Discounted Cash Flow (DCF) Valuation

You are working as a Investment Analyst preparing a valuation of Reliance Industries Limited (NSE: RELIANCE).

In this lab, you will use the Discounted Cash Flow (DCF) method to estimate the intrinsic value of Reliance Industries.

You will use actual financial information from the company's FY2025–26 Annual Report, recent market information, and Excel formulas to:

1. Project the company's future Free Cash Flow and calculate the Weighted Average Cost of Capital (WACC).

2. Calculate the company's Enterprise Value, Equity Value and Implied Share Price using DCF.

The purpose of this activity is to understand how investment analysts convert financial information into a company valuation

Topic : Valuation Techniques

1) Comparable company analysis

2) Precedent transaction analysis

3) Discounted cash flow (DCF)

4) Interpretation of valuation outputs

DCF.xlsx

Understand Financial Data Source

The financial information used in this lab is taken from:

Reliance Industries Limited – Integrated Annual Report 2025–26

https://nsearchives.nseindia.com/annual_reports/AR_29285_RELIANCE_2025_2026_A_11007429_28052026133947.pdf

The FY2025–26 consolidated cash-flow statement reports:

• Net Cash Flow from Operating Activities: ₹1,92,113 crore

• Expenditure for Property, Plant & Equipment, Spectrum and Other Intangible Assets: ₹1,22,916 crore

• Closing Cash & Cash Equivalents: ₹1,45,977 crore

• Total debt/borrowings: ₹3,74,421 crore.

The Annual Report also reports 13,53,24,72,634 equity shares, equivalent to approximately 1,353.25 crore shares.

Market Data

The Reliance share price used in this lab is:

₹1,322.00

This was the NSE closing price on 4 September 2026.

Beta

For this exercise, Beta is:

0.15

The latest available Beta reported for Reliance as of 6 September 2026 is approximately 1.01.

1. Go to https://www.investing.com

2. In the search bar, type Reliance Industries.

3. Select Reliance Industries Ltd.

4. Open the General section.

5. Look for Beta under the stock/valuation statistics.

6. Record the Beta value shown.

7. Use approximately 0.15 in the DCF calculation.

Important: Beta can differ between financial websites because different providers may use different calculation periods and methodologies. For this academic exercise, students should use 0.15 as the specified Beta assumption.

Risk-Free Rate

For the DCF exercise, the India 10-year government bond yield is taken at approximately:

6.96%

The 10-year Indian government bond yield was around 6.96% in early September 2026.

1. Go to Investing.com.

2. Select the India 10-Year Bond Yield page.

3. Check the latest Yield displayed.

4. Record approximately 6.96% for this exercise.

5. Convert the percentage into decimal form when using the WACC formula:
6.96% = 0.0696

Calculate Base-Year Free Cash Flow

2

What is Free Cash Flow?

Free Cash Flow tells us approximately how much cash is left after the company has generated cash from its operations and spent money on capital expenditure.

Formula

Free Cash Flow = Operating Cash Flow − Capital Expenditure

Why do we use this formula?

A company generates cash from its business.

However, it must also spend money on things such as:

• Plants
• Equipment
• Technology
• Spectrum
• Other assets

Therefore, we subtract capital expenditure from operating cash flow.

For this lab, we will use FY2025–26 consolidated financial data from Reliance Industries' Annual Report.

Formula

Free Cash Flow = Cash Flow from Operating Activities − Capital Expenditure

Therefore:

FCF = ₹1,92,113 crore − ₹1,22,916 crore

Base-Year FCF

₹69,197 crore

This ₹69,197 crore will be used as the Year 0 FCF in the DCF model.

Year 0 means the latest actual year that we are using as the starting point for our forecast

Enter DCF Inputs in Excel

3

Open a blank Excel workbook.

Rename the first worksheet:

DCF_Model

Enter the following information:

Select cell A1 in your Excel sheet, copy the block below, and press Ctrl + V (or Cmd + V) to paste it directly into cells A1:B8:

Plaintext

DCF Valuation – Reliance Industries

Current Share Price (₹)   1322.00

Shares Outstanding (Crores)         1353.25

Total Debt (₹ Crores)       374421

Cash & Cash Equivalents (₹ Crores)           145977

Base-Year FCF (₹ Crores) 69197

Beta       0.15

Cell Layout Reference

Calculate WACC

4

WACC represents the average rate of return required by the company's investors and lenders.

Enter the following:

A : Calculate Cost of Equity

What is Cost of Equity?

Cost of Equity tells us the return that shareholders expect from investing in Reliance.

We use the CAPM formula.

Formula:

Cost of Equity = Risk-Free Rate + (Beta × Equity Risk Premium)

Why do we use this formula?

Why do we use this formula?

An investor can earn a relatively safe return by investing in government securities.

If the investor buys a risky company's shares instead, the investor expects an additional return for taking that risk.

Beta measures how sensitive the stock is to market movements.

Excel formula:

=B11+(B8*B12)

Using the given assumptions:

= 6.96% + (0.15 × 8.00%)

= 6.96% + 1.20%

Cost of Equity = 8.16%

B : Calculate Market Capitalization

What is Market Capitalization?

Market Capitalization is the total market value of the company's equity.

In simple words:

“What is the stock market currently valuing all the company's shares at?”

Use:

Market Capitalization = Share Price × Shares Outstanding

Excel:

=B3*B4

Therefore:

₹1,322 × 1,353.25 crore

Market Capitalization = ₹17,88,996.50 crore

C : Calculate Total Capital

Why do we calculate Total Capital?

A company is financed by:

1. Equity

2. Debt

We need to know how much of the company's financing comes from each source.

