Investment Analysis Square Pharma

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Comprehensive Investment Analysis on

Square Pharmaceuticals Limited

Square Pharmaceuticals Ltd.
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Comprehensive Investment Analysis

Report On
on Square Pharmaceuticals Limited

Date of Submission : 27
th
February, 2014

Prepared By:
Members of Group
Section B
17
th
Batch
Department of Finance
Faculty of Business Studies
University of Dhaka
Prepared For:
Hussain Ahmed Enamul Huda
Course Instructor
Analysis of Financial Investment
Lecturer
Department Of Finance
Faculty of Business Studies
University Of Dhaka

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Group Profile

Roll No. Name Remarks
17-044 Mehedi Hasan Niloy
17-026 Md. Faraz Hasan
17-064 Lutfun Nahar Loona
17-066 Md. Rakibul Hassan
17-078 Md. Tajul Islam

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Letter of Transmittal
27 February, 2014
Hussain Ahmed Enamul Huda
Lecturer
Department of Finance
University of Dhaka
Subject: Submission of the report Comprehensive Investment Analysis on Square
Pharmaceuticals Limited
Dear Sir,
As per the requirements of the course Analysis of Financial Investment (F-307) offered at
Department of Finance, University of Dhaka under your supervision, we submit here our report
on Comprehensive Investment Analysis on Square Pharmaceuticals Limited that you assigned
us to prepare.
Our final report is based on data from various sources and basis on our findings. I believe that
the knowledge and experience that I gained will be of great importance both for future courses
and work lives.
I would also like to state that the sole purpose of creating the report is for the completion of
the course work. No part of this report will be reproduced for use in any other form of
publication in the future without your written permission.
We shall be available for any clarification, if required.
Sincerely,
Yours obedient

MD. Rakibul Hasan

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Executive summary
Square Pharmaceuticals Ltd has consistency ranked as the largest pharmaceutical manufacturer
as the largest pharmaceutical manufacturer company with a market share of 19.3% in
Bangladesh since 1985. It was established in 1958 and was turned into a private limited
company in1964. Has three GMP facilities in Bangladesh and these are formulation unit, per
bottle unit and API unit.
The report is divided into five segments which, in sequence, calculate value and comment on
the intrinsic value based on free cash flow model, share value based on dividend discount
model, share value based on relative valuation, price pattern of previous years and technical
analysis of the share.
The first segment of the report identifies the intrinsic value of the share based on free cash flow
model is 58.34. This section also report on the company using the industry life-cycle theory,
Porters five forces of competitive edge, Herfindahl index and S-C-P analysis while
understanding the current industry scenario and future industry potentialities. In addition, VRIN
model, Ansoff matrix, BCG matrix is also incorporated.
This second segment uses DDM with continuous growth assumptions to value the company
which is 1080. 4 relative valuation methods are used to calculate the value of the company such
price earnings ratio, price book value ratio, price cash flow ratio and price sales ratio in the third
segment.
Segment four and five is about technical analysis. Price patterns of the company is analyzed in
light of head and shoulder pattern, inverse head and shoulder pattern, double top, double
bottom, triple top, triple bottom, triangle based continuation pattern and rectangle based
continuation pattern.
The fifth segment analyze the company stock in terms of like MA, RSI, MACD, Stochastic
oscillator, Bollinger band, MFI and make comment on different parameter change.

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Table of content
Company overview ....................................................................................................................................... 7
Top down approach ...................................................................................................................................... 7
Different analysis ........................................................................................................................................ 11
Fundamental analysis ................................................................................................................................. 17
WACC (Weighted average cost of capital): ............................................................................................. 17
Free Cash Flow Analysis: ......................................................................................................................... 17
Dividend Discount Model: ...................................................................................................................... 17
Relative Valuation: .................................................................................................................................. 19
Technical analysis ........................................................................................................................................ 22
Pattern analysis ....................................................................................................................................... 22
Signal analysis ......................................................................................................................................... 46
Appendix ..................................................................................................................................................... 51

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Company overview
SQUARE today symbolizes a name a state of mind. But its journey to the growth and
prosperity has been no bed of roses. From the inception in 1958, it has today burgeoned into
one of the top line conglomerates in Bangladesh. Square Pharmaceuticals Ltd., the flagship
company, is holding the strong leadership position in the pharmaceutical industry of
Bangladesh since 1985 and is now on its way to becoming a high performance global player.
SQUARE Pharmaceuticals Limited is the largest pharmaceutical company in Bangladesh and it
has been continuously in the 1st position among all national and multinational companies since
1985. It was established in 1958 and converted into a public limited company in 1991. The sales
turnover of SPL was more than Taka 11.46 Billion (US$ 163.71 million) with about 16.43%
market share (April 2009 March 2010) having a growth rate of about 16.72%
Top down approach
Global Overview:
Pharmaceutical Business Confidence Report Q1 2014 announced by MarketResearchReports.Biz
says that overall, 74% and 60% of global pharmaceutical industry executives are optimistic
about the future growth prospects of both their company and the industry, respectively, over
the next six months. Optimism towards company and industry growth prospects has improved
by eight and ten percentage points, respectively, in Q1 2014, compared to Q4 2013 results.
Optimism towards industry and company growth is driven by the-
improving global economic conditions,
investments in emerging markets and
The introduction of new products in the market.
Key Market Issues around the Globe:
According to pharmaceutical industry respondents-
The present economic conditions in Africa and the Middle East are deemed to be
unfavorable. In the Q4 2013 survey, similar opinions were recorded.
New government proposals/legislation, competition from new entrants, state of global
economy, and performance of the Euro-zone are the key concerns among global
pharmaceutical industry executives.
Survey respondents forecast that supplier prices for raw materials will increase at an
average of 4.1%, with those from Asia-Pacific expecting the biggest rise.
In total, 52% of global pharmaceutical industry executives anticipate either no change
or a negative change in customer confidence over the industry, in the next six months.
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Industry executives exhibit high levels of optimism towards company growth prospects
compared to industry growth prospects, in the next six months
Key Highlights:
Of respondents, 66% anticipate a positive change in the global economic outlook over
the next six months. In comparison to previous quarter, the percentage of respondents
who expect a positive change has increased by eighteen percentage points.
Pharmaceutical industry executives plan to increase investments in the areas of new
product development and marketing in the next six months.
Executives operating in the Rest of the World and Asia-pacific anticipate the highest
average sales increase of 6.4% and 4.5%, respectively, over the next six months. Industry
executives operating in the Rest of the World and Europe anticipate an average increase
of 3.2% and 2.2%, respectively, in their current workforce.
Executives operating across the globe consider increasing sales, improving operational
efficiency, and customer retention as key priorities over the next six months.
Situation might change due to changes caused by war, political upheavals in foreign countries
or international monetary devaluations in the business environment due to uncertainty of sales
& earnings expectations and therefore the risk premium required by investors.

