What is Valuation ?

Valuation is the process of determining the value of an asset.

It is a very crucial step for generating a successful investment.
Investment success depends on an analyst's ability to accurately determine the values of securities.

General steps in the equity valuation process are :

Understanding the business
Forecast the Company performance
Select the appropriate valuation model
Convert the forecast into valuation
Apply the conclusion

Types of Values
Intrinsic Value - It means the value determined of an asset by a person who has complete understanding
of the characterisitic of the asset.
Market Value - is the price at which a hypothetical willing, informed and able seller would trade an
asset with hypothetical willing, informed and able buyer
Investment Value - is the value of a stock to a particular buyer. Generally this value includes synergetic
benefits.
Liquidation Value -It is the estimate of what the assets of the firm would bring if sold separately, net of
company's liabilities.

A note on FCFE v/s FCFF Valuation

FCFE should be used in cases where the Company's capital structure in particular is not very volatile
FCFE shall be discounted by Cost of Equity.
FCFF should be used in cases where FCFE is negative or debt outstanding is significant.
FCFF shall be discounted by Weighted Average Cost of Capital.

Guidelines on Valuation
Valuation is a subjective exercise, however in order to minimize the use of subjectivity and make
Valuation more objective, there are various guidelines which are accepted worldwide and a few locally, for example:
- AICPA guidelines
- International Valuation Standards Council -Valuation Standards
- International Private Equity and Venture Capital Guidelines (IPEVC)
- Indian Valuation Standards
, for example:
Valuation of Young Limited as of 31 March 2018

Balance Sheet of Young Ltd.

Balance Sheet - Consolidated

(Rs Million) 31-Mar-14 31-Mar-15 31-Mar-16 31-Mar-17
Share Capital 10.0 20.0 20.0 20.0
Reserves & Surplus 49.0 58.0 67.0 76.0
Total Shareholders Equity 59.0 78.0 87.0 96.0

Non-Current Liabilities
Deferred Income Taxes (Liabilities) 0.2 0.3 0.4 0.5
Other Non-Current Liabilities 1.0 2.0 3.0 4.0
Debt (including current maturity of long term debt) 3.0 6.0 9.0 12.0

Current Liabilities
Provisions 1.0 2.0 3.0 4.0
Other Current Liabilities 1.5 3.0 4.5 6.0
Trade Payable And Other Payables 3.5 7.0 10.5 14.0
Total Liabilities 6.0 12.0 18.0 24.0
Total Liabilities and Shareholders Equity 69.2 98.3 117.4 136.5

Non-Current Assets
Gross Fixed Assets 10.0 20.0 30.0 40.0
Net Fixed Asstes 9.0 18.0 27.0 36.0
CWIP 2.0 4.0 6.0 8.0
Long-Term Loans And Other Debtors 1.0 1.5 2.3 3.0
Non-Current Investments 4.0 4.0 4.0 4.0
Other Noncurrent Assets 1.0 2.0 3.0 4.0

Current Assets
Other Current Assets 5.2 5.3 5.4 5.5
Accounts Receivable - Trade 26.0 27.0 28.0 29.0
Inventories 2.0 8.0 15.0 19.0
Short-Term Loans 1.0 4.0 3.0 3.0
Cash and equivalents 14.0 16.0 15.0 16.0
Current Investments 4.1 8.5 8.8 9.0
52.2 68.8 75.2 81.5
Total Assets 69.2 98.3 117.4 136.5
check - - - -
31-Mar-18 31-Mar-19 31-Mar-20 31-Mar-21 31-Mar-22 31-Mar-23 31-Mar-24
20.0 20.0 20.0 20.0 20.0 20.0 20.0
85.0 94.0 103.0 112.0 121.0 130.0 139.0
105.0 114.0 123.0 132.0 141.0 150.0 159.0

0.6 0.7 0.8 0.9 1.0 1.1 1.2

5.0 6.0 7.0 8.0 9.0 10.0 11.0
15.0 18.0 21.0 24.0 27.0 30.0 33.0

5.0 6.0 7.0 8.0 9.0 10.0 11.0

7.5 9.0 10.5 12.0 13.5 15.0 16.5
17.5 21.0 24.5 28.0 31.5 35.0 38.5
30.0 36.0 42.0 48.0 54.0 60.0 66.0
155.6 174.7 193.8 212.9 232.0 251.1 270.2

