Analysis of risk and Estimation of cost of capital

1. Revenue Risk: The demand in Food processing is generally stable as people

dont cut on their essential food items even during times of crisis. So, we can
say that revenue risk of the industry is low. The key driver of growth in this
sector increasing income levels as GDP grows increasing the middle class. As
GDP grows the Food Processing industry also grows due to increasing
consumerism which propels demand for value-added food products.
Degree of Operating Leverage: The Degree of Operating Leverage of the
company is high. It implies that for a relatively small change in sales there is
a high change in operating income. In comparison with other firms in the
industry Britannia has a similar operating leverage.
Degree of Financial Leverage: Britannia doesnt have a large amount of
debt. It is relatively negligible. D/E ratio of Britannia can be assumed to be 0.
D/E ratio of the industry is 8.81%.
2. Beta of the company: The estimated Beta of the company is 0.43.
3. Beta of the industry: The levered Beta of the industry is 1.14 and the
unlevered Beta of the industry is 1.08. (Data is taken from Aswath
Damodaran website).

DCF Valuation
1. Assumptions for Terminal Valuation:
a. The wacc is equal to 9.1 (using CAPM eq. Market return is 12% from
2002 to 2016 while 10-yr bond rate is 7.19%)
b. The perpetual growth rate is assumed to be 9%
c. Net working Capital is assumed to be 4% of sales.
2. Value Obtained Conservative or Aggressive:
3. Challenges in Valuing an early stage company:

Sensitivity Analysis
1. Key Value drivers: The two main value drivers of the company are GDP
growth Cost of Equity.
2. Sensitivity Analysis: In Excel Sheet.