Assignment 02

Course: Fin 435

Section: 06

Submitted To
Dr. Md. Nurul Kabir
Assistant Professor & Chair
North South university

Submitted By

Name ID
Mahin Ahmed 1821389030
Rousley Been Arefine 1822085630
S.M. wahidul ikram 1821137030
Jubaer Alom Shuvo 1812809630
Lutful karim 1531155630

Contents

1|Page
BRAC Bank ...............................................................................................................................
5

Business Summary .................................................................................................................

5

Competitive analysis ..............................................................................................................

5

Historical Performances .........................................................................................................

6

Risk Factors ...........................................................................................................................

6

Liquidity risk:.....................................................................................................................
6

Risk of capital: ...................................................................................................................

6

Market risk: ........................................................................................................................

7 Specific

risk: ...................................................................................................................... 7

Volatility risk: ....................................................................................................................

Political risk: ......................................................................................................................

7

Valuation ................................................................................................................................
7

Recapitulation of inputs: ........................................................................................................

7

Assumption ............................................................................................................................
9

Renata Pharma Limited..............................................................................................................

9

Business Summary ................................................................................................................. 9

Competitive Analysis ............................................................................................................. 9

2|Page
 Historical Performance ........................................................................................................
10

Risk Factors .........................................................................................................................

10

Liquidity risk:...................................................................................................................
10

Market risk: ......................................................................................................................

11

Political risk: ....................................................................................................................

11

Volatility risk: ..................................................................................................................

11

Risks in the Forecasts...........................................................................................................

11

Valuation ..............................................................................................................................
12

Recapitulation of inputs .......................................................................................................

12
Assumption ..........................................................................................................................
13

Conclusion ...............................................................................................................................
13

References ................................................................................................................................

15

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 Executive Summary
The report aims to estimate using the dividend discount model of the primary value of the two
companies from our portfolio. We chose BRAC Bank and Renata Pharma Limited,
Grameenphone, Apex for our report. We briefly discussed the business details, the two
company's current situation, and economics for our report. We evaluated their historical
performances by analysing the two companies. We even considered risk factors like risk of
capital losses, stock-specific risk, liquidity risk, volatility risk, political risk, market risk, etc.
We used a multi-staged dividend discount model for the valuation of equity for BARC Bank
and Renata Pharma Limited. We also have calculated CAPM to Multi-staged dividend
growth model for the two companies.

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BRAC Bank
Business Summary
BRAC Bank is a Bangladeshi commercial bank. BRAC Bank was founded in 1991 under the
Bank Companies Act of 1991 and incorporated as a Private Limited Company on May 20,
1999 under the Companies Act of 1994. BRAC Bank officially began operations on July 4,
2001, with the goal of boosting corporate assistance for small entrepreneurs and individuals
throughout Bangladesh. BRAC bank operates 69 branches. BRAC Bank was the first to
launch an online client banking service. BRAC Bank began lending to small and medium-
sized commerce, manufacturing, and service-oriented businesses throughout Bangladesh.
BRAC Bank has established 91 zone offices, 429 unit offices, and 1390 client connection
officers (CRO) to provide door-to-door service to clients throughout Bangladesh. The success
of a SME is typically dependent on the choice of a business and the guy behind the company.
BRAC Bank provides loans to one-year-old businesses and environmentally friendly
businesses. BRAC Bank does not make advances to the cigarette industry. BRAC bank is
continually scrutinizing business exchange licenses and legal business enlisting paperwork. A
business visionary should have the necessary specialist talents to keep the firm running and
maintain an acceptable social position in the community. BRAC bank places a high value on
the guarantor in order to obtain the SME facility. The bank's fundamental concept is Small
and Medium Enterprises (SME). The company's market capitalisation is $358.005 billion
(BDT).

Competitive analysis
BRAC Bank Limited is a well-known private commercial bank in Bangladesh. Having made
a reputation for themselves does not imply that they have no competitors in the market. City
Bank, Exim Bank, IFIC Bank, Mercantile Bank, Mutual Trust Bank, AB Bank, and others are
among their competitors. Despite the fact that the market is crowded, BRAC Bank has
performed well in the stock market. Despite the fact that the financial industry has been
struggling to survive in recent years, as well as the ongoing epidemic. (Ahmed, 2021, p. 1)

Most banks are experiencing difficulties due to defaulted loans, significant non-performing
loans, and other challenges. (Ahmed, 2021, p. 1) Despite this, BRAC Bank Limited has
succeeded admirably in comparison to its competitors. This bank's share price is now
substantially greater than that of other banks. This suggests that it is thriving well even in the
midst of a pandemic. The bank's current share price is 50.5 BDT, which was the closing rate

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on September 8, 2021. When compared to others, it is evident that BRAC Bank is performing
well and is now at the top of the food chain, since other companies' share prices and market
conditions are deteriorating. As everyone is getting vaccinated and we see a glimmer of hope
for the end of the corona epidemic and everything returning to normal, I believe the share
price will climb more over time and BRAC Bank Limited will always be ahead of other
competitors in the market.

