Scribd Logo
Upload

Welcome to Scribd!

  • 1 views

    Group 29 Assumptions

    Uploaded by

    simrandeol.p23

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Group 29 Assumptions

    Uploaded by

    simrandeol.p23
    1 views1 page

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    1 views1 page

    Group 29 Assumptions

    Uploaded by

    simrandeol.p23

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    DCF Model Assumptions for ActivTV

    This document provides a comprehensive rationale for the assumptions used in the DCF model prepared
    for ActivTV, a digital media company focused on sports and entertainment. The key assumptions have
    been carefully derived based on management's guidance, industry standards, and macroeconomic trends.
     Revenue Growth: Revenue growth is assumed to stabilize at 4.5% in the terminal year.
    o India's real GDP growth rates for 2024-2029: 6.8%, 6.1%, 6.8%, 6.8%, 6.5%, 6.2%
    o Inflation rates: 6.9%, 5.1%, 4.4%, 4.1%, 4.5%, 4.5%
    A conservative approach was adopted using a long-term growth rate of 4.5%, considering that it
    is lower than the country's nominal GDP growth (GDP + Inflation = 10.7%). The digital media
    industry will mature over time. The company will reach a more stable state after the high-growth
    phase. Maintaining conservative assumptions ensures the terminal value is defensible. This rate
    reflects industry maturity, aligns with long-term inflation expectations, and accounts for market
    saturation.
     COGS: COGS reduces to 35% of revenue by the terminal year. Historical COGS has been high,
    but management’s efficiency initiatives aim to reduce COGS to 35%. This reflects operational
    improvements and scale efficiencies expected from a maturing business model. The assumption
    aligns with industry benchmarks for comparable digital media companies.
     Operating Costs: Operating costs stabilize at 30% of revenue by the terminal year.
    Management’s target of 30% is based on industry standards for larger, more mature companies.
    This reduction from higher historical levels reflects strategic cost control measures, including
    optimized resource allocation and economies of scale. The assumption balances optimism about
    cost efficiency with the reality of ongoing operational needs in a competitive industry.
     Depreciation: Depreciation stabilizes at 1% of revenue in the terminal year. Historical data
    shows depreciation around 1% of revenue, and this consistency is expected to continue as the
    company’s asset base stabilizes. Reflects steady capital expenditure levels and aligns with
    industry norms for digital media firms.
     Capex: Capex reduces by 1% of revenue in the terminal year. Management has indicated
    minimal capital expenditure requirements due to the asset-light nature of the business and
    reduced need for incremental investments. The assumption reflects the transition to a
    maintenance phase post-expansion, consistent with mature businesses in the sector.
     Working Capital: Working capital stabilizes at 15% of revenue in the terminal year.
    Management projects working capital needs of 17-20% of revenue in the near term, stabilizing at
    15% as the business matures. This reflects reduced volatility in receivables and payables as
    operational processes become more predictable. Aligns with industry practices and reflects
    improved cash flow management over time.
     Terminal Value: Gordon Growth Model with a 4.5% perpetual growth rate. The perpetual
    growth rate of 4.5% is slightly below India’s nominal GDP growth (real GDP + inflation) to
    account for industry saturation and conservative valuation practices. Reflects long-term inflation
    expectations and steady growth prospects for ActivTV as a stable, mature entity.
    The assumptions in the DCF model reflect a balanced view of the company’s growth potential and
    operational efficiencies while maintaining conservatism in the terminal phase. This approach ensures a
    robust and defensible valuation for ActivTV.

    You might also like