W20590

VAKRANGEE: ANATOMY OF STOCK VALUATION1

Pooja Gupta and Zahid Jamal wrote this case solely to provide material for class discussion. The authors do not intend to illustrate
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On April 20, 2018, Priyankar Khandelwal was furious as he watched the stock value from his fund
seemingly evaporate right in front of his eyes. Khandelwal, the fund manager at Principal First, had been
managing the mid-sized information technology (IT) fund for the previous five years.

Khandelwal asked his assistant to put in a sell order to cover his long position2 in Vakrangee Limited
(Vakrangee) at a substantial loss. He had bought the stock in the beginning of October 2017. The stock hit
a high in January 2018 but had subsequently been sliding (see Exhibit 1). In his fund, Khandelwal had
allocated a substantial amount to Vakrangee in the initial investment. Based on the current market price of
the stock, there was a net loss of ₹169 million3 and a loss of ₹592 million unrealized from the top for the
fund.4 This loss caused the net asset value of the fund to fall by 35 per cent year to date, because Khandelwal
had not hedged his position.

Khandelwal’s clients were irate, and more than 25 per cent of his firm’s investors had withdrawn their
money from the fund. Principal First had also reprimanded him and put him on notice.

Khandelwal wondered where he went wrong in his analysis of Vakrangee. He had done the valuation exercise
himself, checked and cross-checked his assumptions, looked at industry and credit reports, and had found it to
be a good stock with good future prospects. What had he missed? What could he have done better?

PRINCIPAL FIRST

Principal First was a Mumbai-based boutique investment management and investment advisory firm. The
investment objective of the firm was to deliver notable risk-adjusted returns consistently while ensuring
capital preservation. The firm was founded in 2005 and had been an early investor in the Indian alternative

1
This case was awarded an honourable mention in the the ISB-Ivey Global Case Competition 2018. The prize was sponsored by ISB.
2
A long position was “the buying of a stock, commodity, or currency with the expectation that it [would] rise in value; “Long
Position (Long),” Investopedia, March 20, 2020, accessed April 6, 2010, www.investopedia.com/terms/l/long.asp.
3
₹ = INR = Indian rupee; US$1 = ₹66.18 on April 20, 2018; all currency amounts are in ₹ unless otherwise specified.
4
An unrealized loss occurred when a stock decreased after an investor had bought it, but the stock had not yet been sold;
“How to Calculate Unrealized Gain and Loss of Investment Assets,” The Motley Fool, November 25, 2016, accessed April 8,
2020, www.fool.com/knowledge-center/how-to-calculate-unrealized-gain-and-loss-of-inves.aspx.

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funds category. Principal First had endeavoured to provide a credible, trustworthy alternative platform to
global investors who wished to participate in the long-term economic growth of India.

Principal First ran various hedge funds under the alternative platform category that were focused on
investing in Indian companies and Indian stock markets. Hedge funds were alternative investment vehicles
that employed aggressive investment strategies to earn higher returns for their investors. Principal First had
a successful track record. As of March 2018, it had more than ₹10 billion in investments on various funds.
Because the firm focused on hedge funds, it was not subject to some investment regulations that strictly
applied to mutual funds, such as the amount of investment in a particular category, sector, or company. The
firm had both sector-specific funds and general category funds.

Principal First followed a mixture of quantitative and qualitative valuation strategies. On the quantitative
side, it looked at discounted cash flow and relative valuation methodologies. On the qualitative side, the
firm followed the philosophy of Michael Shearn, described in his book The Investment Checklist: The Art
of In-Depth Research.5 The main idea that Shearn, who owned a private investment firm, discussed in the
book was that a qualitative analysis of a company was necessary to gauge the intrinsic value of its shares
(see Exhibit 2). The qualitative valuation strategy was also built by Motilal Oswal Asset Management
Company (Motilal), an Indian brokerage, fund house, and research firm. Motilal introduced a unique and
focused investing process called QGLP©, which discussed four key parameters to analyze a stock: quality,
growth, longevity, and price (see Exhibit 3).

PRIYANKAR KHANDELWAL

Khandelwal was a star fund manager at Principal First. He had been managing the IT fund for six years. Under
his management, the fund had consistently outperformed the market, delivering a five-year compounded
annual growth rate (CAGR) of 28 per cent. It had earned him a reputation as an astute stock evaluator.

