Equity Valuation of

Daffodil Computer Ltd.

i
 Equity Valuation of
Daffodil Computer Ltd.
Course Name: Analysis of Financial Investment
Course Code: F- 307

Submitted to:
Khairul Alam Siddique
Lecturer,
Department of Finance
Faculty of Business Studies
University of Dhaka

Submitted by:
Md Azizul Haque
ID:23-043
Section- A
23rd Batch
Department of Finance
Faculty of Business Studies
University of Dhaka

Date of Submission: 12 February, 2020

ii
 Letter of Transmittal
12 February 2020
Khairul Alam Siddque
Lecturer
Department of Finance
University of Dhaka

Subject: Submitting report for the requirements of course “F-307: Analysis of Financial
Investment”

Dear Sir,
We are pleased to present the report named “Equity Valuation of Daffodil Computer Ltd.”For
the requirement of course “F-307: Analysis of Financial Investment”. We are glad to inform you
that we have successfully completed our report.

Working on this report has been really interesting & informative experience for us .We learned
many unidentified facts which we believe will be supportive to our academic & professional
career in the future. While doing this report, we learned to integrate plenty of information into a
concise volume. We have enjoyed working on this report and we hope that our report will meet
the level of your expectations. We would try our best and shall be obliged to provide you with
any clarification regarding the report.

Sincerely,

Md Azizul Haque
ID: 23-043
Section- A
23rd Batch
Department of Finance
Faculty of Business Studies
University of Dhaka

iii
 Executive Summery
This report conducted study on common stock valuation of Daffodil Computer Ltd. using three
methods, namely dividend discount model, free cash flow model and relative valuation methods.
Historical financial statement have been used to state proforma financial statements based on
which the whole valuation have conducted. These methods are simplified models and do not
consider multiple factors that can affect the estimation results. Different information has been
assumed to simplify the valuation process.

In this report it is appeared that the market value and the fundamental value differs substantially.
Market value is 50.01 BDT but fundamental value according to FCFF and DDM 27.86 and 23.36
BDT accordingly. This implies that market is not reflecting the true reality of the entity.

iv
 Table of Contents
Executive Summery......................................................................................................................... iv
1. Introduction .............................................................................................................................. 6
1.1 Origin of the Report ............................................................................................................... 6
1.2 Objective of the Report.......................................................................................................... 6
1.3 Methodology ..................................................................................................................... 6
1.4 Scope of Report...................................................................................................................... 6
1.4 Limitation of the Report .................................................................................................... 6
2. Organizational Overview .......................................................................................................... 7
3. Global Analysis .......................................................................................................................... 9
3.1 Global Economic Prospect ..................................................................................................... 9
3.2 South Asian Economic Prospect: ......................................................................................... 10
4. Macroeconomic Analysis ........................................................................................................ 12
4.1 Bangladesh Economic Outlook: ........................................................................................... 12
4.2 MARKET OUTLOOK: ............................................................................................................. 14
5. INDUSTRY ANALYSIS ............................................................................................................... 16
5.1 Porter’s Five Forces Model .................................................................................................. 17
5.2 Industry Life Cycle Theory .................................................................................................... 20
6. Company Analysis ................................................................................................................... 22
6.1 BCG Matrix: .......................................................................................................................... 23
6.2 VRIO model: ......................................................................................................................... 25
6.3 Ansoff Matrix: ...................................................................................................................... 26
7. VALUATIONS ........................................................................................................................... 27
7.1 Free Cash Flow to the Firm (FCFF) ....................................................................................... 29
7.2 Dividend Discount Model (DDM .......................................................................................... 30
7.3 Relative Valuation Methods ................................................................................................ 31
8. Conclusion .............................................................................................................................. 33
9. References .............................................................................................................................. 34
10. APPENDIX ............................................................................................................................ 34

v
 1. Introduction
Daffodil Computers Limited (DFL) was incorporated in 1990 as proprietorship firm. In 1998,
the company was named Daffodil Computers Limited and incorporated as a private limited
company. In 2003, the company listed in Dhaka Stock Exchange as the first pure IT based
company. Later in 2006, the company listed in CSE. Daffodil Computers engaged in the
business of computer assembling, marketing and selling, training & software development, e-
commerce & web development and others. The corporate head office of this company is in
Kalabagan, Dhaka and it has 5 other branches in Dhaka and Chittagong. Daffodil Computers
is the only authorized corporate reseller & service provider in Bangladesh
1.1 Origin of the Report
The report has been prepared as a part of the requirement of the course F-307 Analysis of
Financial Investment and valuation.
1.2 Objective of the Report
The objective of the report can be viewed in two forms:
1. General objective: To primarily fulfil the degree requirement for the Bachelors of Business
Administration under BRAC Business School
2. Specific objective: More specifically, this report intends to provide an estimation of the
common stock value of Daffodil Computers Ltd. Using FCFF, DDM and Relative valuation
model.
1.3 Methodology
This report is quantitative in nature, and as such it relies extensively on secondary data
collected from:
1. Dhaka Stock Exchange.
2. Annual Reports (2015-2019) of Daffodil Computers Ltd
1.4 Scope of Report
This report will give a first-hand how the Daffodil Computers Ltd is organized, financial aspects
and the fundamental value of its share.
1.4 Limitation of the Report
The report has the following limitation:
1. Unavailability of the required data
2. Valuation is the estimation not the absolute
3. Time constraints
4. The used model has the inherent limitation
5. Some model may not work in reality in the context of Banglades.

6
 2. Organizational Overview
Daffodil Computers Limited (DFL) was incorporated in 1990 as proprietorship firm. In 1998,
the company was named Daffodil Computers Limited and incorporated as a private limited
company. In 2003, the company listed in Dhaka Stock Exchange as the first pure IT based
company. Later in 2006, the company listed in CSE. Daffodil Computers engaged in the
business of computer assembling, marketing and selling, training & software development, e-
commerce & web development and others. The corporate head office of this company is in
Kalabagan, Dhaka and it has 5 other branches in Dhaka and Chittagong. Daffodil Computers
is the only authorized corporate reseller & service provider in Bangladesh
COMPANY PROFILE:
1. Incorporation: 1990
2. Commercial Operation: 1990.
3. Key Personnel: Mrs. Shahana Khan (Chairman), Mr. Sabur Khan (Managing Director),
Mr. Monir Hossain (Company Secretary), Abdur Rob (COO)
4. Number of Employees: 141

BUSINESS PROFILE:
Daffodil Computers Limited is the largest firm of computer assembling, marketing and selling.
The core business of DCL also includes computer training and software development, e-
commerce & web development. Moreover, it provides Hospital and treatment management
system, Business ERP Solutions, Education ERP Solutions and 1 Card Solutions. The business
line of DCL is diversified with the products like Laptops & Notebooks, Desktops, Mobile,
Monitor, Antivirus, Security & Surveillance, Networking Products, Printer & Scanner,
Accessories and others.

Vision
To reach the highest level of ICT sector and contribute in the micro and macro economy of
the country and ensure genuine education to the nation. Achieving the target of the services
and ultimate is to expand from national proximity and to approach in the international
market. Enriching the human resource and converting to fit for competitiveness in the
international market.

Mission
Our mission is to deliver ICT services and achieve leadership in ICT markets through the
constant pursuit, in association with our clients and partners, of superior levels of service,
efficiency and quality. The pursuit of our mission will in turn lead us towards our vision of
being the highest quality and most profitable owner and operator of the world’s top ICT
businesses, based on strategic focus in five key areas.

