Relative Multiplier Based Valuation for a company

Submitted To: Submitted By:

Dr. Shuchita Singh Mayank Noniwal
Piyush Kumar
Alish Sinha
Manish Upadhyay
Shivam Kumar
Shivam Prakash
Abhiruchi
Valuation
Valuation is the core idea that helps to know about the value of that stock. On
this basis only investors decides they have to invest or not.

Valuation is done on the basis of price and value.

If price < Value, Undervalued
If Price > Value, Overvalued
Relative Valuation
Relative Valuation approach compares two or more similar businesses of the same industry and size,
usually on the basis of earning and expected growth in order to determine which one is cheaper.

The parameters that are used in Relative valuation are easily available.
Some of the parameters are:
1. P/E (Price to Earning) Ratio
2. PEG (Price to earning/Growth Rate)
3. EV/EBITDA (Enterprise value to EBITDA) Ratio
4. P/BV (Price to Bookvalue) Ratio
5. Price To Sales Ratio
6. Price To Cash Flow Ratio
PRICE TO EARNING (P/E RATIO)

PRICE TO EARNING (P/E RATIO) It suggests how

much investors are willing to pay for each rupee of
company's earnings. Higher the P/E, more expensive
the stock. A high P/E ratio could mean that a
company's stock is over-valued because the investors
are expecting higher growth rate in future.
Formula:- Stock Price per Share/ Earning per Share
Tata Consultancy Service Ltd
Wipro Ltd
 P/E RATIO
30

25

20

15

10

0
TCS WIPRO
PRICE TO EARNING GROWTH RATE (PEG RATIO)

The price-to-earnings growth (PEG) ratio is a financial valuation

ratio that compares a company's current stock price to its expected
earnings growth rate. A PEG ratio of less than 1.0 is generally
considered to be undervalued, while a PEG ratio of more than 1.0
may be overvalued. It should be used as part of a comprehensive
analysis of a company's financial health and prospects.
CALCULATION
EV/EBITDA
The Enterprise Value to Earning before Interest, Tax, Depreciation and Amortization Ratio or
EV/EBITDA.
EV/EBITDA Ratio compares the Total Value of business to its Operating Profit.

Enterprise Value (EV): Market Capitalisation + Total Debt – Cash and Cash Equivalent

Market Capitalisation= (Total outstanding shares).(Market Price of Share)

Total Debt = All Long-Term and Short-Term Borrowings of the company
 Wipro(2023) TCS(2023)
Market Capitalisation 210576 1178470
Long-Term Borrowings - -
Short-Term Borrowings 5180.7 -
Cash and Cash equivalent 4527 4543
EBITDA 14489.90 56325

Wipro doesn’t have any Long-Term Borrowings this year. Previous it has both Short-
term and Long-Term Borrowings. If we talk about TCS It don’t have any loan or
Borrowings.

Ratio Wipro(2023) TCS(2023)

EV/EBITDA 14.57 20.84

P/B RATIO
• THE PRICE-TO-BOOK (P/B) RATIO
MEASURES THE MARKET'S
VALUATION OF A COMPANY
RELATIVE TO ITS BOOK VALUE.

•Market Price per Share = Current market price of the

share
•Book Value per Share = (Total assets - intangible assets -
total liabilities) ÷ number of outstanding shares
 IMPORTANT FACTS:
P/B ratio can provide insight into whether a company's stock is
overvalued or undervalued in the market. A low P/B ratio indicates
that the stock price is trading at a discount to its book value, while a
high P/B ratio suggests that the stock is trading at a premium.
P/B ratio has some limitations. It doesn't take into account intangible
assets, such as intellectual property or brand value, which can be
significant for some companies. Also, the book value of a company's
assets may not reflect their true market value.
P/B ratio can be used to compare companies within the same industry
or sector. Companies with similar operations and financial structures
should have similar P/B ratios.
P/B ratio is often used in combination with other metrics to determine
whether a stock is a growth or value investment. Growth stocks tend
to have higher P/B ratios, while value stocks typically have lower P/B
ratios.
TCS 13.12 WIPRO 3.12
The P/B ratio of TCS (13.12) and Wipro (3.12) suggests that the market values TCS
significantly higher than Wipro in relation to their respective book values.

P/B ratio of 13.12 for TCS implies that the market values TCS at 13.12 times its book
value. This could indicate that investors have a positive outlook on TCS and are willing to
pay a premium for the company's shares. It may also suggest that TCS has a strong brand
and intellectual property, which are not reflected in its book value.

