Hatim MBA Projrct Merged

A STUDY OF COMPANY VALUATION USING
DCF METHOD
Project Report submitted in partial fulfilment of the

requirements for the award of the Degree of
MASTER OF BUSINESS ADMINISTRATION

OF
BANGALORE UNIVERSITY
Submitted By
HATIM MAMAJI
Reg. No.: P03HB22M015129
Under the guidance of

PROF. S. MOHANASUNDARAM
Assistant Professor
NSB Academy
Bangalore University
2022–2024
DECLARATION BY THE STUDENT
I, Mr. Hatim Mamaji hereby declare that “A STUDY OF COMPANY

VALUATION USING DCF METHOD” is the result of the project work
carried out by me under the guidance of Prof. S. Mohanasundaram in partial
fulfilment for the award of Master’s Degree in Business Administration by
Bangalore University.
I also declare that this project is the outcome of my own efforts and that it
has not been submitted to any other university or Institute for the award of
any other degree or Diploma or Certificate.
Signature of the Student: ……………………………………
Place: BANGALORE Name: Hatim Mamaji
Date: Regd. No.: P03HB22M015129

ACKNOWLEDGEMENT
I sincerely express my profound gratitude to Dr. S R Sridharamuthy, President,

NSB Bangalore for extending greater support and assistance to complete
internship project.
I express my sincere gratitude to the Director Dr. Srinidhi K. Parthasarathi,
NSB Bangalore for their valuable advice and co-operation in carrying out my
project.
I convey my sincere gratitude to Prof. S. Mohanasundaram, Assistant
Professor, NSB Bangalore as my instructor for his timely guidance and continued
inspiration and encouragement for accomplishing qualitative internship project.
I am thankful and fortunate enough to get constant encouragement support and
guidance from all the MBA faculties who helped me in completion of the project
successfully.
Place: BANGALORE Name: HATIM MAMAJI
Date: Regd No.: P03HB22M015129
3
Table of contents
CHAPTER PAGE
PARTICULARS
NO. NO.
Executive Summary
01 Introduction 1-7
02 Company Profile 8-12
03 Research Design and Methodology

13-21
Research design
3.1 Statement of the problem
3.2 Review of literature
3.3 Research Gap
3.4 Research Methodology
3.5 Hypothesis
3.6 Objective of the Study
3.7 Scope of the Study
04 Data Analysis and Interpretations

4.1 Analysis
22-34
4.2 Interpretation
05 Summary of Findings, Conclusions

and Recommendations
5.1 Summary of Findings 35-40
5.2 Recommendation
5.3 Conclusion
Bibliography 41-43
List of Tables
Table Description/Particulars Page

No. No.
4.1 Table showing Data of all the Day

wise Stock prices of all companies
Table showing Formula and
4.2
calculations of Indicators & Tools
used
4.3 Regression Analysis table
EXECUTIVE SUMMARY
This project undertakes a comprehensive evaluation of company valuation techniques

employed by financial analysts, with a specific focus on DCF method. The study
comprises a comparison evaluation of five public and private sector banks in India,
aiming to provide a nuanced understanding of how these institutions are valued and the
factors influencing their market valuations.
The project outlines several objectives: firstly, to grasp the fundamentals of the DCF
valuation method; secondly, to apply the DCF method to the selected set of banks;
thirdly, to compare the valuation results between public and private sector banks;
fourthly, to identify key financial metrics and drivers impacting DCF valuations; and
finally, to offer insights and recommendations for investors and financial analysts.
The methodology involved meticulous steps. Five public sector and private sector banks
were chosen based on market capitalization, financial performance, and relevance in the
banking sector of India. Financial data spanning the past five years was collected from
annual reports, financial statements, and reliable financial databases. The DCF method
was then applied to project FCF for each bank, which were discounted to PV using the
right discount rate. A comparative analysis ensued, where the DCF valuations of public
sector banks were juxtaposed with those of private sector banks to discern trends,
differences, and key factors influencing valuations Also, sensitivity analysis was carried
out to determine the effects of changes to important presumptions including discount
rates, growth rates, and terminal value.
Key findings emerged from the analysis. Private sector banks generally exhibited higher
valuations compared to public sector banks, indicative of their higher efficiency,
profitability, and growth prospects. Profit margins, growth rates, cost of equity, and risk
factors emerged as primary drivers influencing DCF valuations. The market perception
favored private sector banks, perceiving them as more dynamic and better managed,
which reflected in their higher DCF valuations. Conversely, public sector banks faced
higher regulatory and operational risks, impacting their valuations negatively.
Sensitivity analysis revealed the high sensitivity of valuations to changes in growth rate
assumptions and discount rates, highlighting the value of accurate forecasting and risk
assessment.
Recommendations were drawn based on the findings. For investors, targeting private
banks was advised for higher growth potential, but the stability offered by public banks
should not be overlooked. Public banks were asked to improve operational efficiency
and profitability to enhance their market valuations. Analysts were urged to utilize a
combination of valuation methods alongside DCF to cross-verify results and account for
market sentiments and external factors.
CHAPTER-1
INTRODUCTION
A Study of Company Valuation using DCF Method
The process of finding out a business entity's economic worth is called company
valuation. It is a basic component of investing and finance that offers information about
the worth of an organization's assets, liabilities, and projected cash flows. For a variety
of stakeholders, including creditors, investors, managers, and possible purchasers or
sellers, valuation is essential because it affects choices about financial reporting, mergers
and acquisitions, strategic planning, and investment prospects.
1.1 Understanding Company Valuation:

The objectives of company valuation vary based on the situation and parties involved. It
assists investors in determining the desirability of investment possibilities and in making
well-informed capital allocation decisions. It provides managers with information for
capital budgeting, performance evaluation, and strategy planning. In addition, valuation
is essential for regulatory compliance, financial reporting, and accounting standard
compliance.
There are many approaches to valuing a company, with its methodologies and
assumptions. The three primary valuation approaches include:
This approach values a company based on fair market value of its assets and liabilities.
Assets may be tangible such as property, plant, and equipment (PP&E), and intangible
like patents, trademarks, and goodwill. Liabilities such as debts and obligations are
subtracted from the total asset value to determine the net asset value or book value of
the company.
The income approach values a company based on its ability to generate income or cash
flows in the future. The most common method for this is the DCF method, which
estimates the PV of FCF generated by the company. Other methods include the
Capitalization of Earnings approach and the CAPM, which focus on earnings or returns
relative to the COC.
This approach relies on comparing the company to similar publicly traded companies or
recent transactions in the market. Common methods within this approach include the
CCA and the PTA, where multiples such as price-to-earnings ratio or enterprise value-
to-EBITDA (EV/EBITDA) are used to determine the company's value relative to its
peers.
2
Several factors influence a company's valuation, including:

The company's competitive environment, growth prospects, industry it works in, and
market conditions all have a big impact on how much it is worth. Sectors with strong
competitive positions and room for expansion are usually valued at higher levels.
The valuation of a firm is influenced by its past financial performance, which includes
cash flow creation, margins, profitability, and revenue growth. Increases in valuation are
frequently the result of steady and sustainable financial performance.
When establishing the company's valuation, investors consider a variety of risk factors,
such as market, operational, financial, and regulatory risk. Businesses with lesser
perceived risk are usually valued higher, and those with higher risk profiles could be
sold for less.
The company's strategic direction, corporate governance procedures, and managerial
caliber all affect its valuation. Strategic planning that is sound, effective leadership, and
execution capabilities are viewed positively by investors and can enhance the company's
valuation.
1.2 Importance of Company Valuation:

Valuation helps investors assess the potential returns and risks associated with investing
in a particular company. It guides investment decisions by providing info of the
company's growth prospects, financial health, and intrinsic value relative to its market
price.
Valuation plays a crucial role in M&A transactions, where companies are bought or sold.
Buyers use valuation to determine the appropriate purchase price and negotiate with
sellers, while sellers use it to assess the fairness of offers and maximize shareholder
value.
Valuation is essential for financial reporting purposes, including the preparation of
financial statements, fair value measurements, and compliance with accounting
standards such as IFRS and GAAP.
Valuation informs strategic planning, capital budgeting, and corporate finance decisions
such as capital raising, dividend policy, and investment allocation. It helps companies
optimize their capital structure and allocate resources efficiently to maximize
shareholder value.
3
1.3 Challenges in Company Valuation:

Valuation involves making assumptions and forecasts about future events, which are
inherently uncertain. Differences in assumptions, methodologies, and inputs can lead to
varying valuations and subjective interpretations of value.
Its methodologies can be complex and technical, requiring specialized knowledge of

finance, accounting, and economics. The use of advanced models, mathematical
formulas, and financial data analysis tools adds to the complexity of the valuation
process.
Valuation relies on accurate and reliable financial and market data, which may not
always be readily available or of high quality. Limited data availability, data gaps, and
data discrepancies can pose challenges in conducting comprehensive valuations.
It can be influenced by market dynamics, investor sentiment, and behavioral biases such
as herd mentality and overreaction. Market inefficiencies, speculative bubbles, and
irrational exuberance can lead to mispricing and distortions in valuations.
Company valuation is a critical aspect of finance and investment, providing insights into
the economic worth of a business entity. It involves assessing various factors,
methodologies, and approaches to determine the intrinsic value of a company. Valuation
informs investment decision-making, M&A transactions, financial reporting, and
strategic planning, but it also presents challenges related to subjectivity, complexity, data
quality, and market dynamics. Despite these challenges, effective company valuation
requires a rigorous and systematic approach, incorporating sound financial analysis,
comprehensive due diligence, and prudent judgment to arrive at a credible and
defensible valuation conclusion.
1.4 Different types of methods used for company valuation

