CEAT Shares Valuation and Intrinsic Value- DCF Excel Model

Reading Time: 4 minutes

Source link | LinkedIn Profile | Twitter Profile

CEAT Shares Valuation : About the Company

CEAT was established in 1958 and is a flagship company of INR 220 billion RPG Enterprises. Today, CEAT is one of India’s leading tyre manufacturers and has a strong presence in global markets. The company produces over 15+ million tyres a year. CEAT manufactures radial tyres for heavy-duty trucks and buses, light commercial vehicles, earthmovers, forklifts, tractors, trailers, cars, motorcycles and scooters as well as auto-rickshaws.. The company has also been ranked as 34th best brand in India. From here, we go ahead with CEAT Shares Valuation and Intrinsic Value of its shares.

Read more here: CEAT Shares Fundamental Analysis 

Methodology Used:

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The following step by step procedure is followed.

  1. Determining the Revenue Growth Rates
  2. Forecasting the Financial Statements
  3. Deriving the FCFF and FCFE
  4. Calculating the Terminal Value
  5. Calculating the Discount Rate
  6. Discounting the Cashflows
  7. Arriving at the Intrinsic Value of the Shares
Also Read on FinMedium:  Gujarat Ambuja Exports – Largest Maize Processing company in India – Katalyst Wealth

You can also get the formula based DCF Excel Model used for this Analysis from below:

Step 1: Determining the Revenue Growth Rates

We arrive at the below table by using the past and expected future performance of both the company and the economy. This along with adjustments to changes in the management expectations, extraordinary events and other macro factors give the revenue growth rates for CEAT Shares Valuation.

Financial Year Revenue Growth Rate
Year 1 -3%
Year 2 -1%
Year 3 15%
Year 4 11%
Year 5 10%
Revenue Growth Rates: CEAT Shares Valuation

Step 2: Forecasting the Financial Statements

The financial statements are forecasted for a period of 5 years using the annual report data of the company. The assumptions used for forecasting are tabulated below. The Excel model is completely editable and can be adjusted for specific changes which may happen over a period of time.

Financial Statements Forecast :CEAT Shares Valuation
Financial Statements Forecast :CEAT Shares Valuation

Step 3: Deriving the FCFF and FCFE

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses, taxes, working capital, and investments. FCFF is a measurement of a company’s profitability after all expenses and reinvestments. It is given as follows.

Also Read on FinMedium:  TATA Elxsi Stock Analysis

Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage.

F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 4994 1181 1643 1797 2031
Free Cash Flow to Equity 993 958 2082 2139 2364
FCFF and FCFE values: CEAT Shares Valuation

Step 4: Calculating the Terminal Value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. It assumes that a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 2030.79
Growth Rate 5.00%
Cost of Capital 10.36%
Terminal Value 39795.80
Terminal Value: CEAT Shares Valuation

Step 5: Calculating the Discount Rate

DCF analysis helps assess the viability of a project or investment by calculating the present value of expected future cash flows using a discount rate. Here we use the Weighted average cost of capital (WACC) to discount the cash flow. The below table from the excel model shows the calculation of WACC for Ashok Leyland Valuation.

WACC Calculation for CEAT Shares Valuation.
WACC Calculation for CEAT Shares Valuation.

Step 6: Discounting the Cashflows

The WACC and the Cost of Equity for the company calculated in the above step are then used to discount the FCFF, FCFE and Terminal Value calculated in Step 3 and 4. In our case, we’ll only consider the FCFF based Intrinsic price of the shares as it represents the cash flow to all the suppliers of capital and not only to the equity shareholders. Thus we arrive at Present value of future FCFF for CEAT Shares Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for CEAT Shares Valuation.
PV of FCFF and FCFE for CEAT Shares Valuation.

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFF and Terminal Value (the Value of the entire firm) by the number of outstanding shares we get the per share intrinsic value. We can compare this price with the current market price of the stock to get the Discount or Premium to its intrinsic price.

Also Read on FinMedium:  Manappuram Finance FY20 Takeaways – Investometry
CEAT Shares Valuation Units
PV in INR Million 33482
No of Shares Outstanding (In Million) 40
Intrinsic Value 837.04
Current Market Price of Share 1110.00
Current Discount/Premium 33%
Intrinsic Value of the Shares: CEAT Shares Valuation

CEAT Shares Valuation and Intrinsic Share Price = INR 837.04

Subscribe to our new Youtube Channel!
Subscribe via Email for our daily analysis on 200+ stocks!
Join our Telegram Channel.

Download the Excel Model from Here!

References: Investopedia
Our 150+ Stock Valuations
Our Stock ratings List
You can read more about the company on its website!
Investor Presentation.

(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)

Source link | LinkedIn Profile | Twitter Profile

Every Wednesday and Saturday, we send Info-Graphic and FinMedium Weekly Digest newsletters to our 25000+ Subscribers.

Join Them Now!

Billion Dollar Valuation

Billion Dollar Valuation

Billion Dollar Valuation shares thorough research into the Fundamentals of the businesses listed in India. With their insightful write-ups, they uncover a lot on the table.
Please Share :)