SRF Ltd Valuation Excel Model and Intrinsic Value of Shares- BDV

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SRF Ltd Valuation : About the Company

SRF Limited is a manufacturing company located in Gurgaon, India. It also has manufacturing plants in India, South Africa and Thailand. Over the years, the company has diversified its product offerings into technical textiles, engineering plastics, chemicals and packaging films. The company was established in 1970, as Shri Ram Fibres Limited and later in 1990, it changed its name to SRF Limited.

The company started with a nylon tyre cord plant in Manali in India in 1970, and over the years have expanded their product range under the Technical Textiles. They have also diversified into many adjacent businesses and today their business profile constitutes Fluorochemicals, Specialty Chemicals and Packaging Films. The company also won the prestigious Deming Prize – a gold standard in Total Quality – for two of their businesses namely Tyre Cord Business in 2004 and Chemicals Business in 2012.

SRF Limited over the years entered into many technology tie-ups in its effort to remain competitive with time. They had a deal with Dupont in 2015 for HFC 134a Pharma grade and became the owner of the prestigious Dymel brand of Dupont. They also have a tie-up with Honeywell for CFCs and HCFC chemicals. This overall shows a good business model in manufacturing along with a focus on innovation. From here, we go ahead with SRF Ltd Valuation and Intrinsic Value of its shares.

Read more here: SRF Ltd 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 SRF Ltd Valuation.

Financial Year Revenue Growth Rate
Year 1 -6%
Year 2 13%
Year 3 18%
Year 4 22%
Year 5 15%
Revenue Growth Rates: SRF Ltd 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 : SRF Ltd Valuation
Financial Statements Forecast : SRF Ltd 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 3478 4600 6258 9753 12866
Free Cash Flow to Equity -6597 6924 12871 21068 18322
FCFF and FCFE values: SRF Ltd 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 12865.68
Growth Rate 5.00%
Cost of Capital 10.60%
Terminal Value 241237.61
Terminal Value: SRF Ltd 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 SRF Ltd Valuation.

WACC Calculation for SRF Ltd Valuation.
WACC Calculation for SRF Ltd 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 SRF Ltd Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for SRF Ltd Valuation.
PV of FCFF and FCFE for SRF Ltd 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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SRF Ltd Valuation Units
PV in INR Million 157685
No of Shares Outstanding (In Million) 57
Intrinsic Value 2766.41
Current Market Price of Share 5401.00
Current Discount/Premium 95%
Intrinsic Value of the Shares: SRF Ltd Valuation

SRF Ltd Valuation and Intrinsic Share Price = INR 2766.41

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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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