Talbros Automotive Components Limited: Relative Valuation

In 2015, an ancillary client of a leading investment bank based in New Delhi, was looking to increase revenues from the two-wheeler and four-wheeler vehicle segments by acquiring customers that were original equipment manufacturers. A financial analyst was assigned the task of evaluating the options and identifying the right target to acquire for the client. The analyst used comparable company analysis and comparable transaction analysis, as well as valuation ratios (enterprise value-to-sales; enterprise value-to-earnings before interest, tax, depreciation, and amortization; and price-to-earnings per share) to arrive at Talbros Automotive Components Limited as the best target for the client. For comparable company analysis, the analyst also compiled a list of four publicly traded firms that were similar to Talbros Automotive Components Limited. The analyst needed to arrive at the final valuation range by combining the results of both techniques (i.e., comparable company analysis and comparable transaction analysis), which could be achieved by using a football field analysis.

This case is ideal for use in finance classes at the graduate level. The case focuses on teaching students to:<br><ul><li>Use comparable company analysis and comparable transaction analysis for valuation of a firm.</li><li>Identify a group of comparable firms and understand how to compare firms by using various financials on a year-on-year basis.</li><li>Compute the control premium by evaluating firms that have undergone a merger in a sector.</li><li>Develop a conceptual understanding of how the comparable company/transaction method may differ from the discounted cash flow valuation method.</li><li>Become familiar with the use of the football field method to calculate the final value of a firm.</li></ul>

• valuation, EV/EBITDA, EV-to-earnings, P/E ratio, acquisitions, original equipment manufacturer, takeover premium, control premium, fair value, comparable transaction