Valuation of Square Pharmaceuticals

8/17/2019 Valuation of Square Pharmaceuticals

1/17

Valuation of

Square

PharmaceuticalsLtd.


2/17

United International University

School of Business and Economics

Spring 2!"

Security Analysis and Portfolio Management

Course Code: FIN- 4219

#eport on

Valuation of Square Pharmaceuticals Ltd.

Su$mitted to%

&r 'ohan Uddin

(ssistant Professor

nited International ni!ersity

Sl.

)o

)ame I& Signature

!. Shahida (*ter #umi !!! !2! !+,

2. 'd. Soleman (li !!! !22 "

-. (namica arma*er !!! !2! +/+. 0aria Sumsad Suha !!! !2! 1!

1.Sumaiya 0erdaus

!!+ !2- !!


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&ate of

Su$mission% 2"t# A$ril% 2&1'

Letter of Transmittal

27th April, 2016

Dr. Mohan Uddin

Assistant Professor

School of Business and Econoics

United !nternational Uni"ersit#

Dhanondi, Dha$a% 120&

Subject: 'e(uest to accept the report on )*aluation of S(uare Pharaceuticals +td.

Dear Sir,

-e are "er# pleased to suit the report on *aluation of S(uare Pharaceuticals +td. -e /ere assined

to prepare and suit this report as the partial fulfillent of the course entitled )Securit# Anal#sis and

Portfolio Manaeent .-e ha"e tried our le"el est to prepare this plan perfectl#. e"ertheless, this

paper has een suffered # tie and cost liitation.

-e /ill e olied, if #ou $indl# accept this report.

Sincerel# #ours,


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Md. Solean Ali

n ehalf of the roup eers

Section3 B

Acknowledgement

A report that re(uires a lot of inforation fro "arious corners is not the /or$s of its authors or

preparers onl#. 4o prepare a report # collectin the data of an# $inds, one is to depend upon

an# people and an# others inforation.

5irst of all, /e /ould li$e to than$ Aliht# Allah /hose racefulness let us coplete this

report. Besides a coprehensi"e /or$ li$e this ust o/e credit to an# people. -e than$ those

$ind ones /hose help $ind support enale us to coplete this report.

-e ha"e /or$ed reall# hard for this report. Speciall#, /e are than$ful to our honorale facult#Dr. Mohan Uddin /ho helped us in e"er# step of startin and copletin our report proptl#.

-e also pa# our indetedness to those /esites that helped us # pro"idin a lot of inforation.

-ithout these help support /e could not e ale to coplete this report successful.


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ontentsIntroduction:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 2

Sources of )ata:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 2

Primary sources:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((2

Secondary source:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 2

*+,ecti!e:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 2

imitations:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 2

.ac/ground of S0uare P#armaceuticals imited((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

aluation((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

aluation Met#ods:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 4

1( )iscounted di!idends:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((3

2( )iscounted a+normal earnings:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((3

( aluation +ased on $rice multi$les:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((3

4( )iscounted cas# o5 analysis:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((3

)iscounted Cas# Flo5 - )CF:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((3

)i!idend )iscount Model 6))M7:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((('

Calculation of e8$ected P:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((('

;#e intrinsic !alue 6&7 of a s#are of stoc/:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((("

Calculation of constant gro5t# ))M for S0uare P#armaceuticals:(((((((((((((((((((((((((((((<

Preferred stoc/ and t#e ))M:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((<

Price =>arnings ratio:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 9

Price earnings gro5t# ratio(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((9

Present !alue of gro5t# o$$ortunity:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((9

Informations:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 11


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Conclusion(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 12

eferences:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((1

Introduction:Assessin the "alue of a fir is a useful tool to easure the o"erall /or$in proress of the

/hole oraniation. !t helps to $no/, )8o/ the fir is perforin o"er the ar$et. 4he ost

ad"antae of this ethod is that the eneral pulic can et all the ideas clearl# fro the pro"ided

inforation, at a lance. !n our report, /e tried to calculate all the necessar# inforation of a

specified copan#.

Sources of )ata:

Primary sources:

ser"ation

Secondary source:

9oin to the Dha$a Stoc$ E:chane ;DSE< /esite for collectin the annual report

;201=%201>< of S(uare Pharaceuticals +td.

ther -esites ;entioned in the reference<

*+,ecti!e:4he *aluation Model ased on the current and prospecti"e profitailit# of a copan# to assess its

fair ar$et "alue.

imitations:!n the efficient ar$et h#pothesis, finding undervalued securities is hardl# eas#. Moreo"er, it is

the ongoing search for misriced securities that aintains a nearl# efficient ar$et. E"en

infre!uent discoveries of minor misricing world ?ustif# the salar# of a stoc$ ar$et anal#st.


