Nifty PE ratio below 5-year average, but PB ratio nearing 5-year highs
As Indian stock market participants debate on whether it is over-valued or not, there are some indicators we may look at or better understanding. Nifty price-to-earnings (PE) ratio is one such indicator even though there are multiple actors to be considered while calculating the market valuation.
The Nifty price-to-earnings (PE) ratio today stands at 26.59 multiples even as the Nifty 50 share index is trading near its all-time high of 17,379.65, which it reached last week. Many market commentators
believe that the Nifty 50 index is over valued at 17500 levels and a crash is impending.
In terms of fundamental reasons, Indian stocks markets have been on a stellar track helped by ample global liquidity, easing lockdown regulations on the back of accelerated vaccination drive and improved
domestic economic growth. Weak US jobs data also seemed to have raised hopes that US government will continue with its liberal policy and economic support.
Nifty PE ratio is still below 5-year average
Nifty PE ratio at 26.59 is way lower than the 5-year high of 42 multiples and slightly lower than the 5-year average of 27.44. The Nifty PE ratio is also lower than the 1-year average of 33.55 and 2-year average of 29.88. Nifty PE ratio is a key indicator to read while understanding the valuation of Indian stock market. PE is short for the ratio of a company's share price to its per-share earnings. To calculate the P/E, you simply take the current stock price of a company and divide by its earnings per share (EPS). P/E Ratio = Market
Value per Share/Earnings per Share (EPS).
Nifty PE ratio moved between a high of 42 and low of 25.21 during the past one year. While on a 5-year basis, Nifty 50 PE ratio moved between a high of 42 and low of 17.15, data from Trendlyne showed.
Does Nifty 50 PE ratio indicate just valuation?
Many market watchers use the Nifty PE ratio to decide on whether the market is overvalued, cheaper or just right. In that sense we have seen a high Nifty PE ratio of 42 in February 2021 when the index reached 15000 levels for the first time. Since then, Indian companies have seen good growth on earnings and we see the Nifty PE ratio more reasonable around 26 multiples. There is also a methodology change in
the calculation. Now Nifty PE ratio is calculated based on consolidated earnings of companies from standalone EPS earlier.
At this stage the market watchers are divided on whether Nifty PE ratio indicates just valuation. Many believe, accelerated economic recovery and ample global liquidity will help both markets and
companies to see positive upside. The other camp believes that from now onwards there will be moderate returns from Indian markets and in case of any global risk off event liquidity will dry up.
Investors should not consider Nifty PE ratio as the only indicator to calculate market valuation but rather look at multiple factors and ratios while deciding on Nifty 50 valuation.
Many old timers quote historical chart and say that Nifty is in the oversold zone when Nifty PE ratio is below 14, while it is overvalued when PE ratio crosses 22. However in the last 17 months the markets have rallied in a different circumstance and a higher sustained PE remained acceptable on hopes of economic recovery and company earnings besides healthy capital inflows.
Nifty PB ratio is still near 5-year high
Another indicator Nifty price-to-book (PB) ratio at 4.39 however near all-time high of 4.48. In the last 5 years it moved between a range of 2.17 and 4.48. The Nifty price to book or Nifty PB value measures the
enterprise value of the company. Many consider Nifty PB value to be more stable than Nifty PE ratio when the market is volatile. Higher PB ratio also indicates that one is paying more in case the value goes
down. From a historical perspective Nifty is seen to be in the oversold zone when Nifty PB is below 2.5 and overvalued range when PB ratio is over 4.
Ami Organics jumps 48% on listing after strong IPO demand
Speciality chemicals maker Ami Organics made a spectacular stock market debut on Tuesday as its shares listed at a 48% premium to its initial public offering (IPO) price.
The Surat-based company’s shares listed on the BSE at Rs 902 apiece, up from the issue price of Rs 610. The shares touched a high of Rs 929 apiece before paring the gains on profit-taking to trade around Rs 894 around 10:30 AM.
The company now commands a market valuation of around Rs 3,275 crore.
The BSE’s 30-stock benchmark was up 0.4% in morning trade.
Ami Organics’ strong debut comes after its IPO received high demand. The company’s IPO was covered 64.5 times at close on September 3.
High-net-worth investors (HNIs) piled up big time while corporate investors and qualified institutional buyers (QIBs) also applied for several times the number of shares reserved for them.
Non-institutional investors, a segment that essentially captures demand from HNIs and corporates, bid for more than 154 times the number of shares reserved for them, with HNIs leading the show. QIBs applied for more than 86 times the shares allocated for them.
Retail investors were less wide-eyed but they also pitched in in enough numbers. The retail book was covered over 13 times.
