Valuation

Of
JAMUNA OIL Company Ltd.
 A Report on
“Valuation of JAMUNAOIL Company Ltd.”
Course name: Analysis of Financial Investment
Course code: F-307

Submitted to
Khairul Alam Siddique
Lecturer
Department of Finance
Faculty of Business Studies
University of Dhaka

Submitted by
Afroza Akter Sraboni
ID No. 23-118
Batch: 23rd
Section: A
Department of Finance
University of Dhaka

Date of Submission: 12 February, 2020

 Letter of Transmittal

12th February, 2020

Khairul Alam Siddique
Lecturer,
Department of Finance
University of Dhaka.

Subject: Submission of term paper on “Valuation of JAMUNAOIL Company Ltd.”

Sir,
I feel immense pleasure in presenting to your good self, the report on “Valuation of
JAMUNAOIL Company Ltd.” from the course named “Analysis of Financial Investment (F-
307)” as part of our course requirement. I have tried my best to use all the learnings you provided
in the class and I hope you will see the learning I gathered from the course in this report.
Here I have shown Valuation of JAMUNAOIL Company Limited using different valuation models
and assumptions. I have also shown the process by which I have done the valuation using Microsoft
Excel software and used necessary graphs. I have gathered as much knowledge as I can about
macro, micro, industry and company analysis while preparing the report.
Thank you for giving me the opportunity to learn the real life practice and increase the knowledge.
I deeply regret for any mistakes made in this term paper and I will always be available for any
clarification required.

Yours sincerely,

…………………………………
Afroza Akter Sraboni
ID No. 23-118
Batch: 23rd
Section: A
Department of Finance
University of Dhaka
 Table of Contents

Executive Summary ..................................................................................................................6

1.0. Global Economy Analysis ..................................................................................................7

1.1 The Tech Invasion .............................................................................................................7

1.2 GDP of Influencing Countries ...........................................................................................8

1.3 US GDP ............................................................................................................................8

1.4 The Evolution of Money ....................................................................................................9

1.5 Economic Growth in China ...............................................................................................9

1.6 Shifting Human Geography ............................................................................................. 10

2.0. Macro-Economic Analysis ............................................................................................... 10

2.1 Economic Growth of the country ..................................................................................... 11

2.2 Inflation Rate................................................................................................................... 11

2.3 Money Supply ................................................................................................................. 11

2.4 Interest Rate .................................................................................................................... 12

2.5 Population Growth rate .................................................................................................... 12

2.6 Increasing Income level of people.................................................................................... 13

3.0. Industry Analysis.............................................................................................................. 13

3.1 Industry Organization ...................................................................................................... 13

3.2 Porter’s Five Forces ......................................................................................................... 15

3.3 Industry Life Cycle .......................................................................................................... 16

4.0. Company Analysis ............................................................................................................ 16

4.1 Jamuna Oil Company Ltd. ............................................................................................... 16

4.2 Capacity .......................................................................................................................... 17

4.3 Competitive Advantage via VRIN Model ........................................................................ 17

 4.4 ANSOFF Matrix .............................................................................................................. 18

4.5 BCG Matrix..................................................................................................................... 19

4.6 SWOT Analysis............................................................................................................... 19

4.7 Forecast of Variable of Company Financial ..................................................................... 20

5.0. Valuation .......................................................................................................................... 23

5.1 Free Cash Flow to Equity Model ..................................................................................... 23

5.2 Relative Valuation ........................................................................................................... 24

5.2.1.Price Earnings Ratio .................................................................................................. 24

5.2.2 Price Book Value Ratio ............................................................................................. 24
5.2.3 Price Sales ratio ......................................................................................................... 24
5.2.4 Weighted Average Relative Price .............................................................................. 24
5.3 Dividend Discounting Model ........................................................................................... 25

5.3.1 Zero Dividend Growth Model ................................................................................... 25

5.3.2 Constant Dividend Growth Model ............................................................................. 25
5.3.3 Multi-stage Dividend Growth Model ......................................................................... 25
5.3.4 Weighted Average Share Price Using DDM Model ................................................... 26
5.4 Weighted Average Price .................................................................................................. 26

6.0. Conclusion ........................................................................................................................ 27

7.0. Appendix........................................................................................................................... 28
 Executive Summary