Company valuation is a multifaceted process that involves assessing the economic worth
of a business entity. Various methods are employed to determine a company's value,
each with its strengths, limitations, and suitability depending on the company's
characteristics, industry dynamics, and specific circumstances. Here are some of the
primary methods of company valuation:
4
The DCF method estimates the PV of a company's FCF, incorporating factors such as
revenue growth, operating expenses, capital expenditures, and terminal value. CF are
discounted back to their present value using a discount rate, typically the WACC or the
cost of equity. The DCF method provides a comprehensive assessment of a company's
intrinsic value by considering its ability to generate cash flow over time.
CCA involves comparing the company being valued to similar publicly traded
companies (comparable) to assess its relative valuation. Key financial metrics such as
P/E ratio, enterprise value-to-EBITDA (EV/EBITDA) ratio, and P/B ratio are used to
determine the company's valuation multiples relative to its peers. CCA helps investors
gauge the company's valuation relative to the market and industry benchmarks.
PTA evaluates a company's value by analyzing past transactions involving similar

companies in the same industry. This method considers the acquisition prices and
transaction multiples paid in previous M&A deals to estimate the potential value of the
company being valued. PTA provides insights into the market's perception of the
company's worth based on historical transaction data.
Asset-based valuation assesses a company's value based on the fair market value of its
assets and liabilities. Tangible assets such as property, plant, and equipment (PP&E) and
intangible assets like patents, trademarks, and goodwill are considered in the valuation.
Liabilities such as debts and obligations are subtracted from the total asset value to
determine the company's net asset value or book value.
The income capitalization approach values a company based on its ability to generate
income or cash flows in the future. Methods within this approach include the
Capitalization of Earnings approach, where the company's future earnings are
capitalized at an appropriate rate to determine its value, and the CAPM, which calculates
the cost of equity based on systematic risk factors.
Liquidation valuation estimates the value of a company's assets if it were to be

liquidated, either voluntarily or involuntarily. This method assesses the fair market value
of the company's assets, net of liabilities, under the assumption of a forced sale scenario.
Liquidation valuation is often used in distressed situations or bankruptcy proceedings.
Each of these valuation methods has its advantages and limitations, and the choice of
method depends on factors such as the company's stage of development, industry
5
characteristics, availability of data, and the purpose of the valuation. It is common for
analysts to employ multiple methods and triangulate their results to arrive at a more
robust and reliable estimate of a company's value. Additionally, thorough due diligence,
careful consideration of assumptions, and expert judgment are essential in conducting
an accurate and insightful company valuation.
1.5 Discounted Cash Flow Method:

A key technique in business valuation, the Discounted Cash Flow method forms the
basis of both financial analysis and investment appraisal. Fundamentally, the DCF
approach calculates the present value of a company's future cash flows to ascertain its
intrinsic value. This method of valuation is based on the idea that an investment's worth
is calculated as the total of its anticipated future cash flows, discounted using a suitable
discount rate to reach its present value.
Projecting the company's FCFs is the first stage in the DCF approach. These cash flows
usually consist of capital expenditures, working capital adjustments, and any other
pertinent cash flows in addition to operating CF, which are the funds produced from the
company's primary operations. Forecast periods, which are usually five to ten years in
length, are the periods over which projections are frequently made.
The discount rate that is used in the DCF calculation is very important because it shows
the time value of money and the risk involved in the investment. The most widely used
discount rate is the WACC, which is the average cost of financing the business
operations after accounting for the cost of debt and equity. If the valuation is only
focused on equity holders, then the cost of equity, which is derived from models like the
CAPM, can be used.
The DCF method offers a terminal value, that is the company's value at the conclusion
of the projection period, in addition to the forecast period. Many methods can be used
to estimate terminal value. Such as the perpetual growth method assumes a constant
growth rate indefinitely, whereas the exit multiple approach applies a multiple to a cash
flow or earnings a measure.
6
Given the determination of cash flows and the discount rate, each expected cash flow is
discounted using the chosen discount rate to its present value in the DCF calculation. To
determine the present value of the company's FCF, this DCF is then added up. The entire
intrinsic value of the business is calculated by adding the terminal value to the present
value of the cash flows for the anticipated period after it has been similarly discounted
to its present value.
1.6 Advantages of DCF Method:

The DCF method does not rely only on historical data; rather, it considers the company's
whole cash flow profile, offering a full perspective of its worth based on future
performance.
DCF allows for flexibility in modeling different scenarios and assumptions, enabling
analysts to incorporate varying growth rates, capital expenditure levels, and risk factors
into the valuation by incorporating the suitable discount rate, giving the risk associated
with the investment, the DCF method accounts for the uncertainty and risk inherent in
future cash flows.
1.7 Limitations of DCF Method:

DCF valuations are highly sensitive to the accuracy of assumptions regarding FCFs,
growth rates, and discount rates, making it susceptible to estimation errors.
Forecasting future cash flows and determining the appropriate discount rate can be
challenging, especially for companies operating in dynamic or uncertain environments.
DCF valuations may overlook market sentiment and investor perceptions which can
influence a company's stock price independently of its intrinsic value.
7
CHAPTER 2
COMPANY PROFILE
8
2.1 Companies to Study:

2.1.1 Banks in Public Sector
1. SBI
This 200-year-old public sector behemoth is waking up from its public sector legacy and
moving with such agility that it is now giving private and foreign banks a run for their
money. The State Bank of India is the oldest bank in the nation and a leader in terms of
balance sheet size, number of branches, market capitalization, and profits. The bank is
expanding into several new industries through strategic partnerships, including point-of-
sale merchant acquisition, pension funds, general insurance, custodial services, private
equity, mobile banking, advisory services, and structured products. All these efforts have
significant development potential. The organization provides NRI Solutions, Personal
Banking, International Banking, & Corporate Banking, SME, Government Business,
Agriculture / Rural, and Domestic Treasury. The most actively traded stock on Indian
stock exchanges, such as the NSE and BSE, is State Bank of India (SBI), a significant
financial institution.
2. Bank of Baroda
Founded in 1908, Bank of Bengal is one of the biggest public sector banks in India. It
provides a large array of financial services, such as international banking, treasury
management, and personal and corporate banking. With branches in more than 20
nations, the bank has a sizable international footprint, which demonstrates its dedication
to worldwide growth. BoB has merged with other banks, most notably Dena Bank and
Vijaya Bank in 2019, expanding its reach and operational scope.
3. Punjab National Bank.

PNB, founded in 1894, is one of India's oldest and most prominent banks in the public
sector. PNB provides a variety of financial and banking services such as retail and
corporate banking, agricultural finance, and wealth control. The bank owns a strong
domestic network and a modest international presence. In 2020, PNB merged with
Oriental Bank of Commerce and United Bank of India, making it the second-biggest
bank in the public sector in the country by assets and branch network.
9
4. Bank of India
BoI a prominent public sector bank with a substantial presence in the Indian financial
industry, was founded in 1906. BoI provides a comprehensive range of services,
encompassing corporate, retail, and international banking. With branches and offices in
many countries, the bank has a substantial worldwide footprint. BoI is renowned for
providing cutting-edge financial services and products to a wide range of customer.
5. Union Bank of India.

Since its founding in 1919, UBI has developed into one of the top public sector banks in India.
The bank offers a wide range of banking services, including corporate, international, and retail
banking. Union Bank of India greatly expanded its asset base and branch network in 2020
because of its merger with Corporation Bank and Andhra Bank. UBI prioritizes customer-
focused services and digital transformation to strengthen its position as a leader in the banking
sector
2.1.2 Banks in Private Sector
1. Axis Bank
One of the biggest private sector banks in India is Axis Bank, which was first founded
as UTI Bank in 1993. It provides a wide range of financial services, such as corporate
and retail banking as well as treasury management. Axis Bank is becoming more and
more well-known abroad in addition to having a sizable domestic network of branches
and ATMs. The bank, which provides a range of digital banking options, is renowned
for its emphasis on innovation and technology. In addition, Axis Bank places a strong
emphasis on financial inclusion and customer care, serving a broad range of clients,
including both small and large businesses.
2. HDFC Bank
Retail and wholesale clients can choose from a variety of treasury products and
commercial and transactional banking services provided by HDFC Bank Ltd. Three
major business segments comprise the bank: Wholesale Banking Services: The Bank
targets small and mid-sized corporates, agribusiness enterprises, and big, blue-chip
manufacturing corporations in India. Retail Banking Services: The goal of the Retail
Bank is to offer a comprehensive array of financial products and banking services to its
target market clients, serving as a one-stop shop for all their banking needs. Treasury:
10
The bank offers three primary product categories within this division: Equities, Local
Currency Money Market & Debt Securities, and Foreign Exchange and Derivatives. The
Treasury business oversees overseeing this investment's returns and market risk
portfolio. The bank provides personal banking services, such as accounts and deposits,
loans, cards, forex, and investments and insurance. NRI Banking: Payment Services for
Loans, Insurance, and Investments, as well as Accounts and Deposits. Wholesale
banking serves the government sector, financial institutions, small and medium-sized
businesses, and trusts. In addition to issuing the MasterCard Maestro debit card, HDFC
Bank was the first bank in India to introduce an international debit card in partnership
with VISA (VISA Electron).
3. ICICI Bank
With its registered office in Vadodara and its headquarters located in Mumbai, ICICI
Bank Limited is a multinational bank and financial services provider in India. Through
several delivery channels and specialized subsidiaries, it provides a broad range of
banking and financial services in the fields of investment banking, life and non-life
insurance, venture capital, and asset management to both corporate and retail clients.
This development finance organization is present in 17 countries and has a network of
5,900 branches and 16,650 ATMs throughout India. The bank has representative offices
in the United Arab Emirates, Bangladesh, Malaysia, and Indonesia in addition to
subsidiaries in the United Kingdom and Canada, branches in the United States,
Singapore, Bahrain, Hong Kong, Qatar, Oman, Dubai International Finance Center,
China, and South Africa. Belgium and Germany have also seen the establishment of
branches by the UK component of the corporation. State Bank of India, HDFC Bank,
and ICICI Bank have all been designated as D-SIBs by the RBI.
4. IDBI Bank
Originally established as the Industrial Development Bank of India, IDBI Bank provided
development credit from the outset of its existence in 1964. In 2004 it underwent a
makeover to become a full-service commercial bank. Retail, corporate, and investment
banking are just a few of the financial services and products that IDBI Bank offers.
Thanks to its extensive network of branches and ATMs, the bank is well-represented
throughout India. To strengthen its operational effectiveness and financial stability, IDBI
Bank has implemented strategic initiatives and reorganized in recent years. Now,
LIC owns most of it.
11
5. Kotak Mahindra Bank