The public issue size was Rs 566 crore, including Rs 171 crore that came in via anchor allotment. The company raised Rs 200 crore through a fresh issue of shares. It plans to use the net proceeds from the fresh issue to repay its debt and to meet working capital requirements. The rest of the money went to 20 selling shareholders including Kiranben Girishbhai Chovatia and Parul Chetankumar Vaghasia.
Ami Organics joins speciality chemicals maker Laxmi Organic and Anupam Rasayan to float an IPO this year. The company makes specialty chemicals that are used to develop advanced pharmaceutical intermediates.
The company posted consolidated revenue from operations of Rs 340.6 crore for the year through March 2021, up 42% from around Rs 239 crore for each of the previous two years. Net profit jumped to Rs 53 crore in 2020-21 from Rs 29.5 crore in 2019-20 and 24.7 crore the year before.
Vijaya Diagnostic extends gains after weak stock market listing
Hyderabad-based pathology chain Vijaya Diagnostic Centre Ltd made a tepid trading debut on Tuesday as its shares listed at a premium of barely 2% to the initial public offering (IPO) price but stretched the gains in the first hour.
The company’s shares listed on the BSE at Rs 542.30 apiece versus the issue price of Rs 531. However, the shares jumped to as high as Rs 588.05 apiece in initial trading. At 10:45 AM, the shares were around Rs 578 apiece. The BSE’s 30-stock benchmark Sensex was 0.4% higher.
The company now commands a market valuation of around Rs 5,890 crore. That puts it in the same bracket as Thyrocare Technologies Ltd, which has a market capitalisation of Rs 6,800 crore, but far away from Dr Lal PathLabs (Rs 34,600 crore) and Metropolis Healthcare (Rs 15,780 crore).
Vijaya Diagnostic’s IPO was oversubscribed but only due to the push by qualified institutional buyers (QIBs). The issue by the private equity-backed company, which had attracted anchor investors including the sovereign wealth funds of Abu Dhabi and Kuwait, was covered 4.5 times.
The retail book was just about oversubscribed with 1.2 times demand while the non-institutional investors’ portion was covered 1.33 times. The QIB portion was covered 13 times, saving the day for the company.
The public issue size, excluding the anchor book, was Rs 1,328 crore. The IPO, which closed September 3, comprised an offer for sale of about 3.57 crore shares by the company’s promoters and private equity investor Kedaara Capital. The promoter Dr S Surendranath Reddy sold about 51 lakh shares while Kedaara offloaded the remaining shares.
Vijaya Diagnostic provides a wide range of about 740 routine and 870 specialized pathology tests. It also offers 220 basic and 320 advanced radiology tests across a range of specialties.
The company is the largest integrated diagnostics chain in southern India by operating revenue. It has 81 diagnostic centres and 11 reference laboratories across 13 cities and towns in Telangana, Andhra Pradesh, the National Capital Region and Kolkata as on June 2021.
Zomato co-founder Gaurav Gupta quits, to start “new chapter”
Gaurav Gupta, co-founder and head of supply at Zomato Ltd, has decided to leave the food delivery company after a six-year stint and barely two months after the firm’s initial public offering.
“I am taking a new turn in my life and will be starting a new chapter, taking a lot from this defining chapter of my life – the last six years at Zomato,” Gupta said in an internal email. He didn’t elaborate on his future plans.
Gupta had joined Zomato only in 2015, and so wasn’t really with the company when it began operations more than a decade ago. He was named chief operating officer in 2018 and then as a co-founder in 2019 for his contribution.
Gupta was also in the limelight when Zomato floated its IPO in July this year. The IPO raised Rs 9,375 crore and catapulted the company into the list of India’s top 50 companies by market value.
Gupta, an engineering graduate from IIT-Delhi and also an alumnus of IIM-Calcutta, worked with AT Kearney for a decade before joining Zomato.
Zomato founder and CEO Deepinder Goyal thanked Gupta for his contribution in taking the company forward. “We have seen Zomato through great as well as terrible times together, and brought it here today,” Goyal said.
“There’s so much of our journey still ahead of us, and I am thankful that you are hanging your boots at a point where we have a great team and leadership to carry us forward,” Goyal added.
Goyal’s exit comes at a time when Zomato has been consolidated its businesses after going public. The company has exited countries such as the US and UK to focus on its core markets. In India, it has also stopped grocery delivery and shut down the nutraceutical business that offered health and fitness products. However, it will retain a presence in the grocery delivery segment through its 10% stake in Grofers.
Zee's share price zooms 40% as Rakesh Jhunjhunwala buys stake, but can it bring back FIIs?
Zee Entertainment Enterprises Ltd’s shares soared 40% on Tuesday after its two biggest foreign institutional investors called for a change of guard and as ace stock market investor Rakesh Jhunjhunwala bought a stake. The media company’s shares jumped by their maximum daily limit of 45% to touch a 52-week high of Rs 270.85 apiece before cooling off to end at Rs 261.50 on the BSE.
