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Corporate Valuation - ITC

                                  S.No.   Particulars ( Click on item to vie
                  ...
Valuation - ITC Limited

ars ( Click on item to view )
 eet & Profit and Loss Account ( Annual Reports )
  WACC computatio...
Date        ITC     ITC modified    NIFTY   RETURN FROM ITC RETURN FROM NIFTY
 31-Jan-00      692.20       692.20   1,546....
27-Feb-04    1,100.50   1,100.50   1,800.30    0.071    (0.005)
31-Mar-04     1,043.10   1,043.10   1,771.90   (0.054)   (...
Average Monthly Return                                       1.14%
                                                       ...
Corporate action on 22 september 2005


 The board has recommended sub-division of the ordinary shares with a face value o...
Total market value of firm                                  7,803,811,080,000.00
            Weight of equity capital     ...
31-Oct-05    1,803.00   2,370.95
30-Nov-05     2,017.50   2,652.25
30-Dec-05     2,131.50   2,836.55
 31-Jan-06    2,322.0...
Segment                           Revenues
                                        Agri business                          ...
Segment Multiple    Estimated Value    Unlevered Beta    Segment Weight   Weighted Average Beta
             0.81         ...
Operating Leverage
               0.2100
               0.1600
               1.2500
               0.2100
               ...
Profit & loss account - ITC                                       Extracted from annual reports for respectiv
Year Ending ...
m annual reports for respective years .
                   2005          2004       2003        2002        2001        20...
Balance sheets , FCFF calculation
                                                  No. Shares     376.22     375.52     2...
Capital Employed                                                          10589.85   8999.15        8625.7
Average Capital...
tion
             24.77     24.75     24.75     24.54     24.54
              2004      2003      2002      2001      2000...
6618.65   5288.05   4784.79       4393.45        3452.2
    5953.35   5036.42   4589.12       3922.83        1726.1
    36...
Valuation Of ITC Limited Using Three Stage Model and FCFF Approach
                                                       ...
8.20%
                             7.70%




.7% which around the GDP of India.
% which is less than current Wacc consider...
Years                                                        2007     2006     2005     2004                           200...
2002         2001        2000       1999       1998       1997       1996       1995       1994       1993
               ...
Valuation of ITC
Valuation of ITC
Valuation of ITC
Valuation of ITC
Valuation of ITC
Valuation of ITC
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Valuation of ITC

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Valuation of ITC using financial models as part of Security Analysis Course

Valuation of ITC

