Capstone Project on Measuring Financial
Health of Indiamart Intermesh LTD.
FINANCIAL MANAGEMENT
21MBA321
MBA II SEMESTER
2023
RV INSTITUTE OF MANAGEMENT
(Autonomous Institution Affiliated to Bengaluru City University)
Name of Student Yogesh R
Register Number: P18FW22M015070
Section B
Submitted to:
Prof. Pooja Takalkar
Assistant Professor,
RV Institute of Management.
TABLE OF CONTENTS
Sl. Contents Page
No. No.
1 INTRODUCTION 1 -2
2 Calculation of Ke using CAPM Model 2
3 Calculation of Kd (Cost of debt) 3
4 Calculation of Weighted Average Cost of Capital 4
5 Calculation of Cash Inflows and Outflows 5
6 Payback Period 7
7 Discounted Payback Period 8
8 Net Present Value 9
9 Internal Rate of Return 10-12
10 Profitability Index 13
11 Conclusion 14
INTRODUCTION
IndiaMART InterMESH Limited is an Indian online B2B marketplace, connecting buyers
with suppliers. The company's mission is to make doing business easy. Founded in 1999,
IndiaMART has grown to become India's largest online marketplace, with over 65 lakh (6.5
million) registered users. The company's platform offers a wide range of products and
services, including:
A vast directory of over 7.2 crore (72 million) products and services
A suite of tools and services to help businesses connect with each other and grow their
businesses
A marketplace for businesses to buy and sell goods and services
A platform for businesses to find new customers and partners
IndiaMART is headquartered in Noida, India and has offices across the country. The company is also
present in the United States, the United Kingdom, and the United Arab Emirates. IndiaMART is a
publicly traded company and is listed on the NSE and BSE stock exchanges in India.
Here are some of the key features of IndiaMART InterMESH Limited:
Wide range of products and services: IndiaMART offers a vast directory of over 7.2 crore (72
million) products and services, making it a one-stop shop for businesses of all sizes.
Business-friendly platform: IndiaMART's platform is designed to be easy to use and
navigate, making it easy for businesses to find the products and services they need.
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Powerful tools and services: IndiaMART offers a suite of tools and services to help
businesses connect with each other and grow their businesses. These tools include lead
generation tools, marketing tools, and payment processing tools.
Large and active community: IndiaMART has a large and active community of over 65 lakh
(6.5 million) registered users. This means that businesses on IndiaMART have a wide
audience to connect with.
IndiaMART InterMESH Limited is a leading online B2B marketplace in India. The
company's mission to make doing business easy has helped it to become a valuable resource
for businesses of all sizes. If you are looking for a way to connect with new customers, find
new suppliers, or grow your business, IndiaMART is a great place to start.
1. Calculation of Cost of Capital
Cost of Capital is the rate of return that a company must earn on its investments in
order to satisfy its creditors and shareholders. It is the minimum acceptable return that
a company must make on its investments in order to justify the cost of financing those
investments.
A) Calculation of Ke using CAPM Model
Cost of Equity is the required rate of return that an investor expects to receive for
holding a company's stock. It is represented as Ke.
Ke = Risk-Free Rate + Beta × (Market Rate of Return - Risk-Free Rate).
Calculation of Ke
Rf 5%
Rm 14.91%
Beta 0.69
Ke 11.84%
Working Notes:
1. Rf: 5% (Assumption)
2. Rm: =average (market return) *12
3. Beta: slope (stock return, market return)
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Interpretation
The cost of equity (Ke) of 11.84% is lower than the market return (Rm) of 14.91%.
This could indicate that investors might perceive Indiamart as a less risky investment
compared to the overall market, as its beta of 0.69 is less volatile than the market
(beta of 1).
Cost of equity of 11.84% might be considered relatively favorable for Indiamart,
suggesting that investors might view it as a less risky investment compared to the
broader market.
Generally, a lower cost of equity implies that investors expect relatively stable returns
from the company compared to the market average.
