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    Bosch (Akash Negi-JL19FS006) Assumptions Used in Valuation and Their Rationale

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    akash Negi
    This document analyzes Bosch using two dividend discount models to value the company's stock. The first model forecasts dividend growth based on Bosch's 15% fundamental growth rate over the past 5 years. The second model uses Bosch's historical 50% dividend growth every other year. Sensitivity analysis is also performed using different growth and discount rates. Based on the analyses, the fundamental growth model values Bosch's stock at Rs. 8299.53 per share, higher than the historical trend model of Rs. 2579.19 per share. Overall the document evaluates Bosch's valuation and dividend growth prospects to make an investment recommendation.

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    Bosch (Akash Negi-JL19FS006) Assumptions Used in Valuation and Their Rationale

    Uploaded by

    akash Negi
    35 views4 pages
    This document analyzes Bosch using two dividend discount models to value the company's stock. The first model forecasts dividend growth based on Bosch's 15% fundamental growth rate over the past 5 years. The second model uses Bosch's historical 50% dividend growth every other year. Sensitivity analysis is also performed using different growth and discount rates. Based on the analyses, the fundamental growth model values Bosch's stock at Rs. 8299.53 per share, higher than the historical trend model of Rs. 2579.19 per share. Overall the document evaluates Bosch's valuation and dividend growth prospects to make an investment recommendation.

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    AKash Bosch

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    This document analyzes Bosch using two dividend discount models to value the company's stock. The first model forecasts dividend growth based on Bosch's 15% fundamental growth rate over the past 5 years. The second model uses Bosch's historical 50% dividend growth every other year. Sensitivity analysis is also performed using different growth and discount rates. Based on the analyses, the fundamental growth model values Bosch's stock at Rs. 8299.53 per share, higher than the historical trend model of Rs. 2579.19 per share. Overall the document evaluates Bosch's valuation and dividend growth prospects to make an investment recommendation.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    35 views4 pages

    Bosch (Akash Negi-JL19FS006) Assumptions Used in Valuation and Their Rationale

    Uploaded by

    akash Negi
    This document analyzes Bosch using two dividend discount models to value the company's stock. The first model forecasts dividend growth based on Bosch's 15% fundamental growth rate over the past 5 years. The second model uses Bosch's historical 50% dividend growth every other year. Sensitivity analysis is also performed using different growth and discount rates. Based on the analyses, the fundamental growth model values Bosch's stock at Rs. 8299.53 per share, higher than the historical trend model of Rs. 2579.19 per share. Overall the document evaluates Bosch's valuation and dividend growth prospects to make an investment recommendation.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    Bosch (Akash Negi- JL19FS006)

    Assumptions used in valuation and their rationale

    1. Assumption: Dividend is forecasted based on fundamental growth rate

    For this method we used dividend growth to forecast the future share price of the company. It
    has been assumed that company’s share will grow at rate of 15% which has been calculated
    on basis of average growth rate of last 5 year.

    2. Assumption: Dividend is forecasted based on historical trend of dividends paid


    For this method we used historical trend to forecast the future share price of the company. it
    can be seen from the previous trend that company dividend is growing by 50% on every
    second year. So, it has been assumed that this trend will continue and company dividend will
    grow 50% on every second year.

    Discussion of result
    Inputs(As of 20/02/20)

    52-week range 12,010.00-19,421.90


    Beta 0.36
    EPS(TTM) 346.8
    D1 90
    PE 35.1
    ROE(TTM) 17.95%
    Rf 6.35%
    ERP 10%
    Ke 0.0995%
    G St 6.50%
    ROE St 17%
    Retention Ratio St 0.38
    Pay-out Ratio St 0.62
    Cost of equity has been calculated on the basis of CAPM model and we assumed that growth
    at stable stage will be equal to risk free return i.e. 6.35%. ROE at stable stage is led to be
    equal to the average of IT industry ROE.

      2015 2016 2017 2018 2019 Average

    DPS 85 85 75 100 105  


    EPS 520.45 488.41 570.56 449.54 541.8  
    ROE 18.2 16.07 19.78 13.73 17.51  
                 
    pay-out ratio 0.16 0.17 0.13 0.22 0.13 0.18
    retention ratio 0.84 0.83 0.87 0.78 0.81 0.82
    Fundamental G 0.15 0.13 0.17 0.11 0.14 0.14

    We calculated the pay-out ratio from year 2015 to 2019 by dividing DPS by EPS and
    retention ratio by deducting pay-out ratio from 1. We can see Bosch is retaining a major
    portion of its earning that indicate company is seeing potential growth opportunity. Company
    is retaining approx. 3/4th portion of its earning.

    Assumption: Dividend is forecasted based on fundamental growth    


    rate
      1 2 3 4 5 6
      2020 2021 2022 2023 2024 2025
    EPS 395.68 451.45 515.08 587.68 670.51 714.09
    DPS 70.04 79.91 91.17 104.03 118.69 441.06
    TV         12784.27  
      70.04 79.91 91.17 104.03 12902.96  
    PV 63.70 66.10 68.59 71.18 8029.95  
    Value per equity share 8299.53          

    The value per equity share is based on the fundamental growth rate where we calculated EPS
    based average fundamental growth rate i.e. 15% and DPS is based on average of pay-out ratio
    i.e. 27.56%. We calculated the terminal value at the end of 2024 which came out to be
    12784.27, were D6 is 441.06 and growth at stable stage is 6.5% and ROE at stable stage is
    17%.
      Assumption: Dividend is forecasted based on historical trend of dividends paid
      1 2 3 4 5 6
      2020 2021 2022 2023 2024 2025
    DPS 110 115 100 107 120 125
    TV         3472.22  
    Total 110 115 100 107 3592.22  
    PV 100.05 95.13 75.23 73.22 2235.56  
    Value per 2579.19          
    equity share

    The value per equity share is based on the historical trend of dividend paid. We can see from
    the previous trend that company increases its dividend by 50% on every 2 year. So, as per
    this trend DPS for year 2020, 2021, 2022, 2023, 2024, 2025 is likely to be 110, 115, 100,
    107, 120, 125 respectively. The value per equity share based on historical trend model is
    coming out to be 2579.19 which is less than value which is as per fundamental growth model.

    Sensitivity Analysis  
    8094.76 0.04 0.05 0.065 0.07 0.075
    0.08 10709.04 13861.99 21183.15 30314.51 57681.81
    0.08 9202.91 11348.88 15614.66 19867.36 28359.66
    0.09 8035.48 9558.49 12279.46 14650.71 18594.27
    0.09 7105.04 8219.68 10060.74 11526.09 13717.87
    0.10 6346.86 7181.80 8479.88 9447.34 10796.90

    In sensitivity analysis we took the various growth rate and various Ke to know the value per
    share on different economic condition and different expectation of shareholders. We have
    taken the growth rate ranges from 4% to 7.5%. and cost of equity from 8% to 11%.

    EPS 346.8
    EBITDA 21635

    In relative valuation we calculated the value of Bosch by various company in auto alliances
    industry. We calculated value based on EV/EBITDA and PE as 18.97 and 37.17 respectively.

    Recommendations
    As per the past trend and various report research we can see that auto alliances sector is
    growing and it has a good future. Bosch is continuously declaring the dividend and from the
    dividend discount model and historical trend model we can see that dividend declared by
    company is going to increase in near future.

    Bibliography
    Bosch
    Yahoo finance- (TTM) 52-week range, EPS (TTM), D1,PE,ROE(TTM),Ke
    Money control- Beta, ROE St.
    Trading economics- risk free rate
    Pages. Stem.nyu.edu- ERP

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