Historical Performances
BRAC BANK
Year EPS Dividend Dividend EPS Growth P/E
Payout Ratio

2016 5.47 30 5.484460695 4.97

2017 6.07 25 4.118616145 0.109689214 8.19
2018 5.17 15 2.901353965 -0.14827018 10.6
2019 4.01 15 3.740648379 -0.22437137 14.71
2020 3.33 15 4.504504505 -0.16957606 9.12

2021 4.18 0 0.255255255 11.79

Average 4.149916738 -0.03545463 9.896667

In terms of prior financial outcomes, BRAC Bank provides good financial services. Initially,
the EPS was completely growing, but for the Coronavirus in 2020, the BRAC EPS has
decreased from the previous year. However, there is a positive growth in EPS beginning in
2021. If we can evaluate the business's potential good return each year over the table. The P/E
ratio predicted a good future return.

Risk Factors
Liquidity risk: Liquidity risk refers to the possibility that the corporation will be unable to
pay the obligations associated with financial liabilities that are handled by the provision of
capital or other financial assets. BRAC Bank's debt in 2020 was around 399592.13, which
was much lower than the debt in prior years; nevertheless, BRAC Bank's debt has climbed to
18,427.02M in 2021.

Risk of capital: The movement of a bank's share price can be used to assess its performance.
When the share price of a bank falls, it may be claimed that the bank is not performing well

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in the market and may lose money. BRAC Bank, like any other bank, may be impacted by
bad or fake news, and we can also state that pandemics like as the Corona virus have
impacted the bank's share price.

Market risk: The value of the share is likewise affected by the market. For example, if the
market falls or a downturn is evident in the market, the impacts might be noticed in market
share prices as well. Market risk includes currency rate inflation and interest rate concerns, all
of which have an impact on a bank's profitability. We may use interest rates as an example.
When interest rates are high, customers tend to cut back on their expenditures. As a result,
earnings will fall, and the share price will fall as well. And, like any other bank, BRAC Bank
is subject to the same type of risk.

Specific risk: Unsystematic risk can be defined as a specific risk. It is a risk that arises as a
result of an incident that may directly or indirectly impact the market value of an asset or
group of assets. Any unfavorable news regarding the BRAC bank, as well as any speculations
about the BRAC bank, may have an impact on the share price. But the good news is that
BRAC bank has no unfavorable reports about them since they work hard to keep their face
clean.

Volatility risk: Bangladesh's stock market is extremely volatile. The stock values in this
market are quite volatile and move in a very short period of time. BRAC bank is not immune
to this instability. BRAC Bank is also influenced by market volatility, which may have an
impact on share prices.

Political risk: Every industry in Bangladesh is in some way linked to the political sector. Our
financial industry, on the other hand, has a very close relationship with the government. Our
central bank, also known as the Bangladesh Bank, and the Bangladesh government impose
numerous rules and regulations on commercial banks. As one of them, BRAC Bank is also
required to maintain and follow those rules; otherwise, the bank will have to pay the price for
failing to do so, which may have an impact on BRAC Bank's share price.

Valuation
We simply used a multi-arranged dividend discount model to estimate equity. In this
valuation model, the first phase of dividend consists of a constant rate until the second stage,
after which the dividend rate changes and remains throughout the organization's life.
Recapitulation of inputs:

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CAPM will be used to calculate the multi-staged dividend growth model. In the calculation, a
market return of 5.87 percent is applied. BETA 1.28 is obtained from investing.com, while
the treasury bill rate of 2.96 percent is obtained from Bangladesh Bank. Here is the CAPM
calculation for BRAC bank.

BRAC
Year Issued Share Price Return

2106 1325878476 27.22

2017 1325878476 49.74 0.827333
2018 1325878476 54.85 0.102734
2019 1325878476 58.56 0.067639
2020 1325878476 30.38 -0.48122
2021 1325878476 49.5 0.629361

BRAC
Market 5.87%
Return
Risk free 2.96%
rate
Beta 1.28
CAPM 0.066848
5 YEARS MULTISTAGE
BRAC
5 Year Multistage
Period Year EPS Dividend Present Value
1 2022 3.122 8.666667 8.273667
2 2023 2.474667 7.444444 7.444444
3 2024 2.185378 7.007407 7.007407
4 2025 1.942296 4.45679 4.45679
5 2026 1.515418 1.80428 1.80428

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The computed worth of our firm is 28.99, whereas the current market value is 50.6. Which is
greater than we expected. As a result, BRAC Bank's stock is overpriced by 0.572857496, or
57.29 percent.

