Intrinsic value of Virtusa Corporation - VRTU

Previous Close

$51.96

  Intrinsic Value

$122.29

stock screener

  Rating & Target

str. buy

+135%

Previous close

$51.96

 
Intrinsic value

$122.29

 
Up/down potential

+135%

 
Rating

str. buy

We calculate the intrinsic value of VRTU 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 0001), $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 1.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  19.30
  17.87
  16.58
  15.42
  14.38
  13.44
  12.60
  11.84
  11.16
  10.54
  9.99
  9.49
  9.04
  8.63
  8.27
  7.94
  7.65
  7.38
  7.15
  6.93
  6.74
  6.56
  6.41
  6.27
  6.14
  6.03
  5.92
  5.83
  5.75
  5.67
Revenue, $m
  1,218
  1,436
  1,674
  1,932
  2,210
  2,507
  2,823
  3,157
  3,509
  3,879
  4,266
  4,671
  5,093
  5,533
  5,991
  6,467
  6,962
  7,476
  8,010
  8,565
  9,142
  9,742
  10,367
  11,016
  11,693
  12,398
  13,132
  13,898
  14,697
  15,531
Variable operating expenses, $m
  999
  1,170
  1,357
  1,561
  1,780
  2,014
  2,262
  2,525
  2,803
  3,094
  3,360
  3,679
  4,011
  4,357
  4,718
  5,093
  5,482
  5,887
  6,308
  6,745
  7,200
  7,672
  8,164
  8,676
  9,208
  9,763
  10,342
  10,945
  11,574
  12,231
Fixed operating expenses, $m
  137
  140
  143
  146
  149
  153
  156
  159
  163
  167
  170
  174
  178
  182
  186
  190
  194
  198
  203
  207
  212
  216
  221
  226
  231
  236
  241
  246
  252
  257
Total operating expenses, $m
  1,136
  1,310
  1,500
  1,707
  1,929
  2,167
  2,418
  2,684
  2,966
  3,261
  3,530
  3,853
  4,189
  4,539
  4,904
  5,283
  5,676
  6,085
  6,511
  6,952
  7,412
  7,888
  8,385
  8,902
  9,439
  9,999
  10,583
  11,191
  11,826
  12,488
Operating income, $m
  83
  126
  173
  225
  281
  341
  404
  472
  543
  618
  736
  819
  904
  994
  1,087
  1,184
  1,285
  1,390
  1,499
  1,613
  1,731
  1,854
  1,982
  2,115
  2,254
  2,398
  2,549
  2,707
  2,871
  3,043
EBITDA, $m
  143
  190
  241
  297
  358
  423
  492
  565
  643
  724
  809
  898
  991
  1,089
  1,190
  1,295
  1,404
  1,518
  1,636
  1,759
  1,887
  2,020
  2,159
  2,303
  2,453
  2,610
  2,774
  2,944
  3,122
  3,308
Interest expense (income), $m
  7
  16
  23
  31
  40
  49
  59
  70
  81
  93
  106
  119
  133
  148
  163
  179
  196
  213
  231
  249
  269
  289
  309
  331
  354
  377
  402
  427
  454
  481
  510
Earnings before tax, $m
  66
  103
  142
  185
  232
  282
  335
  391
  450
  512
  617
  685
  757
  831
  908
  989
  1,072
  1,160
  1,250
  1,344
  1,442
  1,544
  1,651
  1,761
  1,877
  1,997
  2,122
  2,253
  2,390
  2,533
Tax expense, $m
  18
  28
  38
  50
  63
  76
  90
  106
  122
  138
  167
  185
  204
  224
  245
  267
  290
  313
  338
  363
  389
  417
  446
  476
  507
  539
  573
  608
  645
  684
Net income, $m
  48
  75
  104
  135
  169
  206
  244
  285
  329
  374
  450
  500
  552
  606
  663
  722
  783
  846
  913
  981
  1,053
  1,127
  1,205
  1,286
  1,370
  1,458
  1,549
  1,645
  1,745
  1,849

