There is no doubt that many new age businesses will do fantastically well for quiet a while.

But, will they turn out to be good stocks, is up for debate.

One needs to see how much of the growth has already been built up in the current price.

Risk-reward 🤔

More from Jiten Parmar

A recently listed IPO (Sep 21). Promoter did OFS at X alongwith fresh issue. Made record for highest subscription ever. Company currently at more than 5X of OFS price.

Let's glance a bit on Financials.
1/2

Mcap - 3500 cr
Company does about 150 cr revenue. And about 15-20 cr in profits.

I am at a loss of words on valuations.

Maybe market is smart, promoters dumb and value investors like me dumber 🙂

My exp of almost 3 decades in the market tells me, this will end badly.
2/2

Jiten Parmar
@jitenkparmar

Accidents happens when one doesn't look at valuations.

A supposedly platform stock listed in 2019. OFS price was 320 Rs. High of 6396 made yesterday.

Mcap crossed 1 lac crore.

Company was affected by CoVid so will talk a bit on pre-CoVid nos.

1/3

Sales of 2300 cr in FY20. NP 730 cr. Company has a monopoly given by the govt. Business is good and many extensions taking place, which will take time to bear fruit, if at all. But valuation-wise it had gone bonkers.

2/3

Stock corrected 40%+ in 2 days. This is what can happen when one doesn't heed valuations. And ignores the risks to the business. And only looks at blue sky scenario.

A good company may not be a good investment, at any price.

3/3

Jiten Parmar
@jitenkparmar

EV/tonne of the mentioned companies currently

Anjani - 100
Deccan Cem - 40
KCP - 44 (will be lower if value to other biz given)
NCL - 61 (has boards biz too)
Sagar - 59

EV/tonne of the companies in that region.

Anjani Portland - 42
Deccan Cem - 20
KCP - conglomerate (has Vietnam sugar, hotel, engg too) - 43 (on mcap)
NCL - 31 (has boards biz too)
Sagar - 47

No recommendations. Just data.
— Jiten Parmar (@jitenkparmar) July 8, 2020

Jiten Parmar
@jitenkparmar

When a consumer company advertises only on biz channels and not on GEC and mainstream channels, you should be alert about the management's intentions.

#investing

Jiten Parmar
@jitenkparmar

Sugar Industry Insights (Feb 25, 2020)
Last few years sugar industry has been a beneficiary of government largesse. Sugar cycle turned in 2015. Post that there has been surplus production.

Government has helped the industry by various incentives like export subsidy, ethanol blending, allowing cane juice to ethanol conversion, msp, etc. UP and Maharashtra are the 2 major states in sugarcane plantations.

The 2 largest players in the world are Brazil and India. In Brazil sugarcane is used for ethanol a lot lot more than in India. Brazil is way ahead of any country in ethanol from cane.

US is the largest producer of ethanol in the world followed by Brazil. US uses mainly corn for making ethanol.

Indian sugar scenario: Sugar still constitutes 85% of revenue in sugar companies. So, essentially it has to do well for sugar companies to be profitable. We have had record production in last couple of years. Sugar opening stock at end of last sugar year was 14.5 mt.

More from Valuation

SEE ACT WIN
@SEEACTWIN

VALUATION MULTIPLES FROM FIRST PRINCIPLES

• There is a lot of misunderstanding & misapplication of valuation multiples, both among retail and institutional investors
• Get clarity on this by revisiting the 1st principles here

Prerequisites:
• Finance 101 knowledge

THREAD 👇

KEY CONCEPT: VALUE STAKEHOLDERS
"Beauty is in the eye of the beholder"
"Value is in the rights of the user"
So it is important to ask, "VALUE TO WHOM?"

There are 2 main types of stakeholders in a company:
1. Equity holders
2. Lenders

KEY CONCEPTS: MCAP and EV

Value to equity holders is represented by the Market Capitalization (MCAP).

Value to equity AND lenders is represented by Enterprise Value (EV):

Notice how you can convert between Enterprise Value to Market Capitalization easily

KEY CONCEPT: FCFF

Free cash flow to the firm (FCFF) = Cash flows available for distribution to both equity holders AND lenders

Related:
Free cash flow to equity (FCFE) = Cash flows available for distribution to ONLY the equity holders

We will focus on EV & FCFF in the examples

KEY CONCEPT: FUNDAMENTAL VALUE OF A COMPANY

The fundamental/intrinsic value of a company is equal to the present value of the cash flows it would generate in future.

The growing perpetuity expression of value is shown below:

Sajal Kapoor
@unseenvalue

Doesn't matter what's the market cap is - micro or large, the quality of any business is never unseen. You screen through the last 5-10 years of balance sheet and cash flows and you'd know what can and cannot compound wealth. Narrative alone is useless. Numbers have to match.

kumar saurabh
@suru27

@_CreatingWealth sure, only request. Plz do not take it negative. Get over metric like PE, even if use it , at least take cash flow based PE. Many times, it would make worst investments attractive n decent one unattractive. It has lot of bias, limitation n constraint. 1 must know before using it

Vijay Pillai
@vijaypillai

@_soniashenoy Agree with you on the potential. Tata has got the pricing and the models quite right in comparison to the other options available in the market.

Charlie Bilello
@charliebilello

Rivian ($0 revenue, -$1.6 billion net income) now has a higher market cap than Starbucks ($29 billion revenue, $4.2 billion net income) and Target ($100 billion revenue, $6.3 billion net income).

$RIVN $SBUX $TGT

Data via @ycharts

The UN just voted to condemn Israel 9 times, and the rest of the world 0.

View the resolutions and voting results here:

The resolution titled "The occupied Syrian Golan," which condemns Israel for "repressive measures" against Syrian citizens in the Golan Heights, was adopted by a vote of 151 - 2 - 14.

Israel and the U.S. voted 'No' https://t.co/HoO7oz0dwr

The resolution titled "Israeli practices affecting the human rights of the Palestinian people..." was adopted by a vote of 153 - 6 - 9.

Australia, Canada, Israel, Marshall Islands, Micronesia, and the U.S. voted 'No' https://t.co/1Ntpi7Vqab

The resolution titled "Israeli settlements in the Occupied Palestinian Territory, including East Jerusalem, and the occupied Syrian Golan" was adopted by a vote of 153 – 5 – 10.

Canada, Israel, Marshall Islands, Micronesia, and the U.S. voted 'No'
https://t.co/REumYgyRuF

The resolution titled "Applicability of the Geneva Convention... to the
Occupied Palestinian Territory..." was adopted by a vote of 154 - 5 - 8.

Canada, Israel, Marshall Islands, Micronesia, and the U.S. voted 'No'
https://t.co/xDAeS9K1kW