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Valuation of
Square
PharmaceuticalsLtd.
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United International University
School of Business and Economics
Spring 2!"
Security Analysis and Portfolio Management
Course Code: FIN- 4219
#eport on
Valuation of Square Pharmaceuticals Ltd.
Su$mitted to%
&r 'ohan Uddin
(ssistant Professor
nited International ni!ersity
Sl.
)o
)ame I& Signature
!. Shahida (*ter #umi !!! !2! !+,
2. 'd. Soleman (li !!! !22 "
-. (namica arma*er !!! !2! +/+. 0aria Sumsad Suha !!! !2! 1!
1.Sumaiya 0erdaus
!!+ !2- !!
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&ate of
Su$mission% 2"t# A$ril% 2&1'
Letter of Transmittal
27th April, 2016
Dr. Mohan Uddin
Assistant Professor
School of Business and Econoics
United !nternational Uni"ersit#
Dhanondi, Dha$a% 120&
Subject: 'e(uest to accept the report on )*aluation of S(uare Pharaceuticals +td.
Dear Sir,
-e are "er# pleased to suit the report on *aluation of S(uare Pharaceuticals +td. -e /ere assined
to prepare and suit this report as the partial fulfillent of the course entitled )Securit# Anal#sis and
Portfolio Manaeent .-e ha"e tried our le"el est to prepare this plan perfectl#. e"ertheless, this
paper has een suffered # tie and cost liitation.
-e /ill e olied, if #ou $indl# accept this report.
Sincerel# #ours,
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Md. Solean Ali
n ehalf of the roup eers
Section3 B
Acknowledgement
A report that re(uires a lot of inforation fro "arious corners is not the /or$s of its authors or
preparers onl#. 4o prepare a report # collectin the data of an# $inds, one is to depend upon
an# people and an# others inforation.
5irst of all, /e /ould li$e to than$ Aliht# Allah /hose racefulness let us coplete this
report. Besides a coprehensi"e /or$ li$e this ust o/e credit to an# people. -e than$ those
$ind ones /hose help $ind support enale us to coplete this report.
-e ha"e /or$ed reall# hard for this report. Speciall#, /e are than$ful to our honorale facult#Dr. Mohan Uddin /ho helped us in e"er# step of startin and copletin our report proptl#.
-e also pa# our indetedness to those /esites that helped us # pro"idin a lot of inforation.
-ithout these help support /e could not e ale to coplete this report successful.
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ontentsIntroduction:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 2
Sources of )ata:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 2
Primary sources:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((2
Secondary source:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 2
*+,ecti!e:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 2
imitations:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 2
.ac/ground of S0uare P#armaceuticals imited((((((((((((((((((((((((((((((((((((((((((((((((((((((((((
aluation((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((
aluation Met#ods:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 4
1( )iscounted di!idends:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((3
2( )iscounted a+normal earnings:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((3
( aluation +ased on $rice multi$les:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((3
4( )iscounted cas# o5 analysis:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((3
)iscounted Cas# Flo5 - )CF:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((3
)i!idend )iscount Model 6))M7:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((('
Calculation of e8$ected P:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((('
;#e intrinsic !alue 6&7 of a s#are of stoc/:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((("
Calculation of constant gro5t# ))M for S0uare P#armaceuticals:(((((((((((((((((((((((((((((<
Preferred stoc/ and t#e ))M:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((<
Price =>arnings ratio:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 9
Price earnings gro5t# ratio(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((9
Present !alue of gro5t# o$$ortunity:((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((9
Informations:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 11
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Conclusion(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((( 12
eferences:(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((1
Introduction:Assessin the "alue of a fir is a useful tool to easure the o"erall /or$in proress of the
/hole oraniation. !t helps to $no/, )8o/ the fir is perforin o"er the ar$et. 4he ost
ad"antae of this ethod is that the eneral pulic can et all the ideas clearl# fro the pro"ided
inforation, at a lance. !n our report, /e tried to calculate all the necessar# inforation of a
specified copan#.
Sources of )ata:
Primary sources:
ser"ation
Secondary source:
9oin to the Dha$a Stoc$ E:chane ;DSE< /esite for collectin the annual report
;201=%201>< of S(uare Pharaceuticals +td.
ther -esites ;entioned in the reference<
*+,ecti!e:4he *aluation Model ased on the current and prospecti"e profitailit# of a copan# to assess its
fair ar$et "alue.
imitations:!n the efficient ar$et h#pothesis, finding undervalued securities is hardl# eas#. Moreo"er, it is
the ongoing search for misriced securities that aintains a nearl# efficient ar$et. E"en
infre!uent discoveries of minor misricing world ?ustif# the salar# of a stoc$ ar$et anal#st.
