Stock Valuation of Bank of India

Prakash Philip Zacharia

Roll No : 101

PGDM 2013-15

Current Price : 173.70

Dividend Yield 5.76%

Source: http://www.moneycontrol.com/stock-charts/ultratechcement/charts/UTC01#UTC01
Last Dividend Payout - Rs 10 / Share.
Return on Equity (%) 11.52%
Dividend Payout Ratio Net Profit (P) 24.72%
Source: http://www.moneycontrol.com/financials/bankofindia/balance-sheet/BOI#BOI (Under Financial
Ratios)

Formulas Used
g = Return on Equity * (1-P)
r = Div Yield + g
div1 (Expected Dividend at end of the year) = Rs 10 + (8% of Rs 10)
P0 (Current Stock Price) = Div1 / r g

Solution
Find out the Growth rate of Dividend.
g = Return on Equity * (1-P)
g = 0.1152 * (1 0.24)
g = 0.08
g = 8%

Find out the expected rate of return

r = Div Yield + g
r = 0.576 + 0.08
r = 0.1376
r = 13.76%

Find the expected dividend per share

div1 (Expected Dividend at end of the year) = Rs 10 + (8% of Rs 10)
div1 = 10 + 0.8
div1 = Rs 10.8

Current Price of the Stock

P0 (Current Stock Price) = Div1 / r g
P0 = 10.8 / 0.1376 0.08
P0 = 10.8 / 0.0576
P0 = Rs 187.5
The stock currently trades at Rs 173.7. Price found using the constant growth method is Rs 187.5.
Bank of India was trading at the levels on 180-190 in the last week of January.