4. Prepared by: Umar Jhon
1.1 S Chand Company Overview
Established in 1970, S Chand stands as a prominent content
company in India, specializing in the publication of educational
books. It offers a diverse range of products encompasses school
books, higher academic books, competition and reference books,
technical and professional books, as well as children's books both
in traditional and Digital format. The primary focus of the
company is on publishing and distributing books tailored for the
K-12 segment, catering to CBSE/ICSE-affiliated schools. Offering
categories span competitive exams & reference books, technical
& professional books, KG to 12th school books, higher academic
books, and educational CDs. With a dedicated in-house sales
team comprising over 500 professionals spread across 50
branches and marketing offices, the company has successfully
developed a portfolio of more than 11,000 book titles. To date,
we have sold over 50 million books through a network of over
5,000 distributors and dealers.
Business Segment
1.K12: Offering a comprehensive content portfolio for students
aged 4 through 18, covering a wide array of instructional
resources across numerous programs aligned with K12 subjects.
2.Higher Education: Comprising test preparation, college, and
university/technical and professional components. Notable
brands in this segment include Vikas, S Chand, and Test Coach,
making it the second-largest by consolidated revenue.
3.Early Learning: Catering to the youngest customer market (0-4
years of age) with brands like BPI, Smartivity, and Risekids.
4.Digital Offering: Emphasizing digital education in both K-12 and
higher education segments.
Source: Website, Screener & Tijori Finance
100
150
200
250
300
350
Jan/2023
Jan/2023
Feb/2023
Mar/2023
Apr/2023
Apr/2023
May/2023
Jun/2023
Jun/2023
Jul/2023
Aug/2023
Aug/2023
Sep/2023
Oct/2023
Oct/2023
Nov/2023
Dec/2023
Jan/2024
Share Returns
95.70%
4.30%
Product Wise Break-Up
Books K-12
Books - Higher Education,
early learning & Digital
5. 02 Economy Analysis
01
Global Economy
Overview
02
Global GDP
Projections
03
Indian Economy
Overview
04
Indian GDP
Projection
6. 0.4% 2.4% 4.4% 6.4%
World Output
Advanced Economies
Emerging Countries
Low Income Countries
US
China
UK
ME & Central Asia
India
Japan
Global GDP Predications (%)
2022A 2023P 2024P
2.1 Global Economy Overview
Prospects for a robust global economic recovery remain grim in the
face of persistent inflation, rising interest rates, and increased
uncertainty. As the global economy prepares to leave the pandemic
behind, the Russia-Ukraine conflict hampered the normalization of
the Supply Chain. Simultaneously, China's strict zero-COVID policy for
the majority of the CY22 and the recent Isreal Gaza war delayed the
normalization further. In response to shield economies from further
suffering, central banks across major economies—led by the US
Federal Reserve—responded by raising interest rates in
synchronization to control inflation. However, the rapid increase in
policy rates has had evident consequences, including highlighted
shortcomings in the banking sector and growing fears of transmission
across the broader financial industry, including non-banking financial
entities.
The global economy continues to recover, but its rebound is still
fragile and there are considerable challenges to the downside. Lower
energy prices are relieving pressure on household budgets and
reducing headline inflation, while China's earlier-than-expected
reopening has stimulated global trade. According to the IMF, Global
growth is anticipated to decrease to 3% in 2023 and 2024 from an
estimated 3.5% in 2022. The rise in central bank policy rates to
combat inflation continues to impact on economic growth.
The economic prospects of many emerging nations have been worse
due to tighter lending requirements and rising external finance costs.
The least developed nations are expected to increase by 4.1% in 2023
and 5.2% in 2024, which is much less than the 7% growth objective
laid out in the 2030 Agenda for Sustainable Development.
Source: IMF, OECD & United Nations Source: IMF
7. 2.2 Indian Economy Overview
India’s economy has displayed remarkable resilience amidst global
challenges, positioning itself as the frontrunner in growth among
major economies. With an average GDP growth of 5.5% over the last
ten years, the Indian economy is the fastest-growing economy in the
world. The economy continued to grow quickly in the first half of
2023, increasing by 7.2% in comparison to the 2022–2023 fiscal year.
