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“VALUATION OF ORION PHARMA LIMITED”

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With the help of 10-year data span from 2007 to 2017, we will find out the intrinsic value in a different method and will compare it to the current share price of Orion Pharma and find out whether it is overvalued or undervalued.
The structure of the slide is in the following way
1. Introduction
2. Company Overview
3. Findings
5. Analysis
6. Conclusion
The total valuation was done in the following way
1. Dividend Discounting Model
2. Operating Free Cash Flow Model
3. Relative Valuation
The analysis is done with
1. Fundamental Analysis

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“VALUATION OF ORION PHARMA LIMITED”

  1. 1. 1 WELCOME
  2. 2. 2 “VALUATION OF ORION PHARMA LIMITED”
  3. 3. Introduction ▪ Orion Group Limited was founded in 1965 ▪ It has been specializing in industrial products ▪ Orion exports its products to more than 10 countries 3
  4. 4. Introduction ▪ This giant group consists of more than 27 companies from at least 12 industry sectors ▪ Almost 18,000 people are employed by various sister concerns of Orion Group. 4
  5. 5. Research Question 5 Is the Intrinsic Value of Orion Pharma Limited Overvalued or Undervalued on the basis of its Market Stock Price?
  6. 6. Research Objectives  To provide an estimation of the common stock value of Orion Pharma Limited using dividend discount model, free cash flow to equity and relative valuation.  To compare the obtained intrinsic values with the current market price 6
  7. 7. Research Objectives  To find out whether the intrinsic value of Orion Pharma limited is overvalued or undervalued  To identify & discuss the reasons of variability between Intrinsic & Market Value of Stock. 7
  8. 8. Limitations 8 Mentionable limitations of our term paper is  time constraint  data unavailability
  9. 9. Research Methodology ▪ Research methodology is quantitative in nature ▪ We used secondary sources of Data ▪ We used data form Dhaka stock exchange and annual report of Orion Pharma Ltd. 9
  10. 10. Company Overview ▪ Orion Pharma Ltd. is one among the 27 sister concerns of ORION Group ▪ Orion Pharma strongly believes in quality and doesn’t settle for anything until it surpasses the prevailing standard 10
  11. 11. Company Overview ▪ For serving its esteemed customers with products of outstanding value, the company has been bestowed with the ISO-9001: 2000 Certificate in January 2003 ▪ Its diverse medicinal collection includes life-saving anti-cancer drugs and injectables with more than 110 generics and 220 arrangements of Capsule, cream ointment products etc. 11
  12. 12. Company Overview  In order to cope up with the development of technical brilliance in Pharma and Healthcare, Orion Pharma Ltd. has by now started its erection of new plant which will be one of the newest facilities for medicinal finished products in south-east Asia 12
  13. 13. Quality Policy 13 With devotion to help its cherished clients with products of admirable value Orion Pharma Ltd. is constantly enhancing itself in expertise, method and human resources fulfilling the strategies of Good Manufacturing Practice (GMP) and the regulations of ISO-9001: 2008 Quality Management System (QMS).
  14. 14. Corporate Governance 14 Incorporated as a Private Limited Company (earlier known as Orion Laboratories Limited) 21 June, 1965 Date of Commercial Operation 25 November, 1966 Converted into Public Limited Company 24 June, 2010 Name changed into Orion Pharma Limited 15 October, 2010 Initial Public Offering (IPO) of shares of Orion Pharma Limited 2012 Listing with both Dhaka & Chittagong Stock Exchanges 2013 Authorized Capital Tk. 5,000 Million Paid-up Capital Tk. 2,340 Million Number of Employees 2,063 Subsidiary Company Orion Power Meghnaghat Limited Dutch Bangla Power & Associates Limited
