BITS Pilani

presentation
BITS Pilani Dr. Nivedita Sinha
Department of Economics & Finance
Hyderabad Campus
 BITS Pilani
Hyderabad Campus

ECON F355
Business Analysis & Valuation
Lecture 1
Date: 14/08/2023
Instructor in charge
Dr. Nivedita Sinha
Assistant Professor
Department of Economics & Finance
BITS Pilani Hyderabad campus
Education
PhD. Finance, IIM Bangalore
Foundation Program in General Management, MDI Gurgaon
PG Diploma in AI and ML IIIT Bangalore
BE Electrical, NIT Surat
Contact Details
Email: [email protected]
Office:
8/17/2023 K-205 , BITS Pilani Hyderabad campus 3
BITS Pilani, Hyderabad Campus
Reference Textbook

1) Palepu, Healy & Bernard, Business Analysis &

Valuation - Using Financial Statements, Text & Cases,
Cengage Learning Publisher, 3rd Edition.
2) Damodaran A, Damodaran on Valuation, Wiley India
Pvt. Ltd. 2nd Edition.

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Components of Grading

Component Duration Weightage Date & Time Nature of

Component
Quiz (2) 20% CB
Midsem 30% 09/10 - 11.30 - CB
1.00PM
Assignment 10% OB
Comprehensive 40% 06/12 AN CB (10%) +
Examination (30%) OB

There will not be any makeup for Quizzes.

3 Quizzes, best 2 out of 3 will be considered

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Valuation
Valuation is the analytical process of determining the current
worth of an asset or a company.

$100 $150
Project
million million
Input Output

Value created = Output – Input (i.e. $50 million)

Where Output : Present value of future expected cash flows

Firm expects the project to be worth $50 million more than it costs; NPV
of the project is $50 million
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Valuation – Broad types
 Project valuation

 Enterprise valuation

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Project valuation

https://economictimes.indiatimes.com/industry/telecom/telecom-news/airtel-plans-
rs-27000-28000-crore-capex-for-network-no-premium-pricing-for-
5g/articleshow/96573993.cms
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Enterprise Valuation- Example

https://www.freepressjournal.in/business/from-facebook-to-google-full-list-of-
investors-who-helped-reliance-jio-raise-rs-15205545-crore

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Enterprise Valuation- Example

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Issues to consider when
Valuing an Investment
 Does the story make sense?
 Module 2: Strategy and Competitive analysis in addition to number crunching
(Module 3,4,5,6)

 What are the risks involved in undertaking the

investment?
 Module 7 : Cost of capital and Risk analysis is Valuation

 How can the investment be financed?

 Module 8: Business analysis – Approaches and methods (Debt or equity
depends on minimizing WACC), Deal structuring for startups, LBO transaction
method of valuation used

 How does the investment affect near term earnings?

 Module 3/4/5 : Impact on the earnings

 Does the investment have inherent flexibilities?

 Module 8/9: Real options valuation

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Does the story make sense?

https://www.indiatoday.in/technology/features/story/facebook-invests-5-7-billion-
in-jio-takes-10-percent-share-5-key-points-to-know-1669633-2020-04-
22#:~:text=%2D%2D%20Facebook%20has%20made%20an,on%20a%20fully%
20diluted%20basis.

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Does the story make sense?

Acquisition of Twitter by Musk

Musk stated that he planned to introduce new features to the

platform, make its algorithms open-source,
combat spambot accounts, and promote free speech.

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What are the risks involved in
undertaking the investment?
While evaluating investment opportunities
Assessment of what might go wrong is more important than
what we hope will go right

Jio makes up for less than a tenth of RIL’s consolidated revenues for
segments like retail, petrochemicals, and oil and gas exploration to
name ..

Read more at:

https://www.businessinsider.in/tech/news/heres-why-facebooks-mark-
zuckerberg-is-paying-top-dollar-for-a-stake-in-mukesh-ambanis-
reliance-
jio/articleshow/75286331.cms?utm_source=contentofinterest&utm_m
edium=text&utm_campaign=cppst
https://iclrap.in/jio-facebook-deal-analysing-the-prospective-threats-
vis-a-vis-the-e-commerce-report/
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What are the risks involved in
undertaking the investment?

 What are the underlying risks associated with the investment?

 How should these risks be incorporated into project analysis?

 Do the investment risk affect the rate of return that should be used in evaluating
whether to undertake investment?

 Are there governmental programs (domestic or foreign) that can ensure the
investment in the event of political instability?

 How does the ability of the firm to transfer investment risk affect financing and
project’s valuation?

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How can investment be
financed?

 Ability to secure attractive financing is also a key determinant of the value of

investment

https://www.businesstoday.in/current/corporate/jio-receives-rs-43574-crore-
from-facebook-for-9-99-percent-stake/story/409210.html

Musk pledged to provide $46.5 billion in equity and debt financing for the
acquisition, which covered the $44 billion price tag and the closing costs.
Banks, including Morgan Stanley (MS.N) and Bank of America Corp (BAC.N),
committed to provide $13 billion in debt financing.

https://www.reuters.com/markets/us/how-
will-elon-musk-pay-twitter-2022-10-07/
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How does the investment
affect near term earnings?

 Whether the project is likely do dilute (reduce) or accrete (increase) the firm’s
earnings per share?

Tesla shares fell 12 percent on the day

after the acquisition was announced, amid
smaller declines in the broader markets.
Musk incurred a $21 billion paper loss that
day.

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 Does the investment have
inherent flexibilities?
 Does the investment have inherent flexibilities that allow the firm to modify it in
response to changing circumstances

Can investment be staged?

Does investment offer the opportunity for follow-on

investments?

Is there an option to abandon?

Is there a timing option (like postponing the date of

implementation)?

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Study/Session plan

Basics to Valuation :
 Time value of money
 Case study
 Financial statement analysis
 Common sizing
 Ratio analysis
 Horizontal analysis
 Prospective analysis
 Relevant Cash flow analysis
 Case study
 Hurdle rate calculation
Advanced topics in Valuation
 Calculation of valuation with and without synergy using DCF
and Relative valuation
 Case study on M&A
 Assignment 2

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Study/Session plan continued
Advanced topics in Valuation
 APV Valuation
 Case study: LBO of Jay Products, Inc.
 Risk Analysis
 Sensitivity analysis, Scenario analysis, Simulation
 Real Option valuation
 Option to abandon, expand, delay, etc.
 Use of Option pricing model for Valuation
 Case study: J&B Drilling company
 Valuation in a Venture Capital setting
 Deal structuring
 Mini case : Chariot.com
 EPS versus NPV
 The conflict : Short term versus Long term
 Calculation of Economic Profit (or EVA), Economic depreciation and
Revised Economic Profit
 Mini Case: Dowser Chemicals
 Strategy Analysis
 Porter’s five forces, BCG Matrix
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 Any Questions?

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