Thanks to market bullishness, coupled with the slow revival of the global economy, the price-earnings (PE) ratio of India Inc is beginning to improve. The PE ratio of top 25 industrial houses increased to 24.38 on October 6, 2009, from the level of 13.93 on October 6, 2008. Kalyani, Godrej, Om Prakash, Jindal and ADAG showed higher PE ratios on October 6, 2009.

While PE ratios of most of industrial houses improved over the past year, the Sensex PE ratios improved as well. PE ratios of Sensex scrips increased by 6.97 points to 21.84 times, compared with 14.87 times last year.

Market capitalisation (M-cap) of Sensex scrips during the study period increased 44.6% to Rs 25.44 lakh crore on October 6, 2009. The average PE ratios of the Kalyani group increased from 31.66 on October 6, 2008 to 133.69 on October 6, 2009. The trailing four quarters net profit of the group decreased from Rs 283 crore to Rs 74 crore. And the M-cap of the group increased 10.4% to Rs 9,897 crore on October 6, 2009.

The average PE ratios of the Godrej group also increased from 25.44 to 81.03 on October 6, 2009. The trailing four quarters net profit of the group decreased from Rs 260 crore to Rs 161 crore. But the M-cap of the group increased 97.3% to Rs 13,045 crore on October 6, 2009. For Om Prakash Jindal group, the average PE ratios increased from 7.97 to 40.03 on October 6, 2009. The trailing four quarters net profit of Om Prakash Jindal group decreased from Rs 3,457 crore to Rs 1,967 crore. The M-cap of the group increased by 185.8% to Rs 78,753 crore on October 6, 2009.

Of the selected 25 industrial houses, the top five in terms of P/E as on October 6, 2009, are Kalyani, Godrej, Adani, Excel Shroff and Om Prakash Jindal. Among these, the Kalyani group registered the highest increase in PE ratios.

The average P/E of the Mukesh Ambani group increased from 12.99 to 22.74. The trailing four quarters net profit of the group decreased from Rs 19,960 crore to Rs 14,827 crore. But the M-cap of the group increased 30.1% to Rs 3.37 lakh crore on October 6, 2009. This is significant–despite a decline in profit, the Mukesh Ambani group managed to increase its PE ratios substantially.

Significantly, lower PE ratios are seen in the case of MM Murugappan, Sriram Thyagaraj, Aditya Birla Management Corporation, Rajan Raheja, Shiv Nadar and Mahindra. The PE ratios of MM Murugappan has decreased from 9.42 to 6.91 during the study period. Of the top 25 selected houses, 21 showed a positive change in PE ratios.