This time, I picked up a young growth company, Flipkart which is working its magic in India and with its acquisition of Myntra, I will update my analysis soon but here is my valuation where I believe Flipkart should be valued around 12300 crores
Wednesday, July 2, 2014
A retake on the Shree Cement
As promised, I am back with my valuation of Shree Cement
This time, I valued ER for my Equity Research project where I picked up the cement sector.
In Equity Research, analysts do not value a company for more than 5 years, so I did the same and considered the terminal growth rate to be 7%. Considering the inflation rate at 6% this is overboard but I believe Shree Cement will show a good growth even by the year 2018 because of its varied strengths which I put in my excel sheet when I valued Shree Cement in the previous post
The revenue forecasting was done by running a regression on cement consumption vs GDP and then taking a very conservative estimate
For operating margins, Shree cement has very strong operating margins which are way above the industry average because it is leveraging on pet coke and has new machinery, I have gradually brought down the operating margin to industry standards.
For the reinvestment rate, I calculated this over the five years looking at the reinvestment rate through the previous years and then checked the capacity upgrade plans of Shree and calculated the reinvestment required
Here is the valuation.
As I already covered Shree last time I will not go into too much depth in this post, keeping it to a minimum.
This time, I did not use Damodaran's model directly but inputed the details myself. This gave me a lot of leeway to change the operating margins where I thought they would change, gave me the flexibility to keep changing WACC. I liked this model and I will keep using it until I realize a shortcoming for this.
This time, I valued ER for my Equity Research project where I picked up the cement sector.
In Equity Research, analysts do not value a company for more than 5 years, so I did the same and considered the terminal growth rate to be 7%. Considering the inflation rate at 6% this is overboard but I believe Shree Cement will show a good growth even by the year 2018 because of its varied strengths which I put in my excel sheet when I valued Shree Cement in the previous post
The revenue forecasting was done by running a regression on cement consumption vs GDP and then taking a very conservative estimate
For operating margins, Shree cement has very strong operating margins which are way above the industry average because it is leveraging on pet coke and has new machinery, I have gradually brought down the operating margin to industry standards.
For the reinvestment rate, I calculated this over the five years looking at the reinvestment rate through the previous years and then checked the capacity upgrade plans of Shree and calculated the reinvestment required
Here is the valuation.
As I already covered Shree last time I will not go into too much depth in this post, keeping it to a minimum.
This time, I did not use Damodaran's model directly but inputed the details myself. This gave me a lot of leeway to change the operating margins where I thought they would change, gave me the flexibility to keep changing WACC. I liked this model and I will keep using it until I realize a shortcoming for this.
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