Equity Valuation of Public Sector Enterprises of Nifty 50



The Indian Equity Market has mainly two indices i.e. NIFTY and SENSEX. The equity market of India is one of the oldest in the Asia region. India had an active stock market for about 150 years that played a significant role in developing risk markets as also promoting enterprise and supporting the growth of various industries. India has been one of the best performers in the world economy in recent years, but rapidly rising inflation and the complexities of running the world's biggest democracy are proving challenging. The Indian market of equities is transacted on the basis of two major stock exchanges, National Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange (BSE). In terms of market capitalization, there are over 2500 companies in the BSE chart list with the Reliance Industries Limited at the top. The SENSEX at present is ranging between the level of 15000-17000 providing a profitable business to all those who had been investing in the Indian Equity Market. There are about 23 stock exchanges in India which regulates the market trends of different stocks.

Generally the bigger companies are listed with the NSE and the BSE, but there is Over the Counter Exchange of India (OTCEI), which lists the medium and small sized companies. SEBI is the body who governs and supervises the functioning of the stock markets in India .

Stock markets became intensely technology and process driven, giving little scope for manual intervention that has been the source of market abuse in the past. Electronic trading, digital certification, straight through processing, electronic contract notes, online broking have emerged as major trends in technology. Risk management became robust reducing the recurrence of payment defaults. Product expansion took place in a speedy manner. Stock exchange reforms brought in professional management separating conflicts of interest between brokers as owners of the exchanges and traders/dealers. 

Objective of the Project

To do fundamental analysis and calculate intrinsic value of Public Sector Enterprises which are represented in NIFTY 50. Here PSEs is considered to be that companies where Government of India is having more than 50% stake and no other government is taken into consideration.

•  Analyzing historical performance.

•  Estimating growth prospect of various companies.

•  Understanding Discounted Cash Flow model and its usage.

•  To learn about linkages between share values, earnings, and expected return on capital.

The analysis is based on main activities i.e. operating activities of the company and other activities are ignored. Assumptions are based on recent annual reports, past performance, current trends in that sector and statistics of RBI. We have considered only PSEs that are represented in NIFTY 50 and our assumptions are limited to those companies only and not all PSEs or any other companies.

Data for our objective was collected through companies' website i.e. secondary data and various other websites to know the current scenario.

Public Sector Enterprises of India representing in NIFTY 50. Here PSEs is those companies where Government of India is having more than 50% stake and not any other government.

Equity Valuation

An equity valuation takes several financial indicators into account; these include both tangible and intangible assets, and provide prospective investors, creditors or shareholders with an accurate perspective of the true value of a company at any given time.

Equity valuations are conducted to measure the value of a company given its current assets and position in the market. These data points are valuable for shareholders and prospective investors who want to find out if the company is performing well, and what to expect with their stocks or investments in the near future.

Valuation methods based on the equity of a company typically include a thorough analysis of cash accounts, as well as a forecast or projection of future dividends, future earnings (revenue) and the distribution of dividends.

Features of Equity Valuation

Following are the features of Equity Valuation;

•  Equity Valuation is a highly specialized process.

•  Like other assets in finance, the value of a stock is the Present Value of its Cash Flow's.

•  The total equity of a company is the sum of both tangible assets and intangible qualities. Tangible assets include working capital, cash, and inventory and shareholder equity. Intangible qualities, or intangible "assets," may include brand potential, trademarks and stock valuations.

•  The valuation may also take the firm's enterprise value (EV) into account; this is calculated by combining the net debt per share with the price per share. Performance indicators include the price/earnings ratio, dividend yield, and the Earnings Before Interest, Depreciation and Amortization (EBIDA).

•  Any company under consideration for sale needs proficient, objective valuation, whether its stock is privately owned by one individual or publicly traded on one or more of the major exchanges or in the over the counter market.

•  Stocks are typically valued as perpetual securities as corporations potentially have an infinite life, and thus can pay dividends forever.

Need of Equity Valuation

There are several reasons, for which we need Equity Valuation

•  Initial Public Offer

•  Merger and Demerger

•  Purchase/sale of equity stake by joint venture partners

•  Liquidation

•  Acquisition and takeover

•  Disinvestment, etc.

Benefits of Equity Valuation

•  A thorough analysis of tangible and intangible assets allows prospective investors, shareholders and financial managers of a company to obtain critical performance data about the company's business operations.

•  When an investor attempts to determine the worth of her shares based on the fundamentals, it helps her make informed decisions about what stocks to buy or sell.

•  Valuation compares the benefits of a future investment decision with its cost.

•  The equity valuation method takes several types of data into account, and can be used as part of a prediction model to determine the economic future of the company.

•  The valuation also provides some indication of the level of risk involved in investing in the company.

•  The determination of right value of equity is essential to maintain a long term success of investment.

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