50.0 60.0 70.0 80.0 90.0 100.0 110.0

45.0 54.0 63.0 72.0 81.0 90.0 99.0
10.0 12.0 14.0 16.0 18.0 20.0 22.0
3.8 4.5 5.3 6.0 6.8 7.5 8.3
4.0 4.0 4.0 4.0 4.0 4.0 4.0
5.0 6.0 7.0 8.0 9.0 10.0 11.0

5.6 5.7 5.8 5.9 6.0 6.1 6.2

30.0 31.0 37.0 40.0 45.0 58.0 61.0
23.0 24.0 19.0 18.0 22.0 20.0 22.0
3.0 3.0 3.0 3.0 3.0 3.0 3.0
17.0 20.0 23.0 26.0 26.0 21.0 21.8
9.3 10.5 12.8 14.0 11.3 11.5 12.0
87.9 94.2 100.6 106.9 113.3 119.6 126.0
155.6 174.7 193.8 212.9 232.0 251.1 270.2
- - - - - - -
Valuation of Young Limited as of 31 March 2018

Balance Sheet of Young Ltd.

Profit & Loss Statement - Consolidated

(Rs Million) 31-Mar-14 31-Mar-15 31-Mar-16 31-Mar-17 31-Mar-18
Net Sales 200.0 250.0 325.0 300.0 295.0
Cost of Raw Materials -100.0 -125.0 -162.5 -150.0 -147.5
Gross Profit 100.0 125.0 162.5 150.0 147.5
Employee Benefit Expense -40.0 -50.0 -65.0 -60.0 -59.0
Advertisment & Promotion expenses -7.5 -10.0 -15.0 -20.0 -25.0
Admin expense -1.3 -2.0 -3.0 -4.0 -5.0
Other expense -1.0 -1.0 -1.0 -1.0 -1.0
EBITDA 50.3 62.0 78.5 65.0 57.5
Dep -0.8 -1.1 -1.9 -2.6 -3.4
EBIT 49.5 60.9 76.6 62.4 54.1
Interest -1.0 -2.0 -3.0 -4.0 -5.0
Other Income 10.0 20.0 30.0 40.0 50.0
PBT 58.5 78.9 103.6 98.4 99.1
Exceptional Cost/Income* 10.0 10.0 10.0 10.0 10.0
Tax -13.7 -17.8 -22.7 -21.7 -21.8
PAT 54.8 71.1 90.9 86.7 87.3
Number of shares 1.0 2.0 2.0 2.0 2.0
EPS (Rs/share) 54.8 35.6 45.5 43.4 43.7

Sales growth (%) 25.0% 30.0% -7.7% -1.7%

Cost of raw materials as a % of sales (%) 50.0% 50.0% 50.0% 50.0% 50.0%
Gross margins (%) 50.0% 50.0% 50.0% 50.0% 50.0%
Advertisment & Promotion expenses as a
% of sales (%) 3.8% 4.0% 4.6% 6.7% 8.5%
Other expenses as a % of Sales (%) 0.5% 0.4% 0.3% 0.3% 0.3%
EBITDA margins (%) 25% 25% 24% 22% 19%
PAT margins (%) 27% 28% 28% 29% 30%
31-Mar-19 31-Mar-20 31-Mar-21 31-Mar-22 31-Mar-23 31-Mar-24
339.3 390.1 448.7 516.0 593.4 682.4 1.5
-169.6 -195.1 -224.3 -258.0 -296.7 -341.2
169.6 195.1 224.3 258.0 296.7 341.2
-67.9 -78.0 -89.7 -103.2 -118.7 -136.5
-30.0 -35.0 -40.0 -45.0 -50.0 -55.0
-6.0 -7.0 -8.0 -9.0 -10.0 -11.0
-1.0 -1.0 -1.0 -1.0 -1.0 -1.0
64.8 74.0 85.6 99.8 117.0 137.7
-4.1 -4.9 -5.6 -6.4 -7.1 -7.9
60.7 69.2 80.0 93.4 109.9 129.8
-6.0 -7.0 -8.0 -9.0 -10.0 -11.0
15.0 15.0 15.0 15.0 15.0 15.0
69.7 77.2 87.0 99.4 114.9 133.8
- - - - - -
-13.9 -15.4 -17.4 -19.9 -23.0 -26.8
55.7 61.7 69.6 79.5 91.9 107.1
2.0 2.0 2.0 2.0 2.0 2.0
27.9 30.9 34.8 39.8 46.0 53.5