  1. 1. Corporate Valuation - ITC S.No. Particulars ( Click on item to vie 1 Balance Sheet & Profit and Loss Account ( Ann 2 Beta , Ke & WACC computation 3 Calculation of FCFF 4 Valuation using DCF, Relative and Sensitivity A 5 Operating and Financial Leverage Submitted By: Group No. 3 CA. Dinesh Goyal GMBA08A164 Hardik Doshi GMBA08A117 Pratik Mehta GMBA08B129 Punit Biyani GMBA08B131
  2. 2. Valuation - ITC Limited ars ( Click on item to view ) eet & Profit and Loss Account ( Annual Reports ) WACC computation of FCFF using DCF, Relative and Sensitivity Analysis and Financial Leverage
  3. 3. Date ITC ITC modified NIFTY RETURN FROM ITC RETURN FROM NIFTY 31-Jan-00 692.20 692.20 1,546.20 29-Feb-00 746.85 746.85 1,654.80 0.076 0.068 31-Mar-00 741.45 741.45 1,528.45 (0.007) (0.079) 28-Apr-00 569.20 569.20 1,406.55 (0.264) (0.083) 31-May-00 725.60 725.60 1,380.45 0.243 (0.019) 30-Jun-00 791.80 791.80 1,471.45 0.087 0.064 31-Jul-00 741.95 741.95 1,332.85 (0.065) (0.099) 31-Aug-00 775.95 775.95 1,394.10 0.045 0.045 29-Sep-00 713.20 713.20 1,271.65 (0.084) (0.092) 31-Oct-00 759.80 759.80 1,172.75 0.063 (0.081) 30-Nov-00 817.25 817.25 1,268.15 0.073 0.078 29-Dec-00 896.10 896.10 1,263.55 0.092 (0.004) 31-Jan-01 910.95 910.95 1,371.70 0.016 0.082 28-Feb-01 776.20 776.20 1,351.40 (0.160) (0.015) 30-Mar-01 814.00 814.00 1,148.20 0.048 (0.163) 30-Apr-01 839.20 839.20 1,125.25 0.030 (0.020) 31-May-01 796.05 796.05 1,167.90 (0.053) 0.037 29-Jun-01 754.30 754.30 1,107.90 (0.054) (0.053) 31-Jul-01 792.70 792.70 1,072.85 0.050 (0.032) 31-Aug-01 720.20 720.20 1,053.75 (0.096) (0.018) 28-Sep-01 579.75 579.75 913.85 (0.217) (0.142) 31-Oct-01 686.00 686.00 971.90 0.168 0.062 29-Nov-01 667.30 667.30 1,067.15 (0.028) 0.093 31-Dec-01 677.60 677.60 1,059.05 0.015 (0.008) 31-Jan-02 694.35 694.35 1,075.40 0.024 0.015 28-Feb-02 743.20 743.20 1,142.05 0.068 0.060 28-Mar-02 696.70 696.70 1,129.55 (0.065) (0.011) 30-Apr-02 629.65 629.65 1,084.50 (0.101) (0.041) 31-May-02 609.00 609.00 1,028.80 (0.033) (0.053) 28-Jun-02 640.85 640.85 1,057.80 0.051 0.028 31-Jul-02 628.90 628.90 958.90 (0.019) (0.098) 30-Aug-02 699.45 699.45 1,010.60 0.106 0.053 30-Sep-02 650.00 650.00 963.15 (0.073) (0.048) 31-Oct-02 614.15 614.15 951.40 (0.057) (0.012) 29-Nov-02 634.95 634.95 1,050.15 0.033 0.099 31-Dec-02 660.90 660.90 1,093.50 0.040 0.040 31-Jan-03 638.75 638.75 1,041.85 (0.034) (0.048) 28-Feb-03 650.80 650.80 1,063.40 0.019 0.020 31-Mar-03 628.25 628.25 978.20 (0.035) (0.084) 30-Apr-03 682.95 682.95 934.05 0.083 (0.046) 30-May-03 694.15 694.15 1,006.80 0.016 0.075 30-Jun-03 767.40 767.40 1,134.15 0.100 0.119 31-Jul-03 717.50 717.50 1,185.85 (0.067) 0.045 29-Aug-03 832.25 832.25 1,356.55 0.148 0.134 30-Sep-03 800.90 800.90 1,417.10 (0.038) 0.044 31-Oct-03 866.75 866.75 1,555.90 0.079 0.093 28-Nov-03 857.45 857.45 1,615.25 (0.011) 0.037 31-Dec-03 983.50 983.50 1,879.75 0.137 0.152 30-Jan-04 1,024.90 1,024.90 1,809.75 0.041 (0.038)
