Tuesday, May 26, 2009

Is Sensex Cheap?

I was wondering if Sensex P/E truly reflects the picture next year. I took an estimate of profits of thirty Sensex companies as below:


































CompanyNet Profit FY2010EFree FloatFree Float Profit
ACC7500.55412.5
Bharti85000.352975
BHEL35000.351225
DLF35000.25875
Grasim18000.751350
HDFC Bank26500.852252.5
Unilever25000.51250
Hindalco20000.651300
HDFC28000.92520
ITC37500.72625
ICICI Bank425014250
Infosys60000.855100
Jaiprakash Associates6500.55357.5
L&T40000.93600
M&M12500.75937.5
Maruti15000.5750
NTPC90000.151450
ONGC150000.23000
Ranbaxy7500.4300
RCOM70000.352450
RINFRA17500.651137.5
RIL230000.511500
SBI125000.455625
Sterlite40000.41600
Sun Pharma15000.4600
Tata Motors12500.55687.5
Tata Power10000.7700
Tata Steel50000.73500
TCS55000.251375
Wipro42500.2850
Total

66455


The free-float market cap of Sensex today, i.e. 26 May 2009, is 981352 Crore at an index level of 13589.23. The P/E of Sensex in June 2010 with these estimates comes out to be 981352/66455 = 14.76, neither cheap nor expensive, and EPS of 920, a growth of 25% from today's EPS of 13589.23/18.47 = 735.

There are going to be equity dilutions from at least four companies that I know of, Reliance Industries (due to merger with RPL, dilution around 4%), Tata Steel (due to conversion of CCPS to equity shares on 1 Sep 2009, dilution around 15%), HDFC Bank (due to preferential allotment to HDFC at the time of merger with CBoP, dilution around 6%) and Bharti Airtel (due to merger with MTN). This will not add anything to estimated profits but may add to market cap and thus will increase P/E ratio.

I might be too conservative in estimating the profits, especially for capital goods, cement and auto. Let's wait for next June when I will revisit this post to see whether my estimates were near or not.
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