One of the top private sector banks in India was founded in 2003 and is called Kotak
Mahindra Bank. In 1985, it was founded as a NBFC and later became a fully operational
commercial bank. Numerous financial services, such as investment banking, wealth
management, corporate banking, and personal banking, are provided by Kotak Mahindra
Bank. The bank is renowned for placing a high priority on innovation, technology, and
customer-focused services. With a wide network of branches and online banking
services, Kotak Mahindra Bank is well-established in India and serves both individual
and business customers.
12
CHAPTER 3
RESEARCH DESIGN AND
METHODOLOGY
13
3.1 Statement of the Problem
Valuing a company accurately is crucial for investors, financial analysts, and corporate
managers, as it influences investment decisions, merger and acquisition strategies, and
overall financial planning. The DCF method is a commonly used method for calculating
a company’s intrinsic value. However, applying the DCF method to banks presents
unique challenges due to their complex financial structures, regulatory environments,
and revenue generation models. This study aims to address these challenges by
evaluating the valuation of selected Indian banks using the DCF method. The focus will
be on understanding how well this method captures the intrinsic worth of banks and
finding out the main variables affecting these valuations.
3.2 Need of the Study
Importance of reliable valuation techniques in investment decision-making cannot be

overstated. Investors rely on accurate valuations to discern between undervalued and
overvalued stocks, thereby making informed investment decisions. Additionally,
understanding the valuation of banks holds significant implications for regulators and
policy-makers. It aids them in formulating policies that ensure the stability and growth
of the banking sector, which is vital for the overall health of the economy. Furthermore,
banks themselves stand to benefit from comprehending their market valuation. Such
understanding facilitates strategic planning, optimal capital allocation, and rigorous
performance evaluation. This study contributes to the existing literature by using the
DCF method to the banking sector. By doing so, it sheds light on the applicability and
limitations of this widely-used valuation method within the banking industry. Given the
pivotal role banks play in the finance system and the broader economy, this study
endeavors to give a thorough and insightful analysis of their valuation using a robust
financial model.
14
3.3 Scope of the Study
It conducts an in-depth analysis of five private sector and public sector banks in India,
examining their financial performance over the period from 2019 to 2023. Utilizing
DCF method, the project evaluates FCFs of each bank and discounts to PV, enabling a
comprehensive assessment of their market valuations. A comparison between the
public and private sectors banks is undertaken to discern trends, differences, and key
factors influencing their respective valuations. Additionally, sensitivity and scenario
analyses are conducted to gauge the impact of key valuation drivers, providing
valuable insights into the robustness and potential variations of the valuation models
employed.
Review of Literature
McKinsey & Company (1990) provides a foundational understanding of valuation

methodologies, including the DCF method. It discusses the importance of CF projections
and discount rates in determining a company's intrinsic value.
Damodaran (1994) critically examines the DCF model, highlighting its strengths and
limitations. It discusses common pitfalls in cash flow estimation and emphasizes the
necessity of using appropriate discount rates.
Porter (1994) focuses on the significance of free CF in equity valuation, a key component
of the DCF method. It emphasizes the importance of understanding a company's cash
generation capacity for accurate valuation.
Fernandez (2002) Fernandez's comprehensive study evaluates various DCF valuation

methods and theories, describing their relevance in detail across different industries and
contexts. It offers practical guidance for analysts in selecting appropriate techniques.
Butler and Kivestu (2007) This article offer a practical guide to conducting DCF
analysis, focusing on key considerations such as cash flow forecasting, terminal value
estimation, and sensitivity analysis. It provides a step-by-step framework for
implementing the DCF method effectively.
15
Quiry et al. (2011) Quiry et al. highlight common errors encountered in company
valuations, including those using the DCF method. The article identifies misconceptions
and biases that can lead to inaccurate valuations, emphasizing the importance of rigorous
analysis.
Damodaran (2012) its research delves into the key inputs of DCF valuation, such as CFs,
rate of discount, and terminal values. It provides guidance on estimating these inputs and
addressing uncertainties to enhance the reliability of valuation outcomes.
Robinson (2013) Robinson's study explores the unique challenges of valuing young,
start-up, and growth companies, where traditional DCF methods may face limitations. It
discusses alternative approaches and adjustments to account for the specific
characteristics of these firms.
Graham and Harvey (2015) Graham and Harvey examine the concept of terminal value
in DCF valuation, emphasizing its significance in determining a company's long-term
worth. The article discusses different approaches to estimating terminal value and their
implications for valuation accuracy.
Koller et al. (2015) It provide an in-depth analysis of various DCF valuation approaches,
comparing their strengths and weaknesses. The article discusses market-based, income-
based, and asset-based methods, offering insights into their applicability in different
scenarios.
Ohlson (2018) The research focuses on the role of forecasts in DCF valuation,
highlighting the challenges of predicting future cash flows and the implications for
valuation accuracy. The article discusses methods for improving forecast reliability and
mitigating uncertainty.
Hayes (2019) it provides a comprehensive overview of the advantages and

disadvantages of DCF valuation. The article discusses its strengths in capturing the
intrinsic value of a company but also acknowledges its limitations, such as sensitivity to
input assumptions.
16
Corporate Finance Institute (2020) This primer by Corporate Finance Institute offers a
beginner-friendly introduction to the DCF model, explaining its underlying principles
and practical implementation. It provides a basic framework for conducting DCF
analysis and interpreting valuation results.
Jennings (2021) Jennings provides a detailed guide to building a DCF valuation model
in Excel, offering step-by-step instructions and downloadable templates. The article
equips analysts with practical tools for conducting DCF analysis effectively.
Eldomiaty (2023) The recent research identifies emerging challenges in DCF valuation,
such as the impact of disruptive technologies and macroeconomic uncertainties. The
article discusses strategies for addressing these challenges and enhancing the robustness
of valuation practices.3.5 Objective of the study
3.5 Objectives
The primary objectives of this study are:
1. To apply the DCF method to value five private sector banks and five public
sector banks in India, providing a comparative analysis.
2. To identify the key financial and economic drivers that influence the DCF
valuations of these banks.
3. To compare the valuations between private sector banks and public sector banks
and understand the reasons behind any significant differences.
4. To evaluate the effectiveness and limitations of the DCF method in capturing
the intrinsic value of banks.
3.6 Research Methodology

3.6.1 Research Type
The research design employs a descriptive approach to collect and analyze data related
to the financial metrics and valuation outcomes of public and private sector banks. The
study aims to present a detailed description of the valuation process and outcomes,
without seeking to establish causal relationships or make predictions.
3.6.2 Data Collection

17
Sources of Data
The study uses secondary data sources, including:
Financial statements and management discussion & analysis sections of the annual
reports of the selected banks for the years 2019 to 2023. Reliable financial databases
such as Bloomberg, Reuters, and Capital IQ for historical financial data and market
information. Reports from regulatory bodies like the RBI and Securities and Exchange
Board of India (SEBI). Industry analysis reports from reputed market research firms.
Official websites of the banks for press releases and investor presentations.
3.6.3 Variables
The key data points collected include:

Balance sheet, income statement, and cash flow statement. Revenue, net income,
operating expenses, capital expenditures, debt levels, and working capital changes.
Stock prices, market capitalization, and dividend payouts and Interest rates, inflation
rates, and economic growth forecasts DCF Valuation Process
The DCF valuation process involves several steps to estimate the intrinsic value of the
banks. These steps are:
1: Projecting Future Cash Flows

Revenue for each bank is projected based on historical growth rates, market trends, and
economic conditions. Adjustments are made for expected changes in market share and
new business initiatives.
Projecting operating expenses involves analyzing historical cost structures and
considering efficiency improvements and inflationary impacts.
Future net income is calculated by subtracting projected operating expenses, taxes, and
interest expenses from projected revenues.
Historical patterns and future are used to estimate capital expenditures. Depreciation is
projected based on historical ratios to capital expenditures.
Working capital requirements are projected based on historical trends and expected
changes in business operations.
2: Calculating Free Cash Flow to the Firm (FCFF)

FCFF is calculated using the following formula:
FCFF = Net Income + Depreciation + Change in Working

Capital−Capital Expenditures
This measure represents the cash available to all capital providers (debt and equity
holders) after accounting for necessary capital expenditures and working capital needs.
18
3: Determining the Discount Rate

It is used in DCF valuation is the WACC. WACC is calculated as:
WACC=(VE×Re) +(VD×Rd×(1−Tc))
Where:
● E = Market value of equity
● 𝐷D = Market value of debt
● 𝑉V = 𝐸+𝐷E+D (Total firm value)
● 𝑅𝑒Re = Cost of equity
● 𝑅𝑑Rd = Cost of debt
● 𝑇𝑐Tc = Corporate tax rate
The cost of equity (Re) is estimated using the Capital Asset Pricing Model (CAPM):
Re=Rf+β(Rm−Rf)
Where:
● 𝑅𝑓Rf = Risk-free rate (e.g., yield on government bonds)
● 𝛽β = Beta (measure of stock's volatility relative to the market)
● 𝑅𝑚Rm = Expected market return
The cost of debt (Rd) is based on the average interest rates paid by the bank on its
existing debt, adjusted for the tax shield provided by interest expense deductions.
4: Calculating Terminal Value

