A

CEC REPORT
ON
VALUATION OF HERO MOTO CORP
Subject: Strategic Financial Management
Submitted By:
AKSHAY JIREMALI .A.
(16737592002)
To
Narmada College of Management

VALUATION OF BUSINESS
What is business valuation?
Quite simply, business valuation is a process and a set of procedures used to
determine what a business is worth. While this sounds easy enough, getting your
business valuation done right takes preparation and thought.

Business valuation is a process and a set of procedures used to estimate

the economic value of an owners interest in a business. Valuation is used by
financial market participants to determine the price they are willing to pay or
receive to affect a sale of a business. In addition to estimating the selling price of a
business, the same valuation tools are often used by business appraisers to resolve
disputes related to estate and gift taxation, divorce litigation, allocate business
purchase price among business assets, establish a formula for estimating the value
of partners' ownership interest for buy-sell agreements, and many other business
and legal purposes such as in shareholders deadlock, divorce litigation and estate
contest.

Five steps to establish your business worth

Business valuation is a process that follows a number of key steps starting with the
definition of the task at hand and leading to the business value conclusion. The five
steps are:

1. Planning and preparation

2. Adjusting the financial statements

3. Choosing the business valuation methods

4. Applying the selected valuation methods

5. Reaching the business value conclusion

METHOD OF BUSINESS VALUATION

I. VALUE OF SHARE AND COMPANY

II. ASSET BASED VALUATION

Intrinsic value

III. VALUATION RELATING TO INDUSTRY AVERAGE

1. Dividend Yield method

2. Earnings Yield method

3. Return on Capital Employed method

4. Price / Earning method

IV. DISCOUNTET CASHFLOW (DCF) VALUATION MODEL

1. Discounted Dividend model

2. Discounted Cash flow model

3. Discounted Internal ROR model

4. Discounted Economic Value Added model

V. THEORITICAL VALUATION MODELS

1. Dividend Growth valuation model

2. Walters Share valuation model

3. Modigliani and Millers Dividend Irrelevancy model

4. Capital Asset Pricing model

 I. VALUE OF SHARE AND COMPANY:

Current Market Price : 3503 rs

Market Capitalization = Share price x No. of shares ( theoretical price at which you can
buy the whole company )
Enterprise Value = Market Capitalization + Short term debt + Leases + Long term Debt +
Preferred Stock - Cash in hand

II. ASSET BASED VALUATION

Intrinsic Value per Share= Net Assets available to equity holders

No. of Equity Shares

Asset Based Valuation 2017 2016 2015 2014

Fixed Assets 5179.81 4689.46 3671.48 3102.03
Current Assets 7570.51 6086.91 5379.72 5558.28
Less: Current liabilities 4176.69 4172.1 3986.23 4423.62
Net Assets Available To Eq. holders 12750.32 10758.37 5064.97 4236.69
No of Eq. Share 39.94 39.94 39.94 39.94
Intrinsic Value Per Share 319.24 269.36 126.81 106.07

intrinsic value per share

400
300
Axis Title

200
100
0
14-Mar 15-Mar 16-Mar 17-Mar
14-Mar 15-Mar 16-Mar 17-Mar
intrinsic value per share 106.07 126.81 269.36 319.24
III. Valuation relative Industry Average

a. Dividend Yield= DPS/Market price

Dividend Yield Method

Value per Share = Companys Rate of Dividend x No of Equity Shares
Similar Companys Rate of Dividend

Year Dividend (%) Weight Weighted dividend

2014 61.78 1 61.78
2015 50.66 2 101.32
2016 46.47 3 139.41
2017 48.47 4 193.88
total 10 496.39

Weighted dividend

200

150
Axis Title

100

50

0
Jan-14 Jan-15 Jan-16 Jan-17

Mar-14 Mar-15 Mar-16 Mar-17

Weighted dividend 61.78 101.32 139.41 193.88

average rate of dividend = 496.39/10

=49.639

Value per share= Comapnys Rate of Dividend * Nominal value of share

Industrys Rate of devidend
Year Dividend Value per share
2017 48.47/49.639 97.64
2016 46.47/49.639 93.62
2015 50.66/49.639 102.05
2014 61.78/49.639 124.46

a. Earning Yield Method

Earning yield = EPS / CMP

Earning Yield Method

Value per Share = Companys Expected Rate of Earning Yield x Paid up Value
Similar Companys Normal Rate of Return

year Profit
2017 3229.29
2016 3050.21
2015 2348.51
2014 2105.93
Weighted profit 10733.94/5
2146.788

profit

4000

3000
Axis Title

2000

1000

0
14-Mar 15-Mar 16-Mar 17-Mar

14-Mar 15-Mar 16-Mar 17-Mar

profit 2106 2349 3050 3229

Value of business= Companys average earning/ earning yield of industry

 = 2200.8020/

1. ROCE Method:

year ROCE weight Weighted

ROCE
2014 36.9 1 36.9
2015 35.46 2 70.92
2016 36.39 3 109.17
2017 32.18 4 128.72

Total 10 345.71

Companys average ROCE= 136.43/15

=9.0953

Value per share = Companys average ROCE

Industrys normal rate of ROCE

roce

150
Axis Title

100

50

0
Jan-14 Jan-15 Jan-16 Jan-17

Mar-14 Mar-15 Mar-16 Mar-17

roce 36.9 70.92 109.17 128.72