15.0% 15.0% 15.0% 15.0% 15.0% 15.0%

50.0% 50.0% 50.0% 50.0% 50.0% 50.0%
50.0% 50.0% 50.0% 50.0% 50.0% 50.0%

8.8% 9.0% 8.9% 8.7% 8.4% 8.1%

0.3% 0.3% 0.2% 0.2% 0.2% 0.1%
19% 19% 19% 19% 20% 20%
16% 16% 16% 15% 15% 16%
0.3
Valuation of Young Limited as of 31 March 2018

Young Ltd. 
Discount cash flow
(Rs mn) FY19E FY20E FY21E
Revenue 339.3 390.1 448.7
EBITDA 64.8 74.0 85.6
Depreciation and amortisation -4.1 -4.9 -5.6
EBIT 60.7 69.2 80.0
Tax -17.7 -20.1 -23.3
Debt free net income 43.0 49.0 56.7
Add: Dep 4.1 4.9 5.6
Less: Capex -12.0 -12.0 -12.0
Less: Increase in Net Working Capital -5.4 7.7 5.7
FCFF 29.8 49.6 56.0
PV – Factor 0.93 0.81 0.70
PV – Explicit period 27.7 40.2 39.4
Terminal Value
Present value for explicit period 212.1
Present value of terminal period 376.4
Enterprise value 588.5
Less: Debt -15.0
Add: Cash and Cash eq. 26.3
Equity Value as at 31 March 2018 599.8
Per equity share value (Rs/share) 299.9

FY19E FY20E FY21E

Sales Growth 15.0% 15.0% 15.0%
EBITDA Margins (%) 19.1% 19.0% 19.1%

Time period 0.5 1.5 2.5

FY19E FY20E FY21E

Tax Computation 29.12%
EBIT 60.7 69.2 80.0
17.7 20.1 23.3

Particulars Revenue in FY17 Revenue in FY17 <=

> 250 Crore 250 Crore
Base Tax Rate 30.0% 25.0%
Surcharge:
Less than ₹ 10 mn 0.0% 0.0%
If income is between ₹ 10 mn and ₹ 100
mn 7.0% 7.0%
If income is above ₹ 100 mn 12.0% 12.0%
Tax + Surcharge @ 7% 32.1% 26.8%
Tax + Surcharge @ 12% 33.6% 28.0%
Cess 4.0% 4.0%
Maximum Marginal Tax Rate 34.9% 29.1%
FY22E FY23E FY24E Terminal Value
516.0 593.4 682.4 716.5
99.8 117.0 137.7 144.6
-6.4 -7.1 -7.9 -7.3
93.4 109.9 129.8 137.3
-27.2 -32.0 -37.8 -40.0
66.2 77.9 92.0 97.3
6.4 7.1 7.9 -7.3
-12.0 -12.0 -12.0 -7.3
-8.4 -12.4 -0.4 -1.0
52.2 60.7 87.5 81.8
0.61 0.53 0.46
32.0 32.3 40.5
813.8

FY22E FY23E FY24E

15.0% 15.0% 15.0%
19.3% 19.7% 20.2%

3.5 4.5 5.5

FY22E FY23E FY24E Terminal Val.

