Question

Forecast the financial statement for 2020 and value the equity of the company using single stage FCF (firm) model.
For the purpose of valuation assume the WACC of the company to be 18% and perpetual growth rate as 5%
Also show a data table with equity value for different WACC and growth rates.

Other assumptions/instructions are given below the data

Income statement
(Rs. In crores) 2019 2020 2021E
Sales 2,500.0 2,800.0
Cost of sales (1,250.0) (1,360.0)
Gross Profit 1,250.0 1,440.0
Other opex (240.0) (252.0)
EBITDA 1,010.0 1,188.0
Depreciation (60.0) (70.0)
EBIT 950.0 1,118.0
Interest (30.0) (32.0)
PBT 920.0 1,086.0
Tax (300.0) (330.0)
Net Profit 620.0 756.0

Balance sheet
(Rs. In crores) 2019 2020 2021E
Fixed assets 800.0 870.0
Inventory 120.0 130.0
Debtors 240.0 250.0
Cash 80.0 87.0
Total assets 1,240.0 1,337.0


Payables 200.0 220.0
Borrowings 500.0 550.0
Equity and reserves 540.0 567.0
Total liability and equity 1,240.0 1,337.0


Other instructions
Assume the following for financial forecast
Income statetement assumptions
- Sales growth rate for 2020 wiill be same as 2019
- Gross margin for 2020 is expected to increase by 25 bps
- Other opex is likely to grow at 5%
- Depreciation for 2020 would be Rs.80 crores
- Average rate of interest is likely to be 10% for next year
- Effective tax rate could marginally come down

Balance sheet assumptions
- Inventory, debtors and payables as % of sales in 2020 is likely to be same as it was in 2019
- Capex is likely to be 5% of sales
- Depreciation is likely to be 10% of asset under WDV method
- Company is likely to fund 60% of capex using debt
- The company needs to be repay 80 million of debt in 2020
- Company is likely to be 90% of its profit as dividend

Prepare a cash flow statement to forecast FCF and value the equity of company using
WACC and growth rates mentioned above.

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