Hi,

As we all know, there are 2 factors which are largely responsible for share price performance of any company over the long term, i.e. valuation and EPS(earnings growth). If we can find some companies which are cheaper(15-20 P/E) and growing PAT at 25%+ rate, it might turn out to be big wealth creator.

Coming to PAT growth, they are 3 drivers for PAT growth: topline growth, margin expansion and debt reduction. If we have some company with all 3 triggers, PAT growth will be much higher than topline growth. And if by chance market re-rates it, share price performance will be way better than EPS growth.

I am trying to find such companies which can have all these triggers:

1. Revenue growth > 15%
2. Margin expansion
3. Debt reduction (not a must)
4. P/E < 15-20

I came across 3 companies where these triggers could be there:

1. Shankara building products: guidance of 25-30% topline growth, margin improvement (0.5-1% YoY),
   P/E lower than the 3yr and 5yr averages.
2. Talbros Automotive: guidance of group revenue of 2200Cr, margin of 15-16% by FY27 as export share
   will increase, P/E rerating already played since the time i started buying at P/E of 15.
3. Goodluck india: guidance of 5000Cr revenue by FY26, margin improvement as value added product
   share is increasing, debt reduction and P/E at 24 which is already played out but can be further re-rated.

We might not find companies with low P/E right now as market has run up a lot but this will help us in being ready with watchlist and as and when opportunity arrives, we can pounce on it.

I have used P/E as it’s easier to calculate expected returns from the P/E calculations. This won’t be applicable to banks and NBFCs.

Please correct if there are any mistakes and please give your suggestions. Thanks

Yup, but that isn’t how it always works. Let’s see how the market likes it—adjusted or non-adjusted in the coming days. For now, there are multiple factors to consider before we completely eliminate the other income and don’t forget that the median PE i mentioned is also other income adjusted…what did the other income do? Made the company net debt-free 2 years before anticipated, cut free from the FMCG business which was anyway anchoring things down. I understand that this isn’t a high-speed grower any more reason why it always trades at a discount but this discount is a little too much as per my understanding when companies like Vedant Fashions, Trent etc… trade at a PE of 80,178 then a PE of 7(20) is a little too low for a business with a recall value like Raymond and an amazingly well doing real estate business.

The stock was anyways in an upmove setting new highs before all this mess happened. let’s see how things roll…

Disclosure – Now Invested

Highlights correctly how longer-term investing is impaired by government actions to build ethanol capacity.

Ban On Use Of Sugarcane For Ethanol Lifted | Caps Sugar Cap Diversion At 17 LK Tonnes | ET Now

To be honest I dont know. Below is the snippet from previous concall. I think, its better to be conservative until we see explicit clarification from management about the guidance being for Talbro’s share alone.

If company free cash flow is negative than what it says?
Please brief.