93.4 109.9 129.8 137.3

27.2 32.0 37.8 40.0
Cost of Equity Terminal Value Assumptions
Rf (%) 7.79% Revenue growth (%)
Beta 1.0 EBITDA margin (%)
Market risk premium (%) 7% Working capital as a % of sales
Additional risk premium (%) Perpetuity CAPEX (Rs mn)
Cost of equity (%) 15.0% Tax (%)
WACC (%) 15.0%
 5.0%
20.2%
2.9%

29.1%
Valuation of Young Limited as of 31 March 2018

Question 1 : How to determine operating working capital for the purpose of Discounted Cash Flow

Particulars 31-Mar-14 31-Mar-15 31-Mar-16 31-Mar-17 31-Mar-18

Reported Current assets 36.2 47.8 56.7 63.5 70.4
Reported Current liabilities -6.0 -12.0 -18.0 -24.0 -30.0
Add: Long term loans and advances classified
as non current asset 2.0 3.5 5.3 7.0 8.8
Less: Other non current liabililties -1.0 -2.0 -3.0 -4.0 -5.0
Working Capital 31.2 37.3 40.9 42.5 44.1
Less: Cash and cash equivalents 18.0 24.5 23.8 25.0 26.3
Less: Advance tax 2.0 3.0 5.0 7.0 11.0
Net operating working capital 11.2 9.8 12.2 10.5 6.9
Change in operating working capital
Operating working capital as a % of sales 6% 4% 4% 4% 2%
31-Mar-19 31-Mar-20 31-Mar-21 31-Mar-22 31-Mar-23 31-Mar-24
74.2 77.1 80.9 91.8 104.6 111.5
-36.0 -42.0 -48.0 -54.0 -60.0 -66.0

10.5 12.3 14.0 15.8 17.5 19.3

-6.0 -7.0 -8.0 -9.0 -10.0 -11.0

42.7 40.3 38.9 44.5 52.1 53.7
30.5 35.8 40.0 37.3 32.5 33.8
- - - - - -
12.2 4.6 -1.1 7.3 19.6 20.0 20.9
5.35 -7.65 -5.65 8.35 12.35 0.35 1.00
4% 1% 0% 1% 3% 3%
Valuation of Young Limited as of 31 March 2018

Incremental capex

Particulars 31-Mar-18 31-Mar-19 31-Mar-20 31-Mar-21 31-Mar-22 31-Mar-23

Gross Block 50 60 70 80 90 100
CWIP 10 12 14 16 18 20
Incremental Capex 12 12 12 12 12

Capital expenditure in perpetuity

1 In this approach the terminal period capex is determined by using weighted average useful life of the asset.
When this approach is followed in the current case the terminal period capex would be INR 7.3 Mn.
Particulars Opening Useful life Terminal
Gross capex
Block
Buildings 40.0 30.0 1.3
Plant and Equipment 25.0 20.0 1.3
Office equipment 20.0 10.0 2.0
Furniture and fixture 8.0 15.0 0.5
Vehicles 10.0 10.0 1.0
Computer Software 7.0 6.0 1.2
110.0 7.3

Alternate approaches
2 In this approach the terminal period capex is determined by looking at the capex incurred in the last period of the ex
Had this approach been followed the terminal period capex would be INR 12 Mn.

3 In some industries sales and capex are very much related and hence we should consider the appropriate ratio of the
and then determine the appropriate level of terminal capex.
The above ratio would indicate a general level of capital expenditure required to maintain current level of sales
The above application in various industries for example metals and mining.
 31-Mar-24
110
22
12

seful life of the asset.

INR 7.3 Mn.

ed in the last period of the explicit forecast

der the appropriate ratio of the same

ain current level of sales

Valuation of Young Limited as of 31 March 2018

Terminal Value means value of the business beyond the explicit period.
These are just simplifying assumptions to determine as accurate value as possible given the various factors prevalent at the tim

When to use the Gordon Growth Model ?

This model is best suited for companies where earnings are stable and easily predictable. In such case, it becomes easy to ass

When to use the H stage model ?

The H model assumes that the earnings and dividends of the firm do not suddenly fall off a cliff when the horizon period ends. R
The assumption that the H model makes about this decline is that the decline is linear.
So when we are valuing companies in a specific industry in which the growth does not suddenly decline, we use the H stage m

When to use the H stage model ?

