The main reason for high valuation is high degree of operating leverage platform businesses tend to enjoy. These businesses tend to have very low marginal cost of production and a very healthy balance sheet due to minimal growth capital required and very short cash conversion cycles. All of this means that the percentage of accounting profit getting converted into free cash flows tends to be very high for a platform business. For example, most of the platform businesses (e.g. CDSL, BSE etc) have their sales/free cash flows ratio in lower single digit.
I also believe one shouldn’t look at price/earning (accounting profits, not real cash) in isolation while valuing a platform business. DCF discounts future cash flows (not accounting profits) and for platform businesses, cash flows tend to have much more robustness and predictability than an asset intensive business that require continuous infusion of CAPEX for revenue growth. And if your platform business happens to be in a fast growing sector, terminal value can also increase dramatically, resulting in higher present value of the business.
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