A Look At The Fair Value Of Dangee Dums Limited (NSE:DANGEE)

Simply Wall St · 04/22 00:04

Key Insights

  • The projected fair value for Dangee Dums is ₹5.04 based on 2 Stage Free Cash Flow to Equity
  • Dangee Dums' ₹4.82 share price indicates it is trading at similar levels as its fair value estimate
  • Dangee Dums' peers are currently trading at a premium of 1,676% on average

In this article we are going to estimate the intrinsic value of Dangee Dums Limited (NSE:DANGEE) by taking the forecast future cash flows of the company and discounting them back to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Believe it or not, it's not too difficult to follow, as you'll see from our example!

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

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What's The Estimated Valuation?

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. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last 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.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) forecast

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Levered FCF (₹, Millions) ₹43.0m ₹46.6m ₹50.4m ₹54.2m ₹58.2m ₹62.4m ₹66.8m ₹71.4m ₹76.3m ₹81.5m
Growth Rate Estimate Source Est @ 9.36% Est @ 8.57% Est @ 8.02% Est @ 7.63% Est @ 7.35% Est @ 7.16% Est @ 7.03% Est @ 6.94% Est @ 6.87% Est @ 6.83%
Present Value (₹, Millions) Discounted @ 13% ₹38.2 ₹36.8 ₹35.4 ₹33.8 ₹32.3 ₹30.7 ₹29.2 ₹27.8 ₹26.4 ₹25.0

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = ₹316m

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 6.7%. We discount the terminal cash flows to today's value at a cost of equity of 13%.

Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = ₹82m× (1 + 6.7%) ÷ (13%– 6.7%) = ₹1.5b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= ₹1.5b÷ ( 1 + 13%)10= ₹460m

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is ₹776m. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of ₹4.8, the company appears about fair value at a 4.3% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.

dcf
NSEI:DANGEE Discounted Cash Flow April 22nd 2025

Important Assumptions

Now 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 Dangee Dums 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 13%, which is based on a levered beta of 0.800. 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.

See our latest analysis for Dangee Dums

Looking Ahead:

Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Dangee Dums, there are three essential items you should consider:

  1. Risks: As an example, we've found 3 warning signs for Dangee Dums (2 are significant!) that you need to consider before investing here.
  2. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
  3. Other Environmentally-Friendly Companies: Concerned about the environment and think consumers will buy eco-friendly products more and more? Browse through our interactive list of companies that are thinking about a greener future to discover some stocks you may not have thought of!

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NSEI every day. If you want to find the calculation for other stocks just search here.