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.ac/ground of S0uare P#armaceuticals imited

!n the Banladeshi pharaceutical industr# /e ha"e focused on S(uare Pharaceuticals in our report. S(uare

pharaceuticals ltd. aintains a "ast arra# of partnerships /ith "irtuall# e"er# a?or copan# chain and ost

independent properties oth doesticall# and internationall#.

4he copan# /as founded in 1&>@ # Sason 8. ho/dhur# alon /ith three of his friends as a pri"ate fir.

!t /ent pulic in 1&&1 and is currentl# listed on the Dha$a Stoc$ E:chane. S(uare Pharaceuticals +td., the

flaship copan#, is holdin the stron leadership position in the pharaceutical industr# of Banladesh since

1&@> and it has een continuousl# in the 1st position aon all national and ultinational copanies since

1&@>. S(uare Pharaceuticals +td. is no/ on its /a# to ecoin a hih perforance loal pla#er.

S(uare Pharaceuticals +iited is an oraniation /ith e(ual ephasis on +eadership, 4echnolo#, ualit#

and Passion. S(uare Pharaceuticals +td. is the leadin randed eneric pharaceutical anufacturer in

Banladesh producin (ualit# essential and other ethical drus and edicines. !t /as estalished in 1&>@ and

has een continuousl# in the 1st position aon all national and ultinational copanies since 1&@>. And no/

S(uare Pharaceuticals is set on ecoin a hih perforance loal pla#er in the field.

aluation:

*aluation is aout ho/ to create shareholder "alue, /hich is /hat a$es copanies thri"e. !t

sho/s e:ecuti"es and corporate finance practitioners ho/ to "alue copanies usin the

discounted cash flo/ ;D5< approach and appl# that inforation to a$e /iser usiness and

in"estent decisions, such as corporate portfolio strate#, ac(uisitions, or perforance

anaeent.

!n finance, "aluation is the process of estiatin the potential ar$et "alue of a financial asset

or liailit#. *aluations can e done on assets or on liailities. *aluations are re(uired in an#


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conte:ts includin in"estent anal#sis, capital udetin, erer and ac(uisition transactions,

financial reportin, ta:ale e"ents to deterine the proper ta: liailit#, and in litiation.

E:ecuti"es ust not onl# ha"e a theoretical understandin of "alue creation, ut ust e ale to

create tanile lin$s et/een their strateies and "alue creation. 4his eans, focusin less on

recent financial perforance and ore on /hat the# are doin to nurture a Chealth#C copan#

that can create "alue o"er the loner ter.

aluation Met#ods:

Business *aluation has ecoe an intrinsic part of the corporate landscape. 4he corporate

landscape has /itnessed d#naic chanes in the recent #ears as erers and ac(uisitions,

corporate restructurins, and share repurchases are happenin in record nuers, oth in the

United States and aroad. At the core of the d#naics of all these acti"ities stands soe notion

of "aluation. 4he "aluation ethods are not onl# necessar# for accountin purposes ut the# also

ser"e as roadaps for the anel in"estors, "enture capitalists and corporate ac(uirers in order to

$no/ the true "alue of a copan#s assets. Althouh there are nuerous indi"idual "aluation

techni(ues, these are cateoried into four standard usiness "aluation approaches appl#in

standard forulas3

1( )iscounted di!idends:

4his approach e:presses the "alue of the firs e(uit# as the present "alue of forecasted future

di"idends.

2( )iscounted a+normal earnings:

Under this approach the "alue of the firs e(uit# is e:pressed as the su of its oo$ "alue and

discounted forecasts of CanoralC earnins.

( aluation +ased on $rice multi$les:

4his approach a current easure of perforance or sinle forecast of perforance is con"erted

into a "alue throuh application of soe price ultiple for other presual# coparale firs.

4( )iscounted cas# o5 analysis:

4his approach in"ol"es the production of detailed, ultiple%#ear forecasts of cash flo/s. 4he

forecasts are then discounted at the firs estiated cost of capital to arri"e at an estiated


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present "alue.

)iscounted Cas# Flo5 - )CF:A "aluation ethod used to estiate the attracti"eness of an in"estent opportunit#. Discounted

cash flo/ ;D5< anal#sis uses future free cash flo/ pro?ections and discounts the ;usin the

/eihted a"erae cost of capital< to arri"e at a present "alue, /hich is used to e"aluate the

potential for in"estent. !f the "alue arri"ed at throuh D5 anal#sis is hiher than the current

cost of the in"estent, the opportunit# a# e a ood.

