For cyclicals like steel, auto ancillary companies pb ratio, mcap/sales work very nice. just open screener and see the last 10 years pb ratio and price to sales ratio for sail, tata steel, jsw steel, Fiem industry, lumax industry etc.

Then lets say u have found a company which is trading within it’s historical valuation range. or the price is consolidating. But u know that the company is doing something for which the roe, roce will increase in future. maybe it’s developing a higher margin product, or selling off some assets which will make the balance sheet light then u know it’s a rerating candidate. multibaggers are found in such a way. Deepak Nitrite is such an example which did capex for sepciality chemicals which resulted in higher roe roce and earnings in 2020 and the stock got rerated from 10-11 pe to 30 pe along with earnings growth. Price shot up from 400 to 2800. One more example is Prataap snacks the company’s margins are down because of palm oil price rise. and so did the price along with the EV/EBITDA. Now at a 1400 cr revenue the company has an ebitda margin of 4 for fy22. Now with reducing palm oil price and the cost cutting measures taken by the company the margins will rise to around 9-10 as it did in past and the EBITDA will rise disproportionately.Even if sales doesn’t increase the ebitda will rise from some 50 to 135 just because of margin rise. then the company is growing in mid teen rate. With the schools opening demand is also coming back. so Depressed valuation (ev/ebitda, mcap/sales)+margin expansion+ sales. So it’s a deeply undervalued stock. Even if you do some dcf the bear case price will come around 1100 and the stock is now at 730. So it’s god damn cheap that u cam tell within 5 min.

Some times you compare the company with it’s peers then try to see p/e, ev/ebitda, mcap/sales etc.
for Bank and Nbfc PB ratio works best. As a rule of thumb a Bank or NBFC with good roe and asset quality will have high pb ratio. For similar roe, and asset quality a retail focused institutions will get higher valuation than that of a wholesale focused player because of inherent risk with wholesale type of book.

DCF won’t work for a company in growth phase. Then u can use the Cash flow from operations instead of FCF to do the reverse DCF.

Watch this video by @harsh.beria93 to understand valuation. It’s very difficult yet the most important part. Estimating the future growth is something a lot of analysts do and it’s no big deal but valuation is.

https://www.youtube.com/embed/psMhSmVz-2A

One more thing valuation method taught by western books doesn’t work much on Indian companies I’ve seen. A person who read Intelligent Investor would try to buy low pe stocks.but most of the times it’s cheap for a reason.

Hitesh Bhai very strong numbers from Schaeffer and Gujarat Flourochem. Topline, ebitda and also the margins have gone up. Your views on results.

Per the latest conference call, booked Shipping line costs in Q1 were 35% higher. Since management expects substantial volume in the current year, I assumed that they would have made some forward contracts at similar rates to avoid shipping delays. Their maximum volume will happen in H1. Also, management expects the cost to ease out in the next few quarters and that being an open statement does not imply immediately. Hence, I guessed that freight costs will remain elevated.

Margin accretive RTE business volume is small and there are other costs that will flare up such as electricity cost that management admitted in the latest call.

Above all are just opinions. Reality will follow its own random walk!!!