MARKET CAP BREAKEVEN
Estimate the steady-state revenue and operating economics needed to justify a target equity market capitalisation.
BREAKEVEN OUTPUT
CUSTOM ASSUMPTIONS| Trailing twelve-month revenue | — |
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| Revenue required if mature today | ₹2,003 Cr |
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| Revenue required after 5 years | ₹2,810 Cr |
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| Implied reinvestment rate | 20.0% |
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| Next-period FCFE margin | 12.5% |
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| Delayed / mature revenue hurdle | 1.40× |
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Lower required revenue is easier to justify. The model is a reverse valuation test, not a price target or investment recommendation.
REVENUE SENSITIVITY · NET MARGIN × ROE
REQUIRED AFTER 5 YEARS · 2.0% CASH YIELDEach cell is the revenue the company must reach after the selected 5-year waiting period, assuming the row's mature net margin and the column's mature ROE. The calculation also uses the selected 2.0% interim cash yield. Green cells require less revenue; red cells require more. When TTM revenue is available, the smaller line shows how far the hurdle sits above or below today's annual revenue.
WAITING SENSITIVITY · YEARS × CASH YIELD
REVENUE REQUIRED AT MATURITYThis matrix holds the selected mature net margin and ROE constant, then varies the waiting period by row and the shareholder cash yield during that period by column. Moving downward generally raises the hurdle because investors wait longer; moving right generally lowers it because more of the required return is received before maturity. The selected assumptions in the form correspond to the same delayed-revenue equation, even when they fall between the displayed grid points.
FINANCIAL AND MATHEMATICAL EXPLANATION
Let V be the target market capitalisation, R mature revenue, m the steady-state net margin, g perpetual nominal growth, ROE the steady-state return on equity, and ke the cost of equity. The calculator builds nominal economy growth from long-run inflation π and real economy growth gr:
g=π+gr This follows the paper's long-run assumptions: 2.5% inflation plus about 1.5% real growth produces 4.0% nominal economy growth. Both inputs therefore affect every valuation result. They are not added again elsewhere in the cash-flow formula.
Sustainable growth requires a fraction of earnings to be reinvested. Under the standard growth identity:
g=ROE×b⟹b=ROEg where b is the earnings retention or reinvestment rate. The remaining fraction, 1 − b, is available to equity holders. Next-period net income is mature revenue grown once at rate g, multiplied by the steady-state margin:
NI1=Rm(1+g) Free cash flow to equity is next-period net income after the reinvestment needed to sustain growth:
FCFE1=Rm(1+g)(1−ROEg) Once the company is mature, valuing that FCFE as a stable-growth perpetuity gives:
V=ke−gFCFE1=ke−gRm(1+g)(1−ROEg) Solving for revenue produces the mature-today breakeven hurdle:
R0∗=m(1+g)(1−ROEg)V(ke−g) If maturity is n years away, the mature revenue hurdle must compensate investors for waiting. Let y be the average annual cash yield received during the transition. The workbook compounds the uncovered return requirement, ke − y, over the waiting period. This delayed hurdle is now used by both heatmaps, including every net-margin/ROE cell:
Rn∗=R0∗(1+ke−y)n The model therefore behaves intuitively: a higher target market capitalisation, cost of equity, or waiting period raises required revenue; a higher sustainable margin, ROE, growth rate within valid bounds, or interim cash yield generally lowers it. A higher ROE helps because the same perpetual growth can be funded with a smaller retention rate.
VALIDITY CONDITIONS
ke>g,ROE>g,m>0,1+ke−y>0 The stable-growth assumption should be economically conservative because a company cannot outgrow the economy forever. Inflation and real growth are combined once to form the nominal perpetual rate. Current reported net margin and ROE are historical observations; they should not be accepted automatically as sustainable mature economics.
Based on valuation formulas and reverse-engineering ideas suggested by Aswath Damodaran.
