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What was that again..Valuations of Cement Cos

Posted by fairval on August 27, 2009

The funny valuation methods analysts employ in a bull market..

Came across this report by a broking firm which values the cement business of Jaiprakash Associates at Rs 12,300 crore. One more example of somewhat perplexing valuations analysts sometimes tend to give (to put it more bluntly, an example of the lenths brokers will go to justify a recommendation). Take a look at valuations of top cement companies at this time.

All of them are quoting at EV/EBITDA or EV/million ton numbers which are much lesser than Jaypee. When you have leading companies quoting at 7-8x trailing EV/EBITDA, what can be the logic of valuing Jaypee at 7x FY11e EBITDA?. And BTW, the report says this is at a 10% discount to peers. It sure is a 10% discount, but if the EV/EBITDA is the trailing one, not the FY11 for peers.
Of course, the report on Jaypee is a buy report (Jaypee is a conglomerate, cement is only 40-50% of the value of Jaypee). But what would you buy – a Jaypee Cement at 7x FY11, or a Shree Cement at 6x FY09, and we are ignoring management quality here.

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2 Responses to “What was that again..Valuations of Cement Cos”

  1. Anonymous said

    The table looks inconsistent to start with. The idea is to compare companies, but in this case the EV/EBITDA column shows CY for some companies, FY for others, and as you point out, FY11 for Jaypee while its FY09 for others. Its more than just defending a recommendation, it requires more care in general.

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