CAPSTONE REPORT

ON

FINANCIAL ANALYSIS & VALUATION OF

GODREJ CONSUMER PRODUCT LIMITED

Master of Business Administration

By

ANSHUL SINHAL

FMS/MBA/2018-20/011

Under The Guidance Of

PROF. BINOD GOPAL MUKHERJEE,
FACULTY - FCMS
SRI SRI UNIVERSITY.

Sri Sri University

CUTTACK – 754006
APRIL, 2020
 CERTIFICATE OF APPROVAL

The following Summer Internship Report titled “FINANCIAL ANALYSIS & VALUATION OF
GODREJ CONSUMER PRODUCT LIMITED " is hereby approved as a certified study in
management carried out and presented in a manner satisfactory to warrant its acceptance as a
prerequisite for the award of Master of Business Administration for which it has been submitted. It
is understood that by this approval the undersigned do not necessarily endorse or approve any
statement made, opinion expressed or conclusion drawn therein but approve the Capstone Report
only for the purpose it is submitted.

Capstone Report Examination Committee for evaluation of Capstone Report.

Capstone Guide : Signature…………………………………….

: Prof. Binod Gopal Mukherjee
: Faculty FCMS
: Sri Sri University
: Cuttack, 754006.

Name: Anshul Sinhal

Roll No. – FMS/MBA/2018-20/011
 ACKNOWLEDGEMENT

It gives me immense pleasure to present “FINANCIAL ANALYSIS & VALUATION OF

GODREJ CONSUMER PRODUCT LIMITED”, a project report as part of the curriculum of
‘Master of Business Administration’. I would like to thank all the people who gave unending
support.

I am highly indebted Prof. Binod Gopal Mukherjee for giving me the opportunity to take up
this topic and the guidance and the constant supervision as well as providing necessary information
regarding the project and also for their support in completing the project.

I would like to express my gratitude towards my parents & to all my friends, seniors who
helped me in conducting the survey , teaching , non-teaching staff , batch mates of Sri Sri
University , who provided moral support and the much needed inspiration to conclude the project in
time.

Thanking you.

Anshul Sinhal
FMS/MBA/2018-20/011
Table of Contents
CHAPTER 1 .............................................................................................. 1-
1.1 INTRODUCTION ............................................................................... 2
1.2- OBJECTIVE OF THE STUDY ......................................................... 2
1.3 - SCOPE OF STUDY .......................................................................... 3
1.4 - DATA COLLECTION ..................................................................... 3
1.5 - METHODOLOGY ............................................................................ 4
1.6 - LIMITATION OF THE STUDY ..................................................... 7
CHAPTER 2 ...................................................................................... 8
2.1 - THEORITICAL ASPECTS OF FINANCIAL ANALYISIS AND
VALUATION ............................................................................................ 9
2.2 - INTRODUCTION OF VALUATION IN FMCG SECTOR ......... 10
2.3 - COMPANY INTRODUCTION ..................................................... 11
CHAPTER 3 .................................................................................... 12
3.1 - DATA ANALYSIS ......................................................................... 13
CHAPTER 4 .................................................................................... 18
4.1 - DATA ANALYSIS ......................................................................... 19
4.2 – CONCLUSION .............................................................................. 20
CHAPTER 5 .................................................................................... 21
5.1 – DCF Annexure................................................................................ 22
CHAPTER – 1
(Introduction & Methodology)

1
1.1 INTRODUCTION
Valuation is the process of determining the current worth of an asset or a company; there
are many techniques used to determine value. An analyst placing a value on a company
looks at the company's management, the composition of its capital structure, the prospect
of future earnings and market value of assets.

The market value of a security is determined by what a buyer is willing to pay a seller,
assuming both parties enter the transaction willingly. When a security trades on an
exchange, buyers and sellers determine the market value of a stock or bond. The concept
of intrinsic value, however, refers to the perceived value of a security based on future
earnings or some other company attribute unrelated to the market price of a security.