The acceleration of foreign direct investment inflows into India during
the last decade reflects the Indian economy's excellent long-term
growth outlook, which is aided by a youthful demographic
composition and rapidly expanding urban family incomes. With this
Rapid pace of economic Growth & swift economic expansion Indian
economy is expected to surpass the Japanese Economy by the end of
2030, making India the second-largest economy in the Asia-Pacific
region.
The long-term outlook for the Indian economy is supported by several
key growth drivers. A significant positive element for India is its vast
and rapidly increasing middle class, which is driving consumer
spending. The Rapid Expansion in the Indian domestic consumer
market, as well as the country's massive industrial sector, have made
India an increasingly important investment destination for a wide
range of global corporations in a variety of industries, including
manufacturing, infrastructure, and services. From the estimated 500
million internet users in 2020, India's internet user base is expected
to more than double to 1.1 billion by 2030. The swift expansion of e-
commerce and the transition to 4G and 5G smartphone technology
will provide fuel to domestic unicorns such as Mensa Brands,
Delhivery, and BigBasket etc.
Source: S&P Global, Morgan Stanley & Goldman Sachs Source: Trading Economics, Investing.com & IMF
2018A 2019A 2020A 2021A 2022A 2023P 2024P
Growth % 6.8% 6.5% 3.9% -5.8% 9.1% 6.1% 6.3%
6.8%
6.5%
3.9%
-5.8%
9.1%
6.1%
6.3%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
India GDP Growth Projections
8.4%
5.4%
4.1%
13.5%
6.3%
4.4%
6.1%
7.8%
8.4%
6.0%
4.0%
15.2%
6.2%
4.6%
4.6%
7.7%
0.3%
2.3%
4.3%
6.3%
8.3%
10.3%
12.3%
14.3%
16.3%
Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Q3 FY23 Q4 FY23 Q1 FY24
India's Quartely GDP Growth Data - Actual vs
Projected
Actual Projected
9. 3.1 Global & Indian Sector Overview
The global market for K-12 books reached a Market Size of USD
103 billion in 2022, with an anticipated compound annual growth
rate (CAGR) of 20% from 2022 to 2031. This growth is primarily
fueled by increased consumer spending on books, supported by
substantial government initiatives in the development of Learning
Management Systems (LMS). The utilization of artificial
intelligence (AI) and machine learning (ML) in LMS is a key driving
force behind the expansion of the K12 Education Market. he
continuous development of technology in education allows
schools and colleges to provide innovative learning experiences.
Factors such as the widespread adoption of intelligent devices,
easy access to the internet, and the integration of AR and VR for a
more interactive educational curriculum are expected to create
significant opportunities for the growth of the K12 technology
education sector.
Source: Astute Custom Market Insights,, IMRAC & Statista
(In USD bn)
In 2022, the Indian school market was valued at US$43.5 billion,
with a projected growth to reach US$85.9 billion by 2028,
indicating a CAGR of 12%. The principal driving force behind the
expansion of the Indian school market is the country's vast
population coupled with a substantial shortage of schools capable
of delivering quality education. With an ever-growing population
of approximately 1.42 billion, India stands as the world's most
populous nation, providing an extensive consumer base for the
education sector. Another significant contributor to the growth of
the Indian school market is the considerable financial backing from
both the government and private institutions. Additionally,
government initiatives such as the New Education Policy (NEP) and
the establishment of Eklavya schools aim to promote girl education
and ensure equal opportunities for all, positively impacting the
market. Furthermore, technological evolution presents substantial
opportunities for the Indian school market to thrive.
