business valuation report - capanalec...natural mineral water is the water containing less than...
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Business Valuation
Report
: Aug 26, 2016
Sample Company
Disclaimer
1. Executive Summary
2. Company Brief Details
3. Management Team
4. Product and Services
5. Consolidated Past Financials
6. Packaged Bottled Industry in India
7. Projected Financials for Five Years
Key Financial Indicators
Revenue Assumptions
8. Business Valuation
Valuation Methodology
Business Valuation Assumptions
Business Valuation
Free Cash Flow Method to Firm
Free Cash Flow Method to Equity
Valuation Based on Multiple Method
P/E Multiple Method
EBIDTA Multiple Method
Consolidated Business Valuation of the Company
2
Sample Company
3
The analyst has considered
all the financial information and statement as submitted by the management of
company, as is basis and it has not been independently verified and validated.
Sample Company
The Company was incorporated in 2000 as Sample Company Ltd in Pune.
The company has set up water bottling plant in Pune and Mumbai, catering
to corporate packaged water jars required. The company caters to over 600
clients all over India with services in 16 cities including Mumbai, Pune,
Bangalore etc. It is the only company to operate as the single vendor - PAN
India packaged drinking water suppliers.
We have carried out the Business valuation of the consolidated group of
companies at the request of the company as a going concern basis. The
exercise has been targeted to get the total intrinsic value of the overall
business operations over five years with reasonable achievable growth rate.
.
Business valuation has been arrived at by using Two Stage Discounted
Cash flow (DCF) method. Two stages of the business growth have been
considered based on the aggressive growth in initial five years of the
business and sustainable growth in the future.
Business Valuation has also been arrived at by Comparative PE multiple
and EBIDTA multiple method based on the prevailing companies in similar
industry. Due to non-availability of the financial details of such peer
companies, we have used proxy from nearest industry segment and
companies providing packaged water.
The Business Valuation of the Company is being arrived at weighted
average of all three methods. Our business valuation based on the industry
growth assumptions and business unique advantageous position has been
arrived at Rs. 4583.77 Lakhs, Rs. 5035.75 Lakhs and Rs. 4482.31 Lakhs
respectively with DCF, PE multiple and EBIDTA multiple methods. The
consolidated weighted average valuation of the company has been arrived
at Rs. 4608.68 Lakhs.
4
Sample Company Valuation Summary
Sample Company
The Company was incorporated in 2000 as Sample Company Ltd. In
Pune. The company has set up water bottling plant in Pune and Mumbai,
catering to corporate packaged water jars required. The company over last
10 years, has firstly emerged as a firm growing with double digit in
processing and supplying Mineral Water and Packaged Drinking Water.
Over the time, it has pioneered the packaged drinking water industry by
setting benchmark standards for corporate services and product quality.
The company caters to over 600 clients all over India with services in 16
cities including Mumbai, Pune, Bangalore, Hyderabad, Chennai, Kolkata,
Delhi, Gurgaon, Noida, Chandigarh, Ahmedabad, Vizag, Bhubaneswar,
Kochi and Jamshedpur. The processed water offered by the company is
widely used in with various MNCs, IT/ITES, Manufacturing, Automotive,
Banking and Financial Institutions. It is the only company to operate as the
single vendor - PAN India packaged drinking water suppliers.
Sample Company's products are in compliance with the BIS standards.
Their processing unit is outfitted with modern machines and technologies
sourced from reliable vendors. The company conducts stringent quality
tests on the processed water before packaging the same. Apart from the
water processed in-house, Sample Company largely supplies water of
brands like Bisleri, Aquafina, Bailey, McDowell’s on franchisee models.
Their daily supplies, all year round are barely affected by seasonal
changes as water is the most essential commodity consumed by the
employees. Sample Company is also the preferred vendor for
Infrastructure and Facility Management companies such as Jones Lang
LaSalle and CB Richard and Ellis. With all the necessary state wise
statutory compliances in place, Sample Company is one of the few
structured companies in the highly unorganized space which is looking for
a turn around.
Mr. Promter
A Chartered Accountant by profession, He has pioneered the
unstructured, fragmented corporate packaged drinking water industry
across India. Led the company to be the only service provider with a PAN
India presence.
Mr. Promoter
Having completed his MBA from New York, He has worked on wall
street, followed by various multi national companies before joining the
business. Responsible for Mumbai operations and marketing.