In this report, using the top down approach, the valuation of Jamuna Oil Company Limited is done
while incorporating the global economy, macro-economy, industry and company analysis. While
analyzing the global economy and the macro-economy, a futuristic look is provided for the
investors. And there is a potential growth in the economy due to increased population, technology,
income and other variables. Jamuna Oil Company falls under Petroleum industry, which is an
emerging industry right now.
Jamuna Oil Co. is currently a Subsidiary of Petrobangla. Jamuna Oil Co. Ltd. engages in the
procuring, storing, transporting and marketing of petroleum products, Lubricating oils & greases,
Bitumen & LPG .It has competitive advantage over the local competitors.
Three types of Valuation was done in this report- DCF, DDM and Relative Valuation. Before
doing the valuation, the balance sheet, the income statement for the upcoming 5 years is projected
and necessary assumptions are mentioned in the report. According to DCF Valuation, the Price
Should be 231 Taka. TO perform relative valuation, I have taken four peer companies belonging
to the same industry. According to Relative Valuation, the price should be,
Price
P/E 218.4772863
P/B 199.8011821
P/S 140.9687713
After imposing weight to relative valuation the weighted average price of relative valuation is
found TK 181.73.
According to DDM Model the price should be,
Price
Zero Dividend Growth Model 110.8437715
Constant Dividend Growth Model 599.9137566
Multistage Dividend Growth Model 176.9777777
After using all this valuation and giving weight, I established the price of Jamuna Oil Co. to be
201.8881319, which is higher than the current market share. So, the investment decision is to
purchase the share.
 1.0. Global Economy Analysis
Global Economy influences the movement of a company’s asset, performance and income thus
impacting the share price. It changes the perspective of the investors to invest in a stock.When the
global economy is expanding, investors expect their respective company will also grow with that.
Predicting global economy is not easy. Influencing countries on movement of global economy
helps us to predict the future global economy.

1.1 The Tech Invasion

For most of the history of business, the world’s leading companies have been industrially-focused.
Then, companies invested massive amounts of capital to build physical factories, pay thousands
of workers, and build these things.But today’s business reality is very different. We live in a world
of bytes – and for the first time technology and commerce have collided in a way that makes data
far more valuable than physical, tangible objects.

As we can see above, companies like Apple, Amazon, and Microsoft have supplanted traditional
blue chip companies that build physical things. The tech invasion has already taken over retail and
advertising – and now invading forces have their eyes set on healthcare, finance, manufacturing,
and education.

Facts:
1.2 GDP of Influencing Countries

GDP of US, China, India, Germany and Japan has increase during last 20 years. And it is
projected to increase in the future years too which will have a great effect on world economy.

1.3 US GDP

Among the top countries influencing the world economy, USA is one of them. The movement of
its GDP influences the other countries of the world too.

US GDP (IN BILLION DOLLAR)

US GDP (In Billion Dollar)

22500

20500

18500

16500

14500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

We can see above that the USA GDP growth is steady and continuing at same growth rate. There
is no unfavorable movement of its GDP for last 10 years. So, the future growth of USA GDP is
estimated to be around the same rate.
1.4 The Evolution of Money

Money is arguably one of humanity’s most important inventions. From beaver pelts to gold bars,
the form and function of money has constantly fluctuated throughout history. In the modern world,
the definition of money is blurrier than ever. Central banks have opted to create trillions of dollars
of currency out of thin air since the financial crisis .Regardless of what is money and what is not,
people are borrowing record amounts of it.
The world has now amassed $247 trillion in debt, including $63 trillion borrowed by central
governments. How we view money and how that perception evolves over time is an underlying
factor that influences our future. Here are other examples that illustrate the evolution of money:
Venezuela has hyper inflated away almost all of its currency’s value, the “War on Cash” is raging
on around the world, central banks are lending out money at negative interest rates (Sweden, Japan,
Switzerland, etc.), and cryptocurrencies like Bitcoin are collectively worth over $200 billion.