7
PRODUCTS & SERVICES:
1. Laptops: DCL, HP, Dell, Asus, Acer, Lenovo, Apple
2. Desktops: DCL, HP, Dell, Dell Server PC, Dell All in One, Asus, Asus All in One
3. Mobile: Lephone, DCL Mobile, Lenovo Tablet
4. Monitor: Asus. LG, Samsung, Dell, HP, Philips
5. Software & Antivirus: Adobe, Antivirus, Customized Software, Microsoft
6. Security & Surveillance: Access Control, CCTV Camera, NVR, DVR, IP Camera
7. Networking Products: Cable, LAN Card, Modem, Router, Switch
8. Printer & Scanner: Cartridge, Printer all brand, Scanner all brand, Toner
9. Accessories: Motherboard, UPS, Processor, HDD, RAM, Pen Drive, Graphics Card, Power
Bank, SSD, Speaker, Casing, DVDRW, Head Phone, Key Board, Mouse, OTG Pen Drive, Micro
SD
10. Office Equipment: Fax Machine, Photocopier, Projector, Digital Podium, LCD Flat Panel,
Interactive White Board, Projector Screen.
11. eCure: Patient registration & enquiry management, Patient appointment & outdoor
service, Patient admission & discharge service and others.
12. Business ERP Solutions: Inventory Management Service, Financial accounting service,
Procurement management service, sales management service, HRM service, Manufacturing,
Service & Warranty
13. Education ERP Solutions: University ERP Solutions, School & College ERP Solutions
14. 1 Card Solutions: Electronic Payment, Entrance & Exit Tracking, Access Control, Car parking
management service, Value added services and others

Major Clients:
1. Telecommunications
2. Government
3. Foreign Mission/NGO
4. Group of Company
5. Corporate Client

8
 3. Global Analysis
Global growth is projected at 2.5 percent in 2020, just above the post-crisis low registered
last year. While growth could be stronger if reduced trade tensions mitigate uncertainty, the
balance of risks is to the downside. A steep productivity growth slowdown has been underway
in emerging and developing economies since the global financial crisis, despite the largest,
fastest, and most broad-based accumulation of debt since the 1970s. These circumstances
add urgency to the need to rebuild macroeconomic policy space and undertake reforms to
rekindle productivity.

3.1 Global Economic Prospect

Global growth is expected to recover to 2.5 percent in 2020—up slightly from the post-crisis
low of 2.4 percent registered last year amid weakening trade and investment. Nevertheless,
downside risks predominate, including the possibility of a re-escalation of global trade
tensions, sharp downturns in major economies, and financial disruptions. Emerging market
and developing economies need to rebuild macroeconomic policy space to enhance resilience
to adverse shocks and pursue decisive reforms to bolster long-term growth.

Some major key Outlook:

 Global growth is expected to edge up to 2.5 percent in 2020—up slightly from the
post-crisis low of 2.4 percent registered last year—as trade and investment gradually
recover.
 The recovery in global growth will reflect an expected pickup in emerging market and
developing economies (EMDEs), which are projected to grow 4.1 percent this year.
However, this will largely depend on a rebound in a small number of large EMDEs,
most of which are emerging from deep recessions or sharp slowdowns.
 While growth could be stronger if reduced trade tensions lead to a sustained reduction
in uncertainty, the balance of risks is to the downside.
 In an environment of limited macroeconomic policy space compounded by high debt
levels, EMDEs need to foster inclusive and sustainable growth by undertaking reforms
to bolster governance and business climates, improve tax policy, promote trade
integration, and rekindle productivity growth, while protecting vulnerable groups.

9
3.2 South Asian Economic Prospect:
Growth in the region is expected to rise to 5.5% in 2020, assuming a modest rebound in
domestic demand and as economic activity benefits from policy accommodation in India and
Sri Lanka and improved business confidence and support from infrastructure investments in
Afghanistan, Bangladesh, and Pakistan. In India, where weakness in credit from non-bank
financial companies is expected to linger, growth is projected to slow to 5% in FY 2019/20,
which ends March 31 and recover to 5.8% the following fiscal year. In Pakistan’s growth is
expected to rise to 3% in the next fiscal year after bottoming out at 2.4% in FY2019/20, which
ends June 30. In Bangladesh, growth is expected to ease to 7.2% in FY2019/2020, which ends
June 30, and edge up to 7.3% the following fiscal year. Growth in Sri Lanka is forecast to rise
to 3.3%.

Recent developments:
Growth in the region is estimated to have decelerated to 4.9% in 2019. The slowdown was
pronounced in the two largest economies, India and Pakistan. Economic activity in India
slowed sharply in the April-June and July-September quarters, registering 5.0% and 4.5%
growth, respectively. Pakistan’s GDP growth eased to 3.3% in FY2018/19. Weak confidence,
liquidity issues in the financial sector in India and monetary tightening in Pakistan caused a
sharp deceleration in fixed investment and a considerable softening in private consumption.
Export and import growth moderated for the region as a whole, in line with a continued
slowdown in global trade and industrial activity. Business confidence was hampered by
subdued consumer demand in India and security challenges in Sri Lanka. Bangladesh, the
third-largest economy in the region, grew at an officially estimated 8.1% in FY2018/19, which
ended June 30 of last year. Moderation in domestic demand was more than offset by a pickup
in exports, partly as a result of trade diversion following bilateral tariff increases between the
United States and China. Growth in Sri Lanka continued to soften in 2019, to an estimated
10
2.7%, as tourist arrivals fell off. Growth in Nepal is estimated at 7.1% in FY2018/19, which
ended July 15 of last year, the third consecutive year of growth of over 6 percent. Activity was
underpinned by solid remittance inflows, buoyant tourist arrivals, and good monsoons.

Outlook:
Growth in the region is expected to rise to 5.5% in 2020, assuming a modest rebound in
domestic demand and as economic activity benefits from policy accommodation in India and
Sri Lanka and improved business confidence and support from infrastructure investments in
Afghanistan, Bangladesh, and Pakistan. The weak global trade outlook will continue to weigh
on regional export growth in the near term. In India, where weakness in credit from non-bank
financial companies is expected to linger, growth is projected to slow to 5% in FY 2019/20,
which ends March 31, and recover to 5.8% the following fiscal year. This forecast is predicated
on the monetary policy stance remaining accommodative and assumes that simulative fiscal
and structural measures already taken will begin to pay off. Macroeconomic adjustment in
Pakistan, including a continuation of tight monetary policy and fiscal consolidation is expected
to continue. Growth is expected to rise to 3% in the next fiscal year after bottoming out at
2.4% in FY2019/20, which ends June 30. In Bangladesh, growth is expected to ease to 7.2% in
FY2019/20, which ends June 30, and edge up to 7.3% the following fiscal year. A solid
macroeconomic framework, political stability, implementation of planned public
infrastructure projects, and ongoing reforms to improve the business environment underlie
this projection. Growth in Sri Lanka is forecast to rise to 3.3% in 2020.

Risks: Risks to the growth outlook relate primarily to financial sector vulnerabilities,
geopolitical tensions, and lack of progress on reforms. Although recent tensions between
India and Pakistan have abated, a reescalation would damage confidence and weigh on
investment in the region. Non-performing assets in the financial sector remain high amid
weakening regional growth and further deterioration of balance sheets of banks and
corporates would threaten the funding of productive investment.

South Asian GDP Growth

9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
15/16 16/17 17/18 18/19e 19/20f 20/21f 21/22f
South Asia excluding India India Pakistan (factor cost) Bangladesh

11
 4. Macroeconomic Analysis

4.1 Bangladesh Economic Outlook:

The economy likely grew at a strong pace in the first half of fiscal year 2020, which started in
July. USD-denominated remittances increased year-on-year by approximately one-quarter in
H1 FY 2020, which should have buttressed private consumption. In addition, wages of low-
skilled workers, as measured by the Central Bank, increased at a healthy pace in the same
period, while bank lending increased by just over 10% in July–November. All in all, domestic
demand looks firm in H1 2020, despite the introduction of a new VAT regime, which reduced
exceptions for many essential consumer goods, and a one-third increase in natural gas prices
on 1 July. Less positively, however, exports of goods decreased by nearly 6% year-on-year in
the first half of the fiscal year, largely due to a drop in ready-made garment exports

Bangladesh Economic Growth:

Economic growth is likely to slow going forward, partly due to flagging global trade. In
addition, downside risks include threats from a banking system under strain from non-
performing loans and vulnerability to natural disasters such as flooding and cyclones. Our
panellists project GDP to expand 7.6% in FY 2020, which is unchanged from last month’s
forecast, and 7.3% in FY 2021.

12
Unemployment:
Unemployment is very important indicator for an economy. It not a single series it tells many
things about country and economic outlook.

