Monday, April 26, 2010

Why so much discrepancy?

I am talking about valuations of two companies whose name I will mention at the end of the article. First I would provide comparison of the companies based on their financial statements. Have a look at the following table:

ParameterCompany ACompany B
Market Capitalization1717 Crore625 Crore
Price/Earnings (TTM)20.712.8
Dividend Yield0.56%1.48%
Debt/Equity Ratio0.240.03
Average Sales of five Years585 Crore350 Crore
Average Profits of five Years42 Crore35 Crore
Price/(Profits of five Years)4117.86
Average ROCE of five Years24.7531.1
Price/(Net Current Assets)17.51.98

If I tell you that the first company made 4701 units of a product and the second company made 3597 units of the same product during FY2008-09, don't you think the second company is undervalued compared to the valuation of the first company? The name of the first company is Texmaco and the second one is Titagarh Wagons. The product they make is Railway Wagons. Texmaco earned 75% of its total sales from this segment while Titagarh Wagons earned around 95%. Both the companies' future depends on the spending of Indian Railway and now also private sector container transport companies. But according to me, Titagarh Wagons is undervalued by at least 40% compared to Texmaco.

In the field of common stocks, the danger of paying the wrong price is almost as great as that of buying the wrong issue. - Benjamin Graham
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