The process of making an estimate of worth of real property or real property or other assets
for a particular purpose e.g. purchase, sale, audit, rating, compulsory purchase or taxation.
That purpose and the relevant circumstances will determine assumptions and facts that are
appropriate and hence the process used.

Valuation is the process of estimating the value, or worth, of an asset or investment.

For example, fundamental stock analysts estimate the outlook for a company's stock by
looking at data such as the stock's price-to-earnings (P/E), price-to-sales, and price-to-book
(net asset value) ratios.
In general, a company with a high P/E is considered overvalued, and a company with a low
P/E is considered undervalued.

When a firm is required to show some of its assets at fair value, some call this process
"mark-to-market". But reporting asset values on financial statements at fair values gives
managers ample opportunity to slant asset values upward to artificially increase profits and
their stock prices. Managers may be motivated to alter earnings upward so they can earn
bonuses. Despite the risk of manager bias, equity investors and creditors prefer to know
the market values of a firm's assets—rather than their historical costs—because current
values give them better information to make decisions.

1.2- OBJECTIVE OF THE STUDY

• To estimate the value of an investment based on the future cash flows.
• To find the present value of expected future cash flows using a discount rate.
• To analyse the various important financials of valuation and their impact on the
valuation.
• To decide whether we should invest in the company or not.

2
1.3 - SCOPE OF STUDY
In this report we are going to study the various important data from year 2015 to 2018 of
“Godrej Consumer Product Limited” and predict the expected data in the next two years
i.e. - 2019 and 2020. We will calculate the annual relative growth and the growth rate on
various important financials with respect to the previous years. Then we will compare the
financials with the various averages like arithmetic mean, geometric mean, standard
deviation and its differences in results analysis and their interpretation.
We will than value the company using Simple DCF valuation and find the free cash flows,
WACC, terminal value and enterprise value to equity value of Godrej Consumer Product
Limited.

1.4 - DATA COLLECTION

Secondary Data - It refers to the data collected by someone other than the user i.e. the data
is already available and analysed by someone else. Common sources of secondary data
include various published or unpublished data, books, magazines, newspaper, trade
journals etc.

Published data are available in:

a) Publications of government
b) technical and trade journals
c) Reports of various businesses, banks etc.
d) public records
e) statistical or historical document
So, in this project Secondary data is collected from the Annual report of the Godrej
Consumer Product Limited. To do the valuation of the company various financials are
taken into account.

3
1.5 - METHODOLOGY
When valuing a company as a going concern there are three main valuation methods used
by industry practitioners:
(1) DCF analysis,
(2) Comparable company analysis, and
(3) Precedent transactions.
These are the most common methods of valuation used in investment banking, equity
research, private equity, corporate development, mergers & acquisitions (M&A), leveraged
buyouts (LBO) and most areas of finance.

Method 1: Comparable Analysis

Comparable company analysis (also called “trading multiples” or “peer group analysis” or
“equity comps” or “public market multiples”) is a relative valuation method in which you
compare the current value of a business to other similar businesses by looking at trading
multiples like P/E, EV/EBITDA, or other ratios. Multiples of EBITDA are the most
common valuation method.

4
The “comps” valuation method provides an observable value for the business, based on
what companies are currently worth. Comps are the most widely used approach, as they
are easy to calculate and always current. The logic follows that, if company X trades at a
10-times P/E ratio, and company Y has earnings of $2.50 per share, company Y’s stock
must be worth $25.00 per share (assuming its perfectly comparable).

Method 2: Precedent Transactions

Precedent transactions analysis is another form of relative valuation where you compare
the company in question to other businesses that have recently been sold or acquired in the
same industry. These transaction values include the take-over premium included in the
price for which they were acquired.
These values represent the block value of a business. They are useful for M&A
transactions, but can easily become stale-dated and no longer reflective of the current
market as time passes. They are less commonly used than Comps or market trading
multiples.

