Dabur Inida
Dabur Inida
Dabur Inida
Academic Task No.: 3 Academic Task Title: Valuation of Dabur India Limited Using DCF Model
Date of Allotment: 10th March 2020 Date of submission: 25th April 2020
Student’s Roll no: , A19, and A18 Student’s Reg. no: 11911770, 11908317,
11908759, and 11908498
Evaluation Parameters: (Parameters on which student is to be evaluated - To be mentioned by students
as specified at the time of assigning the task by the instructor)
Learning Outcomes: (Student to write briefly about learning obtained from the academic tasks)
Declaration:
We declare that this Assignment is our individual work. We have not copied it from any other student’s
work or from any other source except where due acknowledgement is made explicitly in the text, nor has
any part been written for me by any other person.
Student’s Signature:
INTRODUCTION
Dabur India Ltd. is one of India's leading FMCG firms with sales over Rs 8,500 Crore & Rs
72,500 Crore market capitalization. Building on a legacy of over 135 years of quality and
experience, Dabur is the most respected brand in India today, and the world's largest Ayurvedic
and Natural Health Care Business.
Dabur India is also a global pioneer with a range of over 250 Herbal / Ayurvedic products in
Ayurveda. Now, its (FMCG ) portfolio comprises five flagship brands with distinct brand
identities — Dabur as the master brand for natural health goods, Vatika for premium personal
care, Hajmola for digestives, Réal for fruit juices and beverages and Fem for decent bleaches and
skin care products.
Today Dabur operates in main categories of consumer goods, such as hair care, oral care, health
care, skin care, home care and food. The ayurvedic company has a wide availability network
which covers 6.7 million retail stores with a high penetration in both urban and rural markets.
Dabur India is also a global pioneer with a range of over 250 Herbal / Ayurvedic products in
Ayurveda. Now, its (FMCG ) portfolio comprises five flagship brands with distinct brand
identities — Dabur as the master brand for natural health goods, Vatika for premium personal
care, Hajmola for digestives, Réal for fruit juices and beverages and Fem for decent bleaches and
skin care products.
Today Dabur operates in main categories of consumer goods, such as hair care, oral care, health
care, skin care, home care and food. The ayurvedic company has a wide availability network
which covers 6.7 million retail stores with a high penetration in both urban and rural markets.
The 135-year-old ayurvedic business, supported by the Burman family, began functioning as an
Ayurvedic medicines company in 1884. Dabur India Ltd. has come a long way from its modest
roots in the Calcutta bylanes to become one of the largest Indian-owned consumer goods firms
with the largest range of herbal and natural products in the world today. Ultimately, Dabur has
succeeded in turning itself from being a family run company into a professionally operated
company. What separates Dabur from the crowd is its desire to evolve before others and still set
new standards in corporate governance & innovation.
Vision
Dedicated to the health & well-being of every household
Principles
STRENGTH:
Effectively use its resources to produce income, ROCE improving over the past two
years
Growth in Quarterly Net Profit with growing Profit Margin (YoY)
Business with Low Debt Annual Net Profits improving over the past two years
Business with Zero Promoter Commitment
Near 52 Week High
Strong Momentum: Market above short, medium and long-term moving averages
WEAKNESSES:
OPPURTUNITIES:
In the past three months, brokers upgraded their recommendation or target price.
RSI (Relative Strength Index) showing market intensity.
Increasing Purchasing power of people thereby increasing demand.
Mergers and acquisitions to strengthen the brand.
THREATS:
Discounted cash flow valuation, the aim of a discounted cash flow is to estimate the sum of the
business' future cash flow and to discount it back to the present value. We begin with the
expectation that every year we want to earn 10 per cent on our investment. So the question we'll
answer is "What price will I pay for Dabur India Ltd. if I want to earn an annual return of 10 per
cent" For DCF valuation we use the multi-year mean Free Cash Flow growth rate. The discount
rate and the expected cash flow numbers are then used in the formulation of the net present value
which measures the company's intrinsic value as well as the intrinsic value per share.
Discounted Cash Flow Model: The premise of the DCF model is that the value of a business is
purely a function of its future cash flows. Thus, the first challenge in building a DCF model is to
define and calculate the cash flows that a business generates. There are two common approaches
to calculating the cash flows that a business generates.
