Intrinsic value of Vedanta ADR - VEDL

Previous Close

$18.58

  Intrinsic Value

$2.03

stock screener

  Rating & Target

str. sell

-89%

  Value-price divergence*

+323%

Previous close

$18.58

 
Intrinsic value

$2.03

 
Up/down potential

-89%

 
Rating

str. sell

 
Value-price divergence*

+323%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of VEDL stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 14.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -12.83
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  9,574
  9,765
  9,990
  10,247
  10,535
  10,854
  11,205
  11,587
  12,000
  12,445
  12,922
  13,433
  13,978
  14,559
  15,176
  15,830
  16,524
  17,258
  18,035
  18,856
  19,722
  20,636
  21,600
  22,616
  23,687
  24,815
  26,002
  27,252
  28,567
  29,950
  31,405
Variable operating expenses, $m
 
  12,920
  13,217
  13,557
  13,938
  14,360
  14,824
  15,329
  15,875
  16,464
  17,096
  17,772
  18,493
  19,261
  20,077
  20,944
  21,861
  22,833
  23,860
  24,946
  26,092
  27,302
  28,577
  29,921
  31,338
  32,830
  34,401
  36,054
  37,794
  39,624
  41,549
Fixed operating expenses, $m
 
  980
  1,004
  1,030
  1,055
  1,082
  1,109
  1,136
  1,165
  1,194
  1,224
  1,254
  1,286
  1,318
  1,351
  1,385
  1,419
  1,455
  1,491
  1,528
  1,567
  1,606
  1,646
  1,687
  1,729
  1,772
  1,817
  1,862
  1,909
  1,956
  2,005
Total operating expenses, $m
  13,599
  13,900
  14,221
  14,587
  14,993
  15,442
  15,933
  16,465
  17,040
  17,658
  18,320
  19,026
  19,779
  20,579
  21,428
  22,329
  23,280
  24,288
  25,351
  26,474
  27,659
  28,908
  30,223
  31,608
  33,067
  34,602
  36,218
  37,916
  39,703
  41,580
  43,554
Operating income, $m
  -4,025
  -4,134
  -4,231
  -4,339
  -4,458
  -4,588
  -4,728
  -4,879
  -5,041
  -5,214
  -5,398
  -5,593
  -5,801
  -6,020
  -6,253
  -6,498
  -6,756
  -7,029
  -7,316
  -7,619
  -7,937
  -8,271
  -8,623
  -8,992
  -9,380
  -9,788
  -10,215
  -10,664
  -11,136
  -11,630
  -12,149
EBITDA, $m
  -2,777
  -3,367
  -3,446
  -3,534
  -3,630
  -3,734
  -3,847
  -3,968
  -4,097
  -4,235
  -4,382
  -4,537
  -4,702
  -4,876
  -5,060
  -5,254
  -5,458
  -5,673
  -5,899
  -6,137
  -6,387
  -6,649
  -6,925
  -7,214
  -7,518
  -7,837
  -8,172
  -8,522
  -8,890
  -9,276
  -9,681
Interest expense (income), $m
  829
  606
  637
  674
  716
  763
  816
  873
  935
  1,003
  1,076
  1,154
  1,237
  1,327
  1,422
  1,522
  1,630
  1,743
  1,863
  1,990
  2,124
  2,266
  2,416
  2,573
  2,740
  2,915
  3,099
  3,293
  3,498
  3,713
  3,939
Earnings before tax, $m
  -4,258
  -4,740
  -4,869
  -5,013
  -5,174
  -5,351
  -5,543
  -5,752
  -5,976
  -6,216
  -6,473
  -6,747
  -7,038
  -7,347
  -7,674
  -8,020
  -8,386
  -8,772
  -9,179
  -9,609
  -10,061
  -10,537
  -11,038
  -11,565
  -12,120
  -12,702
  -13,315
  -13,958
  -14,634
  -15,343
  -16,089
Tax expense, $m
  -1,543
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -1,874
  -4,740
  -4,869
  -5,013
  -5,174
  -5,351
  -5,543
  -5,752
  -5,976
  -6,216
  -6,473
  -6,747
  -7,038
  -7,347
  -7,674
  -8,020
  -8,386
  -8,772
  -9,179
  -9,609
  -10,061
  -10,537
  -11,038
  -11,565
  -12,120
  -12,702
  -13,315
  -13,958
  -14,634
  -15,343
  -16,089