Facts:

1.5 Economic Growth in China

Up until recently, we have only been able to get a preview of what the Eastern superpower is
capable of and in the coming years, these promises will come to fruition at a scale that will still be
baffling to many. In fact, China has over 100 cities with more than 1,000,000 inhabitants. These
cities, many of which fly below the radar on the global stage, each have impressive economies
whether they are built upon factories, natural resource production, or the information economy.
The Yangtze River Delta – a single region which contains Shanghai, Suzhou, Hangzhou, Wuxi,
Nantong, Ningbo, Nanjing, and Changzhou – has a GDP (PPP) of $2.6 trillion, which is more than
Italy.

Facts:
1.6 Shifting Human Geography

Global demographics are always shifting, but the population tidal wave in the coming decades will
completely reshape the global economy.

In Western countries and China, populations will stabilize due to fertility rates and demographic
makeups. And the current spread of Corona virus will lead to drastically decrease in population.
Meanwhile, on the African continent and across the rest of Asia, booming populations combined
with rapid urbanization will translate into the growth of megacities, holding upwards of 50 million
people. By this time, it’s projected that North America, Europe, South America, and China will
combine to hold zero of the world’s 20 most populous cities.

Facts:

2.0. Macro-Economic Analysis

Bangladesh is over populated country with a potential of boosted economy. The growth rate of
population has been decreased. GDP per capita is increasing. Inflation rate is quite stable here. The
aggregate economy of Bangladesh is quite satisfactory and the growing industries can contribute
to the growth of the economy.

2014 2015 2016 2017 2018

Population(million) 158 160 162 163 165

GDP per capita(USD) 1,093 1,220 1,372 1,521 1,650

Economic Growth 6.1 6.6 7.1 7.3 7.9

(GDP,annual variation
in %)
Industrial Production 8.7 11.8 13.1 14.6 14.8

Inflation rate 6.1 6.1 5.0 5.8 5.3

International Reserve 22.4 27.9 32.1 33.2 32.0

2.1 Economic Growth of the country

The growth rate of Bangladesh is smoothly growing in last few years. In the year 2018-19,
Bangladesh has achieved GDP growth rate of 8.13%. Bangladesh has already entered the socio-
economic classification of Lower Middle Income Group. The future GDP is predicted to grow
also. So, we can predict that the consumption expenditure will also grow.

GDP Growth Rate of Bangladesh

8.50% 8.13%
7.86%
8.00%

7.50% 7.28%
7.11%
7.00%
6.55%
6.50%
6.01% 6.06%
6.00%

5.50%
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

2.2 Inflation Rate

Inflation rate will boost the economy to a great level. The Lending Rate and Deposits Rate have
been determined as maximum 9% and 6% respectively. It should have a positive impact on
economy. The Laspeyres formula is generally used.

 Bangladesh inflation rate for 2018 was 5.54%, a 0.16% decline from 2017.
 Bangladesh inflation rate for 2017 was 5.70%, a 0.19% increase from 2016.
 Bangladesh inflation rate for 2016 was 5.51%, a 0.68% decline from 2015.
 Bangladesh inflation rate for 2015 was 6.19%, a 0.8% decline from 2014.

2.3 Money Supply

Bangladesh Bank has established an Inflation target of 5.5%. And it was successful to bring it
down to 5.5% with its prudent policy. It is expected that it will continue to be 5.5% in later year
and there will be no inflation shock.
Investors can expect that money supply will be stable and no surprising impact on stock market
due to money growth.

2.4 Interest Rate

Money Supply is a very important factor in Economy of any country. It impacts two major element
of investment Inflation and Interest Rate.

2.5 Population Growth rate

Bangladesh is one of the densely populated country in the world. And the increase in population
is creating demand of fuel and power.

Population of Bangladesh (In Million)

169 167
166
167 165
165 163
163 161
161 159
158
159
156
157
155
2012 2013 2014 2015 2016 2017 2018 2019
2.6 Increasing Income level of people

Average income level of people of Bangladesh is increasing. The per capita Gross National Income
(GNI) rose to $1,906 in the 2018-19 fiscal year, which was $1,751 in the 2017-18 financial year.
Average income has grown by 8.85% from 2017-18 to 2018-19. Thus, people have more money
to allocate for food products.

Per Capita Income (In US Dollars)

1906
1900
1751
1700 1610
1465
1500
1316
1300 1184

1100
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

3.0. Industry Analysis

Jamuna Oil Company Ltd. Falls in Petroleum Industry. Bangladesh has low level of domestic
reserves of petroleum along with insignificant production capacity. Relatively, high level of
consumption has made it a net oil importer country.

