Reference no: EM133071683

Mohan Gupta is the portfolio manager of an India - based equity fund. He is analyzing the value of Tata Chemicals Ltd. (Bombay Stock Exchange: TATACHEM). Tata Chemicals is India's leading manufacturer of inorganic chemicals, and also manufactures fertilizers and food additives. Gupta has concluded that the DDM is appropriate to value Tata Chemicals. During the past five years (fiscal year ending 31 March 2004 to fiscal year ending 31 March 2010), the company has paid dividends per share of Rs.5.50, 6.50, 7.00, 8.00, and 9.50, and 10.5 respectively. These dividends suggest an average annual growth rate in DPS of just above 13.5 percent. Gupta has decided to use a three - stage DDM with a linearly declining growth rate in stage 2. He considers Tata Chemicals to be an average growth company, and estimates stage 1 (the growth stage) to be 5 years and stage 2 (the transition stage) to be 10 years. He estimates the growth rate to be 13.5 percent in stage 1 and 9 percent in stage 3. Gupta has estimated the required return on equity for Tata Chemicals to be 15.5 percent. Estimate the current value of the stock. use three-stage H model and solve.