Name of the Business entity

Student may add to the list of assumptions

Year 2021 growth rate to be considered as sustainable growth rate
Non recurring and exceptional items not to be considered
Consider 2016 as the base year for calculation
Required rate of return to be calculated using CAPM Method, 10 year government bond yield to be considered as risk free rat
Market return can be calculated using dividend growth method or earnings yield method
Tax rate to be assumed at 30%
Assume WACC to be constant across all the time period
Beta to be considered from research reports

Assumption Made:
Assumption 1:
The company has grown at a rate of 5% in 2017,2018 and at 5.5% in 2019 and 5.8% in 2020
From 2021, it is assumed that company will grow at 5.6%

Based on a report it is given that the management of the company expects the company to grow from :
From 2022 to 2023
In 2024
From 2025 it will grow at sustainable rate of 6.35%

Assumption 2: In the analysis part, the changes in working capital are calculated using the previous and the present year's
Capital expenditure.
 CEAT LTD

8.30%

sk free rate

0.63

5.5%
5.8%
6.35%
Profit statement 2017 2018 2019 2020 2021
Revenues 5743.2 6218.2 6886.6 6778.0 7609.0
operating expenses 1235.3 1270.4 1505.5 1529.0 1603.0
EBITDA 701.5 684.2 692.8 748.4 1005.6
EBIT 559.5 522.5 518.5 471.3 666.0
NET INCOME 376.1 305.1 333.2 254.5 447.7
EPS 89.7 68.9 71.4 55.5 102.3

CHANGES IN CAPITAL EXPENDITURE 2017 2018 2019 2020 2021

Opening balance (Previous Year Capital
Expenditure 75.8 29.6 29.2 46.4 51.9
Purchase/ Sale of asset
Depreciation
Closing balance (Present Year's Capital
Expenditure) 29.6 29.2 46.4 51.9 20.7
Change in capex (opening balance - closing
balance) 46.2 0.5 -17.3 -5.4 31.1

CHANGES IN WORKING CAPITAL 2017 2018 2019 2020 2021

Total current assets 1826.9 1823.3 2153.1 1860.4 2295.9
Total current liabilities 1475.6 1817.7 2093.8 2515.6 3398.7
Net working capital 351.4 5.6 59.3 -655.1 -1102.9
Changes in working capital 89.4 -345.8 53.7 -714.4 -447.7
note 1

FCFF 2017 2018 2019 2020 2021

Net income 376.1 305.1 333.2 254.5 447.7
Non cash items 142.0 161.7 174.3 277.1 339.6
Interest (1-t) 55.6 60.5 45.2 104.3 121.1
Less: Change in Capex 46.2 0.5 -17.3 -5.4 31.1
Less: Change in Working capital 89.4 -345.8 53.7 -714.4 -447.7

FCFF 438.2 872.6 516.2 1355.8 1325.0

 Market return
Earning yield
Gordon Growth

Current assets to include:

Current liabilities to include
Interest component to be considered from the income statement

Depreciation
You may either calculate FCFF or FCFE

Note 1>> The working capital for 2016 was 262

Hence the change from 2016 to 2017 is 89.4
 EPS/ Market price
(Dividend/ Market price )+ growth rate

Inventory, Receivables & other current assets

payables, short term borrowings and other current liabilities
be considered from the income statement

To be considered from the profit and loss statement of relevant years

te FCFF or FCFE
Capital structure - based on 2021 data (Amount in CR)

Sources Amount weight cost of capital WACC

Equity capital 4045 69.85 0.071 4.94
Debt Capital 1745.89 30.15 0.069 2.09
Preference shares 0 0 -

total 5790.89 WACC 7.03

If we assume that the FCFF of the company will grow at a constant rate of 5% from 2021
Using the Single Stage FCFF Model to Value the firm
FCFF 0 1325.01
Calculation of the expected FCFF: FCFF 1 1391.3
Growth rate is assumed as 5% 5
Value per
Calculating the value of the firm Value of firm is 68,418.94 share 169.14

Based on a report it is given that the management of the company expects the company to grow from :
From 2022 to 2023 5.5%
In 2024 5.8%
From 2025 it will grow at sustainable rate of
6.35% 6.35%

DCF Valuation YR 2021 YR 2022 YR 2023 YR 2024

FCFF 1325.01
FCFF1 (Expected) 1397.88555 1474.769255 1560.305872
PV of FCFF 1,306.03 1,287.32 1,272.48
Terminal value
PV of Terminal Value

Value of the Firm 5,229.40

Value Per share

DCF valuation 2017 2018 2019 2020

FCFF 438.18 872.60 516.17 1355.76
Terminal value
PVFCFF 417.31 791.47 489.26 1281.43
Growth rate 5.00% 5.00% 5.55% 5.80%
Value of firm
Value per share

Comparable Businesses- data of 2021 to be

considered Market Data
share price market cap EV TTM PE
JK Tyre 138.5 3410 4554.2 6.48
Apollo Tyres 217.3 13791 16572 13.35
Balkrishna Industries 2247 43441 33512 30.15
Selected stock (CEAT LTD) 1170 4745 7631.32 13.52
Average Multiple 943.2 16346.75 15567.38 15.875
Median 693.65 9268 12101.66 13.435
 Working Notes
Assuming the market risk premium for India is at 7.5%
and 10 year government bond yield is 6.34%

Computation of Cost of Capital

Cost of
Capital Cost of Debt + Cost of Equity
The beta for CEAT LTD is 0.63 based on a report.
Cost of equity Risk Free rate + Risk premium x Beta

Ke 7.0745 %
Cost of Debt Interest (1-t)
Kd 6.94 %

Computation:
Given Growth 5%
Formula FCFF0*(1+g)

Formula FCFF1/(WACC-g)

YR 2025

1659.385295
1,264.36
242800.4973
99.22

5,229.40
12.93

2021
1325.01
875.34 Present value of terminal value 703.9141698
1254.74
5.60%
3683.39
 9.11

Accounting data Multiples

ROE Revenues EBITDA EBIT EV/Sales EV/EBITDA EV/EBIT
10.69% 6134.52 886.61 640.62 0.742388973 5.14 7.109050607
3.06% 11733 2156 1443 1.412426489 7.686456401 11.48440748
19.62% 5758 1947 1540 5.820076415 17.21212121 21.76103896
13.07 7609 1005.6 666.01 1.002933368 7.588822593 11.45826639
3.350925 7808.63 1498.8025 1072.4075 2.244456311 9.406850052 12.95319086
0.15155 6871.76 1476.3 1054.505 1.207679929 7.637639497 11.47133694
The growth of 2021 to be considered as sustainable growth rate
2021 data to be used for calculation of WACC
Peer companies to be selected from the select industry/ sector