  15. 15. 15 Corporate Governance
  16. 16. 1. Historical growth rate of Orion Pharma 2. Industrial Growth Rate 3. Company Future Prospects Estimating Growth rate
  17. 17. “ 1717 A. Historical Growth -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3 3.5 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Historical Growth rate Sales Net income EPS Dividend Cashflow
  18. 18. “ 18 B. Industrial Growth 0% 5% 10% 15% 20% 25% 30% Peer Comparison Growth
  19. 19. “ ₪ Orion Pharma has developed a new pharma park in Shiddhirganj, which will help increase the revenue thereby increasing the growth. ₪ Over the next 10 years the growth will decrease again due to severe competition. ₪ So, over all we assume the perpetuity growth to be 1%. 19 C. Company Future Prospects
  20. 20. Stock Intrinsic Valuation & Comparison with Market Price
  21. 21. Calculation of Required Rate of Return: (r) Capital Asset Pricing Model 21
  22. 22. Calculation of Required Rate of Return THE FORMULA  𝑟 = 𝑅𝐹 +𝛽(𝑅𝑀 −𝑅𝐹) 22 Where, ♠ r : Required rate of return by investors ♠ RF : Risk free rate (interest rate of 5-year Treasury bond) ♠ RM : Market return ♠ 𝛽 : Systematic risk
  23. 23. The Term Structure of Treasury Bond Rate 23
  24. 24. “ In Bangladesh, currently interest rate of 5-year Treasury bond is 5.45% So, RF=5.45% 24
  25. 25. “ 25 Systematic Risk (beta) as per the report of June 30, 2017 of Orion Pharma is, 1.40283968128837
  26. 26. Market return of Dhaka Stock Exchange 26
  27. 27. Calculating the Market Return Monthly data of two years, DSEX index data from 2nd October, 2016 to 2nd October, 2018, is considered. 27 The Market Return will be the percentage change of the monthly closing Index from closing Index of previous month (which is Opening Index for this month) 2nd date of each month is considered as the representative.
  28. 28. Calculating the Market Return 28 Date Monthly Opening Index Monthly Closing Index Market Return 2 Oct,2016 4,690.93 2 Nov, 2016 4,690.93 4,633.19 -0.012309996 2 Dec, 2016 4,633.19 4,823.02 0.040973609 2 January,2017 4,823.02 5,119.59 0.061489365 2 Feb, 17 5,119.59 5,365.14 0.047962365 2 March, 17 5,365.14 5,586.75 0.041305456 2 April,17 5,586.75 5,691.37 0.018727655 2 May, 2017 5,691.37 5,521.38 -0.029867673 2 June, 2017 5,521.38 5,438.71 -0.014974325 2 July,2017 5,438.71 5,654.62 0.039700175 2 August,17 5,654.62 5,891.16 0.041831613 2 Sep,2017 5,891.16 6,038.38 0.024988535 2 Oct, 17 6,038.38 6,092.95 0.009038392 2 Nov, 17 6,092.95 6,099.02 0.000996372 2 Dec, 2017 6,099.02 6,296.20 0.032329157 2,Jan,2018 6,296.20 6,279.97 -0.00257819 2 Feb,18 6,279.97 6,021.45 -0.041165909 2 March, 18 6,021.45 5,870.83 -0.025012705 2 april,2018 5,870.83 5,827.52 -0.007378484 2 May, 18 5,827.52 5,698.69 -0.022106691 2 June, 18 5,698.69 5,316.97 -0.066984389 2 July,18 5,316.97 5,322.41 0.001024223 2 August, 18 5,322.41 5,399.79 0.014538856 2 Sep,18 5,399.79 5,590.42 0.035302889 2 October,18 5,590.42 5,380.93 -0.037473298
  29. 29. “ 29 DSE Index Average Monthly Market Return 0.6265% Annual Market Return 7.5179%
  30. 30. Calculation of Required Rate of Return 30 ▪ 𝑅𝐹 = 5.45%, ▪ Estimated values of 𝑅𝑀=7.5179% and ▪ 𝛽, = 1.40283968128837 ▪ Required rate of return(r) from Orion Pharma can be estimated as below,
  31. 31. 31 Dividend Discounting Model
  32. 32. “  This model is based on the theory that the stock price of a company is equal to the sum of all of its future dividend payments, discounted to their present value.  it is assumed that the expected dividend per share grows at a constant rate of 𝑔 in perpetuity. 32 Dividend Discounting Model
  33. 33. Dividend Discounting Model ▪ The formula is ▪ 𝐏 = 𝐃𝟏 𝟏+𝐤 + 𝐃𝟐 (𝟏+𝐤) 𝟐 + 𝐃𝟑 (𝟏+𝐤) 𝟑 + ⋯ … … 33 Here, D0 = the value of the last paid dividend per share 𝐷1 = the value of next year’s dividend per share K = is the required rate of return by investors.
