With Piramal Healthcare stock slowly and steadily marching
northwards (Disclaimer: It has been my favorite stock for almost a year, so
this post may be a little biased ) following a slew of acquisitions (and a Rs17.5
dividend per share coming up), I once again pause to take a look at the latest
acquisition – Decision Resources Group for a sum of approximately $635 million. All the reasons given in their investor
presentation indicate the attractiveness of holding this company in the
portfolio. But again the question arises (as earlier with Vodafone India’s stake),
have they paid an appropriate value for this? So, I make an attempt to value
DRG, but the same being a privately held company a lot of assumptions need to
be made.
Showing posts with label Valuation. Show all posts
Showing posts with label Valuation. Show all posts
Thursday, June 21, 2012
Tuesday, July 5, 2011
Valuation of Biocon Ltd
Valuation of a company is not a straightforward task. There is no particular formula that will give a fixed value for the share of the company. I have tried using DCF (Discounted Cash Flow) method for valuing Biocon Ltd.
In the process of arriving at a particular value, several assumptions are required to be taken. I have tried to keep those assumptions as conservative as possible. The assumption for the same are as follows:
1) CAGR of Sales for the next 5 yrs: 25% (The past 5 yr average for Biocon is 28%, with growth touching 40% in the yr before last)
2) Target Operating Profit Margin of 20% (Past 5 yr avg for Biocon is over 25%. Most of the global players have the same closer to 30%)
3) Sales to capital ratio: 1.16 (Past 5 yr average for Biocon)
4) As the debt ratio of Biocon is very low (less than 0.1), for simplicity, I have taken the cost of capital as the cost of equity, which I obtained using the CAPM model.
5) The terminal value of the return on capital is assumed to be 15.5%. This is much lower than current ROIC of Biocon which is 22%
6) I have considered tax rate as 34% [as Biocon is a domestic company. This rate is supposed to further go down after implementation of the Direct Tax Code]
Considering the above mentioned assumptions, the final value I obtained for Biocon Share was Rs 435. The valuation depends a lot on the assumptions, but I believe the assumption that I have considered for the valuation of Biocon are conservative.
Excel sheet containing the calculation: Biocon Valuation
If you have any comments, please shoot :)
In the process of arriving at a particular value, several assumptions are required to be taken. I have tried to keep those assumptions as conservative as possible. The assumption for the same are as follows:
1) CAGR of Sales for the next 5 yrs: 25% (The past 5 yr average for Biocon is 28%, with growth touching 40% in the yr before last)
2) Target Operating Profit Margin of 20% (Past 5 yr avg for Biocon is over 25%. Most of the global players have the same closer to 30%)
3) Sales to capital ratio: 1.16 (Past 5 yr average for Biocon)
4) As the debt ratio of Biocon is very low (less than 0.1), for simplicity, I have taken the cost of capital as the cost of equity, which I obtained using the CAPM model.
5) The terminal value of the return on capital is assumed to be 15.5%. This is much lower than current ROIC of Biocon which is 22%
6) I have considered tax rate as 34% [as Biocon is a domestic company. This rate is supposed to further go down after implementation of the Direct Tax Code]
Considering the above mentioned assumptions, the final value I obtained for Biocon Share was Rs 435. The valuation depends a lot on the assumptions, but I believe the assumption that I have considered for the valuation of Biocon are conservative.
Excel sheet containing the calculation: Biocon Valuation
If you have any comments, please shoot :)
Subscribe to:
Comments (Atom)