Group Mates

Sagar Kumar SainaniMuhammad TaimurMuhammad RazaMuhammad Ihsaan (Withdraw)

OutlineIntroductionForecasted Financial StatementsFree Cash FlowsDividend PolicyOptimal Capital StructureWorking Capital ManagementCCC

OGDCLOGDCL is a Pakistani multinational oil and gas company. It has primary listing on Karachi Stock Exchange, and secondary listings on London, Lahore and Islamabad stock exchanges. Established in 1961 by the Government of Pakistan, it was turned into a public listed company on 23 October 1997. Today it is involved in exploring, drilling, refining and selling oil and gas in Pakistan.

OGDCL (Cont:) It is the market leader in terms of reserves, production and acreage. It is based on Jinnah Avenue, Blue Area in Islamabad.Government of Pakistan holding about 74% stake in the company, rest are held by private investors.

Forecasted Income StatementHistorical data 2010-2014 Growth=(S1-S0)/S0Trend Analysis (Sales)Formula:TREND($D$57:$H$57,$D$56:$H$56,J56:N56)Forecast 5 years sales 2015-2019

GROWTHCalculated different growth ratesFormula: =(S1-S0)/S0Growth rates are, 10.60% 10.43% 9.45% 8.63% 7.95%

TaxTax of previous years33.17% 30.18% 27.18% 37.75% 28.10% Tax rate 34.65%

FORECASTED BALANCE SHEETAll assets and Current liabilities grow with different growth rates.Calculated AFNFormula: Change in total assets-Increase in current liabilities-Add: to retained earningsNegative amount of AFN for three years

FREE CASH FLOWSNOPAT (Net operating Profit After Taxes)NOWC (NET OPERATING WORKING CAPITAL)Change in Plant and Equipment

FCF=NOPAT-(NOWC+PE)OrFCF=EBIT(1-T)-{(Change in assets-Change in liabilities)-PPE)

Weighted Average Cost of CapitalWACC = Wd*rd(1-t)+ We*reWd & WeRequired Rate of ReturnCapital Asset Pricing Model (CAPM)re= rf+(Rpm)Risk free Rate (Rf)Market Premium (Rpm)Beta ()Rate of debt (Rd)

CAPMRe=rf+(rm-rf)*b Rf= 9%Re= 14.22% Beta is 0.745716608 Calculated by taking market price and Market index of current year

WACCDebt ratio 23.45% Equity Ratio 76.55% Rate on debt (rd) 10.00% Rate on Equity (rs) 14.22% Tax 34.65%WACC=wd*rd*(1-t)+We*ReWACC=12.42%

Value of firm, Value of Equity, Share PriceValue of Operation2441581509 + Non-operating Assets37537297 =Value Of Firm2479118806 -Debt46021283 -Preferred Stock0=Value of Equity2433097523 Share price = Value of Equity/No: of outstanding SharesPKR 565.71

Intrinsic Value (Decision)Share price is PKR 565.71 Current market price PKR 220Share (Intrinsic) price>Market PriceUndervaluedDecision:Buy the Stock

OPTIMAL CAPITAL STRUCTURE

Working Capital Management

CCC = CCP + ICP PDP

CCP = AR / Sales per day

ICP = Inventory / COGS per dayPDP = AP / Sales per day

Accounts used in calculating CCC

Sales per day Cogs per day Stocks in Trade Inventory trade debts Receivables Payables NOWC

AssumptionsGrowth (s1-s0)/s0Tax Rate is 34.65% for the forecasted yearsRisk free rate is 9% as from treasury billsMarket premium is kept 6% Market rate is (rd) 10% Market index from opendoors.com

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