  34. 34. r= 8.35 and growth rate decreasing from 4.13% (growth rate for dividends) and taking perpetual growth rate of 1% after 10 years. 34 Year Growth Rate Dividend 8.35% PV factor PV 1 4.13% 224920800 1.0835 207587263.5 2 4.00% 233917632 1.17397225 199253118.6 3 3.75% 242689543.2 1.271998933 190793826.1 4 3.25% 250576953.4 1.378210844 181813221.5 5 3.10% 258344838.9 1.493291449 173003628.4 6 3.00% 266095184.1 1.617981285 164461224.9 7 2.75% 273412801.6 1.753082723 155961152.4 8 2.25% 279564589.7 1.89946513 147180690.6 9 2.105 868048050.9 2.058070468 421777613.7 10 2% 885409012 2.229919352 397058759.6 Constant Growth 1% 894263102.1 5456181594 Total PV 7695072093 Shares Outstanding 234000000 Loan Outstanding 442828999 Total PV 30.99249186 For our calculation we have discounted the dividends up to 10 years.
  35. 35. 35 Present Value of Operating Free Cash Flow of Orion Pharma Ltd.
  36. 36. “ ₪ To discount the firm’s operating free cash flow to the firm at the firm’s weighted average cost of capital ₪ The Operating Free Cash Flow, OFCF is the cash flow generated by a company’s operations and available to all who have provided capital to the firm (both equity and debt) 36 Procedure
  37. 37. “ 37 ₪ As it is the cash flow available to all capital suppliers, it is discounted at the firm’s WACC. ₪ Before getting the present value, we required the Weighted Average Cost of Capital, WACC
  38. 38. “ 38 What is WACC? Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.
  39. 39. “ 39 What is WACC? Generally, a company finances its assets either through debt or with equity. WACC is the average of the costs of these types of financing, each of which is weighted by its proportionate use in the given situation.
  40. 40. WACC Calculation 40 The formula that we have used to calculate WACC: 𝑊𝐴𝐶𝐶 = 𝐸 𝐸+𝐷 (𝑘) + 𝐷 𝐸+𝐷 (1 − 𝑇)(𝑟d) E = Market Value of the firm’s Equity D = Market Value of the firm’s Debt k = Cost of Equity rd = Cost of Debt T = Tax rate
  41. 41. 41 Calculation of WACC of Orion Pharma Ltd. The WACC of Orion Pharma Ltd. = 8.87%
  42. 42. 42 Operating Free Cash Flow Operating Free cash flow for the firm (OFCF) represents the amount of cash flow from operations available for distribution after depreciation expenses, taxes, working capital, and investments are paid. A measurement of a company's profitability after all expenses and reinvestments One of the many benchmarks used to compare and analyze financial health
  43. 43. 43 𝑷𝑽 = 𝑶𝑭𝑪𝑭 𝟎(𝟏 + 𝒈) 𝟏 (𝟏 + 𝑾𝑨𝑪𝑪) + 𝑶𝑭𝑪𝑭 𝟎(𝟏 + 𝒈) 𝟐 (𝟏 + 𝑾𝑨𝑪𝑪) 𝟐 + 𝑶𝑭𝑪𝑭 𝟎(𝟏 + 𝒈) 𝟑 (𝟏 + 𝑾𝑨𝑪𝑪) 𝟑 + ⋯ … … … … . + 𝑶𝑭𝑪𝑭 𝟎(𝟏 + 𝒈) 𝒏 (𝟏 + 𝑾𝑨𝑪𝑪) 𝒏 𝑂𝐹𝐶𝐹0 = Operating Free Cash Flow for the current year 𝑔= Growth rate 𝑊𝐴𝐶𝐶 = Weighted average cost of capital for the firm n = Number of years Calculation of Present Value of OFCF
  44. 44. “ 44 For infinite period constant growth rate, 𝑷𝑽 = 𝑶𝑭𝑪𝑭 𝟏 (𝑾𝑨𝑪𝑪−𝒈) 𝑂𝐹𝐶𝐹1= Operating free cash flow for period 1 g= Constant growth rate
  45. 45. “  the present value of operating FCF for 10 years with the free cash flow of 2017  The Operating FCF, OFCF0 was Tk 202,200,000  the growth rate of 12.3% for 2018  Starting from 2018, we assumed that the growth rate will decline gradually each year 45 Calculation of Present Value of OFCF
  46. 46. “  Finally after the tenth year, it will stand at 1% and this 1% growth rate is perpetual  Then the free cash flow for each year was discounted using the WACC (8.87%) to get their present value  Summation of all the present values finally gave us the total present value of OFCF of Orion Pharma Ltd. which is Tk 5,415,071,395 46 Calculation of Present Value of OFCF
  47. 47. 47 Calculation of Present Value of OFCF
  48. 48. Calculation of Estimated Intrinsic value 48 ▪ Number of Outstanding Shares is 234,000,000 ▪ Amount of loan outstanding = Tk 442,828,999 ▪ The per share value based on the present value of operating free cash flow is= {(Tk 5,415,071,395- Tk 442,828,999)/234,000,000} = Tk 21.249
  49. 49. Relative Valuation Techniques 49
  50. 50. Relative Valuation Techniques 50 Here the Stock Value of BATA Shoe BD on the basis of industry average will be obtained. There are 6 Shoe & Leather companies listed under DSE. A table with,  The current share prices of 6 companies  The last year EPS, Cash Flow, Sales of these 6 Companies. The average of these data to obtain the industry average EPS, Cash Flow & Sales.