Calculation of Kd (Cost of debt)
Cost of Debt is the rate of return that a company must pay to its creditors in order to
borrow money
Kd= Interest * (1-T)
Calculation of Kd
(Interest/Debt) 0.101939
Interest/Debt) * (1-T) 0.07133
Kd 7.13%
Working Notes:
1. Debt: 45.91; Interest: 4.68; Tax= 30%
2. Interest/ debt: 4.68/45.91= 0.07133
3. (Interest/Debt) * (1-T): (0.2266) *(1-0.3) = 7.13%
4. Cost of reserves (Kr)= Cost of Equity (Ke)
Interpretation
The cost of debt of 7.13% is moderate. It's neither extremely high nor very low. It
suggests the company can access debt at a reasonably favorable rate.
This rate can be considered favorable to the company as the company pays less
interest to it’s borrowers which may result in less financial burden and higher
profitability.
The cost of debt of 7.13% suggests that Indiamart can access borrowed funds at a
reasonably favorable interest rate. This moderate cost indicates a balanced approach
to financing.
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B) Calculation of Weighted Average Cost of Capital
It is the average rate of return that a company must pay to its creditors and
shareholders in order to finance its assets.
Calculation of Weighted Average Cost of Capital
SOURCES OF Cost of
FUNDS : Amount (in crs) Proportion Captial WACC
Share Capital 30.58 0.014490693 0.1184 0.001716
Reserves 2,033.83 0.963754312 0.1184 0.114109
Debt 45.91 0.021754995 0.0713 0.001551
Total 2110.32 0.117375
WACC 11.73%
Working Notes:
1. Proportion: Amount of each particular/ Total Amount
2. WACC= Proportion * Cost
Interpretation
Capital Structure: The table presents a breakdown of Indiamart's sources of funds,
primarily comprising reserves, followed by share capital and a smaller portion from
debt. This signifies a heavier reliance on internal reserves as a financing source
compared to debt.
Reserves constitute the largest portion of funds and contribute significantly to the
WACC due to their substantial proportion. Share capital and debt make relatively
smaller contributions to the WACC due to their lower proportions.
The lower cost of debt (7.13%) contributes a smaller percentage to the WACC
compared to reserves, despite having a more amount than share capital.
Indiamart's WACC of approximately 11.74% signifies the average cost of funds the
company requires to finance its operations and projects. It's a blend of the costs
associated with equity and debt, weighted by their respective proportions in the
capital structure.
Indiamart's WACC of 11.74% signifies the average cost of funds the company
requires to finance its operations and projects. It reflects the company's funding mix
and serves as a key parameter for evaluating the attractiveness and feasibility of
investment opportunities.
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2. Calculation of Cash Inflows and Outflows
FCFF
Year 2018 2019 2020 2021 2022 2023 TTM
FCFF 3.23 12.47 1.74 1.15 1.34 1.62 1.59
The below charts represents the FCFF of IndiaMart over the previous years
FCFF IN CRS
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12
10
8
6
4
2
0
2018 2019 2020 2021 2022 2023 TTM
Calculation of CAGR
CAGR: (Ending value/Beginning Value) ^ (1/N)-1
G: (1.59/3.23) ^ (1/6) -1= -0.11141
Calculation of Present Value of Cashinflow
Year FCFF DF @ 11.73% Present Value
2023 1.59 0.895014768 1.423073481
2024 1.478585251 0.801051434 1.184422836
2025 1.367170502 0.716952864 0.980196806
2026 1.255755752 0.641683401 0.805797621
2027 1.144341003 0.57431612 0.657213485
Total PVCIF 5.050704229
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Calculation of Present Value of Cash Outflow
PVCOF@75% 3.788028172
PVCOF@100% 5.050704229
PVCOF@125% 6.313380287
PVCOF at different scenario
PVCOF @ 125%
PVCOF @100%
PVCOF @ 75%
0 1 2 3 4 5 6 7
Working Notes:
1. For CAGR: Ending Value: 1.59; Beginning Value: 3.23
2. G: (1.59/3.23) ^ (1/6) -1= -0.11141
3. Discounting factor is taken on WACC calculation Which is 11.73%
4. PVCOF calculation is based on (PVCIF* respective percentage of cash outflows)
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Calculation of Investment decision
A) Payback Period
The payback period is the length of time it takes to recover the cost of an investment
or the length of time an investor needs to reach a breakeven point.
