Name Sukhvinder Kaur

Question 1

Write your answer for Part A here.

Explanation:

Revenue 2018E = Revenue of 2017*(1+Revenue Growth rate), (10000*(1+50%) = 15000),

apply the same formula for calculating the revenue for rest of the years

EBITDA = EBITDA Margin * Revenue, (2018E: 20%*15000= 3000), apply the same formula
for calculating the EBITDA for rest of the years

Capex = Capex as a % of revenue * Revenue, (2018E: 2%*15000 = 300), apply the same
formula for calculating the Capex for rest of the years

D&A = D&A as a % of capex * Capex, (2018E: 40%*300=120), apply the same formula for
calculating D&A for rest of the years

EBIT = EBITDA - D&A (2018E: 3000-120= 2880), apply the same formula for calculating the
EBIT for rest of the years

Net Income = EBIT*(1-tax), (2018E: 2880*(1-0.30) = 2016), apply the same formula for
calculating the net income for rest of the years

FCF = Net income or EBIT*(1-tax) + D&A – Capex, (2018E: 2016+120-300= 1836), apply
the same formula for calculating FCF for rest of the years

1 2 3 4 5
Year 2018E 2019E 2020E 2021E 2022E
FCF to company
(a+b-c) 1836.00 2754.00 4131.00 6196.50 9294.75
Write your answer for Part B here.

Explanation:

Terminal value = (Constant cash flow) / (Discount rate)

Constant cash flow 2022 = ₹9294.75cr (FCF value of 2022E as calculated in the above section)

Discount rate = 12%

Terminal Value 2023 onwards = ₹9294.75/12%= ₹77456.25cr

Write your answer for Part C here.

Explanation:

Enterprise Value = NPV (Discount Rate, FCFs of 2018E to 2022E including TV). We do not
have to include 2017 FCF because that is in the past.

Discount rate = 12%

FCF from 2018E to 2022E =

1 2 3 4 5
Year 2018E 2019E 2020E 2021E 2022E
FCF + Terminal value 1836.00 2754.00 4131.00 6196.50 86751.00

=NPV (12%, ₹1836.00, ₹2754.00, ₹4131.00, ₹6196.50, ₹86751.00)

=₹59937.96cr

We must add the Terminal Value to the FCF of the year preceding the first constant cash flow.
Here we have considered 2023 as the first year of the constant cash flows. Hence, we should
add TV to the FCF of 2022.
 Paste the excel sheet containing your calculations here.

PATANJALI
AYURVED In Crs
0 1 2 3 4 5
Year 2017 2018E 2019E 2020E 2021E 2022E
Revenue 10000.00 15000.00 22500.00 33750.00 50625.00 75937.50
EBITDA 2000.00 3000.00 4500.00 6750.00 10125.00 15187.50
D&A <b> 80.00 120.00 180.00 270.00 405.00 607.50
EBIT 1920.00 2880.00 4320.00 6480.00 9720.00 14580.00
EBIT*(1-tax) <a>
= (Net Income) 1344.00 2016.00 3024.00 4536.00 6804.00 10206.00
Capex <c> 200.00 300.00 450.00 675.00 1012.50 1518.75
FCF to company
(a+b-c) 1224.00 1836.00 2754.00 4131.00 6196.50 9294.75
Terminal value
(2023 onwards) 0.00 0.00 0.00 0.00 0.00 77456.25
FCF + Terminal
value 0.00 1836.00 2754.00 4131.00 6196.50 86751.00
Enterprise Value
<d> ₹59,937.96

Question 2

Write your answer for Part A here. Show your detailed calculations.

The multiples approach is a comparable analysis or relative valuation method that seeks to
evaluate similar companies like Dabur and Britannia in this case, using the same standardized
financial metrics and obtain multiple like P/E Ratio, etc. Using these multiples to the company
under valuation to determine its enterprise/equity value.

With a Price-to-Earning (P/E) multiple of Dabur as per Exhibit 1 for 2017 is 50.5x and
Patanjali's net income in 2017 being ₹1344.00cr, we can calculate Patanjali's equity value using
the P/E multiple method. We are assuming here that Dabur is a comparable firm to Patanjali
hence we assume Patanjali also have the same P/E Ratio.

