Identifying the drivers of DCF valuation of a listed company
Added on 2022-01-27
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BUSINESS VALUATION
CIA 1(A): Identifying the drivers of DCF valuation of a listed company
4MBA-F6
SUBMITTED TO:
Dr. Anirban Ghatak
SUBMITTED BY:
Treesa Thomas-2027854
Raghav Agarwal-2028004
Abhishek Srivastava-2028003
Krithika Ponnambalam-2027856
MBA PROGRAMME
SCHOOL OF BUSINESS AND MANAGEMENT
CHRIST (DEEMED TO BE UNIVERSITY), BANGALORE
JULY 2021
CIA 1(A): Identifying the drivers of DCF valuation of a listed company
4MBA-F6
SUBMITTED TO:
Dr. Anirban Ghatak
SUBMITTED BY:
Treesa Thomas-2027854
Raghav Agarwal-2028004
Abhishek Srivastava-2028003
Krithika Ponnambalam-2027856
MBA PROGRAMME
SCHOOL OF BUSINESS AND MANAGEMENT
CHRIST (DEEMED TO BE UNIVERSITY), BANGALORE
JULY 2021
TABLE OF CONTENT
S.NO DESCRIPTION PAGE NO.
1 INDUSTRY ANALYSIS 3 ~ 8
2 COMPANY ANALYSIS 8 ~ 12
3 INDUSTRY RATIOS 13 ~ 21
4 REVENUE DRIVERS 21 ~ 27
5 References 28
S.NO DESCRIPTION PAGE NO.
1 INDUSTRY ANALYSIS 3 ~ 8
2 COMPANY ANALYSIS 8 ~ 12
3 INDUSTRY RATIOS 13 ~ 21
4 REVENUE DRIVERS 21 ~ 27
5 References 28
INDUSTRY ANALYSIS
India was the world’s second-largest producer of steel till 2019, with a total production of
111.2 MT. For industrialization, metal is one of the core drivers, and among metal, steel held
a dominant position. Hence, the production and consumption of steel are widely regarded as
indicators of economic progress. That is why metal is considered the forefront of industrial
development and the backbone of any economy.
Demand for steel in different sectors will drive the economy, and the consumption of steel in
India's infrastructure is expected to increase to 11% by FY26. Various factors which could be
one of the reasons for the increase in consumption of steel are: ~ steel demand in the
automotive sector may increase due to rise in demand of automobiles, during the 2nd wave in
this pandemic steel plant prove to be beneficial for the Indian healthcare sector as they
produce oxygen cylinders for COVID patients and the housing industry can see a rise due to
government initiative of affordable housing (Smart cities) which can boost steel industry. It is
estimated that about 158 lakh MT of steel is likely to be consumed by Pradhan Mantri Awas
Yojana (Urban) to construct houses that are sanctioned.
PRODUCTION
The Indian steel industry has seen better production (crude steel) until FY20, and it is
supposed to continue this growth rate. Still, due to the rapid increase in the covid situation
and amidst the lockdown in the country, there is a slight drop in production (crude steel) by
2.18%, and further, the production (crude steel) dropped in FY21 by 14.48%.
Similarly, production in finished steel fell by 0.25% and 15.27% in FY20 and FY21,
respectively. From April 2020 to February 2021, the production of crude steel stood at 92.78
MT, and hence to reduce the burden of the steel industry and support MSMEs, the
government has reduced the customs duty on stainless steel to 7.5%.
Overall, the manufacturing output of steel in India is expected to increase to 128.6 MT by
FY21, which will help to increase the country’s share of global steel production from 5.9% in
FY18 to 7.7% by FY21.
India was the world’s second-largest producer of steel till 2019, with a total production of
111.2 MT. For industrialization, metal is one of the core drivers, and among metal, steel held
a dominant position. Hence, the production and consumption of steel are widely regarded as
indicators of economic progress. That is why metal is considered the forefront of industrial
development and the backbone of any economy.
Demand for steel in different sectors will drive the economy, and the consumption of steel in
India's infrastructure is expected to increase to 11% by FY26. Various factors which could be
one of the reasons for the increase in consumption of steel are: ~ steel demand in the
automotive sector may increase due to rise in demand of automobiles, during the 2nd wave in
this pandemic steel plant prove to be beneficial for the Indian healthcare sector as they
produce oxygen cylinders for COVID patients and the housing industry can see a rise due to
government initiative of affordable housing (Smart cities) which can boost steel industry. It is
estimated that about 158 lakh MT of steel is likely to be consumed by Pradhan Mantri Awas
Yojana (Urban) to construct houses that are sanctioned.
PRODUCTION
The Indian steel industry has seen better production (crude steel) until FY20, and it is
supposed to continue this growth rate. Still, due to the rapid increase in the covid situation
and amidst the lockdown in the country, there is a slight drop in production (crude steel) by
2.18%, and further, the production (crude steel) dropped in FY21 by 14.48%.
Similarly, production in finished steel fell by 0.25% and 15.27% in FY20 and FY21,
respectively. From April 2020 to February 2021, the production of crude steel stood at 92.78
MT, and hence to reduce the burden of the steel industry and support MSMEs, the
government has reduced the customs duty on stainless steel to 7.5%.
Overall, the manufacturing output of steel in India is expected to increase to 128.6 MT by
FY21, which will help to increase the country’s share of global steel production from 5.9% in
FY18 to 7.7% by FY21.
(Source: IBEF.ORG)
CONSUMPTION
As per the graph below, the consumption of finished steel grew at a CAGR of 5.2% between
FY16 ~ FY20, and it reaches the mark of 100 MT, where the consumption of finished steel in
absolute increases from 8.55 MT in FY20 to 9.13 MT FY21.
