Valuing Meridian Foods: A Five-Year DCF
A private equity client is considering acquiring Meridian Foods, a packaged foods business in India. You have been asked to build the valuation case.
The company generated ₹684 Cr of revenue last year at an EBIT margin of 19%. Management projects revenue growth of 8% per year for five years, after which the business is expected to settle into mature, GDP-like growth.
Capital expenditure runs at 4% of revenue and depreciation & amortisation at 6%. Changes in net working capital consume roughly 4% of incremental revenue. The effective tax rate is 23%.
The company's equity beta is 1.24, the risk-free rate is 3.2%, and the equity risk premium is 4.8%. Debt carries a pre-tax cost of 7.1% and makes up 28% of the capital structure.
The seller is asking ₹2929 Cr for the enterprise.
operating
- revenue cr
- 684
- tax rate pct
- 23
- ebit margin pct
- 19
- da pct of revenue
- 6
- revenue growth pct
- 8
- capex pct of revenue
- 4
- nwc pct of incremental revenue
- 4
transaction
- asking enterprise value cr
- 2929
capital structure
- equity beta
- 1.24
- debt weight pct
- 28
- risk free rate pct
- 3.2
- equity risk premium pct
- 4.8
- pre tax cost of debt pct
- 7.1
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 ₹2929 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 = 3.2% + 1.24 × 4.8% = 9.15%
- After-tax cost of debt = 7.1% × (1 − 23%) = 5.47%
- WACC = 72% × cost of equity + 28% × 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.