Unemployment, total (% of total labor force) (modeled ILO

estimate)
6
5
4
3
2
1
0
1997
1998

2007

2016
2017
1991
1992
1993
1994
1995
1996

1999
2000
2001
2002
2003
2004
2005
2006

2008
2009
2010
2011
2012
2013
2014
2015

2018
Inflation:
Inflation is a very important macroecomic variable. Unstable and inflation questions the
efficeny of the economy. In case of inflation there is many problem in Bangladesh. The
infation rate is unsteady over the time that distort the underlying economic assumptions

Inflation, consumer prices (annual %)

12
10
8

2
0
1995

2007
1991
1992
1993
1994

1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006

2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

13
4.2 MARKET OUTLOOK:
The year started with shining streak amidst post-election buoyancy which caused benchmark
index to reach as high as 5950 points within first 18 trading days of January 2019 (a sharp rise
of 10.48%). This hike failed to keep the momentum and by the end of December DSEX closed
at 4453 points (17.3% fall YoY). The market cap fell by 12.33% (BDT 477.5 billion). Daily
average turnover of the year has dropped to 4.80 billion or by 12.7% over last year. Liquidity
crunch, money market volatility, rising NPL & interest rates, poor tax revenue collection &
heavy government bank borrowing added further concerns to the waning investors'
confidence. Consequently, financial expenses increased which compromised the profitability
of companies. Lower than expected earning disclosure and dividend pay-out at the end of FY
2018-19 worsened the depressed situation of the market. Meanwhile, DSE's net foreign
investment continued to decline for nine consecutive months as foreign investors continued
to pull funds due to the prolonged bearish trend in the market and expectation of further
currency devaluation. Ongoing tussle between GP and Government, post dividend free fall
price adjustment of Square Pharma continued to hurt the market (together they possess L-
18% of the total market capitalization and have significant impact on index movement).

During 2019, capital raising through IPO was also lowest in last 11-years. We expect the
market reversal 2020. Bangladesh Bank & Ministry of Finance is also working for the market
development and may approve a special fund for stabilization of the capital market. New
Executive Bodies of BMBA and DBA are committed to work relentlessly with different
stakeholders for the betterment of the market. BSEC reconstitution and appointment of new
MDs for DSE & CSE will continue the market development initiatives.

DHAKA STOCK EXCHANGE (DSE) SUMMARY:

Particular YE2019 YE2018 Change Change Jun-19 EP( HY

Change Change
DSEX 4,453 5,386 (933.) -17.% 5,422 (969.) -18.%
DS30 1,513 1,881 (368.) -20.% 1,929 (416.) -22.%
DSES 1,000 1,233 (233.) -19.% 1,245 (245.) -20.%
Market Cap (BDT 3,396 3,873 (478.) -12.% 3,998 (603.) -15.%
bn)
Avg. Turnover (BDT 4,812 5,511 (699.) -13.% 5,801 (988.) -17.%
MN)
Avg. Volume (MN) 137 139 (1.) -1.% 150 (13.) -8.%
Market P/NAV 1. 1.8 (0.) -23.% 1.7 (0.) -17.%
Market Forward PIE 12. 15. (3.) -18.% 13.9 . (2.) -14.%

SECTOR MOVEMENT:

In the last year all the sector had negative return except IT and General Insurance.

14
Sector Return Avg. % Avg. M.Cap % of PIE (x) P/NAV
T/O T/O (mn) M.Cap (x)
(mn)
Bank -7.% 521 11.% 534,802 19.% 8. 0.8
Cement -33.% 51 1.% 68,861 2.% 24. 2.
Ceramics -17.% 143 3.% 23,291 0.8% 25. 2.
Engineering -26.% 660 13.% 148,517 5.% 15. 1.0
Financial Institutions -25.% 203 4.% 144,671 5.% 23. 2.
Food & Allied -18.% 191 4.% 226,138 8.% 19. 5.
Fuel & Power -11.% 461 9.% 375,619 13.% 10. 1.
General Insurance 35.% 467 9.% 54,589 2.% 14. 1.
IT 13.% 130 3.% 20,180 0.7% 25.0 2.0
Jute -47.% 24 0.5% 2,518 0.1% 39. 9.
Life Insurance -2.% 121 2.% 61,191 2.% n/a n/a
Miscellaneous -10.% 227 5.% 96,878 3.% 21. 1.
Mutual Fund -10.% 97 2.% 29,224 1.% n/a n/a
Paper & Printing -36.% 22 0.4% 11,205 0.4% 21. 1.
Pharma. & Chemicals -5.% 588 12.% 469,788 17.% 14. 2.0
Services & Real Estate -25.% 40 0.8% 13,568 0.5% 9. 0.7
Tannery -29.% 171 3.% 19,703 0.7% 18. 2.
Telecommunication -22.% 166 3.% 401,384 14.% 12. 11.
Textile -30.% 660 13.% 105,054 4.% 14. 0.7
Travel & Leisure -5.% 44 0.9% 21,458 0.8% 25. 0.6

15
 5. INDUSTRY ANALYSIS
IT sector is the most growing and potential sector of the whole world. It is expanding at an
exponential growth. Bangladesh is on the trajectory to achieve the status of a middle income
country by 2021 through maintaining a robust growth rate of 6% since a decade. More than
65% of the population are of working age between 15 and 64 which gives an enormous
demographic dividend to alleviate the poverty of the country1. IT Industry has been professed
as a thrust sector assessing the ability and interests of young populace of the country. In
Bangladesh, there are more than 100 software houses, 35 data entry centres, thousands of
formal and informal IT Training centres and numerous computer workshops2. VAT has been
withdrawn from locally developed Software, Digital Data Network has been introduced, and
VSAT is deregulated in Bangladesh. Some remarkable events are going on in every sector
covering E-commerce, E-governance, Computer Networking, Internet, Web Browsing, Web
Applications, Multimedia Product Development and others.

ASSOCIATIONS & PROFESSIONAL BODIES:

1. Bangladesh Computer Society: an association of IT Professionals formed in 1979
2. Bangladesh Computer Samity: an association of Computer Vendors formed in 1987
3. Bangladesh Association of Software & Information Services: formed in 1988 to
promote the interest of IT Business focusing software development and related IT
enabled services
4. Bangladesh Software Marketing & Promotions: formed to help the local computer
programmers and promote their software.
5. Bangladesh Telecommunication Regulatory Commission (BTRC): an overseer of
Telecommunication industry and monitors the licenses of ISP and PSTN formed in
2002.
The Government of Bangladesh has taken some praiseworthy initiatives to balloon the IT
Industry of the country. There are so many positive changes in IT sector are visible in recent
times. The Government expects that the IT industry will generate revenue worth around USD
1 bn in 2017 and USD 4.8bn by 20254.

REGULATORY IMPACT ON IT SECTOR:

The latest Budget of FY 2018-19 is very supportive for IT Industry and intended to reduce the
duties on machineries and parts required to assemble or manufacture items like Laptops,
Pads, and Cellular Phones etc. The decreased SRO rate are as follows:
1. SRO Rate has been decreased to 1% from 5% on Antenna, Antenna WLAN Combo, and
Receiver etc.
2. SRO has been decreased to 1% from 25% on Lithium Ion Battery, Flexible Flat Cable,
and Low Voltage Serial Cable etc.
3. VAT has been withdrawn from all locally developed software but increased duty on
imported database software from 2% to 25% and other computer software to 10%
from 5%.

16
 IT industry at a glance:

Particulars Number

No. of Registered Software & ITES Companies 1000+

No. of BASIS Member Companies 705 (as of February 2014)

Approx. Revenue of Local Industry (incl. Export) (Does not US $ 400 million
include sales amount of imported software)

Approx. Revenue from Software Tk. 790 crore

Approx. Revenue from ITES Tk. 1050 crore

Export (2012 - 2013) US $ 101.63 Million

No. of Exporting Companies* (Only registered companies. 160+

Does not include no. of freelancers)

No. of Export Destination Countries 60+

Approx. No. of Human Resource Employed in the Industry 70,000 +

5.1 Porter’s Five Forces Model

Porter's Five Forces is a model that identifies and analyses five competitive forces that shape
every industry and helps determine an industry's weaknesses and strengths. Five Forces
analysis is frequently used to identify an industry's structure to determine corporate strategy.
Porter's model can be applied to any segment of the economy to understand the level of
competition within the industry and enhance a company's long-term profitability. Here we
are going to analyse the IT sector of Bangladesh according to the Porter's Five Forces model.

1. Threats of New Entrants:

A high risk of entry by potential competitors represents a threat to the profitability of
established companies. The risk of entry by potential competitors is a function of the height
of barriers to entry, that is, factors that make it costly for companies to enter an industry.
Threats of new entrants in this industry is low because some reasons:
 Government strict regulation
 Considering the Economics of scale the risk of entry by Potential competitors is low.

17
  Because of high switching cost, the customers cannot usually switch. As customers
cannot switch, it reduces the possibility of new entrants to enter into the market and
attract new customers.