$103
$124
$148
$178
$214
$256
$308
$369
$443
$531
$0
$100
$200
$300
$400
$500
$600
2022A 2023P 2024P 2025P 2026P 2027P 2028P 2029P 2030P 2031P
Global K-12 Text Book Market Outlook -
CAGR 20%
$43.5
$48.7
$54.6
$61.1
$68.4
$76.7
$85.9
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
2022A 2023P 2024P 2025P 2026P 2027P 2028P
Indian School Market Outlook –
CAGR 12% (2023-2028)
10. 04 S Chand’s Growth
4.1
Growth Outlook
4.3
Revenue Projection
4.5
Gross Margin Outlook
4.6
SG&A
11. 4.1 S Chand – Growth Story
For more than 80 years, S Chand has stood as a reliable and
esteemed education content company. Offering a diverse range of
products, the company provides holistic solutions catering to
learners across K-12, Higher Education, Competitive
examinations, and digital platforms. The cornerstone of S Chand's
success lies in its ability to cultivate enduring relationships with
customers who value the quality, authenticity, and innovative
content that the company consistently delivers. In recent years, S
Chand has strategically invested in digital offerings, showcasing its
commitment to staying at the forefront of educational
technology. With a vast repository of over 10,000 book titles, the
company has fortified its presence across India through a robust
distribution network, engaging approximately 3,000 distributors
and channel partners.
In the fiscal year 2023, S Chand demonstrated robust financial
performance, recording a revenue of INR 643 Cr, marking an
impressive 29% year-on-year growth. The company has
consistently exhibited healthy growth over the past three years,
boasting a Compound Annual Growth Rate (CAGR) of 12% and 8%
over the last decade. With optimistic plans for future expansion,
the management envisions a remarkable 23% overall growth for
FY24, underpinned by strategic initiatives.
Several key factors contribute to the anticipated growth:
1.NFC Rollout: The company foresees substantial growth with the
rollout of NFC in CY24-25. Initial adoption rates of 50-60% in the
first year, escalating to 75-80% in the second year, are expected to
significantly contribute to the company's revenue, projecting it in
the range of Rs 720 - 750 Cr.
Source: Concalls, Annual report FY23 & Tijori Finance
2. S Chand Academy: The success of S Chand Academy is evident,
with the launch of over 1400 videos focused on higher education
topics, amassing approximately 170k subscribers and 15 million+
views. Expansion plans include adding 600 more videos for both
college and school audiences.
3. TestCoach Preparation App: The company plans to expand its
TestCoach preparation app by introducing over 50 government
vacancy tests, tapping into a substantial market opportunity.
1.Price Hike: A single-digit price hike of 7% is planned for FY24,
reflecting the company's strategic approach to maintaining
profitability.
₹
807
₹
534
₹
439
₹
445
₹
495
₹
643
₹
791
₹
963
₹
1,160
₹
1,384
₹
1,634
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
₹ 100
₹ 300
₹ 500
₹ 700
₹ 900
₹ 1,100
₹ 1,300
₹ 1,500
₹ 1,700
₹ 1,900
Revenue Growth - Projection
Revenue YoY Growth (%)
12. 4.2 Financials – Gross Margins
In the fiscal year 2023, the Company delivered an impressive
performance marked by notable revenue growth and strong gross
margin performance. Over the last two consecutive years, the
company has consistently achieved margin growth, with FY23
gross margins reaching 65.69%, a slight increase from the
previous year's 65.09%. Factors contributing to this margin
expansion include the cooling down of paper prices.
Looking ahead, the management anticipates continued margin
growth in the next 4 to 5 years, leveraging fixed-price contracts
for 60% of raw materials. The company is also actively diversifying
into the digital stream to strategically manage gross margins.
Raw materials currently constitute approximately 34% of the total
revenue, and recent efforts, including fixed-price contracts, aim to
stabilize and optimize this key cost component.
Examining the historical performance, the company has
consistently posted gross margins ranging from approximately
63% to 72% over the last nine years, with a median of 65%. The
highest gross margin recorded in the past seven years was 72% in
FY2016. Comparatively, emerging countries in the Publishing &
Newspaper industry typically report margins around 33%, while
global economies stand at 36%. Based on current industry
dynamics and the management's confidence, the company is
expected to maintain its competitive edge by maintaining gross
margins at around 66% in the short term. This strategic outlook
reflects the company's commitment to sustaining and enhancing
its financial performance amid evolving market conditions.