  51. 51. 51 Contents in the Table 1. Share Price of 31 Companies on 25th October, 2018 2. EPS, Cash Flows & Sales of These Companies on 30th June,2017 (Last Audited)
  52. 52. Calculating the Market Return 52 SL No. Name of The Companies Share Price EPS Sales(in Million) Cash Flows 1 ACI Limited 347.7 77.99 49,236.08 324.11 2 ACI Formuations Limited 151.3 2.74 3333.35 745.03 3 ACME Labratiories Ltd 86.8 5.85 3,663.01 234.76 4 Active Fine Chemicals Ltd 40.7 3.46 10,128.93 11.22 5 Advent Pharmaceuticals Ltd 38.6 0.98 12279.45 745 6 AFC Agro Biotech Ltd 37 3.49 5992.5 38.05 7 Ambee Pharmaceuticals Ltd 510.1 3.02 12351.81 908.95 8 Beacon Pharmaceuticals Ltd 17 0.27 11,491.80 44.24 9 Beximco Pharmaceuticals Ltd 73.5 5.49 15,508.77 54 10 Beximco Synthetics Ltd 6.9 -2.62 1407.05 -3.64 11 Central Pharmaceuticals Ltd 14.1 1.05 9010.45 -1.27 12 Far Chemical Industries Ltd 13.8 1.79 8,436.56 -55.44 13 Global Heavy Chemical Ltd 37.2 1.08 10538.38 4.65 14 GSK Bangladesh Ltd 1105.8 53.51 19,284.01 -26.69 15 IBN SINA BD Pharmaceuticals Ltd 246.3 9.06 4,009.15 28.11 16 Indo-Bangla Pharmaceuticals Ltd 33 1.02 12700.32 30.5 17 Imam Buttons industries Ltd 24 -0.38 11550.34 -183.4 18 JMI Syringes & Medical Industries Ltd 182.2 6.78 20,362.70 -138.71 19 Keya Cosmetics Ltd 7.5 2.01 10,406.60 7.72 20 Kohinoor Chemicals Company Ltd 398.9 12.04 8,393.18 157.64 21 Libra Infuisions Ltd 749 4.86 24244.25 -22.3 22 Marico BD Ltd 1148.2 45.72 8,916.10 -313.69 23 Orion Infusion Ltd 45.8 1.53 4679.91 -4.33 24 Orion Pharma Ltd 36.8 3.4 9,534.35 43.36 25 Pharmaceuticals Aids 560 8.16 8566.99 2.49 26 Reckitt Benckiser(Bd.)Ltd 1725.6 19.37 12873.08 92.3 27 Reneta Ltd 1217.3 42.89 16,043.43 166.62 28 Salvo Chemical Industry Ltd 17.9 0.6 12225.09 5.6 29 Silva Pharmaceuticals Ltd 26.8 1.03 11602.49 38.57 30 Square Pharmaceuticals Ltd 262.8 15.51 36,543.14 7,246.12 31 Wata Chemicals Ltd 308 4.13 399.95 -151.54 Industry Average 305.5032258 10.8332258 12,442.36 323.48
  53. 53. The Price/ Earing Ratio 53 ₪ The Price/ Earing Ratio=Price/EPS = 305.5032258/10.8332258 = 28.20057767 ₪ So the Industry P/E Ratio is 28.20 ₪ The EPS of Orion Pharma last year (2017)= 4.19. The historical Growth rate average of EPS= 3.36%. ₪ Company facing a negative growth rate in EPS in the recent years (-8.6% on 2017 & -12.5% on 2016).
