Application of Valuation Model in Iranian Electricity Distribution Companies

One of the main concerns of power system restructuring in developing countries is to divest the asset to private sector. This divestment for electricity distribution companies is more critical and has a vital role in the electricity supply chain because of vicinity to customer. This paper applies the valuation approach for electricity distribution companies. For valuation of the companies, Discounted Cash Flow (DCF) model is used and Terminal Value (TV) model is applied to forecast future costs and incomes of companies in a stable manner. Systematic risks of these companies are taken into account by using Capital Asset Pricing Model (CAPM). Five Iranian electricity distribution companies are selected and considered technically and economically to obtain their valuations. As a result, these companies are ranked based on their valuations and technical factors.

Keywords:

Valuation Approach , Terminal Value , Free Cash Flow to Firm , Discounted Cash Flow