Are investors over optimistic?

Let's look at valuation of some of the companies:

ABB, a power equipment manufacturer, has a market capitalization of around INR 17K crore at a market price of INR 800. The company earned a net profit of INR 547 Crore in CY08 and has seen a decline of INR 87 Crore in profits in the first two quarters this year, TTM profit being INR 460 Crore. This makes the company valued at a P/E of 37 with degrowth in earnings. The dividend last year was INR 2.2 and the yield turns out to be 0.275%. It will take 363 years for an investor to get dividend equivalent to price of the share if the dividends do not grow.

BOSCH, an auto component maker, has a market capitalization of around INR 13K crore at a market price of INR 4000. The company earned a net profit of INR 633 Crore in CY08 and has seen a decline of INR 143 Crore in profits in the first two quarters of this year, TTM profit being INR 490 Crore. This makes the company valued at a P/E of 26.5 with degrowth in earnings. The dividend last year was INR 25 and the yield turns out to be 0.625%. It will take 160 years for an investor to get dividend equivalent to price of the share if the dividends do not grow.

Gujarat Gas Company, a city gas distribution company, has a market capitalization of around INR 2500 Crore at a market price of INR 200. The company earned a net profit of INR 160 Crore in CY08 and has seen a decline of INR 4 Crore in profits in the first two quarters of this year, TTM profit being INR 156 Crore. This makes the utility company valued at a P/E of 16.5 with degrowth in earnings. The dividend last year was INR 1.5 and the yield turns out to be 0.75%. It will take 134 years for an investor to get dividend equivalent to price of the share if the dividends do not grow.

Hindustan Zinc, a zinc producer, has a market capitalization of around INR 34K Crore at a market price of INR 800. The company earned a net profit of INR 2727 Crore in FY09 and has seen a decline of INR 129 Crore in the first quarter of this year, TTM profit being INR 2598 Crore. This makes the metal company valued at a P/E of 13 with degrowth in earnings. The dividend last year was INR 5 and the yield turns out to be 0.625%. It will take 160 years for an investor to get dividend equivalent to price of the share if the dividends do not grow.

The conclusion? Wait for better opportunities. Wealth does not build over long term with this kind of valuations.