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CRISIL Equities

KLRF Ltd

Valuation Grading

Grade:3/5

We have valued KLRF’s business using the discounted free cash flow to firm method (DCF). Based on the DCF method, we believe the fair value of KLRF’s businesses to be Rs 35 per share. We initiate our coverage on KLRF with a valuation grade of 3/5. This grade indicates that the current market price of KLRF is aligned with the fair value of Rs.35.

The following are the key factors in our valuation:

  • We have considered discounted free cash flows from FY10 to FY16.

  • We have assumed a target debt-equity ratio of 0.35.

  • We have assumed terminal growth rate of 3%, equity risk premium of 6% and risk-

free rate of return of 7%.

  • Due to low trading volumes, a higher cost of equity of 18.4% has been assigned.

  • We have assumed beta of 1.9.

Below is the sensitivity table of fundamental value to assumptions of WACC and terminal growth rate:

1.0%

2.0%

3.0%

4.0%

5.0%

43

53

66

81

100

31

39

49

61

75

21

27

35

44

56

12

18

24

32

40

5

10

15

21

28

WACC #REF

    • 12.3

      %

    • 13.3

      %

    • 14.3

      %

    • 15.3

      %

    • 16.3

      %

Terminal growth rate

11

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