Evaluating the appropriateness of valuation models for emerging market firms: a case study of Marico Bangladesh

Abstract

This study assesses the suitability of three traditional equity valuation models, Dividend Discount Model (DDM), Free Cash Flow to Equity (FCFE), and Market Multiples Model (MMM), for emerging market equities by way of a case study of Marico Bangladesh Ltd. Based on a quantitative, case-study research design, it utilizes historical financial data, macroeconomic assumptions, and industry benchmarks. Each model's effectiveness is gauged through sensitivity analysis and its closeness to real-life market prices. The findings of the study reveal that although all the models reflect Marico's share as undervalued, the FCFE approach, especially when combined with P/E multiples, provided the most consistent and reasonable valuation estimates. In contrast, DDM was of limited use because of the arbitrary dividend policies that are a common practice among Dhaka Stock Exchange (DSE)-listed firms. Furthermore, the study highlights the influence of behavioral biases, macroeconomic volatility, and weak corporate governance on the credibility of valuations. These results imply that hybrid valuation models that synthesize both intrinsic and relative approaches are more appropriate for emerging markets. The research enriches a more context-contingent understanding of model selection, deriving applied implications for investors, financial analysts, and regulatory policymakers operating in frontier economies.