3.1 Industry Organization

• Exploration, Production and Import

The Bangladesh Petroleum Exploration and Production Company (BAPEX) primarily carry out
exploration, Production and Import Exploration and production activities. However, the country
has also initiated several Production Sharing Contracts (PSCs) with foreign oil companies.
Bangladesh Petroleum Corporation (BPC) is responsible for import of petroleum products.
• Refining and Blending
Under a Processing Agreement with BPC, Eastern Refinery Limited ERL processes crude oil
imported by BPC and delivers the finished petroleum products to the other subsidiaries of BPC
for marketing and distribution. Also, Eastern Lubricants Blenders Limited (ELBL) and Standard
Asiatic Oil Company Limited (SAOCL) are responsible for blending of Lubricating Oils and
greases on behalf of Petroleum Marketing Companies.
• Distribution
In the downstream, Padma Oil Company Limited (POCL), Jamuna Oil Company Limited
(JOCL), Meghna Petroleum Limited (MPL) and LP Gas Limited (LPG) is participating in
distribution activities of petroleum products.

Selected Statistics of Petroleum of Bangladesh

Following table represents key statistics of petroleum of Bangladesh. Following table represents
key statistics of petroleum of Bangladesh.
Particulars Unit 2005 2006 2007 2008 2009
Proved Billion Barrels 0.028 0.028 0.028 0.028 0.028
Reserve of
Crude Oil
Production ‘000 Barrels 6.76 6.73 6.72 6.39 5.72
Per Day
Consumption ‘000 Barrels 86.76 90.77 90.76 93.00 96.00
Per Day
Import ‘000 Barrels 57.26 62.60 64.27 NA NA
(Refined Per Day
Petroleum)
Export ‘000 Barrels 1.35 2.61 2.77 NA NA
Per Day

This increasing Consumption will have a positive impact on the Petroleum Industry.
Increasing Population & Factories
Number of factories is dependent on the demand of products, which depends on the number of
population. As Bangladesh has overpopulation. So, the demand the products of petroleum industry
is on rise.
Consumption
3.2 Porter’s Five Forces

Porter’s Five Forces model is to analyze profitability of the industry. Potential profitability of a
firm depends mostly on the profitability of industry. Porter’s five forces are
1. Bargaining Power of Suppliers
2. Bargaining Power of Buyers
3. Rivalry among Existing Firms
4. Threat of New Entrance
5. Threat of Substitutes Products

Bargaining Power of Suppliers

The raw materials required by petroleum Industry are crude oil and gas extracted from
underground reservoirs. The number of their supplier is very few in this country. So, the switching
cost is very high .So, we can say the bargaining power of the supplier is high.
Bargaining Power of Buyer
There are few companies. But there are also few direct customers So, the bargaining power of
buyer is moderate.
Rivalry among Existing Firms
There exists currently 10 firms in petroleum industry. Almost all of them provides identifiable
goods. At present only about 30% of the market demand of the lubricant products are served by
the three oil-marketing companies. It is notable here that BPC has no price control on the lubricants
products. Government supplies almost all of the petroleum demand through import from various
countries to support the energy need in transportation, power generation, agricultural activities and
others. Import of petroleum has been increased in year 2016. Improvement in generation has a big
impact on diesel consumption by the irrigation pump. Now a huge number of pumps operate with
electricity which earlier used to consume diesel. In upcoming year we can expect increase in
petroleum import as government has issued permission for setting up power plants where most of
them will be furnace oil based. So, the competition is moderately high.
Threat of New Entrance
Petroleum Industry requires high capital and refining machineries .Its intense competition often
discourage new firms to enter this industry. There is literally no entry barrier in this industry even
tax incentive is paid to new firms. But there is threat of foreign companies to grab the market.So,
the threat of new entrance is moderate.
Threat of Substitutes Product
Industry is more profitable when there is no substitute of that product. Availability of substitute
products for fuel and power is low. Hence, threat of substitution is low.
Overall we can say, this industry will provide Moderate return to the Investors.
3.3 Industry Life Cycle