2. Rivalry among Existing Competitor:

The competitive structure of an industry refers to the number and size distribution of
companies in it, something that strategic managers determine at the beginning of an industry
analysis. Industry structures vary, and different structures have different implications for the
intensity of rivalry. Some important implication is:
 IT industry of Bangladesh is fragmented. But because of having ample product and
service differentiating opportunities, the rivalry among established companies is not
much acute.
 Both the domestic and international demand of IT products is high. The higher
demand actually helps to reduce the intensity of rivalry among established firms as all
companies can sell more without taking market share away from other companies

3. Threats of Substitute Service:

The IT industry of Bangladesh is mainly service based. Providing internet service, telephony
solutions, web hosting, web development, network solution, software solution, technological
consultancy and training are the main revenue making services that Bangladesh IT sector
provides. A few companies (DCL in the sample) sales personal computers, which have close
substitutes. But in case of services, substitution doesn‘t play an important role for the
following causes:
 Change of service provider actually implies a handsome amount of switching costs for
the customers/service holders.
 Most of the services are offered on contract basis. Once the deal is final the service
taking company has no option to switch except bearing high switching costs.
 Even in case of IT related products, though the option for substitution exists,
substitution is not so easy. Because, most of IT products are required a medium
amount of investment and to switch another product, it takes high toll.

4. Bargaining Power of Supplier:

Actually it is difficult to measure the bargaining power of suppliers of an IT related companies.
Major portion of the IT company revenue comes from providing services such as internet
service, software solution service, web hosting, various technological controlling tools etc. To
provide these services, an IT company may need different type of accessories. Those
accessories are either produced by the firm or imported. But data about the suppliers of IT
companies are not available

18
5. Bargaining Power of Customer:
An industry‘s buyers may be the individual customers who ultimately consume its products
(its end users) or the companies that distribute an industry‘s products to end users, such as
retailers and wholesalers. Powerful buyers should be viewed as a threat. The buyers of IT
products in Bangladesh are very powerful because of the following reasons:
 Bangladesh IT industry is fragmented. According to BASIS, there are 1000+ firms
competing in the industry but in 2012 Bangladesh exported 68% of its total IT products
to USA (Figure 4). Bangladesh IT industry is composed of many small companies and
the buyers are large and few in number. These circumstances allow the buyers to
dominate supplying companies.
 - Only USA purchases 68% of the total export of the industry so USA buyers can use
their purchasing power to as leverage to bargain for price reductions. Here the
industry also depends upon USA buyers to purchase their products.
 - Switching possibility for Bangladeshi IT product buyers is also high. Our neighbour
country India is very efficient in their IT sector which is a threat for Bangladesh IT
industry.
Porter argues that the stronger each of these forces, the more limited the ability of established
companies to raise prices and earn greater profits. Within Porter‘s framework, a strong
competitive force can be regarded as a threat because it depresses profits. A weak competitive
force can be viewed as an opportunity because it allows a company to earn greater profits.
Table VIII summarizes the five factors of Porter‘s model.

Five Forces Intensity Overall

Intensity

1. Risk of Entry by Potential • Economies of Scale Low

Competitors
• Customer Switching Costs Low
Weak

• Government Regulation Medium

2. Rivalry among Established • Industry Competitive Low Weak

Companies Structure

• Industry Demand Low

• Exit Barriers Low

3. The Bargaining Power of Buyers The Strong

4. Bargaining Power of Suppliers
5. Substitute Products Weak

Weak

19
5.2 Industry Life Cycle Theory
An industry life cycle depicts the various stages where businesses operate, progress, prospect
and slump within an industry. An industry life cycle typically consists of five stages — start-
up, growth, shakeout, maturity, and decline. These stages can last for different amounts of
time, some can be months or years.

Start-up Stage
At the startup stage, customer demand is limited due to unfamiliarity with the new product’s
features and performance. Distribution channels are still underdeveloped, so there are very
few product supply and promotional activities. There is also a lack of complementary products
that add value to the customers, limiting the profitability of the new product.

Bangladeshi IT sector was in the in 80s.

Growth Stage
As the product slowly attracts attention from a bigger market segment, the industry moves
on to the growth stage where profitability starts to rise. Improvement in product features
leads to the easiness of use, thus increasing value to customers. Complementary products
also start to become available in the market so people have greater benefits in purchasing
the product and its complements. As demand increases, product price goes down, which
further increases customer demand.
At the growth stage, revenue continues to rise and companies start generating positive cash
flows and profits as product revenue and costs break-even. Bangladeshi IT sector was in the
in 90s.

Shakeout Stage
Shakeout usually refers to the consolidation of an industry. Some businesses are naturally
eliminated because they are unable to grow along with the industry or are still generating
negative cash flows. Some companies merged with competitors or are acquired by those who
were able to obtain bigger market shares at the growth stage.
At the shakeout stage, growth of revenue, cash flows, and profit start slowing down as
industry approaches maturity. Bangladeshi IT sector was in the after 2000.

Maturity Stage
At the maturity stage, the majority of the companies in the industry are well-established and
the industry reaches its saturation point. These companies collectively attempt to moderate

20
the intensity of industry competition to protect themselves and maintain profitability by
adopting strategies to deter the entry of new competitors into the industry. They also develop
strategies to become a dominant player and reduce rivalry.
At this stage, companies realize maximum revenue, profits, and cash flows because customer
demand is fairly high and consistent. Products become more common and popular among the
general public, and the prices are fairly reasonable compared to new products. Bangladeshi
IT sector is now in this step.

Decline Stage
The decline stage is the last stage of an industry life cycle. The intensity of competition in a
declining industry depends on several factors: speed of decline, the height of exit barriers,
and the level of fixed costs. To deal with decline, some companies might choose to focus on
their most profitable product lines or services in order to maximize profits and stay in the
industry. Some larger companies will attempt to acquire smaller or failing competitors to
become the dominant player. For those who are facing huge losses and do not believe there
are opportunities to survive, divestment will be their optimal choice

The stage of the PC industry life cycle can be described as mature. However, this doesn’t
mean that the growth in this have stopped. The growth of PC sales has not decreased due to
the globalization trend taking place within the multinational corporations. It is still now
increasing with the steady rate of more than 8.5 %. It is expected to continue over the time.

21
 6. Company Analysis
Daffodil Computer ltd is doing pretty good in the financial performance in relative to other
company. Some initial information about the company given in the table

Particular Fads & Figures

Current Price 50.01.
Paid-up Capital (BDT mn) 499.
Total No. of Securities (mn) 50.
Market Capitalization (BDT mn) 2,336.
3 month Average Daily Turnover (BDT mn) 29.
3 month Holding Return -6.%
52 Week Price Range (BDT) 46.50-47.80
DSE Code DAFODILCOM
Listing year 2006
Category A

For analysing any company the revenue composition is very much important. That have
shown below:

Sales revenue 2019 2018

Sales of Computer and 450,094,327 502,523,823
Computer Good
Sales of Software 103,454,352 139,889,788
Total 553,550,698 642415629

Import aspect of financial statement have been shown below:

Particulars 2015 2016 2017 2018 2019

Sales 478,577,029 540,353,67 651,966,587 690,103,53 601,207,033
2 3
Less: COGS 358,155,222 369,145,37 430,773,610 458,449,83 427,318,771
5 3
Gross profit 120,421,807 171,208,29 221,192,977 231,653,70 173,888,262
7 0
EBT 45,006,169 81,805,160 113,520,659 120,255,01 67,566,625
2
Net income 46,549,750 77,857,534 108,264,017 109,137,46 73,296,249
6
Share Capital 499,122,620 499,122,62 499,122,620 499,122,62 499,122,620
0 0
EPS 0.93 1.56 2.17 2.18 1.47

22
Share Price Movements of Few years:

Stock Price
70
60
50
40
30
20
10
0
Aug-13 Dec-14 May-16 Sep-17 Feb-19 Jun-20

Application of some important matrix to analyse the Daffodil Computer Ltd have been shown
below:

6.1 BCG Matrix:

The Boston Consulting group’s product portfolio matrix (BCG matrix) is designed to help with
long-term strategic planning, to help a business consider growth opportunities by reviewing
its portfolio of products to decide where to invest, to discontinue or develop products. It's
also known as the Growth/Share Matrix.

The Matrix is divided into 4 quadrants based on an analysis of market growth and relative
market share, as shown in the diagram below.

23
  Dogs: These are products with low growth or market share.
 Question marks or Problem Child: Products in high growth markets with low market
share.
 Stars: Products in high growth markets with high market share.
 Cash cows: Products in low growth markets with high market share

Daffodil Computer Ltd has the high growth rate and high cash generation compared to the
most of the firm in the IT sector. It has 23% market share. It is second in the industry. It 4th
in the industry in case of growth. So, the Daffodil Computer Ltd lies between the stars and
the cash cows.

