Piramal Enterprises Ltd

I think for a company like PPL, EV/EBITDA and P/S have to be seen together to get the full picture.

I am not sure why you think PPL is a low op-lev business. If you check 5Y growth in revenues vs 5Y growth in EBITDA, EBITDA growth is ~20% higher than sales growth (This effect is even more pronounced for a 4 year period from FY17-FY21). Plus, check the amount of capex they keep doing.

Only looking at one metric between P/S and EVEBITDA can be misleading. If one only looks at EVEBITDA for PPL, valuations will seem artificially enhanced because of the lower than normalized EBITDA (If somebody annualizes 1Q FY23 EBITDA, then the effect will be extreme). If one only looks at P/S, the stock may seem artificially cheap in comparison to the likes of Syngene or Laurus. But the truth is, even in best case scenarios, PPL may not be able to generate the kind of operating margins that the other 2 can due to their foreign asset base and foreign employee base.

P/S is not a vanity metric in my opinion. I think P/S has come to be seen as a vanity metric lately because the Cathie Wood’s of the world have started peddling this metric for non cash flow generating non profitable super hyped tech companies. P/S, just like EVEBITDA is a pre-leverage metric and is good for valuing cyclical companies or companies with high leverage. Of course the investor has to know which metrics to combine to get the full picture. Relying blindly on any one metric (even EVEBITDA) can be misleading.

An example of getting misled looking only at EVEBITDA – Consider a highly levered company in a capital intensive industry which has a low equity base which can’t be diluted much to raise funds. Such cos have to keep depending on debt to sustain themselves and therefore interest costs can’t be ignored for them. Evaluating them on EVEBITDA may be a mistake, P/E may be the right metric in this case. Case in point – RACL Geartech.