PI Industries Valuation Excel Model and Intrinsic Value of Shares

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PI Industries Valuation : About the Company

PI Industries was founded and incorporated by the name Mewar Oil and General Mills Ltd. in 1946. The company operates with a unique business model in the Agchem space of providing an innovative solution to its customers from R&D to Distribution. It is also one of the leading players in the Indian and the Global market.

The business model of the company is such that it is involved in providing an innovative solution to its customers from R&D to distribution. The company also has more than 50+ years Creating Market Leading Brands with significant revenue from brands ranked No 1 or 2 in the market and some brands which are more than a decade old. It is involved in pre-launch trails, Product Launch campaigns and Post-launch efforts which include Print and Electronic Media promotion and geographical expansion.

The company also recently completed the acquisition of ISAGRO Asia and will now be one of the leading players in the horticulture segment in India. The management is also looking forward to enhancing capacity utilization from current 20-25% to >90% to more than triple the revenue generation in next a couple of years. This overall indicates a good business model with a focus on core growth. From here, we go ahead with PI Industries Valuation and Intrinsic Value of its shares.

Read more here: PI Industries 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
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You can also get the formula based DCF Excel Model 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 PI Industries Valuation.

Financial Year Revenue Growth Rate
Year 1 18%
Year 2 21%
Year 3 18%
Year 4 16%
Year 5 20%
Revenue Growth Rates: PI Industries 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 : PI Industries 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.

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.

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F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 9709 8965 11802 14902 17917
Free Cash Flow to Equity -1194 2884 3545 4256 5734
FCFF and FCFE values: PI Industries 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 17916.61
Growth Rate 5.00%
Cost of Capital 9.27%
Terminal Value 440869.40
Terminal Value: PI Industries 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 PI Industries Valuation.

WACC Calculation for PI Industries 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 PI Industries Valuation. (Units are INR Millions)

PV of FCFF and FCFE for PI Industries Valuation.

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFE 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.

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PI Industries Valuation Units
PV in INR Million 292429
No of Shares Outstanding (In Million) 138
Intrinsic Value 2119.05
Current Market Price of Share 2215.00
Current Discount/Premium 5%
Intrinsic Value of the Shares: PI Industries Valuation

PI Industries Valuation and Intrinsic Share Price = INR 2119.05

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References: Investopedia
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(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)

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