Mr. Promoter
Having a successful stint with Morgan Stanley and Bear Stearns in New
York, He is responsible for CRM, Vendor Management and Sales &
Marketing on a PAN India level.
Mr. Promoter
With 16 years of experience, He manages Key Accounts and is
responsible for overall Operations of the firm, primarily in Bangalore and
Pune.
Founder Management Team:
5
Sample Company
Packaged Drinking Water
The company offers packaged drinking water in 20 liters jars to its clients .
The company has set up water bottling plant at Pune and Mumbai. It
supplies over 50% turnover near Mumbai and Pune through their own
bottling plant and remaining approx. 50% sales being carried out through
an affiliate model in 14 other cities across India’s geography.
The company has maintained highest quality standard in their water
purification and bottling plant. In purification process, the raw water
undergoes reverse osmosis filtration and sterilisation using ozone gas and
ultra-violet light before it is packaged into jars for delivery. Use of
Chlorination, Micron Filtration, Reverse Osmosis, Ozonation, U.V
Sterilization and High Pressured Sterilizing equipment eliminates growth
and presence of micro-organisms. There are check points at every stage
of manufacturing that are continuously monitored in order to ensure safe
and healthy consumable water. It has also provided GPS tracking devices
for each vehicle and an SMS is sent to every client the moment vehicles
arrive the vicinity.
USP of Sample Company Offerings:
First to receive IS14543:2004 granted by the Bureau of Indian
Standards, Pune.
CAGR of 40% supplying 12500 Jars daily.
The only company providing Single Vendor PAN India services
of Packaged Drinking Water.
Strategic Alliance Partnership with JLL and preferred vendor of
CBRE and JCI for water contracts.
6
Sample Company
Consolidated
Past
Financials
In Rs. Lakhs
Profit and Loss Account:
Year 2014 2015 2016
Gross Sales
Domestic 820.9 888.5 1091.2
Exports 0.0 0.0 0.0
Sub Total 820.9 888.5 1091.2
Less Excise Duty and Cess 0.0 0.0 0.0
Net Sales 820.9 888.5 1091.2
Non Operating Income 5.1 11.6 1.9
Total Income 826.0 900.1 1093.1
Expenditure
Manufacturing Expenses
Raw Materials Consumed ( Indigenous) 310.0 359.4 455.7
Stores and spares consumed ( Indigenous) 0.0 0.0 0.0
Others 84.9 74.1 78.9
Sub Total 394.9 433.6 534.6
Depreciation 33.1 68.7 38.5
Cost Of Production 428.0 502.3 573.1
Finished Goods Opening Balance -0.8 -0.2 -0.2
Finished Goods Closing Balance 0.0 0.0 0.0
SubTotal: Finished Goods change in stock -0.8 -0.2 -0.2
Cost Of Sales 427.2 502.0 572.8
Administrative and Selling Expenses
Salary and staff expenses 102.6 35.3 58.62
Other admin and selling expenses 285.2 263.6 267.25
Audit Fees & directors Remuneration 0.0 0.0 0.00
Sub Total 387.9 298.9 325.9
Miscellaneous Expenses written off 0.0 0.0 0.0
Total 387.9 298.9 325.9
Finance Charges
Interest on Fixed Loans / Term loans 9.0 0.0 0.3
Interest on Working capital loans 0.0 0.0 0.0
Bank Charges 0.0 0.0 0.0
Total 9.0 0.0 0.3
Non Operating Expenses 0.0 0.0 0.0
Profit Before Tax 2.0 99.1 194.1
Tax
Income Tax provision 2.2 4.5 4.5
Deferred Tax Liability -1.5 -9.2 -0.5
Deferred Tax Asset 0.0 0.0 0.0
Total 0.7 -4.8 4.0
Net Profit for the year ( PAT) 1.3 103.9 190.1
7
Sample Company
Profit and Loss Account:Balance Sheet:
Consolidated
Past
Financials
In Rs. Lakhs
Year 2014 2015 2016
Share Capital
Issued, Subscribed and Paid up 41.0 41.0 41.0
Share Application Money 0.0 0.0 0.0
Total 41.0 41.0 41.0
Reserves and Surplus
Balance transferred from profit and loss a/c 1.3 103.9 190.1
Other Reserve 187.9 74.4 -8.7
Total 189.3 178.2 181.4
Secured and Unsecured Loans
Working Capital Bank Finance 0.0 0.0 0.0
Term Loans 12.5 4.6 11.0
Other Debts 68.9 65.8 96.7
Unsecured Loans 0.0 0.0 0.0
Total Debt 81.3 70.4 107.7
Deferred Tax Liability 0.6 0.0 0.0
Fixed Assets
Gross Block 328.6 387.1 430.7
Less Accumulated Depreciation 229.9 298.6 337.1
Net Block 98.7 88.5 93.7
Add : Capital Work in Progress 2.4 0.0 0.0
