Tag: Valuation

Historical Price to Book valuation of Nifty 500 stocks

Last week I was compiling how consistent wealth creators are faring vis a vis there 2008-09 prices.

I wasn’t the only one thinking on those lines, the guys at Ventura did even better and put together a comprehensive 20 year Price to Book Value of Nifty 500 stocks

Fantastic, you can download a copy from here

Some observations

1. Don’t do bottom fishing with 100 percent allocation, the price can go even lower if history is a guide

e.g. I was reviewing one the companies removed from scorecard KRBL P/B of 0.8 sounds cheap unless you see 0.2 in 2008/9

2. Don’t buy just because it’s cheap
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DLF market cap is the same today … Read the rest

How to Value Ashiana Housing

How to Value Ashiana housing ?

Prof Bakshi has beautifully explained this in one of the comments on his blog, I am reproducing it below for you to read and think.

The approach I like is to take the pre-tax operating cash flows and then deduct (as you’ve mentioned) the amount of money that would needed to be spent from these cash flows, for the acquisition of land for future projects. Here, I would reduce only that part of land purchase cost which is in lieu of EAC. In capex terms that we are more familiar with, this would be analogous to maintenance capex i.e. the amount of capex a company needs to do to maintain its current unit volume and not to grow beyond that. So maintenance capex in manufacturing companies is analogous to the amount of money Ashiana needs to spend on land every year just to maintain the current level of EAC. That cost should be deducted from annual pre-tax operating cash flow. The resulting number would represent the amount of pre-tax owner earnings that the business generates without counting any growth. You can then estimate the present value of that owner earnings stream

… Read the rest

Get a framework to understand Value

One of the many difficult question to answer in investing is what drives value of business

What makes one business to trade at a premium to other business in eyes of market participants and how does one identify any such business which is out there and still not recognised by Markets

There is an excellent thread on Valuepickr and I keep going to as it does a great job of answering these question

First lets understand they key value drivers, Most of what I am proposing below is based on this excellent paper by Bear Stearns1 .

Value increases by

  1. Growing operating profit and investing in NPV positive opportunities
  2. Increasing ROIC (by taking capital out of the business or identifying high return projects)
  3. Reducing WACC (Lowering risk)
  4. Extending competitive advantage period (CAP)

Let’s give this a fancy name – 4 pillar framework

Can we put above theory in practice lets tackle each of the above components one by one

1. Growing operating profit and investing in NPV positive opportunities – This sounds fairly intuitive, has two parts

How can a company improve its operating profit – By Expanding operations or By expanding margins (EBIT as % of sales) – … Read the rest

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