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8,789
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  27,986
  24,849
  25,420
  26,073
  26,807
  27,620
  28,511
  29,482
  30,533
  31,666
  32,881
  34,181
  35,568
  37,045
  38,615
  40,281
  42,046
  43,915
  45,891
  47,979
  50,183
  52,509
  54,962
  57,548
  60,272
  63,142
  66,163
  69,343
  72,689
  76,209
  79,912
Adjusted assets (=assets-cash), $m
  19,197
  24,849
  25,420
  26,073
  26,807
  27,620
  28,511
  29,482
  30,533
  31,666
  32,881
  34,181
  35,568
  37,045
  38,615
  40,281
  42,046
  43,915
  45,891
  47,979
  50,183
  52,509
  54,962
  57,548
  60,272
  63,142
  66,163
  69,343
  72,689
  76,209
  79,912
Revenue / Adjusted assets
  0.499
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
Average production assets, $m
  7,528
  7,676
  7,852
  8,054
  8,281
  8,532
  8,807
  9,107
  9,432
  9,781
  10,157
  10,558
  10,987
  11,443
  11,928
  12,443
  12,988
  13,565
  14,176
  14,820
  15,501
  16,220
  16,978
  17,776
  18,618
  19,504
  20,438
  21,420
  22,453
  23,541
  24,685
Working capital, $m
  3,192
  -977
  -999
  -1,025
  -1,054
  -1,085
  -1,120
  -1,159
  -1,200
  -1,244
  -1,292
  -1,343
  -1,398
  -1,456
  -1,518
  -1,583
  -1,652
  -1,726
  -1,804
  -1,886
  -1,972
  -2,064
  -2,160
  -2,262
  -2,369
  -2,481
  -2,600
  -2,725
  -2,857
  -2,995
  -3,141
Total debt, $m
  10,122
  7,773
  8,221
  8,734
  9,309
  9,946
  10,645
  11,406
  12,230
  13,118
  14,071
  15,090
  16,178
  17,336
  18,566
  19,872
  21,256
  22,721
  24,270
  25,907
  27,635
  29,459
  31,382
  33,410
  35,546
  37,795
  40,164
  42,657
  45,280
  48,040
  50,943
Total liabilities, $m
  21,830
  19,481
  19,929
  20,442
  21,017
  21,654
  22,353
  23,114
  23,938
  24,826
  25,779
  26,798
  27,886
  29,044
  30,274
  31,580
  32,964
  34,429
  35,978
  37,615
  39,343
  41,167
  43,090
  45,118
  47,254
  49,503
  51,872
  54,365
  56,988
  59,748
  62,651
Total equity, $m
  6,156
  5,367
  5,491
  5,632
  5,790
  5,966
  6,158
  6,368
  6,595
  6,840
  7,102
  7,383
  7,683
  8,002
  8,341
  8,701
  9,082
  9,486
  9,912
  10,363
  10,840
  11,342
  11,872
  12,430
  13,019
  13,639
  14,291
  14,978
  15,701
  16,461
  17,261
Total liabilities and equity, $m
  27,986
  24,848
  25,420
  26,074
  26,807
  27,620
  28,511
  29,482
  30,533
  31,666
  32,881
  34,181
  35,569
  37,046
  38,615
  40,281
  42,046
  43,915
  45,890
  47,978
  50,183
  52,509
  54,962
  57,548
  60,273
  63,142
  66,163
  69,343
  72,689
  76,209
  79,912
Debt-to-equity ratio
  1.644
  1.450
  1.500
  1.550
  1.610
  1.670
  1.730
  1.790
  1.850
  1.920
  1.980
  2.040
  2.110
  2.170
  2.230
  2.280
  2.340
  2.400
  2.450
  2.500
  2.550
  2.600
  2.640
  2.690
  2.730
  2.770
  2.810
  2.850
  2.880
  2.920
  2.950
Adjusted equity ratio
  0.005
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1,874
  -4,740
  -4,869
  -5,013
  -5,174
  -5,351
  -5,543
  -5,752
  -5,976
  -6,216
  -6,473
  -6,747
  -7,038
  -7,347
  -7,674
  -8,020
  -8,386
  -8,772
  -9,179
  -9,609
  -10,061
  -10,537
  -11,038
  -11,565
  -12,120
  -12,702
  -13,315
  -13,958
  -14,634
  -15,343
  -16,089
Depreciation, amort., depletion, $m
  1,248
  768
  785
  805
  828
  853
  881
  911
  943
  978
  1,016
  1,056
  1,099
  1,144
  1,193
  1,244
  1,299
  1,357
  1,418
  1,482
  1,550
  1,622
  1,698
  1,778
  1,862
  1,950
  2,044
  2,142
  2,245
  2,354