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  1,285
  1,514
  1,766
  2,038
  2,331
  2,644
  2,978
  3,330
  3,702
  4,092
  4,500
  4,927
  5,373
  5,837
  6,320
  6,822
  7,343
  7,886
  8,449
  9,035
  9,644
  10,277
  10,935
  11,621
  12,334
  13,078
  13,852
  14,660
  15,503
  16,383
Adjusted assets (=assets-cash), $m
  1,285
  1,514
  1,766
  2,038
  2,331
  2,644
  2,978
  3,330
  3,702
  4,092
  4,500
  4,927
  5,373
  5,837
  6,320
  6,822
  7,343
  7,886
  8,449
  9,035
  9,644
  10,277
  10,935
  11,621
  12,334
  13,078
  13,852
  14,660
  15,503
  16,383
Revenue / Adjusted assets
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
  0.948
Average production assets, $m
  341
  402
  469
  541
  619
  702
  790
  884
  983
  1,086
  1,195
  1,308
  1,426
  1,549
  1,677
  1,811
  1,949
  2,093
  2,243
  2,398
  2,560
  2,728
  2,903
  3,085
  3,274
  3,471
  3,677
  3,891
  4,115
  4,349
Working capital, $m
  123
  145
  169
  195
  223
  253
  285
  319
  354
  392
  431
  472
  514
  559
  605
  653
  703
  755
  809
  865
  923
  984
  1,047
  1,113
  1,181
  1,252
  1,326
  1,404
  1,484
  1,569
Total debt, $m
  431
  577
  736
  909
  1,094
  1,293
  1,504
  1,728
  1,963
  2,211
  2,470
  2,740
  3,023
  3,317
  3,623
  3,941
  4,272
  4,616
  4,973
  5,345
  5,731
  6,132
  6,550
  6,984
  7,436
  7,908
  8,399
  8,911
  9,445
  10,003
Total liabilities, $m
  815
  960
  1,119
  1,292
  1,478
  1,677
  1,888
  2,111
  2,347
  2,594
  2,853
  3,124
  3,406
  3,701
  4,007
  4,325
  4,656
  5,000
  5,357
  5,728
  6,114
  6,516
  6,933
  7,368
  7,820
  8,291
  8,782
  9,295
  9,829
  10,387
Total equity, $m
  470
  554
  646
  746
  853
  968
  1,090
  1,219
  1,355
  1,498
  1,647
  1,803
  1,966
  2,136
  2,313
  2,497
  2,688
  2,886
  3,092
  3,307
  3,530
  3,761
  4,002
  4,253
  4,514
  4,786
  5,070
  5,366
  5,674
  5,996
Total liabilities and equity, $m
  1,285
  1,514
  1,765
  2,038
  2,331
  2,645
  2,978
  3,330
  3,702
  4,092
  4,500
  4,927
  5,372
  5,837
  6,320
  6,822
  7,344
  7,886
  8,449
  9,035
  9,644
  10,277
  10,935
  11,621
  12,334
  13,077
  13,852
  14,661
  15,503
  16,383
Debt-to-equity ratio
  0.920
  1.040
  1.140
  1.220
  1.280
  1.340
  1.380
  1.420
  1.450
  1.480
  1.500
  1.520
  1.540
  1.550
  1.570
  1.580
  1.590
  1.600
  1.610
  1.620
  1.620
  1.630
  1.640
  1.640
  1.650
  1.650
  1.660
  1.660
  1.660
  1.670
Adjusted equity ratio
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366
  0.366

