Friday, March 13, 2009

What happens when you overpay?

I was searching for profit/loss of a company "Honda Siel Power Products" for very old times. I came across its recommendation by ICRA. The company's share price was INR 74 in April-May 2000, i.e. exactly 9 years back. Today it is at INR 119, a gain of 5.42% compounded annually. Add 2% dividend and you get 7.42%. Remember that HSPP was trading at just 4 times its average profit of INR 18.5 Crore over the last 5 years then. It was by no means overpaying, still the result was a lot of underperformance even compared to Sensex which was trading at 4250 and today at 8500, giving a CAGR return of 8%. Long term equity returns have started getting a lot of questions from analysts.
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