CASE STUDY: Three-Stage Growth Valuation – Zenith Biocare Ltd.
Zenith Biocare Ltd. currently reports Earnings per Share (EPS) of ₹12. The management anticipates the following growth trajectory:
🔹 Stage 1: High-Growth Phase (Years 1–4)
EPS will grow at 30% annually for the next 4 years.
Dividend payout ratio remains constant at 20%.
Cost of equity: 18%
🔹 Stage 2: Transition Phase (Years 5–7)
EPS growth rate will decline linearly from 30% to 18% over these 3 years.
Dividend payout will increase linearly from 20% to 50%.
Cost of equity will decrease by 1% annually, starting from 18% in year 5.
🔹 Stage 3: Stable Phase (Year 8 onwards)
EPS growth stabilizes at 6% annually, indefinitely.
Dividend payout stabilizes at 60%
Cost of equity: 15%
You are required to estimate the intrinsic value of the share using the Three-Stage Dividend Discount Model.
Zenith Biocare Ltd. currently reports Earnings per Share (EPS) of ₹12. The management anticipates the following growth trajectory:
🔹 Stage 1: High-Growth Phase (Years 1–4)
EPS will grow at 30% annually for the next 4 years.
Dividend payout ratio remains constant at 20%.
Cost of equity: 18%
🔹 Stage 2: Transition Phase (Years 5–7)
EPS growth rate will decline linearly from 30% to 18% over these 3 years.
Dividend payout will increase linearly from 20% to 50%.
Cost of equity will decrease by 1% annually, starting from 18% in year 5.
🔹 Stage 3: Stable Phase (Year 8 onwards)
EPS growth stabilizes at 6% annually, indefinitely.
Dividend payout stabilizes at 60%
Cost of equity: 15%
You are required to estimate the intrinsic value of the share using the Three-Stage Dividend Discount Model.
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