Macro-economy:
While analyzing the macro-economic condition for an industry, we should give a profound look
into the interest rate, exchange rate and inflation rate of a country.
An interest rate is the rate at which interest is paid by a borrower for the use of money that
they borrow from a lender. Bangladesh Bank governor Atiur Rahman has asked the commercial
banks to reduce their interest rates to accelerate industrialization, alleged that many banks
were imposing much higher interest rates on industrial loan after the withdrawal of the ceiling,
and that some service charges are being realized at much higher rates. It is to be mentioned
that currently BASIC provides term loan to large and medium-scale industry at a rate that varies
between 15%-17% and working capital at 16%-18%.
Inflation is a sustained increase in the average price of all goods and services produced in an
economy. Money loses purchasing power during inflationary periods since each unit of currency
buys progressively fewer goods. The inflation rate in Bangladesh was recorded at 7.50 percent
in January of 2014. Inflation rate in Bangladesh is reported by the Bangladesh Bureau of
Statistics. Inflation rate in Bangladesh averaged 6.63 percent from 1994 until 2014. Price
Inflation greatly effects time value of money (TVM) calculation. It is a major component of
interest rates which are at the heart of all TVM calculations. Actual or anticipated changes in
the inflation rate cause corresponding changes in interest rates. Lenders know that inflation will
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erode the value of their money over the term of the loan so they increase the interest rate to
compensate for that loss. In simpler words, inflation rate directly affects the interest rate.
Rates on deposit and loan vary widely. In Bangladesh average rate on savings deposit is 7%
while lending rate is much higher as mentioned earlier. For a high growth potential industry like
Pharmaceutical industry in BD to grow lending rates must be reduced. Inflation rate should
taken care of and minimize as much as possible. At the same time rates on deposit must be
increased for the saving unit of the economy to encourage themselves to transfer their fund to
economy.
Industry Scenario & Industry Potential:
Pharmaceutical sector is technologically the most developed manufacturing industries in
Bangladesh and the third largest industry in terms of contribution to governments revenue.
The industry contributes about 1% of the total GDP. There are about 250 licensed
pharmaceutical manufacturers in the country; however, currently a little over 100 companies
are in operation. It is highly concentrated as top 20 companies produce 85% of the revenue.
According to IMS, a US-based market research firm, the retail market size is estimated to be
around BDT 84 billion as on 2011.
Bangladesh pharmaceutical companied focus primarily on branded generic final formulations,
mostly using imported APIs (Active Pharmaceuticals Ingredient). Branded generics are a
category of drugs, including prescription products, that are either novel dosage forms of off-
patent products produced by a manufacturer that is not the originator of the molecule, or a
molecule copy of an off-patent product with a trade name. About 85% of the drugs sold in
Bangladesh are generics and 15% are patented drugs - the structure differs significantly from
the international market. Branded generic drugs represent about 25% on average of worldwide
pharmaceuticals sales; however, given the popularity in emerging markets like China, India and
Latin America, branded generic drugs may well dominate the total sales within a decade.
Bangladesh manufactures about 450 generic drugs for 5,300 registered brands which have
8,300 different forms of dosages and strengths. These include a wide range of products from
anti-ulcerants, flouroquinolones, anti-rheumatic non-steroid drugs, non-narcotic analgesics,
antihistamines, and oral anti-diabetic drugs. Some larger firms have also started producing anti-
cancer and anti-retroviral drugs. Domestic manufacturers account for 97% of the drug sales in
the local market while the remaining 3% are imported. This is a complete turnaround over from
two/three decades back when imports used to dominate the market. The imported drugs
include essential live saving drugs and other high quality drugs. The ratio will further increase in
favor of the local production as some of the big players are poised to manufacture these high
quality drugs in-house in the future.
As stated earlier, the size of the retail market reached BDT 84.0 billion as on 2011 based on IMS
report. The report further stated that, retail sales in the domestic market achieved 23.6%
growth in 2011 following 23.8% and 16.8% growth in 2010 and 2009 respectively. High growth
in the last three years (78.8% cumulative and 21.4% CAGR) meant that the Bangladesh
Pharmaceutical market doubled in just over four years. The retail market also crossed USD 1.0
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billion in size in 2011. It is one of the fastest growing sectors in the country with an annual
average growth rate of 17.2% over the last five years and 13.1% over the last decade.
However, considering that IMS does not include rural market in their survey, the actual size of
the market will vary slightly (5%-10%). It is estimated that the retail market represent 90% of
the total market; in that respect the total market size (including the rural market) is expected to
be over BDT 90.0 billion at present.
Most of the health indicators improved over the last decade which is among some of the
factors that contributed to the growth of the sector-
There has been a gradual demographic shift - life expectancy improved from 64.7 in
2000 to 68.3 in 2009 which highlights the increased health consciousness among the
people. Also the income level of the population increased over the last decade which
allowed them to spend more for healthcare.
The base was also low as healthcare expenditure was less than 3% of GDP in 2000 with
total pharmaceutical sector size of BDT 24.5 billion only in that year.
Increased medical coverage of population with new hospitals.
Emergence of private healthcare service - a number of top class hospitals started
operating which includes Apollo Hospitals, Square Hospitals, United Hospitals and
others. These hospitals became very popular with the mass population due to their
quality service; they have been a major factor contributing to increased healthcare
expenditure.
Although government expenditure as a % of total healthcare expenditure did not
improve in the last decade, there has been increased expenditure in absolute terms.
Growth in private expenditure was the primary reason behind fall in public % of
expenditure.
Income base of the population has been growing over the last decade. Health
expenditure per capita doubled in the last decade, indicating peoples willingness to
spend more to remain healthy.
Government spending proportion is much lower than that in other regions - it is one possible
area where future growth may come from. Moreover, the total health expenditure to GDP ratio
and health expenditure per capita of Bangladesh (both of which gradually increased from 2000)
is very low in comparison to developed and developing countries. Since the base is still very
low, we expect the recent growth in the local retail market to continue in the current decade.
Some other factors that will also boost the industry growth include:
Increase in number of modern hospitals
Increase in level of service/treatment provided in the hospitals with improved/more
modern diagnostic equipments
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General people are getting more health conscious
Growing income level of the people
Export of pharmaceutical products
Industry life cycle
A concept relating to the different stages an industry will go through, from the first product
entry to its eventual decline. There are typically five stages in the industry lifecycle. They are
defined as:
i. Early Stages Phase - alternative product design and positioning, establishing the range and
boundaries of the industry itself. Rapid production process, lifecycle cost reduction.

ii. Innovation Phase - Product innovation declines, process innovation begins and a "dominant
design" will arrive. Rapid innovation and responsiveness to market change

iii. Cost or Shakeout Phase - Companies settle on the "dominant design"; economies of scale are
achieved, forcing smaller players to be acquired or exit altogether. Barriers to entry become
very high, as large-scale consolidation occurs. Integrate supplier, perform serviceability.
Reduce physical prototype

iv. Maturity - Growth is no longer the main focus, market share and cash flow become the
primary goals of the companies left in the space. Flexibility to enter new market.

