(solved) Cases in Financial Decision Making

Added on - 02 Nov 2020

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Case Analysis on:TalbrosAutomotive ComponentsLimited: Relative valuation
F- 506Cases in Financial Decision MakingA Case Study onCase Analysis on Talbros AutomotiveComponents Limited: Relative ValuationSubmitted ToDr. Gazi Mohammad HasanJamilAssociate ProfessorDepartment of FinanceUniversity of DhakaSubmitted By: Group 15Serial NoNameRoll Number1.Md. Ashiqul Islam21-8172.Santa Mazumder21-9133.Christina Madhubi Palma21-914Date of Submission: 20 August, 2020
Letter of Transmittal20 August, 2020.Dr. Gazi Mohammad HasanJamilAssociate ProfessorDepartment of FinanceUniversity of DhakaSubject: Submission of Case Analysis Report on “Case Analysis on Talbros AutomotiveComponents Limited: Relative Valuation”Sir,With due respect, we submit here our report on “Talbros Automotive Components Limited:Relative Valuation” for your kind evaluation that we prepare as a part of requirement of ourMBA Program “Cases in Financial Decision Making” course. During the preparation of thereport we have given our best effort to make it effective. We have tried our best to present ourideas and findings as clearly as we could within the time and resource available. We express ourgratitude to you for providing us the opportunity to learn about the case analysis. We havedevoted our best effort to make the ultimate solution of our prescribed case.During preparing this report we have enforced our best effort. Surely, it enriches our knowledgeand promotes our study. Thanks for giving us such an opportunity for working on the topic. Wehope you will find the report in appropriate manner. We are looking forward to your feedback.Sincerely yours,Christina Madhubi PalmaSec: A, Roll Num:21-914On behalf of Group 15Department of FinanceUniversity of Dhaka
AcknowledgementAt first, we would like to express our deepest gratitude the Almighty who gave us energy and thecomposure to finish this case study within the scheduled time.This report is an outcome of our effort, but its successful completion would have beenimpossible without the sincere effort and helping attitude of our course instructor. We would liketo thank our honorable course teacher Dr. Gazi Mohammad Hasan Jamil, Associate Professor,Department of Finance, University of Dhaka for providing us such an important and challengingcase to analyze. We would also like to thank him for giving us excellent guideline about how toanalyze a case and solve it using different techniques.We would like to express our heartiest gratitude to our team members who shared their expertiseand struggled with difficulties to put meaningful effort in accumulation of solid & completeinformation and analysis. Thanks to all the members of our group for working as a team andparticipate in brain storming process to solve the case.
Executive Summary
Chapter – 01Introduction1.1.Background of the ReportThis report has been undertaken as a part of course F-506 (Cases in Financial Decisions Making)under the MBA program. Our course instructor Dr. Gazi Mohammad HasanJamil has assignedus this task to implement our academic knowledge in the real scenario of business. This reallyprovides us the opportunity to explore and confront the reality about financial analysis.1.2.Objective of the StudyThe main objective of the study is to fulfill the requirement of our course on Cases in FinancialDecision Making and to apply our theoretical knowledge in solving business cases. The otherobjectives behind conducting this study are as follows:To understand the valuation process for merger and acquisition.To determine the implied share price of Talbros automotive components limited undercomparable company analysis and comparable transaction analysis.To find out the total value of the company including control premium that the acquirecompany should provide in the merger and acquisition process.1.3.Scope of the StudyThe study topic allows us to do comparable company analysis and comparable transactionanalysis in Talbros automotive components limited. We analyzed the financial condition of thiscompany and tried to find out the best implied share price of the company. Mean, median,maximum mad minimum multiples have been considered while doing valuation.1.4.Methodology of the ReportThe data used in this report have been gathered from the case. Relevant industry data has beencollected from secondary sources that are not provided in the case.The theoretical part of this report has been collected from the case and text provided by ourhonorable course teacher.Required assumptions have been made in consistent with the industry practice.
1.5.Data AnalysisTo analyze and solve the problems we have used valuation techniques in MS Excel.1.6.Limitations of the StudyLearning all functions, moods of business, risk factors were quite tough within specifiedtimeframe.Time constraint is a major issue for solving this huge case.Data provided in the case were not sufficient.
Chapter – 03Valuation for Merger and Acquisition3.1Valuation for Merger and acquisition:When valuing a company as a going concern, there are three main valuation methods used byindustry practitioners: (1)DCF analysis, (2) comparable company analysis, and (3) precedenttransactions.These are the most common methods of valuation used ininvestment banking,equity research, private equity, corporate development, mergers & acquisitions (M&A),leveraged buyouts (LBO), and most areas of finance. When valuing a business or asset, there arethree broad categories that each contains their own methods. The Cost Approach looks at what itcosts to build something and this method is not frequently used by finance professionals to valuea company as a going concern. Next is the Market Approach, this is a form ofrelativevaluationand frequently used in the industry. It includes Comparable Analysis, PrecedentTransactions.Finally, the discounted cash flow (DCF) approach is a form ofintrinsicvaluationand is the most detailed and thorough approach to valuation modeling.Method 1: Comparable AnalysisComparable company analysis(also called “trading multiples” or “peer group analysis” or“equity comps” or “public market multiples”) is a relativevaluation methodin which youcompare the current value of a business to other similar businesses by looking at tradingmultiples like P/E,EV/EBITDA, or other ratios.Multiples ofEBITDAare the most commonvaluation method. The “comps” valuation method provides an observable value for the business,based on what companies are currently worth. Comps are the most widely used approach, as theyare easy to calculate and always current.Method 2: Precedent TransactionsPrecedent transactions analysisis another form of relative valuation where we compare thecompany in question to other businesses that have recently been sold or acquired in the sameindustry. These transaction values include the take-over premium included in the price for whichthey were acquired. These values represent thevalue of a business. They are useful for M&Atransactions, but can easily become stale-dated and no longer reflective of the current market astime passes. They are less commonly used than Comps or market trading multiples.
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