Value Model

Valuation can either be relative or absolute. There are very few people in this world who can do a thorough absolute valuation of anything really.

An analyst can only truly value a company only if he has not seen the cmp of a company, because as soon as you see the price, you subconsciously anchor around that price and every subsequent thought is formed in accordance. You think that you are thinking independently, however that is just NOT TRUE.

Going by that definition, there are only a handful of TRUE VALUE INVESTORS who can VALUE anything in ABSOLUTE Terms.

Relative Valuation on the other hand is definitely possible. If all other host factors are same (more or less) you can make an intelligent guess if a company is cheap or costly.

We primarily look to play the inefficiencies arising out of corporate actions like Spin offs and demergers. There are 02 reasons for that.

  • The back test suggests there is an anomaly and Alpha in it.
  • Doing Relative valuation to find cheapness is within our circle of competence.

Very rarely when all the stars align do we get to a situation where we find ourselves passing a judgment on Absolute valuations.

Something like a dividend yield of 4%, return on capital employed of 30%, debt free, profits growing with some assurance of that continuing and available at earning yield of say 10-15% and management with integrity.

This was only an example, You get the drift right, only when everything aligns can we say a dreaded statement that the company is available cheap and that too with a disclaimer, we might be wrong.

So you would primarily see us indulge in playing spin-off inefficiencies on our model Portfolio along with some special situations like buy backs, rights etc and once in a while a FAT PITCH.

You might feel what is the BIG DEAL, however you will be surprised to know how inefficient the spin-off market is.

Both Dayanand Deshpande and Manish Dhawan have generated majority of their out-performance by playing this over and over again. **