Hid security analysisproject_201209_final

SECURITY ANALYSIS & VALUATION 1 EMP APRIL 2008

AN EFFORT BY TEAM OF :

ACHAL GARG - 02ANAND K SINGH- 09

MUKUND TRIVEDY -26NAZISH-28

OM PRAKASH-29ROHIT JHA-40

SUNNYBHAT-54

CASE STUDY OF VALUAUATIONS USING MARKET COMPARABLESCASE STUDY OF VALUAUATIONS USING MARKET COMPARABLES


ENTERPRISE VALUATION EXERCISEENTERPRISE VALUATION EXERCISE

Problem Statement :

The Government of India has decided for various reasons to do strategic sale of Corporation Bank. It has invited interested Private Sector Banks to submit proposal for the same. Also assume that one of the largest European Bank BNP Paribas is interested to participate in the process and evaluate the true enterprise value of the Corporation Bank to do the acquisition. BNP Paribas invites a set of Investment bankers to do the due diligence and find out the true worth of the Corporation Bank and whether it should go for the deal. The team of analyst (this group) intends to prepare a preliminary analysis of acquisition price multiples that are warranted based on current market conditions.

The Data belongs to the March 2009 period Annual report as declared by these banks.


SCOPE OF ANALYSISSCOPE OF ANALYSIS

• Identifying comparable firms for doing correct estimation

• Would estimate the true enterprise value or equity value of Corporation Bank using market comparable

• Estimation of valuation ratios for the Banking Firms Under Consideration

• Sensitivity analysis using Goal Seek function

• Conclusions and Recommendations


INTRODUCTIONINTRODUCTION

• Industry under consideration: Banking and Investment Industry

• Bank chosen for valuation is Corporation Bank

• Based on the following factors we Identified three Banks that are considered the primary competitors to Corporation Bank.

– Government Banks

– Market Capitalization

– Capital Structure

• Comparable companies are Oriental Bank of Commerce, Allahbad Bank and Syndicate Bank (shown in the next slide)


CORPORATION BANKCORPORATION BANK

• The Bank was founded in 1906 in Udupi, Karnataka state, India

• The Bank is a Public Sector Unit with 57.17% of Share Capital held by the Government of India

• The Bank came out with its Initial Public Offer (IPO) in October 1997

• The bank has the distinction of the first Indian bank to publish its financial results (1998-99) conforming to US GAAP.

• The Number of Equity share holders are 14.34 Crores

• The Bank’s market capitalization stood at Rs. 2579 Crores as on 31 March 2009


ANALYSIS - COMPARABLE PSU BANKSANALYSIS - COMPARABLE PSU BANKS


VALUATION BY EBITDA MULTIPLE METHODVALUATION BY EBITDA MULTIPLE METHOD

P articulars S Y NB AN O R IB AN AL L B AN

Non Interest Bearing Debt 1 0.00 0.00 0.00Interest bearing Debt (long and short term) 2

118075.62 99090.81 85908.83

MV= Price per share * Shares Outstanding 3

2505.60 2753.00 1735.43

Firm Value 4 = 1+2+3 120581.22 101843.81 87644.26Less: Non Interest bearing debt 5

0.00 0.00 0.00

Less: Cash and Equivalents 6

14404.41 12225.13 6636.76

Enterprise value (Calculate)

106176.81 89618.68 81007.50

EBITDA 1392.37 1441.58 1343.03EBITDA Multiple 76.26 62.17 60.32All Fig in INR Crores

66.25

1491.4898805.6468095.67

For Corporation Bank

E B ITDA MUL TIP L E ME THOD

Average EBITDA Multiple

EBITDA for Y 2009 in Rs CroresEnterprise Value In Rs CroresEnterprise Value In Rs Crores from Balance Sheet


VALUATION BY PE MULTIPLE METHODVALUATION BY PE MULTIPLE METHOD

P articulars S Y NB AN O R IB AN AL L B ANMarket Price in Rs 48.00 109.90 38.85EPS in Rs 17.49 36.14 17.21P/E ratio 2.74 3.04 2.26Av. PE Multiple 2.68

2.6862.24

2392.7967909.4168095.67Enterprise Value In Rs Crores from Balance Sheet

Value of Equity

For Corporation BankAverage PE MultipleEPS in Y 2009

Enterprise Value

P E MUL TIP L E ME THOD


VALUATION BY DISCOUNTED DIVIDEND METHODVALUATION BY DISCOUNTED DIVIDEND METHOD

Year Expected Growth rateEPS DPO DPS Ke Cum Ke PV of DPS1 13% 70.33 20.08% 14.13 17.52% 1.18 12.022 13% 79.47 20.08% 15.96 17.52% 1.38 11.563 13% 89.81 20.08% 18.04 17.52% 1.62 11.114 13% 101.48 20.08% 20.38 17.52% 1.91 10.685 13% 114.67 20.08% 23.03 17.52% 2.24 10.276 13% 129.58 20.08% 26.02 17.52% 2.63 9.887 13% 146.43 20.08% 29.41 17.52% 3.10 9.50