Khandelwal was a mechanical engineer with a management degree from a top-rated college in India. He
had always been a star performer in academics, and continued to excel in his career. He had been recruited
by Principal First during a campus visit and hired as a research analyst. He worked for the company for
three years as an analyst and had been a fund manager for the next six years. He was one of the youngest
research analysts in the company to become a fund manager.

His average five-year assets under management amounted to ₹1.3 billion, which made his fund one of the
most sought after in the company’s portfolio. Khandelwal was a staunch believer in fundamental analysis
of companies, and thus made his investment decisions based on the fundamentals of a company. His
analysis was based on financial statement analysis, ratios, and industry cyclicality. At Principal First, he
was known as the “value hawker.” Some of his early investments had generated more than 100 per cent
returns in one year.

The mid-sized IT fund Khandelwal managed was not a regular fund. It was especially designed for very
aggressive, high-net-worth investors who had a very high-risk appetite. Usually, funds had a cap on each
stock at 5 to 10 per cent of the portfolio value, depending on the fund. However, this fund allowed fund
managers to invest 30 per cent of their portfolio in one stock without prior approval.

5
Michael Shearn, The Investment Checklist: The Art of In-Depth Research (Hoboken, NJ: John Wiley & Sons, 2011).

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2017 REPORT CARD FOR THE FUND AND THE FUND MANAGER

The previous year had been extraordinary for Khandelwal. His fund delivered a CAGR of 38 per cent,
beating all of Principal First’s other funds. Khandelwal believed that his strategy of concentrating funds in
selected stocks had paid off well (see Exhibit 4). Investors were very happy and confident about his fund
selection, and Khandelwal received a large bonus for his extraordinary performance.

His exceptional performance in the current quarter was due to his overexposed position in Vakrangee, a
mid-tier IT company. He entered Vakrangee in the beginning of October 2017, when its stock price was
₹240. When the stock reached a high of ₹500 in January 2018, Khandelwal did not liquidate his position,
believing that there was still more value in the company.

In an analyst meeting regarding his fund in mid-January 2018, Khandelwal stated that he had chosen
Vakrangee based on its low intrinsic valuation. He believed the company still had huge potential for
growth and maintained a target of ₹900 for the stock. His research of the company included collating its
history, lines of business, and profitability patterns from the company’s annual financial statements.6

VAKRANGEE

Vakrangee was incorporated in 1990 in Mumbai as a private limited company and was initially named
Vakrangee Investments and Consultancy Private Limited. It was converted into a public limited company
in 1992, and the name of the company was changed to Vakrangee Limited in 1995. The company
successfully went public in 1994. Vakrangee, which was characterized as a technology company on the
stock exchanges, was listed on both the Bombay Stock Exchange and the National Stock Exchange.7

When it initially started operating as a business, Vakrangee was mainly involved in share transfer and bill
discounting activities. Later, the company became involved in the preparation of voter identification cards
for Mumbai and some districts in Gujarat and Rajasthan. It was a reasonably successful business. The
company acted as a merchant banker to many of the successful equity offerings in the primary market, as
well as a sub-broker. The company had also established a software division, which provided turnkey
solutions to customers.8

The company had a major upturn in its sales and profitability when it modified its business model in 2010.
The company became primarily an e-governance service provider, before evolving into its current iteration
as a systems integrator and IT-enabled solutions provider. The company was engaged in two major business
segments: system integration e-governance and Vakrangee centres (or kendras in Hindi).

Under the first segment, the company executed various mission-mode projects under the National e-
Governance Plan of India, with services including large scale enrolment, print management solutions, and
document management solutions. Vakrangee was also one of the major enrolment agencies for the Unique
Identification Authority of India.9

6
“Annual and Quarterly Results,” Vakrangee Limited, accessed April 15, 2020,
www.vakrangee.in/annual_quarterly_result.html.
7
“Vakrangee Ltd.,” MoneyControl, March 20, 2004, accessed May 28, 2018, www.moneycontrol.com/company-
facts/vakrangee/history/VS#VS.
8
Ibid.
9
ICRA Limited, Vakrangee Limited, 1–2, July 14, 2017, accessed May 28, 2018,
www.icra.in/Rationale/ShowRationaleReport/?Id=37827.

