ESTIMATION OF INTRINSIC VALUE OF EQUITY SHARE USING VALUE ANCHOR (A CASE STUDY OF HINDUSTAN UNILIVER LIMITED)

Dr. Jeelan V. Basha

Abstract


The concept of value is like beauty. Just as it is said that “beauty lies in the eyes of the beholder. Value is determined by a person who seeks or perceives value in a thing. In analyzing a company, it is not sufficient just to study its past performance. The environment- economic,legal industrial, social and so on must be understood. Business valuation is a fascinating topic, as it requires understanding of financial analysis techniques in order to estimate value and for acquisition. It also requires good negotiating and tactical skill. Business valuation is important in determining the present value status as well as the future prospects of a company. Fundamental analysis is perhaps, the most popular method used by investment analysts for assessing value of a stock. The earnings potential and riskiness of a firm are contributing to the prospects of the industry to which it belongs.

The objective of the Study is to study the estimation of intrinsic value of equity share using Value Anchor (A Case Study of Hindustan Uniliver Limited). The study is based on secondary data and discussions with personnel concerned. The secondary data consists of the annual reports of HUL covering the last five years from 2011-12 to 2015-16. Various other reports like magazines, journals, published books and websites are also referred to for the present study. Tools applied for data analysis in the present study are financial tools like Dividend per share, Return on Equity, Retention Ratio, Earnings per share,  Cost of Equity, Constant Growth Model, Dividend payout ratio, and statistical tools such as  compound Annual Growth Rate (CAGR) and Simple Average. Detailed analysis could not be carried out for the research work because of the limited time span. Since financial matters are sensitive in nature, same could not be acquired easily.

The conclusion is to know intrinsic value of Hindustan Uniliver Limited. The stock is undervalued if the market price of a share is lesser than its intrinsic value. It is preferable to buy it (at cheaper rate) to make profit. On the other hand, the stock is overvalued, if market price of a share is higher than its intrinsic value preferring to sell it now to prevent from losing value subsequently.

Keywords


Dividend per share, Return on Equity, Retention Ratio, Earnings per Share, Cost of Equity, Price to Earnings Ratio (P/E), Projected Earnings Growth through Sustainable Growth Rate, Constant Dividend Growth Model and Dividend Payout Ratio

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References


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