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James Vanlandingham's avatar

Wonderful write-up! A quick question on the valuation methodology used in your DDM with Exit Multiple. I noticed that you strip out adjusting items from terminal EV then discount to PV whereas, to my knowledge, common consensus is discount terminal EV THEN strip our adjusting items to get PV of Equity (otherwise you would be double discounting the debt and cash). Perhaps I'm just naive to this specific modeling technique as my DDMs typically gets capped by a perpetuity TV and, truthfully, I'm partial to FCFF models where I'm significantly more comfortable. I notice that were you to compare FMV using these two TV methods you end up with a near $20 intrinsic valuation differential due to the significance of debt on the valuation. It would be extremely helpful to understand your thought process in deriving PV of Equity!

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Sunil kumar's avatar

Thanks for the detailed article. All is not well between BAT and ITC ( Indian associate). BAT is against to unrelated diversification whereas ITC is going ahead with it. BAT infact stopped ITC to issue new ESOPs so as to stop diluting its stake in ITC. So your assumption that BAT can influence policy in India through ITC is something to take a conservative view on unless BAT explicitly mentioned the same with solid backing.

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