v. Decline - Revenues declining; the industry as a whole may be supplanted by a new one.
Reduce warranty cost. Digitize service and repair.
Different analysis
Porters five forces model
Rivalry among existing firms:
Industry Growth rate:
SQUARE Pharmaceuticals Limited is the largest pharmaceutical company in Bangladesh and it
has been continuously in the 1
st
position among all and multinational companies since 1985. It
was established in 1958 and converted into a public limited company in 1991. The sales
turnover of SPL was more than Taka 11.46 Billion (US$163.71 million) with about 16.43%
market share (April 2009 March 2010) having a growth rate of about 16.72%.2.
Concentration and Balance Competitors:
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Lots of similar size and strong competitor exist in the market and price competition is likely to
be harsh. So square pharma product price is competitive. Square pharma is growing company;
the competition is high.
Degree of differentiation and switching cost:
Product differentiation is not the driver, cost competitiveness is. However, companies like
Square pharma has created big brands in over the years, which act as product differentiation
tools. This will enhance over the long term, as product patents come into play from 2005
Threat of new entrants:
Pharma industry is one of the most easily accessible industries for an entrepreneur in
Bangladesh. The capital requirement for the industry is very low, creating a regional distribution
network is easy, since the point of sales is restricted in this industry in Bangladesh.
Economies of scale:
Square pharma can easily produce based on economies of scale but it is quite difficult to new
entrants for produce based on economies of scale
First mover advantage:
It was established in 1958 and converted into a public limited company in 1991.First
mover advantage is part of the standard lore of the I-Cubed Economy. It means that the first
company into a market generally wins.
Access to channels of distribution and relationship:
The Square pharma is a large pharmaceutical company in our country so they have large
distribution channel and good relationship with the retailers.
Threat of substitute Products
This is one of the great advantages of the pharma industry. Whatever happens, demand
for pharma products continues and the industry thrives. One of the key reasons for high
competitiveness in the industry is that as an ongoing concern, pharma industry seems to have
an infinite future. However, in recent times, the advances made in the field of biotechnology,
can prove to be a threat to the synthetic pharma industry.
Bargaining power of buyers:
The unique feature of pharma industry is that the end user of the product is different from the
influencer (read doctor). The consumer has no choice but to buy what doctor says. However,
when we look at the buyer's power, we look at the influence they have on the prices of the
product. In pharma industry, the buyers are scattered and they as such does not wield much
power in the pricing of the products. However, government with its policies, plays an important
role in regulating pricing through the NPPA (National Pharmaceutical Pricing Authority).
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Price Sensitivity:
Square pharma is produced the pharmaceutical products which are undifferentiated product
and there are few switching cost.
Relative Bargaining Power:
Two factors related to the relative bargaining power
Number of buyer :
The buyers bargaining power is determined by the number of buyer relative to the number of
suppliers.
Volume per buyer:
It is determined by volume of purchase by single buyer. The number of buyer of Square pharma
is a single buyer with several alternative suppliers.
Bargaining power of Suppliers:
The pharma industry depends upon several organic chemicals. The chemical industry is again
very competitive and fragmented. The chemicals used in the pharma industry are largely a
commodity. The suppliers have very low bargaining power and the companies in the pharma
industry can switch from their suppliers without incurring a very high cost. However, what can
happen is that the supplier can go for forward integration to become a pharma company.
Companies like Orchid Chemicals and Sashun Chemicals were basically chemical companies,
who turned themselves into pharmaceutical companies. In case of Square pharma there is low
bargaining powers of suppliers
S-C-P Analysis:
Structure, Conduct and Performance paradigm (SCP) is used as an analytical framework, to
make relations amongst market structure, market conduct and market performance. The SCP
analysis is shown below
The components of SCP are:
Structure: The way in which markets fail to follow perfect competition conditions,
depends basically in the degree of: supply concentration, demand concentration,
product differentiation and market entrance barriers. Also, the structure of the market
will always be determined by the nature of the product and the technology available.
Conduct: The way in which buyers and sellers behave, both amongst themselves, and
amongst each other. Firms choose their own strategic behavior, investment in research,
in development, advertising levels, collusions, etc.
Performance: It is measured by comparing the results of firms along the industry in
efficiency terms, and different ratios are used to assess different profitability levels. The
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variables considered at this level are such as price & quantity, product quality, resource
allocation, production efficiency, etc.
The pharmaceuticals market in our countryis highly unconcentrated. There are a large number
of competitors (250-licensed) existing in the country . Therefore, square needs to provide
quality product in order to stay competitive.
Herfindahl index
The Herfindahl index (also known as HerfindahlHirschman Index or HHI) is a measure of the
size of firms in relation to the industry and an indicator of the amount of competition among
them. Named after economists Orris C. Herfindahl and Albert O. Hirschman, it is an economic
concept widely applied in competition law, antitrust[1] and also technology management. It is
defined as the sum of the squares of the market shares of the 50 largest firms (or summed over
all the firms if there are fewer than 50 within the industry, where the market shares are
expressed as fractions.
Herfindahl index = .193
2
+ .085
2
+ .075
2
+ [(.64/255)*255]
2
= .051*100 = 5.1 %
This 5.1% index indicates that square is operating in an unconcetrated industry.

The BCG Matrix:
Square pharma holds the highest market share in the industry with high growth rate. The
average growth rate is comparatively high relative to the other companies in the industry.
Theoretically the company is belonged to Star category.

Generic Business Level Strategies:
Generic Business level strategy is an integrated and coordinated set of commitments and
actions the firm uses to gain a competitive advantage by exploiting core competencies in
specific product market. This means that business level strategy indicates the choices the firm
has made about how it intends to compete in individual product markets. A firm competing in a
single product market area in a single geographic location does not need a corporate level
strategy to deal with product diversity or an international strategy to deal with geographic
diversity. A diversified firm will used one of the corporate level strategies as well as choose a
separate business level strategy for each product market area in which the company competes.
Customers are the foundation of successful business level strategies and should never be taken
for granted. Information about customer that is relevant to choosing a business level strategy.
In terms of customers when selecting a business level strategy the firm determines the
following terms,
1. Who will be served?
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2. What needs those target customers have that it will satisfy.
3. How those needs will be satisfied?
Selecting customers and deciding which of their needs the firm will try to satisfy as well as how
it will do so, are challenging tasks..
Descriptions of the purpose of business level strategies and of the five business level strategies
follow the discussion of customers. The five Generic strategies are as follows,
1. Cost leadership.
2. Differentiation.
3. Focus cost leadership.
4. Focus differentiation.
5. Integrated cost leadership/differentiation.
6. Spin price
Square pharma provides its total focus on quality rather than quantity to provide maximum
value to its customer. It also encourages and searches for opportunity to innovate new product
ideas and put them in the market. For these strategies, they keep an open eye on their price so
that it does not become so high that customers can not afford.
VRIN Model:
Applying Barney's (1991) VRIN framework can determine if a resource is a source of sustainable
competitive advantage. To serve as a basis for sustainable competitive advantage, resources
must be valuable, rare, inimitable and non-substitutable.
VRIN analysis of square pharma
Valuable -- Most important strength is product quality. No compromise with quality of
raw materials.
Rare -- Machineries and technologies come from UK and India.
Inimitable square holds pole position in health market.
Non-substitutable Squares largest customer segment is SMC. It can use contract
manufacturing to remain competitive and capture world market.
The criteria of the VRIN Framework clearly rules out best practices as a source of competitive
advantage. If other firms can easily understand and copy a capability, it is not a source of
advantage.

