Project Guidelines 2024_U

Group Project Guidelines
Each group should select an industry and update the industry to CR of your section. Each group
has to choose a total of three companies for the purpose of the project. Please do not pick
Banks and Financial Institutions. Be careful to avoid penny stocks and stocks that have been
undergoing considerable stress or losses for the past many years.
Selection Criteria
The companies are to be selected based on the following criteria.
 The selected companies should have been listed company for the last 3 years.
 Out of the three companies, one should belong to the top category, one in the medium
and one in the small category. The categories are defined in terms of Market
Capitalization.
Specific Guidelines
 For each company the group members should compute its beta. The beta’s are to be
computed for each year (taking weekly returns) and then a single beta for whole of three
years. Based on the results the group should classify the security as defensive or
aggressive as compared to the market. CNX 500 (an index given out by NSE) should be
taken for the computation of index returns. Adjusted closing prices should be considered
for the computation of returns.
 Using the three year beta the group should compute the expected return for the stock
based on a market risk premium of 10% and risk free rate equivalent to a 10-year
government security i.e. YTM of Government security maturing on year 2034/35. (You
can find it on FIMMDA or RBI website, though you will need to search for them)
 Cost of debt= YTM. As this information is not easily available. For this project, take the
cost of debt by adding a risk premium of 1%, 3%, and 5% (to the risk-free rate),
respectively, for the top, medium, and low categories of the company. Assume tax rate =
25% .
 Compute the average growth rate in the free cash flows (as defined in exhibit 1) in the
last 3 years. If the average growth rate is very low or negative or higher than 30% then
use the industry growth rate. Using this growth rate, project future free cash flows for
next five years. Cash flows from the end of 5 th year to perpetuity should assume a growth
rate of 4%. See exhibit 1 for details. Compute the value per share.
 Using the average P/E for last five years and expected EPS in the next year (Current
EPS*(1+expected growth rate in EPS), compute the value of the share of the company.
 Compare the above two values with the market value of the share to determine under
pricing or overpricing
 Comment on the capital structure of the company by comparing it with other companies
that the group has chosen.
 Comment on the results by comparing it with the results for other companies in the
similar group.
The selection of companies is left to the group members. In case you have any queries on the
above, we can discuss that in class. The above activity would entail the use of the Capitaline
database.
At the end of the project we expect the following:
a) One excel sheet containing worksheet for each of the company selected by the group.
b) One word document of not more than 3 pages containing a paragraph about the industry
as well as results and analysis for the respective companies in the group. The font size
should be 11 with Times New Roman format and Single spacing.
Evaluation details
The project evaluation will be for a total of 20 marks comprising of the individual viva (Course
Viva) + the group work (word and Excel) . The individual component is 10 marks, and the group
component is 10 marks. In case a majority of students of a group complain about lack of work
by one or more members, the marks of such members will be accordingly moderated.
Submission date
The soft copy of the excel sheet and word document has to be submitted on 3 rd December 2024
latest by 5:00 pm.
Sec A 65 -10 Groups of 6 each and 1 Group of 5 each
Sec B 68 - 9 Groups 6 each and 2 Groups of 7 each
Sec C 66 - 11 Groups of 6 each

Exhibit 1 (Also check snapshots at the end)
Method 1: Compute the Value of the firm using the Discounted Cash Flow Method (DCF)
Step 1
Computation of Free cash flows (Following information should be taken from Consolidated Financial
statements: See the snapshot of capitaline)
EBIT= [*EBITDA-Depreciation and Amortization)]
1 EBIT *(1-Tax rate)

Add: Dep &
2 Amortization
3 Less: Changes in NWC**
Less: Capital
4 Expenditure***
Free Cash Flow for Firm
*EBITDA from capitaline as indicated in the snapshot below.
**Change in NWC=Change in trade receivables+ change in Inventory + change in creditors. Should be

taken from cash from operating activity section of cash flow statement. Check snapshot below.
***Should be taken from Cash from Investing activity section of cashflow statement.
Capital Expenditure=Purchase of Fixed Assets+Acquisition of Companies. See the snapshot below.
Step 2
 Compute weighted average of cost of capital (WACC). (Cost of equity and cost debt multiplied
with their respective market weights in the balance sheet).
 Use Market value for equity and for debt you can assume book value to be close to market
value. Cost of equity need to be computed using CAPM
 WACC is our Discounting Rate.
Step 3
 PV of cash flows (Firm Value) = PV of next 5 year + PV of cash flows from the end of 5th year to
perpetuity
 Present value is computed by discounting at the WACC.
Step 4
Value of Equity=PV of cash flows (Firm Value)-Debt (long term debt only)
Step 5
Value per share=value of equity/no. of shares outstanding
Method 2: Compute the Value of the Firm using the Relative Valuation
 Relative Valuation or Valuation by comparables.

 Using the average P/E for last five years and expected EPS in the next year (Current
EPS*(1+expected growth rate in EPS), compute the value of the share of the company.
Here the assumption is that share price trades at an average multiple of the past of 5
years. Which may not be true !!!
Snapshots

Project Guidelines 2024_U

Uploaded by

Copyright:

Available Formats

Project Guidelines 2024_U

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

Project Guidelines 2024_U

Uploaded by

Copyright:

Available Formats

Group Project Guidelines

The companies are to be selected based on the following criteria.

At the end of the project we expect the following:

Sec A 65 -10 Groups of 6 each and 1 Group of 5 each

Sec B 68 - 9 Groups 6 each and 2 Groups of 7 each

Sec C 66 - 11 Groups of 6 each

EBIT= [*EBITDA-Depreciation and Amortization)]

1 EBIT *(1-Tax rate)

*EBITDA from capitaline as indicated in the snapshot below.

**Change in NWC=Change in trade receivables+ change in Inventory + change in creditors. Should be

Capital Expenditure=Purchase of Fixed Assets+Acquisition of Companies. See the snapshot below.

Value per share=value of equity/no. of shares outstanding

 Relative Valuation or Valuation by comparables.

You might also like