The two stage model assumes that the earnings and dividends have two distinct growth rate trajectory (one high growth phase
This can be generally seen in pharma companies wherein the first patent a specific drug and have an exclusive/sole rights of th
After a few years of legal protection (typically the expiry of patent period) the drug becomes generic thereby leading to a lower g

Using an Exit multiple

An exit multiple may be used to determine the value of the firm/equity as the case maybe by using an estimated multiple which
The said multiple shall be applied to relevant parameter for example if P/E multiple is used we would require the details of earn
This approach is generally used when information about various multiples is available from one or more than one reliable sourc
1 Expected consensus multiple on the industry by experts;
2 Expected forward multiple provided by various research houses; and
3 Expected forward multiple provided by other reliable finance database providers.

Particulars: ₹ mn
EBITDA as of 31 March 2024 (INR Mn) 144.6
Forward FY24 EV/EBITDA multiple 7.0
Enterprise Value as determined using above multiple 1,012.1
(INR Mn)
PV Factor for terminal year 0.5
Present value of Terminal period 468.2
ue as possible given the various factors prevalent at the time/date of valuation

nd easily predictable. In such case, it becomes easy to assume an average earning amount which shall be received for the remaining life o

not suddenly fall off a cliff when the horizon period ends. Rather, the decline in the growth rate is a gradual process.
e decline is linear.
e growth does not suddenly decline, we use the H stage model.

two distinct growth rate trajectory (one high growth phase and the second a lower or industry converged growth rate)
atent a specific drug and have an exclusive/sole rights of the same thereby leading to high growth.
iod) the drug becomes generic thereby leading to a lower growth.

y as the case maybe by using an estimated multiple which would be prevailing at the end of the explicit period
if P/E multiple is used we would require the details of earnings (profit after tax) of the last year of explict period.
tiples is available from one or more than one reliable sources as mentioned below :

ouses; and
ce database providers.
the remaining life of the company.
Valuation of Young Limited as of 31 March 2018

Using the correct Beta

Currency: ₹ Equity beta (g) Debt-equity ratio Effective tax rate (%)
mn based on 3 year
average
Aged Ltd 1.35 65.00 29.12
Midlife Ltd 1.15 45.00 29.12
Fine Ltd 0.74 75.00 29.12
Skills Ltd 0.85 25.00 29.12
Average 1.02 52.50
Median 1.00 55.00

Average Debt/Asset 35.00 Using the average debt/asset ratio of the industry as targe
debt/asset ratio for Young Ltd.

What is unlevered Beta ?

Unlevered betabeta
The unlevered is also called
is the betaasset
of a beta.
company without taking its debt into account.

Unlevering a beta removes the financial effects of leverage. This number provides a measure of how much systematic risk a

What is levered beta ?

Levered beta is equity beta or more commonly beta.
Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
 Debt 35.00
Equity 65.00
Tax rate 29.12
Unlevered beta based Relevered beta based
on 3 year debt-equity on 3 year debt- equity
ratio
0.92 1.28
0.87 1.20
0.48 0.67
0.72 1.00
0.75 1.04
0.80 1.10

erage debt/asset ratio of the industry as target/optimal

tio for Young Ltd.

des a measure of how much systematic risk a firm's equity has when compared to the market.

in comparison to the market as a whole.

Valuation of Young Limited as of 31 March 2018

Young Ltd. 
Discount cash flow
(Rs mn) FY19E FY20E FY21E
Revenue 339.3 390.1 448.7
EBITDA 64.8 74.0 85.6
Depreciation and amortisation -4.1 -4.9 -5.6
EBIT 60.7 69.2 80.0
Tax -17.7 -20.1 -23.3
Debt free net income 43.0 49.0 56.7
Add: Dep 4.1 4.9 5.6
Less: Capex -12.0 -12.0 -12.0
Less: Increase in Net Working Capital -5.4 7.7 5.7
FCFF 29.8 49.6 56.0
PV – Factor 0.93 0.81 0.70
PV – Explicit period 27.7 40.2 39.4
Terminal Value
Present value for explicit period 212.1
Present value of terminal period 495.0
Enterprise value 707.1
Less: Debt -15.0
Add: Cash and Cash eq. 26.3
Equity Value as at 31 March 2018 718.4
Per equity share value (Rs/share) 359.2