Calculation of Payback period
Cumulative Cash
Year FCFF inflow
2023 1.59 1.59
2024 1.478585251 3.068585251
2025 1.367170502 4.435755753
2026 1.255755752 5.691511505
2027 1.144341003 6.835852508
Payback Period for different PVCOF
PVCOF @ 75% 2.52 years
PVCOF @ 100% 3.51 years
PVCOF @ 125% 4.46 years
Interpretation
In Initial investment at 75% of PVCIF the payback period is calculated to be
approximately 3.24 years. This means that, under the assumption of a 75% growth
rate, the initial investment in the project is expected to be recovered within 3.24 years.
The payback period for 100% of PVCOF is 5 years. The investment made by the
company at 100% of PVCIF is excepted to be fully recovered at the end of 5 years.
The excepted payback period for PVCOF at 125% of PVCIF is 7.07 years. This
scenario shows there is a high chance of growth in the long term and get better returns
in the longer period.
A shorter payback period in PVCOF at 75% suggests quicker returns on investment
and potentially lower risk associated with the project.
With a 100% of PVCIF, indicates a moderate payback period, balancing return and
risk.
The longer payback period suggest there is uncertainty and risk involved as it takes lot
of time to recover the investment.
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In conclusion, the choice between scenarios depends on the investor's risk ability,
investment horizon, and strategic objectives. Scenario A of PVCOF at 75% may be
preferable for those prioritizing quicker returns and moderate growth, while Scenario
C of PVCOF at 125% may be suitable for investors seeking high-growth opportunities
despite a longer payback period.
B) Discounted Payback Period
The discounted payback period is a more sophisticated calculation of the payback
period that takes into account the time value of money. It is calculated by discounting
all of the cash flows from the project back to their present value and then dividing the
initial investment cost by the sum of the discounted cash flows.
Year FCFF DF @ 11.73% DCFF CUMDCFF
2023 1.59 0.895014768 1.423073481 1.423073
2024 1.478585251 0.801051434 1.184422836 2.607496
2025 1.367170502 0.716952864 0.980196806 3.587693
2026 1.255755752 0.641683401 0.805797621 4.393491
2027 1.144341003 0.57431612 0.657213485 5.050704
2028 1.032926254 0.514021409 0.530946208 5.58165
2029 0.921511505 0.460056752 0.42394759 6.005598
2030 0.810096756 0.411757587 0.333563485 6.339162
PVCOF @ 75% 3.24 years
PVCOF @ 100% 5 years
PVCOF @ 125% 7.07 years
Interpretation
The discounted payback period is calculated based on the present value of cash flows
at a 11.73% discount rate.
The discounted payback period for PVCOF @ 75% is approximately 3.24 years.
The discounted payback period for PVCOF @ 100% is approximately 5 years,
considering the same discount rate.
The discounted payback period for PVCOF @ 125% is approximately 7.07 years,
with the same discount rate.
A shorter payback period in PVCOF at 75% suggests quicker returns on investment
and potentially lower risk associated with the project.
With a 100% of PVCIF, indicates a moderate payback period, balancing return and
risk.
The longer payback period suggest there is uncertainty and risk involved as it takes lot
of time to recover the investment.
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C) Net Present Value
Net present value (NPV) is a method of evaluating the profitability of a project by
discounting all of its future cash flows back to their present value and then subtracting
the initial investment cost. NPV is considered one of the most important financial
metrics in investment analysis, as it directly measures the project's ability to generate
a positive return for investors.