Source: Quarterly Concalls
68.26%
66.14%
63.58%
64.72%
65.09%
65.69%
65.91%
63.65%
61.39%
59.13%
56.87%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Gross Margins - Projections
₹
807
₹
534
₹
439
₹
445
₹
495
₹
643
₹
791
₹
963
₹
1,160
₹
1,384
₹
1,634
0%
10%
20%
30%
40%
50%
60%
70%
80%
₹ 50
₹ 250
₹ 450
₹ 650
₹ 850
₹ 1,050
₹ 1,250
₹ 1,450
₹ 1,650
₹ 1,850
Revenue & Gross Margin Relation
Revenue Gross Margins
13. 4.3 Financials – SG&A & Inventory
In the fiscal year 2023, the Company achieved a notable
milestone with EBITDA margins soaring to 20%, a significant
increase from the preceding year's 15%. This remarkable uptick
can be attributed to a surge in demand, showcasing the
organization's ability to capitalize on market opportunities.
Looking ahead, the management has provided guidance for
EBITDA margins in the range of 15-18% for FY24, indicating a
slightly more conservative projection compared to the stellar
performance of the previous fiscal year. This nuanced approach
aligns with the company's strategic stance, considering various
factors such as market dynamics and operational considerations.
Our research underscores the historical trend that Selling,
General, and Administrative (SG&A) expenses have consistently
represented around 47% of total revenue. Key components within
SG&A, including Employee benefits expenses, selling and
distribution expenses, and miscellaneous expenses, are intricately
linked with sales figures.
Source: Annual Report FY23 & Quarterly Concalls
₹
156
₹
221
₹
260
₹
301
₹
346
₹
372
₹
291
₹
213
₹
247
₹
293
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
₹ 100
₹ 150
₹ 200
₹ 250
₹ 300
₹ 350
₹ 400
SG&A % of Revenue
Total SG&A SG&A % of Revenue
Trade Receivable
In the last fiscal year, the Company significantly reduced its
reliance on Trade receivables, which accounted for approximately
41% of total revenue compared to about 59% in the preceding
year. The management aims to decrease it further to 120 days,
equivalent to 30% of total Revenue. Our analysis indicates that
historical Trade Receivables peaked in FY2019 at 83% of total
sales and hit a low point in FY23 at 43% of total revenue.
Considering the company's recent financial progress and
management's guidance for FY24, we anticipate this trend to
continue, possibly reaching the targeted 120-day mark.
₹
631
₹
445
₹
335
₹
322
₹
292
₹
265
₹
313
₹
365
₹
421
₹
480
₹
537
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
₹ 100
₹ 200
₹ 300
₹ 400
₹ 500
₹ 600
₹ 700
Debtor - % of Revenue
Trade Receiveable Trade Receiveable % of Revenue
14. 4.4 Risk Analysis
1) The high degree of seasonality of K-12 business materially
affects operating revenue, margins and cash flow from quarter
to quarter.
The operations of the business are aligned with the academic
cycle, resulting in a seasonal pattern. Within the K-12 segment,
the sales season has traditionally manifested in the fourth
quarter of the financial year. The company's sales season
typically extends through the first and fourth quarters of the
financial year, with the primary sales period commencing in
December.
2) Operating in a highly-competitive and fragmented industry,
results of operations and financial condition may be adversely
affected if we are not able to compete effectively.
The landscape of the Indian education content market is
characterized by intense competition and fragmentation. Diverse
educational boards, such as state education boards, the Central
Board of Secondary Education (CBSE), and the Indian Certificate
of Secondary Education (ICSE), each governed by separate bodies
with distinct syllabi, contribute to this complexity. The company
specializes in creating educational materials primarily for schools
affiliated with the CBSE/ICSE boards and regional state boards.