  2,468
Funds from operations, $m
  830
  -3,973
  -4,083
  -4,208
  -4,346
  -4,498
  -4,663
  -4,841
  -5,033
  -5,238
  -5,458
  -5,691
  -5,939
  -6,203
  -6,481
  -6,776
  -7,087
  -7,416
  -7,762
  -8,127
  -8,511
  -8,915
  -9,341
  -9,788
  -10,258
  -10,752
  -11,271
  -11,816
  -12,388
  -12,989
  -13,620
Change in working capital, $m
  -777
  -19
  -22
  -26
  -29
  -32
  -35
  -38
  -41
  -45
  -48
  -51
  -55
  -58
  -62
  -65
  -69
  -73
  -78
  -82
  -87
  -91
  -96
  -102
  -107
  -113
  -119
  -125
  -132
  -138
  -146
Cash from operations, $m
  1,607
  -3,954
  -4,061
  -4,182
  -4,317
  -4,466
  -4,628
  -4,803
  -4,991
  -5,194
  -5,410
  -5,640
  -5,885
  -6,145
  -6,420
  -6,710
  -7,018
  -7,342
  -7,684
  -8,045
  -8,424
  -8,824
  -9,244
  -9,686
  -10,151
  -10,639
  -11,152
  -11,691
  -12,257
  -12,851
  -13,475
Maintenance CAPEX, $m
  0
  -753
  -768
  -785
  -805
  -828
  -853
  -881
  -911
  -943
  -978
  -1,016
  -1,056
  -1,099
  -1,144
  -1,193
  -1,244
  -1,299
  -1,357
  -1,418
  -1,482
  -1,550
  -1,622
  -1,698
  -1,778
  -1,862
  -1,950
  -2,044
  -2,142
  -2,245
  -2,354
New CAPEX, $m
  -905
  -148
  -177
  -202
  -227
  -251
  -275
  -300
  -325
  -350
  -375
  -402
  -429
  -456
  -485
  -515
  -545
  -577
  -610
  -645
  -681
  -719
  -758
  -799
  -842
  -886
  -933
  -982
  -1,034
  -1,087
  -1,144
Cash from investing activities, $m
  -638
  -901
  -945
  -987
  -1,032
  -1,079
  -1,128
  -1,181
  -1,236
  -1,293
  -1,353
  -1,418
  -1,485
  -1,555
  -1,629
  -1,708
  -1,789
  -1,876
  -1,967
  -2,063
  -2,163
  -2,269
  -2,380
  -2,497
  -2,620
  -2,748
  -2,883
  -3,026
  -3,176
  -3,332
  -3,498
Free cash flow, $m
  969
  -4,854
  -5,005
  -5,169
  -5,349
  -5,545
  -5,756
  -5,983
  -6,227
  -6,487
  -6,763
  -7,057
  -7,369
  -7,699
  -8,049
  -8,418
  -8,807
  -9,218
  -9,651
  -10,107
  -10,587
  -11,093
  -11,624
  -12,183
  -12,770
  -13,387
  -14,036
  -14,717
  -15,432
  -16,184
  -16,972
Issuance/(repayment) of debt, $m
  -333
  381
  448
  512
  575
  637
  699
  761
  824
  888
  953
  1,019
  1,088
  1,158
  1,231
  1,306
  1,384
  1,465
  1,549
  1,637
  1,728
  1,824
  1,923
  2,027
  2,136
  2,250
  2,369
  2,493
  2,623
  2,760
  2,903
Issuance/(repurchase) of shares, $m
  0
  4,847
  4,992
  5,154
  5,333
  5,526
  5,736
  5,961
  6,203
  6,461
  6,736
  7,028
  7,338
  7,666
  8,013
  8,380
  8,767
  9,176
  9,606
  10,060
  10,537
  11,040
  11,568
  12,124
  12,708
  13,322
  13,967
  14,645
  15,356
  16,104
  16,888
Cash from financing (excl. dividends), $m  
  -529
  5,228
  5,440
  5,666
  5,908
  6,163
  6,435
  6,722
  7,027
  7,349
  7,689
  8,047
  8,426
  8,824
  9,244
  9,686
  10,151
  10,641
  11,155
  11,697
  12,265
  12,864
  13,491
  14,151
  14,844
  15,572
  16,336
  17,138
  17,979
  18,864
  19,791
Total cash flow (excl. dividends), $m
  443
  374
  435
  497
  558
  619
  679
  739
  800
  862
  925
  990
  1,056
  1,124
  1,195
  1,268
  1,344
  1,423
  1,504
  1,589
  1,678
  1,771
  1,868
  1,968
  2,074
  2,184
  2,300
  2,421
  2,547
  2,680
  2,819
Retained Cash Flow (-), $m
  2,245
  -4,847
  -4,992
  -5,154
  -5,333
  -5,526
  -5,736
  -5,961
  -6,203
  -6,461
  -6,736
  -7,028
  -7,338
  -7,666
  -8,013
  -8,380
  -8,767
  -9,176
  -9,606
  -10,060
  -10,537
  -11,040
  -11,568
  -12,124
  -12,708
  -13,322
  -13,967
  -14,645
  -15,356
  -16,104
  -16,888
Prev. year cash balance distribution, $m
 