It is calculated as: PVCIF-PVCOF
Calculation of Net Present Value
Year FCFF DF @ 11.73% PVCIF
2023 1.59 0.895014768 1.423073481
2024 1.478585251 0.801051434 1.184422836
2025 1.367170502 0.716952864 0.980196806
2026 1.255755752 0.641683401 0.805797621
2027 1.144341003 0.57431612 0.657213485
Total 5.050704229
NPV for Different PVCOF
NPV @ 75% 1.262676057
NPV @100% 0
NPV @ 125% -1.262676057
Interpretation
The NPV at 75% is positive (1.26), indicating that, at this discount rate, the project is
expected to generate gain. The project's present value of cash inflows exceeds the
present value of cash outflows, resulting in positive net value creation.
At 75% of PVCOF it is suggested to make the investment as NPV is positive
indicating return on investment.
The NPV at 100% is close to zero (0), suggesting that, at this discount rate, the project
is expected to break even. The present value of cash inflows is roughly equivalent to
the present value of cash outflows.
However the NPV at 125% is negative (-1.26), indicating that, at this discount rate,
the project is expected to go under loss or is not expected to generate gains to cover
the initial investment. The present value of cash outflows exceeds the present value of
cash inflows at this discount rate.
In conclusion, the project seems most attractive at a discount rate of 75%, where it
generates positive net value.
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D) Internal Rate of Return
Internal rate of return (IRR) is a method of evaluating the profitability of a project by
calculating the rate of return that an investment is expected to generate. It is defined
as the discount rate that makes the net present value (NPV) of a project equal to zero.
IRR= Ra+ (NPVa/NPAa - NPVb) *(Rb-Ra)
PVCOF @ 75%
Calculation of NPVa and NPVb
DF @ DF @
Year FCFF 11.73% PVCIF Year FCFF 20% PVCIF
2023 1.59 0.833333 1.325
2023 1.59 0.895014768 1.423073481 2024 1.478585 0.694444 1.026795
2024 1.478585251 0.801051434 1.184422836
2025 1.367171 0.578704 0.791187
2025 1.367170502 0.716952864 0.980196806
2026 1.255755752 0.641683401 0.805797621 2026 1.255756 0.482253 0.605592
2027 1.144341003 0.57431612 0.657213485 2027 1.144341 0.401878 0.459885
PVCIF 5.050704229 PVCIF 3.748574
NPVa 1.262676057
NPVb -0.039454139
IRR 19.74942158
Interpretation
The IRR is calculated based on the discount rates that make the present value of
future cash flows equal to the initial investment. In this case, the IRR is approximately
19.75%.
A positive IRR indicates that the project is expected to generate returns higher than
the discount rate used in the calculation. In this case, the IRR is positive, suggesting
that the project is expected to be profitable.
Since the IRR is higher than the discount rate used for NPV calculations (20%), it
implies that the project is expected to generate returns that exceed the cost of capital.
The IRR of approximately 19.75% suggests that the project is expected to generate
returns that exceed the discount rate.
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PVCOF @ 100%
Calculation of NPVa and NPVb
For NPVb For NPVa
Year FCFF DF @ 20% PVCIF Year FCFF DF @10% PVCIF
2023 1.59 0.833333333 1.325 2023 1.59 0.909091 1.445455
2024 1.478585251 0.694444444 1.026795313 2024 1.478585 0.826446 1.221971
2025 1.367170502 0.578703704 0.791186633 2025 1.367171 0.751315 1.027175
2026 1.255755752 0.482253086 0.605592087 2026 1.255756 0.683013 0.857698
2027 1.144341003 0.401877572 0.459884984 2027 1.144341 0.620921 0.710546
PVCIF 3.748574033 PVCIF 5.262845
NPVa 0.22042566
NPVb -1.293845373
IRR 11.45565526
Interpretation
The IRR is calculated based on the discount rates that make the present value of
future cash flows equal to the initial investment. In this case, the IRR is approximately
11.46%.
A positive IRR indicates that the project is expected to generate returns higher than
the discount rate used in the calculation. In this case, the IRR is positive, suggesting
that the project is expected to be profitable.
