Financial Overiview of a MSE.doc

Financial Overiview of a MSE.doc - FB11001 Financial...

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FB11001 Financial Management 1 (Company: D B Corp) Assignment 3 (Intrinsic Value of Shares, Bonds and Debentures) Part I: Valuation of Shares 1) Intrinsic Value of a firm using Constant Growth Dividend Discount Model (DDM) D B Corp Year----> 2011 2010 2009 Dividends Paid 729679324 362044210 84394803 Net Income 258476160 1 182800107 2 476217968 Average Net Worth 738783598 4 453182229 4 238721157 1 Dividend Pay-out 0.2823004 3 0.1980547 0.1772188 5 Retention Ratio (RR) 0.7176995 7 0.8019453 0.8227811 5 ROE 0.3498672 2 0.4033699 8 0.1994871 2 Growth Rate (RR x ROE) 0.2510995 5 0.3234806 6 0.1641342 4 Average Growth Rate 0.2462381 5 Table 1.1 Calculation of Average Growth Rate The average growth rate comes out to be higher than the expected rate of return, Prima Facie this can be attributed to estimation error. Hence, it has been appropriate to assume 1 that the rate of growth can be assumed to that of the GDP of the country as the rate of growth cannot be higher than that when we look at this model; also it captures the long term growth in mind. We assume a growth rate of 7.7 % 2 We calculate the Dividend per Share (Do) given by Dividend/Outstanding Shares. Dividend 729679324 No. Of Shares 183283231 DPS (D 0 ) 3.98 We now calculate D 1 as DPS (D 0 ) x (1+g) Therefore D 1 = 3.98 x (1+0.077) = 4.28 Therefore Intrinsic Value of a Share = D 1 / (Ke-g) = 4.28 / (0.13 – 0.077) = 80.75 1 The reports of PMIR 11 were studied thoroughly to arrive at this conclusion; this was supposed to be benchmark reports as told to refer by Dr. Ram Kumar Kakani. 2 http://www.tradingeconomics.com/india/gdp-growth India’s Current GDP 1 |
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FB11001 Financial Management 1 (Company: D B Corp) Assignment 3 (Intrinsic Value of Shares, Bonds and Debentures) Therefore total IV of DB Corp = 80.75 x 183283231 = 14800120903 INR Value of share is around 200.75 INR 3 as on 09/10/2011. Similar Calculations for HT Media Reveals 4 D 1 = 0.36 x (1+0.077) = 0.38 Therefore Intrinsic Value of a Share = D 1 / (Ke-g) = 0.38 / (0.13 – 0.077) = 7.16 Value of share is around 138 INR 5 as on 09/10/2011. D B Corp Competition HT Media 2011 2010 2009 2011 2010 2009 Dividends Paid 729679324 362044210 84394803 84578000 70498000 70506000 Net Income 258476160 1 182800107 2 476217968 185818700 0 135914400 0 9057000 Average Net Worth 738783598 4 453182229 4 238721157 1 113667.21 90984.17 85071.2 Dividend Pay-out 0.2823004 3 0.1980547 0.1772188 5 0.0455164 1 0.0518694 1 7.7846969 2 Retention Ratio (RR) 0.72 0.80 0.82 0.95 0.95 -6.78 ROE (%) 0.35 0.40 0.20 0.16 0.15 0.00 Growth Rate (RR x ROE) 0.25 0.32 0.16 0.16 0.14 -0.01 Table 1.2 Calculation and Comparison Vis a Vis Peer (HT Media) Inference: We have taken a conservative growth rate equal to the rate of the GDP growth of the country (Assuming it to be a long term growth), whereas in actual we find both companies growing at an average of 25 % for DB Corp (Historical Value of last 3 years) and 15 % growth for HT Media (Data for last 2 years) I have excluded 2009 as the company was in a loss making phase, and is currently in revival and is poised for growth. We find that both companies are doing well, the disparity in the Intrinsic Value also called (IV) calculated vis
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This note was uploaded on 03/09/2012 for the course MBA 101 taught by Professor Xxx during the Spring '12 term at Xavier.

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Financial Overiview of a MSE.doc - FB11001 Financial...

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