Total 101.1 88.5 93.7
Intangibles Assets
Deferred Tax Asset 7.6 16.2 16.4
Other Intangible assets 0.1 0.5 0.7
Total 7.6 16.7 17.1
Additions to Fixed Assets 0.0 0.0 0.0
Investments 0.0 0.0 0.0
Current investments 0.0 0.0 0.0
Non-Current investments 1.1 13.7 13.7
Sub Total 1.1 13.7 13.7
Investment in group companies / subsidiaries 0.0 0.0 0.0
Total 1.1 13.7 13.7
Inventories
Raw Material 6.9 3.8 3.8
Stores and Spares 0.0 0.0 0.0
Stocks-in-process 0.0 0.0 0.0
Finished Goods 0.0 0.0 0.0
Total 6.9 3.8 3.8
Sundry Debtors
Domestic Receivables 230.0 221.4 308.0
Debtors more than 6 months 0.0 0.0 0.0
Total 230.0 221.4 308.0
Cash and Bank Balances
Cash on Hand 37.6 27.7 29.1
Bank Balances 0.0 0.0 0.0
Total 37.6 27.7 29.1
Loans and Advances
Advances / current asset 13.1 13.3 23.1
Advances to group / subsidiaries companies 0.0 0.0 0.0
Total 13.1 13.3 23.1
Non Current Assets 25.8 37.5 37.5
Current Liabilities
Sundry Creditors for goods 70.3 72.9 115.5
Advance received from customers 0.0 0.0 0.0
Provision for Taxation & Others 13.5 16.2 20.7
Other current liabilities 26.2 30.1 46.1
Total 110.0 119.1 182.3
Total Assets 422.1 408.8 512.3
Total Liabilities 422.1 408.8 512.3
8
Sample Company
Packaged Bottled Industry in India
The packaged bottled water industry in India is primarily segmented into
packaged drinking water and Natural Mineral Water.
Packaged drinking water is the water derived from any source of
potable water and subjected to various treatments to meet the prescribed
standard before being packed in a plastic or glass container.
Natural mineral water is the water containing less than 250ppm of total
dissolved solids which are defined as natural mineral water. It falls under
premium water segment .
Packaged drinking water holds about 85% of the market. However,
natural mineral water is consumed primarily by the rich urban population
owing to its high cost.
Maximum sale of bottled water comes from the retail sector; but this is
changing with demand coming from social functions and corporate
events, especially for bulk water or bottled water cups. With the aim to
capture all the segments of society, players have started foraying into
packaged water pouches at low price points, but this is still in the
experimental stage.
The unavailability of clean drinking water, especially away from home,
will be the biggest growth driver during the forecast period. Growing
health awareness and the rising risk of waterborne diseases will also
facilitate growth. In addition, growth in the category is set to be the further
supported by drinking water shortages which prevail especially urban
areas, making consumers move towards bulk drinking water. The
increase in the number of domestic and foreign tourists in the past years,
and in the years to come, is expected to be an another major driver for
bottled water sales in India.
Sample Company deals in packaged drinking water, which would be
growing at the rate of 20-22% in next five years. This provides a huge
growth prospect for the company in the near future, owing to the
certifications in place and the existing market coverage.
Today, Indians are consuming more than 20 Litres of bottled water per
head each year in comparison to 4-5 Litres in Late 1990s. With an
increase in health awareness, tourism and the easy availability of bottled
water, the per capita consumption of bottled water in India has increased
in the recent years.
The total market was valued at Rs.60 billion in 2013, of which the top five
players accounted for 67 per cent of the market share. This market is
expected to grow at a CAGR of 22 percent, to reach Rs.160 billion in
2018.
Industry
Overview
9
Sample Company
Packaged Bottled Industry in India
Major player existing in the industry with their multiple brands are Parle
Bisleri, Parle Agro, Coca-Cola, PepsiCo, Kothari Beverages, etc. There
are more than 180 brands in the unorganized sector. The small players
account for nearly 19% of the total market.
