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Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
Hid security analysisproject_201209_final
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Hid security analysisproject_201209_final

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  • 1. SECURITY ANALYSIS & VALUATION 1 EMP APRIL 2008 AN EFFORT BY TEAM OF : ACHAL GARG - 02 ANAND K SINGH- 09 MUKUND TRIVEDY -26 NAZISH-28 OM PRAKASH-29 ROHIT JHA-40 SUNNYBHAT-54 CASE STUDY OF VALUAUATIONS USING MARKET COMPARABLESCASE STUDY OF VALUAUATIONS USING MARKET COMPARABLES
  • 2. SECURITY ANALYSIS & VALUATION 2 EMP APRIL 2008 ENTERPRISE VALUATION EXERCISEENTERPRISE VALUATION EXERCISE Problem Statement : The Government of India has decided for various reasons to do strategic sale of Corporation Bank. It has invited interested Private Sector Banks to submit proposal for the same. Also assume that one of the largest European Bank BNP Paribas is interested to participate in the process and evaluate the true enterprise value of the Corporation Bank to do the acquisition. BNP Paribas invites a set of Investment bankers to do the due diligence and find out the true worth of the Corporation Bank and whether it should go for the deal. The team of analyst (this group) intends to prepare a preliminary analysis of acquisition price multiples that are warranted based on current market conditions. The Data belongs to the March 2009 period Annual report as declared by these banks.
  • 3. SECURITY ANALYSIS & VALUATION 3 EMP APRIL 2008 SCOPE OF ANALYSISSCOPE OF ANALYSIS • Identifying comparable firms for doing correct estimation • Would estimate the true enterprise value or equity value of Corporation Bank using market comparable • Estimation of valuation ratios for the Banking Firms Under Consideration • Sensitivity analysis using Goal Seek function • Conclusions and Recommendations
  • 4. SECURITY ANALYSIS & VALUATION 4 EMP APRIL 2008 INTRODUCTIONINTRODUCTION • Industry under consideration: Banking and Investment Industry • Bank chosen for valuation is Corporation Bank • Based on the following factors we Identified three Banks that are considered the primary competitors to Corporation Bank. – Government Banks – Market Capitalization – Capital Structure • Comparable companies are Oriental Bank of Commerce, Allahbad Bank and Syndicate Bank (shown in the next slide)
  • 5. SECURITY ANALYSIS & VALUATION 5 EMP APRIL 2008 CORPORATION BANKCORPORATION BANK • The Bank was founded in 1906 in Udupi, Karnataka state, India • The Bank is a Public Sector Unit with 57.17% of Share Capital held by the Government of India • The Bank came out with its Initial Public Offer (IPO) in October 1997 • The bank has the distinction of the first Indian bank to publish its financial results (1998-99) conforming to US GAAP. • The Number of Equity share holders are 14.34 Crores • The Bank’s market capitalization stood at Rs. 2579 Crores as on 31 March 2009
  • 6. SECURITY ANALYSIS & VALUATION 6 EMP APRIL 2008 ANALYSIS - COMPARABLE PSU BANKSANALYSIS - COMPARABLE PSU BANKS
  • 7. SECURITY ANALYSIS & VALUATION 7 EMP APRIL 2008 VALUATION BY EBITDA MULTIPLE METHODVALUATION BY EBITDA MULTIPLE METHOD P articulars S Y NBAN OR IBAN ALLBAN Non Interest Bearing Debt 1 0.00 0.00 0.00 Interest bearing Debt (long and short term) 2 118075.62 99090.81 85908.83 MV= Price per share * Shares Outstanding 3 2505.60 2753.00 1735.43 Firm Value 4 = 1+2+3 120581.22 101843.81 87644.26 Less: Non Interest bearing debt 5 0.00 0.00 0.00 Less: Cash and Equivalents 6 14404.41 12225.13 6636.76 Enterprise value (Calculate) 106176.81 89618.68 81007.50 EBITDA 1392.37 1441.58 1343.03 EBITDA Multiple 76.26 62.17 60.32 All Fig in INR Crores 66.25 1491.48 98805.64 68095.67 For Corporation Bank E B ITDA MUL TIPL E ME THOD Average EBITDA Multiple EBITDA for Y 2009 in Rs Crores Enterprise Value In Rs Crores Enterprise Value In Rs Crores from Balance Sheet