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  48
  75
  104
  135
  169
  206
  244
  285
  329
  374
  450
  500
  552
  606
  663
  722
  783
  846
  913
  981
  1,053
  1,127
  1,205
  1,286
  1,370
  1,458
  1,549
  1,645
  1,745
  1,849
Depreciation, amort., depletion, $m
  60
  64
  68
  72
  77
  82
  87
  93
  99
  106
  73
  80
  87
  94
  102
  110
  119
  128
  137
  146
  156
  166
  177
  188
  200
  212
  224
  237
  251
  265
Funds from operations, $m
  109
  139
  172
  208
  246
  288
  332
  379
  428
  480
  523
  580
  639
  701
  765
  832
  902
  974
  1,049
  1,128
  1,209
  1,294
  1,382
  1,474
  1,570
  1,669
  1,773
  1,882
  1,996
  2,114
Change in working capital, $m
  20
  22
  24
  26
  28
  30
  32
  34
  36
  37
  39
  41
  43
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  68
  71
  74
  77
  81
  84
Cash from operations, $m
  89
  117
  148
  181
  218
  258
  300
  345
  392
  442
  484
  539
  597
  657
  719
  784
  852
  922
  995
  1,072
  1,151
  1,233
  1,319
  1,408
  1,501
  1,598
  1,699
  1,805
  1,915
  2,030
Maintenance CAPEX, $m
  -17
  -21
  -25
  -29
  -33
  -38
  -43
  -48
  -54
  -60
  -66
  -73
  -80
  -87
  -94
  -102
  -110
  -119
  -128
  -137
  -146
  -156
  -166
  -177
  -188
  -200
  -212
  -224
  -237
  -251
New CAPEX, $m
  -55
  -61
  -67
  -72
  -78
  -83
  -88
  -94
  -99
  -104
  -108
  -113
  -118
  -123
  -128
  -133
  -139
  -144
  -150
  -155
  -162
  -168
  -175
  -182
  -189
  -197
  -206
  -214
  -224
  -233
Cash from investing activities, $m
  -72
  -82
  -92
  -101
  -111
  -121
  -131
  -142
  -153
  -164
  -174
  -186
  -198
  -210
  -222
  -235
  -249
  -263
  -278
  -292
  -308
  -324
  -341
  -359
  -377
  -397
  -418
  -438
  -461
  -484
Free cash flow, $m
  16
  35
  56
  81
  107
  137
  169
  203
  240
  279
  309
  353
  399
  446
  496
  549
  603
  659
  718
  779
  843
  909
  978
  1,049
  1,124
  1,201
  1,282
  1,366
  1,454
  1,545
Issuance/(repayment) of debt, $m
  131
  146
  159
  173
  186
  199
  211
  224
  236
  247
  259
  271
  282
  294
  306
  318
  331
  344
  357
  371
  386
  401
  418
  435
  452
  471
  491
  512
  534
  558
Issuance/(repurchase) of shares, $m
  28
  9
  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 from financing (excl. dividends), $m  
  159
  155
  159
  173
  186
  199
  211
  224
  236
  247
  259
  271
  282
  294
  306
  318
  331
  344
  357
  371
  386
  401
  418
  435
  452
  471
  491
  512
  534
  558
Total cash flow (excl. dividends), $m
  175
  190
  216
  253
  293
  335
  380
  426
  475
  526
  568
  624
  681
  741
  802
  867
  934
  1,003
  1,075
  1,151
  1,229
  1,310
  1,395
  1,484
  1,576
  1,673
  1,773
  1,878
  1,988
  2,103
Retained Cash Flow (-), $m
  -76
  -84
  -92
  -100
  -107
  -115
  -122
  -129
  -136
  -143
  -150
  -156
  -163
  -170
  -177
  -184
  -191
  -198
  -206
  -214
  -223
  -232
  -241
  -251
  -261
  -272
  -284
  -296
  -308
  -322
Prev. year cash balance distribution, $m
  24
  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
  123
  106
  124
  154
  186
  221
  258
  297
  339
  383
  419
  467
  518
  571
  626
  683
  743
  805
  869
  936
  1,006
  1,079
  1,154
  1,233
  1,315
  1,400
  1,490
  1,583
  1,680
  1,781
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
  118
  97
  108
  126
  144
  160
  174
  186
  195
  201
  199
  199
  197
  192
  184
  174
  162
  148
  134
  119
  104
  90
  76
  63
  51
  41
  32
  24
  18
  13
Current shareholders' claim on cash, %
  98.2
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6