Unlevered DCF approach: Forecast and discount the operating cash flows. Then, when you
have a present value, just add any non-operating assets such as cash and subtract any financing
related liabilities such as debt.
Levered DCF approach: Forecast and discount the cash flows that remain available to equity
shareholders after cash flows to all non-equity claims (i.e. debt) have been removed.
Management Analysis
Average management tenure of the company is 5.8yrs. And CEO of the company is
Mohit Malhotra who is 50 years old. Mr. Mohit Malhotra has been Chief Executive Officer of
Dabur India Limited since April 1, 2019 and has been its Whole Time Director since January 31,
2019. Mr. Malhotra served as the Chief Executive Officer of Dabur International Ltd., a
subsidiary of Dabur India Ltd until March 31, 2018. He served as the Head of Marketing at
Dabur India Ltd. He has an experience of 23 years in Dabur group in various capacities. He
serves as a Director of Dermoviva Skin Essentials Inc. and Weikfield International (UAE) LLC.
Mr. Malhotra has done Master of Business Administration from Pune University.
Ownership
The graph which is mentioned below is showing closing prices of Dabur India Limited
(DABUR) for last 10 years. The below chart uses adjusted close instead of market close prices.
Adjusted close factors in corporate or institutional level actions outside the market.
Assume you had invested in DABUR stock on 06-02-2010. Assume you had remained invested
for 10 years through 04-02-2020. Then the average annual return can be calculated using the
formula shown below.
The above calculated return corresponds to the past 10-year history of Dabur India Limited.
Share Price
Let’s see how share price of Dabur India Limited performed over time and what events caused
price changes?
2018 27.03 20.90 19.17 23.41 25.36 1.59 1.02 18.44 0.07 7.70
Table representing Profitability Ratio of Dabur India Limited from 2009 to 2018
60
50
40
30
20
10
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Graph representing Return on Capital Employed (ROCE) and Return on Net worth (RONW)
Interpretation:
Operating Profit Ratio (OPR) and Net Profit Ratio (NPR)
20
15
10
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Graph representing Operating Profit Ratio (OPR) and Net Profit Ratio (NPR)
Interpretation:
Current Ratio (CR) and Quick Ratio (QR)
CR & QR
1.8
1.6
1.4
1.2
0.8
0.6
0.4
0.2
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Interpretation:
Debt Equity Ratio (DER) and Earning per Share (EPS)
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Graph representing Debt Equity Ratio (DER) and Earning per Share (EPS)
Interpretation:
Reserved Surplus and Shareholder funds
2018
Interpretation:
Financial Position Analysis
Cost of Equity: A firm’s external equity consist of funds raised externally through public or
rights issues. The minimum rate of return, which the equity shareholders require on funds
supplied by them by purchasing new shares to prevent a decline in the existing market price of
the equity share is the cost of external equity.
Ke = (Div1)/P0 + g
Where Div1 (expected dividend per share at the end of 1st year), P0 (current market price per
share), g (growth rate)
Cost of Reserves and Surplus: A firm’s internal equity consist of its retained earnings. It is the rate of
return on dividends foregone by equity shareholders. The shareholders generally expect dividend and
capital gain from their investment.
Kr = (Div1)/P0 + g
Where Div1 (expected dividend per share at the end of 1st year), P0 (current market price per
share), g (growth rate)
Cost of Debt: A company may raise debt in a variety of ways. It may borrow funds from
financial institution or public either in form of public deposits or debentures (bonds) for a
specified period of time at a certain rate of interest. A debenture of bond may be issued at par or
at discounted or premium.
Where INT (amount of interest), B0 (Issue price of the Debt), Bn (Redeemed price of the Debt), n
(number of years), T (interest paid)
All the above formula which are mention above we have used it to calculate the cost of capital
for each component.