PV of Dividend in Yr 1 to 7 75.02

519.53167.78

Current Fair value of Corporation Bank Stock Price 242.803481.70

68998.32

Terminal value at end of 7 yearsPV of Terminal Value

Equity Value in CroresEnterprise value in Rs Crores

16.38%12.5062.24

20.08%0.799

13%

DDM for Equity ValuationROEDPSEPSPayout ratioRetention ratioExpected Growth Rate

8%1.16

16.21%8.21%

17.52%13%

Assumptions for yr 1-7Risk Free rate ( Yield of GOI 10 yr Bond)Beta for Corporation Bank8 years return on NiftyMarket Risk premiumKeEstimated Expected growth rate for Yr 1 to 7

12%6%6%

K eR f

Assumptions for Y r 8 till infinity

G rowth rate


SENSITIVITY ANALYSISSENSITIVITY ANALYSIS

EBITDA Multiple

0

20000

40000

60000

80000

100000

120000

140000

13% 10% 7% 4% 1% -2% -5% -8%

Growth rates

EV

/EB

ITD

A in

Rs

Cr

0

200

400

600

800

1000

1200

1400

1600

1800

EV EBITDA

P/E Multiple Method

0

500

1000

1500

2000

2500

3000

13% 11% 9% 7% 5% 3% 1% -1% -3% -5% -7% -9%Growth rate

EP

S/E

qu

ity

Val

ue

0

10

20

30

40

50

60

70

80

Equity Value EPS


SENSITIVITY ANALYSISSENSITIVITY ANALYSIS

Sensitivity with changes in Growth rates and DPO

Sensitivity with changes in Growth rates and Cost of Equity

Using DDM Multiple

DPO @20.08% DPO @25% DPO @15% DPO @10%

Growth Rates Scenario #1 Scenario #2 Scenario #3 Scenario #4

13% 68998.32 69850.63 68117.03 67250.23

10% 68480.98 69206.66 67730.64 66992.63

5% 67775.57 68328.56 67203.79 66641.40

0% 67231.86 67651.75 66797.70 66370.67

-5% 66816.33 67134.50 66487.35 66163.77

-10% 66501.36 66742.33 66252.10 66006.94

Using DDM Multiple

Ke @17.52% Ke @15% Ke @12% Ke @10%

Growth Rates Scenario #1 Scenario #2 Scenario #3 Scenario #4

13% 68998.32 69487.13 70186.22 70738.14

10% 68480.98 68890.48 69475.67 69937.34

5% 67775.57 68077.83 68509.09 68848.85

0% 67231.86 67452.53 67766.75 68013.89

-5% 66816.33 66975.64 67201.94 67379.54

-10% 66501.36 66615.11 66776.19 66902.27


CONCLUSIONCONCLUSION

• EV per share of Corporation Bank is very near to the current market value


THANK YOUTHANK YOU


ANALYSIS - COMPARABLE PSU BANKSANALYSIS - COMPARABLE PSU BANKS

31/3/09 31/3/09 31/3/09 31/3/09 31/3/09 31/3/09BANK Mkt Price No of shares Mar Cap DE Ratio EPS OPM

in Rs In Crores in Rs 10^2 Cr in Rs in %Bank Of Baroda 234.55 36.43 85.45 14.99 61.14 18.20OBC 109.90 25.05 27.53 15.25 36.14 13.31Corporation Bank 179.85 14.34 25.79 15.11 62.24 18.07Canara Bank 165.90 41.00 68.02 18.57 38.17 8.79Allahabad Bank 38.85 44.67 17.35 14.52 17.21 15.37UCO Bank 24.00 54.94 13.19 36.11 10.15 7.52Union Bank of India 147.25 50.51 74.38 19.66 34.18 17.06Central Bank of India 33.95 40.41 13.72 37.92 12.45 8.48Bank of India 219.90 52.52 115.49 16.10 57.26 20.98Syndicate Bank 48.00 52.20 25.06 25.22 17.49 9.27Dena Bank 32.31 28.68 9.27 22.09 14.74 9.13Bank of Maharashtra 20.75 43.05 8.93 23.65 7.63 15.06

Economy & Finance

Hid security analysisproject_201209_final