  4. 4. 27-Feb-04 1,100.50 1,100.50 1,800.30 0.071 (0.005) 31-Mar-04 1,043.10 1,043.10 1,771.90 (0.054) (0.016) 30-Apr-04 1,076.60 1,076.60 1,796.10 0.032 0.014 31-May-04 878.00 878.00 1,483.60 (0.204) (0.191) 30-Jun-04 886.90 886.90 1,505.60 0.010 0.015 30-Jul-04 1,037.70 1,037.70 1,632.30 0.157 0.081 31-Aug-04 1,046.80 1,046.80 1,631.75 0.009 (0.000) 30-Sep-04 1,137.15 1,137.15 1,745.50 0.083 0.067 29-Oct-04 1,087.70 1,087.70 1,786.90 (0.044) 0.023 30-Nov-04 1,288.80 1,288.80 1,958.80 0.170 0.092 31-Dec-04 1,310.75 1,310.75 2,080.50 0.017 0.060 31-Jan-05 1,361.50 1,361.50 2,057.60 0.038 (0.011) 28-Feb-05 1,294.10 1,294.10 2,103.25 (0.051) 0.022 31-Mar-05 1,342.05 1,342.05 2,035.65 0.036 (0.033) 29-Apr-05 1,437.70 1,437.70 1,902.50 0.069 (0.068) 31-May-05 1,599.25 1,599.25 2,087.55 0.106 0.093 30-Jun-05 1,662.10 1,662.10 2,220.60 0.039 0.062 29-Jul-05 1,682.85 1,682.85 2,312.30 0.012 0.040 31-Aug-05 1,731.65 1,731.65 2,384.65 0.029 0.031 30-Sep-05 136.75 2,051.25 2,601.40 0.169 0.087 Share Splitted 31-Oct-05 120.20 1,803.00 2,370.95 (0.129) (0.093) 30-Nov-05 134.50 2,017.50 2,652.25 0.112 0.112 30-Dec-05 142.10 2,131.50 2,836.55 0.055 0.067 31-Jan-06 154.80 2,322.00 3,001.10 0.086 0.056 28-Feb-06 172.45 2,586.75 3,074.70 0.108 0.024 31-Mar-06 195.15 2,927.25 3,402.55 0.124 0.101 29-Apr-06 203.75 3,056.25 3,557.60 0.043 0.045 31-May-06 165.40 2,481.00 3,071.05 (0.209) (0.147) 30-Jun-06 182.40 2,736.00 3,128.20 0.098 0.018 31-Jul-06 167.40 2,511.00 3,143.20 (0.086) 0.005 31-Aug-06 191.50 2,872.50 3,413.90 0.135 0.083 29-Sep-06 187.70 2,815.50 3,588.40 (0.020) 0.050 31-Oct-06 190.00 2,850.00 3,744.10 0.012 0.042 30-Nov-06 185.10 2,776.50 3,954.50 (0.026) 0.055 29-Dec-06 176.10 2,641.50 3,966.40 (0.050) 0.003 31-Jan-07 174.60 2,619.00 4,082.70 (0.009) 0.029 28-Feb-07 171.70 2,575.50 3,745.30 (0.017) (0.086) 30-Mar-07 151.15 2,267.25 3,821.55 (0.127) 0.020 30-Apr-07 160.05 2,400.75 4,087.90 0.057 0.067 31-May-07 163.80 2,457.00 4,295.80 0.023 0.050 29-Jun-07 154.70 2,320.50 4,318.30 (0.057) 0.005 31-Jul-07 171.00 2,565.00 4,528.85 0.100 0.048 31-Aug-07 170.80 2,562.00 4,464.00 (0.001) (0.014) 28-Sep-07 189.80 2,847.00 5,021.35 0.105 0.118 31-Oct-07 178.90 2,683.50 5,900.65 (0.059) 0.161 30-Nov-07 188.35 2,825.25 5,762.75 0.051 (0.024) 31-Dec-07 209.45 3,141.75 6,138.60 0.106 0.063 31-Jan-08 195.55 2,933.25 5,137.45 (0.069) (0.178) 29-Feb-08 202.75 3,041.25 5,223.50 0.036 0.017 31-Mar-08 206.25 3,093.75 4,734.50 0.017 (0.098)
  5. 5. Average Monthly Return 1.14% Annual Return 13.70% Date EPS PE Price BV 31-Mar-03 5.54 11.34 62.83 216.78 31-Mar-04 6.43 16.22 104.31 258.8 31-Mar-05 7.36 18.23 134.20 318.29 31-Mar-06 6.07 32.15 195.15 245.57 30-Mar-07 7.18 21.05 151.15 282.99 31-Mar-08 8.28 24.91 206.25 326.09 35.00 30.00 25.00 20.00 15.00 10.00 5.00 - 0 3 0 4 05 0 6 0 7 0 8 ar- ar - ar- ar- ar- ar- 3 1 -M 3 1 -M 3 1 -M EPS PE3 1 -M 3 0 -M 3 1 -M
  6. 6. Corporate action on 22 september 2005 The board has recommended sub-division of the ordinary shares with a face value of Rs 10 each to Re 1 each. It recommended issue of bonus shares in the ratio of one share of Re 1 for every two fully paid-up ordinary shares of Re 1 each. No. Of equity shares Year Dividend % Dividend Paid Year 2007 March 310 3.1 2002 2006 March 265 2.65 2003 2005 March 310 31 2004 2004 March 200 20 2005 2003 March 150 15 2006 2002 March 135 13.5 2007 2008 Rergression results for Beta Calculation SUMMARY