Course Code: FIN 544 Course Title: Corporate Valuation

Course Instructor: Dr. Mahesh Sarva

Academic Task No.: 2 Academic Task Title: Assignment

Date of Allotment: 4thMarch, 2020 Date of submission:24th April, 2020

Student’s Roll no: Student’s Reg. no: , 11911770,

Evaluation Parameters:

Learning Outcomes: I have learned the

Declaration:

I declare that this Assignment our group 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 form by any other person.

Student’s Signature:

Evaluator’s comments (For Instructor’s use only)

General Observations Suggestions for Improvement Best part of assignment

Evaluator’s Signature and Date:

Marks Obtained: M ax.Marks: …………………

 DABUR INIDA

CORPORATE PROFILE

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

Ownership

This is our company.

We Accept Personal Responsibility , And Accountability To Meet Business Needs.

SWOT ANALYSIS

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

 Companies with rising costs YoY for long-term ventures.

 Negative Breakdown First aid (LTP < S1) .
 Bearish Engulfing (Bearish Reversal) MFs decreased their shareholding last quarter.
 Decline in Net Income (QoQ) .
 Decline in Net Profit with decreasing Profit Margin (QoQ).
  Declining Operating Cash Flow: Companies unable to produce net cash.
 Big decrease in TTM Net Profit..

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

 Strong Price Earning stocks (PE > 40).

 Intense and increasing competition amongst other FMCG companies.
 Competition from unbranded and local products.

COMPANY OVERVIEW
  VALUATIO

N OF
DABUR
INDIA
USING DCF MODEL:

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.
 This approach involves 6 steps

1) Analyzing Historical Performance

2) Calculating cost of capital
3) Forecasting performance
4) Calculating terminal value
5) Discounting the cash flows to the present at the weighted average cost of
capital
6) Calculating the firm value and interpreting results

 Analyzing Historical Performance:

PROFITABILITY RATIO ANALYSIS
Year GPR OPR NPR ROCE RONW CR QR ROA DER EPS
2009 19.24 16.90 15.48 47.10 50.50 1.21 0.88 23.48 0.19 4.50
2010 19.84 18.90 15.10 54.11 57.81 0.95 0.64 24.50 0.14 5.80
2011 20.61 19.50 14.36 31.76 42.81 1.51 1.01 19.57 0.23 3.30
2012 18.94 16.80 12.32 33.76 35.56 1.48 0.99 18.89 0.21 3.70
2013 19.34 16.00 13.58 35.39 37.16 1.50 1.07 20.89 0.15 4.40
2014 19.20 16.60 13.80 33.85 35.33 1.66 1.16 21.52 0.02 5.20
2015 29.81 16.70 14.04 31.39 32.64 1.25 0.81 20.67 0.06 6.10
2016 22.52 19.30 16.33 31.51 32.71 1.32 0.91 21.08 0.03 7.10
2017 26.19 19.60 18.86 24.90 27.29 1.48 0.98 19.13 0.08 7.20
2018 27.03 20.90 19.17 23.41 25.36 1.59 1.02 18.44 0.07 7.70
 ROCE & RONW
70

60

50

40

30

20

10

0
1 2 3 4 5 6 7 8 9 10

OPR & NPR

25

20

15

10

0
1 2 3 4 5 6 7 8 9 10
 CR & QR
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1 2 3 4 5 6 7 8 9 10

DER & EPS

9
8
7
6
5
4
3
2
1
0
1 2 3 4 5 6 7 8 9 10

RESERVED SURPLUS AND SHAREHOLDERFUNDS

 2018

 Calculating cost of capital ------- PENDING

 ANAlyzing Of Historical performance
  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
Particulars 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
(FCF) in crore
12,648. 15,252.00 16,321 18,362 20,0 21,8 23,64 25,57 27,60 29,77 32,08
(Rs.)
00 .00 .00 62.3 15.7 6.11 3.27 8.90 3.44 0.88
2 7
Estimated growth
20.59 7.00 12.50 9.26 8.74 8.39 8.15 7.96 7.84 7.75
rate(%)
Cost of Equity
15.20% 15.20% 15.20 15.20 15.2 15.2 15.20 15.20 15.20 15.20 15.20
(CAPM Model)
% % 0% 0% % % % % %
or WACC
Present Value
13239.583 12298. 12010. 1139 107 10116 9497. 8900. 8332. 7793.
33 20722 54033 1.24 52.4 .8386 7092 80456 14204 30126
616 662 5 8 5
1
Present Value of
104332.83
10-year Cash
9
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.
 Calculating terminal value: 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%.
Terminal Value (growth in perpetuity approach)
(FCF2029 × (1 + g) ÷ (r – g)
we have taken 10-year government bond rate(g) 6.50% 392860.737

 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 milion Rs.)

r = 15.20% 95436.35329

 Calculating the firm value and interpreting results:

Equity
VALUE (in 488297.0903
million Rs.)
 Shares
outstanding in 1,761.52 current share price
(million)
Intrinsic value
495.40
estimate 277.2021268

 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
overrvalued while writing as its intrinsic value is less than current price.