It’s currently fairly valued, not highly valued. 15x EV/EBIT for a company that earns 15-16% ROCE. The perfect definition of fair valuations!
I think you’re anchoring yourself in past valuations of 6-8x EV/EBIT, when business had mediocre returns on capital. But now the fundamental situation of the company has changed.
If we take 15% CAGR growth rate for the next 5 years (Highly likely), along with 1-2% increase in EBITDA margins (Very likely as well as value added products share increases), and an exit multiple of 20x EV/EBIT (fair enough for company that’ll earn 20% ROCE), The price target comes out at 600rs
Now this is without considering any new LPG order or any new growth driver that might come in the next 5 years
Plus if market likes the consistent growth performance, it may give even higher exit multiple (supreme industries currently trades at 52x EV/EBIT at 28% ROCE)
Disclosure: Invested from 38 levels. Have added 6-7 more times since then, last price added at 166. Biggest position in my portfolio. I have personally seen the metamorphosis of this company from Cigarbutt type investment to possibly a consistent compounder type. So my opinion might be biased
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