Zensar Technologies Valuation Excel Model and Intrinsic Value

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Zensar Technologies Valuation : About the Company

Zensar is valued at $ 500+ Million and is, in turn, a part of $3 billion RPG Group. The company provides Digital Transformation, Cloud and Infrastructure, Data Warehousing, Application development and Guidewire support services to global MNCs. The revenue split for the company is 19% from Retail, 52% from Hi-tech Manufacturing, 24% from the Financial Services sector and 5.1% from emerging enterprises. From here, we go ahead with Zensar Technologies Valuation and Intrinsic Value of its shares.

Zensar Technologies is among 5 global tech companies listed on any stock exchange for 55+ years. It has shown a solid track record of corporate governance, profitability and growth over the last few decades. The company has a head start in the field of rapidly growing Cloud and Infrastructure business, especially in India. It competes with several other major tech companies like TCS and Infosys of India, Capgemini of France and Cognizant of the US. These companies also have established services portfolios, so the growth is obtained only by technical know-how. Zensar has been able to deliver solid growth of about 28% YoY in digital revenue, 16.6% YoY in Financial Sector revenue and 32% YoY in cloud business revenue. Overall this shows a good hold in the market. Therefore, economic moat category gets 3 stars out of 5 in Zensar technologies shares fundamental analysis.

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Read more here: Zensar Technologies 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 Zensar Technologies Valuation.

Financial Year Revenue Growth Rate
Year 1 5%
Year 2 4%
Year 3 8%
Year 4 10%
Year 5 18%
Revenue Growth Rates: Zensar Technologies 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 : Zensar Technologies Valuation
Financial Statements Forecast : Zensar Technologies 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 2985 2759 3149 3626 3945
Free Cash Flow to Equity 2192 1738 2634 3388 3345
FCFF and FCFE values: Zensar Technologies 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 3944.97
Growth Rate 5.00%
Cost of Capital 11.45%
Terminal Value 64186.51
Terminal Value: Zensar Technologies 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 Zensar Technologies Valuation.

WACC Calculation for Zensar Technologies Valuation.
WACC Calculation for Zensar Technologies 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 Zensar Technologies Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for Zensar Technologies Valuation.
PV of FCFF and FCFE for Zensar Technologies 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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Zensar Technologies Valuation Units
PV in INR Million 45349
No of Shares Outstanding (In Million) 225
Intrinsic Value 201.55
Current Market Price of Share 302
Current Discount/Premium 50%
Intrinsic Value of the Shares: Zensar Technologies Valuation

Zensar Technologies Valuation and Intrinsic Share Price = INR 201.55

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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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