lOMoAR cPSD| 39709638

lOMoAR cPSD| 397096

Question 1

Write your answer for Part A here.

Year 2018E 2019E 2020E 2021E 2022E

FCF to company
(a+b-c) 1836.00 2754.00 4131.00 6196.50 9294.75

Values are in INR cr.

Explanation:

Using the given assumptions & input of revenue of 10,000 cr for 2017, we evaluate the
following in the sequence as follows for 2018

1. Calculate the Revenue of 2018E = Revenue (2017) x Revenue Growth (20%)

2. Calculate EBITDA: Revenue x 20%
3. Calculate Capex: 2% of Revenue
4. Calculate D&A: 40% of Capex
5. Calculate EBIT: EBITDA – D&A
6. Calculate EBIT*(1-tax) where tax = 30%
7. Calculate Free cash flow = EBIT*(1-tax) + D&A – Capex

Repeat the same steps for next year till 2022E

Write your answer for Part B here.

To calculate the Terminal Value from 2023 considering constant free cash flow of 2022E cash
flow Y-o-Y, we use Terminal value = free cash flow(2022E)/ discount rate

= 9294.75/ 12% = 77456.25 ( in cr)

 lOMoAR cPSD| 39709638

Write your answer for Part C here.

Enterprise value of Patanjali = net present value of (free cash flow+ terminal value)

= npv(12%(discount rate), FCF from 2018E to 2021E + FCF of 2022E + Terminal value
2023 onwards)

=59,937.96 cr INR

Paste the excel sheet containing your calculations here.

PATANJALI
AYURVED In Crs
0 1 2 3 4 5
Year 2017 2018E 2019E 2020E 2021E 2022E
Revenue 10000.00 15000.00 22500.00 33750.00 50625.00 75937.50
EBITDA 2000.00 3000.00 4500.00 6750.00 10125.00 15187.50
D&A <b> 80.00 120.00 180.00 270.00 405.00 607.50
EBIT 1920.00 2880.00 4320.00 6480.00 9720.00 14580.00
EBIT*(1-tax) <a> 1344.00 2016.00 3024.00 4536.00 6804.00 10206.00
Capex <c> 200.00 300.00 450.00 675.00 1012.50 1518.75
FCF to company (a+b-
c) 1224.00 1836.00 2754.00 4131.00 6196.50 9294.75
Terminal value (2023
onwards) 77456.25
FCF + Terminal value 1224.00 1836.00 2754.00 4131.00 6196.50 86751.00
Enterprise Value <d> ₹59,937.96

Question 2

Write your answer for Part A here. Show your detailed calculations.

Multiple method or relative valuation method is a method in which we look for the set of
comparable firms like Dabur or Britannia, standardize the market value to an operating
measure and obtain multiple like PE ratio, etc. Using such multiples to the company under
valuation to determine its enterprise/ equity value.
 lOMoAR cPSD| 39709638

So, here we use the PE multiple which is the price to earnings ratio multiple of Dabur from
Exhibit 1 for 2017. PE multiple of Dabur = 50.5x which means for earning 1unit of profit in
Dabur one must invest 50.5 units in it.

Therefore, using Dabur’s PE multiple of 2017 and noting that it is a comparable firm to
Patanjali, we assume Patanjali to also have the same PE multiple.

P/E multiple of Patanjali = 50.5x

2017 net income for Patanjali = 1344 cr (this is calculated as per the steps mentioned in 1A,
also mentioned in spreadsheet pasted in sections above)

Here the net income = EBIT * (1 – tax); this is because there is no debt (as per assumptions)
so no interest so net income is considered like this.

Equity value = P/E * Net income = 50.5 x 1344 = 67872 cr INR

Write your answer for Part A here. Show your detailed calculations.

Multiple method or relative valuation method is a method in which we look for the set of
comparable firms like Dabur or Britannia, standardize the market value to an operating
measure and obtain multiple like PE ratio, etc. Using such multiples to the company under
valuation to determine its enterprise/ equity value.

So, here we use the PE multiple which is the price to earnings ratio multiple of Britannia from
Exhibit 1 for 2017. PE multiple of Britannia = 74.3x which means for earning 1unit of profit
in Britannia one must invest 74.3 units in it.

Therefore, using Britannia’s PE multiple of 2017 and noting that it is a comparable firm to
Patanjali, we assume Patanjali to also have the same PE multiple.

P/E multiple of Patanjali = 74.3x

 lOMoAR cPSD| 39709638

2017 net income for Patanjali = 1344 cr (this is calculated as per the steps mentioned in 1A,
also mentioned in spreadsheet pasted in sections above)

Here the net income = EBIT * (1 – tax); this is because there is no debt (as per assumptions)
so no interest so net income is considered like this.

Equity value = P/E * Net income = 74.3 x 1344 = 99859.2 cr INR

Question 3

Write your answer for Part A here.

Assumptions that could have negatively impacted the enterprise value using DCF method are
as follows:

 Revenue growth rate – As per the case study in Exhibit 2, Patanjali was growing at
100% rate of revenue in 2017. Therefore, us assuming only 50% growth rate in our
calculations would have negatively impacted the Enterprise Value.
 Tax rate – Dabur’s tax rate as per case study exhibit 1 multiples table, is 21%. If that
would have been considered, then the enterprise value would have been much more
than what we have calculated using 30% tax rate. So, this assumption would have
negatively impacted the enterprise value.

Write your answer for Part B here.

Looking back at Patanjali’s financial statements from its corporate site, etc. we gather that
there were drop in revenue pre-pandemic - reason was goods and services tax which was
rolled out in July 2017 by central govt. and a weak distribution network. From then onwards
till 2019 Pantajali grew on a much lower rate.
 lOMoAR cPSD| 39709638

Post pandemic there was large scale disruption in supply chain and demand. Due to the lock
down many shops and franchise outlets saw massive drop in walk-in customers. Rather online
shopping was on the upward trajectory among other disruptions.

If Smith had somehow predicted the pandemic back in 2017, for his evaluation the following
would have been considered initially:

 He would have considered the slowing down of the revenue growth which was
considered 50% Y-o-Y to maybe 24-25% in FY 2020-21. (Assuming Smith does not
predict acquisition of Ruchi Soya)
 He would have lower Ebitda margins as the COGs and other expenses like rent etc
would have reduced due to the disruptions, so instead of 20%, maybe something
around a figure of 10.5%
 The Discount rate would have been also affected as falling GDP saw lowering of debt
rates, which would have lowered the discount rate.

After some time like a year or so, Smith would have considered Patanjali to have adjusted and
capitalize on the rise of ayurvedic market which grew from 15-20% to 90% Y-o-Y signifying
major shift of focus to a health-conscious lifestyle for the Indian population which believed in
Ayurveda and its remedy. Smith would predict an increase in revenue at 35%-40% for 2022
and accordingly increase the projections thereafter.