Method 3: DCF Analysis

Discounted Cash Flow (DCF) analysis is an intrinsic value approach where an analyst
forecasts the business’ unlevered free cash flow into the future and discount it back to today
at the firm’s Weighted Average Cost of Capital (WACC).
A DCF analysis is performed by building a financial model in Excel and requires an
extensive amount of detail and analysis. It is the most detailed of the three approaches,
requires the most assumptions and often produces the highest value. However, the effort
required for preparing a DCF model will also often result in the most accurate valuation.
A DCF model allows the analyst to forecast value based on different scenarios, and even
perform a sensitivity analysis.
For larger businesses, the DCF value is commonly a sum-of-the-parts analysis, where
different business units are modeled individually and added together.
So, in this project I have used DCF model for valuing the Godrej Consumer Product
Limited.
The process of the DCF model is as follows:
Step 1 - Projections of the Financial Statements
The forecasting period plays a critical role because small firms grow faster than the
more mature firms and thus carry higher growth rate. So, the analysts’ do not expect

5
 the firms to have infinite lives due to the fact that the small firms are more open to
acquisition and bankruptcy than the larger ones.

Step 2 - Calculating Free Cash Flow to Firm

Free cash flow is the cash, which is left out after the company pays all of the
operating expenditure and required capital expenditure. The company uses this free
cash flow to enhance its growth such as developing new `products, establishing
new facilities and paying dividends to its shareholders or initiating share buybacks.
Free Cash Flow to Firm or FCFF Calculation = EBIT x (1-tax rate) + Non-Cash
Charges + Changes in Working capital – Capital Expenditure
Step 3 - Calculating the Discount Rate
The most appropriate method to determine the discount rate is to apply the concept
of weighted average cost of capital, known as WACC. We have to keep in mind
that you have taken the right figures of equity and after-tax cost of debt as the
difference of just one or two percentage point in the cost of capital will make a vast
difference in the fair value of the company.
Step 4 - Calculating the Terminal Value
We will now calculate the terminal value followed by calculation of the discounted
cash flow analysis. There are several ways to calculate the terminal value of cash
flows.
The most commonly known method is to apply a perpetuity method using the
Gordon Growth Model to value the company. The formula to calculate the terminal
value for future cash flow is:
Terminal Value = Final year projected cash flow * (1+ Infinite growth rate)/
(Discount rate-Long term cash flow growth rate)
Step 5 - Present Value Calculations
Find the present value of the projected cash flows using NPV formulas and XNPV
formulas.
Projected cash flows of the firm are divided into two parts –

• Explicit Period (period for which FCFF was calculated – till 2020E)
• Period after the explicit period (post 2020E)

6
Step 6 – Adjustments
The sixth step in Discounted Cash Flow Analysis is to make adjustments to your enterprise
valuation. Adjustments to the Discounted Cash Flow valuations is done for all the non-core
assets and liabilities that have not been accounted for in the Free Cash Flow Projections.
Valuation may be adjusted by adding unusual assets or subtracting liabilities to find the
adjusted fair equity value.

1.6 - LIMITATION OF THE STUDY

➢ DCF valuation is very sensitive to the assumptions/forecasts made by the analyst.

Even small adjustments can cause DCF valuation to vary widely – which means
the fair value may not be accurate.
➢ DCF tends to be more time-intensive compared with other valuation techniques.
➢ DCF involves forecasting future performance, which can be very difficult,
especially if the company isn’t operating with 100% transparency.
➢ DCF valuation is a moving target: If any company expectations change, the fair
value will change accordingly.