With growing population and growing income, the demand for fuel and power is increasing. The
consumption is increasing with increasing income. Bangladesh, with a very low reserve of
petroleum, has become a net petroleum import country. Because of the recent liquid oil based
power plants, petroleum requirements have increased by 28% in 2011.
In 2011, BPC had to import around 4.8 million tones of petroleum oil which was 3.75 million
tones in the previous year. Installation of a good number of liquid fuel based power plants is the
main reason for such increase in petroleum oil import. In 2012, the BPC's import will increase
further by 1.0 million tones. Because of the present turmoil in the Middle-East and Africa,
petroleum price will be inflated further which will increase import bill of BPC. If the government
increases its subsidy in the petroleum, then profitability of the companies operating in the refining
and distribution will increase because of volume increase. Also, if the increased petroleum cost is
transferred to the end users, profitability of the existing companies in refining and distribution will
also increase. As it is in growth stage, it is attracting many firms and investors.

4.0. Company Analysis

4.1 Jamuna Oil Company Ltd.

Jamuna Oil Co. Ltd. engages in the procuring, storing, transporting and marketing of petroleum
products, Lubricating oils & greases, Bitumen & LPG. The company was founded in 1964 and is
headquartered in Chittagong, Bangladesh.
Jamuna Oil Company Limited is a Bangladesh-based petroleum marketing company. The
Company is a subsidiary of Bangladesh Petroleum Corporation. The Company is engaged in
marketing refined petroleum oil, lubricants, liquefied petroleum gas and bitumen. The Company
offers lubricants and greases under the Jamuna brand and Mobil brand. The Company also supplies
bunker fuels to sea-going vessels arriving at or departing Chittagong Port. The Company's products
are distributed to different depots by coastal tanker, shallow draft tanker, railway tank wagons and
tank Lorries.
Business Model and Product
The prime activities of the company include the procurement, storage and marketing of petroleum
products, nonpetroleum products and lubricants products. The petroleum products include High
Octane Blending Component (HOBC), Motor Spirit (MS), Superior Kerosene Oil (SKO), High
Speed Diesel (HSD), Light Diesel Oil (LDO), Furnace Oil (FO), and Jute Batching Oil (JBO).
Non- petroleum products include Liquefied Petroleum Gas (LPG) and Bitumen. JOCL is the
distributor of lubricants of Mobil Jamuna Lubricants Limited. Lubricants products of JOCL
include MOBIL DELVAC SPECIAL 20W50, MOBIL DELVAC 1340, MOBIL HD 40, MOBIL
SUPER XHP 20W50 and MOBIL ATF 220. Aside from those JOCL also markets bitumen, LP
gas, and lubricants and grease.
Pricing Strategy
The pricing structure is settled by the Government at ex-refinery level, depots level, and also at
consumer level in different distances. The commission at each level of suppliers are namely oil
marketing companies, agents. The Government also fixes dealers. As per the requirement of the
state, the Government of Bangladesh imports crude oil and refined oil, then the crude oil is refined
through Eastern Refinery Ltd. (ERL), another subsidiary of BPC and distributed through its oil
marketing companies. There exists some special arrangement among the three oil marketing
companies with a few direct customers. Among the direct customer groups, there are some
Government organizations (PDB, Bangladesh Railway, and Defense Service), autonomous body
(Chittagong Port Authority, BIWTA, Bangladesh Ordnance Factory) and nationalized industries
etc. The oil marketing companies are engaged in marketing of oil products and the income it earns
is termed as ‘Margin’ that is fixed by and determined by the Government.

4.2 Capacity

In terms of Capacity, Padma Oil Company Limited holds the highest position with a total capacity
of 247,033 MT whereas Meghna Petroleum Limited has a total capacity of 215,713 MT and
Jamuna Oil Company Limited has the highest capacity of 184,357 MT. The three oil marketing
companies have the highest capacity for High Speed Diesel since demand for High Speed Diesel
is the highest among all the petroleum products.