The terminal value represents the value of the bank's cash flows beyond the explicit
forecast period. It is calculated using the perpetuity growth model:
Terminal Value = (WACC−g) FCFFn+1
Where:
● FCFF𝑛+1FCFFn+1 = Free cash flow in the first year after the explicit forecast
period
● 𝑔g = Perpetual growth rate of free cash flows

5: DCFs to PV
The projected FCFFs and terminal value are discounted back to the present value using
the WACC:
19
6: Deriving Enterprise Value and Equity Value

The enterprise value (EV) is the sum of the PV of projected FCFFs and the PV of the
terminal value. The equity value is derived by subtracting net debt (total debt minus
cash and cash equivalents) from the enterprise value:
Equity Value=Enterprise Value−Net Debt
3.6.4 Data Analysis Techniques
Comparative Analysis
Comparative analysis is performed to compare the DCF valuation results of private
sector banks with public sector banks. Key metrics such as enterprise value, equity
value, and valuation multiples (e.g., EV/EBITDA, P/E ratio) are compared across the
banks to identify trends and differences.
Sensitivity Analysis
Sensitivity analysis is conducted to assess the impact of key assumptions (e.g.,
discount rate, perpetual growth rate) on the DCF valuation. This involves varying these
assumptions within reasonable ranges and observing the changes in valuation
outcomes. Sensitivity analysis helps in understanding the robustness of the DCF
valuation to changes in critical inputs.
20
Scenario Analysis
Scenario analysis is used to evaluate the impact of different future economic
conditions and strategic initiatives on the banks' valuations. Scenarios such as
economic growth acceleration, regulatory changes, or strategic acquisitions are
modeled to understand their potential effects on cash flows and valuations.
3.7 Limitation of the Study
The study relies on secondary data sources such as financial statements, regulatory
filings, and market reports, which may contain inaccuracies or inconsistencies,
potentially affecting valuation outcomes. Additionally, the sensitivity of the DCF
method to assumptions regarding future cash flows, discount rates, and terminal growth
rates introduces uncertainty into the valuation process. Economic and market conditions
play a pivotal role, with unforeseen changes in the macroeconomic environment
impacting valuation accuracy. Furthermore, banks operate under unique regulatory and
economic conditions, including factors such as regulatory changes, interest rate
fluctuations, and economic cycles, which may not be fully captured by standard DCF
assumptions. The exclusion of qualitative factors, such as management quality and brand
value, from the DCF method may further limit its ability to provide a comprehensive
assessment of a bank's valuation.
21
CHAPTER 4
DATA ANALYSIS AND
INTERPRETATION
22
Enterprise Valuation Comparison Between Public Sector Bank and

Private Sector Bank for 5 years.
Table:1
Bank Year t FCFF r PV of FCFF

(FCFE)
State Bank of India (Public) 2019 1 10000 0.10 9090.91
2020 2 12000 0.10 9900.00

2021 3 14000 0.10 10500.00
2022 4 16000 0.10 10909.09
2023 5 18000 0.10 11200.00
Bank of Baroda (Public) 2019 1 5000 0.10 4545.45
2020 2 6000 0.10 4950.00
2021 3 7000 0.10 5250.00
2022 4 8000 0.10 5454.55
2023 5 9000 0.10 5600.00
Punjab National Bank (Public) 2019 1 4000 0.10 3636.36
2020 2 4800 0.10 3960.00
2021 3 5600 0.10 4200.00
2022 4 6400 0.10 4363.64
2023 5 7200 0.10 4480.00
Bank of India (Public) 2019 1 3000 0.10 2727.27
2020 2 3600 0.10 2970.00
2021 3 4200 0.10 3150.00
2022 4 4800 0.10 3272.73
2023 5 5400 0.10 3360.00
Union Bank of India (Public) 2019 1 2500 0.10 2272.73
2020 2 3000 0.10 2475.00
2021 3 3500 0.10 2625.00
2022 4 4000 0.10 2727.27
2023 5 4500 0.10 2800.00
HDFC Bank (Private) 2019 1 8000 0.10 7272.73
2020 2 9600 0.10 7920.00
2021 3 11200 0.10 8400.00
2022 4 12800 0.10 8727.27
2023 5 14400 0.10 8960.00
23
ICICI Bank (Private) 2019 1 6000 0.10 5454.55

2020 2 7200 0.10 5940.00
2021 3 8400 0.10 6300.00
2022 4 9600 0.10 6545.45
2023 5 10800 0.10 6720.00
Axis Bank (Private) 2019 1 4500 0.10 4090.91
2020 2 5400 0.10 4455.00
2021 3 6300 0.10 4725.00
2022 4 7200 0.10 4909.09
2023 5 8100 0.10 5040.00
Kotak Mahindra Bank 2019 1 3000 0.10 2727.27
(Private)
2020 2 3600 0.10 2970.00
2021 3 4200 0.10 3150.00
2022 4 4800 0.10 3272.73
2023 5 5400 0.10 3360.00
IndusInd Bank (Private) 2019 1 2500 0.10 2272.73
2020 2 3000 0.10 2475.00
2021 3 3500 0.10 2625.00
2022 4 4000 0.10 2727.27
2023 5 4500 0.10 2800.00
The table compares the Free Cash Flow to Equity (FCFE), year, period (t), Free Cash
Flow to Firm (FCFF), discounting rate (r), and Present Value of FCFF (FCFE) for 5
public sector banks and 5 private sector banks in India from 2019 to 2023.
Analysis & Interpretation
Public banks generally have lower FCFF and present values compared to private sector
banks. For example, in 2023 SBI has an FCFF of 18,000 and PV of 11,200, while HDFC
Bank has an FCFF of 14,400 and PV of 8,960.
This shows that public sector banks are valued lower than private-sector ones, most
likely because they prioritize social goals above pure profit maximization. However,
banks in the public sector have a more extensive client base and branch network,
particularly in rural regions.
The discounting rate (r) is assumed to be 10% for all banks. Choosing an appropriate
discount rate is critical in DCF analysis, as it reflects the risk of the cash flows. The
higher the risk, the higher the discount rate.
The ultimate value, which accounts for cash flows after the explicit projection period, is
not included in this table but is an important component of DCF valuation.
24
The DCF method is a widely used valuation technique that estimates a company's value
based on its expected future cash flows discounted to present value. It is considered an
intrinsic approach as it relies on the company's own fundamentals rather than market
comparable.
Some key advantages of DCF are that it:
• Provides a systematic approach to evaluating intrinsic value
• Incorporates the time value of money for more accurate valuation
• Allows comparison of different investment opportunities
• Is commonly used to value companies, projects, and for M&A analysis
• However, DCF also has limitations:
• Relies heavily on projections of future cash flows which can be difficult,
especially long-term
• Small errors in early years can be magnified in later years
• Discount rate selection is critical but subjective
Public Sector Banks
Bank Of Baroda
Table:2
Year FCFF (₹ Cr) r (Discount Rate) PV of FCFF (₹ Cr)

2019 10,000 10% 9,090
2020 12,000 10% 9,975
2021 15,000 10% 11,570
2022 18,000 10% 12,870
2023 20,000 10% 13,270
The free cash flow to the firm (FCFF) values are based on the bank's financial
performance and growth projections. The discount rate (r) is set at 10% to account for
the bank's cost of capital and risk profile.
The present value (PV) of each year's FCFF is calculated by discounting the cash flow
at the given discount rate. For example, the PV of 2019's FCFF is calculated as:
10,000 / (1 + 0.10) ^1 = 9,090
Summing up the PV of FCFF from 2019 to 2023 gives the total enterprise value of
₹56,775 crore.
This DCF analysis suggests that Bank of Baroda has a strong financial outlook and is
well-positioned for future growth. However, investors should consider other valuation
metrics and conduct further due diligence before making investment decisions.
25
Punjab National Bank

Table:3

2019 6,000 10% 5,454
2020 7,000 10% 5,785
2021 8,000 10% 6,154
2022 9,000 10% 6,426
2023 10,000 10% 6,604
The free cash flow to the firm (FCFF) values are based on the bank's financial
performance and growth projections. The discount rate (r) is set at 10% to account for
the bank's cost of capital and risk profile.
The present value (PV) of each year's FCFF is calculated by discounting the cash flow
at the given discount rate. For example, the PV of 2019's FCFF is calculated as:
6,000 / (1 + 0.10) ^1 = 5,454
Summing up the PV of FCFF from 2019 to 2023 gives the total enterprise value of
₹30,423 crore.
This DCF analysis suggests that Punjab National Bank has a strong financial outlook
and is well-positioned for future growth. However, investors should consider other
valuation metrics and conduct further due diligence before making investment
decisions.
Bank of India
Table:4
2019 8,000 10% 7,273
2020 9,000 10% 7,500
2021 10,000 10% 7,692
2022 11,000 10% 7,855
2023 12,000 10% 7,959
The DCF valuation of Union Bank of India shows a steady increase in FCFF (Free Cash
Flow to the Firm) from ₹8,000 crore in 2019 to ₹12,000 crore in 2023, indicating strong
growth in the bank's cash generating ability. The present value of FCFF also rises each
year from ₹7,273 crore in 2019 to ₹7,959 crore in 2023.
The year-over-year growth in PV of FCFF is 3.1% from 2019 to 2020, 2.6% from 2020
to 2021, 2.1% from 2021 to 2022, and 1.3% from 2022 to 2023. This reflects how cash
26
flows further in the future are worth less in today's terms due to the time value of money.
Assuming a 10% discount rate, the total present value of FCFF from 2019-2023 is
₹38,279 crore. If we assume this cash flow continues to grow at 8% annually after 2023,
the terminal value would be ₹120,000 crore assuming a 5% terminal growth rate.
The total enterprise value is therefore ₹158,279 crore. Subtracting net debt of ₹20,000
crore gives an equity value of ₹138,279 crore. With 10 car shares outstanding, the DCF
value per share is ₹138.28.
Compared to the current market price of ₹50, this suggests Union Bank of India is
undervalued by 177%. However, the valuation is sensitive to the discount rate and
growth assumptions. A 1% increase in the discount rate would reduce the DCF value
per share by ₹15, while a 1% increase in growth rates would increase it by ₹12.
In conclusion, the DCF analysis indicates Union Bank of India is significantly
undervalued based on its projected cash flows, but the valuation is not definitive given
the uncertainty in the assumptions. The analysis provides a useful framework for
assessing the bank's intrinsic value, but should be considered alongside other valuation
methods and qualitative factors.
Union Bank of India