5orula3 D5

CF 1

(1+r )1+ CF 2

(1+r )2 FGG. FCFn

(1+r )n

5 ash flo/

r discount rate

4his "aluation ethod ased on free cash flo/ is considered a stron tool ecause it concentrates

on cash eneration potential of a usiness. 4his "aluation ethod uses the future free cash flo/

of the copan# ;eetin all the liailities< discounted # the firs /eihted a"erae cost of

capital ;the a"erae cost of all the capital used in the usiness, includin det and e(uit#


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4he ao"e e(uation states that the stoc$ price should e(ual the present "alue of all e:pected

future di"idend into perpetuit#. 4his forula is called the di"idend discount odel ;DDM<

.J2=02

Di"idend recei"ed at the end of the first #ear, D1 4K. J0

P1e:pected sales price 4K. 2>@.70

Calculation of e8$ected P:

E;r< E;D1 7.&0


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!n our findins, /e et the re(uired rate of return ;$


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4he constant ro/th DDM or the 9ordon odel is onl# "alid /hen is less than $. the constant

ro/th rate DDM assues that the copan#s di"idends increase at a constant rate indefinitel#.

Preferred stoc/ and t#e ))M:

*o fi:ed di"idend H ;discount rate W ro/th rate, <

4K. 107.20 H ;.>0 %0<

4K. 21=.=

Preferred stoc$ that pa#s a fi:ed di"idend can e "alued usin the constant ro/th DDM and

here for the copan#s preferred di"idends "alue is 4K.21=.=.

Price =>arnings ratio:

1< PHE 1% HK%

1%.70H.J2=2%.1JJJ

1.>7

S(uare Paras 201=%201> Price WEarnins ratio is 1.>7. S(uare Pharas ro/th ;.1JJJ< and

re(uire return ;.J2=2


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S(uare Pharas 201=%201> price earnins ro/th ratios 7.1J@O. -here S(uare Pharas

annual EPS ro/th is 22O and price earnins ratio is 1.>7 its easures the hih rate than the

pre"ious #ear.

Present !alue of gro5t# o$$ortunity:

'E V .1&V.70

.1JJ ' 1J.J0O

'E !H 4otal e(uit# >0@1&2@=&>H267J&>@1&2&

.1&

1% Di"idend pa#out ratio 1 % 1>2=7@>=&H>0@1&2@=&>

1 % .J0

.70

E ;r < ;A4UA+ P'!E%!!4!A+ P'!E


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opan# ro/th is desirale onl# if it increases their return on in"estentXeither its stoc$

price andHor its di"idends increase. Accordin to the di"idend discount odel, it is possile for a

copan# to ro/ /hile its stoc$ price declines. A copan#s stoc$ price /ill increase onl# if the

copan# can rein"est the one# and earn a hiher rate of return than the re(uired rate of return

deanded # in"estors. 4he additional ro/th of a copan#s earnins has net present "alue of

ro/th opportunities ;P*9


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Informations:


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Conclusion4his report has t/o identical parts. !n the first part /e ha"e calculated three #ears ratio f S(uare phara

annual report of financial #ear 2007%2010. -e ha"e calculated their ratios and sho/n DuPont anal#sis.

Anal#in copanies perforance copare to the s(uare pharaceutical copan# also easured in this

part of the report.

!n the li(uidit# ratio /e can see that oth current ratio and (uic$ ratio ipro"ed o"er tie arinall#. 4he

situation /as alost stale. !n"entor# turno"er, 4otal Asset 4urno"er, 5i:ed Asset 4urno"er all had een

relati"el# stale throuhout the three #ears. A"erae ollection period is also "er# ood. 4he onl#

prole here is the A"erae collection period /hich is /a# hih. 8o/e"er, such a situation is actuall#

prett# uch noral for i copanies.

8ere Det ratio has ipro"ed o"er tie and 4!E has reained prett# uch stale. Apart fro 9ross

Profit 'atio, ost of the Profitailit# ratios ha"e actuall# decreased in 2006%07. Althouh the decrease

rate is "er# inial still it is a prole for S(uare and the# need to tr# to ipro"e these ratios. Both PHE

ratio and MHB ratio declined in the #ear 2006%07. But this happened ostl# not ecause of the copan#s

failure ut for the fact that the /hole ar$et /as not so friendl# for in"estent in that #ear.

5ro the total anal#sis, /e can suarie that S(uare Pharaceuticals +td. has een doin prett# ood

throuhout the #ears. !t is true that last #ear there return did decline ut it is still prett# uch satisfactor#.

4herefore, /e can conclude that S(uare Pharaceuticals +td. is a ood enouh copan# to in"est on.


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eferences:

• #tt$:??555(tradingeconomics(com?+anglades#?interest-rate

• #tt$:??555(tradingeconomics(com?searc#(as$8@0;-+illB2&rateB2&in

B2&+anglades#• #tt$:??555(tradingeconomics(com?+anglades#?stoc/-mar/et

• #tt$:??555(tradingeconomics(com?+anglades#?ne5s

• #tt$s:??555(++(org(+d?monetaryacti!ity?treasury($#$

• #tt$:??+usinessne5s-+d(com?ne5s?treasury?t-+ills?

• #tt$s:??555(++(org(+d?econdata?intrate($#$

• #tt$:??555(s0uare$#arma(com(+d?$rice-sensiti!e-information($#$D

$rettyP#otoEgallery2?&?
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Valuation of Square Pharmaceuticals

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