Competitive pressures arise from entities like the National
Council of Educational Research and Training (NCERT) and the
State Council of Educational Research and Training (SCERT),
which offer subsidized educational materials for the K-12 market.
Given the multitude of players, various brands, and the differing
scales of competitors, establishing national brands becomes
Source: DHRP
challenging, necessitating the presence of a dedicated local sales
team for effective competition. Moreover, in the face of intense
competition, pricing strategies may need to be competitive, and
incentives may be required to attract and retain customers.
3) A significant portion of our revenues are derived from titles
of our top authors. The loss of all or any of our top authors
could adversely affect our business, results of operation, cash
flows and financial condition.
The company possesses an internal team dedicated to content
development, and a substantial share of our revenue stream is
generated by our top twenty authors. In the fiscal year 2016,
these top twenty authors, measured by revenue, accounted for
roughly 48.94% of our total consolidated revenues from
operations. It is important to note that the potential loss of
these key authors could have adverse effects on our business,
impacting results of operations, cash flows, and overall financial
condition.
4) The company relies on our paper and other raw material
suppliers for our business and third parties for the printing and
binding of a portion of our content.
Supply chain disruption can severely impact the operations and
financials of the company. And fluctuations in the raw material
prices hit margins of the company.
16. 5.1 Valuation
The primary aim is to determine the intrinsic value of S Chand
stock by conducting a thorough analysis. This assessment revolves
around evaluating the company's value based on its cash flow
generation, projected future growth, and the associated business
risks. Throughout this process, careful consideration has been
given to the guidance provided by the company's management.
Objective
Valuation typically involves three principal approaches: Cost
Approach, Market Approach, and Income Approach. It's
important to recognize that not all of these approaches are
universally applicable, and their relevance varies depending on
the specific circumstances. Applying an indiscriminate approach
may lead to an unfair estimate of value. Therefore, it is essential
to choose the approach most suitable for a particular business or
company, guided by industry best practices.
Valuation Methodology
Within this approach, the valuation of the company's business is
determined by utilizing market multiples from actively traded
listed companies possessing comparable attributes to the target
company. This method is grounded in the belief that market
pricing, conducted by informed buyers and sellers,
comprehensively considers all relevant factors. It is imperative to
note that not every multiple is universally applicable; hence, the
careful selection of pertinent multiples is required, accounting for
Market Approach
variances among comparable. In the case of valuing S Chand, the
chosen metric is the EV/EBITDA multiple.
Within this methodology, the valuation of the business is
established based on the difference between the value of assets
and liabilities. With a core focus on equity valuation, the objective
is to determine the value of net assets. This calculation involves
subtracting total external liabilities from total assets, formulated
as follows: Net Assets = Total Assets - Total External Liabilities.
The resulting value, commonly referred to as Total Equity, serves
as the fundamental basis for this valuation approach.
Asset Approach
Within this approach to valuation, the business's worth is derived
by incorporating considerations of Free Cash Flows, future growth
prospects, and the Weighted Average Cost of Capital, all within
the context of risk. The Income Approach involves a structured
four-step process:
1) Forecasting future cash flows during the explicit growth period.
2) Discounting forecasted cash flows to present value, using a rate
of return that encapsulates the risk associated with realizing
future cash flows and expected growth.
3) Determining the terminal value of free cash flows beyond the
explicit growth period.
4) Summation of the present value of terminal cash flows with the
free cash flows generated during the explicit forecast period.
Income Approach
17. 5.2 DCF Valuation
Market
Cap
INR
1,092
Intrinsic
value
INR
1,189
WACC
21%
Terminal
Growth
5%
Actual Explicit Forecast Period Maturity Period
In INR Crores unless stated otherwise FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033
Free cash Flow To Firm - S.Chand Ltd.
