Diageo's Stake in USL

7/27/2019 Diageo's Stake in USL

1/10

Assumptions

1.USL is expected to grow at a very good rate but slowdown in economy coupled with entry of foreign play

2. COGS is assumed to be a constant proportion of net sales value

3. Depreciation and capital expenditure as a % of sales have assumed to be constant throughout

4. Operating expenses are assumed to decrease by .2% per annum due to realization of cost synergies wit

5. Diageo has assumed a discount rate of 12% for calculating firm value but we believe that it should be so

Excel Representation

We have considered 2 separate cases for valuation depending upon discount rate chosen by diaego and ou

prompts us to gradually reduce growth by .5% every year. Terminal growth rate is assumed to be 4%

Since its a market leader and its ratios and fundamentals are good,this discount rate is further justified.


2/10

rs who are actively seeking indian market,

time

ewhere around 9.85%-10% based on rating of A2+ and comparables.

assumption


3/10


4/10

* in Rs millions 2013

Revenue from Operations 188,762.27

Less: Excise Duty 103,665.50

85,096.77

Other Operating Income 754.234

Other Income 1,248.15

Net Sales 87,099.15Expenses

Cost of Materials Consumed 42,578.62

Purchase of Traded Goods 7,251.09

1,704.76

Employee Benefits expense 4,764.45

Finance Costs 6,561.72

Depreciation and Amortisation Expense 718.268

Other expenses 18,463.78

82,042.70

Profit before Exceptional items and Taxation 5,056.45

Exceptional items -216.481

Profit before Taxation 4,839.97

Tax Expense:

Current Tax 1,671.00

Deferred Tax Charge / (Credit) -38.992

Profit for the year 3,207.96

Basic / Diluted Earnings Per Share (Face value of Rs.10 each) 24.53

Change in inventories of Finished Goods,Work-in-Progress and Stock-in-trade


5/10

2012

160,464.33

85,037.59

75,426.74

379.066

1,827.59

77,633.40

38,261.48

8,592.73

-1,798.21

4,210.08

5,943.45

608.453

16,668.36

72,486.35

5,147.06

-108.163

5,038.89

1,695.00

-84.049

3,427.94

26.21


6/10

* in Rs millions Rs. Million

2013 2012

Equity and Liabilities

Shareholders' Funds

Share Capital 1,307.95 1,307.95

Reserves and Surplus 62,611.66 57,476.92

Non-current LiabilitiesLong term borrowings 9,986.31 13,991.88

Other Long-term liabilities 620.733 200.184

Long term provisions 376.258 388.033

Current Liabilities

Short-term borrowings 23,572.40 20,456.49

Trade Payables 16,156.42 13,899.10

Other Current Liabilities 15,150.23 12,584.54

Short-term provisions 734.58 712.148

130,516.54 121,017.25

Assets

Non-current Assets

Fixed Assets

Tangible Assets 11,557.54 11,237.14

Intangible Assets 17.056 21.152

Capital Work in Progress 341.974 567.179

Non Current Investments 16,004.63 16,104.44

Deferred Tax Assets (net) 325.777 286.785

Long term Loans and advances 61,998.31 53,765.56

Other Non Current Assets 380.119 198.002

Current AssetsCurrent Investments 17.351 188.776

Inventories 13,214.59 14,522.36

Trade Receivables 17,686.91 12,828.00

Cash and Bank balance 1,456.06 2,639.00

Short term Loans and Advances 7,514.88 8,657.51

Other Current Assets 1.347 1.346

130,516.54 121,017.25


7/10

* in Rs millions

Apr-13 Apr-14 Apr-15 Apr-16

Revenue Growth 13.00% 12.50% 12.00%

Cost of revenues 59.99% 59.99% 59.99% 59.99%

Other Operating expense 21.20% 21.00% 20.80% 20.60%

Capex 1.08% 1.08% 1.08% 1.08%

Depreciation 0.82% 0.82% 0.82% 0.82%

Net Sales 87,099.15 98422.037 110724.79 124011.77

Total cost of revenues 52,252.75 59045.60 66426.30 74397.46

Gross Profit 34846.402 39376.434 44298.489 49614.307

Other Operating expense 18,463.78 20667.232 23029.186 25544.665

Operating Profit/(Loss) 16,382.62 18,709.20 21,269.30 24,069.64

Finance Costs/Employee Benefit Expense 11,326.17 12458.786 13642.371 14870.184

Tax @34% 1719.19266 2125.1416 2593.1568 3127.8158

Net Income 3,337.26 4,125.27 5,033.77 6,071.64

Capex 941.463 1063.8532 1196.8348 1340.455

Depreciation 718.268 811.64284 913.0982 1022.67

Changes in NWC 1293.818 1462.0143 1644.7661 1842.1381

Free Cash Flow 9295.51488 10633.849 12109.237 13726.041

Terminal Value

Discount rate 12.00%

NPV Rs. 202,192.88

Value of Debt 61,998.31

No of shares(millions) 130.78

Price/Share 1,072.01


8/10

Apr-17 Apr-18 Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24

11.50% 11.00% 10.50% 10.00% 9.50% 9.00% 8.50% 8.00%

59.99% 59.99% 59.99% 59.99% 59.99% 59.99% 59.99% 59.99%

20.40% 20.20% 20.00% 19.80% 19.60% 19.40% 19.20% 19.00%

1.08% 1.08% 1.08% 1.08% 1.08% 1.08% 1.08% 1.08%

0.82% 0.82% 0.82% 0.82% 0.82% 0.82% 0.82% 0.82%

138273.1201 153483.16 169598.9 186558.79 204281.87 222667.24 241593.95 260921.47

82953.17 92078.02 101746.21 111920.83 122553.31 133583.10 144937.67 156532.68

55319.95249 61405.147 67852.688 74637.957 81728.562 89084.133 96656.284 104388.79

