United Spirits Valuation Excel Model and Intrinsic Value

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United Spirits Valuation : About the Company

Incorporated in India as United Spirits Limited (USL), Diageo India is involved in manufacturing and bottling of Alcohol for retail consumption. It is India’s leading beverage alcohol company with a portfolio of premium brands like Johnnie Walker, Black Dog, Black & White, Vat 69, Antiquity, Signature, Royal Challenge, McDowell’s No 1, Smirnoff, and Captain Morgan. From here, we go ahead with United Spirits Valuation and Intrinsic Value of its shares.

The company operates in the retail alcohol (FMCG) industry where market dominance comes through scale, distribution and branding. Diageo India is the #1 spirits company in India and #2 globally. It has 50+ manufacturing facilities across states and union territories in India and a strong distribution network of 50+ large distributors and 65,000+ brand outlets. The company overall manufactures more than 80 brands of Scotch whisky, IMFL whisky, brandy, rum, vodka, gin and wine. This indicates the scale on which the company operates.

Read more here: United Spirits 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 United Spirits Valuation.

Financial Year Revenue Growth Rate
Year 1 -2%
Year 2 -16%
Year 3 22%
Year 4 13%
Year 5 12%
Revenue Growth Rates: United Spirits 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 : United Spirits Valuation
Financial Statements Forecast : United Spirits 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.

F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 2695 2554 3707 4569 5215
Free Cash Flow to Equity 18024 -1549 6479 6429 7493
FCFF and FCFE values: United Spirits 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.

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Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 5214.77
Growth Rate 6.00%
Cost of Capital 8.01%
Terminal Value 275134.69
Terminal Value: United Spirits 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 United Spirits Valuation.

WACC Calculation for United Spirits Valuation.
WACC Calculation for United Spirits 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 United Spirits Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for United Spirits Valuation.
PV of FCFF and FCFE for United Spirits 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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United Spirits Valuation Units
PV in INR Million 174482
No of Shares Outstanding (In Million) 709
Intrinsic Value 246.10
Current Market Price of Share 549.00
Current Discount/Premium 123%
Intrinsic Value of the Shares: United Spirits Valuation

United Spirits Valuation and Intrinsic Share Price = INR 246.10

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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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