Since the IRR is higher than the discount rate used for NPV calculations (10%), it
implies that the project is expected to generate returns that exceed the cost of capital.
The IRR of approximately 11.46% suggests that the project is expected to generate
returns that exceed the discount rate used for calculations.
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PVCOF @ 125%
Calculation of NPVa and NPVb
For NPVb For NPVa
Year FCFF DF @10% PVCIF Year FCFF DF @1% PVCIF
2023 1.59 0.909090909 1.445454545 2023 1.59 0.990099 1.574257
2024 1.478585251 0.826446281 1.221971282 2024 1.478585 0.980296 1.449451
2025 1.367170502 0.751314801 1.027175434 2025 1.367171 0.97059 1.326962
2026 1.255755752 0.683013455 0.857698075 2026 1.255756 0.96098 1.206757
2027 1.144341003 0.620921323 0.71054573 2027 1.144341 0.951466 1.088801
PVCIF 5.262845066 PVCIF 6.646229
NPVa 0.343204463
NPVb -1.040179191
IRR 3.232815285
Interpretation
The IRR is calculated based on the discount rates that make the present value of
future cash flows equal to the initial investment. In this case, the IRR is approximately
3.23%.
A positive IRR indicates that the project is expected to generate returns higher than
the discount rate used in the calculation. In this case, the IRR is positive, suggesting
that the project is expected to be profitable.
Since the IRR is higher than the discount rate used for NPV calculations (1%), it
implies that the project is expected to generate returns that exceed the cost of capital.
The IRR of approximately 3.23% suggests that the project is expected to generate
returns that exceed the discount rate used for calculations.
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E) PROFITABLITY INDEX
Profitability index (PI) is a financial metric that measures the relative profitability of a
project compared to the initial investment. It is calculated by dividing the present
value of the project's future cash flows by the initial investment cost.
It is calculated as: present value of cash inflow/ present value of cash outflow
PVCOF at different levels
PVCOF @ 75% 3.788028172
PVCOF @100% 5.050704229
PVCOF @ 125% 6.313380287
Profitability Index at different levels
PVCOF @ 75% 1.333333333
PVCOF @ 100% 1
PVCOF @ 125% 0.8
Interpretations
A Profitability Index greater than 1 (1.33) suggests that the present value of cash
inflows is higher than the initial investment at the level of 75%. This implies a
potentially attractive investment, where the returns are expected to exceed the cost of
capital.
A Profitability Index greater than 1 suggests that the present value of cash inflows is
higher than the initial investment at the level of 100%. This suggests a break-even
scenario, where the investment is expected to generate returns exactly sufficient to
cover the cost of capital.
A Profitability Index less than 1 (0.8) implies that the present value of cash inflows is
lower than the initial investment at the level of 125%. This suggests a scenario where
the returns may not be sufficient to cover the cost of capital, and the investment may
be less attractive.
The Profitability Index at different discount rates for Indiamart suggests varying
levels of attractiveness for the investment. The highest Profitability Index at 75% of
PVCOF indicates potential positive returns, while the lower indices at 125% of
PVCOF signal caution.
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Conclusion
In conclusion, the analysis of Indiamart's financial data reveals insights for investment
decisions. At a discount rate of 75%, the project exhibits a shorter payback period, indicating
quicker returns and potentially lower risk. However, at 125%, a longer payback period
suggests higher uncertainty and risk, despite potential long-term growth. The NPV is positive
at 75%, signifying a gain, but at 125%, it turns negative, indicating potential loss. The IRR,
consistently positive, suggests profitability, with higher rates at lower discount levels.
Profitability Index highlights the investment's attractiveness at 75%, signaling potential
positive returns. Ultimately, the choice depends on risk tolerance and investment goals, with
Scenario A (75%) favoring quicker returns, and Scenario C (125%) offering high-growth
prospects with a longer payback period.
Indiamart's financial health reflects a mix of strengths and risks. Positive NPV and consistent
IRR suggest profitability, but the negative NPV at higher PVCOF and declining Profitability
Index indicate potential challenges and increased risk.
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