28205.7553 31001.422 33917.374 36935.993 40036.349 43194.286 46382.612 49571.378

27,114.20 30,403.73 33,935.31 37,701.96 41,692.21 45,889.85 50,273.67 54,817.41

16134.14954 17424.882 18731.748 20042.97 21345.763 22626.509 23870.967 25064.515

3733.216201 4412.8069 5169.2126 6004.0577 6917.7931 7909.535 8976.9198 10115.984

7,246.83 8,566.04 10,034.35 11,654.94 13,428.66 15,353.80 17,425.79 19,636.91

1494.607347 1659.0142 1833.2106 2016.5317 2208.1022 2406.8314 2611.4121 2820.3251

1140.277026 1265.7075 1398.6068 1538.4675 1684.6219 1836.2378 1992.3181 2151.7035

2053.983946 2279.9222 2519.314 2771.2454 3034.5137 3307.62 3588.7677 3875.8691

15487.05588 17393.23 19443.389 21633.986 23958.867 26409.086 28972.762 31634.999

387063.52


9/10

* in Rs millions

Apr-13 Apr-14 Apr-15 Apr-16

Revenue Growth 13.00% 12.50% 12.00%

Cost of revenues 59.99% 59.99% 59.99% 59.99%

Other Operating expense 21.20% 21.00% 20.80% 20.60%

Capex 1.08% 1.08% 1.08% 1.08%

Depreciation 0.82% 0.82% 0.82% 0.82%

Net Sales 87,099.15 98422.037 110724.79 124011.77

Total cost of revenues 52,252.75 59045.60 66426.30 74397.46

Gross Profit 34846.402 39376.434 44298.489 49614.307

Other Operating expense 18,463.78 20667.232 23029.186 25544.665

Operating Profit/(Loss) 16,382.62 18,709.20 21,269.30 24,069.64

Finance Costs/Employee Benefit Expense 11,326.17 12458.786 13642.371 14870.184

Tax @34% 1719.19266 2125.1416 2593.1568 3127.8158

Net Income 3,337.26 4,125.27 5,033.77 6,071.64

Capex 941.463 1063.8532 1196.8348 1340.455

Depreciation 718.268 811.64284 913.0982 1022.67

Changes in NWC 1293.818 1462.0143 1644.7661 1842.1381

Free Cash Flow 9295.51488 10633.849 12109.237 13726.041

Terminal Value

Discount rate 9.85%

NPV Rs. 242,222.53

Value of Debt 61,998.31

No of shares(millions) 130.78

Price/Share 1,378.10


10/10

Apr-17 Apr-18 Apr-19 Apr-20 Apr-21 Apr-22 Apr-23 Apr-24

11.50% 11.00% 10.50% 10.00% 9.50% 9.00% 8.50% 8.00%

59.99% 59.99% 59.99% 59.99% 59.99% 59.99% 59.99% 59.99%

20.40% 20.20% 20.00% 19.80% 19.60% 19.40% 19.20% 19.00%

1.08% 1.08% 1.08% 1.08% 1.08% 1.08% 1.08% 1.08%

0.82% 0.82% 0.82% 0.82% 0.82% 0.82% 0.82% 0.82%

138273.1201 153483.16 169598.9 186558.79 204281.87 222667.24 241593.95 260921.47

82953.17 92078.02 101746.21 111920.83 122553.31 133583.10 144937.67 156532.68

55319.95249 61405.147 67852.688 74637.957 81728.562 89084.133 96656.284 104388.79

28205.7553 31001.422 33917.374 36935.993 40036.349 43194.286 46382.612 49571.378

27,114.20 30,403.73 33,935.31 37,701.96 41,692.21 45,889.85 50,273.67 54,817.41

16134.14954 17424.882 18731.748 20042.97 21345.763 22626.509 23870.967 25064.515

3733.216201 4412.8069 5169.2126 6004.0577 6917.7931 7909.535 8976.9198 10115.984

7,246.83 8,566.04 10,034.35 11,654.94 13,428.66 15,353.80 17,425.79 19,636.91

1494.607347 1659.0142 1833.2106 2016.5317 2208.1022 2406.8314 2611.4121 2820.3251

1140.277026 1265.7075 1398.6068 1538.4675 1684.6219 1836.2378 1992.3181 2151.7035

2053.983946 2279.9222 2519.314 2771.2454 3034.5137 3307.62 3588.7677 3875.8691

15487.05588 17393.23 19443.389 21633.986 23958.867 26409.086 28972.762 31634.999

387063.52

Documents

Diageo's Stake in USL