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Case Example Comfortable Garments Limited is an online apparel selling platform that delivers the readymade garments and accessories to the doorstep of the customers. The owner wants to know the value of his firm. Imagine that he has hired you as a consultant to value the firm. The owner shares the following data and assumptions with you. The current market size of the addressable market is INR 500 crores of Gross merchandise value (@ MRP) of goods sold. And this market is expected to grow at 3% per annum for next 10 years. The current market share of the firm is at 3% of the addressable market, and is expected to grow uniformly to 5% over the next 10 years. Currently, the platform offers 20% discount on the MRP for the products sold. The platform intends to reduce this discount gradually to 15% over a period of next 10 years. Also, the sourcing team of XYZ Limited currently gets a discount of 40% on the MRP from the brands. And it expects this discount to grow to 50% over a period of next 10 years. The average order value is INR 5000, and the lastmile cost per order is INR 120. Average user places 0.1 order per month on the platform. The lastmile cost as % of revenue is expected to decline @ 1% year on year over the period of next 10 years. The rental costs are currently 15% of the GMV @ MRP, and are expected to grow @ 3% per annum. Marketing cost is currently INR 1 crores, which is spent on two things: customer retention and customer acquisition. The cost of customer retention is INR 0.4 per existing user. Assume that all the other fixed expenses (frontmile, midmile, manpower, SG&A, etc.) remain at 15% of the GMV-MRP. Assume the beginning NOL balance to be INR 5 crores, and the corporate tax rate is 25%. Assume that additional working capital is required at 0.75 % of the incremental revenue per year for the next 10 years. Assume the terminal life of the firm to be 10 years. If the free cashflows are expected to grow at 4% each year after the terminal year till perpetuity. The capital expenditure in the business is needed to be done @ INR 4 crores per annum. Comfortable Garments Limited is not publicly traded in the market. The risk free rate is 4%, and the market risk premium is 8%. There are two comparable firms X and Y in the industry that are publicly traded in the equity market, and their stock price over the 6 years along with the market price is given below, The debt- equity ratios are 15% and 40% for the firms X and Y respectively. The debt on the balance sheet of the firm X is double that of firm Y. Time stamp Price per share A Price per share B Market Index value (INR) (INR) (INR) Dec'2015 118 67 27000 Dec'2016 131 88 31000 Dec 2017 142 126 32500 Dec'2018 159 154 36000 Dec'2019 155 145 36500 Dec'2020 179 183 39000 The firm Comfortable Garments Limited wants to have a target debt-equity ratio of 40% in the long run. Also, the following are the loans that have been taken by it along with the interest rates. Loan Number Amount (Crores INR) Rate of interest (% Per annum) 1 2000 6.25% 2 4000 5.75% 3 5000 5.5% a) Compute the revenue and contribution margins for the next 10 years. b) What is the cost spent currently on the customer acquisition? c) Forecast the EBITDA of the firm for next 10 years. d) Forecast the free cashflows to the firm over the next 10 years. e) Find the terminal value of the firm. f) Find the cost of equity and cost of debt g) Find the weighted average cost of capital h) Find the value of the firm Case Example Comfortable Garments Limited is an online apparel selling platform that delivers the readymade garments and accessories to the doorstep of the customers. The owner wants to know the value of his firm. Imagine that he has hired you as a consultant to value the firm. The owner shares the following data and assumptions with you. The current market size of the addressable market is INR 500 crores of Gross merchandise value (@ MRP) of goods sold. And this market is expected to grow at 3% per annum for next 10 years. The current market share of the firm is at 3% of the addressable market, and is expected to grow uniformly to 5% over the next 10 years. Currently, the platform offers 20% discount on the MRP for the products sold. The platform intends to reduce this discount gradually to 15% over a period of next 10 years. Also, the sourcing team of XYZ Limited currently gets a discount of 40% on the MRP from the brands. And it expects this discount to grow to 50% over a period of next 10 years. The average order value is INR 5000, and the lastmile cost per order is INR 120. Average user places 0.1 order per month on the platform. The lastmile cost as % of revenue is expected to decline @ 1% year on year over the period of next 10 years. The rental costs are currently 15% of the GMV @ MRP, and are expected to grow @ 3% per annum. Marketing cost is currently INR 1 crores, which is spent on two things: customer retention and customer acquisition. The cost of customer retention is INR 0.4 per existing user. Assume that all the other fixed expenses (frontmile, midmile, manpower, SG&A, etc.) remain at 15% of the GMV-MRP. Assume the beginning NOL balance to be INR 5 crores, and the corporate tax rate is 25%. Assume that additional working capital is required at 0.75 % of the incremental revenue per year for the next 10 years. Assume the terminal life of the firm to be 10 years. If the free cashflows are expected to grow at 4% each year after the terminal year till perpetuity. The capital expenditure in the business is needed to be done @ INR 4 crores per annum. Comfortable Garments Limited is not publicly traded in the market. The risk free rate is 4%, and the market risk premium is 8%. There are two comparable firms X and Y in the industry that are publicly traded in the equity market, and their stock price over the 6 years along with the market price is given below, The debt- equity ratios are 15% and 40% for the firms X and Y respectively. The debt on the balance sheet of the firm X is double that of firm Y. Time stamp Price per share A Price per share B Market Index value (INR) (INR) (INR) Dec'2015 118 67 27000 Dec'2016 131 88 31000 Dec 2017 142 126 32500 Dec'2018 159 154 36000 Dec'2019 155 145 36500 Dec'2020 179 183 39000 The firm Comfortable Garments Limited wants to have a target debt-equity ratio of 40% in the long run. Also, the following are the loans that have been taken by it along with the interest rates. Loan Number Amount (Crores INR) Rate of interest (% Per annum) 1 2000 6.25% 2 4000 5.75% 3 5000 5.5% a) Compute the revenue and contribution margins for the next 10 years. b) What is the cost spent currently on the customer acquisition? c) Forecast the EBITDA of the firm for next 10 years. d) Forecast the free cashflows to the firm over the next 10 years. e) Find the terminal value of the firm. f) Find the cost of equity and cost of debt g) Find the weighted average cost of capital h) Find the value of the firm

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