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Under the second segment, Vakrangee offered services such as banking, insurance, e-governance, and e-
commerce through its vast number of franchise-operated outlets (21,820 by June 30, 2016). This project
formed part of the financial inclusion project of the Ministry of Finance and the Reserve Bank of India. The
company had made plans to set up and operate 75,000 Vakrangee centres by 2020.10

Vakrangee was focused on the idea of connecting its customers digitally, based on the Digital India concept
introduced by the government. Vakrangee wanted to build itself as a company that fulfilled all of the digital
needs of its customers.11 The company provided its services in a host of domains, including banking and financial
services (e.g., opening and maintenance of accounts); tie-ups with banks and insurance companies; e-governance
projects such as digitization of records, Aadhaar cards, and election cards; and logistics projects.12
With its operations spread across the country, the company started becoming a favourite stock for investors.
Until December 2017, many analysts had a positive rating on the stock.13 However, despite favourable
results and a positive outlook by analysts, Vakrangee had come under the scrutiny of the Securities and
Exchange Board of India for stock price manipulations and insider trading. The first such inquiry was
initiated in the early 2000s, with additional inquiries in 2009, 2012, 2017, and January 2018. Other inquiries
were initiated by the stock exchanges where Vakrangee was listed.14

STOCK VALUATION OF VAKRANGEE

Being a firm believer in fundamental analysis, Khandelwal had done a thorough economy and sector
analysis for Vakrangee. The economic forecast was good. The Indian economy was expected to grow at a
rate of 7.0–7.2 per cent.15 Certain economic policies of the government, including the banning of high
denomination notes (known as demonetization)16 and the implementation of a goods and services tax,17 had
slowed growth in the short run, but the economy had bounced back and was again beginning to gain pace.18
The IT industry was growing at a consistent annual rate of 7–8 per cent, according to a Nasscom report.19
Khandelwal consulted the company’s profit and loss statements (see Exhibit 5 and the accompanying
student spreadsheet) and its balance sheet (see Exhibit 6) from 2010 onwards for the purpose of valuation.
The company had impressive financials, with sales increasing exponentially with a CAGR of 25.40 per
cent. By 2017, the company had no long-term debt left on its books, and only minimal short-term debt. The
change in the company’s business model was also reflected in the way the assets had transformed during
the period from 2011 to 2017. Net fixed assets had fallen by more than 85 per cent. Cash and short-term
investments had increased by 65 times in the previous five years. Receivables had increased three times
during this period. Other items, such as accounts payable, prepaid expenses, and so on, showed similar
10
Vakrangee Limited, Annual Report 2016-17, 25, July 2017, accessed May 8, 2018, https://vakrangee.in/pdf/annual-general-
meetings/2016-2017/Vakrangee%20AR%202016-17.pdf.
11
“Who We Are,” Vakrangee Limited, accessed April 15, 2020, www.vakrangee.in/who_we_are.html.
12
Vakrangee Limited, Annual Report 2016-17, 21.
13
Darshan Mehta, “How Vakrangee Turned From a Penny Stock into a Rs 37,000 Crore Firm,” Bloomberg, November 22, 2017,
accessed April 15, 2020, www.bloombergquint.com/business/how-vakrangee-turned-from-a-penny-stock-into-a-rs-37000-crore-firm.
14
Sucheta Dalal, “Vakrangee’s Chequered History,” Moneylife, May 8, 2018, accessed May 25, 2018,
www.moneylife.in/article/vakrangeersquos-chequered-history/53932.html.
15
ET Bureau, “India’s GDP Growth Rises to 7.2% in December Quarter,” Economic Times, January 8, 2018, accessed June
4, 2018, https://economictimes.indiatimes.com/news/economy/indicators/indias-gdp-growth-rises-to-7-2-in-december-
quarter/articleshow/63111337.cms.
16
Hindu News Bureau, “Demonetisation of Rs. 500 and Rs. 1000 Notes: RBI Explains,” The Hindu, November 8, 2016,
accessed June 5, 2018, www.thehindu.com/news/national/Demonetisation-of-Rs.-500-and-Rs.-1000-notes-RBI-
explains/article16440296.ece.
17
Arun Goyal, “Overcoming GST Implementation Challenges in Indian Federation,” liveMint, April 5, 2018, accessed June 5,
2018, www.livemint.com/Opinion/TdTeRqgDLfpRLssu4ATezI/Overcoming-GST-implementation-challenges-in-Indian-federatio.html.
18
Darshan Mehta, op. cit.
19
Arnab Paul, “Indian IT Industry’s Growth to Remain Flat in 2017–18: Nasscom Forecast,” liveMint, June 23, 2017, accessed June 3,
2018, www.livemint.com/Industry/jF16oLPv5zVI5bahsbKtpL/Growth-in-IT-sector-to-slow-down-amid-uncertainty-Nasscom.html.