Virtusa Corporation (Virtusa) is an information technology services company. The Company's services include information technology (IT) and business consulting, digital enablement services, user experience (UX) design, development of IT applications, maintenance and support services, systems integration, infrastructure and managed services. Its services enable its clients to accelerate business outcomes by consolidating, rationalizing and modernizing the clients' core customer-facing processes into one or more core systems. It delivers solutions through a global delivery model, applying advanced methods, such as Agile, a technique designed to accelerate application development. The Company uses its consulting methodology, Accelerated Solution Design (ASD). It supports the Chief Information Officers (CIOs) of its client organizations in solving their critical issues, including managing total cost of ownership, accelerating time-to-market and increasing productivity.

FINANCIAL RATIOS  of  Virtusa Corporation (VRTU)

Valuation Ratios
P/E Ratio 129.5
Price to Sales 1.8
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 70.6
Price to Free Cash Flow 222
Growth Rates
Sales Growth Rate 43.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 15.4%
Cap. Spend. - 3 Yr. Gr. Rate 16.5%
Financial Strength
Quick Ratio 24
Current Ratio 0.2
LT Debt to Equity 35.6%
Total Debt to Equity 37.4%
Interest Coverage 4
Management Effectiveness
Return On Assets 1.9%
Ret/ On Assets - 3 Yr. Avg. 5.6%
Return On Total Capital 1.8%
Ret/ On T. Cap. - 3 Yr. Avg. 6.8%
Return On Equity 2.5%
Return On Equity - 3 Yr. Avg. 7.7%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 27.7%
Gross Margin - 3 Yr. Avg. 33.1%
EBITDA Margin 6.1%
EBITDA Margin - 3 Yr. Avg. 11.1%
Operating Margin 2.2%
Oper. Margin - 3 Yr. Avg. 6.9%
Pre-Tax Margin 2.2%
Pre-Tax Margin - 3 Yr. Avg. 7.9%
Net Profit Margin 1.4%
Net Profit Margin - 3 Yr. Avg. 5.9%
Effective Tax Rate 15.8%
Eff/ Tax Rate - 3 Yr. Avg. 21.5%
Payout Ratio 0%

VRTU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VRTU stock intrinsic value calculation we used $1021 million for the last fiscal year's total revenue generated by Virtusa Corporation. The default revenue input number comes from 0001 income statement of Virtusa Corporation. 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 VRTU stock valuation model: a) initial revenue growth rate of 19.3% 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 VRTU is calculated based on our internal credit rating of Virtusa Corporation, 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 Virtusa Corporation.
    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 VRTU stock the variable cost ratio is equal to 82.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $134 million in the base year in the intrinsic value calculation for VRTU 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 5.4% for Virtusa Corporation.

Corporate tax rate of 27% is the nominal tax rate for Virtusa Corporation. 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 VRTU 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 VRTU are equal to 28%.

Life of production assets of 16.4 years is the average useful life of capital assets used in Virtusa Corporation 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 VRTU is equal to 10.1%. 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 - $418.623 million for Virtusa Corporation - 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 30.004 million for Virtusa Corporation 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 Virtusa Corporation at the current share price and the inputted number of shares is $1.6 billion.

RELATED COMPANIES Price Int.Val. Rating
IBM International 139.45 162.95  hold
CTSH Cognizant Tech 70.90 73.16  hold
ACN Accenture plc 165.24 84.12  sell
INFY Infosys Limite 10.88 6.75  sell

CONTACT US      

About X-FIN       Privacy policy       Terms of use      

Copyright © X-FIN.com 2005-2019. All rigths reserved.