EBITDA ₹129 ₹139 ₹165 ₹194 ₹226 ₹260 ₹296 ₹334 ₹371 ₹409 ₹445
Less: Depreciation & Amortization (₹46) (₹47) (₹53) (₹59) (₹67) (₹75) (₹80) (₹85) (₹90) (₹96) (₹101)
EBIT ₹83 ₹92 ₹112 ₹135 ₹159 ₹185 ₹216 ₹249 ₹281 ₹313 ₹343
Less: Tax (₹20) ₹32 ₹40 ₹48 ₹57 ₹66 ₹77 ₹89 ₹101 ₹113 ₹125
EBIT (1-T) ₹63 ₹124 ₹152 ₹182 ₹216 ₹251 ₹294 ₹338 ₹382 ₹426 ₹468
Add: Depreciation & Amortization ₹46 ₹47 ₹53 ₹59 ₹67 ₹75 ₹80 ₹85 ₹90 ₹96 ₹101
Cash NOPAT ₹109 ₹171 ₹205 ₹242 ₹282 ₹326 ₹374 ₹423 ₹472 ₹522 ₹570
Less: Reinvestments
Change in Working Capital (₹11) (₹40) (₹48) (₹48) (₹47) (₹41) (₹68) (₹69) (₹68) (₹65) (₹60)
Capex during the year (₹16) (₹10) (₹86) (₹99) (₹112) (₹125) (₹69) (₹75) (₹80) (₹84) (₹86)
Free Cashflow to Firm ₹82 ₹121 ₹71 ₹95 ₹124 ₹160 ₹237 ₹279 ₹325 ₹374 ₹424
Discount Period (Years) Mid year Yes 0.5 1.5 2.5 3.5 4.5 5.5 6.5 7.5 8.5 9.5
Discount rate (WACC) 21.00%
Present Value Factor ₹0.909 ₹0.751 ₹0.621 ₹0.513 ₹0.424 ₹0.350 ₹0.290 ₹0.239 ₹0.198 ₹0.164
Present Value Of Free Cash Flow to Firm ₹110 ₹53 ₹59 ₹64 ₹68 ₹83 ₹81 ₹78 ₹74 ₹69
DCF Valaution - Perpetuity Growth - S.Chand Ltd.
Perpetual Growth Rate 4.88%
Terminal Year - FCFF x (1+PGR) ₹444.9
Terminal Value ₹2,760.8
Present Value Of Terminal Value ₹451.4
Present Value of FCFFs ₹739.0
Enterprise Value ₹1,190.4
Implied Exit Multiple 2.7x
Implied EV/EBITDA 9.2x
Less: Debt (₹468.3)
Add: Cash ₹475.7
Less: Minority Interest (₹8.4)
Add: Non Operating Asset -
Equity Value ₹1,189.5
Less: Value of Options -
Equity Value for Shareholders 1,189.5
Exit Multiple - S.Chand Ltd.
Exit Multiple 11.0x
Terminal Year - EBTDA ₹444.7
Terminal Value ₹4,892.2
Present Value Of Terminal Value ₹799.9
Present Value of FCFFs ₹739.0
Enterprise Value ₹1,538.9
Implied Exit Multiple 3.5x
Implied EV/EBITDA 11.9x
Less: Debt (₹468.3)
Add: Cash ₹475.7
Less: Minority Interest (₹8.4)
Add: Non Operating Asset -
Equity Value ₹1,538.0
Less: Value of Options -
Equity Value for Shareholders ₹1,538.0
Perpetuity Growth Rate
WACC
₹1,189.5 3.90% 4.90% 5.90% 6.90% 7.90%
8.00% ₹6,545.2 ₹8,280.4 ₹11,668.2 ₹21,215.4 ₹221,707.8
21.00% ₹1,159.5 ₹1,190.0 ₹1,224.5 ₹1,263.9 ₹1,309.4
31.00% ₹636.5 ₹642.6 ₹649.1 ₹656.1 ₹663.8
41.00% ₹427.4 ₹429.1 ₹430.9 ₹432.8 ₹434.8
51.00% ₹321.2 ₹321.8 ₹322.4 ₹323.0 ₹323.7
Exit Multiple
WACC
₹1,538.0 11.0x 21.0x 31.0x 41.0x 51.0x
8.00% ₹3,725.3 ₹5,866.2 ₹8,007.0 ₹10,147.9 ₹12,288.8
21.00% ₹1,538.0 ₹2,265.2 ₹2,992.4 ₹3,719.6 ₹4,446.7
31.00% ₹887.7 ₹1,229.7 ₹1,571.7 ₹1,913.7 ₹2,255.7
41.00% ₹569.0 ₹739.0 ₹909.1 ₹1,079.1 ₹1,249.1
51.00% ₹400.1 488.7 ₹577.4 ₹666.1 ₹754.8
18. 5.3 WACC Assumptions
The Risk-free rate, also known as the Risk-free interest rate or
Risk-free yield, is typically derived from the yields of government
bonds or Treasury bills issued by financially stable governments.