  896
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -3,578
  -4,557
  -4,657
  -4,774
  -4,908
  -5,057
  -5,222
  -5,403
  -5,599
  -5,811
  -6,038
  -6,282
  -6,541
  -6,818
  -7,112
  -7,423
  -7,753
  -8,102
  -8,470
  -8,859
  -9,269
  -9,701
  -10,155
  -10,634
  -11,138
  -11,667
  -12,224
  -12,809
  -13,424
  -14,069
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  -3,430
  -4,172
  -4,053
  -3,931
  -3,804
  -3,670
  -3,528
  -3,377
  -3,216
  -3,046
  -2,867
  -2,681
  -2,487
  -2,289
  -2,088
  -1,886
  -1,687
  -1,492
  -1,304
  -1,126
  -959
  -805
  -666
  -542
  -433
  -340
  -262
  -198
  -147
  -106
Current shareholders' claim on cash, %
  100
  71.3
  50.6
  35.9
  25.4
  17.9
  12.6
  8.8
  6.2
  4.3
  3.0
  2.1
  1.5
  1.0
  0.7
  0.5
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Vedanta Limited, a diversified natural resources company, primarily engages in exploring, extracting, and processing minerals, and oil and gas. The company produces oil and gas, zinc, lead, silver, copper, iron ore, and aluminum. It also operates various power plants, including 2,400 megawatts Jharsuguda power plant in Odisha, 270 megawatts power plant in Chhattisgarh, 100 megawatts power plant in Tamil Nadu, and 274 megawatts wind power plant at various locations in India. The company has operations in India and internationally. In addition, it engages in the mechanization of coal handling facilities and upgradation of general cargo berth for handling coal at the outer harbor of Vishakapatnam Port on the east coast of India. The company was formerly known as Sesa Sterlite Limited and changed its name to Vedanta Limited in March 2015. The company was incorporated in 1965 and is based in Mumbai, India. Vedanta Limited is a subsidiary of Vedanta Resources Plc.

