Valuing Lumen Learning: A Five-Year DCF
A private equity client is considering acquiring Lumen Learning, a edtech business in India. You have been asked to build the valuation case.
The company generated ₹506 Cr of revenue last year at an EBIT margin of 17%. Management projects revenue growth of 18% per year for five years, after which the business is expected to settle into mature, GDP-like growth.
Capital expenditure runs at 8% of revenue and depreciation & amortisation at 4%. Changes in net working capital consume roughly 3% of incremental revenue. The effective tax rate is 30%.
The company's equity beta is 1.4, the risk-free rate is 3.4%, and the equity risk premium is 5.3%. Debt carries a pre-tax cost of 6.8% and makes up 21% of the capital structure.
The seller is asking ₹2390 Cr for the enterprise.
operating
- revenue cr
- 506
- tax rate pct
- 30
- ebit margin pct
- 17
- da pct of revenue
- 4
- revenue growth pct
- 18
- capex pct of revenue
- 8
- nwc pct of incremental revenue
- 3
transaction
- asking enterprise value cr
- 2390
capital structure
- equity beta
- 1.4
- debt weight pct
- 21
- risk free rate pct
- 3.4
- equity risk premium pct
- 5.3
- pre tax cost of debt pct
- 6.8
Value the business and advise on the asking price. Provide:
- Analysis — a five-year free cash flow projection, your WACC, and a terminal value.
- Risks — the assumptions your valuation is most sensitive to.
- Recommendation — is ₹2390 Cr attractive? What would you pay?
Show your calculations. State assumptions explicitly where the case is silent.
100 points, 60% to pass.
- discount rate20
- recommendation20
- terminal value20
- cash flow projection25
- sensitivity analysis15
Reveal suggested structure
-
Free cash flow for each of years 1-5: FCF = EBIT × (1 − t) + D&A − capex − ΔNWC
-
WACC:
- Cost of equity = 3.4% + 1.4 × 5.3% = 10.82%
- After-tax cost of debt = 6.8% × (1 − 30%) = 4.76%
- WACC = 79% × cost of equity + 21% × after-tax cost of debt
-
Terminal value at year 5, using either perpetuity growth (g below long-run GDP) or an exit EBITDA multiple. Sanity-check one against the other.
-
Discount everything to today, sum, and compare with the asking price.
-
Sensitivity across WACC and terminal growth.