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drastic changes. To determine the intrinsic value of the shares, Khandelwal had followed two methods of
valuation: discounted cash flow (DCF) and relative valuation.

VALUATION TROUBLES

Khandelwal wondered what he had missed in his initial valuation of the company. He went through the
assumptions he had made. He had assumed the growth rate in revenue to be 25.40 per cent, and the earnings
before interest, taxes, depreciation, and amortization margin to be around 23 per cent. Both of these
assumptions were based on Vakarangee’s past margins. Terminal growth rate was taken as 6 per cent (the
historical average Indian GDP growth rate). Long-term debt was nil; therefore, weighted average cost of
capital was only based on cost of equity. Cost of equity was calculated through a capital asset pricing model
formula, where the risk-free rate was taken as 7.848 per cent (the average 10-year yield rate on Government
of India bonds), the beta was 0.456, and the market rate of return was 11.58 per cent based on the previous
five years of the Nifty 50 Index CAGR. He had taken all of these values from Bloomberg. He created a
sheet for assumptions he made and his justifications for those assumptions (see Exhibit 7).

He also looked at the peer values for the purpose of relative valuation. He considered those IT companies
that had a greater presence in India, compared to some of the larger IT companies whose major source of
business was outsourcing (see Exhibit 8). Looking at the peer data, he wondered whether he had chosen the
right companies for comparison. He realized that although Vakrangee was characterized as an IT company
on the stock exchanges, its business profile was very different from a typical IT company. Vakrangee was
not involved in software development, it used IT to facilitate business in rural and semi-rural areas. He
looked at other IT companies and aimed to identify companies that had a similar business model to
Vakrangee. He found two companies with a similar business model to Vakrangee and gathered data about
them to redo a relative valuation of the company (see Exhibit 9).

Khandelwal was a firm believer in quantitative valuation techniques such as DCF and relative valuation.
After the debacle of Vakrangee, however, he wondered if he should consider qualitative valuation as well.
Khandelwal thought back to the investment checklist designed by Shearn, who believed that the intrinsic
value of a stock could be misinterpreted by DCF and relative peer valuation. DCF valuation was based on
logical assumptions, and relative valuation depended on identifying the right peers, which linked to the
investor’s ability to understand the business. If these quantitative analyses could be complemented with
qualitative pointers, it would help an investor better value a business and make better decisions.20
Khandelwal also decided to look at the QGLP parameters that other analysts at his firm followed.21

In calculating the intrinsic value of Vakrangee, had Khandelwal focused too much on DCF valuation?
Could he do a relative valuation for Vakrangee, and if so, had he chosen the right peer companies? Was he
so blinded by what seemed to be an attractive valuation that he ignored the qualitative factors affecting the
stock? How would an analyst approach the concepts given in The Investment Checklist and QGLP? How
were the new approaches different from the traditional quantitative analysis of a stock?

20
Michael Shearn, op. cit.
21
Motilal Oswal Asset Management Company, Our Mantra for Wealth Creation, accessed May 25, 2018,
www.motilaloswalmf.com/Campaigns/QGLPContest/images/QGLP-Booklet.pdf.

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EXHIBIT 1: VAKRANGEE LIMITED STOCK PRICE MOVEMENT, OCTOBER 2017 TO APRIL 2018

Source: “Vakrangee Limited (VAKRANGEE.BO),” Yahoo Finance, accessed May 25, 2018, http://go.ivey.ca/5zFr.

