Cement stocks are normally not valued on a PE basis. And are valued on an EV/Ebitda basis + Ev/Tonne basis (which is compared with EV/Tonne to set up a new plant). Also good to apply a discount on both the above parameters for a small capacity company (discount on say for e.g. to EV/tonne to set up a new plant). Current EV/Ebitda and EV/tonne should be compared with the above discounted value to arrive at a conclusion if it is undervalued.
Add to that other things like amount of debt component in EV. So company with minimal debt in EV is a better choice. Also add better to have a player with good margins and a company that is reducing debt constantly etc.,. (Deccan has been reducing debt constantly). So say a company that is reducing debt constantly would have a falling EV which will make its valuation better and this would be compensated by a rise in market cap of the company.
Throw in the scope of ramping up capacity utilisation depending upon current capacity utilisation.
Other things like WC cycle etc.,. can be considered as well while comparing with other players. How does receivable picture, credit period given, cash flows etc.,. look on comparison?
What is the current capacity of Panyam vis-a-vis Deccan or NCL, etc.,.?
- How does Panyam fare with Deccan, NCL or other small players on above
parameters?
Stating the above on the basis of my limited understanding.
Regards.
| Subscribe To Our Free Newsletter |