P/B ratio of 3.12 for Wipro suggests that the market values Wipro at 3.12 times its book
value. This could indicate that investors are not as optimistic about Wipro's growth
prospects compared to TCS. Alternatively, it may suggest that Wipro's book value is
relatively higher compared to TCS, which may be due to the composition of its assets and
liabilities.
PRICE TO CASH FLOW (P/CF
RATIO)
PRICE TO CASH FLOW (P/CF RATIO) :-The price to
cash flow ratio (P/CF) is a financial metric that is used to evaluate
a company's valuation by comparing its market price per share to
its cash flow per share. A higher P/CF ratio indicates that the
market is willing to pay a higher price for each dollar of cash flow
generated by the company. A lower P/CF ratio may suggest that
the company is undervalued, while a higher P/CF ratio may
suggest that the company is overvalued.
Formula:- Current price/ Cash Flow from operation per Share
PRICE TO CASH FLOW=
 WIPRO LTD
PERIOD PRICE TO CF
MAR-23 15.35
MAR-22 29.21
MAR-21 15.86
MAR-20 11.4
MAR-19 13.16
MAR-18 11.89
MAR-17 5.09

MAR-16 6.62
MAR-15 7.41
MAR-14 7.39
TATA CONSULTANCY SERVICE
LTD
PERIOD PRICE TO CF
MAR-23 27.96
MAR-22 34.25
MAR-21 30.30
MAR-20 21.12
MAR-19 26.24
MAR-18 10.86
MAR-17 9.49

MAR-16 12.97
MAR-15 12.88
MAR-14 14.16
 PRICE TO SALES RATIO
The price-to-sales (P/S) ratio is a financial metric used to
evaluate a company's valuation by comparing its market
capitalization (the total value of its outstanding shares) to its total
revenue over a certain period of time. It is calculated by dividing
the current market capitalization of a company by its revenue
over the last 12 months.
Investors use the P/S ratio to compare the valuation of a company
to its peers in the same industry or sector. A low P/S ratio may
indicate that a company is undervalued, while a high P/S ratio
may indicate that a company is overvalued.
 FORMULA OF P/S RATIO
The formula for calculating the price-to-sales (P/S) ratio is:
P/S ratio = Market capitalization / Total revenue

where:
•Market capitalization is the total value of a company's outstanding shares of
stock, calculated by multiplying the current stock price by the number of shares
outstanding.
•Total revenue is the sum of all the revenue a company has generated over a
certain period of time, typically the last 12 months.
P/S RATIO CALCULATION.
 RELATIVE VALUATION
METHOD
Advantage Disadvantage
Uses actual data Most of the important
Simple application assumptions are Hidden
No good guideline companies
(derives estimates of exist
value from relatively Laborious and time-consuming
simple financial ratios)
Based on the present situation,
Require less information resulting in losing long-term trend
THE PROCESS OF A
RELATIVE
VALUATION

•1. Identify comparable companies with the SUBJET

OF VALUATION (company or business you want to
value) – Similar businesses, similar size, similar
technology, similar geographies, etc.

2. Obtain market values for those comparable

companies

3. Create multiples (ratios) using market values and

financial data for these comparable companies

4. Multiply these multiples of comparable firms to the

financial data of the SUBJECT OF VALUATION

5. Control for any differences that may exist between

the COMPARABLE FIRMS and the SUBJECT OF
VALUATION, to judge whether the value of the target
is under or over valued
T H E U S E O F R E L AT I V E VA L U AT I O N
S U B J E C T O F VA L U AT I O N :
QUOTED FIRMS
UNQUOTED FIRMS
G R O U P O F C O M PA N I E S S U B S I D I A R I E S
S T R AT E G I C B U S I N E S S U N I T S ( S B U ) O N E B U S I N E S S
S O U R C E O F C O M PA R A B L E S :
Q U O T E D F I R M S – D A I LY M A R K E T P R I C E S ( B E T W E E N M I N O R I T Y
SHAREHOLDERS)
Q U O T E D F I R M S – TA K E O V E R B I D ( A C Q U I S I T I O N O F M A J O R I T Y )
TRANSACTIONS OF UNQUOTED FIRMS
TRANSACTIONS OF BUSINESSES

SOURCE OF COMPARABLES:
Quoted firms – daily market prices (between minority shareholders)
Quoted firms – takeover bid (acquisition of majority)
Transactions of unquoted firms
Transactions of businesses
• R E L AT I V E VA L U AT I O N I S C O M M O N LY U S E D
M O S T O F S T O C K M A R K E T I N V E S T O R S U S E R E L AT I V E VA L U AT I O N S .
A L M O S T A L L O F E Q U I T Y R E S E A R C H R E P O RT S U S E , I N S O M E WAY, M U LT I P L E S
A N D C O M PA R A B L E S .
R U L E S O F T H U M B B A S E D O N M U LT I P L E S A R E C O M M O N A N D E V E N T U A L LY
ARE OFTEN THE BASIS FOR FINAL JUDGMENTS.

D I S C O U N T E D C A S H F L O W VA L U AT I O N S ( I N T R I N S I C VA L U E ) A R E M O R E A N D
M O R E U S E D B Y C O N S U LT I N G A N D C O R P O R AT E F I N A N C E F I R M S , B U T T H E Y
O F T E N U S E R E L AT I V E VA L U AT I O N S F O R T E S T I N G T H E I N T R I N S I C VA L U E .
W H E N A P P LY I N G D I S C O U N T E D C A S H F L O W VA L U AT I O N , I T I S N E C E S S A RY T O
C A L C U L AT E T H E C O N T I N U I N G VA L U E ( O R T E R M I N A L VA L U E ) .
THERE ARE TWO APPROACHES: DISCOUNTED CASH FLOW APPROACH OR;
R E L AT I V E VA L U AT I O N A P P R O A C H
THANK YOU..