Bottled Industry - Market Segment*
Two Primary Market Segments
Retail – about 80% of the bottled water market
Home/Office Delivery (HOD)
PET segment is just over one-half the total bottled water volume.
PET 52.8%,
HOD 34.3% 17.8%, 1-2.5 gal. 16.5%)
Vended 8% (not bottled water)*BeverageMarketing Corp. – 2006
The phenomenal increase in demand for bottled water from just 2.0 mn
cases in 1990-91 to 112 mn cases presently was being boosted further
by the concern and need for safe drinking water.
Leading Brands in the industry are : Bisleri, Aquafina, Kingfisher, Bailley
and McDowells.
Industry
Overview
Future Projections Assumptions :
Year 2017 2018 2019 2020 2021
No. of Jars 3693212 4189804 4753997 5395107 6123744
Growth Rate 25.00% 19.00% 19.00% 19.00% 19.00%
Price Per Jar (Rs.) 30.64 32.20 33.83 35.55 37.35
Sundry Creditors 15.83% 15.83% 15.83% 15.83% 15.83%
Sundry Debtors 29.40% 29.40% 29.40% 29.40% 29.40%
Fixed Asset Growth 20.00% 20.00% 20.00% 20.00% 20.00%
Future projections of the company arrived on assumption as mentioned
below are based on the existing industry growth scenario on reasonable
basis to integrate with company’s operational capacity. The financial
assumptions have been considered based on the con-current practices
of the company. The other income and taxation for the future projections
has been considered on the basis of management inputs and
suggestions.
10
Sample Company
Projected
Financials for
Next 5 Years
In Rs. Lakhs
Projected Profit and Loss Account:
11
Year 2017 2018 2019 2020 2021
Gross Sales
Domestic 1131.68 1349.02 1608.38 1917.94 2287.48
Exports 0.00 0.00 0.00 0.00 0.00
Sub Total 1131.68 1349.02 1608.38 1917.94 2287.48
Less Excise Duty and Cess 0.00 0.00 0.00 0.00 0.00
Net Sales 1131.68 1349.02 1608.38 1917.94 2287.48
Non Operating Income(Director's Remuneration) 200.00 166.52 198.53 236.74 282.35
Total Income 1,331.68 1,515.54 1,806.91 2,154.68 2,569.83
Expenditure
Manufacturing Expenses
Raw Materials Consumed ( Indigenous) 550.07 651.81 771.95 914.37 1083.21
Stores and spares consumed ( Indigenous) 0.00 0.00 0.00 0.00 0.00
Others 0.00 0.00 0.00 0.00 0.00
Sub Total 550.07 651.81 771.95 914.37 1083.21
Stock in process Opening Balance 0.00 0.00 0.00 0.00 0.00
Stock in process Closing Balance 0.00 0.00 0.00 0.00 0.00
Sub total -- WIP change in stock 0.00 0.00 0.00 0.00 0.00
Depreciation 36.00 37.80 39.69 41.67 43.75
Cost Of Production 586.07 689.61 811.64 956.04 1126.96
Finished Goods Opening Balance 0.00 0.00 0.00 0.00 0.00
Finished Goods Closing Balance 0.00 0.00 0.00 0.00 0.00
SubTotal: Finished Goods change in stock 0.00 0.00 0.00 0.00 0.00
Cost Of Sales 586.07 689.61 811.64 956.04 1126.96
Administrative and Selling Expenses
Salary and staff expenses 43.84 48.23 53.05 58.36 64.19
Rent , Rates and Taxes 12.00 12.00 12.00 13.20 13.20
Others 49.40 58.89 70.21 83.72 99.85
Other admin and selling expenses 156.21 188.62 227.76 275.02 332.09
Audit Fees & directors Remuneration 200.00 166.52 198.53 236.74 282.35
Sub Total 461.45 474.25 561.55 667.04 791.68
Miscellaneous Expenses written off 0.00 0.00 0.00 0.00 0.00
Total 461.45 474.25 561.55 667.04 791.68
Finance Charges
