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AFM Working

The document contains an income statement, balance sheet, and projections for a company. It shows a net loss in the current year due to high interest expenses. Projections indicate declining revenue but stable margins. The company has a going concern value of Rs. 13561.08 crores but also a 44.77% probability of distress within 5 years. Under distress, the equity value would be Rs. 0 but is currently underpriced at Rs. 8 per share.

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sairad1999
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18 views7 pages

AFM Working

The document contains an income statement, balance sheet, and projections for a company. It shows a net loss in the current year due to high interest expenses. Projections indicate declining revenue but stable margins. The company has a going concern value of Rs. 13561.08 crores but also a 44.77% probability of distress within 5 years. Under distress, the equity value would be Rs. 0 but is currently underpriced at Rs. 8 per share.

Uploaded by

sairad1999
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Income Statement for the year just ended (Rs.

In Crores)
Revenue 12000
EBIT (5%) 600
Int expense (10%) 700
PBT -100
Tax (@25%) 0
PAT -100

Particulars 1 2
Revenue g -5% -5%
OPM 3% 3%
Revenue 11,400 10,830
EBIT 342 325
NOPAT 257 244
Reinvestment rate -10% -5%

FCFF 282.15 255.86


Debt equity ratio 2 1.5
Levered beta 1.913 1.62605
Ke 0.15565 0.1413025
Rating B BB
Default risk premium 7% 6%
Pre tax Kd 13% 12%
Post tax Kd 9.75% 9.00%
Wd 0.67 0.60
We 0.33 0.40
Kc 11.69% 11.05%
PV of CF 252.62 206.28
Terminal Value
PV of terminal value
Going concern value 13561.08
Conditional PD 20% 15%
Conditional Probability of survival 80% 85%
Cumulative prob of survival 55.23%
Cumulative Prob of distress 44.77%

Scenario 1: Going concern


Going concern value 13561.08
Less: Market value of Debt 5000
Equity Value 8561.08

Scenario 2: Distress
Book value of invested capital 9500
Distress sale value (20%) 1900
Market value of debt 5000
Distress sale value of equity 0

Distress Adjusted value of equity 4728.54


Number of equity shares 300
Value per share 15.76
Market price of the share 8
Comment Underpriced
Advise Buy/Go long
Other Information
Market value of equity 2400
Market value of debt 5000
debt equity ratio 2.083333333
WD 0.714285714
Unlevered beta 0.7652 Working note
Tax rate 25%
Rf 6%
MRP 5%
Rating B
Default risk premium 7%

3 4 5
0 3% 7%
4% 5% 6%
10,830 11,155 11,936
433 558 716
325 418 537
0 2% 4%

324.90 409.94 515.62


1.2 1.1 1
1.45388 1.39649 1.3391
0.132694 0.1298245 0.126955
BBB BBB A
4% 4% 3%
10% 10% 9%
7.50% 7.50% 6.75%
0.55 0.52 0.50
0.45 0.48 0.50
10.12% 10.11% 9.72%
237.87 272.57 312.46
20263.26
12279.27

10% 5% 5%
90% 95% 95%
Balance Sheet at T=0 (Rs. In Crores)

Uses of fund
Fixed assets 10000
Current assets 2000
Less: Current liab 2500
Net Current Assets -500
Invested capital 9500
Source of fund
10% Long term debt 7000
Equity share capital(Rs 10 Face Value) 3000
P&L A/c Debit Balance -500
Net worth 2500
Invested capital 9500

Working note

Post tax
Unlevered
Firms Levered Beta D/E debt equity
beta
ratio

A 1.6 1.5 1.125 0.7529


B 1.9 2 1.5 0.76
C 0.9 0.2 0.15 0.7826
Average i.e. beta unlevered 0.7652
Scenario 1 Scenario 2 Scenario 3
Years Prob CF Prob CF Prob CF

1 0.6 1000 0.2 2000 0.2 3000


2
3
4
5
exp CF

1600

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