To calculate weight of the each Component we have use the following formula:
Where [Total funds = sum of Total Equity, Total reserves and surplus, Total Debt]
3 2.71
2.64
2.46 2.45
2.5 2.25 2.34
2.03
2
1.5
0.5
0
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
Financial Year
Suggestion: According to us, company can review the structure of its debt in a bid to maintain
the WACC. One option of capital restructuring involves substituting debt for equity, because it
translates to lower costs after taxation. Preference share can be used to reduce as well as
maintain a company's WACC by substituting more expensive common equity with less
expensive preferred equity as Dabur India Limited has never issued preference share.
2. Forecasting performance:
To forecast the performance of the Dabur Ltd we have taken the next 10 years free or we can
say levered cash flow that remain available to equity shareholders after paying off all other non-
equity claims (i.e. debt) into consideration as to forecast the future cash flows we have taken
already estimated cash flows of the company for 3 years i.e. 2020 , 2021, 2022 and where these
estimates aren’t available we extrapolate the previous free cash flow (FCF) from the last estimate
or reported value by the analysts. We assume companies with shrinking free cash flow will slow
their rate of shrinkage, and that companies with growing free cash flow will see their growth rate
slow, over this period.
Period 1 2 3 4 5 6 7 8 9 10
Actual Estimated
Particular 2019 2020 2021 2022 2023 202 2025 2026 2027 2028 2029
s 4
(FCF) in 12,648. 15,252.00 16,3 18,36 20,0 21, 23,64 25,57 27,60 29,77 32,08
crore 00 21.0 2.00 62.3 815 6.11 3.27 8.90 3.44 0.88
(Rs.) 0 2 .77
Estimated 20.59 7.00 12.50 9.26 8.7 8.39 8.15 7.96 7.84 7.75
growth 4
rate (%)
Cost of 15.20% 15.20% 15.2 15.20 15.2 15. 15.20 15.20 15.20 15.20 15.20
Equity 0% % 0% 20 % % % % %
(CAPM %
Model) or
WACC
Present 13239.5833 1229 12010 1139 107 1011 9497. 8900. 8332. 7793.
Value 3 8.20 .5403 1.24 52. 6.838 7092 8045 1420 3012
722 3 616 466 65 6 48 65
21
Present 104332.839
Value of
10-year
Cash
Flow
(PVCF)
Present Value of 10-year cash flows: At first we have calculated the present value of each year
by taking a discounting rate (r) @15.20% which is the cost of equity as well as WACC of the
firm i.e. cost of the capital by using the following formula:
PV = __FV___
(1+r) n
After getting the present value for each year, we have added all the
present values and that came out to be the present value of future cash flows of next 10 years.
DABUR's forecast earnings growth (12.1% per year) is above the savings rate (6.5%).
Significant rate is rate of return % you would receive on a lower risk government .DABUR's
earnings (12.1% per year) are forecast to grow slower than the Indian market (17.6% per
year).DABUR's earnings are forecast to grow, but not significantly .Significantly is where we
consider anything above 20% annual earnings growth to be significant. DABUR's revenue
(9.7% per year) is forecast to grow faster than the Indian market (8% per year).DABUR's
revenue (9.7% per year) is forecast to grow slower than 20% per year.
To calculate terminal value we have taken discounted rate (r) @15.20% which is cost of equity
and WACC as well of TCS and growth rate (g) is the rate of return prevailing on 10 year
government bond i.e. @ 6.50%.
4. Discounting the cash flows to the present at the weighted average cost of capital:
We have discounted the terminal value of cash flows of next 10 years at a discount rate of
15.20% which is nothing but the cost of equity of the firm in the following manner:
Terminal value= Rs.392860.737
___TV___
(1+r) n
Present Value
of Terminal Value TV / (1 + r)10
(PVTV) in million Rs.)
95436.35329
r = 15.20%
5. Calculating the firm value and interpreting results:
Equity
VALUE (in 488297.0903
million Rs.)
Shares
1,761.52
outstanding in current share price
(million) 495.40
Intrinsic
277.2021268
value
estimate
6. CONCLUSION:
As we have seen from the above analysis that Dabur India Ltd has Current share price
prevailing in the market of Rs. 495.40. Lower intrinsic value than its current market price, it
looks like a red flag that the stock is overvalued whereas the intrinsic value turn out to be Rs.
277.2021 which quite more than the current price which means that the company has been
overvalued while writing as its intrinsic value is less than current price.