Here is the remaining question of the case study Under the second segment, Vakrangee offered services such as banking, insurance, e- governance, and ecommerce through its vast number of franchise-operated outlets (21,820 by June 30,2016). This project formed part of the financial inclusion project of the Ministry of Finance and the Reserve Bank of India. The company had made plans to set up and operate 75,000 Vakrangee centres by 202010 Vakrangee was focused on the idea of connecting its customers digitally, based on the Digital India concept introduced by the government. Vakrangee wanted to build itself as a company that fulfilled all of the digital needs of its customers. "The company provided its services in a host of domains, including banking and financial services (e.g., opening and maintenance of accounts); tie-ups with banks and insurance companies; e-govemance projects such as digitization of records, Aadhaar cards, and election cards; and logistics projects.' 12 With its operations spread across the country, the company started becoming a favourite stock for investors. Until December 2017, many analysts had a positive rating on the stock. 13 However, despite favourable results and a positive outlook by analysts, Vakrangee had come under the scrutiny of the Securities and Exchange Board of India for stock price manipulations and insider trading. The first such inquiry was initiated in the early 2000s, with additional inquiries in 2009, 2012, 2017, and January 2018. Other inquiries were initiated by the stock exchanges where Vakrangee was listed. 14 STOCK VALUATION OF VAKRANGEE Being a firm believer in fundamental analysis, Khandelwal had done a thorough economy and sector analysis for Vakrangee. The economic forecast was good. The Indian economy was expected to grow at a rate of 7.0 - 7.2 per cent. 15 Certain economic policies of the government, including the banning of high denomination notes (known as demonetization) 16 and the implementation of a goods and services tax,17 had slowed growth in the short run, but the economy had bounced back and was again beginning to gain pace. 18 The IT industry was growing at a consistent annual rate of 7-8 per cent, according to a Nasscom report. 19 Khandelwal consulted the company's profit and loss statements (see Exhibit 5 and the accompanying student spreadsheet) and its balance sheet (see Exhibit 6) from 2010 onwards for the purpose of valuation. The company had impressive financials, with sales increasing exponentially with a CAGR of 25.40 per cent. By 2017 , the company had no long-term debt left on its books, and only minimal short-term debt. The change in the company's business model was also reflected in the way the assets had transformed during the period from 2011 to 2017 . Net fixed assets had fallen by more than 85 per cent. Cash and short-term investments had increased by 65 times in the previous five years. Receivables had increased three times during this period. Other items, suc.

1. Here is the remaining question of the case study
Under the second segment, Vakrangee offered services such as banking, insurance, e-
governance, and ecommerce through its vast number of franchise-operated outlets (21,820 by
June 30,2016). This project formed part of the financial inclusion project of the Ministry of Finance
and the Reserve Bank of India. The company had made plans to set up and operate 75,000
Vakrangee centres by 202010 Vakrangee was focused on the idea of connecting its customers
digitally, based on the Digital India concept introduced by the government. Vakrangee wanted to
build itself as a company that fulfilled all of the digital needs of its customers. "The company
provided its services in a host of domains, including banking and financial services (e.g., opening
and maintenance of accounts); tie-ups with banks and insurance companies; e-govemance
projects such as digitization of records, Aadhaar cards, and election cards; and logistics projects.'
12 With its operations spread across the country, the company started becoming a favourite stock
for investors. Until December 2017, many analysts had a positive rating on the stock. 13 However,
despite favourable results and a positive outlook by analysts, Vakrangee had come under the
scrutiny of the Securities and Exchange Board of India for stock price manipulations and insider
trading. The first such inquiry was initiated in the early 2000s, with additional inquiries in 2009,
2012, 2017, and January 2018. Other inquiries were initiated by the stock exchanges where
Vakrangee was listed. 14 STOCK VALUATION OF VAKRANGEE Being a firm believer in
fundamental analysis, Khandelwal had done a thorough economy and sector analysis for
Vakrangee. The economic forecast was good. The Indian economy was expected to grow at a rate
of 7.0 - 7.2 per cent. 15 Certain economic policies of the government, including the banning of
high denomination notes (known as demonetization) 16 and the implementation of a goods and
services tax,17 had slowed growth in the short run, but the economy had bounced back and was
again beginning to gain pace. 18 The IT industry was growing at a consistent annual rate of 7-8
per cent, according to a Nasscom report. 19 Khandelwal consulted the company's profit and loss
statements (see Exhibit 5 and the accompanying student spreadsheet) and its balance sheet (see
Exhibit 6) from 2010 onwards for the purpose of valuation. The company had impressive
financials, with sales increasing exponentially with a CAGR of 25.40 per cent. By 2017 , the
company had no long-term debt left on its books, and only minimal short-term debt. The change in
the company's business model was also reflected in the way the assets had transformed during
the period from 2011 to 2017 . Net fixed assets had fallen by more than 85 per cent. Cash and
short-term investments had increased by 65 times in the previous five years. Receivables had
increased three times during this period. Other items, such as accounts payable, prepaid
expenses, and so on, showed similarVALUATION TROUBLES Khandelwal wondered what he had
missed in his initial valuation of the company. He went through the assumptions he had made. He
had assumed the growth rate in revenue to be 25.40 per cent, and the earnings before interest,
taxes, depreciation, and amortization margin to be around 23 per cent. Both of these assumptions
were based on Vakarangee's past margins. Terminal growth rate was taken as 6 per cent (the
historical average Indian GDP growth rate). Long-term debt was nil; therefore, weighted average
cost of capital was only based on cost of equity. Cost of equity was calculated through a capital
asset pricing model formula, where the risk-free rate was taken as 7.848 per cent (the average 10-
year yield rate on Government of India bonds), the beta was 0.456 , and the market rate of return