24
6.2 VRIO model:
VRIO is an acronym for a four-question framework of value, rarity, imitability, and
organization. These four components are typically approached in the style of a decision tree.

The VRIO analysis, derived from Jay B. Barney's framework, is a strategic management and
strategic planning tool to inform decision makers about the organizational resources and
capabilities that support long-term competitive advantages.

How a company use this framework as a strategic management tool and how GQBALLPEN is
related to VIRO model is described below.

 Value: Do you offer a resource that adds value for customers? Are you able to exploit
an opportunity or neutralize competition with an internal capability?

No: You are at a competitive disadvantage and need to reassess your resources and
capabilities to uncover value.

Yes: If value is established, move on in your VRIO analysis to rarity.

 Rarity: Do you control scarce resources or capabilities? Do you own something that’s
hard to find yet in demand?

No: You have value but lack rarity, putting your company in a position of competitive parity.
Your resources are valuable but common, which makes competing in the marketplace more
challenging (but not impossible). It’s recommended to go back one step and reassess.

Yes: With value and rarity identified, your next hurdle is imitability.

25
  Imitability: Is it expensive to duplicate your organization’s resource or capability? Is it
difficult to find an equivalent substitute to compete with your offerings?

No: If your resource has value and rarity, but is affordable or easy to copy, you have a
temporary competitive advantage. It will require considerable effort to stay ahead of
competitors and differentiate your services—go back one step and reassess.

Yes: You offer something that’s valuable, rare, and hard to imitate—now the focus is on your
organization.

 Organization: Does your company have organized management systems, processes,

structures, and culture to capitalize on resources and capabilities?

No: Without the internal organization and support, it will be difficult to fully realize the
potential of your valuable, rare, and costly-to-imitate resources. Your company will have a
unused competitive advantage and will need to reassess how to attain the needed
organization.

Yes: Your company has achieved the ultimate goal of sustained competitive advantage when
it has successfully identified all four components of the VRIO framework.

Daffodil Computer takes decision considering the VRIO model. At the time of incipient, the
company only produces computer but today the company is on a diversified way of business.
It constantly analyses its resources and capabilities to add value to the customers. The
company is trying to keep it unique in the business strategy compared to its competitors. It
always tries to make something new which is valuable to the customers, rare in the market,
not easily imitable by the competitors and strongly organized strategy. It is conspicuous and
transparent if we see the diversity of the company’s business.

6.3 Ansoff Matrix:

The Ansoff Matrix is a strategic planning tool that provides a framework to help executives,
senior managers, and marketers devise strategies for future growth. It is named after Russian
American Igor Ansoff, an applied mathematician and business manager, who created the
concept.

26
  Market penetration, in the lower left quadrant, is the safest of the four options. Here,
you focus on expanding sales of your existing product in your existing market: you
know the product works, and the market holds few surprises for you.
 Product development, in the lower right quadrant, is slightly riskier, because you're
introducing a new product into your existing market.
 With market development, in the upper left quadrant, you're putting an existing
product into an entirely new market. You can do this by finding a new use for the
product, or by adding new features or benefits to it.
 Diversification, in the upper right quadrant, is the riskiest of the four options, because
you're introducing a new, unproven product into an entirely new market that you may
not fully understand.
Daffodil Computer Ltd is on the diversification position of Ansoff matrix or market expansion
grid. Because the company is constantly trying to diversify its business portfolio. They are
committed to uphold the quality of their products above all are constantly adapting based on
the market demand and trend by introducing new and innovative product that can set a
landmark for others.

7. VALUATIONS
In this section FCFF and DDM valuation have been shown. For this Historical financial
statements of 5 years have been used (Appendix 1&2). Based on this historical data all the
information have estimated.

 To make estimation most of the items of the financial statements have been estimated
based on the historical growth. (Appendix 3)
 To perform valuation proforma Income Statement (Appendix 5) and Statement of
Financial Position (Appendix 6) for 5 years have been estimated.
 CAPM method has been used to calculate the required rate of return. For this purpose
Beta has been calculated Based on monthly data of 5 years.

Covariance 0.000754979

27
 Variance of market 0.0006
return

Beta 1.282367705
Market return 0.01
Market return -yearly 0.15

 WACC have been calculated based calculated beta and some assumption. Estimated
WACC is 0.1589 (Appendix 7)
 Changing in WC have been calculated by deducting Non- STD Current liabilities from
Non-cash current asset (Appendix 8)
Particulars 2019 2020 2021 2022 2023 2024
Non-cash 255669062 295030627.5 314599889.6 335467172.8 357718574.5 381445902.7
current asset
Non- STD 53345660 46111292.96 49169836.34 52431251.67 55908995.36 59617416.38
Current
liabilities
Working capital 202323402 248919334.6 265430053.2 283035921.2 301809579.2 321828486.3
Change in WC 46,595,932.59 16,510,718.65 17,605,867.93 18,773,658.02 20,018,907.15

Some Important assumption:

 Risk free rate is 9.2%. Last traded government Treasury bond have been taken as proxy
of risky free rate.
 Capital expenditures will be financed by long-term loan.
 There was no long term loan in the last 5 years. It was assumed there will be no long
term loan the coming years.
 It is assumed that the capital structure will not be changed so did the WACC.
 WC will be financed by incoming or existing cash flow.
 CAPEX will be financed by incoming or existing cash flow.
 In case of relative valuation 5 firm of the industry have been taken and averaged to
make a best comparable basis.
 It is assumed that interest rate will not be changed over the time.
 Perpetual Growth rate 5%
Based on the above assumption FCFF and DDM valuation have been shown:

28
7.1 Free Cash Flow to the Firm (FCFF)

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations
available for distribution after depreciation expenses, taxes, working capital, and investments
are accounted for and paid. FCFF is essentially a measurement of a company's profitability
after all expenses and reinvestments. It is one of the many benchmarks used to compare and
analyse a firm's financial health.

KEY TAKEAWAYS:

 Free cash flow to the firm (FCFF) represents the cash flows from operations available
for distribution after depreciation expenses, taxes, working capital, and investments
are accounted for.
 Free cash flow is arguably the most important financial indicator of a company's stock
value.
 A positive FCFF value indicates that the firm has cash remaining after expenses.
 A negative value indicates that the firm has not generated enough revenue to cover
its costs and investment activities.

FCFF represents the cash available to investors after a company pays all its business costs,
invests in current assets (e.g., inventory), and invests in long-term assets (e.g., equipment).
FCFF includes bondholders and stockholders when considering the money left over for
investors.
The FCFF calculation is a good representation of a company's operations and its performance.
FCFF considers all cash inflows in the form of revenues, all cash outflows in the form of
ordinary expenses, and all reinvested cash to grow the business. The money left over after
conducting all these operations represents a company's FCFF. Snapshot of DDM valuation
have been shown below details in the (Appendix 8)

Particulars 2020 2021 2022 2023 2024

Free cashflow 73687406.47 112038632.4 120046296.4 128936642 138845502.2

Present value discount 0.862229378 0.7434395 0.641015377 0.55270229 0.476556151

factor
Present value of free 63535446.62 83293944.79 76951521.95 71263577.2 66167678.12
cashflow
Terminal value 1327948748

Enterprise value 1391484195

Cash 16063106
Interest-bearing debt 17560699
Equity value 1389986602
Value per share 27.84859965

29
7.2 Dividend Discount Model (DDM)
The dividend discount model (DDM) is a quantitative method used for predicting the price of
a company's stock based on the theory that its present-day price is worth the sum of all of its
future dividend payments when discounted back to their present value. It attempts to
calculate the fair value of a stock irrespective of the prevailing market conditions and takes
into consideration the dividend pay-out factors and the market expected returns. If the value
obtained from the DDM is higher than the current trading price of shares, then the stock is
undervalued and qualifies for a buy, and vice versa.

