A CASE STUDY ON FERRARI:

2015 INITIAL PUBLIC

OFFERING

Presented By: Team XYZ

Asif Hasan Aditya, ID: B17231020
Jannatul Mawa Annan, ID: B17231032
Tazim Rahman, ID: B17231038
Shams Md. Enam, ID: B17231092
Marzia Binte Wali, ID: B17231099
 TIMELINE OF EVENTS

The holding eventually

became 90% for Fiat and
10% for the Ferrari Family
Scuderia Ferrari, founded by Struggling sales
Enzo Ferrari

1940 1969

1929 Mid 1960s

Manufacturing firm in 50% stakes sold to Fiat 1988
Modena
 PRE-IPO POSITION

On 2014, FCA decided to spin off Ferrari as a separate entity.

10% Shares
To generate cash for FCA, to transfer debt worth 2.3 bn Euros to Ferrari, and to unlock the “hidden” value

REASONS of FCA shares.

48-52 USD
Set the initial range and were willing to let 17.175 million shares on float, which would later increase
to 189 million shares.

Normal Premium car brands; Super Luxury, low-volume car brands and other Luxury brands.
COMPARABLES
 THE ISSUE

If the offer If the offer

price was set price was set
too high, the too low, FCA
initial trading would leave
would be poor. money on the
table.
 VALUATION USING DCF METHOD

Step 2:
Step 1: ESTIMATING Step 3:
CALCULATING GROWTH RATES DISCOUNTING
THE WACC AND FCFFs WITH
FORECASTING WACC
FCFFs

Step 7: FINDING
Step 5: FINDING THE EQUITY
Step 4: THE ENTITY Step 6: VALUE PER
CALCULATING VALUE CALCULATING SHARE
THE TERMINAL THE EQUITY
VALUE VALUE
CALCULATING THE WACC
A. FINDING THE CAPITAL STRUCTURE
With respect to the industry data,
Debt Portion, D/(D+E)=0.56
Equity Portion, E/((D+E)=0.44
B. FINDING THE COST OF DEBT
Risk-free Rate= 1.70%
Average Interest Rate on Corporate Bonds of firms
assumed to be similar to Ferrari= 2.30%
Cost of Debt= 4.00%
Tax Rate= 38%
After-tax Cost of Debt= 2.48%
ASSUMPTIONS
1. WACC is constant throughout the
projection period.
2. The long-term targeted capital
structure of Ferrari takes after the
average D/E ratio of the
comparable car companies.
3. The risk-free rate is that of a 10-year
Govt. bond in Italy.
4. The interest rates on corporate
bonds of the likes of VW and
Daimler, were averaged to find the
rate 2.30%.
5. The Tax rate is selected as that of
Italy mentioned in the case.
CALCULATING THE WACC
C. FINDING THE COST OF EQUITY
Risk-free Rate= 1.70%
Equity Risk Premium= 5.56%
Levered Beta= 1.14
Cost of Equity using CAPM equation = 8.00%
1. WACC
Using the formula, WACC= 4.91%
ASSUMPTIONS
6. The equity risk premium was
assumed to be the average of the
equity risk premiums in Italy from 2011-
2015.
7. The Levered Beta of Ferrari was
calculated first by unlevering the equity
betas of the comparable Normal
Premium and Super Luxury car brands,
averaging their unlevered betas, and
then re-levering the average in
accordance with the assumed target
capital structure of Ferrari.
DCF VALUATION (CONTINUED) ASSUMPTIONS

2. GROWTH RATE ESTIMATION 1. Terminal Growth Rate is estimated

separately as Ferrari growth rate is
assumed to normalize after the
projection period.

2. For the growth of Car and parts, it

is highly unlikely that the brand will
aggressively expand against its
interest.

3. The growth rates of Engines and

Sponsorships & Others were
decided based on the 2012-14
period.
*All numbers are in millions of Euros.
4. The average growth rate of
comparable brands was 2.88%. The
TGR was decided based on those
values.
5
DCF VALUATION (CONTINUED) ASSUMPTIONS

2-5. FINDING THE ENTITY VALUE USING DCF 6. OP for 2015 is taken from the case
information and is estimated for the
rest of years.

7. NOPLAT=OP*(1-Tax rate of 38%)

8. CWC=WC of Current year-WC of

previous Year

9. CAPEX=PP&E of current year-PP&E

of previous year + D&A of current year.

*All numbers are in millions of Euros.

**FCFF=NOPLAT+D&A-CWC-CAPEX

5
DCF VALUATION (CONTINUED) ASSUMPTIONS

6-7. FINDING THE EQUITY VALUE/SHARE 10. Total Debt is estimated as that of
FCA transferred to Ferrari as a result of
the IPO.

*All numbers up to TEV are in millions of Euros.

Equity Value=Enterprise Value+Goodwill+Intangible
Assets-Debt
Value Per Share= Equity Value/No. of Shares

5
 SUMMARY OF FINDINGS

Considering that FCA prices the Ferrari shares

@ 52USD/share and based on our
assumptions, that they could sell them @ 54.5
USD/share, FCA would leave nearly 472.5
million USD on the table.
THANK YOU