EXHIBIT 2: FIVE INVESTMENT CHECKLIST PARAMETERS TO USE IN A VALUATION

 Understand how the business makes money.

 Understand the business from the customer’s perspective.
 Assess the strengths and weaknesses of the business and the sector.
 Measure the financial and operating health of the business.
 Consider the background of managers, compensation of managers, employee relations, and business
transparency.

Source: Created by author based on Michael Shearn, The Investment Checklist: The Art of In-Depth Research (Hoboken, NJ:
John Wiley & Sons, 2011).

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EXHIBIT 3: FOUR PARAMETERS OF THE QGLP PROCESS

Competitive business model, limited use of leverage, capital

Q: Quality of business
allocation policy, dividend policy, transparent management,
and management
innovation in research
Growth rate of the company, gain of market share, operating
G: Growth
margins, profitability of business
L: Longevity Long-run competitive advantage, growth potential over long period
P: Price P/B, P/E, DCF, relative valuation

Note: P/B = price to book; P/E = price to equity; DCF = discounted cash flow.
Source: Motilal Oswal Asset Management Company, Our Mantra for Wealth Creation, accessed May 25, 2018,
www.motilaloswalmf.com/Campaigns/QGLPContest/images/QGLP-Booklet.pdf.

EXHIBIT 4: MAJOR INVESTMENTS OF INFORMATION TECHNOLOGY FUND

(AS OF APRIL 19, 2018)

Company Percentage of Funds Allocated

Vakrangee Limited 30
Mindtree Technologies 18
NIIT Technologies 14

Source: Prepared by the case author based on company documents.

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EXHIBIT 5: VAKRANGEE LIMITED INCOME STATEMENT (IN ₹ MILLION)

Particulars FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Sales and Services Revenue 8,896.50 13,531.81 15,471.35 19,518.93 27,804.45 31,907.37 40,003.69
Other Revenue 0.27 0.06 0.09 0.34 0.95
Total Revenue 8,896.77 13,531.87 15,471.35 19,519.02 27,804.79 31,907.37 40,004.64
Operating Expense 7,508.36 11,112.18 11,656.50 14,168.58 20,553.46 25,307.17 30,484.60
Selling and Marketing 19.13 33.11 59.94
Depreciation and Amortization 550.06 874.44 1,570.62 1,808.72 1,648.56 733.87
(–) Other Operating Income 0 0 0.15 0 0 0 0
Operating Expenses 8,058.42 11,986.62 13,227.12 15,981.75 22,221.16 25,340.29 31,278.41
Operating Income 838.35 1,545.26 2,244.38 3,537.27 5,583.63 6,567.09 8,726.23

Interest Expense 158.66 498.24 791.87 718.02 676.87 546.89 467.19

(–) Interest Income 5.36 15.66 27.03 24.64 30.53 0 0
Interest Expense, Net 153.30 482.58 764.84 693.38 646.34 546.89 467.19
(+) Foreign Exchange (Gain) Loss 0.25 4.473 (20.45) (33.49) (19.76) 0 0
(+) Other Non-Operating (Income) Loss 16.82 59.21 67.14 57.48 72.24 0 44.17
Non-Operating Expense 170.37 546.27 811.52 717.37 698.82 546.89 511.36

Pre-tax Income 667.99 998.99 1,432.87 2,819.90 4,884.81 6,060.32 8,214.87

Income Tax Expense 186.70 320.46 393.64 1,070.12 1,674.85 2,111.75 2,970.19
Income (Loss) from Continuing Operations 481.28 678.53 1,039.23 1,749.78 3,209.96 3,948.57 5,244.68

Note: ₹ = INR = Indian rupee; US$1 = ₹66.18 on April 20, 2018; FY = fiscal year.
Source: Vakrangee Limited, “Income Statement of Vakrangee,” Bloomberg LP, accessed May 23, 2018.

