FAIR VALUATION OF A RENEWABLE ENERGY COMPANY IN INDONESIA

• Main Author: Fallery
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/63509
• Institution: Institut Teknologi Bandung

The rise of environmental awareness results in global initiatives which encourage the utilization of clean energy sources or renewable energy. Not only goverments but also numerous global companies set their stance to do energy transformation by using renewable energy as their electricity supply. Those companies set their timeline of carbon neutrality in a certain year, therefore, the world including Indonesia experienced the massive movement of the utilization of renewable energy power plants. Many companies tend to do mergers and acquisitions (M&A) to achieve their carbon neutral target because they do not have the technical or commercial capabilities to develop renewable energy power plants by themselves. In Indonesia, rooftop solar PV (RTS) is one of the most promising sectors is judging from its competitive investment costs, cheaper, and faster implementation time, and solar has quite a lot of resources in the country. This RTS sector becomes more attractive since this sector is regulated, and Govt shows its support by releasing the MEMR Decree no 26/2021. Not only the Indonesian Govt but also many companies pursue RTS business. And, M&A is regarded as being efficient and the fastest way for companies to enter into RTS business in Indonesia. In the context of M&A activity, the buyer and the seller often experience disagreeable transaction value of the company. Especially, the value of the startup company which does not have a long historical track record because its business is relatively new. On some occasions, a wide discrepancy happens about the company’s valuation from the viewpoint of the buyer and the seller. Having such considerations, the business issue is to define the fair value of the company which is about to be sold. DCF valuation method is applied to find the fair value of the company on which this valuation method is regarded as the common practice to determine the firm’s value. It assumed that the negotiation between sellers and buyers would be smoother than using other valuation methods. However, it is worth noting that DCF valuation heavily relies on the analyst’s assumptions. As a result, DCF valuation revealed that the firm value of Alpha Co. is USD 12.47 million with 10.74% and 10.76% of WACC in 2021 and after 2021 respectively. The WACCs are different because of the different Corporate Income Tax implementation in 2021 (22%) and after 2021 (20%). In addition, the sensitivity analysis revealed that some components or assumptions have a significant influence on the valuation on which the most sensitive component is the cost of equity. 25% change of cost of equity could result in USD 8.34 million deviations to the original calculated firm value or 66.88% higher than the original calculated firm value. These findings prove the hypothesis that DCF valuation heavily relies on its assumptions.