Estimating The Intrinsic Value Of TV18 Broadcast Limited (NSE:TV18BRDCST)

Key Insights

• Using the 2 Stage Free Cash Flow to Equity, TV18 Broadcast fair value estimate is ₹42.92
• TV18 Broadcast's ₹43.30 share price indicates it is trading at similar levels as its fair value estimate
• Industry average of 124% suggests TV18 Broadcast's peers are currently trading at a higher premium to fair value

In this article we are going to estimate the intrinsic value of TV18 Broadcast Limited (NSE:TV18BRDCST) by taking the expected future cash flows and discounting them to today's value. This will be done using the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

See our latest analysis for TV18 Broadcast

The Method

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) estimate

	2024	2025	2026	2027	2028	2029	2030	2031	2032	2033
Levered FCF (₹, Millions)	₹30.8b	₹4.30b	₹8.52b	₹11.4b	₹8.48b	₹7.14b	₹6.49b	₹6.21b	₹6.15b	₹6.23b
Growth Rate Estimate Source	Analyst x1	Analyst x1	Analyst x1	Analyst x1	Est @ -25.53%	Est @ -15.84%	Est @ -9.06%	Est @ -4.31%	Est @ -0.99%	Est @ 1.33%
Present Value (₹, Millions) Discounted @ 16%	₹26.7k	₹3.2k	₹5.5k	₹6.4k	₹4.1k	₹3.0k	₹2.3k	₹1.9k	₹1.7k	₹1.5k

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = ₹56b

The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (6.8%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 16%.

Terminal Value (TV)= FCF₂₀₃₃ × (1 + g) ÷ (r – g) = ₹6.2b× (1 + 6.8%) ÷ (16%– 6.8%) = ₹75b

Present Value of Terminal Value (PVTV)= TV / (1 + r)¹⁰= ₹75b÷ ( 1 + 16%)¹⁰= ₹17b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is ₹74b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of ₹43.3, the company appears around fair value at the time of writing. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.

Important Assumptions

We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at TV18 Broadcast as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 16%, which is based on a levered beta of 1.070. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

SWOT Analysis for TV18 Broadcast

Moving On:

Whilst important, the DCF calculation shouldn't be the only metric you look at when researching a company. DCF models are not the be-all and end-all of investment valuation. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For TV18 Broadcast, we've put together three pertinent aspects you should further research:

1. Risks: For instance, we've identified 2 warning signs for TV18 Broadcast (1 is a bit unpleasant) you should be aware of.
2. Future Earnings: How does TV18BRDCST's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
3. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St updates its DCF calculation for every Indian stock every day, so if you want to find the intrinsic value of any other stock just search here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.