In FY21, India’s consumption of finished steel is 6.78 MT, and being a developing nation,
India aims to improve per capita steel consumption to 160 kgs by FY2030 ~ 31; this could
happen by rapid growth in the industrial sector and rise in infra expenditure projects in roads,
highways, and railways, etc.
India’s rural consumption of steel stood at 19.6kg/per capita in FY21, targeting to increase to
38kg/per capita by FY2030 ~ 31.
(Source: IBEF.ORG)
CONSUMPTION
As per the graph below, the consumption of finished steel grew at a CAGR of 5.2% between
FY16 ~ FY20, and it reaches the mark of 100 MT, where the consumption of finished steel in
absolute increases from 8.55 MT in FY20 to 9.13 MT FY21.
In FY21, India’s consumption of finished steel is 6.78 MT, and being a developing nation,
India aims to improve per capita steel consumption to 160 kgs by FY2030 ~ 31; this could
happen by rapid growth in the industrial sector and rise in infra expenditure projects in roads,
highways, and railways, etc.
India’s rural consumption of steel stood at 19.6kg/per capita in FY21, targeting to increase to
38kg/per capita by FY2030 ~ 31.
(Source: IBEF.ORG)
IMPORT & EXPORT
India's export and import of finished steel stood at 9.49 MT and 4.25 MT respectively in FY
20 and FY 21; India's export increased by 196% compared to FY20 and 17 % compared to
FY19 due to sudden demand in EU nations. In FY20, India exported 8.24 MT of finished
steel.
Finished steel from India is exported to many markets such as Italy, Belgium, UAE, Nepal,
Vietnam, etc. At the same time, India's biggest importers of finished steel are South Korea,
China, and Japan.
(Source: WORLD BANK)
STEEL GROWTH DRIVERS
The appliance and consumer electronic (ACE) sector between FY2018 ~ 25F are expected to
be at the CAGR of 9.91%, contributing to the steel industry's growth. Growth in automobile
production which is currently at 26.35 million in FY21, is expected to increase. The gross
value added (GVA) of the construction industry grew 4.4% in FY20 and is expected to post
India's export and import of finished steel stood at 9.49 MT and 4.25 MT respectively in FY
20 and FY 21; India's export increased by 196% compared to FY20 and 17 % compared to
FY19 due to sudden demand in EU nations. In FY20, India exported 8.24 MT of finished
steel.
Finished steel from India is exported to many markets such as Italy, Belgium, UAE, Nepal,
Vietnam, etc. At the same time, India's biggest importers of finished steel are South Korea,
China, and Japan.
(Source: WORLD BANK)
STEEL GROWTH DRIVERS
The appliance and consumer electronic (ACE) sector between FY2018 ~ 25F are expected to
be at the CAGR of 9.91%, contributing to the steel industry's growth. Growth in automobile
production which is currently at 26.35 million in FY21, is expected to increase. The gross
value added (GVA) of the construction industry grew 4.4% in FY20 and is expected to post
rapid growth in coming years, backed by higher expenditure from the government of India.
Also, the construction industry is one of the major consumers of steel, expansion across the
construction industry will convert into growth of the steel sector.
(Source: WORLD BANK)
CONTRIBUTION OF STEEL INDUSTRY IN GDP
31/12/1968
31/12/1970
31/12/1972
31/12/1974
31/12/1976
31/12/1978
31/12/1980
31/12/1982
31/12/1984
31/12/1986
31/12/1988
31/12/1990
31/12/1992
31/12/1994
31/12/1996
31/12/1998
31/12/2000
31/12/2002
31/12/2004
31/12/2006
31/12/2008
31/12/2010
31/12/2012
31/12/2014
31/12/2016
31/12/2018
31/12/2020
-10
-5
0
5
10
15
GDP & STEEL PRODUCTION GROWTH COMPARISON
GDP Growth (%) Steel production growth(%)
(Source: RBI)
As of now, the steel business contributes slightly over 4% to the GDP of the country. This
rate represents a direct commitment. The indirect commitment of steel is a lot bigger,
attributable to the reliance on different areas. The steel business utilizes almost half a million
individuals directly and 2 million individuals indirectly. The yield impact of steel on the
Indian economy is around 1.4x with a business multiplier of 6.8x. According to the World
Also, the construction industry is one of the major consumers of steel, expansion across the
construction industry will convert into growth of the steel sector.
(Source: WORLD BANK)
CONTRIBUTION OF STEEL INDUSTRY IN GDP
31/12/1968
31/12/1970
31/12/1972
31/12/1974
31/12/1976
31/12/1978
31/12/1980
31/12/1982
31/12/1984
31/12/1986
31/12/1988
31/12/1990
31/12/1992
31/12/1994
31/12/1996
31/12/1998
31/12/2000
31/12/2002
31/12/2004
31/12/2006
31/12/2008
31/12/2010
31/12/2012
31/12/2014
31/12/2016
31/12/2018
31/12/2020
-10
-5
0
5
10
15
GDP & STEEL PRODUCTION GROWTH COMPARISON
GDP Growth (%) Steel production growth(%)
(Source: RBI)
As of now, the steel business contributes slightly over 4% to the GDP of the country. This
rate represents a direct commitment. The indirect commitment of steel is a lot bigger,
attributable to the reliance on different areas. The steel business utilizes almost half a million
individuals directly and 2 million individuals indirectly. The yield impact of steel on the
Indian economy is around 1.4x with a business multiplier of 6.8x. According to the World
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