The Valuation

Of

Jamuna Oil

Approaches to Valuation
Relative Approach

A relative valuation model is a

business valuation method that
compares a firm's value to that of its
competitors to determine the firm's
financial worth.

Asset-based
Approach

An asset-based approach is a type

of business valuation that focuses
on a company's net asset value, or
the fair-market value of its total
assets minus its total liabilities.

DCF Approach

DCF analysis uses future free cash

flow projections and discounts them
to arrive at a present value estimate,
which is used to evaluate the
potential for investment.

Company Overview
Established as a private limited company in
1964 .
Started functioning with an authorized capital of
Tk.2.00 crore.
It was acquired by Bangladesh govt. after the
Independence of Bangladesh in 1971
Renamed as Bangladesh National Oil Limited in
1972.
Renamed as Jamuna Oil Company Limited by the
Government on 13 January 1973.
Enlisted with Dhaka Stock Exchange Limited and
Chittagong Stock Exchange Limited on 9 January
2008

Key Activities and Revenue Drivers

The prime activities of the company include the
procurement, storage and marketing of petroleum
products, non-petroleum products and lubricants
products. The petroleum products include
High Octane Blending Component (HOBC),
Motor Spirit (MS), Superior Kerosene Oil (SKO),
High Speed Diesel (HSD),
Light Diesel Oil (LDO),
Furnace Oil (FO), and Jute Batching Oil (JBO).
Non- petroleum products include Liquefied Petroleum
Gas (LPG) and Bitumen.
JOCL is the distributor of lubricants of Mobil Jamuna
Lubricants Limited.

Cost Drivers Drivers

Freight
Transportation Cost
Refinery Management
Management Cost

Generic Strategy

For fuel items like Petrol, Diesel,

Octane and LPG, it cannot go out
of the price boundary given by the
Government.
But
for
other
products like motor spirits, jute
batching oil and lubricants, it
follows
the
cost
advantage
strategy.

Risk Factors

Exchange
Rate Risk

Oil Price
Risk
Pump
Shut-down

Risk Factors

Exchange
Rate Risk

Oil Price
Risk
Pump
Shut-down

Value Chain

Industry Life Cycle and Concentration Level

Industry life cycle:
Since petroleum is one of the very necessary
commodities, the life cycle of the industry id
very long. It hardly face decline. However,
during the season of political unrest and big
natural disaster, the demand may go down.
Industry concentration level:
The oil industry of Bangladesh is highly
concentrated. The industry is controlled by
Petro Bangla with three subsidiaries named
Jamuna Oil, Padma Oil and Meghna Oil.

Strategic Grouping

Economy of Bangladesh
Selected economic indicators (%) 2015
Bangladesh

2016
2017
Forecast Forecast

GDP Growth

6.6

6.7

6.9

Inflation

6.4

6.2

6.5

Current Account Balance

-0.8

-0.5

-1.0

(Share of GDP)

Economic Performance
Growth in the gross domestic product (GDP) in FY2015
(ended 30 June 2015) picked up to 6.6% from 6.1% in
FY2014 despite a short period of political protest at midyear
that disrupted transportation and services.
Growth in agriculture moderated to 3.3% from 4.4% a year
earlier because harvests of staple and horticultural crops
were less favorable.
Robust domestic demand pushed industry expansion to
9.7% from 8.2% the previous year, led by manufacturing for
the domestic market and construction.

Economic Performance (contd)

Services growth advanced slightly to 5.8% from 5.6%.
Investment rose only marginally to 28.9% of GDP in
FY2015 from 28.6% the previous year, mostly on increased
public investment.
Private investment remained stagnant owing to investor
caution, infrastructure and skill shortages, and a weak
business environment.
Foreign direct investment remains below 1.0% of GDP
and 3.0% of total investment.

Economic Prospect
Growth is expected to inch up to 6.7% in FY2016,
underpinned by stronger garment exports and rising
private consumption as government employees get
wage increases.
Growth is expected to rise to 6.9% in FY2017,
aided by higher remittance and export growth as
the United States and the euro area economies
strengthen.
Domestic political calm is seen to build confidence
in consumers and investors and so support growth
momentum.

Residual Earning Model

Description of the Model:
Residual income is net income less a charge
(deduction) for common shareholders opportunity
cost in generating net income. Traditional financial
statements are prepared to reflect earnings
available to owners. Net income includes an
expense to represent the cost of debt capital
(interest expense). Dividends or other charges for
equity capital are not deducted. Traditional
accounting leaves to the owners the determination
as to whether the resulting earnings are sufficient to
meet the cost of equity capital. The economic
concept of residual income, on the other hand,
explicitly considers the cost of equity capital.