Interest on Fixed Loans / Term loans 11.96 11.96 11.96 11.96 11.96
Interest on Working capital loans 0.00 0.00 0.00 0.00 0.00
Bank Charges 0.00 0.00 0.00 0.00 0.00
Total 11.96 11.96 11.96 11.96 11.96
Non Operating Expenses 0.00 0.00 0.00 0.00 0.00
Profit Before Tax 272.20 339.71 421.76 519.64 639.23
Tax
Income Tax provision(Adjusted) 20.42 25.48 31.63 38.97 47.94
Deferred Tax Liability 0.00 0.00 0.00 0.00 0.00
Deferred Tax Asset 0.00 0.00 0.00 0.00 0.00
Total 20.42 25.48 31.63 38.97 47.94
Net Profit for the year ( PAT) 251.78 314.23 390.13 480.67 591.29
Sample Company
Projected
Financials for
Next 5 Years
Projected Balance Sheet:
In Rs. Lakhs
12
Year 2017 2018 2019 2020 2021
Share Capital
Issued, Subscribed and Paid up 41.00 41.00 41.00 41.00 41.00
Share Application Money 0.00 0.00 0.00 0.00 0.00
Total 41.00 41.00 41.00 41.00 41.00
Reserves and Surplus
Balance transferred from profit and loss a/c 251.79 314.23 390.13 480.67 591.29
Other Reserve 181.38 433.17 747.40 1137.50 1618.20
Total 433.17 747.41 1137.53 1618.17 2209.49
Secured and Unsecured Loans
Working Capital Bank Finance 0.00 0.00 0.00 0.00 0.00
Term Loans 4.60 4.60 4.60 4.60 4.60
Other Debts 65.81 65.81 65.81 65.81 65.81
Unsecured Loans 0.00 0.00 0.00 0.00 0.00
Total Debt 70.40 70.40 70.41 70.41 70.41
Deferred Tax Liability 0.00 0.00 0.00 0.00 0.00
Fixed Assets
Gross Block 471.20 511.04 548.40 580.70 604.60
Less Accumulated Depreciation 373.05 410.85 450.54 492.21 535.96
Net Block 98.15 100.19 97.86 88.49 68.64
Add : Capital Work in Progress 0.00 0.00 0.00 0.00 0.00
Total 98.15 100.19 97.86 88.49 68.64
Intangibles Assets
Deferred Tax Asset 16.17 16.17 16.17 16.17 16.17
Other Intangible assets 0.48 0.48 0.48 0.48 0.48
Total 16.65 16.65 16.65 16.65 16.65
Additions to Fixed Assets 0.00 0.00 0.00 0.00 0.00
Investments 0.00 0.00
Current investments 0.00 0.00 0.00 0.00 0.00
Non-Current investments 13.68 13.68 13.68 13.68 13.68
Sub Total 13.68 13.68 13.68 13.68 13.68
Investment in group companies / subsidiaries 0.00 0.00 0.00 0.00 0.00
Total 13.68 13.68 13.68 13.68 13.68
Inventories
Raw Material 3.83 4.00 4.00 4.00 4.00
Stores and Spares 0.00 0.00 0.00 0.00 0.00
Stocks-in-process 0.00 0.00 0.00 0.00 0.00
Finished Goods 0.00 0.00 0.00 0.00 0.00
Total 3.83 4.00 4.00 4.00 4.00
Sundry Debtors
Domestic Receivables 332.71 396.61 472.90 563.90 672.50
Debtors more than 6 months 0.00 0.00 0.00 0.00 0.00
Total 367.92 414.61 514.90 639.60 794.30
Cash and Bank Balances
Cash on Hand 313.22 610.92 986.10 1454.90 2040.20
Bank Balances 0.00 0.00 0.00 0.00 0.00
Total 145.72 382.02 615.60 915.50 1296.30
Loans and Advances
Advances / current asset 13.25 13.25 13.25 13.25 13.25
Advances to group / subsidiaries companies 0.00 0.00 0.00 0.00 0.00
Total 13.25 13.25 13.25 13.25 13.25
Non Current Assets 37.50 37.50 37.50 37.50 37.50
Current Liabilities
Sundry Creditors for goods 179.14 213.55 254.60 303.60 362.10
Advance received from customers 0.00 0.00 0.00 0.00 0.00
Provision for Taxation & Others 40.83 50.96 63.30 77.90 95.90
Other current liabilities 50.74 55.82 61.40 67.50 74.30
Total 270.72 320.32 379.30 449.00 531.83
Total Assets 815.31 1179.12 1628.24 2178.58 2852.73