Use:

Total Capital = Market Capitalization + Total Debt

Excel:

=B15+B5

Therefore:

₹17,88,996.50 + ₹3,74,421

Total Capital = ₹21,63,417.50 crore

D : Calculate Capital Weights

Why do we calculate Equity Weight?

WACC combines the cost of:

• Equity

• Debt

Therefore, we need to know the proportion of each.

Equity Weight

Excel:

=B15/B16

Expected result:

82.69%

This means approximately 82.69% of Reliance's capital is represented by equity in this simplified model.

Debt Weight

Excel:

=B5/B16

Expected result:

17.31%

Check

Equity Weight + Debt Weight

= 82.69% + 17.31%

= 100%

E : Calculate WACC

What is WACC?

WACC stands for:

Weighted Average Cost of Capital

Think of WACC as the company's required return.

Use:

WACC = (Equity Weight × Cost of Equity) + (Debt Weight × After-Tax Cost of Debt)

Why do we use this formula?

Reliance gets financing from both:

• Shareholders

• Lenders

Therefore, we calculate the average cost of both sources based on their weights.

Excel:

=(B17*B13)+(B18*B14)

WACC = (82.69% × 8.16%) + (17.31% × 6.00%)

Calculated WACC ≈ 7.79%

This percentage will be used as the discount rate in the DCF valuation.

Project 5-Year Free Cash Flow

5

Now we need to estimate how much cash Reliance could generate in the future.

We will forecast FCF for:

• Year 1
• Year 2
• Year 3
• Year 4
• Year 5

For this exercise, use:

Create the FCF Forecast Table

Cell Layout Reference

Projected Free Cash Flow (₹ Crore)

(For presentation, students may round these values to the nearest crore).

Now we have estimated Reliance's future cash flows.

But there is one important problem:

₹1 received five years from now is not worth the same as ₹1 today.

Therefore, we need to convert future cash flows into today's value.

This is called:

Present Value (PV)

Calculate the Discount Factor

What is a Discount Factor?

The discount factor converts future money into today's value.

The farther into the future the cash flow is, the more we discount it

Formula

Discount Factor = 1 ÷ (1 + WACC)^Year

Why do we use WACC?

WACC represents the required return used to discount the company's future cash flows.

Calculate Present Value of FCF

Now we convert each future FCF into today's value.

Formula

PV of FCF = Projected FCF × Discount Factor

Why?

The discount factor tells us how much today's value corresponds to each rupee of future cash flow.

Enter:

Enter Terminal Growth Rate

After Year 5, we assume Reliance will continue growing at a stable long-term rate.

For this exercise:

Terminal Growth Rate = 5%

Enter:

Calculate Terminal Value

2

What is Terminal Value?

We cannot forecast Reliance year by year forever.

Therefore, after Year 5, we estimate the value of all future cash flows together.

This is called:

Terminal Value (TV)

Formula

Terminal Value = Year 5 FCF × (1 + Terminal Growth Rate) ÷ (WACC − Terminal Growth Rate)

Why do we use this formula?

We assume that after Year 5:

Reliance will continue generating cash and growing at a stable rate of 5%.

Important

The WACC must be greater than the terminal growth rate.

Here:

WACC = 7.79%

Terminal Growth = 5.00%

Enter:

Results:

• Year 5 FCF: ₹1,47,057.46 crore (Cell G24)

• Terminal Growth Rate: 5.00% (Cell B27)

• WACC: 7.79% (Cell B19)

• Terminal Value: ≈ ₹55,42,027.65 crore

• Present Value of Terminal Value: ≈ ₹38,09,372.81 crore

Results:

• Year 5 FCF: ₹1,47,057.46 crore (Cell G24)

• Terminal Growth Rate: 5.00% (Cell B27)

• WACC: 7.79% (Cell B19)

• Terminal Value: ≈ ₹55,42,027.65 crore

• Present Value of Terminal Value: ≈ ₹38,09,372.81 crore

Calculate Enterprise Value

3

What is Enterprise Value?

Enterprise Value represents the estimated value of the company's operations before considering the company's cash and debt.

Formula

Enterprise Value = PV of Forecast FCFs + PV of Terminal Value

Calculate Net Debt

4

What is Net Debt?

Net Debt shows how much debt remains after considering the company's available cash.

Formula

Net Debt = Total Debt − Cash

Why?

If Reliance has ₹3,74,421 crore of debt but ₹1,45,977 crore of cash, the cash can be used to reduce the effective debt burden.

Calculate Implied Equity Value

5

Enterprise Value belongs to both debt holders and equity holders.

To estimate the value belonging to shareholders, we subtract net debt

Formula

Equity Value = Enterprise Value − Net Debt

Calculate Implied Share Price

6

Now we want to know:

What is the estimated value of one Reliance share?

Formula

Implied Share Price = Equity Value ÷ Shares Outstanding

Compare Market Price with DCF Value

7

The current market price is:

₹1,322

The DCF estimated value is approximately:

₹2,990

Now calculate the potential upside.

Formula

Upside / (Downside) = (DCF Value − Current Price) ÷ Current Price

Our DCF model estimates:

Current Market Price = ₹1,322

DCF Implied Value = approximately ₹2,990

Therefore, the model indicates an implied upside of approximately:

What does this mean?

Reliance appears undervalued relative to its current market price.

However, this does not mean that the share will definitely reach ₹2,990.

The DCF value depends heavily on assumptions such as:

• FCF growth

• WACC

• Beta

• Risk-free rate

• Equity risk premium

• Terminal growth rate

• Capital expenditure

• Debt and cash

A small change in WACC or terminal growth can produce a large change in the DCF value