Based on the expected dividend per share and the net discounting factor, the formula for
valuing a stock using the dividend discount model is mathematically

Represented as,

Value of stock= D1/ (K-g)

We have all the information to find the value share price except dividend growth rate. So,
here we have assumed it to be 5%. Now let’s start it. Snapshot of DDM valuation have been
shown below details in the (Appendix 9)

Particulars 2019 2020 2021 2022 2023 2024

Pv of dividend 61,189,768.21 55,165,794.95 51,481,401.62 48,127,856.38 45,081,084.62
Terminal value 904,752,465.17
total value of 1,165,798,370.95
equity
Number of Share 49,912,262.00
Value per share 23.36

30
7.3 Relative Valuation Methods
The relative valuation methods allow us to determine the value of an investment by the
comparing it to similar entities. The most common relative valuation ratios includes P/E ratio,
P/CF ratio, P/B ratio, p/s ratio. To estimate value of the share of Daffodil Computers Ltd I
have taken some comparable firm in this industry to compare the ratios. The implied
assumption is that the share that I am valuing should have the same multiplier as the
comparable share.
In the following table ratios of some related firm have been shown and the have been
averaged to determine the industry average.

Company Name P/E P/B P/S

AAMRANET 20.24845 6.52 0.079512
AAMRATECH 22.5 3.42 0.018114
BDCOM 19.31034 2.8 0.063063
AGNISYSL 22.35294 2.28 0.067857
INTECH 16.51376 1.8 0.173077

Average 20.1851 3.364 0.080325

Value of the stock According to this ratios:

Price to Earnings (P/E): The P/E ratio of a stock is a simple tool for measuring the markets’
temperature. It is calculated by dividing a stock’s price by the company’s earnings per share or
EPS.

P/E Ratio = Price per share / Annual earnings per share

The P/E ratio suggests how much investors are willing to pay for each rupee of a company’s
earnings. Higher the P/E, more expensive is a stock, as investors are willing to pay more for
each rupee of a company’s earnings.

So price, P = P/E x EPS =20.18*2.17=43.80

Price to Book Value (P/BV):

Price to book value (P/BV) = Price per share divided by Book value per share

Book value of a company is simply its net worth or equity. Book value per share is the net
worth divided by the number of shares outstanding.
It is assumed that if the company were to liquidate (close down its business and sell its assets),
it would receive in cash the value which is at least equal to its book value – the value at which
its tangible assets are carried on the books. This is an incorrect assumption as the true
liquidation value might (and most probably will) turn out to be much less than the book value
assumed.
The price to book value (P/BV) measures how much are the markets are willing to pay for the
measured accounting value of a company’s assets.

So, price, p = P/B* Book value of the share = 3.364*10=33.64

31
Price to Sales (P/S): Just like the P/E ratio that compares a stock’s price to its earnings (or net
profits) per share, the price to sales ratio (P/S) compares the stock’s prices to the companies’
sales per share.

Price to sales or P/S = Price per share divided by Sales per share

Stocks that trade at a low P/S multiples are viewed as cheap relative to stocks that trade at
high P/S multiples.
The good thing about the P/S multiple is that, unlike earnings, sales are not subject to much
account manipulation. Although companies can still play around with sales, the manipulation
is much harder to do and much easier to check.

So, price, P= P/S*Sales = .080325*537= 43.13.

Details in the (Appendix 10)

32
 8. Conclusion
Valuation is based on estimation not the absolute. Fundamental analysis is based on some
basic assumptions but not necessarily reflect the true picture of the entity rater an educated
guess.

In this report it is appeared that the market value and the fundamental value differs
substantially. Market value is 50.01 BDT but fundamental value according to FCFF and DDM
27.86 and 23.36 BDT accordingly. This implies that market is not reflecting the true reality of
the entity. But in the long run it may be adjusted. So, investor holding the securities should
sell before market taking the adjustment.

33
 9. References
1. https://finance.yahoo.com/
2. https://www.worldbank.org/en/publication/wdr/wdr-archive
3. https://www.academia.edu/35673888/Prospect_and_Challenges_of_Bangladesh_IT
_Industry_Course_Name_Strategic_Management_Course_Code_AIS_4105
4. https://www.daffodil-bd.com/
5. https://www.investing.com/indices/dhaka-stock-exchange-broad-historical-data
6. http://www.eblsecurities.com/
7. https://www.dsebd.org/
8. Annual Reports

10. APPENDIX
Appendix 1: Historical Income statement

Particulars 2,015 2,016 2,017 2,018 2,019

Sales 478,577,029 540,353,672 651,966,587 690,103,533 601,207,033
Less: COGS 358,155,222 369,145,375 430,773,610 458,449,833 427,318,771
Gross profit 120,421,807 171,208,297 221,192,977 231,653,700 173,888,262
Less: Operating 71,639,939 84,266,523 92,839,719 96,273,944 102,255,719
expense
Operating profit 48,781,868 86,941,774 128,353,258 135,379,756 71,632,543
Plus: Other income 1,896,065 2,825,664 2,683,683 2,731,686 4,127,849
Plus: Interest income 7,835 53,028 162,827 87,249 3,260,594
Less: Interest expense 3,429,291 3,958,120 11,726,858 11,661,878 8,025,694
Less: Contribution to 2,250,308 4,057,186 5,952,251 6,281,801 3,428,667
WPPF
EBT 45,006,169 81,805,160 113,520,659 120,255,012 67,566,625
Less: Tax -1,543,581 3,947,626 5,256,642 11,117,546 -5,729,624
Net income 46,549,750 77,857,534 108,264,017 109,137,466 73,296,249
Less: Dividend 35,284,219 59,894,714 44,868,394 89,842,072 59,894,714
Transfer to the reserve 11,265,531 17,962,820 63,395,623 19,295,394 13,401,535

Depreciation 10,113,289 10,426,640 9,527,992 8,470,670 8,699,131

Appendix 2: Historical Balance sheet

Particular 2015 2016 2017 2018 2019

PPE 451,588,834 454,959,065 468,194,964 461,335,374 462,619,251
Investment 52,658,840 53,133,858 52,843,227 52,182,687 51,456,442
Other fixed asset 2,633,936 2,220,291 1,913,692 0 3,393,049
Total fixed asset 506,881,610 510,313,214 522,951,883 513,518,061 517,468,742
Inventory 70,884,819 89,736,379 135,221,912 98,393,913 68,414,391
Accounts receivable 45,855,922 60,497,970 82,145,837 90,751,909 89,611,990
Advance and prepayment 79,291,858 126,335,396 114,869,636 117,762,239 97,642,681
Other asset 1 0 0 0 0 0
Other asset 2 0 0 0 0 0
Cash 12,973,272 10,336,375 16,324,097 35,847,374 16,063,106

34
 Total curent asset 209,005,871 286,906,120 348,561,482 342,755,435 271,732,168
Total asset 715,887,481 797,219,334 871,513,365 856,273,496 789,200,910

Share capital 499,122,620 499,122,620 499,122,620 499,122,620 499,122,620

Reserve & Surplus 108,090,140 126,052,961 159,449,584 178,744,978 192,146,513
Total equity 607,212,760 625,175,581 658,572,204 677,867,598 691,269,133
Long-term loan 0 0 0 0 0
Deferred 1 0 0 0 4,233,796 0
Deferred 2 0 0 0 0 0
Total long-term liability 0 0 0 4,233,796 0
Short-term loan 54,578,695 111,295,146 144,087,882 87,725,953 17,560,699
Current portion of LTD 0 0 0 0 0
Accounts payable 18,242,488 12,553,800 8,377,319 10,312,814 9,008,250
Accrued expenses 12,925,454 20,992,592 27,460,096 38,033,071 42,185,271
Other liabilities 1,784,412 2,524,562 3,386,168 3,503,512 2,152,139
Provision 1 21,143,672 24,677,653 29,626,696 34,596,754 27,025,418
Provision 2 0 0 0 0 0
Total current liability 108674721 172,043,753 212,938,161 174,172,104 97,931,777
Total liabilities 108674721 172,043,753 212,938,161 178,405,900 97,931,777
Total equity & liabilities 715887481 797,219,334 871,510,365 856,273,498 789,200,910

Appendix 3: calculations
Particulars 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Sales growth 0.129084 0.206555 0.05849 -

rate 3 5 0.12882
Average 0.06633 0.06633 0.06633 0.06633 0.06633 0.06633
sales growth
rate

COGS in 0.74837 0.683155 0.660729 0.66432 0.71076

proportion to 5 1 58 8
sales
Average 0.69347 0.69347 0.69347 0.69347 0.69347 0.69347
proportion

Operating 0.14969 0.155947 0.142399 0.13950 0.17008

expense in 4 5 7 4
proportion to
sales
Average 0.15152 0.15152 0.15152 0.15152 0.15152 0.15152
proportion 6 6 6 6 6 6