FY19E FY20E FY21E

Sales Growth 15.0% 15.0% 15.0%
EBITDA Margins (%) 19.1% 19.0% 19.1%

Time period 0.5 1.5 2.5

FY19E FY20E FY21E

Tax Computation 29.12%
EBIT 60.7 69.2 80.0
17.7 20.1 23.3
FY22E FY23E FY24E Terminal Value
516.0 593.4 682.4 716.5
99.8 117.0 137.7 144.6
-6.4 -7.1 -7.9 -7.3
93.4 109.9 129.8 137.3
-27.2 -32.0 -37.8 -40.0
66.2 77.9 92.0 97.3
6.4 7.1 7.9 -7.3
-12.0 -12.0 -12.0 -7.3
-8.4 -12.4 -0.4 -1.0
52.2 60.7 87.5
0.61 0.53 0.46
32.0 32.3 40.5
1,070.1

FY22E FY23E FY24E

15.0% 15.0% 15.0%
19.3% 19.7% 20.2%

3.5 4.5 5.5

FY22E FY23E FY24E Terminal Val.

93.4 109.9 129.8 137.3

27.2 32.0 37.8 40.0
 Cost of Equity %
Rf (%) 7.79%
Beta 1.0
Market risk premium (%) 7%
Additional risk premium (%)
Cost of equity (%) 15.0%
WACC (%) 15.0%

Sr No Particulars Amount ₹ mn
A Free Cash Flow to Firm in perpetuity 81.76
B WACC (%) 15%
C Growth rate in perpetuity (%) 5%
D Part A of the terminal value 813.78
E High growth period (years) 4.00
F Free cash flow to firm in last year of explicit period 85.85
G Sales growth for terminal period 20%
H Part B of the terminal value 256.34
I Estimated terminal value 1,070.12
J PV Factor for terminal year 0.46
K Present value of terminal period 495.02
Terminal Value Assumptions %
Revenue growth (%) 5.0%
EBITDA margin (%) 20.2%
Working capital as a % of sales 2.9%
Perpetuity CAPEX (Rs mn)
Tax (%) 29.1%

Remarks
Please refer to the DCF calculations above
Please refer to the DCF calculations above
As per Note 1 of Terminal Value assumptions
D = A / ( B - C)
Based on our discussions with the Management
Maintainable level of Cash flow
FY25 Sales growth
H = [ 0.5 * E * F * ( G - C ) ] / ( B - C )
I=H+D
Please refer the DCF calculations above
K=I*J
Valuation of Young Limited as of 31 March 2018

Young Ltd. 
Discount cash flow
(Rs mn) FY19E FY20E FY21E
Revenue 339.3 390.1 448.7
EBITDA 64.8 74.0 85.6
Depreciation and amortisation -4.1 -4.9 -5.6
EBIT 60.7 69.2 80.0
Tax -17.7 -20.1 -23.3
Debt free net income 43.0 49.0 56.7
Add: Dep 4.1 4.9 5.6
Less: Capex -12.0 -12.0 -12.0
Less: Increase in Net Working Capital -5.4 7.7 5.7
FCFF 29.8 49.6 56.0
PV – Factor 0.93 0.81 0.70
PV – Explicit period 27.7 40.2 39.4
Terminal Value
Present value for explicit period 212.1
Present value of terminal period 534.5
Enterprise value 746.6
Less: Debt -15.0
Add: Cash and Cash eq. 26.3
Equity Value as at 31 March 2018 757.9
Per equity share value (Rs/share) 378.9

FY19E FY20E FY21E

Sales Growth 15.0% 15.0% 15.0%
EBITDA Margins (%) 19.1% 19.0% 19.1%

Time period 0.5 1.5 2.5

FY19E FY20E FY21E

Tax Computation 29.12%
EBIT 60.7 69.2 80.0
17.7 20.1 23.3
FY22E FY23E FY24E Terminal Value
516.0 593.4 682.4
99.8 117.0 137.7
-6.4 -7.1 -7.9
93.4 109.9 129.8
-27.2 -32.0 -37.8
66.2 77.9 92.0
6.4 7.1 7.9
-12.0 -12.0 -12.0
-8.4 -12.4 -0.4
52.2 60.7 87.5 -
0.61 0.53 0.46
32.0 32.3 40.5
1,155.6

FY22E FY23E FY24E

15.0% 15.0% 15.0%
19.3% 19.7% 20.2%

3.5 4.5 5.5

FY22E FY23E FY24E Terminal Val.

