IndusInd Bank: Residual Income Valuation
(4 pages of text)
In early 2013, an analyst at an insurance company was examining whether IndusInd Bank, a mid-size bank in India, would be a good investment for the insurance fund’s equity portfolio. From January 2008 until March 30, 2013, the bank’s stock had tripled under its new management. The analyst wondered whether deploying funds in the bank would yield any significant returns. He decided to use the available financial information and the residual income valuation method to forecast the company’s stock price.
This case is suitable for use in an undergraduate or graduate course on valuation. Students are introduced to the use of residual income valuation methodology to identify a potential investment target. Two Microsoft Excel documents are also available: a student spreadsheet and an instructor spreadsheet. After completion of the case, students will be able to do the following:
- Use a strengths, weaknesses, opportunities, and threats analysis to determine the opportunities and risks associated with a potential investment target.
- Understand the key assumptions and mechanics of the residual income valuation methodology.
- Perform a valuation of stocks using the residual income valuation methodology.
Finance and Insurance
India, Large, 2013
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