VALUATION AND OPTIMAL CAPITAL STRUCTURE OF PT KAIROS LOGAM MAKMUR

• Main Author: Christian, Michael
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/64035
• Institution: Institut Teknologi Bandung

This past 5 years, the aluminum industry has grown rapidly along the positive economic growth in Indonesia. Moreover, the government’s huge infrastructure projects have led to an increase in demand for aluminum blocks. PT. Kairos Logam Makmur (PT KLM) is one of the fast-growing aluminum smelter company in Indonesia. Based in Surabaya, it has more than 10 years of experience in this industry. However, the growth is financed by debt, with a 0.73 debt-to-equity ratio in 2015. According to the owner, PT Kairos plans to go public in the near future to pay off their debts. Therefore, it is important for the firm to calculate its current value, based on its past financial performance & future growth. The IPO will be used to lower its debt, reaching the optimal capital structure. Two main themes will be discussed: valuation and optimal capital structure. First, the author’s goal is to estimate the value of the firm by discounting expected future cash flows. Since PT Kairos is a private firm, the correct valuation is by using Free Cash Flow to the Firm (FCFF) model. With this method, PT KLM is valued at Rp 233,296,356,255. The second goal is to determine its optimal capital structure. By using Net Operating Profit After Tax (NOPAT) approach, the optimal capital structure is 10% debt-to-equity ratio. As its current debt-toequity ratio is at 73%, it is highly recommended that PT KLM proceed with the IPO, in order to lower its debt-to-equity ratio. Based on the firm value, the fair share price of PT KLM is Rp 3,572 per share. Therefore, PT KLM needs to issue 14,665,512 shares to raise Rp 47,306,080,693 nett of cash to pay their debt. The current owner will still own 77.32% of the company after the IPO