P/E of top business houses slides

Written by Pradip Kumar Dey | Mumbai, Sep 10 | Updated: Sep 11 2008, 05:32am hrs
The price-earnings ratio (P/E) of top 25 industrial houses witnessed a slide for the one-year period ended September 10, 2008, against the same period in the previous year, that is, the year ended September 10, 2007.

The aggregate market capital of these industrial houses have marginally fallen by 3.2% from Rs 13.07 lakh crore on September 10, 2007 to Rs 12.64 lakh crore on September 10, 2008.

The four quarter trailing net profit also went up by 23.2% during the study period, decreasing the P/E ratio from 23.50 times on September 10, 2007 to 18.46 on September 10, 2008.

This fall in P/E is significant as it gives an idea of what the market is willing to pay for the companys earnings. The higher the P/E, the more the market is willing to pay for the companys earnings.

Highest increase in P/E ratio was seen in the case of Essar group followed by Kalyani and Anil Ambani.The aggregate market capital of three Essar group companies have significantly gone up by 224.4% from Rs 8,028 crore on September 10, 2007 to Rs 26,047 crore on September 10, 2008. Their four quarters trailing net profit has increased by 17.8% to Rs 149 crore, taking up the P/E ratio from 63.45 times to 174.71 times.

On the other hand, significant decline in P/E ratio was seen in the groups of Subhash Chandra, Sun, Mahindra,

Thapar Brij M, Gaur Jaiprakash and Murugappan M M. The aggregate market capital of four Subhash Chandra group companies decreased by 25.3% to Rs 11,847 crore on September 10, 2008 from the level of Rs 15,862 crore on September 10, 2007. Their four quarters trailing net profit has increased by 73.4% during the study period, decreasing the P/E ratio from 59.74 times to 25.73 times. Despite higher profit growth, the Subhash Chandra group has not been able to increase P/E.

The average P/E ratio of three Mukesh Ambani group companies decreased from 29.84 times on September 10, 2007 to 18.82 times on September 10, 2008 despite an 8.1% increase in market capital and 71.4% increase in net profit. Among the industrial houses, the highest and lowest P/E ratio was seen in the case of Essar (174.71) and Aditya Birla Mgmt Corp.(10.83) respectively.