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.ac/ground of S0uare P#armaceuticals imited
!n the Banladeshi pharaceutical industr# /e ha"e focused on S(uare Pharaceuticals in our report. S(uare
pharaceuticals ltd. aintains a "ast arra# of partnerships /ith "irtuall# e"er# a?or copan# chain and ost
independent properties oth doesticall# and internationall#.
4he copan# /as founded in 1&>@ # Sason 8. ho/dhur# alon /ith three of his friends as a pri"ate fir.
!t /ent pulic in 1&&1 and is currentl# listed on the Dha$a Stoc$ E:chane. S(uare Pharaceuticals +td., the
flaship copan#, is holdin the stron leadership position in the pharaceutical industr# of Banladesh since
1&@> and it has een continuousl# in the 1st position aon all national and ultinational copanies since
1&@>. S(uare Pharaceuticals +td. is no/ on its /a# to ecoin a hih perforance loal pla#er.
S(uare Pharaceuticals +iited is an oraniation /ith e(ual ephasis on +eadership, 4echnolo#, ualit#
and Passion. S(uare Pharaceuticals +td. is the leadin randed eneric pharaceutical anufacturer in
Banladesh producin (ualit# essential and other ethical drus and edicines. !t /as estalished in 1&>@ and
has een continuousl# in the 1st position aon all national and ultinational copanies since 1&@>. And no/
S(uare Pharaceuticals is set on ecoin a hih perforance loal pla#er in the field.
aluation:
*aluation is aout ho/ to create shareholder "alue, /hich is /hat a$es copanies thri"e. !t
sho/s e:ecuti"es and corporate finance practitioners ho/ to "alue copanies usin the
discounted cash flo/ ;D5< approach and appl# that inforation to a$e /iser usiness and
in"estent decisions, such as corporate portfolio strate#, ac(uisitions, or perforance
anaeent.
!n finance, "aluation is the process of estiatin the potential ar$et "alue of a financial asset
or liailit#. *aluations can e done on assets or on liailities. *aluations are re(uired in an#
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conte:ts includin in"estent anal#sis, capital udetin, erer and ac(uisition transactions,
financial reportin, ta:ale e"ents to deterine the proper ta: liailit#, and in litiation.
E:ecuti"es ust not onl# ha"e a theoretical understandin of "alue creation, ut ust e ale to
create tanile lin$s et/een their strateies and "alue creation. 4his eans, focusin less on
recent financial perforance and ore on /hat the# are doin to nurture a Chealth#C copan#
that can create "alue o"er the loner ter.
aluation Met#ods:
Business *aluation has ecoe an intrinsic part of the corporate landscape. 4he corporate
landscape has /itnessed d#naic chanes in the recent #ears as erers and ac(uisitions,
corporate restructurins, and share repurchases are happenin in record nuers, oth in the
United States and aroad. At the core of the d#naics of all these acti"ities stands soe notion
of "aluation. 4he "aluation ethods are not onl# necessar# for accountin purposes ut the# also
ser"e as roadaps for the anel in"estors, "enture capitalists and corporate ac(uirers in order to
$no/ the true "alue of a copan#s assets. Althouh there are nuerous indi"idual "aluation
techni(ues, these are cateoried into four standard usiness "aluation approaches appl#in
standard forulas3
1( )iscounted di!idends:
4his approach e:presses the "alue of the firs e(uit# as the present "alue of forecasted future
di"idends.
2( )iscounted a+normal earnings:
Under this approach the "alue of the firs e(uit# is e:pressed as the su of its oo$ "alue and
discounted forecasts of CanoralC earnins.
( aluation +ased on $rice multi$les:
4his approach a current easure of perforance or sinle forecast of perforance is con"erted
into a "alue throuh application of soe price ultiple for other presual# coparale firs.
4( )iscounted cas# o5 analysis:
4his approach in"ol"es the production of detailed, ultiple%#ear forecasts of cash flo/s. 4he
forecasts are then discounted at the firs estiated cost of capital to arri"e at an estiated
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present "alue.
)iscounted Cas# Flo5 - )CF:A "aluation ethod used to estiate the attracti"eness of an in"estent opportunit#. Discounted
cash flo/ ;D5< anal#sis uses future free cash flo/ pro?ections and discounts the ;usin the
/eihted a"erae cost of capital< to arri"e at a present "alue, /hich is used to e"aluate the
potential for in"estent. !f the "alue arri"ed at throuh D5 anal#sis is hiher than the current
cost of the in"estent, the opportunit# a# e a ood.