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EXHIBIT 6: VAKRANGEE LIMITED BALANCE SHEET (IN ₹ MILLION)

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Assets
Cash, Cash Equivalents, and Short-Term Investments 90.39 58.359 25.43 25.80 69.29 1,405.84 5,830.00
Accounts and Notes Receivable 2,745.17 4,454.83 6,527.37 7,682.98 11,993.24 8,498.68 8,243.57
Inventories 177.49 244.33 537.68 1,624.85 1,693.63 5,070.57 4,991.89
Prepaid Expenses 559.13 48.46 2,850.51
Taxes Receivable 26.32 69.01 40.08
Miscellaneous Short-Term Assets 219.24 378.55 1,991.85 2,336.78 3,587.24 358.70
Total Current Assets 3,817.75 5,253.53 9,082.33 11,670.42 17,343.40 19,282.39 22,314.76
Property, Plant, and Equipment 3,627.52 7,263.97 8,187.86 10,468.07 10,494.66 10,606.24 582.93
(–) Accumulated Depreciation 1,403.95 2,247.74 3,816.67 5,622.77 7,665.45 9,284.02 295.46
Property, Plant, and Equipment, Net 2,223.57 5,016.22 4,371.19 4,845.30 2,829.22 1,322.22 287.47
Long-Term Investments and Receivables 12.51 14.50 23.13 25.50 13.50 111.53 12.85
Total Intangible Assets 500.00 500.00
(+) Deferred Tax Assets 19.04 40.56
(+) Investments in Affiliates 21.00 0.13 2.50
(+) Miscellaneous Long-Term Assets 318.81 377.44 349.26 704.97 183.75 187.70 28.78
Total Non-current Assets 3,075.89 5,908.29 4,743.58 5,575.77 3,028.97 1,640.49 369.67
Total Assets 6,893.63 11,161.82 13,825.91 17,246.19 20,372.36 20,922.88 22,684.42
Liabilities and Shareholders' Equity
Accounts Payable 868.24 1,218.32 1,754.76 2,524.32 2,131.32 1,144.11 296.87
Accrued Taxes 203.47 185.63 11.95 6.94 4.96
Interest and Dividends Payable 56.15 124.32 37.93 9.59 20.56 6.30
Other Payables and Accruals 12.38 17.22 59.96 92.13 692.63 1.91
Short-Term Debt 1,634.25 2,155.89 2,852.18 3,216.26 3,155.74 3,075.53 1,440.19
Miscellaneous Short-Term Liabilities 40.24 901.78 1,578.40 1,995.11 1,478.70 580.12 368.41
Total Current Liabilities 2,814.73 4,603.17 6,295.18 7,844.34 7,483.91 4,799.76 2,113.67
(+) Long-Term Debt 1,559.61 1,456.85 862.10 374.06 161.69
(+) Accrued Liabilities 9.89
(+) Pension Liabilities 23.34
(+) Deferred Tax Liabilities 517.21 731.59 828.82 711.59 425.31 129.95 0
(+) Miscellaneous Long-Term Liabilities 4.76 69.92 78.37 33.21 15.72 0 0
Total Non-current Liabilities 521.97 2,361.12 2,364.05 1,606.90 815.09 291.64 33.23
Total Liabilities 3,336.70 6,964.29 8,659.23 9,451.24 8,298.99 5,091.40 2,146.90
Share Capital and Additional Paid-in Capital 2,168.18 2,176.182 502.50 1,524.99 3,003.48 4,728.76 4,730.21
(+) Retained Earnings 1,259.05 1,800.60 0 0 0 10,389.48 14,509.80
(+) Other Equity 129.70 192.25 4,635.68 6,269.96 9,069.89 713.25 1,297.52
Equity before Minority Interest 3,556.93 4,169.03 5,138.17 7,794.95 12,073.37 15,831.48 20,537.53
(+) Minority/Non-controlling Interest 0 28.50 28.50 0 0 0 0
Total Equity 3,556.93 4,197.53 5,166.68 7,794.95 12,073.37 15,831.48 20,537.53
Total Liabilities and Equity 6,893.63 11,161.82 13,825.91 17,246.19 20,372.36 20,922.88 22,684.42
Capital Expenditure 604.63 3,744.93 930.29 2,283.89 43.61 133.56 111.57
Outstanding Equity Shares in 2017 (in Million) 529.40
Note: ₹ = INR = Indian rupee; US$1 = ₹66.18 on April 20, 2018; FY = fiscal year.
Source: Vakrangee Limited, “Balance Sheet of Vakrangee,” Bloomberg LP, accessed May 23, 2018.