7
CHAPTER – 2
(About GCPL & FMCG Valuation)

8
2.1 - THEORITICAL ASPECTS OF FINANCIAL ANALYISIS AND
VALUATION
Financial statements are prepared to meet external reporting obligations and also for
decision making purposes. They play a dominant role in setting the framework of
managerial decisions. But the information provided in the financial statements is not an
end in itself as no meaningful conclusions can be drawn from these statements alone.
However, the information provided in the financial statements is of immense use in making
decisions through analysis and interpretation of financial statements. Financial statement
analysis is the process of identifying financial strengths and weaknesses of the firm by
properly establishing relationship between the items of the balance sheet and the profit and
loss account. There are various methods or techniques that are used in analyzing financial
statements, such as comparative statements, schedule of changes in working capital,
common size percentages, funds analysis, trend analysis, and ratios analysis.
Valuation is the analytical process of determining the current (or projected) worth of an
asset or a company. There are many techniques used for doing a valuation. An analyst
placing a value on a company looks at the business's management, the composition of its
capital structure, the prospect of future earnings, and the market value of its assets, among
other metrics.
There are seven steps in using DCF model
Here are the seven steps to Discounted Cash Flow Analysis –
#1 – Projections of the Financial Statements
#2 – Calculating the Free Cash Flow to Firms
#3 – Calculating the Discount Rate
#4 – Calculating the Terminal Value
#5 – Present Value Calculations
#6 – Adjustments
#7 – Sensitivity Analysis

9
2.2 - INTRODUCTION OF VALUATION IN FMCG SECTOR

The Fast-Moving Consumer Goods (FMCG) sector is the fourth largest sector in India.

The FMCG sector has grown from US$ 31.6 billion in 2011 to US$ 52.8 billion in 2017-
18. The sector is further expected to grow at a Compound Annual Growth Rate (CAGR)
of 27.9% to reach US$ 103.7 billion by 2020. The sector witnessed growth of 16.5% in
value terms between June–September 2018; supported by moderate inflation, increase
in private consumption and rural income.

It is forecasted to grow at 12-13% between September and December 2018. FMCG's

urban segment is expected to have a steady revenue growth at 8% in FY19 and the rural
segment is forecasted to contribute 15-16% of total income in FY19.

Accounting for a revenue share of around 4%, rural segment is a large contributor to
the overall revenue generated by the FMCG sector in India. Urban segment accounted
for a revenue share of 55% in the overall revenues recorded by FMCG sector in India.

Revenues of FMCG sector reached Rs 3.4 trillion (US$ 52.8 billion) in FY18 and are
estimated to reach US$ 103.7 billion in 2020.

Growing awareness, easier access, and changing lifestyles are the key growth drivers
for the consumer market. The focus on agriculture, MSMEs, education, healthcare,
infrastructure and employment under the Union Budget 2018-19 is expected to directly
impact the FMCG sector. These initiatives are expected to increase the disposable
income in the hands of the common people, especially in the rural area, which will be
beneficial for the sector.

10
2.3 - COMPANY INTRODUCTION
Godrej Consumer Products is a leading emerging markets company. As part of the over
120-year young Godrej Group, we are fortunate to have a proud legacy built on the strong
values of trust, integrity and respect for others. At the same time, we are growing fast and
have exciting, ambitious aspirations.
Today, our Group enjoys the patronage of 1.15 billion consumers globally, across different
businesses. In line with our 3 by 3 approach to international expansion at Godrej Consumer
Products, we are building a presence in 3 emerging markets (Asia, Africa, Latin America)
across 3 categories (home care, personal care, hair care). We rank among the largest
household insecticide and hair care players in emerging markets. In household insecticides,
we are the leader in India and Indonesia and are expanding our footprint in Africa. We are
the leader in serving the hair care needs of women of African descent, the number one
player in hair colour in India and Sub-Saharan Africa, and among the leading players in
Latin America. We rank number two in soaps in India, are the number one player in air
fresheners in India and Indonesia, and a leader in wet tissues in Indonesia.
But for us, it is very important that besides our strong financial performance and
innovative, much-loved products, we remain a good company. Approximately 23 per cent
of the promoter holding in the Godrej Group is held in trusts that invest in the environment,
health and education. We are also bringing together our passion and purpose to make a
difference through our 'Good & Green' approach to create a more inclusive and greener
India.
At the heart of all of this, is our talented team. We take much pride in fostering an inspiring
workplace, with an agile and high-performance culture. We are also deeply committed to
recognising and valuing diversity across our teams.