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Sources of competitive advantage
1. Most important strength is product quality.
2. No compromise with quality of raw materials.
3. Machineries and technologies come from Germany, U.S.A, and India.
4. Very skilled and efficient pharmacists.
5. Competitive price with the one of the best product quality.
6. Still Square is the no. one pharmaceuticals company in our country.
7. Square already has a goodwill and a large market in home and abroad.
8. Square can develop their market value by cutting down product price.

Ansoff Matrix
Igor Ansoff was a Russian/American mathematician who applied his work to the world of
business. His most famous work is the Ansoff Matrix. The purpose of this matrix is to help
managers consider how to grow their business through existing or new products or in existing
or new markets. In this way he was helping managers to assess the differing degrees of risk
associated with moving their organization forward.
Marketing strategies
Ansoffs matrix suggests four alternative marketing strategies which hinge on whether products
are new or existing. They also focus on whether a market is new or existing. Within each
strategy there is a differing level of risk. The four strategies are:
1. Market penetration This involves increasing market share within existing market
segments. This can be achieved by selling more products/services to established
customers or by finding new customers within existing markets.
2. Product development This involves developing new products for existing markets.
Product development involves thinking about how new products can meet customer
needs more closely and outperform the products of competitors.
3. Market development This strategy entails finding new markets for existing products.
Market research and further segmentation of markets helps to identify new groups of
customers.
4. Diversification This involves moving new products into new markets at the same time.
It is the most risky strategy. The more an organization moves away from what it has
done in the past the more uncertainties are created. However, if existing activities are
threatened, diversification helps to spread risk.
Square pharma belongs to product expansion stage because they introduce new products to
the existing market

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Fundamental analysis
WACC (Weighted average cost of capital):
We have used weighted average cost of capital formula to calculate the companys cost of
capital. We have calculate the covariance & variance of the stocks closing price of the square
pharmaceuticals limited. We used the monthly closing price of 42 months to calculate the beta.
The beta is .46 as per our calculation. We have assumed the risk free rate as 8%. The risk free
rate should be more than the inflation rate. According to the statistics of Bangladesh Bank the
current inflation rate is 7.5%. That is why, we have assumed it at 8%. While calculating the
WACC we have reached at the cost of capital at 17.86%.
Free Cash Flow Analysis:
In order to calculate our free cash flow model, we have assumed the perpetual growth of 3%.
The calculated free cash flow for the year 2014-2017 is:
2,874,784,757.02 4,305,805,200.10 5,296,992,694.45 6,568,194,627.39

We also assumed that the company would need to make some capital investments and
investments in working capital. To calculate the terminal value we discounted the free cash
flow taking WACC as discount factor. We have taken all the discounted cash flow plus cash
balance of 2013 minus interest bearing debt. Then equity value was divided by number of
outstanding share which is 370768664 to get value per share which is Tk. 139.70.

Dividend Discount Model:
Variable growth model:
1-3 4-6 7-9 10 onwards
16% 12% 08% 03%
K 18%
Dividend per share Tk.
Value Tk. 59.3

Assumptions:
1. Growth will decrease in a consecutive basis
2. 10 years onward perpetual

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Fixed growth model:
G 3%
K 18%
Dividend per share Tk. 4.463
Value Tk. 133.47

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Relative Valuation:
A business valuation method that compares a firm's value to those of its competitors to
determine the firm's financial worth. Relative valuation models are an alternative to absolute
value models, which try to determine a company's intrinsic worth based on its estimated future
free cash flows discounted to their present value. Like absolute value models, investors may
use relative valuation models when determining whether a company's stock is a good buy.
We used P/E ratio, price book value ratio, price sales ratio and price cash flow ratio as Relative
Valuation Technique.

P/E Ratio:
Price-earnings ratio, also known as P/E ratio, is a tool that is used by investors to help decide
whether they should buy a stock. The P/E ratio tells investors of a stock how much they have to
pay for every $1 of earnings. A low P/E ratio is attractive in the sense that one pays less for
every $1 of earnings. At the same time, companies with higher P/E ratios generally expect
higher earnings growth in the future than companies with low P/E Ratio.

Calculation:
We have determined the P/E ratio dividing dividend payout ratio by cost of capital minus
growth. We calculated dividend payout ratio dividing dividend per share by earnings per share.
The P/E ratio of Square pharmaceuticals is 17.16.
This indicates that, investors have to spend 17.16 tk. to earn tk. 1 from the stock of Square
pharmaceuticals. At the same time it also indicates that it has less aggressive growth
potentialities for the stock of Square pharmaceuticals. This lower P/E ratio is also a sign that
investors expect lower earnings growth in the future from the stock of Square Pharmaceuticals.
P/E comparison

Square Renata RATIO
Value VALUE
P/E 17.16 157.24 23.16 946 0.740933
When P/E is 23.16 price is 946
When P/E is 1 price is 946/23.16
When P/E is 17.16 price is 946*17.16/23.16=701tk
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Price Book value ratio:
The price-to-book ratio, or P/B ratio, is a financial ratio used to compare a company's current
market price to its book value. It is also sometimes known as a Market-to-Book ratio. It is
calculated by dividing the market price by per share book value. We calculated book value by
subtracting total assets from total liability. The price book value ratio of Square is 2.64.
The ratio indicates that Squares share is overvalued by tk1.64
Price-Cash Flow Ratio:
The price/cash flow ratio is used by investors to evaluate the investment attractiveness, from a
value standpoint, of a company's stock. This metric compares the stock's market price to the
amount of cash flow the company generates on a per-share basis. We found price cash flow
ratio dividing market price by cash flow per share. The price cash flow ratio of Square is 13.88
tk.
The result indicates that Square Pharmaceutical generates tk. 13.88 against every share.
Price-Sales Ratio:
This ratio is also known as a sales multiple or revenue multiple. This is a valuation ratio that
compares a companys stock price to its revenues. The price-to-sales ratio is an indicator of the
value placed on each Taka of a Squares sales or revenues. This ratio is particularly useful for
comparing the valuation of early-stage companies that have revenues but are not yet
profitable. It can be calculated either by dividing the companys market capitalization by its
total sales over a 12-month period, or on a per-share basis by dividing the stock price by sales
per share for a 12-month period. Like all ratios, the price-to-sales ratio is most relevant that can
used to compare companies in the same sector of Square pharmaceutical.
We calculated price-sales ratio dividing market price divided by sales per share. This ratio is
2.39 for Square pharmaceuticals.
The value indicates that Square generates 2.39 tk revenue for each share investment.
Comparison