OUTPUT Regression Statistics Multiple R 0.57 R Square 0.33 Adjusted R Square 0.32 Standard Error 0.07 Observations 98 ANOVA df SS MS F Regression 1 0.26 0.26 47 Residual 96 0.52 0.01 Total 97 0.78 Coefficients Standard Error t Stat P-value Intercept 0.01 0.01 0.95 0.34 X Variable 1 (Beta) 0.71 0.1 6.86 0 Calculation of cost of equity Beta 0.671 Risk free rate (Rf) 7.00% ( Yield on 10 year government bonds ) Market rate of return (Rm) 13.70% (Actual return based on NSE Index) Market risk premium (Rm-Rf) 6.70% (Rm-- Rfr) Cost of equity (CAPM model used) Ke = Rf+Beta(Rm-Rf) 11.50% Calculation of market value weights Market value of equity 7,801,802,280,000.00 (Mkt Capitalization) Market value of debt 2,008,800,000.00
  7. 7. Total market value of firm 7,803,811,080,000.00 Weight of equity capital 99.97% Weight of debt capital 0.03% Debt to equity ratio 0.000257 Kd = interest expense/average debt 7.64% Post Tax Kd 4.97% Computation of WACC WaCC 11.498% 10,000.00 9,000.00 8,000.00 7,000.00 6,000.00 5,000.00 NSE 4,000.00 ITC 3,000.00 hare Splitted 2,000.00 1,000.00 - 4 04 5 5 06 -0 7 07 -0 ct- -0 t -0 -0 6 ct- ct- pr -O Ap r c pr -O Ap r -O 3 0 -A 2 9 2 9- 3 1 -O 2 9 -A 3 1 3 0- 3 1 Date ITC NSE 30-Apr-04 1,076.60 1,796.10 31-May-04 878.00 1,483.60 30-Jun-04 886.90 1,505.60 30-Jul-04 1,037.70 1,632.30 31-Aug-04 1,046.80 1,631.75 30-Sep-04 1,137.15 1,745.50 29-Oct-04 1,087.70 1,786.90 30-Nov-04 1,288.80 1,958.80 31-Dec-04 1,310.75 2,080.50 31-Jan-05 1,361.50 2,057.60 28-Feb-05 1,294.10 2,103.25 31-Mar-05 1,342.05 2,035.65 29-Apr-05 1,437.70 1,902.50 31-May-05 1,599.25 2,087.55 30-Jun-05 1,662.10 2,220.60 29-Jul-05 1,682.85 2,312.30 31-Aug-05 1,731.65 2,384.65 30-Sep-05 2,051.25 2,601.40
  8. 8. 31-Oct-05 1,803.00 2,370.95 30-Nov-05 2,017.50 2,652.25 30-Dec-05 2,131.50 2,836.55 31-Jan-06 2,322.00 3,001.10 28-Feb-06 2,586.75 3,074.70 31-Mar-06 2,927.25 3,402.55 29-Apr-06 3,056.25 3,557.60 31-May-06 2,481.00 3,071.05 30-Jun-06 2,736.00 3,128.20 31-Jul-06 2,511.00 3,143.20 31-Aug-06 2,872.50 3,413.90 29-Sep-06 2,815.50 3,588.40 31-Oct-06 2,850.00 3,744.10 30-Nov-06 2,776.50 3,954.50 29-Dec-06 2,641.50 3,966.40 31-Jan-07 2,619.00 4,082.70 28-Feb-07 2,575.50 3,745.30 30-Mar-07 2,267.25 3,821.55 30-Apr-07 2,400.75 4,087.90 31-May-07 2,457.00 4,295.80 29-Jun-07 2,320.50 4,318.30 31-Jul-07 2,565.00 4,528.85 31-Aug-07 2,562.00 4,464.00 28-Sep-07 2,847.00 5,021.35 31-Oct-07 2,683.50 5,900.65 30-Nov-07 2,825.25 5,762.75 31-Dec-07 3,141.75 6,138.60 31-Jan-08 2,933.25 5,137.45 29-Feb-08 3,041.25 5,223.50 31-Mar-08 3,093.75 4,734.50
  9. 9. Segment Revenues Agri business 1,555.18 Tobacco 13,207.00 Hotels 1060.89 No. Of equity shares Paper 2,100.00 No. of shares FMCG others 1,713.46 245415000 Firm 19,636.53 247512000 247679000 248221000 Weighted average unlevered beta 0.4852 3755178860 Levered Beta adjusted with financial leverage 0.49 3762222780 Operating leverage 0.32 3768610050 Beta levered adjusted with operating leverage 0.67 Significance F 0 Lower 95% Upper 95% Lower 95.0% Upper 95.0% -0.01 0.02 -0.01 0.02 0.5 0.91 0.5 0.91
