Source link | LinkedIn Profile | Twitter Profile
Crompton Greaves Valuation : About the Company
Crompton Greaves competes with some leading companies like Anchor, Havells and Polycab in the Indian market. The industry structure is asset-heavy and therefore requires intensive investments in Plant, Property and Equipment. So the threat of new competition from outside is less. The company is focused on premiumization and branding which gives it some competitive advantage over others, but this is not sustainable as it can be easily copied by the competitors. Therefore this category gets only 2 stars in Crompton Greaves shares fundamental analysis. From here, we go ahead with Crompton Greaves Valuation and Intrinsic Value of its shares.
Read more here: Crompton Greaves 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.
- Determining the Revenue Growth Rates
- Forecasting the Financial Statements
- Deriving the FCFF and FCFE
- Calculating the Terminal Value
- Calculating the Discount Rate
- Discounting the Cashflows
- Arriving at the Intrinsic Value of the Shares
You can also get the formula based DCF Excel Model from below (Use code “BDV25” to get 25% off)
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 Crompton Greaves Valuation.
| Financial Year | Revenue Growth Rate |
|---|---|
| Year 1 | 1% |
| Year 2 | -2% |
| Year 3 | 16% |
| Year 4 | 14% |
| Year 5 | 14% |
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.
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.
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 | 3946 | 3658 | 4197 | 5055 | 6140 |
| Free Cash Flow to Equity | 9717 | 3593 | 5304 | 6239 | 7544 |
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 | 6140.28 |
| Growth Rate | 5.00% |
| Cost of Capital | 10.98% |
| Terminal Value | 107803.57 |
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 Crompton Greaves 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 Crompton Greaves Valuation. (Units are INR Millions)
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.
| Crompton Greaves Valuation | Units |
|---|---|
| PV in INR Million | 80608 |
| No of Shares Outstanding (In Million) | 627 |
| Intrinsic Value | 128.56 |
| Current Market Price of Share | 296.00 |
| Current Discount/Premium | 130% |
Crompton Greaves Valuation and Intrinsic Share Price = INR 128.56
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