Square renata RATIO

P/E 17.16 23.16 0.740933
P/BV 2.64 1.865 1.41555
P/CF 13.88 31.75 0.437165
P/S 2.39 3.48 0.686782

21 | P a g e
Value of share in relative valuation techniques
Square pharmaceuticals
RATIO VALUE
P/E 17.16 157.24
P/BV 2.64 135.11
P/CF 13.88 134.65
P/S 2.39 134.62

Comment on Economic Value Added:
Economic Value Added extension of NPV technique which is intended to evaluate the annual
performance of managements by comparing the firms Net operating profit less adjusted taxes
to the firms total cost of capital in Dollar terms. If the firms NOPLAT during a specific year
exceed its Cost of capital in Dollar terms then the firm has added value for its stockholders. But
to measure EVA of SQUARE pharma . We used an alternative way by determining the EVA
spread (Return of capital - WACC).The appeal of this EVA approach is that it concentrates on the
factors that create a growth company. Also, it helps the management and analysts recognize
that true growth can be created by either
(1)Increasing the firms return on capital or
(2) Reducing the cost of capital.
The EVA can be computed by the following formula
[( ) ]
=(0.173266861-.1786)* 19,655,207,251
=-104823958.3tk

This indicates that managements of square Pharma added negative value
22 | P a g e

Technical analysis
Pattern analysis
Support and resistant level of square pharmaceutical limited:
A support level is a price level where the price tends to find support as it is going down. This
means the price is more likely to "bounce" off this level rather than break through it. However,
once the price has passed this level, by an amount exceeding some noise, it is likely to continue
dropping until it finds another support level.

A resistance level is the opposite of a support level. It is where the price tends to find
resistance as it is going up. This means the price is more likely to "bounce" off this level rather
than break through it. However, once the price has passed this level, by an amount exceeding
some noise, it is likely that it will continue rising until it finds another resistance level.
Support and resistant level for the last 06 months:

23 | P a g e
Support and resistance for the last 02 years:

Head and shoulder pattern analysis: price pattern analysis using head and shoulder has three
components. They are
The head
The right shoulder
The left shoulder

The 6 months duration head and shoulder analysis of Square Pharmaceuticals are looking like
this

Period: January-June 2011

24 | P a g e

Though the pattern is very slight there is a head and shoulder pattern. The patter begun on 20-
02-11 with the closing price 3243.49 the highest value on 10-03-11 and ended on 21-03-2011.
Period: June to December 2011
There was no head and shoulder pattern visible during this period
Period: June to December 2012

There is second head and shoulder patter in 6 months duration during the period June to
December 2012. Here the peak was at 19-09-2012
25 | P a g e

Period: January to June 2013

There is a slight head and shoulder pattern during the time period January to June 2013 here
the peak was on 11-06-2013
Period: June to December
There was no head and shoulder pattern during the period
Period: January 2011 to December 2011

26 | P a g e
There is head and shoulder pattern between the period January 2011 to December 2011 here
the peak is at 10-03-11

There is a head and shoulder pattern between periods January 2012 to December 2012. Here
the peak is on 29-02-2012

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In this period the peak is on 15-07-2012
1. Inverse Head and Shoulder pattern:
6 months Period: There is an inverse head and shoulder pattern between the time
periods January 2011 to June 2011. Here the peak is on 20-01-2011

Another inverse head and shoulder pattern has been seen in this period. The peak was
at 28-02-2013.

28 | P a g e
Period: January 2012 to June 2012- In period January 2012 to June 2012 there is another
inverse head and shoulder pattern. The peak occurred at 06-02-2012

There is another inverse head and shoulder relationship in period January 2013 to June
2013. The peak occurred at 03-03-2013

29 | P a g e
1 year period: There is an inverse head and shoulder pattern from January 2011 to
There is another inverse head and shoulder pattern between the time January 2012 to

03. Double Top
There is a double top pattern from January 2011 to June 2011
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There is a double top pattern from January 2011 to December 2011.

There is a double top pattern January 2013 to December 2013.

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There is a double top pattern from January 2011 to December 2013

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04. Double Bottom
There is a double bottom pattern from January 2011 to June 2011

There is Double Bottom pattern from June 2013 to December 2013

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1 Year period
There is a double bottom pattern from January 2011 to December 2011

There is a double bottom pattern from January 2013 to December 2013

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05. Triple Top
06 month period
There is a triple top pattern from January 2011 to June 2011

There is a triple top pattern from January to June 2012

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There is a triple top pattern from January 2011 to December 2011


36 | P a g e


37 | P a g e
06. Triple Bottom
06 month period: There is a triple bottom pattern from January 2011 to June 2011

There is a triple bottom from January 2012 to June 2012

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There is a triple bottom from January 2011 to December 2011

There is a triple bottom from January 2012 to December 2012

There is a triple Bottom pattern from January 2011 to December 2013
39 | P a g e

06. Triangle
06 month period: There is a triangular pattern from January 2011 to June 2011

There is a triangular pattern from January 2012 to December 2012
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41 | P a g e


07. Rectangle pattern
There is a rectangle pattern from January 20012 to June 20012
42 | P a g e

08. Dow Theory:
Dow According to Dow Theory, there are three types of pattern. They are
a) Major pattern: That lasts for more than 01 year.
b) Intermediate pattern: It last for between 3 weeks to 09 months and the
c) Minor pattern: Minor trend lasts for time period 2 weeks or less
In our price analysis of square pharmaceuticals limited the following trends conform to the Dow
Theory:
There is a major trend from the time January 2012 to December 2013. It is a bullish trend and
suggest for sale of the stock because after that the price will continue to fall.
43 | P a g e

There is an intermediate pattern from January 2011 to june 2011

44 | P a g e
Minor trend:
9. The
Elliot wave theory:
06 Months period

45 | P a g e
01 Year pattern:

46 | P a g e
Signal analysis
MA
15 days (less smooth line) MA is shown by the blue line whereas 25 days (more smooth) MA is
shown by the gold line. When 15 days MA crosses the 25 days MA from below, it gives a buy
signal which is represented by the green circles. When 15 days MA crosses the 25 days MA
from above, it gives a sell signal which is represented by the red circles.

Change in lag time has implications in the signal line. The more time is added, the more
smother the MA line is because past prices have least significance on the current price
movement.
MACD
The red colored MACD line is less smooth than the blue colored signal line. The histograms plot
the difference between fast and slow moving average line. When MACD line crosses the signal
line from below, it gives a buy signal which is represented by green circles. On the contrary,
when MACD line crosses the signal line from upward, it gives a sell signal which is represented
by red circles.

47 | P a g e

Stochastic oscillator
Stochastic %K is the less smooth line and stochastic %D is the more smooth line. When K% line
crosses the D% line from the top, the price declined. These are the sell signals. On the other
hand, when the K% line crosses the D% line from below the bullish signal occurs. This happens
in the later graph also.