GCPL HIGHLIGHTED SIX KEY PRIORITIES:

1) Core category leadership
2) International growth
3) Innovation and renovation,
4) Future ready sales system,
5) best-in-class supply chain and
6) Agility and high performance culture.
• It emphasized on innovations and product differentiation as a key to win in the
marketplace, which, though competitive, presents a strong opportunity in GCPL's
focus categories.
• For the international business, company's focus is to build a future ready sales
organization, with local empowerment in a "Godrej way". It is investing in people,
process, brands and market infrastructure to create meaningful differentiation v/s
competition

11
CHAPTER – 3
(Data Analysis & Valuation)

12
3.1 - DATA ANALYSIS
Financial data analysis of Godrej Consumer Product Limited from the year 2016 till the
projected year 2020.
Figure 3.1

Annual Growth Relatives

GCPL
Annual Growth Relatives
For the Years 2021P to 2017
Fiscal Year 2017 2018 2019 2020P 2021P
Sales 101.78% 110.02% 106.21% 107.00% 107.00%
EBIT 140.35% 112.93% 98.03% 117.00% 117.00%
Interest Expense 115.31% 122.02% 110.69% 116.00% 116.00%
Total Net Income 118.69% 112.86% 124.94% 119.00% 119.00%
Basic EPS from Total Operations 117.02% 111.72% 108.22% 112.00% 112.00%
Total Assets 106.85% 133.66% 107.10% 116.00% 116.00%
Accounts Payable 136.48% 116.08% 136.72% 130.00% 130.00%
Total Liabilities 106.85% 133.66% 107.10% 116.00% 116.00%
Retained Earnings 131.33% 141.08% 123.96% 132.00% 132.00%
Net Cash from Operating Activities 65.39% 229.88% 104.93% 133.00% 133.00%
Free Cash Flow -678.95% -36.43% -4.26% -240.00% -240.00%
(Source: Compiled & computed)

Figure 3.2

Annual Growth Rates:-

GCPL
Annual Growth Rates
For the Years 2021P to 2017
Fiscal Year 2017 2018 2019 2020P 2021P
Sales 1.78% 10.02% 6.21% 7.00% 7.00%
EBIT 40.35% 12.93% -1.97% 17.00% 17.00%
Interest Expense 15.31% 22.02% 10.69% 16.00% 16.00%
Total Net Income 18.69% 12.86% 24.94% 19.00% 19.00%
Basic EPS from Total Operations 17.02% 11.72% 8.22% 12.00% 12.00%
Total Assets 6.85% 33.66% 7.10% 16.00% 16.00%
Accounts Payable 36.48% 16.08% 36.72% 30.00% 30.00%
Total Liabilities 6.85% 33.66% 7.10% 16.00% 16.00%
Retained Earnings 31.33% 41.08% 23.96% 32.00% 32.00%
Net Cash from Operating Activities -34.61% 129.88% 4.93% 33.00% 33.00%
Free Cash Flow #VALUE! 34.34% 11.09% 19.53% 19.87%
(Source: Compiled & computed)

13
Figure 3.3

Various methods of forecasting financials

Arithmetic geometric
Fiscal Year mean mean Differences Std. Dev
Sales 6.40% 10.02% -3.62% 2.97%
EBIT 17.06% 12.93% 4.13% 15.18%
Interest Expense 16.00% 22.02% -6.02% 4.03%
Total Net Income 18.90% 12.86% 6.03% 4.27%
Basic EPS from Total Operations 12.19% 11.72% 0.47% 3.14%
Total Assets 15.92% 33.66% -17.73% 10.89%
Accounts Payable 29.86% 16.08% 13.77% 8.38%
Total Liabilities 15.92% 33.66% -17.73% 10.89%
Retained Earnings 32.07% 41.08% -9.00% 6.07%
Net Cash from Operating Activities 33.24% 129.88% -96.64% 60.71%
Free Cash Flow -339.93% -136.43% -203.49% 269.11%
(Source: Compiled & computed)

