Thursday, December 24, 2009


What is valuation?How is it determined?What are the parametres to determine it.
We have seen experts of stock market speaking on Valuation.
The term use are undervalued, Overvalued or valuation at par....there can be many more names for giving ......
Now , how one can come on conclusion that the stock is overvalued or undervalued.I have a big PDF file which explains how to calculate the valuations that someone send me.I have saved it in my computer but has never read it.
If one will try to find a book on how to find valuation, they will find many books and after reading investor will find it fentestic and also would talk to some other stockmarket friend about that book and even refer it to read it.
Why I didn't go through that PDF File speaking on valuation?There are reasons for me not go read it.
I am not sure whether it is still there in my computer, so please don't ask for it........
I have seen that analyst who comes on business channel, says that so and so stock is now fully valued,means very less scope of going up.So one need to sell it or bookprofit in it.
Some stock expert says it is undervalued and can be bought.
I have seen one fund house or FII's or brokerage house giving a overvalued call on certain stock and other will come out with a buy next couple of days......Now why that is happening?When one says it is overvalued why other is saying undervalued?
This gives the answer itself....there are different parametres to look at the valuations and all have different way to analyse it.One find overvalued other find undervalue....why so , because the growth one is able to see, other is not able to see.Or in other words,what one has got the firsthand information after meeting the management, other is not having that and hence one ends up saying it is overvalued and other end up saying it is undervalued........
Well, if there is not a big difference between two opinion then it is OK but when one says is totally opposite to what other say then whom to believe.
Valuation is not a constant thing.It keeps on changing,everyhour, everday , everyweek, everymonth or even everyyear.
A Co, say Aban Llyod, was overvalued in Jan 2009 and need to be sold with so big of debt and I was reading sell call from each and every house and in just one go......Crude started going up....valuation become cheap......look at the 52 week lows and 52 week high........of Aban Llyod....
Just a big order for a Co and stock become product becomes successful and stock become undervalued.....
Valuation is a constantly changing thing.A stock can remain overvalued or fullyvalued for 2-3 yrs or even 4-5 yrs and suddenly the fortune changes and stock becomes darling and everyone wants to buy it......There are innumerable example like that in Indian Stock market as well in International market.
Valuation depends on how the economy is faring, how the Cos product is doing, what are the future potential of the Cos product,what world will need, how will be the demand,will perticular co will get beniffited from that and over and above that How market is doing.......there are so much of things to be taken care of that it is impossible to say anything on valuation front at anytime unless you have firsthand report.....on any Co.
Nestle was looking costly at 1600 to Dr Vikas and now at 2500 he is asking me whether it is a buy or not.
So at 1600 Nestle was overvalued and at 2500 it is not?Well that depends on how one thinks.If someone think that product will do good and has great future , one can definately go ahead and buy it at even this rate.
There is P/E ratio to decide.People looks at P/E .....sector p/e and see if that stock has lower p/e then other peers gr.....but that is also always not a great thing to do.Market can keep certain stock undervalued for a longer period of time and one can left with that stock not moving at all for entire whole bull run.......
Valuation is also related with demand and supply.If demand is more and supply is less then the stock can soar to great highs....irrespective of earnings.....
I have seen people (read expert) selling stocks at 3-5 times return and that stock went on to give 20-30 times noone can say that a stock is overvalued or undervalued......I think it is impossible to opine on that parametres.....
Have you ever met with a stock which when you see after 3-6 months or a year and you feel ,you missed it?These thing should have happened with each and everyone.I have no doubt about it.
Now why you were not able to buy it at that time ?What was the reason at that time that you missed such a great stock and ended up with something else which may be a laggard in your portfolio?Because at that time you were not able to see what is there in that stock and hence you didn't buy and those who were able to see bought it and making hay......
If the fundmanagers , analyst and some experts are so great in telling whether a stock is overvalued or undervalued then why their clients or funds Nav is still underpeforming even with the average return of market?
If they are great teller then they should show better return then the market gives but that is not the case........Very less funds gives above average return then market and very less gives same return like market .....
What is value then?Value is brand, value is management,value is growth, Value is foreseeing when I wrote on SNL Bearing is NRB bearing managed Co .....which is showing positive bottomline.....and available at just Rs 11!Can one imagine a NRB Bearing run Co have such a less value? that is VALUE........Like I wrote on Yashraj Containeurs Ltd......great product and great clientele list and great earning .....and stock at 3-4 p/e?That is value.......and mind well, after doing all these market may not give the thumbs up to that stock...and one has to wait for longer period untill others find out.....