48 | P a g e
RSI
Typically RSI is scaled from 0-100. When RSI>70 it gives a sell signal. The red circles at the
following graph show the selling points. When RSI<30, it gives a buy signal. The green lines
below show the buying points.
MFI
Construction and interpretation of the MFI is similar to RSI. When MFI>80, it gives a sell signal.
When MFI <20, it gives a buy signal. At the above graph the red circles shows the selling points
and the green circles shows the buying points.

49 | P a g e
Together RSI and MFI is strong indicator. The red circle gives the sell signal whereas the green
circles give buy signals for both RSI and MFI.

Bollinger Band
Bollinger Band is used to measure market volatility. Price tends to return in the middle of the
bands. So, when it touches the upper band, prices will fall. The red points show the selling
50 | P a g e
points. The other hand, when the price touches the lower band, prices will rise. The green
points the buying points on the graph.
Change in standard deviation in Bollinger Band represents the volatility of the stock. The higher
the standard deviation, the higher the price volatility and vice-versa. Because we have higher
probability of unusual profit, the stock is more attractive.

51 | P a g e
Appendix

Calculation of free cash flow:

INCOME STATEMENT 2010 2011 2012 2013
GROSS TURNOVER 13,279,141,757 15,576,487,536 18,592,856,236 20742746372
Less: Value Added Tax 1,816,563,347 2,105,063,067 2,538,430,993 2,783,256,876
NET TURNOVER 11,462,578,410 13,471,424,469 16,054,425,243 17,959,489,496
Less: COST OF GOODS SOLD 6,561,288,485 7,703,661,010 9,167,253,620 10,223,478,073
GROSS PROFIT 4,901,289,925 5,767,763,459 6,887,171,623 7,736,011,423
Less: Operating Expenses: 211,670,939 2,747,308,991 3,132,443,874 3,883,200,849
Selling and Distribution Expenses 1,687,210,447 2,121,163,004 2,430,466,795 2,820,582,797
Administrative Expenses 524,460,492 626,145,987 701,977,079 737,337,036
Less: Financial Expenses 308,861,107 268,849,071 433,581,036 325,281,016
PROFIT FROM OPERATIONS 2,380,757,879 2,751,605,397 3,754,727,749 3,852,810,574
Plus:Other Income 585,564,825 833,884,528 856,739,329 852,289,241
NET PROFIT BEFORE WPPF
Less: Allocation for WPPF 141,253,462 170,737,615 198,946,954 224,052,372
NET PROFIT BEFORE TAX 2,825,069,243 3,414,752,310 3,978,939,088 4,481,047,443
Less: Provision for Income Tax 688,499,602 805,575,198 958,906,349 1067770353
Less: Provision for Deferred Income Tax 48,697,850 77,122,562 122,322,098 71,852,307
NET PROFIT AFTER TAX 2,087,871,791 2,532,054,550 2,897,710,641 3341424783
(Transferred to the Statement of Changes in Equity)
Other Comprehensive Income:
Gain on Marketable Securities (Unrealized 71,664,526 92,483,089 139,986,324 101,475,954
Total Comprehensive Income for the Year 2,159,536,317 2,624,537,639 3,037,696,965 3,239,948,829
Earnings Per Share (EPS) 106.43 129.07 7.82 9.01
Number of Shares used to compute EPS 19,617,390 19,617,390 370,768,66 370,768,664
Dividend paid 980869500 980869500 1275130300 1721425940
52 | P a g e

BALANCE SHEET 2010 2011 2012 2013
ASSETS:
Non-Current Assets 10,643,410,336 12,422,195,814 14,708,277,754 17,450,947,962
Property, Plant and Equipment-Carrying Value 5,630,791,822 6,981,559,781 8,767,827,062 9,322,186,497
Capital Work-in-Progress 634,347,093 887,584,197 1,274,390,572 3,718,326,254
Investment - Long Term (at Cost) 3,990,050,169 4,031,751,281 3,971,022,723 3,821,121,331
Investment in Marketable Securities (Fair Value) 388,221,252 521,300,555 695,037,397 589,313,880

Current Assets: 4,553,041,968 7,022,213,840 6,745,507,008 5,996,697,544
Inventories 2,207,078,082 2,541,688,329 2,687,818,472 2,503,683,240
Trade Debtors 508,249,174 772,421,345 808,311,714 800,974,912
Advances,Deposits and Prepayments 358,250,076 523,991,079 577,156,445 650,380,369
Short Term Loan 1,220,736,941 2,813,811,332 2,085,300,110 1,109,251,152
Cash and Cash Equivalents 258,727,695 370,301,755 586,920,267 932,407,871

TOTAL ASSETS 15,196,452,304 19,444,409,654 21,453,784,762 23,447,645,506
SHAREHOLDERS' EQUITY AND LIABILITIES:
Shareholders' Equity: 11,721,331,851 13,817,708,990 16,266,884,255 18,844,746,184
Share Capital 1,509,030,000 1,961,739,000 2,648,347,600 3,707,686,640
Share Premium 2,035,465,000 2,035,465,000 2,035,465,000 2,035,465,000
General Reserve 105,878,200 105,878,200 105,878,200 105,878,200
Tax Holiday Reserve 1,1O1,935,237 1,101,935,237 0
Gain on Marketable Securities (Unrealized) 259,435,115 166,952,026 399,421,439 297,945,485
Retained Earnings 6,802,071,388 8,353,256,438 11,077,772,016 12,697,770,859
Non-Current Liabilities: 1,258,376,052 958,511,238 933,965,662 810,461,067
Long Term Loans - Secured 1,032,633,110 655,645,734 508,778,060 313,421,158
Deferred Tax Liability 225,742,942 302,865,504 425,187,602 497,039,909
Current Liabilities: 2,216,744,401 4,668,189,426 4,252,934,845 3,792,438,255
Short Term Bank Loans 736,443,848 2,627,483,864 2,016,551,125 1,112,694,131
Long Term Loans - Current Portion 462,090,211 478,199,933 477,141,480 511,504,034
Trade Creditors 394,715,915 733,369,218 875,431,555 1,086,097,881
Liabilities for Expenses 56,463,570 79,499,584 95,361,435 109,604,834
Liabilities for Other Finance 567,030,857 749,636,827 788,449,250 972,537,375
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 15,029,500,278 19,444,409,654 21,453,784,762 23,447,645,506
53 | P a g e
Pro forma Income Statement:

Particulars 2013 2014 2015 2016 2017
INCOME STATEMENT
GROSS TURNOVER 20742746372 24077369808 27929748978 32398508814 37582270224
Less: Value Added Tax 2,783,256,876.00 3,370,831,773.17 3,910,164,856.88 4,535,791,233.98 5,261,517,831.41
NET TURNOVER 17,959,489,496.00 20,706,538,035.18 24,019,584,120.81 27,862,717,580.14 32,320,752,392.96
Less: COST OF GOODS SOLD 10,223,478,073.00 11,797,911,206.09 13,685,576,999.07 15,875,269,318.92 18,415,312,409.94
GROSS PROFIT 7,736,011,423.00 8,908,626,829.09 10,334,007,121.74 11,987,448,261.22 13,905,439,983.02
Less: Operating Expenses: 3,883,200,849.00 4,605,509,751.54 5,342,391,311.78 6,197,173,921.67 7,188,721,749.14
Selling and Distribution Expenses 2,820,582,797.00 3,130,058,075.09 3,630,867,367.10 4,211,806,145.84 4,885,695,129.17
Administrative Expenses 737,337,036.00 963,094,792.33 1,117,189,959.11 1,295,940,352.56 1,503,290,808.97
Less: Financial Expenses 325,281,016.00 512,356,884.12 594,333,985.58 689,427,423.27 799,735,810.99
PROFIT FROM OPERATIONS 3,852,810,574.00 4,303,117,077.55 4,991,615,809.96 5,790,274,339.55 6,716,718,233.88
Plus:Other Income 852,289,241.00 1,193,204,937.40 1,670,486,912.36 2,338,681,677.30 3,274,154,348.23
NET PROFIT BEFORE WPPF 4,379,818,799.00 5,496,322,014.95 6,662,102,722.32 8,128,956,016.86 9,990,872,582.11
Less: Allocation for WPPF 224,052,372.00 240,773,698.08 279,297,489.78 323,985,088.14 375,822,702.24
NET PROFIT BEFORE TAX 4,481,047,443.00 5,255,548,316.87 6,382,805,232.54 7,804,970,928.72 9,615,049,879.86
Less: Provision for Income Tax 1,067,770,353.00 1,261,331,596.05 1,531,873,255.81 1,873,193,022.89 2,307,611,971.17
Less: Provision for Deferred Income Tax 71,852,307.00 105,110,966.34 127,656,104.65 156,099,418.57 192,300,997.60
NET PROFIT AFTER TAX 3,341,424,783.00 3,889,105,754.48 4,723,275,872.08 5,775,678,487.25 7,115,136,911.10
(Transferred to the Statement of Changes in Equity)
Other Comprehensive Income:
Gain on Marketable Securities (Unrealized) 101,475,954.00
Total Comprehensive Income for the Year 3,239,948,829.00
Earnings Per Share (EPS) 9.01 10.49 12.74 15.58 19.19
54 | P a g e

Pro forma BALANCE SHEET 2013 2014 2015 2016 2017
ASSETS:
Non-Current Assets 17,450,947,962 20,885,558,234 25,360,040,036 31,228,045,161 38,975,131,501
Property, Plant and Equipment-Carrying Value 9,322,186,497 11059130818 13119709039 15564221827 18464205293
Capital Work-in-Progress 3,718,326,254 5270738398 7471287178 10590571543 15012166302
Investment - Long Term (at Cost) 3,821,121,331 3767166954 3713974415 3661532957 3609831974
Investment in Marketable Securities (Fair Value) 589,313,880 788522063.4 1055069405 1411718835 1888927932
Current Assets: 5,996,697,544 7,980,551,020.61
Inventories 2,503,683,240 3,579,369,343.49 4,152,068,438.45 4,816,399,388.60 5,587,023,290.78
Trade Debtors 800,974,912 1,023,000,455.78 1,186,680,528.71 1,376,549,413.30 1,596,797,319.43
Advances,Deposits and Prepayments 650,380,369 740,467,675.87 858,942,504.01 996,373,304.65 1,155,793,033.40
Short Term Loan 1,109,251,152 2637713545 3059747713 3549307347 4117196522
Cash and Cash Equivalents 932,407,871 1736944321 2060578221 2444512788 2899983466

TOTAL ASSETS 23,447,645,506 28,552,189,650 34,225,788,220 41,170,491,640 49,728,519,559
SHAREHOLDERS' EQUITY AND LIABILITIES:
Shareholders' Equity: 18,844,746,184
Share Capital 3,707,686,640 3,707,686,640 3,707,686,640 3,707,686,640 3,707,686,640
Share Premium 2,035,465,000 2,035,465,000 2,035,465,000 2,035,465,000 2,035,465,000
General Reserve 105,878,200 105,878,200 105,878,200 105,878,200 105,878,200
Gain on Marketable Securities (Unrealized) 297,945,485 280,938,516 280,938,516 280,938,516 280,938,516
Retained Earnings 12,697,770,859 16,586,876,613 21,310,152,486 27,085,830,973 34,200,967,884
Total Equity 18,844,746,184 22,716,844,970 27,440,120,842 33,215,799,329 40,330,936,240
Non-Current Liabilities: 810,461,067 917,382,730 1,093,368,362 1,364,162,299 1,765,105,352
Long Term Loans - Secured 313,421,158 235,065,869 156,710,579 78,355,290 0
Deferred Tax Liability 497,039,909 682316861.5 936657783.4 1285807010 1765105352
Current Liabilities: 3,792,438,255 4,917,961,950 5,692,299,016 6,590,530,012 7,632,477,968
Short Term Bank Loans 1,112,694,131 2,324,924,882.11 2,696,912,863.25 3,128,418,921.37 3,628,965,948.79
Long Term Loans - Current Portion 511,504,034 78,355,290 78,355,290 78,355,290 78,355,290
Trade Creditors 1,086,097,881 1,311,490,199.96 1,521,328,631.95 1,764,741,213.06 2,047,099,807.15
Liabilities for Expenses 109,604,834 118,995,212.72 138,034,446.75 160,119,958.24 185,739,151.55
Liabilities for Other Finance 972,537,375 1,084,196,365.85 1,257,667,784.39 1,458,894,629.89 1,692,317,770.67
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES23,447,645,506 28,552,189,650 34,225,788,220 41,170,491,640 49,728,519,559
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CV 0.004516821
VAR 0.009959425
BETA 0.453522308
Market monthly return 1.72%
Yearly rate 21.60%
56 | P a g e