93.4 109.9 129.8 -

27.2 32.0 37.8 -
 Cost of Equity %
Rf (%) 7.79%
Beta 1.0
Market risk premium (%) 7%
Additional risk premium (%)
Cost of equity (%) 15.0%
WACC (%) 15.0%

Sr No Particulars: ₹ mn Amount ₹ mn
A Free Cash Flow to Firm in perpetuity 81.76
B WACC (%) 15%
C Growth rate in perpetuity (%) 5%
D Part A of the terminal value 813.78
E High growth period (years) 4.00
F Free cash flow to firm in last year of explicit period 85.85
G Sales growth for terminal period 15%
H Part B of the terminal value 341.79
I Estimated terminal value 1,155.57
J PV Factor for terminal year 0.46
K Present value of terminal period 534.54
Remarks
Please refer to the DCF calculations above
Please refer to the DCF calculations above
As per Note 1 of Terminal Value assumptions
D = A / ( B - C)
Based on our discussions with the Management
Maintainable level of Cash flow
FY25 Sales growth
H=[E*F*(G-C)]/(B-C)
I=H+D
Please refer the DCF calculations above
K=I*J
Lets determine the Enterprise Value

Financial Exhibits
Particulars Amount (in mn)
Balance Sheet
Short term borrowings 20,000.0
Long term borrowings 102,500.0
Current maturities of Long term debt 10,500.0
Cash and Bank Balances 10,000.0
Current investments 3,500.0
Profit & Loss
Revenue 90,500.0
EBITDA 23,500.0
EBIT 21,200.0

Step 1 : Determine the market value of the equity.

There are various ways to detemrine the market value of the equity.
For example: 1 Day close price, 1 Week Volume Weighted Average Price ("VWAP") or any other period close/VWAP price
In the following example we are just using the 1 week VWAP price to detrmine the market value of Equity.
Generally speaking, in India we have a 5 day week, however in the current case since 15th August was a public holiday th

Date Symbol Series Open Price High Price

17-Aug-18 AGED EQ 608.1 625.5

16-Aug-18 AGED EQ 612.9 616.6
14-Aug-18 AGED EQ 620.15 621
13-Aug-18 AGED EQ 619.25 632
10-Aug-18 AGED EQ 595.9 627.4
9-Aug-18 AGED EQ 594.95 603.4
8-Aug-18 AGED EQ 579.7 600
7-Aug-18 AGED EQ 580 580.55
6-Aug-18 AGED EQ 582.85 582.85

Step 2 : Determine the market value of debt.

Generally the Book value of debt is assumed to be the market value of debt, unless the debt like is equity is listed on the e
The market/book value of debt is shown as under

Particulars Amount (in mn)

Balance Sheet
Short term borrowings 20,000.0
Long term borrowings 102,500.0
Current maturities of Long term debt 10,500.0

Step 3 : Determining the Enterprise Value (EV)

EV = Market Value of Equity + Market Value of Debt - Cash and Cash Equivalents

Computation is shown as below:

Particulars Amount (in mn)
Balance Sheet
Market Value of Equity 203,764
Short term borrowings 20,000.0
Long term borrowings 102,500.0
Current maturities of Long term debt 10,500.0
Cash and Bank Balances -10,000.0
Current investments -3,500.0
Enterprise Value 323,264

Step 4 : Computation of EV/EBITDA and EV/Sales multiple

Multiple EV Revenue Multiple

EV/Revenue 323,264 90,500.0 3.6
EV/EBITDA 323,264 23,500.0 13.8

Step 5 : Lets consider EV/PAT ?

Shall we consider such a multiple as useful ?
The answer is absolutely No. Whenever we use a multiple there needs to be a matching principle.
By matching principle we mean that the numerator and denominator needs to be in sync.
EV (the numerator) means the business value available to both, shareholders and bondholders.
However, PAT(the denominator) means the profit available only to the equity shareholders of the business.
Hence due to this inconsistency, we shall not use the said multiple.