FINANCIAL RATIOS  of  Vedanta ADR (VEDL)

Valuation Ratios
P/E Ratio -29.4
Price to Sales 5.8
Price to Book 8.9
Price to Tangible Book
Price to Cash Flow 34.3
Price to Free Cash Flow 78.5
Growth Rates
Sales Growth Rate -12.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -41.7%
Cap. Spend. - 3 Yr. Gr. Rate -6.7%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 120.1%
Total Debt to Equity 164.4%
Interest Coverage -4
Management Effectiveness
Return On Assets -4.5%
Ret/ On Assets - 3 Yr. Avg. -1.9%
Return On Total Capital -10.8%
Ret/ On T. Cap. - 3 Yr. Avg. -6.4%
Return On Equity -25.7%
Return On Equity - 3 Yr. Avg. -14.6%
Asset Turnover 0.3
Profitability Ratios
Gross Margin -36.9%
Gross Margin - 3 Yr. Avg. -16.5%
EBITDA Margin -22.8%
EBITDA Margin - 3 Yr. Avg. -0.5%
Operating Margin -42%
Oper. Margin - 3 Yr. Avg. -21.7%
Pre-Tax Margin -44.5%
Pre-Tax Margin - 3 Yr. Avg. -24.5%
Net Profit Margin -19.6%
Net Profit Margin - 3 Yr. Avg. -11.6%
Effective Tax Rate 36.2%
Eff/ Tax Rate - 3 Yr. Avg. 35.6%
Payout Ratio -13.9%

VEDL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VEDL stock intrinsic value calculation we used $9574 million for the last fiscal year's total revenue generated by Vedanta ADR. The default revenue input number comes from 2016 income statement of Vedanta ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our VEDL stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for VEDL is calculated based on our internal credit rating of Vedanta ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Vedanta ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of VEDL stock the variable cost ratio is equal to 132.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $956 million in the base year in the intrinsic value calculation for VEDL stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 8.2% for Vedanta ADR.

Corporate tax rate of 27% is the nominal tax rate for Vedanta ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the VEDL stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for VEDL are equal to 78.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Vedanta ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for VEDL is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $6156 million for Vedanta ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 756.858 million for Vedanta ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Vedanta ADR at the current share price and the inputted number of shares is $14.1 billion.

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COMPANY NEWS

▶ Vedanta Will Continue to Trend Higher   [Aug-21-17 01:59PM  GuruFocus.com]
▶ ETFs with exposure to Vedanta Ltd. : July 10, 2017   [Jul-10-17 03:27PM  Capital Cube]
▶ ETFs with exposure to Vedanta Ltd. : June 27, 2017   [Jun-27-17 03:55PM  Capital Cube]
▶ Vedanta - Cairn Merger Effective   [Apr-11-17 10:39AM  PR Newswire]
▶ 10 Emerging Market Corporate Bond Picks: Embracing Risk   [Mar-07-17 11:45AM  Barrons.com]
▶ 14 Emerging Market Stocks You Should Have Owned in 2016   [Jan-03-17 12:03PM  at Barrons.com]
▶ Should You Buy Vedanta Ltd (ADR) (VEDL)?   [Dec-13-16 04:13PM  at Insider Monkey]
Stock chart of VEDL Financial statements of VEDL
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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