1. IDCOL Ferro Chrome and Alloys Ltd.
Valuation using DCF

2. Performance
Performance
Valuation
Valuation
(PAT)
(Effect of Price)
(Projection)
(Workings)
(Scenario
Building)
Valuation
(Results)
•IFCAL was a loss making unit of
IDCOL in the 1990’s
PAT in Rs. Lakhs
As a unit of IDCOL
Valuation
As a Company
1996-97
(370.00)
2002-03
(955.76)
1997-98
(466.66)
2003-04
44.88
1998-99
(648.92)
2004-05
93.73
1999-00
(227.44)
2005-06
(711.78)
2000-01
(805.44)
2006-07
1042.38
2001-02
358.87
2007-08
2894.13
2008-09
1447.26
2009-10
292.40
•Since 2003, IFCAL has reported
profits in 6 out of 8 years
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3. Performance
Performance
Valuation
Valuation
(PAT)
(Effect of Price)
(Projection)
(Workings)
Valuation
(Scenario
Building)
Valuation
(Results)
•The major cause of profits has been the increase in price of HCFC during recent
years
Rate (Rs/1000MT)
80.00
70.00
60.00
50.00
y = 13.77ln(x) + 10.13
40.00
Rate (Rs/1000MT)
30.00
Log. (Rate (Rs/1000MT))
20.00
10.00
-
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4. Performance
Performance
Valuation
Valuation
(PAT)
(Effect of Price)
(Projection)
(Workings)
Valuation
(Scenario
Building)
Valuation
(Results)
•Projection has been done from 2011 to 2015
•A logarithmic equation is fitted to predict future price of HCFC
•Production is assumed to grow linearly so as to touch 19000MT in 2015E
•Items in income statement are projected using average ‘percentage of
sales’ from past data
•In BS, NWC has been projected using average percentage of sales data.
•No Capex investments have been assumed
•Loans & Advances have been assumed to go down by 10% each year
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5. Performance
Performance
Valuation
Valuation
(PAT)
(Effect of Price)
(Projection)
(Workings)
Valuation
(Scenario
Building)
Valuation
(Results)
ASSUMPTIONS:
•Funds from L&A are diverted to Investments
•10 Yr Govt. of India bond yield is taken as risk free return (source:
Bloomberg)
•Market risk premium is taken as 10.76% based on secondary data
•Gross block doesn't increase
•Tax rate has been taken as 32.5%
•There is no change in inventory
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6. Performance
Performance
Valuation
Valuation
(PAT)
(Effect of Price)
(Projection)
(Workings)
Valuation
(Scenario
Building)
Valuation
(Results)
•Cost of Equity
•Calculated using CAPM method.
•Data of a company- FACOR were used to get beta value
•Cost of debt was taken as 12.5%
•Terminal growth rate was taken as CAGR of sales
•Average of DER of past data used for calculation of WaCC.
•FCFF was discounted for valuation of the firm
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7. Performance
Performance
Valuation
Valuation
(PAT)
(Effect of Price)
(Projection)
(Workings)
Valuation
(Scenario
Building)
Valuation
(Results)
•Three scenarios were considered as follows:
Scenario
Beta
TerminalGrowthRate
Best case
1.4
14%
Most Likely
1.6
10%
Worst Case
1.8
6%
•Variation in Terminal growth rate has been allowed for:
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8. Performance
Performance
Valuation
Valuation
(PAT)
(Effect of Price)
(Projection)
(Workings)
Valuation
(Scenario
Building)
Valuation
(Results)
RESULTS:
Factors affecting valuation:
•Increase in working capital is reducing FCFF.
•Low value of debt-equity ratio is increasing WaCC.
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