Pidilite Valuation Excel Model and Intrinsic Value of Shares

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Pidilite Valuation : About the Company

Pidilite is the largest adhesive manufacturing company in India. The company started its operations in the year 1959, with its most popular adhesive brand named Fevicol and since then it has established its presence in 80+ countries across the world. The company now manufactures adhesives, sealants, pigments, Industrial resins, construction and Paint chemicals etc. It currently has a portfolio of 500+ products. From here, we go ahead with Pidilite Valuation and Intrinsic Value of its shares.

Pidilite Industries have a total of 23+ manufacturing plants in India and a solid market presence of over 6 decades. The company has expanded into 18 international and 9 domestic subsidiaries and has established 8 R&D centres. The company operates some well know brands like Fevicol, M-seal, Dr Fixit, WD 40 etc which has a strong awareness in both consumer and industrial segments. The focus of the company is on-brand premiumization and Innovation.

Some of their brands like M-seal has 70% market share in the plumbing segment and Dr Fixit has achieved 98% top of the mind awareness among consumers. Fevicol has also been the most trusted adhesive brand for many decades. Overall the company has a solid economic moat with its innovative adhesive solutions and brand awareness. Its market dominance is also near-monopolistic in Fevicol and M seal brands which contributes a major portion of the revenue

Read more here: Pidilite 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 Pidilite Valuation.

Financial Year Revenue Growth Rate
Year 1 3%
Year 2 -7%
Year 3 30%
Year 4 13%
Year 5 13%
Revenue Growth Rates: Pidilite 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 : Pidilite Valuation
Financial Statements Forecast : Pidilite 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 10994 9457 13890 16758 19758
Free Cash Flow to Equity 11262 9536 14124 16978 20009
FCFF and FCFE values: Pidilite 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 19758.30
Growth Rate 6.00%
Cost of Capital 9.54%
Terminal Value 590890.66
Terminal Value: Pidilite 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 Pidilite Valuation.

WACC Calculation for Pidilite Valuation.
WACC Calculation for Pidilite 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 Pidilite Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for Pidilite Valuation.
PV of FCFF and FCFE for Pidilite 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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Pidilite Valuation Units
PV in INR Million 424829
No of Shares Outstanding (In Million) 508
Intrinsic Value 836.28
Current Market Price of Share 1747
Current Discount/Premium 109%
Intrinsic Value of the Shares: Pidilite Valuation

Pidilite Valuation and Intrinsic Share Price = INR 841.02

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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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