Valuation and Financial Performance Analysis of Pt. Indika Energy

Abstract

According to a coal market update study by the International Energy Agency, coal prices have been highly volatile during the previous five years, significantly influencing Indonesian coal companies’ operations and substantially impacting income and stock values. Furthermore, the increased global attention to addressing climate change is anticipated to lead to stricter enforcement of carbon emissions laws by 2030. PT. Indika Energy is an energy company that highly relies on coal prices, accounting for 75% to 88% of its revenue. Indika has stated four strategies, two of which are Efficiency and Synergy Optimization, and Prudent management. However, the result of profitability performance is not aligned with the company strategy. This research proposes to evaluate the comprehensive financial performance, assess the intrinsic value using the DCF-FCFF approach, and estimate PT’s price-to-earnings (P/E) ratio and Market to Book (M/B) ratio. Indika Energy. This study uses several ratios, including liquidity, profitability, activity, and leverage ratio. The study revealed that the company demonstrates the worst liquidity performance and is the least profitable among its peers. However, the company has managed to maintain the most significant leverage ratio. According to the DCF valuation, the company appears to be undervalued, with an intrinsic value of IDR 3,247, while the market value is IDR 1,540. The company is also undervalued based on its relative valuation metrics. It has a price-to-earnings ratio (PER) of 1.06 and a price-to-book value (PBV) of 0.45, compared to the industry average PER of 5.15 and PBV of 5.27. Hence, the company should minimize its reliance on subcontractors by optimizing its cost structure.