Total Liabilities 815.29 1179.13 1628.24 2178.58 2852.73
Sample Company
Projected
Financials for
Next 5 Years
Key financial Indicators:In Rs. Lakhs
13
Year 2017 2018 2019 2020 2021
Total Operating Income(TOI) 1131.68 1349.02 1608.38 1917.94 2287.48
EBIDTA 120.17 222.96 274.88 336.53 412.59
EBIDTA/Total Operating Income (%) 10.62% 16.53% 17.09% 17.55% 18.04%
Interest 11.96 11.96 11.96 11.96 11.96
Depreciation 36.00 37.80 39.69 41.67 43.76
Operating Profit after Dep.& Int. 72.20 173.20 223.23 282.90 356.87
Non Operating Income/Exps. 200.00 166.52 198.53 236.74 282.35
Profit Before Tax(PBT) 272.20 339.71 421.76 519.64 639.22
Profit After Tax(PAT) 251.79 314.23 390.12 480.66 591.28
PAT/ TOI (%) 22.25% 23.29% 24.26% 25.06% 25.85%
Net Cash Accruals (NCA) 287.79 352.03 429.81 522.34 635.04
Net Fixed Assets 98.15 100.19 97.85 88.51 68.65
Tangible Networth (TNW) 457.53 771.76 1161.88 1642.55 2233.83
Exposure in Group Co./Sub.
--- Investments 0.00 0.00 0.00 0.00 0.00
--- Loans and Advances 0.00 0.00 0.00 0.00 0.00
Quasi Equity 0.00 0.00 0.00 0.00 0.00
Adjusted Tangible Net Worth (ATNW) 457.53 771.76 1161.88 1642.55 2233.83
Long Term Debt (LTD) 4.60 4.60 4.60 4.60 4.60
Short Term Debt (STD) 65.80 65.80 65.80 65.80 65.80
Working Cap. Bank Finance 0.00 0.00 0.00 0.00 0.00
Financial guarantees 0.00 0.00 0.00 0.00 0.00
Total Debt 70.40 70.40 70.40 70.40 70.40
Total Liabilities 341.12 390.73 449.67 519.50 602.69
Total Debt/Adjusted Tangible Net Worth 0.15 0.09 0.06 0.04 0.03
Long Term Debt / Adjusted Tangible Net
Worth0.01 0.01 0.00 0.00 0.00
Total Liabilities / Tangible Net Worth 0.75 0.51 0.39 0.32 0.27
Total Liabilities / Adjusted Tangible Net Worth 0.75 0.51 0.39 0.32 0.27
Total Current Assets 663.01 1024.78 1476.23 2036.04 2729.99
Total Current Liabilities 336.52 386.12 445.07 514.89 598.08
Net Working Capital(NWC) 326.49 638.66 1031.16 1521.15 2131.90
Current Ratio 1.97 2.65 3.32 3.95 4.56
Return on Capital Employed (%) 27.43% 31.83% 25.18% 21.53% 19.36%
Interest Coverage Ratio 8.34 16.51 20.33 24.88 30.48
Total Debt/Net Cash Accrual 0.24 0.20 0.16 0.13 0.11
Inventory Turnover days 2.35 2.09 1.77 1.51 1.28
Debtors Turnover days 105.84 105.84 105.84 105.84 105.84
Creditors Turnover days 117.24 117.91 118.74 119.54 120.35
Debt Service Coverage Ratio (in case of
term loan)1.01 2.54 3.13 3.83 4.69
Sample Company
Business
Valuation
Valuation Methodology:
Business valuation has been arrived at by using Two Stage Discounted Cash
flow (DCF) method. Two stages of the business growth have been considered
based on the aggressive growth in initial five years of the business and
sustainable growth in the future.
First stage business valuation has been considered on actual assumptions of
growth drivers of the company as mentioned in the business assumptions
section. Second stage business valuation is based on the calculation of the
terminal value of the business entity based on the sustainable growth rate, return
on capital investment, reinvestment rate.
Finally, two staged cash flow has been discounted by discounting rate to arrive at
the net present value of the cash flow for business valuation.