  10. 10. Segment Multiple Estimated Value Unlevered Beta Segment Weight Weighted Average Beta 0.81 1,259.70 0.36 1.65% 0.0059 5 66,035.00 0.52 86.63% 0.4505 4 4,243.56 0.16 5.57% 0.0089 0.61 1,281.00 0.25 1.68% 0.0042 1.99 3,409.79 0.35 4.47% 0.0157 76,229.04 100.00% 0.4852
  11. 11. Operating Leverage 0.2100 0.1600 1.2500 0.2100 0.3600 0.2313
  12. 12. Profit & loss account - ITC Extracted from annual reports for respectiv Year Ending 31st March 2007 2006 Revenue 19,636.53 16,510.51 Excise Duties etc. 7,135.75 6,433.90 Net Income 12,500.78 10,076.61 Cost of Sales 8,207.88 6,463.15 PBDIT 4,292.90 3,613.46 Interest 13.28 11.93 PBDT 4,289.62 3,601.53 PBIT 3,929.98 3,281.12 PROFIT Before Tax 3,926.70 3,269.19 Tax 1,226.73 988.82 PROFIT after tax before exceptional items 2,699.97 2,280.37 EXCEPTIONAL items (net of tax) – (45.02) PROFIT after taxation 2,699.97 2,235.35 Dividends* 1,364.50 1,134.70 Retained profits 1,335.47 1,100.65 Earnings per share on profit after tax before exceptional items Actual (Rs.)** 7.18 6.07 Adjusted (Rs.) @ 11.00 9.29 Dividend Per Share Actual (Rs.)** 3.10 2.65 Adjusted (Rs.) @ 4.75 4.05 Market Capitalisation *** 56,583.00 73,207.00 Foreign Exchange Earnings 2,283.21 1,793.51 NOPAT 2554.49 2132.73
  13. 13. m annual reports for respective years . 2005 2004 2003 2002 2001 2000 13,585.39 12,039.92 11,194.47 9,982.46 8,827.11 8,069.37 5,710.13 5,344.60 5,159.10 4,780.86 4,474.52 4,133.89 7,875.26 6,695.32 6,035.37 5,201.60 4,352.59 3,935.48 4,846.89 4,109.85 3,712.00 3,155.96 2,516.44 2,475.45 3,028.37 2,585.47 2,323.37 2,045.64 1,836.15 1,460.03 42.43 24.79 29.84 66.93 95.91 112.55 2,985.94 2,560.68 2,293.53 1,978.71 1,740.24 1,347.48 2,715.50 2,343.85 2,086.03 1,847.19 1,696.21 1,341.50 2,673.07 2,319.06 2,056.19 1,780.26 1,600.30 1,228.95 836.00 726.21 684.84 590.54 594.04 436.51 1,837.07 1,592.85 1,371.35 1,189.72 1,006.26 792.44 354.33 – – – – – 2,191.40 1,592.85 1,371.35 1,189.72 1,006.26 792.44 881.70 558.83 418.84 334.14 270.45 224.55 1,309.70 1,034.02 952.51 855.58 735.81 567.89 7.36 6.43 5.54 4.81 4.10 3.23 7.49 6.49 5.59 4.85 4.10 3.23 3.10 2.00 1.50 1.35 1.00 0.75 3.15 2.02 1.51 1.36 1.00 0.75 33,433.00 25,793.00 15,581.00 17,243.00 19,987.00 18,038.00 1,268.65 1,077.51 1,294.00 947.57 697.13 687.70 1765.08 1523.5 1355.92 1200.67 1102.54 871.98
  14. 14. Balance sheets , FCFF calculation No. Shares 376.22 375.52 24.94 I. SOURCES OF FUNDS 2007 2006 2005 1. Shareholders’ Funds a) Capital 376.22 375.52 249.43 b) Reserves and Surplus 10270.36 8845.94 7689.77 2. Minority Interests 107.58 81.75 63.37 3. Loan Funds a) Secured Loans 60.8 52.86 89.27 b) Unsecured Loans 140.1 93.82 157.71 4. Deferred Tax - Net 471.27 325.5 376.15 Total 11426.33 9775.39 8625.7 II. APPLICATION OF FUNDS 1. Fixed Assets a) Gross Block 7795.17 6862.59 6144.8 b) Less : Depreciation 2686.55 2339.28 1943.34 c) Net Block 5108.62 4523.31 4201.46 d) Capital Work-in-Progress 876.09 246.61 192.33 5984.71 4769.92 4393.79 e) Less : Provision for assets given on lease 8.71 8.71 10.17 5976 4761.21 4383.62 2. Investments 2505.89 2998.1 3329.13 3. Current Assets, Loans and Advances a) Inventories 3934.67 3115.43 2543.08 b) Sundry Debtors 733.04 635.19 