Wipro Valuation Excel Model and Intrinsic Value of Shares- BDV

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Wipro Valuation : About the Company

Wipro was incorporated in 1945 and entered into the IT products business in 1982. Wipro Ltd is a leading global information technology, consulting and business process services company. They also provide cognitive computing, hyper-automation, robotics, cloud and analytics services to their clients. The company in 2013, separated its non-IT businesses like FMCG and Infrastructure engineering and formed the privately-owned Wipro Enterprises Ltd. From here, we go ahead with Wipro Valuation and Intrinsic Value of its shares.

The company operates in the IT and technology industry where market dominance is achieved through scale, technical know-how, digital infrastructure and workforce. Wipro has a global footprint in 6 continents with a client base of 1000+. The company has 15+ $100 million clients and 41% of its revenue comes from the digital business. It also has a major share of India’s offshore IT and BPO exports which is growing at 15% CAGR. Overall it is one of the largest IT and offshoring services company in India. On the technical know-how front, the company is an innovation leader in automation, digital transformation, robotics and cloud and cognitive computing.

Read more here: Wipro 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 Wipro Valuation.

Financial Year Revenue Growth Rate
Year 1 5%
Year 2 2%
Year 3 7%
Year 4 7%
Year 5 8%
Revenue Growth Rates: Wipro 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 : Wipro Valuation
Financial Statements Forecast : Wipro 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 106261 110819 122510 133484 147119
Free Cash Flow to Equity 74186 24453 61126 66313 79026
FCFF and FCFE values: Wipro 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 147119.34
Growth Rate 5.00%
Cost of Capital 9.31%
Terminal Value 3585394.90
Terminal Value: Wipro 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 Wipro Valuation.

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

PV of FCFF and FCFE  for Wipro Valuation.
PV of FCFF and FCFE for Wipro 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.

Also Read on FinMedium:  What are shares and types of shares
Wipro Valuation Units
PV in INR Million 2529794
No of Shares Outstanding (In Million) 6007
Intrinsic Value 421.14
Current Market Price of Share 430
Current Discount/Premium 2%
Intrinsic Value of the Shares: Wipro Valuation

Wipro Valuation and Intrinsic Share Price = INR 421.14

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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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