Equity Research puzzles, solved step by step

Roughly 607 million 5G phones worth about US$ 351 billion, on stated assumptions. Assume 4 billion smartphones in use, replaced every 3 years, so about 1.33 billion are sold in 2022. Assume all premium phones, 60% of mid-range and 15% of entry phones are 5G, a blended 45.5%, which gives 607 million units. At a blended price near $579, the value is about US$ 351 billion.

Where do you start: people, phones or networks?

Think of estimating how many pairs of school shoes a town buys. You do not count shops; you count children and ask how often a pair wears out. Annual phone sales are the phones in use divided by how many years a phone lasts, so start from the installed base and the replacement cycle, then split the year's sales by price band. Say every number as an assumption: an installed base of 4 billion and a 3 year cycle are round figures for the method, to be checked against an industry tracker before they go into a note.

How do you show the interviewer you know where the estimate is weak?

Run the sensitivity on the widest step. A cycle of 2.5 years gives 728 million 5G units and 3.5 years gives 520 million, a swing larger than any plausible error in the price assumptions. Then sanity check the output: 45% of phones sold being 5G in 2022 should sit sensibly against what you know about network rollouts, and a blended price near $579 says premium phones carry most of the value. The limitation: first-time buyers are folded into the cycle, which slightly understates sales in markets still adding users.

About Rs 450 crore. Revenue is 5,000 students x Rs 3 lakh, Rs 150 crore a year. A 25% EBITDA margin gives Rs 37.5 crore, and at 12 times that is an enterprise value of Rs 450 crore, before subtracting any debt. The case for buying is fees paid in advance, a campus and approvals that are slow to copy, and demand that renews with a new batch every year.

How do you structure an open question like this?

The question has two halves and the interviewer wants both. It is like selling a flat: first you say what makes it worth having, the light, the location, the building, and then you give a price per square foot times the area. Give the reasons to own it in three short points, then build the price as revenue times margin times multiple, naming every input so the interviewer can push on any one of them. Leading with the structure also buys you time to do the arithmetic.

What makes the case for buying convincing?

Pick the features an investor would pay for. The strongest is that customers pay a term or a year in advance and come back every year, so the business funds its own working capital and its revenue is visible well before the year starts. Add that a campus, a faculty and regulatory approvals take years to replicate, which protects the fee level, and that demand refreshes with every new batch. Then name the risk that decides the price: how full the seats are. One caution belongs here too: in many countries, including India, degree-granting colleges are commonly run through not-for-profit trusts or societies, so confirm the legal structure first, because it decides whether an investor can own the profit at all.

Which number would you defend hardest?

The margin and the multiple, because each moves the answer one for one. At a 20% margin the value falls to Rs 360 crore, and at 10 times EBITDA it falls to Rs 375 crore; every input in the chain carries equal weight. Justify 12 times with the visibility of fee income and 25% with a campus that is nearly full. If asked for a range rather than a point, Rs 360 to 450 crore on those two sensitivities is honest.