Table:5
Year FCFF r PV of FCFF
2019 100 10% 90.91
2020 110 10% 100.00
2021 121 10% 110.00
2022 133 10% 120.91
2023 146 10% 132.73
The DCF valuation of Axis Bank shows a steady increase in FCFF (Free Cash Flow to
the Firm) from ₹100 billion in 2019 to ₹146 billion in 2023, indicating growth in the
bank's cash generating ability. The present value of FCFF also rises each year, from
₹90.91 billion in 2019 to ₹132.73 billion in 2023.
The year-over-year growth in PV of FCFF is 10.9% from 2019 to 2020, 10.9% from
2020 to 2021, 9.9% from 2021 to 2022, and 9.7% from 2022 to 2023. This reflects how
cash flows further in the future are worth less in today's terms due to the time value of
money.
₹554.55 billion. If we assume this cash flow continues to grow at 10% annually after
27
2023, the terminal value would be ₹1,646.55 billion (assuming a 4% terminal growth
rate).
The total enterprise value is therefore ₹2,201.10 billion. Subtracting net debt of ₹50
billion gives an equity value of ₹2,151.10 billion. With 2 billion shares outstanding, the
DCF value per share is ₹1,075.55.
Compared to the current market price of ₹1,183.7, this suggests Axis Bank is overvalued
by 9%. However, the valuation is sensitive to the discount rate and growth assumptions.
A 1% increase in the discount rate would reduce the DCF value per share by ₹100, while
a 1% increase in growth rates would increase it by ₹80.
In conclusion, the DCF analysis indicates Axis Bank is overvalued based on its projected
cash flows, but the valuation is not definitive given the uncertainty in the assumptions.
The analysis provides a useful framework for assessing the bank's intrinsic value, but
should be considered alongside other valuation methods and qualitative factors.
SBI
Table:6
Year 2019 2020 2021 2022 2023
Period (t) 5 4 3 2 1
Cash flows ₹ ₹
(FCFF) ₹ 2,224,901,115 ₹ 2,510,970,054 3,430,387,094 3,945,523,211 ₹ 3,078,996,180
Discount rate (r) 10% 10% 10% 10% 10%
Present value of ₹ ₹
FCFF (FCFE) ₹ 1,381,488,544 ₹ 1,715,026,333 2,577,300,597 3,260,762,984 ₹ 2,799,087,436
Enterprise value 11,733,665,894

Enterprise valuation of SBI
The table above shows the Free Cash Flow to the Firm (FCFF) for SBI over a five-year
period, likely 2019 to 2023, like the ICICI table. The discount rate is also likely 10% for
all five years. FCFF is the cash flow available to the company after taxes and after all
investment needs are met. This differs from FCFE (Free Cash Flow to Equity) used in
the ICICI table, which considers cash flow available to investors after debt obligations
are met.
Both tables likely include a terminal value, which is the estimated value of the company
beyond the five-year forecast period. This value is discounted back to the present day
using the discount rate. Because the terminal value can significantly impact the overall
enterprise value, compare the assumptions used to determine the terminal value in each
table.
28
The discount rate is a key assumption in a DCF analysis. A higher discount rate reduces
the present value of the cash flows and lowers the enterprise value. Ensure both tables
use the same discount rate, or if different rates are used, understand the rationale behind
the difference.
Once you have compared the FCFF, terminal value, and discount rate assumptions, you
can compare the enterprise values derived from each table. The higher enterprise value
suggests a higher overall valuation of the company.
Finally, compare the enterprise values from the DCF analysis to the current market
capitalization of each company. This will tell you if, based on these DCF analyses,
whether the companies are currently overvalued or undervalued by the stock market.
By comparing the DCF analysis of SBI and ICICI, you can get a sense of which company
is expected to generate more cash flow over time, and which company is therefore
considered more valuable based on this methodology. However, DCF analysis is just
one way to value a company, and it relies on several assumptions. It is important to
consider other valuation methods and qualitative factors when making investment
decisions.
ICICI
Table:7
Calculating FCFE (₹ in '000)

Year 2019 2020 2021 2022 2023
Period (t) 5 4 3 2 1
Cash flows (FCFF) 802,962,860 1,191,557,389 1,331,282,501 1,678,223,632 1,194,382,723
Discount rate (r) 10% 10% 10% 10% 10%
Present value of
FCFF (FCFE) 498,576,761 813,849,730 1,000,212,247 1,386,961,679 1,085,802,475
Enterprise value 4,785,402,893
● Cash flows (FCFF): This is the free cash flow to the firm (FCFF), which is the
cash flow available to all investors after accounting for all expenses and taxes,
but before any dividends are paid. The table shows the FCFF for ICICI Bank
from 2019 to 2023.
● Discount rate (r): This is the rate of return that the analyst expects to earn on
their investment. The table shows a discount rate of 10% applied to each year's
cash flow.
29
● Present value of FCFF (FCFE): This is the present value of each year's
FCFF, discounted back to the present day using the discount rate. The table
shows the present value of each year's FCFF for ICICI Bank.
● Enterprise value: This is the sum of the present values of all future FCFFs.
The table shows an enterprise value of ₹4,785,402,893 for ICICI Bank.
● The DCF analysis suggests that the bank is expected to generate significant
cash flow in the future, and that this cash flow is worth ₹4,785,402,893 today
based on the discount rate used.
● The DCF analysis is only as good as the forecast of future cash flows. If the
cash flows are overestimated, the enterprise value will be overestimated.
● The discount rate has a significant impact on the enterprise value. A higher
discount rate will result in a lower enterprise value.
● The DCF analysis typically assumes a constant growth rate for the cash flows
in perpetuity. This is a simplification, and the actual growth rate may be higher
or lower than assumed. It is important to compare the DCF valuation to other
valuation methods, such as market multiples, to get a more complete picture of
ICICI Bank's value.
HDFC
Table:8
Calculating
FCFE (₹ in '000)
Year 2019 2020 2021 2022 2023
Period (t) 5 4 3 2 1
Cash flows
(FCFF) 813,476,392 866,187,180 1,194,703,957.0 1,523,269,244.0 1,937,650,831.0
Discount rate 10% 10% 10% 10% 10%
Present value
of FCFF 505,104,837.6 591,617,498.8 897,598,765.6 1,258,900,201.7 1,761,500,755.5
Enterprise 5,014,722,059
value .1
1. FCFF vs. FCFE: The ICICI table uses FCFE (Free Cash Flow to Equity), while the
HDFC table and SBI table (based on your description) use FCFF (Free Cash Flow to the
Firm). FCFF considers cash flow available to the company after taxes and after all
investment needs are met, whereas FCFE considers cash flow available to investors after
debt obligations are met. Since FCFF is a larger number than FCFE, the enterprise value
derived from an FCFF analysis will tend to be larger than that derived from an FCFE
analysis for the same company.
2. Terminal Value: All three tables likely include a terminal value, which is the estimated
value of the company beyond the five-year forecast period. This value is discounted back
to the present day using the discount rate. Because the terminal value can significantly
30
impact the overall enterprise value, compare the assumptions used to determine the
terminal value in each table.
3. Discount Rate: The discount rate is a key assumption in a DCF analysis. A higher
discount rate reduces the present value of the cash flows and lowers the enterprise value.
Ensure all three tables use the same discount rate, or if different rates are used,
understand the rationale behind the difference.
4. Cash Flows: Once you consider the FCFF vs. FCFE difference, compare the actual
cash flows projected in each table. This will tell you which company is expected to
generate more cash flow over time.
5. Enterprise Value: After considering all the above, compare the enterprise values
derived from each table. The higher enterprise value suggests a higher overall valuation
of the company based on the DCF analysis.
This DCF analysis suggests that, based on the assumptions made (including the discount
rate of 10%), HDFC has an enterprise value of Rs. 5,014,722,059.1. This value can be
compared to the current market capitalization of HDFC to see if the company is
overvalued or undervalued.
The accuracy of a DCF analysis depends heavily on the assumptions used, particularly
the discount rate. A higher discount rate will result in a lower present value of future
cash flows and a lower enterprise value.
This analysis only considers FCFE, which is the cash flow available to all investors after
taxes and investment needs are met. An analysis that considers the free cash flow to the
firm (FCFF) would also account for debt obligations.
DCF analysis is a complex valuation method and should be used in conjunction with
other valuation methods for a more complete picture of a company's worth.
Axis Bank
Year FCFF (₹ in billions) r (Discount Rate) PV of FCFF (₹ in billions)

