Voltas Valuation Excel Model and Intrinsic Value of Shares- BDV

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Voltas Valuation : About the Company

Voltas Ltd has formed 6 decades ago with the joint venture between Tata Sons and Swiss-based Volkart Brothers company. It is India’s largest air conditioning company and also one of the most reputed engineering solution providers specializing in project management. Voltas also exports their project expertise across Technology, Engineering, Cooling and Ventilation, Infrastructure Projects, Textile, Mining and Manufacturing sectors. From here, we go ahead with Voltas Valuation and Intrinsic Value of its shares.

The company operates in the capital goods and durables industry where market dominance is achieved through scale, innovation, branding and technical know-how. Voltas is a market leader in the room air conditioners with a 24% market share and a leading player in the commercial refrigeration segment. The company has a distribution network of 15,000+ touchpoints and 1280+ customer care centres, which is the largest in the Industry.

Read more here: Voltas 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 Voltas Valuation.

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Financial Year Revenue Growth Rate
Year 1 7%
Year 2 -8%
Year 3 22%
Year 4 17%
Year 5 16%
Revenue Growth Rates: Voltas 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 : Voltas Valuation
Financial Statements Forecast : Voltas 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 8402 7063 9726 11521 13753
Free Cash Flow to Equity 7915 6990 10019 11816 16664
FCFF and FCFE values: Voltas 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 13752.89
Growth Rate 6.00%
Cost of Capital 23.88%
Terminal Value 81552.03
Terminal Value: Voltas 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 Voltas Valuation.

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

PV of FCFF and FCFE  for Voltas Valuation.
PV of FCFF and FCFE for Voltas 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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Voltas Valuation Units
PV in INR Million 73476
No of Shares Outstanding (In Million) 331
Intrinsic Value 221.98
Current Market Price of Share 1079
Current Discount/Premium 388%
Intrinsic Value of the Shares: Voltas Valuation

Voltas Valuation and Intrinsic Share Price = INR 221.98

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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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