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basant
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   Posted: 20/Jul/2007 at 10:30am |
I understand my approach may be termed veru bookish, yet one must never ignore science while getting into valuations
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Not bookish but broadly valuing companies at Mktcap of listed subsidiaries or consolidated EPS is one and the same because for similar earnings we cannot have dissimilar PE's.
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Vivek Sukhani
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Posted: 20/Jul/2007 at 10:46am |
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A point of difference. P/Es are volatile.....EPS are not. Subsidiaries for holding companies are like fixed assets for normal companies. We dont value fixed assets on a day to day basis. Also we shouldnot assign similar P/Es as the subsisiary legally is entitled to play with its money and so theoretically the holding company may have a claim yet it has no right over it.P/E gets into market valuations but whats the point of going by market valuation for an asset that is not marketable. Haryana capital finance has tonnes o shares of Maharashtra Seamless and the investment vlue of that is Rs. 250+per share for Haryana capital finance...yet the company is quoting at 70-80 per share....although it appears unreasonable yet I dont think its entirely unreasonable.....its not a disposable asset so why shall we value it at a diposable price.We should never inlude the flab which sometimes the market puts in the subsidiary company's stocks....
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basant
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Posted: 20/Jul/2007 at 11:07am |
Also we shouldnot assign similar P/Es as the subsisiary legally is entitled to play with its money and so theoretically the holding company may have a claim yet it has no right over it.
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So you are advocating a case of a discount on the valuations of holding companies.
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kulman
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Posted: 20/Jul/2007 at 11:13am |
Vivek bhai
The argument may be valid but just a query: Going by this logic, Berkshire Hathaway wouldn't be worth what it is quoting at (>USD100,000 per share)!
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Vivek Sukhani
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Posted: 21/Jul/2007 at 12:28pm |
Basant Sir, yes i am on that camp who favour a discounted P/E...
Manish Sir, Basant sir has made the point sufficiently clear why berkshire is quoted like that. Also, Berkshire is more like a fund of stocks rather than a mere holding company. Manish, if Mr. basant is the manager/CIO of a holding company then probably the holding company will get a higher multiple than the subsidiary , however what I am talking about is the theoretical value.....how market functions, is something i have little idea for I am a novice in that regard......
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Vivek Sukhani
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Posted: 21/Jul/2007 at 12:44pm |
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Manish, Berkshire is quoted high because investors not only look for super entry skills of the CIo but also even better and superior exit skills of the CIO. The best money is not made by following by following the trend but by abandoning the overheated trend at the most opportune time....a challenge which a fund manager faces. A holding company, something which we were discussing here are pure holding companies who doesnt have the luxury of selling in the market if the prospect of th subsidiary deteriorates....so comparing berkshire with ordinary holding companies is quite fallacious
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sidhartha
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Posted: 23/Jul/2007 at 1:45pm |
I agree with your comments on the Jindals.
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Take holding companies, for example Nalwa Sons or Jindal South West Holdings or Consolidated Finvest, all of which are so-called-cash bargains. My simple question here is where is the catalyst? Is it a family dispute? Is it the presence of Mr. Soros, for example in the case of Jindal Southwest Holdings? Your know Jindal South West at Rs 225 at present is really interesting because the company holds shares in JSW Steel on which futures and options can now be traded. So one could technically go long in the holding company and short the underlying and have a very interesting trade out there. But you can only make money on the trade if you narrow the spread. Alternatively, one could just buy the holding company as a very cheap way of getting an interest in JSW Steel. Well whether Mr. Soros will be able to narrow the spread or whether people who are in that particular situation will be able to do it and whether it make sense for us to buy into that situation or not, that's debatable.
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To add to the confusion of Nalwa, Consolidated finvest, JSW Holdings, there is a a new addition - Haryana Fin cap - this company is a proxy to Maharashtra Seamless. |
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sidhartha
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Posted: 23/Jul/2007 at 1:48pm |
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