Intrinsic value 28.98658927

Market value 50.6
overvalued by 0.572857496
Assumption
The company is expected to have slightly higher earnings per share. The company's dividend
will rise gradually in the next years. We might argue that the stock price of BRAC bank is
overpriced since its intrinsic worth is less than its present market value.

Renata Pharma Limited

Business Summary
Renata Limited is one of Bangladesh's most innovative and rapidly growing human
pharmaceutical and animal health product companies. The firm is the fourth-largest
pharmaceutical company in Bangladesh and the market leader in animal health goods. Renata
has been evolving and changing with more modern and superior items, and she has begun
exporting to other countries throughout the world. Among them are the United Kingdom,
Thailand, Hong Kong, and a few more countries. The association has demonstrated enormous
promise since its inception. It has a lot of potential, and the interest in pharmaceuticals is
growing all the time. It began with a market value of $1 million on the Dhaka Stock
Exchange in 1993 and has since risen to a market capitalization of $1 billion. Bangladesh is a
multibillion-dollar sector that has grown at a 15.6 percent CAGR over the previous five
years. Square Pharmaceutical leads the market with a 17.73 percent market share, followed
by Incepta, Beximco, Opsonin, and Renata, the fourth largest pharmaceutical company with a
5.03 percent market share. The pharmaceutical sector offers several opportunities, and
interest in pharmaceutical products is continually increasing as global need grows.

Competitive Analysis
If we cite some of the names of the pharmaceutical industry's market leaders, we can
confidently claim that "Renata" would be in the top three. The pharmaceutical business in
Bangladesh was not well established, but with time, the market shown its potential. It is also
said that the pharmaceutical market in Bangladesh is predicted to exceed $6 billion by 2025,

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representing a 114 percent increase over current levels. (Chakma, 2020, p. 1) We can easily
see how this industry is developing and how competition is increasing day by day based on
the predicted increase. There are several rivals in the market, including Square
Pharmaceutical Limited and Beximco.

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Pharmaceutical Limited, Marico, Acme, and a slew of others. The competition is fierce right
now, as everyone is attempting to capitalize on the corona epidemic and supply a vaccine in
order to capture and establish a permanent presence in the market. Despite this, Reneta is still
doing well and doing everything they can to withstand this competition. Renata's current
price is 1463.60 BDT for the time period 0809-2021. . By looking at other competitors, we
can clearly say that the company is doing well, even though it has dropped a little from its
current price, but because they wanted to bring Corona vaccines if they succeed, which has a
high probability in the future, and make a stand in the market with the other competitors, I
believe that they will do well in the future and the share price will rise with it. Prior to the
corona pandemic, the price was 989.90 BDT, however it has since lowered to 932.91 BDT in
July 2020. However, it has subsequently been raised to 1463.60 BDT in September 2021. We
can definitely observe the price increase. Even with the present rising market, Reneta will
thrive and stay one of the top pharmaceutical firms in Bangladesh.

Historical Performance

Renata
Year EPS Dividend Dividend Payout EPS Growth P/E Ratio

2016 46.61 137 2.939283416 15.89

2017 43.98 145 3.296953161 -0.05642566 16.44
2018 44.35 110 2.480270575 0.008412915 21
2019 46.63 110 2.358996354 0.051409245 21.18
2020 45.29 140 2.358996354 -0.02873686 20.59

2021 47.15 25.07 0.041068669 31.29

Average 6.417416643 0.003145661 21.065

We may infer that the business will expand in the future as a result of the above table yielding
a reasonable return. The P/E ratio suggests that there will be some positive return in the
future. The dividend was bad in 2018 and 2019, but Renata provided a fantastic dividend per
share of 140 in 2020.

Risk Factors
Liquidity risk: The danger of liquidity is intrinsically connected to the risk of financial
liabilities. The company's capital and financial assets are highly vulnerable to liquidity risk.
Reneta had a debt of around 10111.93 million dollars in 2020, which was much more than the

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debt in prior years; however, in 2021, Reneta improved and decreased its debt by 615 million
dollars.
Market risk: A company's share price may be affected by market conditions. The state of the
markets is determined by elements such as interest rates, currency rates, and so on. This
might have a significant impact on a company's profitability. These changes may also lead the
market to collapse, which will eventually influence Renata's share price and have a negative
effect on the share price. As a consequence, the share price and the market may both
decrease.

