Giving a Capex Intensive Company an EV/EBITDA multiple isn’t right in my opinion.
What matters at the end of the day is Free Cash Flow to Investors, yes you might have few years with low re-investments but you’re going to have to reinvest in the Machinery & R&D eventually which is why Depreciation accounting is done.
If I take company’s Deployed Capital ex Cash & Investments from Sep Balance Sheet ~ 2500 Cr. For company to meet their Cost of Capital their EBIT(1-T) should be > 350 Cr. EBITDA has to be 700 Cr and Sales > 7500 Cr. This is more than 40% jump in their extrapolated sales.
Company has capitalised on R&D investments which is why Book Value is high. I love when Companies capitalise on R&D instead of taking it directly to P&L because you can gauge the true returns on Deployed Capital. Yes there could be some value for Investors emerging now but would like to know your reasons of thinking it Value Buy basis BV.
Inviting Contra views on this.
Found this while studying- Milestone towards Net Zero: mtu gensets from Rolls-Royce approved for sustainable HVO fuel
Good read. They even have a paper on this but haven’t gone through that yet.
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