  54. 54. The Price/ Earing Ratio 54  Estimated growth of -5% this year (2018), the EPS this year.  =3.4(1-.05) =3.06  Intrinsic value of its share, which is  =Industry P/E Ratio* EPS of Orion Pharma on 2018  = 28.20057767 *3.06= 86.29
  55. 55. The Price/ Cash Flow Ratio 55  The Price/ Cash Flow Ratio=Price/CF = 305.5032258/ 323,480,000 = 0.00000094442  So the Industry P/CF Ratio is 0.00000094442  The Cash Flow of Orion Pharma last year (2017)= 43,360,000.  The historical Growth rate average of CF =22%.
  56. 56. The Price/ Cash Flow Ratio 56  The company faced a high negative growth rate in CF in the last year (-58.85%).  Estimated growth of -20% this year (2018), the Cash Flow this year = 43,360,000 (1-.2) = 34,688,000  Intrinsic value of its share = Industry P/CF Ratio* CF of Orion Pharma on 2018 = (0.00000094442*34,688,000) = 32.76
  57. 57. The Price/ Sales Ratio 57  The Price/ Sales Ratio=Price/Sales = 305.5032258/12,442,360,000 = 0.000000024553  So the Industry P/Sales Ratio is 0.00000000245523  The Sales of Orion Pharma last year (2017) = 11,011,880,000.  The historical Growth rate average of Sales = 11.13%.
  58. 58. The Price/ Sales Ratio 58  But a negative growth rate is going on with the sales in recent years (-3.3% on 2016, -21% on 2016).  Estimated growth of -15% this year (2018), the Sales this year =9,534,350,000 (1-.15) =8,104,197,500  The intrinsic Value of Stock =Industry P/Sales Ratio* Sales of Orion Pharma on 2018 = (0.000000024553*8,104,197,500) = 198.99
  59. 59. 59 Analysis with current market price
  60. 60. “  If Estimated Intrinsic Value > Market Price, Buy or Hold it if you Own It.  If Estimated Intrinsic Value < Market Price, Don’t Buy or Sell it if you Own It.  Based on DSE stock Index the current market price of Orion Pharma Ltd. Is 36.80 Bdt. 60 Formula Says
  61. 61. “ 61 Analysis with Dividend Discounting Model: 30.9 36.8 ESTIMATED INTRINSIC VALUE MARKET PRICE Series 1 Overvalued
  62. 62. “ 62 Analysis with Operating Free Cash flow: 21.9 36.8 ESTIMATED INTRINSIC VALUE MARKET PRICE Overvalued
  63. 63. “ We have obtained three intrinsic values of the stock of Orion Pharma by using the Three Relative Valuation techniques. Here the Industry ratios (P/CF, P/Sales, P/E) have been multiplied with growth adjusted Earning, CF & Sales in 2018(Next year) of Orion Pharma. 63 Analysis with Relative Valuation
  64. 64. Comparison of stock intrinsic value with today’s Market Share Price. 64 Used Relative Valuation Techniques Stock’s Intrinsic Values Today’s Share Price in DSE (27/10/18) Decision P/E Ratio 86.29 36.8 Undervalued P/CF Ratio 32.76 36.8 Overvalued P/Sales Ratio 198.99 36.8 Undervalued
  65. 65. Overall Valuation 65 198 32.76 86.29 21.24 30.99 36.8 0 50 100 150 200 250 Price Per Sales Price Per Cashflow PE Ratio OFCF DDM Current Market Price Stock Price Price Per Sales Price Per Cashflow PE Ratio OFCF DDM Current Market Price
  66. 66. “ ₪ If the investment demand is higher than investment supply then there is a possible chance of overvaluation ₪ The operation of the new pharmapark might increase the demand for Orion pharma over the next few years ₪ So, it can be estimated that Orion Pharma Ltd posses a great chance to be overvalued 66 Valuation Outcome
  67. 67. Conclusion  The stock price was overvalued in case of DDM, OFCF and Price per Cashflow Ratio  But undervalued in case of PE ratio and Price per sales ratio.  As a result it is found that Orion Pharma is a matured company with less growth than comparatively new companies.  Because of the operation of new pharmapark there might be increase in investment demand which tends for overvaluation. 67
  68. 68. 68 THANK YOU

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