Growth rate 0.490278 -0.050247 0.01788 0.51109

of other 7 9
income
Average 0.24225 0.24225 0.24225 0.24225 0.24225 0.24225
proportion 4 4 4 4 4 4

Rate of 0.00014 0.000998 0.003081 0.00167 0.06336

return on 9 32 2 6
investment
Average 0.01385 0.01385 0.01385 0.01385 0.01385 0.01385
3 3 3 3 3 3
Normalized 0.09815 0.09815 0.09815 0.09815 0.09815
average 8 8 8 8 8

35
Growth rate 0.009020 - -0.0125 -
of 7 0.005469 0.01392
investment 8
Normalized 0.15 0.15 0.15 0.15 0.15 0.15
average

Total loan 545786 1112951 14408788 877259 175606 894114 953420 1.02E+0 1.08E+0 1.16E+0
95 46 2 53 99 62 88 8 8 8
Average loan 8293692 12769151 1.16E+0 526433 534860 923767 985040 1.05E+0 1.12E+0
1 4 8 26 81 75 90 8 8
Interest rate 0.047724 0.091837 0.10061 0.15245
5 41 4 4
Average 0.09815 0.09815 0.09815 0.09815 0.09815 0.09815
interest rate 8 8 8 8 8 8

Short-term 0.11404 0.205967 0.221005 0.12712 0.02920

loan in 4 2 01 9
proportion to
sales
Average 0.13946 0.13946 0.13946 0.13946 0.13946 0.13946
proportion 9 9 9 9 9 9

Growth rate 0.007463 0.029092 - 0.00278

of PPE 1 51 0.01465 3
Average 0.00617 0.00617 0.00617 0.00617 0.00617 0.00617
growth rate 2 2 2 2 2 2

Cash inflow - - - - -
from sale of 285521 287283 289056 290840 292635
assets 4 6 6 7 7

Proportion of 0.00470 0.007508 0.009129 0.00910 0.00570

contribution 2 4 69 3 3
to WPPF to
sales
Average 0.00722 0.00722 0.00722 0.00722 0.00722 0.00722
9 9 9 9 9 9

Tax rate -0.0343 0.048256 0.046305 0.09245 -0.0848

4 6
Average 0.01358 0.01358 0.01358 0.01358 0.01358 0.01358
3 3 3 3 3 3

Dividend 0.75798 0.769286 0.414434 0.82320 0.81715

payout ratio 9 96 1 9
Average 0.71641 0.71641 0.71641 0.71641 0.71641 0.71641
dividend 4 4 4 4 4 4
payout ratio

Depreciation 0.02239 0.022917 0.020350 0.01836 0.01880

rate 5 8 48 1 4
Average 0.02056 0.02056 0.02056 0.02056 0.02056 0.02056
6 6 6 6 6 6

Growth rate - - -0.1212 0.1534

of other fixed 0.157044 0.138089
asset 6
Normalized - - - - - -
growth rate 0.13878 0.13878 0.13878 0.13878 0.13878 0.13878

Inventory in 0.14811 0.166069 0.207406 0.14257 0.11379

proportion to 6 7 2 8 5
sales

36
Average 0.15559 0.15559 0.15559 0.15559 0.15559 0.15559
proportion 3 3 3 3 3 3

Accounts 0.09581 0.111959 0.125997 0.13150 0.14905

receivable in 7 9 5 3
proportion to
sales
Average 0.12286 0.12286 0.12286 0.12286 0.12286 0.12286
proportion 6 6 6 6 6 6

Advance & 0.16568 0.233801 0.176189 0.17064 0.16241

prepayment 3 3 45 4 1
in proportion
to sales
Average 0.18174 0.18174 0.18174 0.18174 0.18174 0.18174
proportion 6 6 6 6 6 6

Accounts 0.03811 0.023232 0.012849 0.01494 0.01498

payable in 8 6 31 4 4
proportion to
sales
Average 0.02082 0.02082 0.02082 0.02082 0.02082 0.02082
proportion 6 6 6 6 6 6

Accrued 0.02700 0.038849 0.042118 0.05511 0.07016

expenses in 8 7 87 2 8
proportion to
sales
Average 0.04665 0.04665 0.04665 0.04665 0.04665 0.04665
proportion 1 1 1 1 1 1

Other 0.00372 0.004672 0.005193 0.00507 0.00358

liabilities in 9 1 78 7
proportion to
sales
Average 0.00445 0.00445 0.00445 0.00445 0.00445 0.00445
proportion

Provision 1 in 0.04418 0.045669 0.045442 0.05013 0.04495

proportion to 4 05 3 2
sales
Average 0.04607 0.04607 0.04607 0.04607 0.04607 0.04607
proportion 5 5 5 5 5 5

37
Appendix 4: Beta Calculation
Time Monthly closing - DaffodilCom Dsex DaffodilCom Dsex return
return
Feb-20 50.6 4,452.96 -0.0899281 (0.00)
Jan-20 55.6 4,469.65 -0.121643 0.00
Dec-19 63.3 4,452.93 0.2080153 (0.06)
Nov-19 52.4 4,731.43 0.0672098 0.01
Oct-19 49.1 4,682.90 -0.0502901 (0.05)
Sep-19 51.7 4,947.63 -0.0263653 (0.03)
Aug-19 53.1 5,095.77 0.0350877 (0.01)
Jul-19 51.3 5,138.79 0.1299559 (0.05)
Jun-19 45.4 5,421.62 -0.0236559 0.01
May-19 46.5 5,377.74 -0.077381 0.03
Apr-19 50.4 5,202.85 0.0885529 (0.05)
Mar-19 46.3 5,491.90 -0.0646465 (0.04)
Feb-19 49.5 5,711.82 0.0443038 (0.02)
Jan-19 47.4 5,821.01 0.087156 0.08
Dec-18 43.6 5,385.64 0.2492837 0.02
Nov-18 34.9 5,281.25 0.0872274 (0.00)
Oct-18 32.1 5,284.12 -0.1253406 (0.02)
Sep-18 36.7 5,368.95 -0.1323877 (0.04)
Aug-18 42.3 5,600.64 -0.0342466 0.06
Jul-18 43.8 5,302.63 0.1116751 (0.02)
Jun-18 39.4 5,405.46 0.0735695 0.01
May-18 36.7 5,343.87 -0.0265252 (0.07)
Apr-18 37.7 5,739.22 0.1564417 0.03
Mar-18 32.6 5,597.44 -0.1465969 (0.04)
Feb-18 38.2 5,804.94 -0.0795181 (0.04)
Jan-18 41.5 6,039.78 -0.0437788 (0.03)
Dec-17 43.4 6,244.52 -0.0726496 (0.01)
Nov-17 46.8 6,306.86 -0.1 0.05
Oct-17 52 6,019.59 0.1328976 (0.01)
Sep-17 45.9 6,092.84 -0.0613497 0.01
Aug-17 48.9 6,006.43 -0.0467836 0.02
Jul-17 51.3 5,860.64 0.2512195 0.04
Jun-17 41 5,656.04 0.0704961 0.05
May-17 38.3 5,403.11 -0.1030445 (0.01)
Apr-17 42.7 5,475.55 0.1730769 (0.04)
Mar-17 36.4 5,719.61 -0.0831234 0.02
Feb-17 39.7 5,612.69 0.0050633 0.03
Jan-17 39.5 5,468.34 -0.0813953 0.09
Dec-16 43 5,036.05 0.2797619 0.05
Nov-16 33.6 4,801.24 0.046729 0.05
Oct-16 32.1 4,592.17 0.2205323 (0.02)
Sep-16 26.3 4,695.18 0.206422 0.04
Aug-16 21.8 4,526.57 0.0380952 0.00
Jul-16 21 4,525.34 -0.0869565 0.00
Jun-16 23 4,507.58 -0.0416667 0.02
May-16 24 4,419.39 0.2 0.05
Apr-16 20 4,195.69 -0.047619 (0.04)
Mar-16 21 4,357.53 -0.0869565 (0.03)
Feb-16 23 4,511.96 -0.0416667 (0.01)
Jan-16 24 4,540.89 0.2631579 (0.01)
Dec-15 19 4,604.91 0.0555556 0.01
Nov-15 18 4,580.99 -0.0526316 0.00
Oct-15 19 4,564.48 0.1176471 (0.06)
Sep-15 17 4,852.08 -0.0555556 0.02
Aug-15 18 4,768.66 0.2857143 (0.00)
Jul-15 14 4,792.30 0.0769231 0.05

