gaming’ not “gambling”
• Horse-racing is a sport which primarily depends on the special ability acquired by training & is a game of skill
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PPP
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PPP
OBJECTIVE •Transfer Risks and Responsibilities to private sector in order to gain efficiency, cost reliability and financial security
Efficiency gains through appropriate sharing of risks and responsibilities; the public sector retains mainly sovereign tasks and the private bears those for implementation
Lifecycle and private investment as crucial elements of PPP’s incentive structures
Long term contractual relationship
Innovation, in particular through output specification, service levels and payment mechanisms, as a new way of describing the services to be supplied.
Main characteristics:
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Advantages of PPP
Risk Diversification• Through creation of SPV
Risk Mitigation• SPV keeps specific risks of project
separate from existing business of private sponsors
Project financing• Since SPV is borrowing funds, sponsor’s credit rating isn’t affected
and therefore future borrowing isn’t affected
Leverage• Highly leveraged in order to increase
the equity return
Credit Ratings• Borrowing for profitable project not
restrained by project sponsor’s borrowing limitations
Tax Benefits • Tax benefits sometime exist for new
enterprises
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TECHNICAL EVALUATION
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Proposed Site Details
Proposed site at Mattewara village(20kms from Ludhiana)
150 acres of Govt. land
20% stud farms & 15% race horses of India are in Punjab
Incentives by state: tax incentives, single window clearance facility and provision of loans for Tourism related projects
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Location Analysis
• Factors to be considered while deciding the location:
CLOSENESS TO TOWNS AND CITIES
INFRASTRUCTURE IMPACT ON THE ENVIRONMENT
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Location Analysis
Ludhiana: Manchester of India
Ranks among the top 5 cities of North India in terms of economic index
Regarded as the best place for doing business in India as per World Bank Study 2009
Plain topography (average attitude over sea level being just 244mtrs)
Tropical climate, Adequate rainfall
Well drained soil and well developed water supply
High Income group people residing in city
Centrally located in Punjab and Closeness to Chandigarh (100 Kms)
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Track Preparation
MONSOON TRACKWINTER TRACK
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Turf Design
• Monsoon turf -Kikuyu sprigs
• Winter track -tan bark layer of 3 inches thickness
• 150mm thick soil layer
• Around 113 mm deep sand layer
• Around 200 mm deep gravel layer containing the collector drainage pipe
TURF SURFACE ROOT ZONE
INTERMEDIATE LAYERDRAINAGE LAYER
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Cross Sectional View of Track
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PROJECT EVALUATION
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Deal DiagramGovernment Authorities
PIDB Department of Husbandry
Government of Punjab
Experts
Development Advisor
Consultant
Insurers
Suppliers
TURF CLUB (SPV)
Financers
Banks
Debt FinancesIL & FS
Partners (Private Companies)
Engineers (Design)
Operators (Operate)
Contractors (Build)
Customers
Escrow Agents
Raw Materials
State Support Agreement
Money
Consultation/ Fees
Master plan /Fees
Insurance Services /Premium
Dividends EquityDebt Service
Payments
Revenue
Debt
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Current status
The bidding process for consultant has already started and application due date for Technical Stage was on July 9, 2012
Three multi-national companies, Populace , S Powers and JAA Consultants, have made bids for offering consultancy services for the horse racing tracks.