Business Valuation Assumptions:
Year 2017 2018 2019 2020 2021
Market Return 11.50% 11.50% 11.50% 11.50% 11.50%
Risk Free Rate 7.45% 7.45% 7.45% 7.45% 7.45%
Risk Premium 4.05% 4.05% 4.05% 4.05% 4.05%
Beta Value 1.10 1.10 1.10 1.10 1.10
Cost of Equity 11.91% 11.91% 11.91% 11.91% 11.91%
Marginal Rate of Tax 30.00% 30.00% 30.00% 30.00% 30.00%
Debt / Total Funds 12.93 8.20 5.64 4.07 3.03
WACC 11.90 11.90 11.90 11.90 11.90
Discount Factor 1.00 1.12 1.25 1.40 1.57
Invested Capital in Operations 286.39 266.41 289.94 312.62 332.63
ROIC 99.22 132.00 149.59 170.05 195.77
ASSUMPTIONS ABOUT TERMINAL
VALUE
Perpetual Growth Rate 6.00% 6.00% 6.00% 6.00% 6.00%
Sustainable ROIC 30.00% 30.00% 30.00% 30.00% 30.00%
Reinvestment Rate 20.00% 20.00% 20.00% 20.00% 20.00%
14
Sample Company
Business
Valuation
Free Cash Flow Method to Firm:
Year 2017 2018 2019 2020 2021
PBIT 284.17 351.67 433.72 531.60 651.19
Less: Actual Tax Paid 20.42 25.48 31.63 38.97 47.94
Less: Tax Shield on Interest 3.59 3.59 3.59 3.59 3.59
Add: Tax on Interest and Investment Income 0.00 0.00 0.00 0.00 0.00
NOPLAT 260.16 322.61 398.50 489.04 599.66
Add: Depreciation 36.00 37.80 39.69 41.67 43.75
Gross Cash Flow 296.16 360.41 438.19 530.71 643.41
Less: Capital Expenditure 0.00 0.00 0.00 0.00 0.00
Less: Working Capital Investment -63.72 14.46 17.30 21.21 25.87
Less: Increase in other assets 274.22 297.70 375.18 468.80 585.30
Add: Increase in other liabilities/provisions 68.27 39.48 46.63 55.10 65.30
Free Cash Flow to Firm 153.93 87.72 92.35 95.80 97.54
Terminal Value 0.00 0.00 0.00 0.00 6546.58
Total Cash Flow 153.93 87.72 92.35 95.80 6644.12
Discounted Cash Flows 153.93 78.39 73.75 68.37 4236.92
Value of the Firm 4611.35
Add: Beginning Cash Balance 29.14
Add: Fair Value of Investments 13.68
Less: Fair Value of Existing Debt 70.40
Fair Value of Equity 4583.77
No. of Shares Outstanding 410000.00
Fair Value per Share 1117.99
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In Rs. Lakhs
Sample Company
Business
Valuation
Comparative Multiple Valuation Method
EBDITA Multiple :
PE Multiple :
In the absence of comparable company financials, we have considered recentlylisted IPO company in similar products segment. IPO listing price wasconsidered at 51 P/E multiple for Manpasand Beverages, a company inpackaged bottled manufacturing and distribution. We have considered PEmultiple of 20 and 18 for FY2017 and FY2018 respectively, almost 60% discountto the listed company multiple as the basis of our valuation.
Year 2017 2018
PAT 251.79 314.23
No. of Shares 410000 410000
EPS 61.41 76.64
PE Multiple 20 18
Price 1228.2 1379.6
Business Valuation 5035.75 5656.21
Year 2017 2018
EBIDTA 320.17 389.47
EBIDTA Multiple 14 12
Enterprise Value 4482.31 4673.70
In US market, EBDITA multiple for beverages (soft) segment inclusive of bottledpackaged water is around 12. We may consider the same on higher side forgrowth stage companies. Specially for Corporate segment in bulk waterpackaged segment, multiple would be higher based on the sector CAGR of over22% We have considered multiple of 14 and 12 for FY2017 and FY2018respectively as the basis of valuation.
Weighted Average Valuation :
We have arrived final business valuation on the basis of weighted average basisof all three valuation. We have provided 70%, 10%, 20% weightages to DCFValuation, PE Multiple Valuation and EBIDA multiple valuation respectively.
Valuation Methodology Valuation Weightage Weighted Value
DCF Valuation 4583.77 70% 3208.64
PE Valuation 5035.75 10% 503.58
EBIDTA Valuation 4482.31 20% 896.46
Final Weighted Average Valuation 4608.68
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Sample Company
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Sample Company
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Sample Company