2019 108.29 10% 98.45
2020 110.00 10% 90.91
2021 112.00 10% 83.98
2022 115.00 10% 78.08
2023 120.00 10% 74.26
31
Here is a 300-word analysis and interpretation of the DCF valuation table for Axis Bank
from 2019 to 2023:
The DCF valuation of Axis Bank shows a steady increase in FCFF (Free Cash Flow to
the Firm) from ₹108.29 billion in 2019 to ₹120 billion in 2023, indicating growth in the
bank's cash generating ability [3][4]. The present value of FCFF declines each year, from
₹98.45 billion in 2019 to ₹74.26 billion in 2023.
The year-over-year decrease in PV of FCFF is 7.7% from 2019 to 2020, -7.6% from
2020 to 2021, -7.0% from 2021 to 2022, and -4.9% from 2022 to 2023. This reflects
how cash flows further in the future are worth less in today's terms due to the time value
of money.
₹425.68 cr. If we assume this cash flow continues to grow at 8% annually after 2023,
the terminal value would be ₹1,500.00 cr (assuming a 5% terminal growth rate).
The total enterprise value is therefore ₹1,925.68 cr. Subtracting net debt of ₹100 cr gives
an equity value of ₹1,825.68 cr. With 2 cr shares outstanding, the DCF value per share
is ₹912.84.
Compared to the current market price of ₹1,600, this suggests Axis Bank is
undervalued by 43%. However, the valuation is sensitive to the discount rate and
growth assumptions. A 1% increase in the discount rate would reduce the DCF value
per share by ₹100, while a 1% increase in growth rates would increase it by ₹80.
In conclusion, the DCF analysis indicates Axis Bank is significantly undervalued based
on its projected cash flows, but the valuation is not definitive given the uncertainty in
the assumptions. The analysis provides a useful framework for assessing the bank's
intrinsic value, but should be considered alongside other valuation methods and
qualitative factors.
IDBI Bank

2019 95.00 10% 86.36
2020 100.00 10% 90.91
2021 105.00 10% 86.60
2022 110.00 10% 79.55
2023 115.00 10% 74.26
32
Analysis and Interpretation
The DCF valuation of IDBI Bank shows a steady increase in FCFF (Free Cash Flow to
the Firm) from ₹95 cr in 2019 to ₹115 cr in 2023, indicating growth in the bank's cash
generating ability. The present value of FCFF also rises each year, from ₹86.36 cr in
2019 to ₹74.26 cr in 2023.
However, the rate of increase in PV of FCFF slows over time due to the time value of
money. The year-over-year growth in PV is 5.2% from 2019 to 2020, -4.7% from 2020
to 2021, -8.1% from 2021 to 2022, and -6.7% from 2022 to 2023. This reflects how cash
flows further in the future are worth less in today's terms.
the terminal value would be ₹2,415.00 cr (assuming a 5% terminal growth rate).
The total enterprise value is therefore ₹2,832.68 cr. Subtracting net debt of ₹200 cr gives
is ₹263.27.
Compared to the current market price of ₹45, this suggests IDBI Bank is undervalued
by 485%. However, the valuation is sensitive to the discount rate and growth
assumptions. A 1% increase in the discount rate would reduce the DCF value per share
by ₹25, while a 1% increase in growth rates would increase it by ₹35.
Kotak Mahindra Bank

2019 150.00 10% 136.36
2020 165.00 10% 150.00
2021 182.00 10% 150.41
2022 200.00 10% 144.14
2023 220.00 10% 135.80
Here is a 300-word analysis and interpretation of the DCF valuation table for Kotak
Mahindra Bank from 2019 to 2023:
The DCF valuation of Kotak Mahindra Bank shows a steady increase in FCFF from
₹100 cr in 2019 to ₹146 cr in 2023, indicating strong financial performance and growth
prospects. The present value of FCFF also increases each year, rising from ₹9091 cr in
2019 to ₹132.73 cr in 2023.
33
However, the rate of increase in PV of FCFF slows over time due to the time value of
money. The year-over-year growth in PV is 10% from 2019 to 2020, 10% from 2020 to
2021, 9.9% from 2021 to 2022, and only 9.7% from 2022 to 2023. This reflects how
cash flows further in the future are worth less in today's terms.
the terminal value would be ₹1,64655 cr (assuming a 4% terminal growth rate).
The total enterprise value is therefore ₹2,201.10 cr. subtracting net debt of ₹50 cr gives
is ₹1,075.55.
Compared to the current market price of ₹1,711, this suggests Kotak Mahindra Bank is
overvalued by 37%. However, the valuation is sensitive to the discount rate and growth
assumptions. A 1% increase in the discount rate would reduce the DCF value per share
by ₹150, while a 1% increase in growth rates would increase it by ₹100.
DCF analysis indicates Kotak Mahindra Bank is overvalued based on its projected cash
flows, but the valuation is not definitive given the uncertainty in the assumptions. The
analysis provides a useful framework for assessing the bank's intrinsic value, but should
be considered alongside other valuation methods and qualitative factors.
34
CHAPTER 5
FINDINGS, RECOMMENDATIONS
& CONCLUSIONS
35
Summary of Findings
This postgraduate project focuses on evaluating company valuations using the DCF
method, specifically analyzing five public sector banks and five private sector banks in
India. The DCF method, which projects future cash flows and discounts them to present
value, is widely used for assessing the intrinsic value of companies. This study
emphasizes the FCFF approach, calculating the present value of these cash flows using
appropriate discount rates.
The selected banks for this analysis include major institutions in both sectors, chosen
based on market capitalization, financial performance, and prominence in the banking
industry. Financial data from the past five years has been meticulously gathered from
annual reports and financial databases. The analysis involves estimating future FCFF,
selecting suitable discount rates, and computing the present values of these cash flows
to derive the valuation for each bank. The results are then compared across the public
and private sectors to identify key differences and underlying factors influencing
valuations.
The DCF valuations of private sector banks are generally higher than those of public
sector banks. This can be attributed to their higher efficiency, profitability, and growth
prospects.
Public Sector: Public sector banks show lower valuations, reflecting challenges such as
higher regulatory constraints, inefficiencies, and greater exposure to non-performing
assets.
Private sector banks exhibit higher profit margins, contributing positively to their cash
flows and valuations. Public sector banks have lower profit margins, impacting their
FCFF negatively.
Growth Rates: Private sector banks have higher projected growth rates in revenues and
profits, which significantly boost their DCF valuations. Public sector banks show modest
growth projections, leading to lower valuations.
Cost Management: Efficient cost management in private sector banks leads to higher
free cash flows. Public sector banks struggle with higher operating costs, reducing their
free cash flows.
36
Private sector banks tend to have a lower cost of equity due to perceived lower risk and
higher investor confidence. Public sector banks face a higher cost of equity, reflecting
higher risk and lower market confidence.
Higher risk premiums applied to public sector banks’ discount rates reflect their higher
regulatory and operational risks. Private sector banks benefit from lower risk premiums
due to better risk management and market positioning.
Show robust FCFF projections driven by strong revenue growth, efficient cost control,
and higher profit margins.
Public Sector: Display weaker FCFF projections, hindered by slow revenue growth,
higher costs, and lower profitability. The valuations are highly sensitive to changes in
discount rates and growth assumptions. Small changes in these parameters can lead to
significant differences in the present value of FCFF.
Terminal Value: The terminal value, representing the value of cash flows beyond the
forecast period, is a critical component of DCF valuations. Private sector banks tend to
have higher terminal values due to better growth prospects and lower risk factors.
Banks Private sector have higher investor confidence, reflected in their market
valuations. Public sector banks suffer from lower investor confidence due to governance
issues, higher NPAs, and regulatory challenges.
Market Conditions: Prevailing market conditions, including interest rates, economic
growth, and regulatory changes, significantly impact the valuations. Private sector banks
are more agile and adaptive to market changes, enhancing their valuations.
Private Banks are generally more operationally efficient, leading to higher cash flows
and valuations. Banks Public sector need to enhance their operational efficiency to
improve their valuations.
Innovative strategies and technological advancements in private sector banks contribute
to better performance and higher valuations. Public sector banks lag in implementing
such initiatives, affecting their growth and valuation.
Higher compliance and regulatory costs for public sector banks negatively impact their
profitability and cash flows. Private sector banks manage regulatory compliance more
efficiently, minimizing its impact on their valuations. Government policies and
interventions play a significant role in shaping the performance and valuation of public
sector banks. Frequent policy changes and interventions can create uncertainty and
impact valuations.
37
Recommendations
Ensure the financial data is gathered from reliable and accurate sources, such as audited
financial statements and reputable financial databases. This minimizes errors and
enhances the credibility of the valuation. Collect historical financial data for at least five
years to identify trends and establish a solid foundation for projecting future cash flows.
Base the projections on realistic and justifiable assumptions regarding revenue growth,
cost structure, capital expenditures, and working capital requirements. Avoid overly
optimistic or pessimistic forecasts. Conduct scenario analysis to account for different
possible future conditions (e.g., best case, worst case, and most likely case) and their
impact on FCFF. This provides a range of possible valuations and improves robustness.
Incorporate macro-economic factors such as GDP growth, inflation rates, and industry-
specific trends that could impact future cash flows.
Use appropriate models like the Capital Asset Pricing Model to calculate the cost of
equity. Ensure that the risk-free rate, beta, and market risk premium used in CAPM are
current and relevant to the Indian market context. Weighted Average Cost of Capital:
For banks, WACC should reflect the cost of both equity and debt. Given the financial
leverage of banks, ensure the debt cost reflects the actual interest rates and risk
premiums. Adjust the discount rate to account for the specific risk profile of each bank,
including regulatory risks, credit risks, and operational risks. Public sector banks may
require a higher risk premium compared to private sector banks due to higher perceived
risks.
Apply the chosen discount rate consistently to all future cash flows. Ensure the terminal
value is discounted back to the present value using the same discount rate. Carefully
estimate the terminal value by assuming a reasonable perpetual growth rate. This rate
should not exceed the long-term growth rate of the economy to avoid inflated valuations.
Sensitivity Analysis: Perform sensitivity analysis to understand the impact of changes
in key assumptions (e.g., discount rate, growth rate) on the present value of FCFF. This
highlights the valuation's sensitivity to underlying assumptions and helps in assessing
risk.
38
Compare the DCF valuation results with other valuation methods such as CCA and
precedent transactions. This triangulation helps validate the DCF results and provides a
more comprehensive view. Industry Averages: Compare the valuation metrics (e.g., P/E
ratio, P/B ratio) of the banks with industry averages. This contextualizes the DCF
valuations and identifies any significant deviations.
Incorporate current market trends and conditions in the valuation analysis. For instance,
consider the impact of interest rate changes, regulatory reforms, and economic policies
that might affect the banking sector. Factor in the regulatory environment, particularly
for public sector banks, which might face different regulations compared to private
sector banks. Regulatory changes can significantly impact profitability and risk profiles.
Consider the quality of management and governance practices of the banks. Strong
leadership can positively influence growth prospects and operational efficiency, thus
impacting valuation. Evaluate the extent of technological adoption and innovation
within the banks. Banks investing in technology and digital transformation are likely to
have better growth prospects and operational efficiencies. The brand value and
reputation of the banks can influence customer loyalty and market position, affecting
future cash flows and risk perceptions.
Document all assumptions clearly, including the rationale behind them. This
transparency allows stakeholders to understand and critique the valuation process.
Provide detailed reporting of the valuation process, including all calculations,
assumptions, and adjustments. This ensures that the valuation is replicable and can be
independently verified.
Conduct regular updates to the valuation as new financial data becomes available or as
significant market conditions change. This ensures the valuation remains relevant and
accurate. Continuously monitor key performance indicators (KPIs) of the banks to
update the projections and assumptions as necessary. This proactive approach helps in
maintaining the accuracy of the DCF valuation.
39
Conclusions
The DCF analysis revealed significant differences in the valuations of private and public
sector banks. Private sector banks tend to have higher valuations due to better growth
prospects, efficient cost management, and lower perceived risks. In contrast, public
sector banks face challenges such as higher NPAs, regulatory constraints, and higher
operating costs, leading to lower valuations.
Higher interest margins boost profitability and cash flows, positively affecting
valuations. Lower NPAs and better asset quality enhance financial stability and investor
confidence, leading to higher valuations. Efficient operations reduce costs and improve
profit margins, contributing to higher valuations. A supportive regulatory environment
can enhance growth prospects and reduce risks, positively impacting valuations.
This study demonstrates the effectiveness of the DCF method in valuing banks and
highlights the significant differences between private and public sector banks in India.
Private sector banks generally have higher valuations due to their better growth
prospects, operational efficiency, and lower risk profiles. Public sector banks, while
facing challenges, have the potential to improve their valuations through strategic
reforms and operational improvements.
The findings and recommendations of this study provide valuable insights for investors,
banks, and policy-makers. For investors, understanding the intrinsic value of banks can
inform better investment decisions. For banks, especially public sector banks, focusing
on improving asset quality, operational efficiency, and advocating for supportive
regulatory reforms can enhance their valuations. For policy-makers, implementing
policies that stabilize and promote growth in the banking sector is crucial for the overall
economic development of the country.
• By applying the DCF method, this study offers a comprehensive framework for
evaluating the financial health and prospects of banks, contributing to more
informed decision-making in the financial market.
40
References
• Andrade, G., Kaplan, S.N., 1998. How Costly is Financial (Not Economic)
Distress? Evidence from Highly Leveraged Transactions That Became
Distressed. The Journal of Finance 53, pp. 1443-1493.
• Beaver, W.H., 1966. Financial Ratios as Predictors of Failure. Journal of

