Case 049ValuationHard

Jalprabha Water Tech loses money today and may be profitable in year 4. Value it from the path to profit, a terminal multiple, a venture discount rate and the chance of getting there, and say what the number does not capture.

Credit SuisseNew York · 2025

The situation

Jalprabha Water Tech sells industrial water recycling systems on subscription. Revenue this year is Rs 150 crore and management's plan grows it 70%, 50%, 35%, 25%, 20%, 15% and 10% over the next seven years. The EBITDA margin is minus 50% this year and the plan takes it to minus 35%, minus 20%, minus 8%, plus 2%, 8%, 14% and 20% by year 7. The company has Rs 120 crore of cash, no debt, and is burning Rs 80 crore a year.

You are asked to value it using a 12x EBITDA multiple at the end of year 7, a 20% discount rate, and a judgement that there is a 60% chance the company survives to year 7 on this plan. Treat EBITDA as the cash flow proxy and say so.

Your task

Build the revenue and EBITDA path, the probability-weighted value, and the funding gap, and explain what a 20% rate and a 60% probability are each doing.

Quick check

Three years of losses, then four of growing profit, then a 12x terminal multiple. Where does most of the value sit?

Worked solution

Try it on paper, then open one step at a time.

30-second answerThe answer to give first

Equity value is about Rs 439 crore: Rs 319 crore of enterprise value plus Rs 120 crore of cash, before the dilution of the Rs 87 crore it must raise to get there. Revenue compounds to Rs 980 crore and EBITDA crosses zero in year 4 and reaches Rs 196 crore in year 7, a terminal value of Rs 2352 crore. Discount everything at 20%, count the burn in full and weight the profits and the exit by 60%. The number is a frame for the bet, not a price.

Step 1How do you value a company that has no profits to multiply?

A family buying a mango orchard with saplings is not buying this year's fruit; it is buying the fruit in year five, less the water and labour until then, and allowing for the chance the saplings die. A loss-maker is valued the same way: forecast the path to profit, value the business at the point it becomes a normal company, bring that back to today, and subtract the cash it will burn getting there. The three inputs that matter are the year it turns, the size it is when it does, and the chance it makes it. The current loss is only the first entry in the burn.

Step 2What does the path look like?
YearRevenueMarginEBITDADiscount factorPV
Now150(50%)(75)
1255(35%)(89.2)0.833(74.4)
2382(20%)(76.5)0.694(53.1)
3516(8%)(41.3)0.579(23.9)
46452%12.90.4826.2
57758%62.00.40224.9
689114%124.70.33541.8
798020%196.00.27954.7
Terminal, 12x year 723520.279656.3
Rs crore at a 20% discount rate. The losses of years 1 to 3 are worth Rs 151 crore today, the profits of years 4 to 7 Rs 128 crore, and the terminal value Rs 656 crore, so the exit is 84% of the positive value.
Jalprabha's path to profit: revenue, EBITDA, and the terminal value that carries the valuation05001000150now255Y1382Y2516Y3645Y4775Y5891Y6980Y7-75-89-76-41196crosses zero in year 4revenueEBITDATerminal value12 x 196= 235260% counted1411PV at 20%: 656x 60% = 394Rs crore. EBITDA is the cash proxy: capex, working capital and tax are ignored while the company is loss-making, which flatters the result.
Jalprabha's revenue grows more than sixfold to Rs 980 crore while EBITDA climbs from a Rs 75 crore loss to Rs 196 crore, and the Rs 2352 crore terminal value at 12x, counted at 60%, is where almost all of the valuation sits.
Step 3How do the probability and the discount rate combine, and is that double counting?

Keep them doing different jobs. The burn in years 1 to 3 is counted in full, because it is spent whether or not the plan works; the profits and the terminal value are counted at 60%, because they arrive only if it does. That gives Rs -151 crore plus 60% of Rs 784 crore, an enterprise value of about Rs 319 crore, and Rs 439 crore of equity with the cash. The honest caveat: a 20% rate already carries a premium for exactly this kind of risk, so weighting by 60% as well leans towards double counting. Without the probability the value would be Rs 752 crore; the two inputs are a range, not a point, and the interviewer wants to hear you say so.

The relationship
EV=∑t=13EBITDAt1.2t+p[∑t=47EBITDAt1.2t+12×EBITDA71.27]=−151+0.6×784=319EV = \sum_{t=1}^{3} \frac{\text{EBITDA}_t}{1.2^t} + p \left[ \sum_{t=4}^{7} \frac{\text{EBITDA}_t}{1.2^t} + \frac{12 \times \text{EBITDA}_7}{1.2^7} \right] = -151 + 0.6 \times 784 = 319
EBITDA_tthe forecast for year t, used as the cash flow proxy
1.2^tthe discount factor at a 20% rate
pthe 60% chance of surviving to year 7 on this plan
12 x EBITDA_7the terminal value at a 12x multiple
What it says in wordsPay the losses for certain, and value the profits and the exit only to the extent you expect to see them.
Step 4What does the valuation leave out?

The money. Losses of Rs 89, 76 and 41 crore add up to Rs 207 crore before the company earns a rupee of EBITDA, against Rs 120 crore of cash. Jalprabha has to raise about Rs 87 crore, and whoever provides it will own a share of the Rs 439 crore, so the value per existing share is lower than the headline suggests. It also leaves out capex and working capital, which make real cash flow worse than EBITDA while the company grows, and the 12x multiple is a view on what a 20%-margin water business will fetch in seven years, which nobody knows.

From the forecast to a number: the burn is certain, the prize is weighted0200400-151PV of burn, years 1 to 3counted in full+77PV of profit, years 4 to 7128 x 60%+394PV of terminal value656 x 60%+120Cash todaynet debt is nil439Equity valueEV 319 + cash 120The funding gap comes firstburn to breakeven 207 against cash 120:about Rs 87 crore to raise, and dilution
Jalprabha's Rs 439 crore of equity value is the certain burn of Rs 151 crore set against the 60%-weighted profit years and terminal value plus Rs 120 crore of cash, while the Rs 87 crore funding gap decides who ends up owning it.
Chance of reaching year 740%50%60%70%80%
Equity value, Rs crore282361439517596
Every ten points of survival probability moves the equity value by about Rs 78 crore, which is why the probability deserves more argument than the discount rate.

Close as an analyst would. The plan is worth roughly Rs 440 crore if you believe a 60% chance and a 12x exit, and much less per share after the raise. The questions that move it are not in the spreadsheet: what evidence supports 70% growth next year, which costs fall as a share of revenue and why, and who funds the next three years. Say the number, then say what has to be true for it.

Where candidates lose it

The common loss is applying a multiple to current revenue or saying the company is worth nothing because EBITDA is negative. Both skip the question, which is about the path.

The second is discounting at 20% and weighting by 60% without noticing they overlap, then presenting a point value as if it were precise. Say what each is doing and give the range.

What the interviewer asks next

  • If the company reaches 20% margins in year 5 instead of year 7, how much does the value change?
  • How would you value it if the Rs 90 crore raise comes in at a Rs 300 crore pre-money valuation?
  • What would make you use revenue multiples of comparable companies instead of this build?

Asked at Credit Suisse, Investment Banking, New York, 2025 (Wall Street Oasis): how would you value a company with negative cash flows?

Company names and figures are illustrative.