Torrent Pharma Valuation Excel Model and Intrinsic Value

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Torrent Power Valuation : About the Company

Torrent Pharma is the flagship company of the Torrent Group which operates mainly in the healthcare and power sector. The company is a market leader in the therapeutic segment of cardiovascular (CV), central nervous system (CNS), gastrointestinal (GI) and women healthcare (WHC). Torrent Pharma was a pioneer in initiating the concept of niche marketing in India and it is still a core business driver for them. The company has a presence in over 40+ countries in the world

Torrent Pharma started international acquisitions in 2005 with 90-year-old Heumann brand from Pfizer to enter the German market. Later on, purchased ANDA of Minocycline from Ranbaxy in 2015. The acquisition of Elder Pharma’s Indian branded business in 2013, Dermaceutical business of Zyg Pharma in 2015, API plant of Glochem Industries in 2016, women healthcare brands from Novartis strengthened Torrent Pharma’s position in the Indian market. In January 2018, Torrent also acquired Bio-Pharm (BPI) generic pharmaceuticals and OTC Company, based in Pennsylvania, USA, which also included a US FDA registered manufacturing facility. This has helped the company to grow across borders. From here, we go ahead with Torrent Power Valuation and Intrinsic Value of its shares.

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Read more here: Torrent Power 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

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 Torrent Power Valuation.

Financial Year Revenue Growth Rate
Year 1 4%
Year 2 8%
Year 3 13%
Year 4 12%
Year 5 14%
Revenue Growth Rates: Torrent Power 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 : Torrent Power Valuation
Financial Statements Forecast : Torrent Power 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.

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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 9478 10784 14464 16855 20565
Free Cash Flow to Equity -1048 18386 22591 24789 31847
FCFF and FCFE values: Torrent Power 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 20565.31
Growth Rate 5.00%
Cost of Capital 6.95%
Terminal Value 1110061.85
Terminal Value: Torrent Power 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 Torrent Power Valuation.

WACC Calculation for Torrent Power Valuation.
WACC Calculation for Torrent Power 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 Torrent Power Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for Torrent Power Valuation.
PV of FCFF and FCFE for Torrent Power 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.

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Torrent Power Valuation Units
PV in INR Million 796935
No of Shares Outstanding (In Million) 169
Intrinsic Value 4715.59
Current Market Price of Share 2496
Current Discount/Premium -47%
Intrinsic Value of the Shares: Torrent Power Valuation

Torrent Power Valuation and Intrinsic Share Price = INR 4715.59

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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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