Calculating Residual Earning

Equity Charge = Equity Capital x Cost of
Equity
Residual Income = Net Income Equity
Charge
Limitations of the model:
Accounting data can be subject to
manipulation
Accounting data/inputs may require
significant adjustment
Cost of debt is reflected appropriately

Calculating Residual Earning

Time 0
Revenue
Net
profit
margin
Earnings
Dividend
payout Ratio
Transfer to the
equity
CSE
15,099,788
,456
RE

2015-2016
118,718,99
7,086
0.02406558
4
285704200
9
40.10%

2016-2017
131,262,91
5,867
0.02640062
4
346542290
8
40.10%

2017-2018
145,132,23
2,455
0.02910793
1
422449904
4
40.10%

2018-2019
160,466,98
9,158
0.03224881
1
517486968
1
40.10%

171143727
9
16,811,225,
735
829,030,91
5

207587215
5
18,887,097,
889
1,186,990,3
50

253057712
3
21,417,675,
013
1,640,791,9
89

309987212
6
24,517,547,
138
2,217,211,6
03

Calculating DCF of Residual Earning

Year
Pv of discount Factor

1
0.8923517
38
73978717
8.1

Pv of RE
Summation of RE
Terminal growth Rate
Continuing Value

3
0.7105722
16
11659011
99

4
0.6340803
52
14058903
14

4256769166
0.08
58930171
551

Pv of terminal value
Book value of equityExisting value
equity value
Number of
outstanding
Value per share

2
0.7962916
25
94519047
4.6

37366463931
15,099,788,4
56
56,723,021,5
53
shares 1104250000
51.36791628

Calculating DCF of Residual Earning

Year
Pv of discount Factor

1
0.8923517
38
73978717
8.1

Pv of RE
Summation of RE
Terminal growth Rate
Continuing Value

3
0.7105722
16
11659011
99

4
0.6340803
52
14058903
14

4256769166
0.08
58930171
551

Pv of terminal value
Book value of equityExisting value
equity value
Number of
outstanding
Value per share

2
0.7962916
25
94519047
4.6

37366463931
15,099,788,4
56
56,723,021,5
53
shares 1104250000
51.36791628

Free Cash Flow Model

0
Operating Income

2015-2016

2016-2017

2017-2018

2018-2019

1,446,127,49 1,586,199,42 1,738,825,73 1,905,512,905

2
3
9

Net operating Assets

(1,452,933,9 (1,082,584,00 (579,659,917 93,380,395
04)
6)
)
Change
in
operating Assets

Net
(4,455,594,6 (1,082,584,00 (579,659,917 93,380,395
01)
6)
)

FCF
Cost of capital

5,901,722,09 2,668,783,42 2,318,485,65 1,812,132,510

3
9
6
0.120634

Year

Pv of discount Factor

0.892352008 0.796292106 0.71057286

4
0.634081118

Pv of FCF
5,266,413,55 2,125,131,17 1,647,452,98 1,149,039,007.
9.74
6.99
2.52
76
Summation of FCF
10,188,036,7
27.01

Free Cash Flow Model

Terminal
growth
Rate
Continuing Value

0.08

48,164,175,5
78.68
Pv of terminal value
30,539,994,
299.91
Enterprise value
40,728,031,
026.92
Less
Interest
bearing Debt
equity value
40,728,031,
026.92
Number of shares 1104250000
outstanding
Value per share
36.88

Dividend Discount Model

2015-2016

2016-2017

2017-2018

2018-2019

Dividend
Cost of Equity

1,145,604,730 1,389,550,7 1,693,921,9 2,074,997,5

53
20
55
0.120634338

Year

Pv of discount factor

0.892351738

0.79629162 0.71057221 0.63408035

5
6
2

Pv of Dividend
1,022,282,372 1,106,487,6 1,203,653,8 1,315,715,1
27
53
81
0.08

Terminal growth rate

Continuing Value

551503346
46

Pv of terminal value

3496974361
5

Equity Value
Number
of
outstanding
value per share

39,617,882,6
48
shares 1104250000
35.88

Assumptions

average

growth rate about by 11%, we can get this percentage by

determining the change of sales in every year, that means change in sales
year to year and averaging every years changing ratio.
We forecasted COGS by taking proportion to sales( every year COGS to every
year sales) and averaging them to forecast a new percentage which remains
fixed for the next forecasted years.
Hence we calculate the balance sheet items (Accounts receivable, inventory,
accounts payable, advance) by taking the proportion to sales and averaging
them to forecast new percentages.
In our company, we assume that there is no growth in capital expenditure
and we simply deduct the depreciation from the base year PPE to forecast
new PPE and we calculate depreciation rate by taking proportion of every
year depreciation to every year PPE and averaging them to get a new
depreciation rate.
We calculate the average tax rate to forecast the tax expenses and we
calculate the reserve and surplus by adding retained earning with base year
surplus.
There is no issue of shares. Fair value gain on investment is calculated by
making average which is fixed to next periods. Investment also calculated by
averaging the every year investment.

Buy or Sell

Residual Earning Model

We can see that the share price is Tk. 51.36
according to this approach but the current market
price is Tk. 192.80. So, the share is overvalued and
thus should be Free
sold out.
Cash Flow Model
Again in this approach, that the share price is Tk.
36.88 which is to much higher than the current
market price. And thus even this approach suggest a
selling decision.
Free Cash Flow Model
By applying Dividend Discount Model, we have
found that the value is Tk. 35.88 but the market
price is 192.8. So the share is overvalued and
needed to be sold.