Other Industry specific ratios :

- EV/EBITDAR where EBITDAR is Earnings Before Interest, Tax, Depreciation and Amortization and Lease Rentals, is use
- EV/Tonne is used in industry like steel and coal
- EV/Bed is used in hospitality and hospital industry
er period close/VWAP price

gust was a public holiday that day, is excluded.

Low Price Last Traded Price Close Price Total Traded

Quantity (in Lakhs)
608.1 615.05 616.3 15.0
605.3 608 607.85 14.0
610.1 614.6 613.75 15.5
604.6 621 620.85 22.9
591.2 626.4 621.05 57.8
590.4 593.15 593.15 16.5
572.5 592.5 592 33.5
567.2 577 575.75 3.5
572.65 578.4 577.9 7.7
Determined VWAP 616.1
Number of Shares (in mn) 330.8
Market Value of Equity (in mn) 203,764

e is equity is listed on the exchanges.

e business.

n and Lease Rentals, is used in the aviation industry

Turnover (in Lakhs)

9,240.6
8,516.1
9,531.6
14,241.6
35,171.5
9,848.4
19,868.1
2,008.7
4,449.2
Valuation of Young Limited as of 31 March 2018

Valuation of Young Ltd as per CCM

As per sales multiple

Currency: ₹ mn Value
EV/ sales multiple 1.8
Less: Discount* 0.4
Multiple after discount 1.4
Sales of Company 295
Value 415
Net deferred tax assets/ (Liabilities) at 50% -
Add: CWIP 10
Add: MAT at 50% -
Enterprise value 425

As per EBITDA multiple

Currency: ₹ mn Value
EV/ EBITDA multiple 8.8
Less: Discount* 1.8
Multiple after discount 7.1
EBITDA of Company 58
Value 407
Net deferred tax assets/ (Liabilities) at 50% -
Add: CWIP 12
Add: MAT at 50% -
Enterprise value 419

As per PE multiple
Currency: ₹ mn Value
PE multiple 8.2
Less: Discount* -
Multiple after discount 8.2
PAT 87
Value 717
Add: gross debt 15
Less: Cash and cash equivalents (26)
Less: fair value (net of tax) of other non cash (10)
surplus assets
Net deferred tax assets/ (Liabilities) at 50% -
Add: MAT at 50% -
Enterprise value 696

*Applying discount to the multiple : Applying discount to the multiple is generally a subjective call and always calls for the
case and purpose of valuation. Generally there is no absolute guideline for the correct amout/quantum of discount. In the ab
EV/EBITDA, down by 20%.

Another important concept

Enterprise Value is the sum of Equity value (determined by MCAP) and Net debt. The net debt figure is used as an indicatio
using only its available cash and highly liquid assets. The gross debt is also adjusted for various other items like capital wor
 Using the EV/Sales multiple
Name EV (computed) Sales EV/Sales
Midlife Ltd 1,525 850 1.8
Aged Ltd 895 550 1.6
Fine Ltd 495 185 2.7
Skills Ltd 585 625 0.9
Average Sales 553 1.8
Young Ltd's sales 295

Using the EV/Sales multiple

Name EV (computed) EBITDA EV/EBITDA
Midlife Ltd 1,525 149 10.3
Aged Ltd 895 110 8.1
Fine Ltd 495 65 7.6
Skills Ltd 585 63 9.4
Average EBITDA 97 8.8
Young Ltd's EBITDA 58

Using the EV/Sales multiple

Name MCAP PAT# EV/Sales
Midlife Ltd 1,250 134 9.3
Aged Ltd 655 83 7.9
Fine Ltd 325 58 5.6
Skills Ltd 500 50 10.0
Average PAT 81 8.2
Young Ltd's PAT 87
# PAT or Profit after tax is based on the persistent earnings and is adjusted for any non recurring or one time item

ly a subjective call and always calls for the experience of the professional valuer and conditions and circumstance of the
rrect amout/quantum of discount. In the above case we find it appropriate to mark the multiple,namely EV/Sales and

The net debt figure is used as an indication of a business's ability to pay off all its debts if they became due simultaneously on the date
ted for various other items like capital work in progress, capital advances, investments and cash.
curring or one time item

umstance of the
V/Sales and

ue simultaneously on the date of calculation,