Date
Stock Monthly
Price (Close)
DGEN (Close) Square Returns DGEN Returns
30/12/2012 127.19 4,219.31 0.12% 0.21%
29/11/2012 127.04 4,210.58 -6.08% -6.30%
31/10/2012 135.27 4,493.92 0.63% -1.11%
30/09/2012 134.42 4,544.41 -4.17% 2.19%
30/08/2012 140.27 4,446.87 3.38% 6.92%
30/07/2012 135.68 4,159.17 -3.33% -9.05%
28/06/2012 140.35 4,572.88 0.91% -3.41%
31/05/2012 139.09 4,734.33 -4.17% -7.15%
30/04/2012 145.14 5,098.90 15.23% 2.18%
29/03/2012 125.96 4,990.32 9.56% 6.28%
29/02/2012 114.97 4,695.41 11.63% 13.03%
31/01/2012 102.99 4,153.96 -18.16% -20.99%
29/12/2011 125.85 5,257.61 -3.38% -0.21%
30/11/2011 130.25 5,268.55 3.05% 4.61%
31/10/2011 126.4 5,036.50 -9.93% -14.78%
29/09/2011 140.33 5,910.20 -2.51% -4.86%
25/08/2011 143.95 6,212.00 3.14% -3.83%
31/07/2011 139.57 6,459.62 -0.01% 5.60%
30/06/2011 139.58 6,117.23 6.21% 6.23%
31/05/2011 131.42 5,758.26 1.76% -4.84%
28/04/2011 129.15 6,050.85 0.44% -4.74%
31/03/2011 128.59 6,352.10 14.42% 22.08%
28/02/2011 112.38 5,203.08 -3.45% -30.48%
27/02/2011 116.39 7,484.23 -14.89% 8.82%
31/01/2011 136.76 6,877.66 -1.44% -3.61%
30/12/2010 138.76 7,135.16 -6.85% 7.91%
30/11/2010 148.96 6,612.14 0.94% 11.49%
31/10/2010 147.58 5,930.90 7.52% 6.76%
30/09/2010 137.26 5,555.49 14.11% 5.24%
31/08/2010 120.29 5,278.89 5.57% 3.27%
29/07/2010 113.94 5,111.63 -3.64% 1.62%
30/06/2010 118.25 5,030.05 1.83% 8.37%
31/05/2010 116.12 4,641.54 8.07% 1.48%
29/04/2010 107.45 4,573.81 0.07% 0.53%
31/03/2010 107.37 4,549.60 -1.68% 2.87%
28/02/2010 109.21 4,422.81 1.36% -2.49%
31/01/2010 107.74 4,535.53 5.30% 3.53%
30/12/2009 102.32 4,380.95 21.35% 30.22%
30/11/2009 84.32 3364.26 -2.99% 9.09%
31/10/2009 86.92 3083.89 -2.15% 4.85%
30/09/2009 88.83 2941.28 2.76% 0.92%
31/08/2009 86.44 2914.53 -3.34% -3.18%
31/07/2009 89.43 3010.26 8.97% 17.03%
30/06/2009 82.07 2572.18 1.18% 0.70%
31/05/2009 81.11 2554.36 1.30% 4.39%
30/04/2009 80.07 2446.92
57 | P a g e
WACC:

Change in NWC:
Risk-free rate 8.00%
Market return 21.60%
Beta 0.46 Tax Rate 24%
Cost of equity 17.94%
Cost of debt 20%
After tax cost of debt 15.46%
Total market value of equity 47,158,066,374
Book value of debt 1,937,619,323
Total 49,095,685,697
Weight of equity 0.960533817
Weight of debt 0.04108776
WACC 17.86%
58 | P a g e

Intrinsic value calculation:
Particulars 2013 2014 2015 2016 2017
Inventories 2,503,683,240 3,579,369,343.49 4,152,068,438.45 4,816,399,388.60 5,587,023,290.78
Trade Debtors 800,974,912 1,023,000,455.78 1,186,680,528.71 1,376,549,413.30 1,596,797,319.43
Advances,Deposits and Prepayments 650,380,369 740,467,675.87 858,942,504.01 996,373,304.65 1,155,793,033.40
Non-cash current asset 3,955,038,521 5,342,837,475 6,197,691,471 7,189,322,107 8,339,613,644
Trade Creditors 1,086,097,881 1,311,490,199.96 1,521,328,631.95 1,764,741,213.06 2,047,099,807.15
Liabilities for Expenses 109,604,834 118,995,212.72 138,034,446.75 160,119,958.24 185,739,151.55
Liabilities for Other Finance 972,537,375 1,084,196,365.85 1,257,667,784.39 1,458,894,629.89 1,692,317,770.67
Non- STD Current liabilities 2,168,240,090 2,514,681,779 2,917,030,863 3,383,755,801 3,925,156,729
Working capital 1,786,798,431 2,828,155,697 3,280,660,608 3,805,566,305 4,414,456,914
Change in WC 1,041,357,266 452,504,911 524,905,697 608,890,609
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Terminal growth rate 3%
Tax rate 24%
WACC 17.86%
Particulars 2014 2015 2016 2017
EBIT 5,255,548,316.87 6,382,805,232.54 7,804,970,928.72 9,615,049,879.86
EBIT (1-tax rate) 3,994,216,720.82 4,850,931,976.73 5,931,777,905.82 7,307,437,908.70
Depreciation 1,658,869,622.68 1,967,956,355.83 2,334,633,274.05 2,769,630,794.02
Capital expenditure 1,736,944,320.87 2,060,578,221.00 2,444,512,788.13 2,899,983,466.47
Change in NWC 1,041,357,265.62 452,504,911.46 524,905,697.29 608,890,608.86
Free cashflow 2,874,784,757.02 4,305,805,200.10 5,296,992,694.45 6,568,194,627.39 6,765,240,466.21
Present value discount factor 0.848441123 0.719852339 0.610180865 0.517541022
Present value of free cashflow 2439085607.51 3099543945.14 3232123584.20 3399310160.15
Terminal value 39008638624.81
Enterprise value $51,178,701,922
Cash $932,407,871
Interest-bearing debt $313,421,158
Equity value $51,797,688,635
Number of Shares 370,768,664
Value per share 139.70
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1. Variable Growth Model
Dividend per share 4.643
Year Assumed growth dividend K value
2014 1.16 5.38588 1.18 4.569602
2015 1.16 6.247621 1.18 4.497364
2016 1.16 7.24724 1.18 4.426269
2017 1.12 8.116909 1.18 4.20608
2018 1.12 9.090938 1.18 3.996844
2019 1.12 10.18185 1.18 3.798018
2020 1.08 10.9964 1.18 3.480186
2021 1.08 11.87611 1.18 3.188951
2022 1.08 12.8262 1.18 2.922089
2023 1.03 13.21099 1.18 88.07324
Share Value 123.1586
2. Constant growth model
1.15 1.18
Share Value 133.4863
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price earning ratio 2013
cost of capital 0.18
dividen per share 4.64
earning per share 9.01
dividen payout ratio 0.514983352
earnings growth rate= 0.15
expected eps @2014 9.16
cost of capital-growth rate 0.03
p/e ratio= 17.16611173
price 157.2415834
price to book value ratio
2013
BV 18844746184
no of share outstanding 370,768,664
growth rate 0.33
Per share BV 50.82615661
Expected BV 51.15615661
Price 134.24
P/BV 2.641159768
Value 135.1115827
price to sales ratio
Sales 20,742,746,372
no of outstanding share 370768664
sales growth rate 0.16
sales per share 55.94525208
expected sales 56.10525208
market price 134.24
p/s 2.399488697
value 134.6239182
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price to cashflow ratio
free cash flow
free cashflow 3584029417
no of outstanding share 370,768,664
growth rate 0.03
cashflow per share 9.666484158
ecpected cashflow per share 9.696484158
price 134.24
p/cf 13.88715874
value 134.6566148
EVA 2013 2014
capital employeed(total asset-current liability) 19,655,207,251 22859890634
total asset 23,447,645,506 28552189650
current liability 3,792,438,255 5692299016
ebit 4481047443 5255548316
ebit (1-tax) 3405596057 3994216720
ROE 0.173266861 0.174725977
cost of capital 0.1786
eva=(roe-wacc)capital invested -104823958.3 -74843812.69

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