Interpretation
The sales growth of the company is comparative very slow. The reason may be because of
the growth in the soap market, the value of which is comparatively very low and it doesnot
have much impact on the overall sales volume.
The EBIT of the company is growing at a rate of approx. 17% in the year 2016-18 but in
the year 2019 there was decrease in the EBIT even there was increase in Sales, so the reason
for this may be because of competition in the market and increase in the manufacturing
cost. It is just an abnormal downtrend but it start growing at a normal trend after some
years.
Accounts Payable of the company is increasing very fast which reflects the increasing short
term liability of the company even there was not an increase in the Work in progress. It is
not good if the Accounts payable increases at this trend.
The retained earnings is also good, as there is increase in the trend on year on year basis
by 36% approx. So this reflects the company is going to come up with some new products
as it always does and which will be beneficial for the company in the upcoming years.

14
DISCOUNTED CASH FLOW METHOD
Free cash flow is the cash, which is left out after the company pays all of the operating
expenditure and required capital expenditure.
Having estimated the free cash flows for the next five years, we have to figure out the
worth of these cash flows in the present time. However, to get to know the present value
of these future cash flow, we would require a discount rate that can be used to determine
the net present value or NPV of these future cash flow.
Figure 3.4

Free Cash Flow

Projected Annual Forecast
2017 2018 2019 2020P 2021P
Period 1 2
Total Revenues ₹8,424 ₹9,268 ₹9,843 ₹10,473 ₹11,144
EBITDA ₹2,049 ₹2,314 ₹2,268 ₹2,850 ₹3,352
EBIT ₹2,150 ₹2,455 ₹2,424 ₹2,850 ₹3,352
Tax rate 33.0% 33.0% 33.0% 33.0% 33.0%
EBIAT/NOPLAT ₹1,440 ₹1,645 ₹1,624 ₹1,910 ₹2,246
Depreciation & Amortization ₹101 ₹142 ₹156 ₹195 ₹243
Accounts receivable (₹313) ₹89 (₹217) (₹216) (₹254)
Inventories (₹235) (₹106) (₹165) (₹219) (₹250)
Prepaid expenses (₹1) (₹2) (₹4) (₹6) (₹9)
Accounts payable (₹51) ₹687 ₹633 ₹772 ₹1,025
Accrued expenses (₹2) (₹7) (₹15) (₹2) (₹2)
Capital expenditures (₹4) (₹28) ₹131 ₹131 ₹131
Unlevered free cash flows ₹934 ₹2,420 ₹2,143 ₹2,564 ₹3,130
Discount Rate (WACC) 19.6% 19.6% 19.6% 19.6% 19.6%
Present value of free cash flows ₹2,143 ₹2,187
Sum of present values of FCFs ₹4,330
(source: compiled & Computed)

Figure 3.5

Terminal Value
Growth in perpetuity method:
Long term growth rate 10.6%
WACC 19.6%
Free cash flow (t+1) 3,136.2
Terminal Value 34,761.7
Present Value of Terminal Value ₹24,293
(Source: Compiled & computed)

15
However, the most commonly known method is to apply a perpetuity method using the
Gordon Growth Model to value the company. The formula to calculate the terminal value
for future cash flow is:
Terminal Value = Final year projected cash flow * (1+ Infinite growth rate)/ (Discount
rate-Long term cash flow growth rate)
Figure 3.6

WACC
Share Price ₹670.15

Diluted Shares Outstanding 68.1

Cost of Debt 5.2%

Tax Rate 33.0%

After-tax Cost of Debt 3.5%

Cost of Equity 24.9%

Total Debt (INR) ₹2,053

Total Equity (INR) 6,258.3

Total Capital ₹8,311

Debt Weighting 24.7%

Equity Weighting 75.3%

WACC = 19.6%
(Source: Compiled & computed)

Cost of Equity is decided by applying the CAPM model (Refer Annexue)