620.94 c) Cash and Bank Balances 1086.5 977.77 120.06 d) Other Current Assets 194.35 157.48 147.9 e) Loans and Advances 986.52 770.27 594.5 6935.08 5656.14 4026.48 Less : 4. Current Liabilities and Provisions a) Liabilities 2548.65 2282.06 2041.35 b) Provisions 1441.99 1358 1072.18 3990.64 3640.06 3113.53 Net Current Assets 2944.44 2016.08 912.95 Total 11426.33 9775.39 8625.7 Net Sales Fig 12500.78 10076.61 7875.26 2007 2006 2005 Reformulated B/Sheet Equity 11117.85 9546.96 8315.35 Cash & marketable sec 1086.5 977.77 Cash Required i.e 2% of sales 250.02 201.53 * Excess Cash Retained 836.48 776.24 Core SHF (Equity) 10281.37 8770.72 8315.35 Long Term Debt 200.9 146.68 246.98 Minority Interest 107.58 81.75 63.37
  15. 15. Capital Employed 10589.85 8999.15 8625.7 Average Capital Employed 9794.5 8812.43 7622.18 Fixed Assets 5976 4761.21 4383.62 Investments 2505.89 2998.1 3329.13 Non cash Current Assets 5848.58 4678.37 3906.42 Cash & Equivalents 250.02 201.53 120.06 Current Liabilities 3990.64 3640.06 3113.53 Non Cash Working Capital 2107.96 1239.84 912.95 Capital Employed (Cross Checked) 10589.85 8999.15 8625.7 * * Cash and mkt securities are just sufficient to meet cash requirements Calculation of NOPAT, reinvestment, Growth NOPAT 2554.49 2132.73 1765.08 Add: Increase in DTL 145.77 -50.65 288.41 Adjusted NOPAT 2700.26 2082.08 2053.49 Reinvestment Increase in Fixed Assets 1214.79 377.59 771.57 Increase in Non Cash Working Capital 868.11 326.89 960.31 Total Reinvestment 2082.9 704.48 1731.88 FCFF 617.35 1377.6 321.61 Reinvestment rate 77.14% 33.84% 84.34% Return on capital employed 27.57% 23.63% 26.94% Sustainable growth 21.27% 7.99% 22.72%
  16. 16. tion 24.77 24.75 24.75 24.54 24.54 2004 2003 2002 2001 2000 247.68 247.51 247.51 245.41 245.41 6162.38 5118.11 4147.08 3289.1 2553.92 0 0 71.48 0 0 31.56 46.52 252.39 565.77 463.92 89.29 70.46 85.3 293.17 188.95 87.74 63.58 146.71 6618.65 5546.18 4950.47 4393.45 3452.2 4740.94 4252.19 4136.08 2521.93 1871.13 1442.63 1245.64 1228.07 707.42 592.25 3298.31 3006.55 2908.01 1814.51 1278.88 313.74 163.42 387.3 146.15 274.36 3612.05 3169.97 3295.31 1960.66 1553.24 - - 10.39 0 0 3612.05 3169.97 3284.92 1960.66 1553.24 3053.96 1608.86 659.21 1006.94 987.26 1534.21 1252.22 1196.63 1144.63 932.46 230.15 206.74 204.03 102.83 115.11 34.04 378.84 269.71 35.41 27.73 817.18 814.34 757.48 696.35 696.34 869.77 835.59 741.04 1048.31 627.74 3485.35 3487.73 3168.89 3027.53 2399.38 2849.83 2093.5 1713.23 1258.42 1137.91 682.88 626.88 449.32 343.26 349.77 3532.71 2720.38 2162.55 1601.68 1487.68 -47.36 767.35 1006.34 1425.85 911.7 6618.65 5546.18 4950.47 4393.45 3452.2 6695.32 6035.37 5201.6 4352.59 3935.48 2004 2003 2002 2001 2000 6497.8 5429.2 4541.3 3534.51 2799.33 378.84 269.71 * 120.71 104.03 * * 258.13 165.68 6497.8 5171.07 4375.62 3534.51 2799.33 120.85 116.98 337.69 858.94 652.87 0 0 71.48 0 0