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EXHIBIT 7: ASSUMPTIONS MADE FOR DISCOUNTED CASH FLOW VALUATION

Assumptions Source
1 EBITDA margin 23.000% Based on the margin rate of the previous time period

3 Tax rate 30.000%

4 Beta 0.456 Bloomberg Terminal
Average 10-year yield rate on Government of India
5 Rf 7.848%
bonds
Market rate of return was calculated on the basis of
6 Rm-Rf 3.750%
CAGR of the Nifty Index over the previous five years
7 Ke 9.560% CAPM formula
8 Kd(1 – t) 0.000%
9 Debt to capital 0.000%
10 Debt to equity 0.000%
11 WACC 9.560%

13 G 25.400% Based on the growth rate of the previous time period

Bloomberg Terminal Value Assumptions
1 G(T) 6.000% Long term expected growth rate of economy

3 Kd(1 – t)(T) 0%
4 Beta(T) 1
Market rate of return calculated on the basis of CAGR of
5 Ke(T) 11.600%
the Nifty Index over the previous five years
6 WACC(T) 11.600%

Note: EBITDA = earnings before Interest, tax, depreciation and amortization; Rf = risk-free rate; Rm = risk premium; CAGR =
compound annual growth rate; Ke = cost of equity; CAPM = Capital Asset Pricing Model; Kd = cost of debt; t = Tax rate T=
time (or period); WACC = weighted average cost of capital; G = growth rate.
Source: Compiled by the author based on data from “Balance Sheet of Vakrangee,” Bloomberg LP, accessed May 23, 2018;
Vakrangee Limited, “Income Statement of Vakrangee,” Bloomberg LP, accessed May 23, 2018; and analysis of these two
financial statements.

EXHIBIT 8: VAKRANGEE LIMITED PEER COMPANY DATA, 2017 (IN ₹ MILLION)

Market P/E EV/ Net Profit

Company Name Revenue Capitalization Beta Ratio EBITDA ROE Ratio
Mindtree 52,364 76,107.20 0.995 29.11 21.19 16.65% 7.95%
NIIT Technologies 8,505 13,956.10 1.196 23.79 11.83 5.49% 4.84%
Hexaware 39,420.10 101,106.20 0.514 25.31 19.15 26.65% 12.67%

Peers P/E Ratio EV/EBITDA

Mindtree 29.11 21.19
NIIT Technologies 23.79 11.83
Hexaware 25.31 19.15
Average 26.07 17.39

Note: ₹ = INR = Indian rupee; US$1 = ₹66.18 on April 20, 2018; P/E = Market price per share to Earnings Per Share; EV =
enterprise value; EBITDA = earnings before Interest, tax, depreciation and amortization; ROE = return on equity.
Source: Vakrangee Limited, “Peer Group for Vakrangee,” Bloomberg LP, accessed May 23, 2018.

This document is authorized for use only in Prof R Narayanswamy's SG E07 Corporate Valuation at S P Jain School of Global Management - Dubai from Jul 2022 to Jan 2023.
 Page 11 9B20N022

EXHIBIT 9: VAKRANGEE LIMITED NEW PEER COMPANY DATA, 2017 (IN ₹ MILLION)

Company Market P/E Net Profit

Name Revenue Capitalization Beta Ratio EV/EBITDA ROE Ratio
Redington 411,146.50 44,003.30 0.838 9.65 7.25 15.23% 1.13%
Eclerx 13,300.30 56,009.60 0.973 17.11 12.74 30.76% 26.62%

Peers P/E Ratio EV/EBITDA

Redington 9.65 7.250
Eclerx 17.11 12.740
Average 13.38 9.995

Note: ₹ = INR = Indian rupee; US$1 = ₹66.18 on April 20, 2018; P/E = Market price per share to Earnings Per Share; EV =
enterprise value; EBITDA = earnings before Interest, tax, depreciation and amortization; ROE = return on equity.
Source: Vakrangee Limited, “Peer Comparison of Vakrangee,” Bloomberg LP, accessed May 23, 2018.

This document is authorized for use only in Prof R Narayanswamy's SG E07 Corporate Valuation at S P Jain School of Global Management - Dubai from Jul 2022 to Jan 2023.