Assuming Patanjali P/E ratio = 50.5 x

Net Income of Patanjali in 2017 = ₹1344.00cr (The income is calculated as per the above-
mentioned calculation in the excel sheet containing your calculations section of Question 1).
Since we are ignoring debt, i.e., there is no interest, Net income = EBIT * (1 - tax rate)

Equity Value = Net Income * P/E Multiple

Equity Value = ₹1344.00 * 50.5

Equity Value of Patanjali’s = ₹67,872.00cr

Therefore, based on this calculation, Patanjali's equity value in 2017 using the P/E multiple of
Dabur would be ₹67,872.00cr.

Write your answer for Part A here. Show your detailed calculations.

The multiples approach is a comparable analysis or relative valuation method that seeks to
evaluate similar companies like Dabur and Britannia in this case, using the same standardized
financial metrics and obtain multiple like P/E Ratio, etc. Using these multiples to the company
under valuation to determine its enterprise/equity value.

With a Price-to-Earning (P/E) multiple of Britannia as per Exhibit 1 for 2017 is 74.3x and
Patanjali's net income in 2017 being ₹1344.00cr, we can calculate Patanjali's equity value using
the P/E multiple method. Here we are assuming that Britannia is a comparable firm to Patanjali
hence we assume Patanjali also have the same P/E Ratio.

Assuming Patanjali P/E ratio = 74.3 x

Net Income of Patanjali in 2017 = ₹1344.00cr (The income is calculated as per the above-
mentioned calculation in the excel sheet containing your calculations section of Question 1)

Since we are ignoring debt, i.e., there is no interest, Net income = EBIT * (1 - tax rate)

Equity Value = Net Income * P/E Multiple

Equity Value = ₹1344.00 * 74.3

 Equity Value of Patanjali’s = ₹99,859.20cr

Therefore, based on this calculation, Patanjali's equity value in 2017 using the P/E multiple of
Britannia would be ₹99,859.20cr.

Question 3

Write your answer for Part A here.

When calculating the enterprise value using the Discounted Cash Flow (DCF) method, there
are many assumptions involved. Here are two assumptions that could potentially have a
negative impact on the enterprise value:

• Tax Rate: As per the assumptions, we have considered 30% of the tax rate while
calculating the enterprise value, however, as per the Exhibit 1 Multiples, the tax rate of
Dabur is 21%. If we have considered 21% as tax rate, then the enterprise value would
have been more than what we have calculated at 30% tax rate (EV at 30% tax rate is
₹59,937.96 and EV at 21% tax rate will be ₹68,399.79). So, this assumption would have
negative impact on enterprise value.
• Revenue Growth Rate: The accuracy and reliability of cash flow projections can
significantly impact the enterprise value. As per Exhibit 2, Patanjali Revenue and
EBITDA, Patanjali is growing at revenue rate of 100% in 2017, but we only consider
50% revenue growth in our calculations, which would have negatively impacted the
enterprise value, (consider the revenue growth rate of 100% the Patanjali enterprise
value will be ₹232,937.61 which is much higher than ₹59,937.96).

Write your answer for Part B here.

If Smith had somehow predicted the Covid-19 pandemic in 2017, it would have had a significant
impact on his valuation of Patanjali. Here is a justification for how the pandemic would have
influenced the valuation:
 • The Covid-19 pandemic led to widespread lockdowns, supply chain disruptions, reduced
consumer spending, and economic downturns globally. These factors would have
directly affected Patanjali's revenue and cash flows. Smith would have considered lower
revenue growth rate, let us say 20-25% for FY 2020-21 instead of assuming 50% year
on year growth (assuming Smith does not predict the acquisition of Ruchi Soya). As a
result, the projected future cash flows used in the valuation would have been
significantly lower than the pre-pandemic assumptions made by Smith in 2017.
• The pandemic brought about additional costs for businesses, including expenses related
to health and safety measures, supply chain disruptions, and increased logistics costs.
Patanjali might have incurred additional expenses to ensure the safety and well-being
of its employees, implement social distancing protocols, and adapt its production and
distribution processes. Smith would have lowered the EBITDA margins as the COGS
and other expenses would have increased due to this disruption, so instead of using 20%
EBITDA margin he could consider lower rate, may be 8-10%.

In summary, if Smith had predicted the Covid-19 pandemic in 2017, it would have influenced
his valuation of Patanjali by significantly reducing the projected future cash flows, increasing
the perceived risk, and failing to account for the market and industry changes brought about by
the pandemic. As a result, the enterprise value calculated in 2017 would have been lower than
the actual value considering the pandemic's impact.