Top companies? P/E ratio takes a hit

Despite the recent bull market, the price earning (P/E) ratio of top 25 industrial houses decreased to 22.77 on June 16, 2009 from the level of 26.20 on June 16, 2008. Whereas a marginal increase has been witnessed in P/E of Sensex stocks. P/E of Sensex increased by 1.44 points to 20.06 from18.62 last year.

The study also showed marginal increase in market cap of Sensex companies by 0.7% to Rs 22.47 lakh crore as on June 16 2009.

However, of the top 25 selected houses, seven showed a positive change in P/E. Om Prakash Jindal, Godrej and Hero- M B Lall group showed higher P/E ratios on June 16 2009 as compared with the previous year. The average P/E ratio of Om Prakash Jindal group increased from 16.04 on June 16, 2008 to 28.80 on June 16 2009.

The trailing four quarters net profit of the group decreased from Rs 3,619 crore to Rs 2,018 crore and the market capital of the group increased marginally by 0.1% to Rs 58,128 crore on June 16 2009. Average P/E ratio of Godrej group also increased from 40.27 to 52 on June 16 2009. The trailing four quarters net profit of the group decreased from Rs 270 crore to Rs 169 crore and market capital of the group decreased by 19.3% to Rs 8,452 crore on June 16, 2009. Hero-M B Lall group?s average P/E ratio increased from 15.32 to 21.54 on June 16, 2009. The trailing four quarters net profit of Hero-M B Lall group increased from Rs 1,015 crore to Rs 1,334 crore.

The market capital of the group also increased substantially, by 84.9% to Rs 28,740 crore as on June 16, 2009.

DR Dogra, deputy managing director, Care Rating said, ?While on the one hand the stock prices have come down across the board during last one year, on the other some of the companies of major industrial houses have reflected higher profits thereby higher EPS which have reduced the P/E ratios over the year.?

The top five houses from the study in terms of P/E on June 16, 2009 were Godrej, Bajaj, ADAG, Excel Shroff and UB. However in the case of Excel Shroff group, the average P/E decreased from 68.14 to 37.06. The trailing four quarters net profit of the group increased from Rs 131.24 crore to Rs 224.38 crore.

However, the market capital of the group decreased by 7% to Rs 8,315 as on June 16, 2009. Even with higher profit growth, the Excel Shroff group failed to increase their P/E.

Significantly lower P/E ratios were seen in the case of MM Murugappan, Sriram Thyagaraj, Aditya Birla Managment Corpation, Torrent and Shiv Nadar. P/E ratio of MM Murugappan for instance decreased from 17.81 to 5.56 during the study period.