During the day, Rakesh Jhunjhunwala’s Rare Enterprises bought 50 lakh Zee shares at Rs 220.44 apiece, totalling Rs 110 crore.
Also Read: Rakesh Jhunjhunwala's Portfolio
Why did Zee Entertainment Share Price Surge?
The surge came after Invesco Developing Markets Fund and OFI Global China Fund LLC called an extraordinary general meeting of shareholders to seek the removal of Zee CEO Punit Goenka. The Invesco fund owns a 7.74% stake in Zee while OFI Global China Fund holds 10.14%. Both funds are part of the US-based asset management giant Invesco.
The asset manager had increased its stake in Zee in November 2019 by buying shares from the promoter Essel Group, which needed money to reduce its debts. Essel Group is led by media tycoon Subash Chandra, father of CEO Goenka. While Chandra had resigned as Zee chairman in November 2019 itself, Goenka has been leading the company since then even though the promoters now own just 3.99% stake in Zee.
Zee Entertainment, the country’s most valued publicly listed media and entertainment company, has been facing calls from institutional investors for a change of guard as the stock has been a rank underperformer. In fact, after the 40% jump Tuesday, the stock is now at the same level it was in November 2019.
This underperformance is possibly also the reason why foreign institutional investors (FIIs)—the driving force of Indian stock markets—have been exiting Zee. FIIs cut their stake from 64.1% to 57.4% in Zee Entertainment during the quarter ended June 30.
Moreover, almost 42% FII shareholders exited the company during the April-June quarter. Zee Entertainment counted as many as 524 FII shareholders as of March 2021. This dropped to 306 FIIs as of June.
In fact, Zee Entertainment saw the most distinct selloff during the quarter by offshore investors, which cut stake in around a dozen large caps or companies that currently have a market capitalisation of Rs 20,000 crore or more.
On the positive side, fund managers say the company can now put corporate governance behind as it recasts its board after the resignation on Monday by Manish Chokhani and Ashok Kurien, and if the investors manage to oust Goenka and bring in a non-promoter CEO.
SREI Infrastructure seeks debt recast to attract survival capital. Can it recover?
Kolkata-based infrastructure and equipment financier SREI Infrastructure Finance Ltd has sought a faster green signal from its lenders to recast its debt pile and parallelly asked for regulatory approval to bring new investors on board.
SREI Infrastructure had seen a sharp pop in its stock price in June when its share price more than doubled, but it has retraced its steps since then. On Wednesday, the company’s stock price shot up 5%—the maximum daily limit—despite reports that its CEO Rakesh Bhutoria had put in his papers. The company is yet to make any formal comment on the matter.
However, it has been facing a mass exodus as employees have jumped ship due to pending salary dues. Nearly a sixth of its 1,500 employees have quit over the past 10 months, as the company’s finances came under the control of the lenders. The lenders had put a cap on the salaries. While this was lifted in April, there are still arrears.
The debt-laden company has asked its lenders to clear the debt restructuring plan, a move that could help it steer away from the current impasse.
The lenders remain cautious on proceeding with restructuring of its debt that is estimated to be around Rs 28,000 crore. They are likely to decide the next course on the basis of an ongoing forensic audit.
The Reserve Bank of India (RBI) had executed a special audit last November of the company and its subsidiary Srei Equipment Finance. In April this year, the company hired KPMG and DmKH & Co as forensic auditors as per the advice of its lenders and independent directors.
Investors for survival capital
The company is believed to have attracted interest from close to a dozen global investors including Cerberus Capital for its arm SREI Equipment Finance. It later received non-binding term sheets from Arena Investors and Makara Capital Partners.
SREI has sent the documents related to the proposed investments into the firm to its lenders that include Axis Bank, UCO Bank and State Bank of India, as also the RBI.
Notably, even the proposed fund infusion into the company is dependent on the ongoing forensic audit and the RBI’s word on the fit and proper criteria.
What went wrong at SREI?
SREI had been facing stress due to the pandemic as it hit recoveries for its own lending activities as the hard lockdown and disruption in business activity affected its borrowers. Over half of its borrowers sought a loan restructuring at their own end.
The company had knocked on the doors of the National Company Law Tribunal for a moratorium on coupon payments and postponement of redemption dates until it completes a proposed merger of two group companies.
The Kolkata bench of the NCLT awarded a six-month moratorium on all loans of SREI and had asked creditors not to classify its loans as bad. It also asked the RBI not to take any action against the group and directed rating companies not to revise ratings during this period.
But the National Company Law Appellate Tribunal has now overruled the NCLT order and allowed banks to classify SREI Group’s loans as non-performing assets, multiple media reports said.