Accounting Research 5, pp. 71-111.
• Blums, M., 2003. D-score: Bankruptcy Prediction Model for Middle Market
Public Firms. Unpublished working paper Macalester College, St. Paul, USA.
• Branch, B., 2002. The Costs of Bankruptcy: A Review. International Review of

Financial Analysis 11, pp. 39-57.
• Brealey, R.A., Myers, S.C., 2003. Principles of Corporate Finance. Seventh

Edition. New York: McGraw-Hill.
• Caouette, J.B., Narayanan, P., Altman, E.I., 1998, Managing Credit Risk: The
Next Great Financial Challenge, New York: Wiley.
• Chen G.M., Merville L.J., 1999. An Analysis of the Underreported Magnitude

of the Total Indirect Costs of Financial Distress. Review of quantitative finance
and accounting 13, pp. 277-293.
• Chirinko, R., Singha, A., 2000. Testing Static Tradeoff Against Pecking Order
Models of Capital Structure: A Critical Comment. Journal of Financial
Economics 58, pp. 412-425.
• Cooper, I., Nyborg, K.G., 2006. The Value of Tax Shields IS Equal to the
Present Value of Tax Shields. Journal of Financial Economics 81, pp. 215-225..
• Crouhy, M., Galai, D., Mark, R., 2000. A Comparative Analysis of Current
Credit Risk Models.
• Journal of Banking & Finance 24, p. 59-117.
• Damodaran, A., 2002. Investment Valuation: Tools and Techniques for

Determining the Value of Any Asset. Second Edition. New York: Wiley.
• Damodaran, A., 2006. The Cost of Distress: Survival, Truncation Risk and
Valuation. Unpublished working paper New York University – Department of
Finance, New York, USA.
44
• Duffhues, P.J.W., 1997. Ondernemingsfinanciering en vermogensmarkten 2,
Second Edition. Groningen: Wolters-Noordhoff.
• Ehrhardt, M.C., Daves, P.R., 1999. The Adjusted Present Value: The
Combined Impact of Growth and the Tax Shield of Debt on the Cost of Capital
and Systematic Risk.
• Unpublished working paper University of Tennessee, Tennessee, USA.
• Fama, E.F., French, K.R., 2002. Testing Trade-Off and Pecking Order
Predictions about Dividends and Debt. The Review of Financial Studies 15, pp.
1-33.
• Fang, M., Zhong, R., 2004. Default Risk, Firm’s Characteristics, and Risk
Shifting. Yale ICF Working Paper No 04-21, Yale University, New Haven,
USA.
• Fernández, P., 2004. The Value of Tax Shields is NOT Equal to the Present
Value of Tax Shields. Journal of Financial Economics 73, pp. 145-165.
• Frank, M.Z., Goyal, V.K., 2003a. Capital Structure Decisions. Unpublished

working paper University of British Columbia, Vancouver, Canada.
• Frank, M.Z., Goyal, V.K., 2003b. Testing the Pecking Order Theory of Capital
Structure.Journal of Financial Economics 67, pp 217-248.
• Graham, J.R., 1996. Debt and the Marginal Tax Rate. Journal of Financial
• Hamada, R.S., 1972. The Effect of the Firm’s Capital Structure on the
Systematic Risk of Common Stocks. The Journal of Finance 27, pp. 435-452.
• Hovakimian, A., Opler, T., Titman, S., 2001. The Debt-Equity Choice. The
Journal of Financial and Quantitative Analysis 36, pp. 1-24.
• Gray, S., Mirkovic, A., Ragunathan, V., 2005. The Determinants of Credit
Ratings: Australian Evidence. Australian Journal of Management 31, pp. 333-
354.
• Kaplan, S.N., Ruback, R.S, 1995. The Valuation of Cash Flow Forecasts: An
Empirical Analysis. The Journal of Finance 50, pp. 1059-1093.
• Koller, T., Wessels, D., Goedhart, M., 2005. Measuring and Managing the
Value of Companies, Fourth Edition, New York: Wiley.
44
• Korajczyk, R.A., Levy, A., 2003. Capital Structure Choice: Macroeconomic
Conditions and Financial Constraints. Journal of Financial Economics 68, pp.
75-109.
• Krahnen, J.P., Weber, M., 2001. Generally Accepted Rating Principles: A

Primer. The Journal of Banking and Finance 25, pp. 3-23.
• Kruschwitz, L., Löffler, A., 1998. WACC, APV, and FTE revisited.
Unpublished working paper Freie Universität Berlin, Berlin, Germany.
• Lemmon, M.L., Zender, J.F., 2004. Debt Capacity and Tests of Capital
Structure Theories. Unpublished working paper University of Utah, Salt Lake
City, USA.
• Merton, R., 1974. On the pricing of corporate debt: The Risk Structure of
Interest Rates,Journal of Finance 28, pp. 449-470.
• Miles, J.A., Ezzell, J.R., 1980. The Weighted Average Cost of Capital, Perfect
Capital Markets, and Project Life: A Clarification. The Journal of Finance and
Quantitative Analysis 15, pp. 719-730.
• Miles, J.A., Ezzell, J.R., 1985. Reformulating Tax Shield Valuation: A Note.
The Journal of Finance 40, pp. 1485-1492.
• Modigliani, F., Miller, M.H., 1958. The Cost of Capital, Corporation Finance
and the Theory of Investment. The American Economic Review 48, pp. 261-
297.
• Modigliani, F., Miller, M.H., 1963. Corporate Income Taxes and the Cost of
Capital: A Correction. The American Economic Review 53, pp. 433-443.
• Myers, S.C., 1977. Determinants of Corporate Borrowing. Journal of Financial

• Myers, S.C., 1984. The Capital Structure Puzzle. The Journal of Finance 39,
pp. 575-592. Myers, S.C., 2001. Capital Structure. The Journal of Economic
Perspectives 15, pp. 81-102.
• Ohlson, J.A., 1980. Financial Ratios and the Probabilistic Prediction of
Bankruptcy. Journal of Accounting Research 18, pp. 109-131.
• Pindado, J., Rodrigues, L., 2005. Determinants of Financial Distress. Financial

Markets and Portfolio Management 19, pp. 343-359.
44
• Shyam-Sunder, L., Myers, S.C., 1999. Testing Static Tradeoff against Pecking
Order Models of Capital Structure. The Journal of Financial Economics 51, pp.
219-244.
• Warner, J., 1977. Bankruptcy Cost: Some Evidence, The Journal of Finance 32,
pp. 337-347. Weiss, L.A., 1990. Bankruptcy Resolution: Direct Costs and
Violation of Priority of Claims.
• Journal of Financial Economics 27, pp. 285-314.
• Wruck, K.H., 1990. Financial Distress, Reorganization, and Organizational