Political risk: Every sector in our country is in some way linked to the political sectors. The
good news is that our country's government strongly promotes this industry since they believe
it has significant potential and will be required more than most other industries during the
Corona epidemic. However, there are some regulations that have been imposed on the sectors
that Renata must observe or suffer the repercussions. Renata, on the other hand, always does
their best to obey all of the guidelines and is constantly up to speed on any modifications in
the legislation. They have tight ties with the government. As for the epidemic, the
government is also assisting them. As a result, the danger associated with this is relatively
minimal.

Volatility risk: Bangladesh's market is quite volatile. The prices of shares in this market
cannot be forecast since price volatility is a typical occurrence due to the market's instability.
As a result, Reneta, like other industries and businesses, is subject to this type of risk, which
has an influence on their share prices.

Risks in the Forecasts

The basic concepts in risk and risk forecasting models are reviewed, notably volatility, value
at risk, and projected shortfall. The focus is on the stake in critical resources such as equities
and foreign currencies, as well as risk estimates in bonds and alternatives.
CFOs are continually dealing with a plethora of risks and uncertainties. The list goes on and
on, from traditional organizational, environmental, credit, and commercial hazards to
strategic risks. Regardless of these risks and how they might derail an organization's
progress, few CFOs and their teams include risk management into their financial forecasts,
budgets, and strategies.

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Valuation
We simply used a multi-arranged dividend discount model to estimate equity. In this
valuation model, the first phase of dividend consists of a constant rate until the second stage,
after which the dividend rate changes and remains throughout the organization's life.

Recapitulation of inputs
CAPM will be used to calculate the multi-staged dividend growth model. In our calculations,
we utilized a market return of 4.20 percent. BETA 0.33 is obtained from investing.com, while
the treasury bill rate of 2.96 percent is obtained from Bangladesh Bank. Renata pharma bank
is a pharmaceutical-focused business. The CAPM formula is depicted below..

Renata
Year Issued Share Price Return

2106 97448166 740.65

2017 97448166 723.09 -0.02371
2018 97448166 931.73 0.288539
2019 97448166 990.41 0.06298
2020 97448166 932.91 -0.05806
2021 97448166 1,319.70 0.414606

RENATA
Market 4.20%
Return
Risk free 2.96%
rate
Beta 0.33
CAPM 0.0337

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5 Year multistage
RENATA
5 Year Multistage
Period Year EPS Dividend Present Value
1 2022 46.55933 116.8 111.50358
2 2023 47.65556 115.6405405 115.6405405
3 2024 48.09006 121.323193 121.323193
4 2025 48.27645 118.7349692 118.7349692
5 2026 49.0551 110.4981994 110.4981994

The calculated value of our company is 577.70, while the current market value is 1458.4. This
is less than what we estimated. As a result, Renata's stock is overpriced by 0.396119365, or
39.61 percent.
Intrinsic value 577.700482
Market Price 1458.4
overvalued by 0.396119365

Assumption
The company's profits per share are expected to rise. The company's dividend will rise
gradually in the next years. Renata Pharma's intrinsic value is less than its current market
value, suggesting that the company's stock is overpriced.

Conclusion
We are considering the dividend discount model for our equity valuation. BRAC Bank and
Renata Pharma LTD are the two firms we have chosen. These two firms are well-known in
the Bangladeshi stock exchange sector. BRAC Bank is a well-known financial business with
a higher share price than other banks. Because of the pandemic last year, BRAC bank's EPS
and P/E ratio fell. However, Renata Pharma LTD's EPS and P/E ratio were greater last year
than the year before. The previous year, Renata Pharma LTD paid a good dividend. We used
the dividend discount model to determine the value of two firms. The dividend discount
model is one of several valuation approaches that use net present value to determine the
worth of a company. Finally, we discovered that the two stocks' valuations are overstated and
that providing options that may be appropriate.

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References
BRAC Bank Ltd. Investing.com. Retrieved from https://www.investing.com/equities/brac-

bank-ltd

Renata Ltd. Investing.com Retrieved from https://www.investing.com/equities/renata-ltd

Ahmed, A. (January 10, 2021). Banking Sector of Bangladesh: End of a Crucial Year and

Challenges in the Coming Years. Centre for Governance Studies. Retrieved from

https://www.cgs-bd.com/article/1902/Banking-sector-of-Bangladesh--End-of-a-

crucialyear-and-challenges-in-the-coming-years

BRAC Bank Limited. Lankabd. Retrieved from https://lankabd.com/Company/Search?

searchText=BRACBANK&cn=BRAC_Bank_Li mited_(BRACBANK)

Renata Limited. Lankabd. Retrieved from https://lankabd.com/Company/Search?

searchText=RENATA&cn=Renata_Limited_(R

ENATA)

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