  1. Hi Rajeev,
    Thanks once again for clearing my doubts on valuation.
    Basically its not only about BV, EPS or P/E, but its about brand, management and most imp. of all is future potential.

  2. Hi Rajeev,
    I sense that you have all the talent to be a special editor in a business daily. Have you ever tried for it?

    Great posting on VALUATION.

  3. Vasanth,
    Leave Special Editor of any business daily, I am even not able to find a decent JOB in USA.....on my merits.....anyway , thanks for the kind words.....
    The real thing is one need to do a proper presentation of my expertise to give me such JOB...just applying for any JOB doesn't makes any sense as they do not know the real otherwords , one need to take me OFF from where I am and put where I need to be puton.....but who will do that and why?

  4. hello rajeev bhai
    i agree with one of the blogger that who follows blindly cannot make loss ever and the strategy of making a small entry and follow up is best. Ofcourse exit half when it doubles.

    Please advise on genus power....

  5. rajeev bhai
    Also i want your view on ABC ind as i bought at higher and now it is conti on lower circuits ,
    is it still a buy and addon time??? pl advise

  6. Dear Rajeev,

    Long time i havent posted any comments on your blog. Have been diligently reading every post and hoping to add more and more potential multibaggers to my portfolio.

    There are two stocks on which i wud luv to have your views.

    One is Om Metal and Infra (sum one had already asked you bout it)
    It seems very interesting both from valuations point of view and long term perspective as it is a leader in hydromechanical space.

    They are projecting an order book of 10,000 cr by 2017 (frm a paltry Topline of just 100 cr currently)

    Second stock is Meghmani Organics.

    Tnx in advance.

  7. Hi Rajeev

    Please can you throw some light on how Buy Back schemes affect the share price. For e.g Apollo Tyres is hovering around Rs.47-48 for lomg time. Is Buy back offer for Rs 25 (start date 23 Apr 2009 end date 18 Mar 2010) affecting the price?

    Thanks and regards


  8. hi rajeev

    i have benefitted immensely in gayatri and kpit .i am looking forward to invest in jsw energy in a big way . there are lot of people including sameer arora who think that this issue was expensive.

    but on studying extensively i found that by end of next year they will have about 3000mw worth of running projects. as a thumb rule in coal based projects 1 MW accounts for 1cr in profit for whole year . that means at end of next year they will have 3000 Crore of profit on equity of 1600 crores which gives them 18-19 kind of eps . my feeling is by the end of next year it should at least trade around 350 -400. also they have highest margins in the industry.
    rajeev do you think its wise to go for it on the first day or wait for it to settle down.
    i know it should be my call but just in case if you have any information from your sources.


  9. Pradeep,
    Yes the buyback price of Rs 25 is hindering any upmove.

  10. ravi,
    As I use to write, buy small quantity to getin first...maybe 10-20% and then see how it works....The Jindal gr is a great gr and market should and will give better discounting in future then its peers....
    Maybe Mr.Samir Arora wants to buy big in Jindal Energy and hence giving that type of call.....

  11. Hi Rajeev,

    Forgetting Technicals I would like to know your views about
    yash-papers [] they expect EPS of 5 by 2010. They expect 125 crore topline with 10% bottom line which makes EPS 5 during 09-10.

    They are leading manufacturing of Kraft paper which are use to make paper bags which is environmentally good as against plastic.

    Concern: they get competition from unorganized players which will eat bottom line.

    Thanks. :)

  12. Kitty,
    Thanks.Speaking on Valuation front is so complicated that I sometimes do not understand how people can come to conclusion on it so easily and that too so convincingly....

  13. Mahesh,
    Yash Paper looks good.But the only problem here is market do not give good discounting to paper untill the sector becomes market favourite it is not going to go up....