  • 8. SECURITY ANALYSIS & VALUATION 8 EMP APRIL 2008 VALUATION BY PE MULTIPLE METHODVALUATION BY PE MULTIPLE METHOD P articulars S Y NBAN OR IBAN ALLBAN Market Price in Rs 48.00 109.90 38.85 EPS in Rs 17.49 36.14 17.21 P/E ratio 2.74 3.04 2.26 Av. PE Multiple 2.68 2.68 62.24 2392.79 67909.41 68095.67Enterprise Value In Rs Crores from Balance Sheet Value of Equity For Corporation Bank Average PE Multiple EPS in Y 2009 Enterprise Value PE MUL TIPL E ME THOD
  • 9. SECURITY ANALYSIS & VALUATION 9 EMP APRIL 2008 VALUATION BY DISCOUNTED DIVIDEND METHODVALUATION BY DISCOUNTED DIVIDEND METHOD Year Expected Growth rateEPS DPO DPS Ke Cum Ke PV of DPS 1 13% 70.33 20.08% 14.13 17.52% 1.18 12.02 2 13% 79.47 20.08% 15.96 17.52% 1.38 11.56 3 13% 89.81 20.08% 18.04 17.52% 1.62 11.11 4 13% 101.48 20.08% 20.38 17.52% 1.91 10.68 5 13% 114.67 20.08% 23.03 17.52% 2.24 10.27 6 13% 129.58 20.08% 26.02 17.52% 2.63 9.88 7 13% 146.43 20.08% 29.41 17.52% 3.10 9.50 PV of Dividend in Yr 1 to 7 75.02 519.53 167.78 Current Fair value of Corporation Bank Stock Price 242.80 3481.70 68998.32 Terminal value at end of 7 years PV of Terminal Value Equity Value in Crores Enterprise value in Rs Crores 16.38% 12.50 62.24 20.08% 0.799 13% DDM for Equity Valuation ROE DPS EPS Payout ratio Retention ratio Expected Growth Rate 8% 1.16 16.21% 8.21% 17.52% 13% Assumptions for yr 1-7 Risk Free rate ( Yield of GOI 10 yr Bond) Beta for Corporation Bank 8 years return on Nifty Market Risk premium Ke Estimated Expected growth rate for Yr 1 to 7 12% 6% 6% K e R f Assumptions for Y r 8 till infinity G rowth rate
  • 10. SECURITY ANALYSIS & VALUATION 10 EMP APRIL 2008 SENSITIVITY ANALYSISSENSITIVITY ANALYSIS EBITDA Multiple 0 20000 40000 60000 80000 100000 120000 140000 13% 10% 7% 4% 1% -2% -5% -8% Growth rates EV/EBITDAinRsCr 0 200 400 600 800 1000 1200 1400 1600 1800 EV EBITDA P/E Multiple Method 0 500 1000 1500 2000 2500 3000 13% 11% 9% 7% 5% 3% 1% -1% -3% -5% -7% -9% Growth rate EPS/EquityValue 0 10 20 30 40 50 60 70 80 Equity Value EPS
  • 11. SECURITY ANALYSIS & VALUATION 11 EMP APRIL 2008 SENSITIVITY ANALYSISSENSITIVITY ANALYSIS Sensitivity with changes in Growth rates and DPO Sensitivity with changes in Growth rates and Cost of Equity Using DDM Multiple DPO @20.08% DPO @25% DPO @15% DPO @10% Growth Rates Scenario #1 Scenario #2 Scenario #3 Scenario #4 13% 68998.32 69850.63 68117.03 67250.23 10% 68480.98 69206.66 67730.64 66992.63 5% 67775.57 68328.56 67203.79 66641.40 0% 67231.86 67651.75 66797.70 66370.67 -5% 66816.33 67134.50 66487.35 66163.77 -10% 66501.36 66742.33 66252.10 66006.94 Using DDM Multiple Ke @17.52% Ke @15% Ke @12% Ke @10% Growth Rates Scenario #1 Scenario #2 Scenario #3 Scenario #4 13% 68998.32 69487.13 70186.22 70738.14 10% 68480.98 68890.48 69475.67 69937.34 5% 67775.57 68077.83 68509.09 68848.85 0% 67231.86 67452.53 67766.75 68013.89 -5% 66816.33 66975.64 67201.94 67379.54 -10% 66501.36 66615.11 66776.19 66902.27
  • 12. SECURITY ANALYSIS & VALUATION 12 EMP APRIL 2008 CONCLUSIONCONCLUSION • EV per share of Corporation Bank is very near to the current market value
  • 13. SECURITY ANALYSIS & VALUATION 13 EMP APRIL 2008 THANK YOUTHANK YOU
  • 14. SECURITY ANALYSIS & VALUATION 14 EMP APRIL 2008 ANALYSIS - COMPARABLE PSU BANKSANALYSIS - COMPARABLE PSU BANKS 31/3/09 31/3/09 31/3/09 31/3/09 31/3/09 31/3/09 BANK Mkt Price No of shares Mar Cap DE Ratio EPS OPM in Rs In Crores in Rs 10^2 Cr in Rs in % Bank Of Baroda 234.55 36.43 85.45 14.99 61.14 18.20 OBC 109.90 25.05 27.53 15.25 36.14 13.31 Corporation Bank 179.85 14.34 25.79 15.11 62.24 18.07 Canara Bank 165.90 41.00 68.02 18.57 38.17 8.79 Allahabad Bank 38.85 44.67 17.35 14.52 17.21 15.37 UCO Bank 24.00 54.94 13.19 36.11 10.15 7.52 Union Bank of India 147.25 50.51 74.38 19.66 34.18 17.06 Central Bank of India 33.95 40.41 13.72 37.92 12.45 8.48 Bank of India 219.90 52.52 115.49 16.10 57.26 20.98 Syndicate Bank 48.00 52.20 25.06 25.22 17.49 9.27 Dena Bank 32.31 28.68 9.27 22.09 14.74 9.13 Bank of Maharashtra 20.75 43.05 8.93 23.65 7.63 15.06

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