Keeping Company Valuations in Context

As we all know, any valuation metric needs to be kept in context. In assessing the P/E of Adani Enterprises, the following context should be noted:

• The year-end in March 31 which means that the 2012 fiscal year really represents 1 year forward earnings.
  
• The expected growth rate. In this case, India is experiencing real GDP growth in the 8-9% range. In addition, the company’s investments in coal mining, power generation, ports and real estate are just starting to kick in. The mean analyst estimates on Thomson are calling for EPS to almost double from March 2011 to March 2012.
  
• Adani is primarily in infrastructure type businesses which tend to produce more predictable recurring cash flows.
  
• Upside optionality based on asset potential and capital capacity.