  17. 17. 6618.65 5288.05 4784.79 4393.45 3452.2 5953.35 5036.42 4589.12 3922.83 1726.1 3612.05 3169.97 3284.92 1960.66 1553.24 3053.96 1608.86 659.21 1006.94 987.26 3451.31 3108.89 2899.18 2992.12 2371.65 34.04 120.71 104.03 35.41 27.73 3532.71 2720.38 2162.55 1601.68 1487.68 -47.36 509.22 840.66 1425.85 911.7 6618.65 5288.05 4784.79 4393.45 3452.2 * * * 1523.5 1355.92 1200.67 1102.54 871.98 24.16 -83.13 146.71 0 0 1547.66 1272.79 1347.38 1102.54 871.98 442.08 -114.95 1324.26 407.42 -556.58 -331.44 -585.19 514.15 -114.5 -446.39 739.07 921.57 1662.16 1719.18 608.31 180.97 -7.40% -35.07% 54.85% 83.59% 0.00% 26.00% 25.27% 29.36% 28.11% 50.52% -1.92% -8.86% 16.10% 23.49% 0.00%
  18. 18. Valuation Of ITC Limited Using Three Stage Model and FCFF Approach Terminal Stage 1 Actual FCFF for the year 2001 - 2007 (Actuall WaCC) 11.5% WaCC Stage 2 Projected Cash Flows for next 5 years i.e (2008-2012) ( Growth = 21.27% Declining 2% each year, Growth Stage 3 Terminal Value Wacc Has been Assumed at 12% and sustainable growth as 11.50% Growth Actual Actual Actual Actual Actual Actual Actual 21.27 18.27 15.27 12.27 9.27 Year 1 2 3 4 5 6 7 8 9 10 11 12 2001 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E FCFF 180.97 608.31 1719.18 1662.16 321.61 1377.6 617.35 748.66 885.45 1020.65 1145.89 1252.11 Discounting Factor 0.9 0.8 0.72 0.65 0.58 0.52 0.47 0.42 0.38 0.34 0.3 0.27 Present value 162.3 489.31 1240.27 1075.47 186.63 716.98 288.17 313.43 332.46 343.71 346.09 339.17 PV of FCFF 5833.99 Terminal 269704.76 PV of Terminal Value 73056.93 Total Enterprise Value 78890.91 Less Debt 200.9 ASSUMPTIONS Cash & Cash equivalent 250.02 Terminal growth has been assumed to be 7.7% which around the GDP of India. Total Equity Value 78940.03 Terminal Wacc has been assumed to be 8.2% which is less than current Wacc considering the fact No. of Shares 376.86 The sustainable growth in 2007 is 21.27% which has been reduced by 3% year on year as the comp Value per Share 209.47 Wacc from year 2008 to 2012(forecast period) has been assumed to be constant and at 11.50% wh Risk free rate of return has been assumed to be 7% Market risk premium is calculated as 6.7% Sensitivity analysis using Different Wacc and Growth Rates Since ITC is truly diversified company the beta for the company has been calculated based on top b Industry beta of each segment is taken and multiplied with segmental weight of revenues in ITC. U No. Of shares value Per WaCC Growth Total equity Value O/Standing Share The beta calculated based on the regression is 0.708 which may not be the correct measure becau 14.00% 11.5% 20760 376.86 55.09 Since ITC is mostly debt free company and has very very low debt to equity ratio of 0.00025 the co 13.50% 11.5% 24542 376.86 65.12 The Operating leverage of ITC is 0.32. The overall operating leverage exposure of ITC has been adj 13.00% 11.5% 30845 376.86 81.85 12.50% 11.5% 43450 376.86 115.30 12.02% 11.5% 78359 376.86 207.93 Optimum 11.35% 11.5% -246482 376.86 -654.04 Not Relevant 11.00% 11.5% -70002 376.86 -185.75 Not Relevant 10.50% 11.5% -32184 376.86 -85.40 Not Relevant Relative Valuation using EV/Sales Segment Revenues Segment Multiple Estimated Value Agri business 1,555.18 0.81 1,259.70 Tobacco 13,207.00 5 66,035.00 Hotels 1060.89 4 4,243.56 Paper 2,100.00 0.61 1,281.00 FMCG others 1,713.46 1.99 3,409.79 Firm 19,636.53 0 76,229.04 No. of shares 376.86 Current Debt 200.90 Cash & Cash equivalent 250.02 Total Equity Value 76,278.16 Price per share 202.40