The cost of equity would be (Re) = Rf + Beta (Rm-Rf)
Cost of debt - The rate implied to determine the cost of debt is the current market rate that
the company pays on its current debt.
WACC - The most appropriate method to determine the discount rate is to apply the
concept of weighted average cost of capital, known as WACC. However, you have to keep
in mind that you have taken the right figures of equity and after-tax cost of debt as the
difference of just one or two percentage point in the cost of capital will make a vast
difference in the fair value of the company.
16
Figure 3.7

Enterprise Value to Equity Value

Enterprise Value ₹28,199
Less: Net debt 2,641.6
Equity Value(INR) ₹25,558
Diluted Shares Outstanding 68.1
Equity Value Per Share(INR) ₹375
(Source: Compiled & computed)

Enterprise value is the sum of a company's market capitalization and its debts, minus the
cash and cash equivalents it holds and sum-total of the values the shareholders have made
available for the business and can be calculated by multiplying the market value per share
by the total number of shares outstanding.

17
CHAPTER – 4
(Finding & Conclusion)

18
4.1 - FINDINGS & SUGGESTIONS
The outcome of the financial analysis and the valuation are as follows:
Financial Analysis -

• The sales growth of the company is comparative very slow. The reason may be
because of the growth in the soap market, the value of which is comparatively very
low and it doesnot have much impact on the overall sales volume.
• The EBIT of the company is growing at a rate of approx. 17% in the year 2016-18
but in the year 2019 there was decrease in the EBIT even there was increase in
Sales, so the reason for this may be because of competition in the market and
increase in the manufacturing cost. It is just an abnormal downtrend but it start
growing at a normal trend after some years.
• Accounts Payable of the company is increasing very fast which reflects the
increasing short term liability of the company even there was not an increase in the
Work in progress. It is not good if the Accounts payable increases at this trend.
• The retained earnings is also good, as there is increase in the trend on year on year
basis by 36% approx. So this reflects the company is going to come up with some
new products as it always does and which will be beneficial for the company in the
upcoming years.
DCF valuation –

• Equity value per share according to the DCF Model is ₹385 but the current market
price in the stock market is ₹700.00(07.04.2020) which nearly double from this
model. So, as per analysis we should not buy this stock for the time being as there
will be steady fall in the price of the share.
o But this also depends on the various factors if the company introduces any
new product and it has a good amount of retained earnings that will then it
will have a positive impact on the value of the equity value and the price of
stock may even increase.

19
4.2 – CONCLUSION

Valuation through DCF model is based upon various assumptions, so there are approximate
values that may be nearly same as per company data if the growth and projections are as
per the actual growth.
By this financial analysis and valuation we have got various insights to the company’s
overall performance and predict the growth as per its historical trends.
So, I conclude that “Godrej consumer Product limited” is an overvalued company as per
stock market but its innovations and retained earning some leads us to the introduction of
new products that will increase the value of the company when valued with this model.

20
CHAPTER – 5
(DCF Valuation Annexure)

21
5.1 – DCF Annexure

A SIMPLE DISCOUNTED CASH FLOW MODEL- GCPL

Valuation Date: 4/6/2019
Share Price on Valuation Date: $670.15
Diluted Shares Outstanding 68.1
(amount in Crores
INR)
Select Operating Data
Projected Annual Forecast
2016 2017 2018 2019 2020P 2021P
Revenue ₹8,276 ₹8,424 ₹9,268 ₹9,843 ₹10,473 ₹11,144
Revenue Growth Rate
(%) 6.4% 6.4%

EBITDA ₹1,551 ₹2,150 ₹2,455 ₹2,424 ₹2,850 ₹3,352

EBITDA Margin (%)

EBIT ₹1,460 ₹2,049 ₹2,314 ₹2,268 ₹2,655 ₹3,109

EBIT Margin (%) 17.1% 17.1%

Dep. & Amortization ₹91 ₹101 ₹142 ₹156 ₹195 ₹243

25.0% 25.0%

Select Balance Sheet And Other Data

Projected Annual Forecast
2016 2017 2018 2019 2020P 2021P
Cash ₹894 ₹746 ₹895 ₹898 ₹909 ₹921
Accounts Receivable ₹805 ₹1,118 ₹1,029 ₹1,246 ₹1,462 ₹1,715
Inventories ₹1,072 ₹1,307 ₹1,413 ₹1,578 ₹1,797 ₹2,047
Prepaid Expenses ₹2 ₹3 ₹5 ₹10 ₹15 ₹25

