SECURITY ANALYSIS & VALUATION 1 EMP APRIL 2008 AN EFFORT BY TEAM OF : ACHAL GARG - 02 ANAND K SINGH- 09 MUKUND TRIVEDY -26 NAZISH-28 OM PRAKASH-29 ROHIT JHA-40 SUNNYBHAT-54 CASE STUDY OF VALUAUATIONS USING MARKET COMPARABLES CASE STUDY OF VALUAUATIONS USING MARKET COMPARABLES
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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
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.
SECURITY ANALYSIS & VALUATION 3 EMP APRIL 2008
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
SECURITY ANALYSIS & VALUATION 4 EMP APRIL 2008
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)
SECURITY ANALYSIS & VALUATION 5 EMP APRIL 2008
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
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
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