The bidding process for developer had started last year and application due date was May 3, 2011, but till now nothing has been disclosed by the government
Litigation is going on over 100 acres of land out of proposed 1000 acres of eight villages of Ludhiana Districts for various proposed projects
Various projects nearby site include amusement parks, Las-Vegas strip like casino, Golf Course & Forest retreat
US-based game park company Six Flags is likely to construct the amusement part
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Sources Of Funding
WACC Calculation Amount(In Rs. Crores)
Debt 70.00% 77
Equity 30.00% 33
Total 100.00% 110
Risk-free Rate 8.15%
Market Risk Premium 9.00%
Equity Beta 1.85
Interest Rate 13.00%
Ke (Cost of Equity) 24.77%
Kd (Cost of Debt) 9.10%
Tax Rate 30.00%
WACC 13.80%
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Term SheetBASIS CRITERIA
Borrower Punjab Turf Club Ltd. (SPV)
Purpose of Loan Development of Punjab Race Course
Credit Facility 12 years Secured Term Loan including 2 years Interest accrual period , 10 equated annual installments
Equity Contribution Rs. 330 Million prior to any loan disbursement ( i.e. 30% of total project cost)
Amount Rs. 770 Million (i.e. 70% of total project cost)
Collateral All the assets of the SPV including land, assignment of the borrowers rights under all project contract
Guarantor Personal guarantee of Promoters
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BASIS CRITERIA
Interest Rate @ 3% above base rate per annum presently 13.00%
Conditions precedent to Funding Including but not limited to,1. All the required equity contributions have been made2. Project Advisor confirmation that costs are incurred
confirmed to approved constructions plans3. Projected ICR and DSCR should not be materially
different from estimation
Priority of Cash Flows Revenues generated to be applied as follows 1. Operating and Maintenance expenses2. Interest payment on annual basis3. Principal reduction on this credit facility4. Annual Dividend payout
Non- Recourse All obligations shall be obligations solely of the borrower and the bank shall have recourse only to the borrower and collateral with respect thereto
Borrowers Covenants The borrower should not dilute his equity stake until the entire debt repayment
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Project Cost
Particulars Value (Rs)
Track Preparation Cost 18,65,08,841
Track Equipments 1,21,31,900
Building 57,18,20,000
Equine Hospital & Lab Equipments 7,80,00,000
Televisions 9,80,000
Plant & Machinery 3,75,00,000
Electrical Installation 1,50,00,000
Electrical Lifts 50,00,000
Electrical Installation 1,50,00,000
Furniture 99,25,000
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Financial Statements
Financial Statements
Profit & Loss
Cash FlowBalance Sheet
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Profitability Analysis
25%
50%
75%
100%
0.0010.0020.0030.0040.0050.0060.00
0.00%5.00%10.00%15.00%20.00%25.00%
NPVIRR
25%50%
75%100%
0.00
2.00
4.00
6.00
8.00
Avg. ICRAvg. DSCR
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Sensitivity Analysis
Occupancy (in Percentage) 20 25 30 35 40
NPV (Rs Crores) 12.19 18.79 24.94 30.58 35.63
IRR (in Percentage) 15.12 16.26 17.34 18.34 19.27
Average DSCR 1.49 1.59 1.67 1.74 1.80
Average ICR 6.27 6.60 6.86 7.06 7.21
Bid Amount (crores) 5.30 @ 30% occupancy rate
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RISK ANALYSIS
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Sources Of Risk
GOVERNMENT
DEV
ELO
PERS
TARGET MARKET
RISKS IN A TYPICAL PPP PROJECT
LEGAL & REGULATORY FRAMEWORK
CONTRACTS
CONSTRUCTION
O&M
DEMAND
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Land Acquisition Risk & Mitigation
Risk
• Challenging pre-development activity
• Litigation going on over 100 acres of land
Mitigation
• Land acquiring process should be completed before project allocation to developer
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Demand Risk & Mitigation
Risk
• Occupancy rate is low
• Betting value assumed may not be realized
Mitigation
• Suitable site selection with good connectivity
• Race dates should not clash with major turf clubs
• Invest in marketing & advertisements
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Force Majeure Risk & Mitigation
Risk• FLOOD• Ludhiana district is
prone to floods• Dhussi dam washed
away by a major flood in the year 2010
• EQUINE INFLUENZA• Influenza hit
Bangalore and Pune Turf clubs in the year 2008
Mitigation• Dhussi dam repair
should be finished efficiently
• Proper medical check-up of imported horses
• Proper administration of vaccines to the horses
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Construction Risk & Mitigation
Risk
• Factors which cause non-completion, late completion, and cost over-runs
• Impact on the net cash flow & profitability
Mitigation
• Contracts should be awarded to an experienced and reputed firm
• Obtain completion guarantees to pay liquidated damages
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Financial Risk & Mitigation
Risk
• Sufficient finance will not be available at reasonable cost
• Inappropriate financial structure
• Interest rate risk• Currency risk in case
of foreign developers
Mitigation
• Financing structure which can be availed at minimum cost
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Operation & Maintenance Risk & Mitigation
Risk
• Impacted by the level of experience and resources of the operator
• Inefficiencies in operations
• Shortages in the supply of skilled labour
Mitigation
• Operated by a reputable and financially sound operator
• Selection on the understanding of Turf Club business day to day operations
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Political Risk & Mitigation
Risk
• Uncertain Laws• Lack of clarity in
govt policies • Unstable
government• Change in taxation
rules
Mitigation
• Stable government
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Environmental Risk & Mitigation
Risk• Environmental
liabilities since site is near to Forest Area
Mitigation• All planning,
environmental and other consents and approvals should be taken prior to development
• Water recycling plant
• Waste Disposal System
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Conclusion
•Profitable even at low occupancy levels•The taxation rates would be maintained as a step to promote tourism.•The state already has various stud farms which supply horses to various locations domestic & abroad for racing purpose•In the absence of major turf clubs in the north, the location seems to be fit enough considering the fact that Ludhiana is the city of riches
PROFITABLE & VIABLE
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THANK YOU