Project Guidelines for Valuation of Securities

Objective:
To find the intrinsic value of a stock based on DCF valuation and Relative
valuation

Picking a Company
 Each group picks a company. The company should be publicly traded and
have at least five years of trading history and five set of annual financial
statements. The company can be listed in either BSE or NSE.
 Avoid financial service firms (banks, insurance companies & investment
banks) and companies with large capital arms.
 No two groups can chose the same company. In case there is a company
which is chosen by more than one group, the group sending the name of
the chosen company first will get the right to analyse the company and the
other groups will need to choose another company.

DCF Valuation

Value the stock in each company using a discounted cash flow model (You have the
discretion to choose the model that you think is most appropriate for that company)

 Estimate how sensitive your value estimates are to changes in your assumptions.
 What are the key drivers of value for your company? (Identify the key assumption
or variable that you would focus on in doing your discounted cash flow valuation.
Examples would include the growth rate assumption, the growth period
assumption, the net capital expenditure assumption .....)
 Present your valuation in a picture, summarizing the assumptions that you have
made.

Relative Valuation

 Prepare a list of "comparable" companies, using criteria that you think are
appropriate ( Earnings , Book Value , EBITDA, etc)
 Choose a multiple that you will use in comparing firms across the group. (You
might have to try a number of multiples out before making this choice)
 Evaluate your company against the comparable firms using the multiple that you
have chosen for your valuation.
 You can also use multiple regression analysis for relative valuation.
Final Recommendation

 Consider the values you have obtained from the discounted cash flow and relative
valuation models.
o How would you reconcile the different estimates of value?
o Make a final recommendation on the stock analysed by your group

Format of report : A template for the project report is attached. You may use the
template as a guideline for making the report.

Data sources : 1. NSE and BSE website 2. Company website 3. Any other reliable
source of information.

Evaluation : This project constitutes 25% of total evaluation of the course . The breakup
of the components of evaluation is a. 75% project report b. 25% presentation and viva

Deadlines

1. Submission of company name with details of group members 6 pm , 13th

December 2010
2. First draft of the report 25th December 2010.
3. Final report after receiving feedback on 3rd January 2010.