38
 Jun-15 13 4,583.10 0.0833333 (0.00)
May-15 12 4,586.95 0.0909091 0.13
Apr-15 11 4,047.28 -0.0833333 (0.11)
Mar-15 12 4,530.48

Covariance 0.000754979
Variance of market return 0.0006
Beta 1.282367705
Market return 0.01
Market return -yearly 0.15

Appendix 5: Proforma Income statement

Particulars 2,019 2020 2021 2022 2023 2024

Sales 601,207,033 641,084,852 683,607,751 728,951,176 777,302,212 828,860,353
Less: COGS 427,318,771 444,572,912 474,061,253 505,505,544 539,035,522 574,789,530
Gross profit 173,888,262 196,511,940 209,546,498 223,445,632 238,266,690 254,070,823
Less: Operating 102,255,719 97,141,111 103,584,442 110,455,156 117,781,602 125,594,008
expense
Operating profit 71,632,543 99,370,829 105,962,056 112,990,476 120,485,088 128,476,816
Plus: Other income 4,127,849 5,127,838 6,370,080 7,913,259 9,830,281 12,211,709
Plus: Interest 3,260,594 5,808,464 6,679,734 7,681,694 8,833,948 10,159,040
income
Less: Interest 8,025,694 5,250,063 9,067,478 9,668,920 10,310,256 10,994,131
expense
Less: Contribution 3,428,667 4,634,508 4,941,913 5,269,708 5,619,246 5,991,968
to WPPF
EBT 67,566,625 100,422,561 105,002,478 113,646,800 123,219,815 133,861,466
Less: Tax -5,729,624 1,364,041 1,426,250 1,543,666 1,673,697 1,818,242
Net income 73,296,249 99,058,519 103,576,228 112,103,134 121,546,119 132,043,223
Less: Dividend 59,894,714 70,966,926 74,203,476 80,312,272 87,077,360 94,597,635
Transfer to the 13,401,535 28,091,594 29,372,752 31,790,862 34,468,759 37,445,589
reserve

Appendix 6: Proforma Balance sheet

Particular 2019 2020 2021 2022 2023 2024
PPE 462,619,251 465,474,465 468,347,300 471,237,867 474,146,273 477,072,630
Investment 51,456,442 59,174,908 68,051,145 78,258,816 89,997,639 103,497,284
Other fixed asset 3,393,049 2,922,168 2,516,636 2,167,382 1,866,597 1,607,555
Total fixed asset 517,468,742 527,571,542 538,915,081 551,664,065 566,010,509 582,177,469
Inventory 68,414,391 99,748,348 106,364,615 113,419,737 120,942,822 128,964,911
Accounts 89,611,990 78,767,841 83,992,480 89,563,667 95,504,389 101,839,156
receivable
Advance and 97,642,681 116,514,439 124,242,794 132,483,769 141,271,363 150,641,836
prepayment
Cash 16,063,106 61,819,479 71,227,854 81,077,076 91,396,991 102,223,031
Total curent asset 271,732,168 356,850,107 385,827,743 416,544,249 449,115,566 483,668,934
Total asset 789,200,910 884,421,648 924,742,824 968,208,314 1,015,126,075 1,065,846,403

39
Share capital 499,122,620 499,122,620 499,122,620 499,122,620 499,122,620 499,122,620
Reserve & 192,146,513 220,238,107 249,610,859 281,401,720 315,870,479 353,316,068
Surplus
Total equity 691,269,133 719,360,727 748,733,479 780,524,340 814,993,099 852,438,688
Short-term loan 17,560,699 89,411,462 95,342,088 101,666,091 108,409,561 115,600,323
Current portion of 0 0 0 0 0 0
LTD
Accounts payable 9,008,250 13,350,916 14,236,477 15,180,777 16,187,711 17,261,436
Accrued expenses 42,185,271 29,907,434 31,891,182 34,006,512 36,262,150 38,667,403
Other liabilities 2,152,139 2,852,943 3,042,177 3,243,964 3,459,134 3,688,577
Provision 1 27,025,418 29,538,166 31,497,421 33,586,632 35,814,420 38,189,976
Provision 2 0 0 0 0 0 0
Total current 97,931,777 165,060,921 176,009,346 187,683,974 200,132,976 213,407,715
liability
Total liabilities 97,931,777 165,060,921 176,009,346 187,683,974 200,132,976 213,407,715
Total equity & 789,200,910 884,421,648 924,742,824 968,208,314 1,015,126,075 1,065,846,403
liabilities

Appendix 7: WACC
Risk-free rate 0.095
Market return 0.15
Beta 1.282367705
Cost of equity 0.16
Cost of debt 0.09815755
After tax cost of debt 0.096824275

Total market value of equity 2,525,560,457.20

Book value of debt 17560699
Weight of equity 0.99
Weight of debt 0.01

WACC 0.1589

Appendix 8: Changes in WC
Particulars 2019 2020 2021 2022 2023 2024
Inventory 68,414,391.00 99,748,347.73 106,364,615.23 113,419,737.08 120,942,822.31 128,964,910.73
Accounts receivable 89,611,990.00 78,767,840.93 83,992,479.91 89,563,667.09 95,504,388.85 101,839,156.28
Advance and 97,642,681.00 116,514,438.89 124,242,794.43 132,483,768.67 141,271,363.38 150,641,835.70
prepayment
Non-cash current 255,669,062.00 295,030,627.55 314,599,889.58 335,467,172.84 357,718,574.54 381,445,902.71
asset

Accounts payable 9,008,250.00 13,350,915.99 14,236,476.84 15,180,776.59 16,187,711.35 17,261,435.69

Accrued expenses 42,185,271.00 29,907,434.29 31,891,182.29 34,006,511.50 36,262,149.63 38,667,403.33
Other liabilities 2,152,139.00 2,852,942.67 3,042,177.20 3,243,963.58 3,459,134.37 3,688,577.36
Non- STD Current 53,345,660.00 46,111,292.96 49,169,836.34 52,431,251.67 55,908,995.36 59,617,416.38
liabilities

Working capital 202,323,402.00 248,919,334.59 265,430,053.24 283,035,921.17 301,809,579.18 321,828,486.33

Change in WC 46,595,932.59 16,510,718.65 17,605,867.93 18,773,658.02 20,018,907.15

40
Appendix 9: Free cash flow and valuation
Particulars 2020 2021 2022 2023 2024
EBIT 105672623.3 114069955.9 123315720.6 133530071 144855596.4
EBIT (1-tax rate) 104237270.4 112520541.9 121640721.3 131716330.1 142888020.6
Depreciation 18901282.42 18901644.83 18902009.48 18902376.37 18902745.53
Capital expenditure -2855213.777 -2872835.71 -2890566.404 -2908406.528 -2926356.759
Change in NWC 46595932.59 16510718.65 17605867.93 18773658.02 20018907.15
Free cashflow 73687406.47 112038632.4 120046296.4 128936641.9 138845502.2 144399322.3

Present value discount 0.862855253 0.744519187 0.642412292 0.55430882 0.478288277

factor
Present value of free 63581565.74 83414911.53 77119216.38 71470717.85 66408176.04
cashflow
Terminal value 1214021842

Enterprise value 1277603408

Cash 16063106
Interest-bearing debt 17560699
Equity value 1276105815
Value per share 27.56698022

Appendix 10: DDM

2019 2020 2021 2022 2023 2024
Dividend 59,894,714.00 70,966,925.75 74,203,475.86 80,312,272.48 87,077,360.27 94,597,634.56

Pv Factor 0.86 0.74 0.64 0.55 0.48

pv of dividend 61,234,184.65 55,245,911.53 51,593,591.00 48,267,748.83 45,244,939.66

Terminal value 911,738,933.54

total value of equity 1,173,325,309.22

Number of Share 49,912,262.00

Value per share 23.51

41
Appendix 10: Relative Valuation
Company Name Price Earning Book value sales(million) P/E P/B P/S

AAMRANET 65.2 3.22 10 820 20.248447 6.52 0.079512

AAMRATECH 34.2 1.52 10 1888 22.5 3.42 0.018114

BDCOM 28 1.45 10 444 19.310345 2.8 0.063063

AGNISYSL 22.8 1.02 10 336 22.352941 2.28 0.067857

INTECH 18 1.09 10 104 16.513761 1.8 0.173077

Averages 20.185099 3.364 0.080325

DAFFODILCOM 50.01 2.17 10 537 23.046083 5.001 0.093128

Price of the Stock 43.801665 33.64 43.13439

42