Accounts Payable ₹1,088 ₹1,037 ₹1,724 ₹2,357 ₹3,129 ₹4,153

Accrued Expenses ₹9 ₹7 ₹0 (₹15) (₹16) (₹18)

Debt ₹2,053 ₹2,486 ₹4,387 ₹3,540 ₹4,463 ₹5,627

Gross PP&E (increases annually be capex) (₹213) (₹208) (₹180) (₹311) (₹311) (₹311)

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Growth Calculation of GCPL

Accounts Receivable Growth (%) 17.4% 17.4%

Inventories Growth (%) 13.9% 13.9%
Prepaid Expenses Growth (%) 32.0% 32.0%
Accounts Payable Growth (%) 32.8% 32.8%
Accrued Expenses Growth (%) 12.0% 12.0%
Capital Expenditures Growth (%) 19.1% 19.1%

Free Cash Flow

Projected Annual Forecast
2017 2018 2019 2020P 2021P
Period 1 2
Total Revenues ₹8,424 ₹9,268 ₹9,843 ₹10,473 ₹11,144
EBITDA ₹2,049 ₹2,314 ₹2,268 ₹2,850 ₹3,352
EBIT ₹2,150 ₹2,455 ₹2,424 ₹2,850 ₹3,352
Tax rate 33.0% 33.0% 33.0% 33.0% 33.0%
EBIAT/NOPLAT ₹1,440 ₹1,645 ₹1,624 ₹1,910 ₹2,246
Depreciation & Amortization ₹101 ₹142 ₹156 ₹195 ₹243
Accounts receivable (₹313) ₹89 (₹217) (₹216) (₹254)
Inventories (₹235) (₹106) (₹165) (₹219) (₹250)
Prepaid expenses (₹1) (₹2) (₹4) (₹6) (₹9)
Accounts payable (₹51) ₹687 ₹633 ₹772 ₹1,025
Accrued expenses (₹2) (₹7) (₹15) (₹2) (₹2)
Capital expenditures (₹4) (₹28) ₹131 ₹131 ₹131
Unlevered free cash flows ₹934 ₹2,420 ₹2,143 ₹2,564 ₹3,130
Discount Rate (WACC) 19.6% 19.6% 19.6% 19.6% 19.6%
Present value of free cash flows ₹2,143 ₹2,187
Sum of present values of FCFs ₹4,330

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Terminal Value
Growth in perpetuity method:
Long term growth rate 10.6%
(int rate * ROIC)
WACC 19.6%
Free cash flow (t+1) 3,461.4
Terminal Value 38,365.6
Present Value of Terminal Value ₹26,811

WACC
Share Price ₹670.15
Diluted Shares Outstanding 68.1
Cost of Debt 5.2%
Tax Rate 33.0%
After-tax Cost of Debt 3.5%
Cost of Equity 24.9%

Total Debt (INR) ₹2,053

Total Equity (INR) 6,258.3
Total Capital ₹8,311

Debt Weighting 24.7%

Equity Weighting 75.3%

WACC 19.6%

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Calculation of Cost of Equity

Beta 0.83477237
Market Return 28.40%
Risk free Return 7.35%
Cost of Equity 24.93%

Year Debt Financing Cost

2016 2,023.0 103.21 5.1%
2017 2,449.0 100.17 4.1%
2018 3,108.25 145.22 4.7%
2019 2,380.3 160.74 6.8%
Average 5.2%

Ke using CAPM Model:-

𝑅𝑒 = 𝑅𝑓 + 𝛽(Rm-Rf)
= 7.35% +.0834(28.40% - 7.35%)
= 24.93%

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