  14. Mitzz,
    I do not track OM MetalInfra.Talking about 2017 is very long time.....anything can happen inbetween....I do not take calls like that.....on sales of 53 cr last qr it earned NP almost 10 cr means 20% NPM....what is it doing to have such a big NPM....can that be sustained?
    What is the orderbook now that is what we need to see....Lots of great cos in Eng and Cons are there and am not seeing that much of NPM for any co....I don't say it is not possible but diggin more....On a sales of 130 cr the Mcap is already 293 cr....means already quoting at 3 times Mcap...

  15. Please read following article on small cap stocks......

    The top 10 Small-Cap stocks will be showcased one per day:
    1. 3i Infotech
    2. Apollo tyres
    3. Eicher Motors
    4. Everonn Education
    5. Gateway Distriparks

  16. Dear Rajeev

    I have taken this three stocks from
    where to invest profitably in 2010, a share portfolio designed by Dalal street
    1) Spice mobiles
    2) Mangalam Cement
    3) Rane Madras
    I like to have your valuable advice
    on the above stocks.

  17. Dear Rajeev,

    The digging on Om Metal has been quite deep from my side and thats why I thought i could get your valuable advice too.

    BTW their current order book is 700cr and their margins are huge because they operate in a very niche segment and they are Indias biggest co in that segment.

    Anyways i had also asked you bout Meghmani Organics. Any views on that one ???

  18. Hi Rajeev

    Do you track Manjushree Technopack. If Yes, What's your call.

  19. Pradeep,
    All are looking good.I like Gateway Drishtipark.Saw that IFCI is taking stake in their cold storage sub...

  20. nirash,
    When Dalal Street recomends what I have to say.....but in Cement I would go for Heidelberg cement and Prism Cement...

  21. Mitzz,
    I don't track Meghmani so no view...

  22. Amit,
    Do not track Manjushree Technopack....

  23. Hi Rajeev

    Please can you advise if Assam Co good for LT CMP 19

    (in Cr.) Sep-09 Jun-09 FY08
    Revenue 73.52 33.46 192.86
    Net Profit 28.51 9.08 -2.82
    EPS 0.92 0.29 -0.09
    Cash EPS 1.05 0.41 0.08
    P/E 87.50 -- --

  24. Article from Dalal street
    by R Balakrishnan
    2009 was perhaps a year of missed opportunities for may. Every one waited for 'correction' that never happened. Market have a habit of notconforming to expectations,thus levelling all so-called 'experts' to the dust. In year when the globe went thru considerable pain,the stock markets were on high, for those who did not listen to reason or those who chose to remain long term investors, the rewards were ample, our stock markets delivered handsome returns, but with much narrow participationas the FII inflows surges in and absorbed the thin floating stock in the markets. Perhaps they had faith, which local did not exhibit!.
    2010 is a year that perhaps likely to confound the 'value' investor yet again. As i write this, the market are at a leve that no one considers 'Cheap'. So there is one pocket waiting for correction. There is one other section of people who say that indian econmy is growing at 7 percent and globe will perhaps grow at one-fourth the pace, so i wan to be in Indian equities which look far more attractive with a lot of growth stored in them.

  25. Pradeep,
    I had always written that market discounts future prospect and not present performance.Present is gone...
    When you write me the results showing me eps and p/e it makes no sense.
    So what one need to understand is why market is giving so big p/e of 87.5 to Assam Co?You will find the answer in it...

  26. Hi Rajeev

    IFB Industries Ltd ceases to be a sick industrial company. Is it good for LT (CMP 69) NP for last yr was mainly due to other income

    (in Cr.) Sep-09 Jun-09 FY08-09
    Revenue 149.96 122.97 498.13
    Net Profit 6.79 8.23 315.07
    EPS 2.22 2.72 165.94
    Cash EPS 2.84 3.39 108.89
    P/E 0.47 -- 0.42


  27. Pradeep,
    IFB Ind is looking good..If per Capita Income is going to get increased for India then there will be demand for white IFB Ind has good per my view...

  28. If Direct Tax Code is comes in to play then such white goods will sell in good numbers :).

  29. Rajiv ji
    please post your new list which is best buy at cmp in 2010
    because your so many old recomandation up 100% from your recomandation