Application of discounted cash flow model valuation: Case study of Indian Power Generation & Distribution sector

Application of discounted cash flow model valuation: Case study of Indian Power Generation & Distribution sector

Komal V. Limbachiya1, Akash Kumra2

1 Department of Applied Mathematics, Faculty of Technology and Engineering, The Maharaja Sayajirao University of Baroda

2 Department of Economics, Faculty of Arts, The Maharaja Sayajirao University of Baroda

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Abstract - India is the third-largest producer of electricity in the world. This research examines the application of the Discounted Cash Flow (DCF) model for valuing companies within the Indian power generation and distribution sector. The DCF model, a cornerstone of financial analysis, estimates a company's present value based on its projected future cash flows. This study evaluates the financial performance of the top five companies in the Indian power sector, ranked by market capitalization, using ratio analysis. The company with the strongest performance across key financial metrics was further analysed using the DCF methodology to estimate its intrinsic value, providing deeper insights into its valuation and investment potential. This research adds to the existing literature by demonstrating how DCF valuation can help investors and stakeholders make well-informed financial decisions in the Indian power sector. It is important to note that this research is intended for academic purposes only and does not constitute investment advice.

Key Words:  Indian Power sector, Financial ratios, Terminal value, Weighted average cost of capital(WACC), Free cash flow to firm(FCFF), Discounted cash flow(DCF)