dubious valuations of power utilities ! ! !

how much the world pays for utility cos - may be in gas, may be in power or even in petroleum refining and exploration ...... in no market P/E of these cos is over 10 to 12 maximum 15 times trailing twelve months (TTM) earnings - EPS

we have been discounting our utlities at 40times / 50 times or even 60 times TTM eps. assuming that the utilities may have a growth in EPS at 15/ 20 % per year (anything more than that is not possible - since they are UTILITIES and their returns are controlled by govt - in most cases ), even at compounded rate they will take about 7 yrs to treble their EPS.

that means the price that we are paying today is for minimum 5 to 7 yrs forward earning. in this we have not assumed any contingencies / delays / bad years etc.

if you make concessions for hidden value unlocking - i dont see any hidden value in any govt utilities - in some private utilities, the value can not be much because the projects those cos are taking are also of long gestation nature and the revenues will kick-in only after 4/5/6 yrs down the line.

the bottomline is that the sector is rigged by some interested entities to get better valuation for their public offerings and to correspondingly reduce their own risk in these new projects / organisations.

as regards to cos that are related to nuclear power, we have to keep in mind that it takes 10 / 12 years for a nuclear power station to become operational. even with the best time frame - signing of 123 agreement with USA and award of contracts for a new nuclear power station - of 3 yrs for contract , we are looking at revenues that will kick-in 12 to 15 years away.

should we pay 20/30 40 % higher P/E now for cos like BHEL / NTPC / arewa / LT etc .

we have to do some hard thinking before putting our hard earned money. a fund manager can not think like that because 1... he is not putting his own money and 2... he has peer pressure. but that is not the case of an individual investor.

so please open any pink paper omorrow and look at fancy P/Es that you are paying and then decide whether you will like to be invested in them or take your money out when the going is good ................