5orula3 D5
CF 1
(1+r )1+ CF 2
(1+r )2 FGG. FCFn
(1+r )n
5 ash flo/
r discount rate
4his "aluation ethod ased on free cash flo/ is considered a stron tool ecause it concentrates
on cash eneration potential of a usiness. 4his "aluation ethod uses the future free cash flo/
of the copan# ;eetin all the liailities< discounted # the firs /eihted a"erae cost of
capital ;the a"erae cost of all the capital used in the usiness, includin det and e(uit#
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4he ao"e e(uation states that the stoc$ price should e(ual the present "alue of all e:pected
future di"idend into perpetuit#. 4his forula is called the di"idend discount odel ;DDM<
.J2=02
Di"idend recei"ed at the end of the first #ear, D1 4K. J0
P1e:pected sales price 4K. 2>@.70
Calculation of e8$ected P:
E;r< E;D1 7.&0
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!n our findins, /e et the re(uired rate of return ;$
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4he constant ro/th DDM or the 9ordon odel is onl# "alid /hen is less than $. the constant
ro/th rate DDM assues that the copan#s di"idends increase at a constant rate indefinitel#.
Preferred stoc/ and t#e ))M:
*o fi:ed di"idend H ;discount rate W ro/th rate, <
4K. 107.20 H ;.>0 %0<
4K. 21=.=
Preferred stoc$ that pa#s a fi:ed di"idend can e "alued usin the constant ro/th DDM and
here for the copan#s preferred di"idends "alue is 4K.21=.=.
Price =>arnings ratio:
1< PHE 1% HK%
1%.70H.J2=2%.1JJJ
1.>7
S(uare Paras 201=%201> Price WEarnins ratio is 1.>7. S(uare Pharas ro/th ;.1JJJ< and
re(uire return ;.J2=2
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S(uare Pharas 201=%201> price earnins ro/th ratios 7.1J@O. -here S(uare Pharas
annual EPS ro/th is 22O and price earnins ratio is 1.>7 its easures the hih rate than the
pre"ious #ear.
Present !alue of gro5t# o$$ortunity:
'E V .1&V.70
.1JJ ' 1J.J0O
'E !H 4otal e(uit# >0@1&2@=&>H267J&>@1&2&
.1&
1% Di"idend pa#out ratio 1 % 1>2=7@>=&H>0@1&2@=&>
1 % .J0
.70
E ;r < ;A4UA+ P'!E%!!4!A+ P'!E
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opan# ro/th is desirale onl# if it increases their return on in"estentXeither its stoc$
price andHor its di"idends increase. Accordin to the di"idend discount odel, it is possile for a
copan# to ro/ /hile its stoc$ price declines. A copan#s stoc$ price /ill increase onl# if the
copan# can rein"est the one# and earn a hiher rate of return than the re(uired rate of return
deanded # in"estors. 4he additional ro/th of a copan#s earnins has net present "alue of
ro/th opportunities ;P*9
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Informations:
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Conclusion4his report has t/o identical parts. !n the first part /e ha"e calculated three #ears ratio f S(uare phara
annual report of financial #ear 2007%2010. -e ha"e calculated their ratios and sho/n DuPont anal#sis.
Anal#in copanies perforance copare to the s(uare pharaceutical copan# also easured in this
part of the report.
!n the li(uidit# ratio /e can see that oth current ratio and (uic$ ratio ipro"ed o"er tie arinall#. 4he
situation /as alost stale. !n"entor# turno"er, 4otal Asset 4urno"er, 5i:ed Asset 4urno"er all had een
relati"el# stale throuhout the three #ears. A"erae ollection period is also "er# ood. 4he onl#
prole here is the A"erae collection period /hich is /a# hih. 8o/e"er, such a situation is actuall#
prett# uch noral for i copanies.
8ere Det ratio has ipro"ed o"er tie and 4!E has reained prett# uch stale. Apart fro 9ross
Profit 'atio, ost of the Profitailit# ratios ha"e actuall# decreased in 2006%07. Althouh the decrease
rate is "er# inial still it is a prole for S(uare and the# need to tr# to ipro"e these ratios. Both PHE
ratio and MHB ratio declined in the #ear 2006%07. But this happened ostl# not ecause of the copan#s
failure ut for the fact that the /hole ar$et /as not so friendl# for in"estent in that #ear.
5ro the total anal#sis, /e can suarie that S(uare Pharaceuticals +td. has een doin prett# ood
throuhout the #ears. !t is true that last #ear there return did decline ut it is still prett# uch satisfactor#.
4herefore, /e can conclude that S(uare Pharaceuticals +td. is a ood enouh copan# to in"est on.
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eferences:
• #tt$:??555(tradingeconomics(com?+anglades#?interest-rate
• #tt$:??555(tradingeconomics(com?searc#(as$8@0;-+illB2&rateB2&in
B2&+anglades#• #tt$:??555(tradingeconomics(com?+anglades#?stoc/-mar/et
• #tt$:??555(tradingeconomics(com?+anglades#?ne5s
• #tt$s:??555(++(org(+d?monetaryacti!ity?treasury($#$
• #tt$:??+usinessne5s-+d(com?ne5s?treasury?t-+ills?
• #tt$s:??555(++(org(+d?econdata?intrate($#$
• #tt$:??555(s0uare$#arma(com(+d?$rice-sensiti!e-information($#$D
$rettyP#otoEgallery2?&?
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