Contents
Executive Summary 2- 1. Company Background 2
- 2. Industry Analysis 4
- 3. Shareholder Value Analysis 4
- a. Economic Value Added (EVA) Method. 4
- b. Total Shareholder Return (TSR) Method. 5
- c. Dividend Policy Method (DPM). 6
- 4. Market Value Variations over 12 months (2009-2010) 7
- 5. Current Valuation of Equity 9
- a. Net Asset Value (NAV) Method 9
- b. Price to Earnings (P/E) Method 10
- c. Discounted Cash Flow (DCF) Method 11
- 1. Revenue Growth Estimation 11
- 2. Estimated operating costs and margins 13
- 3. Estimated depreciation 14
- 4. Estimated Tax and Interest rates 15
- 5. Estimated Capital Expenditure 16
- 6. Estimated working capital 17
- 7. Cost of Equity 18
- 8. Free Cash Flow Estimates 19
- 9. Terminal Value Calculation 20
- 6. Reconciliation of different valuations 20
- 7. Conclusion 22
- References 23
Description
Company valuation is an important tool in the arsenal of a analyst or student of corporate finance. Through this report we attempt to use the different tools and methodologies available to perform an objective evaluation of Patni Computer Systems (PCS), listed on the Bombay Stock Exchange (BSE) of India. PCS is an IT and ITeS provider providing both onsite and offshore facilities to clients. To understand the current and future value of PCS it is important to look into its past performance as a part of the industry it operates in. Thus past performance of PCS is evaluated along with that of a few selected peers from the Indian IT and ITeS space. Also, valuation of PCS is done using three basic valuation techniques i.e. NAV, P/E and DCF. This is followed by an attempt to understand, explain and hence reconcile the different valuation figures obtained from these three different techniques.
In addition, share price movement of PCS scrip on the Bombay Stock Exchange is charted over a period of 12 months to describe and understand the influence of multiple drivers like industrial developments, company management decisions/communications and national or international events on share price movements.