While performing Valuation of S Chand Ltd. the Risk-Free Rate
was determined by subtracting the Country Default Spread from
the 10-Year Government Bond Yield. The Country Default Spread
was sourced from Professor Damodaran's website.
we have considered a 10Y Government bond yield as a Risk-free
rate as it’s most liquid against the long-term bonds (15Y,30Y etc.)
and has better price discovery.
Risk Free Rate
Equity risk premium, also known as Market risk premium or
equity premium, refers to the excess return expected from an
investment in the stock market over and above the risk-free rate
of return. The Equity Risk Premium was calculated by adding the
US Implied Market Premium to India's Country Risk Premium.
Equity Risk Premium
Beta is directly taken from “Yahoo Finance”. We utilized a 5-year
monthly Equity beta for our analysis.
Beta
To assess the Cost of debt, we have used the Country's Risk-Free
Rate, the Country's default spread, and Corporate default spread
based on the Company's debt rating and Interest coverage ratio
Cost of Debt
We have used a study on size premium conducted by Incwert
(based on the difference between actual returns & CAPM
expected returns).
Small Size Premium
Name of the Company S. Chand Ltd
WACC Inputs
Country India
Local Currency 10Y Bond Yield 7.24%
India's Moodys Soverign Ratings Baa3
Credit default Spread as per Damadoran 2.35%
Implied US Equity Risk Premium 4.57%
Asset Beta
Asset Beta Variation (+/-) 0.05
Debt to Equity Ratio 12.77%
Debt to Capital (Gearing) 11.42%
Marginal Tax Rate 25.12%
Company Credit Ratings Aavailable? No
Company is Large Firm or Small Firm? Small
Provide Credit Rating A3/A-
Interest Coverage ratio 4.00
ICR Based Corporate default Spread 1.89%
Small Size Premium 10.90%
Weighted Average Cost of Capital
Particulars Low Mid High
Risk free rate 4.88% 4.88% 4.88%
Equity Risk Premium 6.92% 6.92% 6.92%
Equity beta 0.85 0.90 0.95
CAPM Cost of Equity 10.73% 11.08% 11.42%
Small Size Premium 10.90% 10.90% 10.90%
Asset Specific Premium 0.00% 0.00% 0.00%
Modified Cost of Equity 21.63% 21.98% 22.32%
Pre tax Cost of Debt 9.13% 9.13% 9.13%
Marginal Tax rate 25% 25% 25%
Post Tax Cost of Debt 6.83% 6.83% 6.83%
Capital Gearing (D/D+E) 11.42% 11.42% 11.42%
Weighted Average Cost of Capital 19.94% 20.25% 20.56%
Weighted Average Cost of Capital (Rounded) 20.00% 21.00% 21.00%
19. 06 Acknowledgement
Report Prepared By - Umar Jhon, MBA
I would like to express resources that have contributed to the completion of this valuation analysis,
(Damodaran Website, Gia Stocks, Business research reports, Statistica, Annual Report and so on) that have
played a crucial role in shaping this analysis.
With sincere appreciation,
Umar Jhon,
Thank you.
