UPL Valuation Excel Model and Intrinsic Value of Shares- BDV

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UPL Valuation : About the Company

United Phosphorous Limited (UPL) is the 5th largest crop protection chemicals company in the world. The company in 1969 started as an import substitute for phosphorous based chemicals in India. By 1980 the company diversified into agrochemicals and speciality chemicals and had exports to 63 countries. In 2018-19 the company had a presence in 138+ countries and 82% of the revenue came from exports. The vision of the company is to be the market leader right from seeds to post-harvest products in the crop life cycle by FY 2028. The Industry size has grown from $ 56 billion to $ 100 billion globally. From here, we go ahead with UPL Valuation and Intrinsic Value of its shares.

The company has achieved a significant scale over the years along with a strong global presence. UPL currently exports to 130+ countries, has 48 manufacturing facilities and an employee base of 10,300+. The company has grown through organic and inorganic expansion. It has a record of 40+ successful acquisition in the last 25 years. UPL also completed its acquisition of Arysta LifeScience for $4.2 billion in 2019. This gave the company a mix own manufacturing and outsourced product portfolio. The economic moat in such an industry is generally due to patents and copyrights.UPL has more than 12,400+ product registrations and 1023 granted patents which is the highest in the Industry. Therefore this category gets 4 stars in UPL shares fundamental analysis.

Read more here: UPL 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 UPL Valuation.

Financial Year Revenue Growth Rate
Year 1 25%
Year 2 8%
Year 3 9%
Year 4 8%
Year 5 10%
Revenue Growth Rates: UPL 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 : UPL Valuation
Financial Statements Forecast : UPL 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 26919 29349 32516 36520 41183
Free Cash Flow to Equity -126296 -67893 -73020 -82616 -87129
FCFF and FCFE values: UPL 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 41182.85
Growth Rate 5.00%
Cost of Capital 8.47%
Terminal Value 1246197.47
Terminal Value: UPL 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 UPL Valuation.

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

PV of FCFF and FCFE  for UPL Valuation.
PV of FCFF and FCFE for UPL 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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UPL Valuation Units
PV in INR Million 480870
No of Shares Outstanding (In Million) 764
Intrinsic Value 629.41
Current Market Price of Share 543
Current Discount/Premium -13%
Intrinsic Value of the Shares: UPL Valuation

UPL Valuation and Intrinsic Share Price = INR 629.41

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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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