  19. 19. 8.20% 7.70% .7% which around the GDP of India. % which is less than current Wacc considering the fact that company becomes less risky at it becomes more mature. hich has been reduced by 3% year on year as the company becomes more mature. od) has been assumed to be constant and at 11.50% which is calculated considering current cost of capital and market returns. eta for the company has been calculated based on top bottom approach considering industry multiples of each segment. multiplied with segmental weight of revenues in ITC. Unlevered beta of ITC has been calculated by summing up all this beta. Unlevered beta is then adjusted for financial and operating leverage of ITC to arrive at levered beta of 0.671. n is 0.708 which may not be the correct measure because of different risk in each business such agribusiness, FMCG, Hotel, Paper in which ITC is there. Hence top bottom approach for ITC gives more precise value of beta and hence cost of capital. has very very low debt to equity ratio of 0.00025 the cost of debt doesn’t have much impact on overall cost of capital verall operating leverage exposure of ITC has been adjusted against total industry operating leverage which is summation of operating leverage of each industry segment.
  20. 20. Years 2007 2006 2005 2004 2003 Total Assets/Liabilities (excl Reval & W.off) 15178.15 13259.09 11698.25 10628.92 8619.71 Networth 10380 9002.31 7834.5 6349.22 5303.99 Finacial leverage 1.46 1.47 1.49 1.67 1.63 PBIT 3942.74 3245.27 3078.2 2353.24 2096.44 Net Sales 12298.89 9786.34 7594.94 6407.46 5875.78 Operating Leverage 6.00 0.32 0.33 0.41 0.37 0.36 5.00 4.00 3.00 2.00 1.00 0.00 1993 1994 1995 1996 1997 2000 2003 2004 2005 2006 1998 1999 2001 2002 2007 Row 4 Row 7 Operating Leverage & Financial Leverage Overview As we glance on the opearting leverage and the financial leverage of ITC Ltd. for period from 1993 to 2007 we can clearly see this clearly signifies how well the operations of the company have been managed whereas the financial leverage of the compa has decreased its dependence on debt in the capital structure, therefore striving to reduce its interst liabilities and sharing pro
  21. 21. 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 7195.27 5934.39 4878.35 4907.98 4443.95 3185.16 2662.43 2692.51 2288.44 1771.39 4349.38 3471.06 2735.25 2167.36 1693.77 1289.05 1050.14 782.29 645.35 335.51 1.65 1.71 1.78 2.26 2.62 2.47 2.54 3.44 3.55 5.28 1857.97 1701.67 1401.54 1146.99 947.46 751.01 575.41 529.77 487.49 400.53 5022.4 4196.44 3843.57 3519.19 3075.44 2814.95 2535.72 2386.05 2352.17 1870.84 0.37 0.41 0.36 0.33 0.31 0.27 0.23 0.22 0.21 0.21 2003 2004 2005 2006 2002 2007 m 1993 to 2007 we can clearly see that the operating efficiency of the company grew steadily over the study period, he financial leverage of the company gardually decreased from 1993 to 2007 which highlights that the company ts interst liabilities and sharing profits more among shareholders.

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