Application of Free Cash Flow to Equity Model in Valuing Mahindra Group Companies: An Empirical Study

The paper aims at applying the free cash flow to equity model in estimating the value of equity of the NIFTY Mahindra Group Index companies. It also serves to estimate a degree of under or overvaluation of these companies by comparing estimated value with the market price of the stocks. A sample consists of six companies covered in NIFTY Mahindra Group Index. Values of equity shares of these companies were estimated by applying free cash flow to equity model over a forecast period of five years ranging from 2019 to 2023. After the forecast period, the terminal value was found out by using the constant growth model. The values per share of sample companies were estimated as on March 31, 2018, and they were compared with market prices of these companies for the corresponding period. The results of the study revealed that five out of six companies were undervalued relative to the market price. Mahindra CIE Automotive Ltd was found to be highly undervalued across the sample representing 94.83% of undervaluation.