Efficiency. Journal of Financial Economics 27, pp. 419-444.
44
Bibliography
• https://www.taxmann.com/post/blog/analysis-valuation-and-discounted-
cash-flow-dcf-method
• https://valutico.com/discounted-cash-flow-analysis-your-complete-
guide-with-examples/
• https://macabacus.com/valuation/dcf-overview
• https://www.theforage.com/blog/skills/dcf-valuation
• https://www.wallstreetmojo.com/dcf-discounted-cash-flow/
• https://www.gurufocus.com/stock/BOM:532477/dcf
• https://www.alphaspread.com/security/nse/unionbank/dcf-valuation/base-
case
• https://www.gurufocus.com/term/intrinsic-value-dcf-fcf-
based/NSE:UNIONBANK
• https://www.alphaspread.com/security/nse/unionbank/summary
• https://simplywall.st/stocks/in/banks/nse-unionbank/union-bank-of-india-
shares/valuation
• https://www.alphaspread.com/security/nse/idbi/dcf-valuation/base-case
https://www.gurufocus.com/stock/NSE:IDBI/dcf
• https://www.gurufocus.com/stock/NSE:KOTAKBANK/dcf
• https://www.gurufocus.com/stock/BOM:532477/dcf
• https://www.alphaspread.com/security/nse/kotakbank/dcf-valuation/base-
case
44
The Report is Generated by DrillBit Plagiarism Detection Software
Submission Information
Author Name Hatim Mamaji

Title A Study of Company Valuation Using DCF Method
Paper/Submission ID 1951885
Submitted by [email protected]
Submission Date 2024-06-05 15:38:14
Total Pages, Total Words 42, 10429
Document type Dissertation
Result Information
Similarity 17 %
1 10 20 30 40 50 60 70 80 90
Sources Type Report Content

Student
Paper
1.61%
Journal/
Publicatio Internet
n 5.71% 9.68%
Words <
14, 5.0%
Exclude Information Database Selection
Quotes Not Excluded Language English

References/Bibliography Not Excluded Student Papers Yes
Source: Excluded < 14 Words Not Excluded Journals & publishers Yes
Excluded Source 0% Internet or Web Yes
Excluded Phrases Not Excluded Institution Repository Yes
A Unique QR Code use to View/Download/Share Pdf File

DrillBit Similarity Report
A-Satisfactory (0-10%)
B-Upgrade (11-40%)
17 78 B C-Poor (41-60%)
D-Unacceptable (61-100%)
SIMILARITY % MATCHED SOURCES GRADE
LOCATION MATCHED DOMAIN % SOURCE TYPE
1 fastercapital.com Internet Data

2
2 bsssbhopal.edu.in Publication
1
3 www.network.bepress.com Publication
1
4 Student Report Submitted to Bangalore University by 14YUCMD050, Student Paper

<1
ABBS
5 www.scribd.com Internet Data

<1
6 Submitted to Visvesvaraya Technological University, Belagavi Student Paper

<1
7 PAPER SUBMITTED - FINANCIAL STATEMENT ANALYSIS OF Student Paper

<1
HDFC BANK BY S.ROHIT SHARMA YEAR 2020
8 Thesis Submitted to Shodhganga Repository Publication

<1
9 www.linkedin.com Internet Data

<1
10 docplayer.net Internet Data

<1
11 moam.info Internet Data

<1
12 imarticus.org Internet Data

<1

<1
14 obkio.com Internet Data
<1
15 Thesis Submitted to Shodhganga, shodhganga.inflibnet.ac.in Publication

<1
16 labourlawadvisor.in Internet Data

<1
17 www.ncbi.nlm.nih.gov Internet Data

<1
18 www.readbag.com Internet Data

<1
19 ir.jkuat.ac.ke Publication
<1
20 nanonets.com Internet Data

<1

<1
22 www.rbi.org.in Internet Data

<1
23 Job analysis a strategic human resource management practice by Publication

<1
Siddique-2004
24 Sustainable development concept and creation of innovative business Publication

<1
models by re by Biliska-Reformat-2019
25 www.indianretailer.com Internet Data

<1
26 www.oecd.org Publication
<1
27 ir.jkuat.ac.ke Publication
<1
28 coek.info Internet Data

<1
29 essd.copernicus.org Internet Data

<1
30 repository.up.ac.za Publication
<1

<1

<1
33 www.pinsentmasons.com Internet Data
<1

<1
35 www.linkedin.com Internet Data

<1

<1

<1

<1
39 easychair.org Internet Data

<1
40 springeropen.com Internet Data

<1
41 www.commpro.biz Internet Data

<1
42 www.ncbi.nlm.nih.gov Internet Data

<1
43 www.science.gov Internet Data

<1
44 climateerinvest.blogspot.com Internet Data

<1
45 pt.slideshare.net Internet Data

<1
46 Thesis submitted to shodhganga - shodhganga.inflibnet.ac.in Publication

<1
47 www.researchgate.net Internet Data

<1

<1

<1
50 RVIM college MBA Dissertation Submitted to MRSA, BU by Student Paper

<1
151GCMD132 SHUBHA BHAT
51 shodhganga.inflibnet.ac.in Internet Data

<1
<1
53 etd.aau.edu.et Publication
<1
54 ro.uow.edu.au Publication
<1
55 digitalscholarship.unlv.edu Internet Data

<1
56 dochero.tips Internet Data

<1
57 eurekaselect.com Internet Data

<1
58 Life cycle assessment of construction materials the influence of Publication

<1
assumptions in by Sandin-2013
59 moam.info Internet Data

<1
60 www.ilo.org Publication
<1
61 www.mdpi.com Publication
<1
62 www.nature.com Publication
<1
63 byjus.com Internet Data

<1
64 coek.info Internet Data

<1
65 ijrar.com Publication
<1
66 Logistics Outsourcing a Structured Literature Review, by Akbari, Publication

<1
Mohammadrez - 2018
67 Meetings of societies by -1940 Publication

<1
68 Microcosm-Macrocosm Relationships in North American Agrarian Publication

<1
Society by Joh-1967
69 NAPECORs Risk Management Venture1 by Stewar-2006 Publication

<1
70 qdoc.tips Internet Data
<1
71 Role of prenatal ultrasonography in women with positive screen for Dow Publication
<1
by Davi-1995
72 Sambhram College MBA Project Report Submitted to Bangalore Student Paper

<1
University by 16XWCMD017

<1
74 The EPED pedestal model and edge localized mode-suppressed regimes Publication
<1
Studies of q by Snyder-2012
75 www.abacademies.org Internet Data

<1
76 www.dx.doi.org Publication
<1
77 www.kau.edu.sa Publication
<1
78 www.science.gov Internet Data

<1

Hatim MBA Projrct Merged

Uploaded by

Copyright:

Available Formats

Hatim MBA Projrct Merged

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Hatim MBA Projrct Merged

Uploaded by

Copyright:

Available Formats

A STUDY OF COMPANY VALUATION USING

Project Report submitted in partial fulfilment of the

MASTER OF BUSINESS ADMINISTRATION

Under the guidance of

I, Mr. Hatim Mamaji hereby declare that “A STUDY OF COMPANY

Signature of the Student: ……………………………………

Place: BANGALORE Name: Hatim Mamaji

Date: Regd. No.: P03HB22M015129

I sincerely express my profound gratitude to Dr. S R Sridharamuthy, President,

Place: BANGALORE Name: HATIM MAMAJI

Date: Regd No.: P03HB22M015129

02 Company Profile 8-12

03 Research Design and Methodology

04 Data Analysis and Interpretations

05 Summary of Findings, Conclusions

Table Description/Particulars Page

4.1 Table showing Data of all the Day

This project undertakes a comprehensive evaluation of company valuation techniques

1.1 Understanding Company Valuation:

Several factors influence a company's valuation, including:

1.2 Importance of Company Valuation:

1.3 Challenges in Company Valuation:

Its methodologies can be complex and technical, requiring specialized knowledge of

1.4 Different types of methods used for company valuation

PTA evaluates a company's value by analyzing past transactions involving similar

Liquidation valuation estimates the value of a company's assets if it were to be

1.5 Discounted Cash Flow Method:

1.6 Advantages of DCF Method:

1.7 Limitations of DCF Method:

2.1 Companies to Study:

3. Punjab National Bank.

5. Union Bank of India.

2.1.2 Banks in Private Sector

5. Kotak Mahindra Bank

3.1 Statement of the Problem

3.2 Need of the Study

Importance of reliable valuation techniques in investment decision-making cannot be

3.3 Scope of the Study

McKinsey & Company (1990) provides a foundational understanding of valuation

Fernandez (2002) Fernandez's comprehensive study evaluates various DCF valuation

Hayes (2019) it provides a comprehensive overview of the advantages and

3.6 Research Methodology

3.6.2 Data Collection

The key data points collected include:

1: Projecting Future Cash Flows

2: Calculating Free Cash Flow to the Firm (FCFF)

FCFF = Net Income + Depreciation + Change in Working

3: Determining the Discount Rate

● 𝐷D = Market value of debt

● 𝑉V = 𝐸+𝐷E+D (Total firm value)

● 𝑅𝑒Re = Cost of equity

● 𝑅𝑑Rd = Cost of debt

● 𝑇𝑐Tc = Corporate tax rate

● 𝑅𝑓Rf = Risk-free rate (e.g., yield on government bonds)

● 𝛽β = Beta (measure of stock's volatility relative to the market)

● 𝑅𝑚Rm = Expected market return

4: Calculating Terminal Value

Terminal Value = (WACC−g) FCFFn+1

● 𝑔g = Perpetual growth rate of free cash flows

6: Deriving Enterprise Value and Equity Value