IDCOL Ferro Chrome and Alloys Ltd.

Valuation using DCF

XIMB 2

PAT in Rs. Lakhs

As a unit of IDCOL As a Company

1996-97 (370.00) 2002-03 (955.76)

1997-98 (466.66) 2003-04 44.88

1998-99 (648.92) 2004-05 93.73

1999-00 (227.44) 2005-06 (711.78)

2000-01 (805.44) 2006-07 1042.38

2001-02 358.87 2007-08 2894.13

2008-09 1447.26

2009-10 292.40

•IFCAL was a loss making unit of IDCOL in the 1990’s

•Since 2003, IFCAL has reported profits in 6 out of 8 years

Performance(PAT)

Performance

(Effect of Price)

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Valuation(Workings)

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o Building

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Valuation(Results)

XIMB 3

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

f(x) = 13.7705751172746 ln(x) + 10.1353042802533

Rate (Rs/1000MT)

Rate (Rs/1000MT)Logarithmic (Rate (Rs/1000MT))

•The major cause of profits has been the increase in price of HCFC during recent years

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XIMB 4

•Projection has been done from 2011 to 2015

•A logarithmic equation is fitted to predict future price of HCFC

•Production is assumed to grow linearly so as to touch 19000MT in 2015E

•Items in income statement are projected using average ‘percentage of sales’ from past data

•In BS, NWC has been projected using average percentage of sales data.

•No Capex investments have been assumed

•Loans & Advances have been assumed to go down by 10% each year

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XIMB 5

•Funds from L&A are diverted to Investments

•10 Yr Govt. of India bond yield is taken as risk free return (source: Bloomberg)

•Market risk premium is taken as 10.76% based on secondary data

•Gross block doesn't increase

•Tax rate has been taken as 32.5%

•There is no change in inventory

ASSUMPTIONS:

Performance(PAT)

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XIMB 6

•Cost of Equity

• Calculated using CAPM method.

• Data of a company- FACOR were used to get beta value

•Cost of debt was taken as 12.5%

•Terminal growth rate was taken as CAGR of sales

•Average of DER of past data used for calculation of WaCC.

•FCFF was discounted for valuation of the firm

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XIMB 7

•Three scenarios were considered as follows:

Scenario Beta TerminalGrowthRate

Best case 1.4 14%

Most Likely 1.6 10%

Worst Case 1.8 6%

•Variation in Terminal growth rate has been allowed for:

Performance(PAT)

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XIMB 8

Performance(PAT)

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(Effect of Price)

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Valuation(Results)

RESULTS:

Factors affecting valuation:

• Increase in working capital is reducing FCFF.

• Low value of debt-equity ratio is increasing WaCC.