2. was 11.58 per cent based on the previous five years of the Nifty 50 Index CAGR. He had taken all
of these values from Bloomberg. He created a sheet for assumptions he made and his
justifications for those assumptions (see Exhibit 7). He also looked at the peer values for the
purpose of relative valuation. He considered those IT companies that had a greater presence in
India, compared to some of the larger IT companies whose major source of business was
outsourcing (see Exhibit 8). Looking at the peer data, he wondered whether he had chosen the
right companies for comparison. He realized that although Vakrangee was characterized as an IT
company on the stock exchanges, its business profile was very different from a typical IT
company. Vakrangee was not involved in software development, it used IT to facilitate business in
rural and semi-rural areas. He looked at other IT companies and aimed to identify companies that
had a similar business model to Vakrangee. He found two companies with a similar business
model to Vakrangee and gathered data about them to redo a relative valuation of the company
(see Exhibit 9 ). Khandelwal was a firm believer in quantitative valuation techniques such as DCF
and relative valuation. After the debacle of Vakrangee, however, he wondered if he should
consider qualitative valuation as well. Khandelwal thought back to the investment checklist
designed by Sheam, who believed that the intrinsic value of a stock could be misinterpreted by
DCF and relative peer valuation. DCF valuation was based on logical assumptions, and relative
valuation depended on identifying the right peers, which linked to the investor's ability to
understand the business. If these quantitative analyses could be complemented with qualitative
pointers, it would help an investor better value a business and make better decisions. 20
Khandelwal also decided to look at the QGLP parameters that other analysts at his firm followed.
21 In calculating the intrinsic value of Vakrangee, had Khandelwal focused too much on DCF
valuation? Could he do a relative valuation for Vakrangee, and if so, had he chosen the right peer
companies? Was he so blinded by what seemed to be an attractive valuation that he ignored the
qualitative factors affecting the stock? How would an analyst approach the concepts given in The
Investment Checklist and QGLP? How were the new approaches different from the traditional
quantitative analysis of a stock?EXHIBIT 1: VAKRANGEE LIMITED STOCK PRICE MOVEMENT,
OCTOBER 2017 TO APRIL 2018 Source: "Vakrangee Limited (VAKRANGEE.BO); Yahoo
Finance, accessed May 25, 2018, http:/lgo.ivey.ca/5zFF. EXHIBIT 2: FIVE INVESTMENT
CHECKLIST PARAMETERS TO USE IN A VALUATION - Understand how the business makes
money. - Understand the business from the customer's perspective. - Assess the strengths and
weaknesses of the business and the sector. - Measure the financial and operating health of the
business. - Consider the background of managers, compensation of managers, employee
relations, and business transparency. Source: Created by author based on Michael Shearn, The
Investment Checklist: The Art of In-Depth Research (Hoboken, NJ: John Wiley & Sons,
2011).EXHIBIT 3: FOUR PARAMETERS OF THE QGLP PROCESS Note: P/B= price to book; P/
E= price to equity; DCF= discounted cash flow. Source: Motilal Oswal Asset Management
Company, Our Mantra for Wealth Creation, accessed May 25, 2018,
www.motilaloswalmf.com/Campaigns/QGLPContest/images/QGLP-Booklet.pdf. EXHIBIT 4:
MAJOR INVESTMENTS OF INFORMATION TECHNOLOGY FUND (AS OF APRIL 19, 2018)
Source: Prepared by the case author based on company documents.EXHIBIT 5: VAKRANGEE
LIMITED INCOME STATEMENT (IN MILLION) Note: Z=INR= Indian rupee; Us$1 = 66.18 on Apri

3. 20, 2018; FY = frscal year. Source: Vakrangee Limitod, Income Statement of Vakrangee,
"Bioomberg LP, accessed May 23, 2018 ,Noti SouEXHIBIT 7: ASSUMPTIONS MADE FOR
DISCOUNTED CASH FLOW VALUATION Note: EBITDA = eamings before Interest, tax,
depreciation and amortization; Rf = risk-free rate; Rm = risk premium; CACR = compound annual
growth rate; Ke = cost of equity, CAPM = Capital Asset Pricing Model; Kd = cost of debt; 1= Tax
rate T= time (or period): WACC = weighted average cost of capital; G= growth rate. Source:
Compled by the author based on data from "Balance Sheet of Vakrangee," Bloomberg LP,
accessed May 23, 2018; Vakrangee Limiled, "Income Statement of Vakrangee," Bloomberg LP,
accessed May 23, 2018; and analysis of these two financial statements. EXHIBIT 8: VAKRANGEE
LIMITED PEER COMPANY DATA, 2017 (IN MILLION) Note: = INR = Indian rupee; USS1 = 66.18
on April 20, 2018; P/E = Market price per share to Eamings Per Share; EV = enterprise value;
EBITDA = eamings before Interest, tax, depreciation and amortization; ROE = return on equity.
Source: Vakrangee Limited, "Peer Group for Vakrangee," Bloomberg LP, accessed May 23,
2018.EXHIBIT 9: VAKRANGEE LIMITED NEW PEER COMPANY DATA, 2017 (IN MILLION)
Note: = INR = Indian rupee; USS1 = 66.18 on April 20, 2018; P/E = Market price per share to
Earnings Per Share; EV = enterprise value; EBITDA = earnings before Interest, tax, depreciation
and amortization; ROE = return on equity. Source: Vakrangee Limited, 'Peer Comparison of
Vakrangee," Bloomberg LP, accessed May 23, 2018.