Corporate Valuation

Session 1

Shobhit Aggarwal
1 July 2021
IIM Udaipur
 Contact Information
• Instructor : Prof. Shobhit Aggarwal
• Mail id: shobhit.aggarwal@iimu.ac.in
• Contact No: Mob. No. 07665031015
• Teaching Assistant: Ms. Purvee Gaur
• Mail id: purvee.gaur@iimu.ac.in
 Aim of the Course
• To enable students to learn concepts used in
– Forecasting financial statements for various
companies
– Valuing any type of companies
• Stable mature companies
• Young Growth companies
• Money-losing companies
• Multi-national companies
• Companies with multiple segments
• Focus on the process
 Valuations during the course
• We will do the following full valuations during
the course:-
– Bharti Airtel
– Colgate Palmolive (International)
– Avenue Super-mart (as of IPO date)
– Jubilant FoodWorks Limited (as of 2020)
– Flour Mills of Nigeria
 Course Evaluation
• Announced quizzes - 30%
• Project - 40%
• End-term - 30%
 Quiz Rules
• If you have taken all quizzes, then you get best
3 out of 4
• If you miss a quiz, you get a zero unless it is
approved by the Programme Office
 Project Details

• Company Selection
– High growth firm
– Money-losing firm
– Service firms
– Multi-sector
– Multi-national
– Not more than 6 companies from any country
• This includes India
– No companies from the list I send later in the week
 Project includes

• Sector understanding report

• FCFF/FCFE Valuation
• Maybe APV Valuation (depending on the
company)
• Relative Valuation
• A final recommendation
• Project Report
 Project Details

• Do not wait for the perfect company

• You will be allowed to change your company
• But
– It has to meet the constraints
– You will need to do all the steps for the new
company as well
 Background Prep
• Workload
– 100 hours
• Role of subject representative
• Video on during classes
• Use raise hand button when you wish to
participate/ask doubts
• Doubts
– When do you ask?
 Background Prep
• Accounting
– How to read financial statements and differentiate
between terms
• Quantitative Skills
– Basic algebra
– Basic statistics e.g. regression, correlations etc.
• Corporate Finance
– Expected return models
– Present Value Calculations
Financial Modelling
 Revenue Forecasting
• This is the most important part in any
forecasting exercise since most other numbers
would be linked to revenue
– Simple percentage growth
– Market share * Market Size
– Price*Volume
– Industry specific forecasts
– Detailed revenue forecast
• Will mostly have combinations of the above
 Financial Forecasting
• Estimate most P&L line items as a percentage
of revenue (except Depreciation and Interest
Cost) and look at the trend for past 4-5 years
• Do not estimate line items which are not the
core operating business for the firm (unless
they are significant)
 Financial Forecasting
• Keep a clear color-coding
– One color for historical numbers
– One color for assumptions
– One color for calculated line items
– One color for growth/supporting stats of
calculated line items
• Keep the column for year constant across
sheets in the model
 Financial Forecasting
• Ensure that the three financial statements are
linked in a way that balance sheet is always
matched irrespective of how assumptions are
changed
• Always estimate key ratios after you are done
with your financial forecasting. This allows you
to have a quick glance at how reasonable the
assumptions are
Project Part 1 (Word Doc– 8 marks)
• Explain what the company does
• Explain the revenue model
– What are the key revenue drivers?
• Talk about critical costs
– What are the cost drivers?
• Talk about how critical competition is
• Talk about what assets are built with capital expenditure
• What are the industry specific metrics?
• Any other aspect you will study and analyze in order to value
your company
• Give a proper referenced list of the five (or more) equity
research reports you studied
 Financial Forecasting
• Avenue Super-mart
• Colgate Palmolive