4.3 Competitive Advantage via VRIN Model

VRIN Model analyses a firm’s competitive advantage according to assets at its disposal.
JAMUNAOIL’s main resources are their infrastructure, raw material, their technology and their
Product. If we use VRIN Model on them individually then,
Infrastructure
Infrastructure of JUMUNAOIL’s product is not accessible to any potential competitors in
Bangladesh. It is advantageous for JAMUNAOIL as its competitors don’t receive the same access
to the infrastructure.
1. Value: Add additional value.
2. Rareness: isn’t available to all competitors.
3. Imitability: not easily obtained by competing firms
4. Non-substitutable: unlikely to be substituted by any other resource at lower cost
So, Access to infrastructure provide competitive advantage.
Raw Materials
As per the requirement of the state, the Government of Bangladesh imports crude oil and refined
oil, then the crude oil is refined through Eastern Refinery Ltd. (ERL), another subsidiary of BPC
and distributed through its oil marketing companies. There exists some special arrangement among
the three oil marketing companies with a few direct customers.
5. Value: Add additional value.
6. Rareness: Available to existing competitors.
7. Imitability: Engagement is not hard to be imitated.
8. Non-substitutable: Cannot be substituted with other raw materials easily

So, Access to raw materials doesn’t provide additional competitive advantage.

Technology
The Technology used in JAMUNAOIL is also high quality and highly costly.
1. Value: High cost technology provides some value.
2. Rareness: Isn’t available to potential private local companys.
3. Imitability: Obtained by competing businesses carrying higher cost.
4. Non-substitutable: Cannot be substituted by any other resource.

So, Access to High Quality Technology provides some competitive advantage.

4.4 ANSOFF Matrix

ANSOFF Matrix divides a company regarding to their approach of creating new product and
entering new market. Every Business can be classified in four category
 1. Market Penetration (Existing Market, Existing Product)
2. Market Development (New Market, Existing Product)
3. Product Development (Existing Market, New Product)
4. Diversification (New Market, New Product)
JAMUNAOIL will fall in the Market penetration Category. As the company is state-owned, the
strategy is not very forward looking. It is quite stable and focuses on the existing market.

4.5 BCG Matrix

According to BCG Matrix product can be of 4 types in regard to their market size and growth.
They are,
1. Cash Cow (Low Growth, High Market Share)
2. Star (High Growth, High Market Share)
3. Question Mark (High Growth, Low Market Share)
4. Dog (Low Growth, Low Market Share)
Jamuna Oil company has a high market share of around 53%. But its growth is low. . It will fall
in Cash Cow. But with higher innovation it can be shifted to Star.

4.6 SWOT Analysis

To find out present strength and weakness and future opportunities and threat for
JAMUNAOIL.we did a SWOT analysis.
Strength
1. Jamuna Oil is asttate-owned company. So, it gets all the benefits from the govt and can
collect raw materials through a structured pr0cess.This indicates to a superior workforce
GSK Bangladesh have.
2. Jamuna Oil has highest capacity compared to its competitors.
3. Jamuna Oil ha Infrastructural benefit compared to its competitors.
Weakness
1. There are few distributors of raw materials of petroleum industry.
Opportunity
1. JamunaOil has a great potential to grow in Bangladeshi market due to the increased
population and demand of them.
2. Jamuna Oil can get its customers easily through Govt.
Threat
1. New Foreign competitors might plug into the market.
 2. Increased use of gas might create lower or negative growth rate,
It seems that future prospect of JamunaOil is likely to be good.

4.7 Forecast of Variable of Company Financial

Revenue
To estimate the revenue for subsequent 5 years, average growth of petroleum products and other
operating income are taken into account. Their products are expected to grow at 5%. And the other
operating income is expected to grow at 4%.

Selling, Distribution and Administrative Expense

Selling, Distribution and Administrative Expense are predicted as percentage of Revenue. For the
subsequent year, Selling, Distribution and Administrative Expense are assumed 51% of revenue.

Other Income
To estimate the other income for subsequent 5 years, average growth is taken into account.

Finance Expense
Financial Expense is assumed 10% of revenue(average).
Income Tax
Income tax was calculated on average income expense relative to Profit before Tax.

Property, Plant and Equipment

The growth of PPE was calculated based on average growth .

Deferred Tax, Capital-Work-in-Progress, Investment

Retention Ratio and Dividend per Share

Accounts Receivables
Receivables was calculated and estimated as percentage of revenue.

Accounts Payables
payable was calculated and estimated as percentage of cost of goods sold.

Beta Estimation
From the collected monthly share price of Jamuna Oil CO. Ltd. and DSEX Index for 72 months
(From February 2013 to January 2020) the followings are derived.

Here the estimated Beta is .6723 that means, for 1 percentage movement in DSEX index will cause
.6723% movement in Jamuna Oil Co’s price.

CAPM & WACC

CAPM Model is used to determine the cost of equity. Here Risk Free Rate is considered 9.20%.
The market return is estimated 10.3%which is way below the Risk Free Rate

Here the Cost of Equity is 9.91%. Terminal growth rate is assumed 3%. So the WACC is the Cost
of Equity Which is 9.91%.

Net Working Capital

Net working Capital was calculated using estimated current assets and liabilities.

Assumptions
1. Risk-free rate is 9.2%.
 2.Terminal growth rate 4%
3. PPE, Capital-work-in progress are forecasted at an average growth rate.
4. Market return is assumed 12%
5.A/R is forecasted based on revenue growth
6. Retention ratio 50%(average of retention ration of past 5 years)
7. Other comprehensive income is assumed 0 for subsequent 5 years.

Sustainable Growth Rate

To determine sustainable growth rate forecasted ROE of 2019 was calculated and it was multiplied
with estimated retention ratio.

Sustainable Growth Rate was found to be 7.93%.

5.0. Valuation

5.1 Free Cash Flow to Equity Model

In this model, we discounted the cash flow by WACC, which is 9.65%, and terminal growth rate
was assumed 3%.
Using FCFE Model the price is found to be 231 Taka.

5.2 Relative Valuation

The peer companies (comparing product, industry and assets) found of Jamuna Oil Ltd. are GBB
Power Ltd., Khulna Power Ltd., Baraka Power Ltd.,Shahjibazar Power Co. Ltd.and the Relative
Valuation is done using this four company.
5.2.1.Price Earnings Ratio

According to P/E Ratio the price of the Jamuna Oil Ltd. Company’ss share should be 218.4773
Taka.
5.2.2 Price Book Value Ratio

According to P/B Ratio the price of the share should be 199.8012 Taka.
5.2.3 Price Sales ratio

According to P/S Ratio, the price of the share should be 140.96 Taka.
5.2.4 Weighted Average Relative Price

Weights are given to different prices found by different Relative Valuation. Price received by P/B
was given less weight due to its inflated price.
Weighted Average Price found by Relative Valuation is 181.73 Taka.

5.3 Dividend Discounting Model

Three types of valuation done using DDM Model. Zero growth, Constant growth and Multi-stage
growth.
5.3.1 Zero Dividend Growth Model

Using Zero Dividend Growth Model we found the price to be 110.84 Taka.
5.3.2 Constant Dividend Growth Model

In Constant Dividend Growth Model, sustainable growth rate at 7.93% (forecasted retention ratio
multiplied by ROE) is used as the constant growth.

Using Constant Dividend Growth Model the price was found to be 599.91 Taka.
5.3.3 Multi-stage Dividend Growth Model

In Multi-stage Dividend Growth Model forecasted dividend was accounted for 5 year then terminal
growth rate was accounted for rest years.
Using Multi-stage Dividend Growth Model the price is found to be 176.97 Taka.
5.3.4 Weighted Average Share Price Using DDM Model

In finding weighted average price, weights are given to the price of these three models.

Weighted Average Share Price using DDM Model is found to be 182.89 Taka.

5.4 Weighted Average Price

Weight is given to the obtained share price from DCF Model, DDM Model, and Relative Valuation
the Weighted Average price is found to be 201.88 Taka.
 6.0. Conclusion

The Current price of Jamuna Oil is 139 and the estimated price is 201.88. The share is undervalued
in the market. The intrinsic value we have derived from various valuation techniques is higher than
the market price. Selling the share at market price will be a loss for the investor .So, the investor
should purchase this stock at the current market price at TK139.
 7.0. Appendix

Market Price and Return of JAMUNAOIL, DSEX Index and Return

Beta Estimation

CAPM

Historical Items and Forecasting (Income Statement)

Historical Items and Forecasting (Balance Sheet)
Calculations for ‘pro forma balance sheet
Net Working Capital

DCF Valuation
Zero Dividend Growth Model, Constant Dividend Growth Model, Multi-Stage Dividend Growth
Model, Weighted Average Price by DDM Valuation
P/E Ratio, P/B Ratio, P/S Ratio

Weighted Average Price by Relative Valuation:

Weighted average price by using DCF,DDM & Relative Valuation: