Module 07 · Valuing Special Kinds of Companies¶
What this module does. Adapts the toolkit of Module 06 to the companies it does not fit: lenders (no FCFF; P/B, residual income, the RoA tree — worked on Nirmal Finance), insurers, AMCs, exchanges and brokers, cyclicals and commodities (normalised earnings, EV/tonne, cost curves), high-growth and loss-making companies (unit economics, path to profitability, implied terminal margins), holding companies, conglomerates, PSUs and MNC subsidiaries, and real estate, infrastructure, utilities and telecom.
Why it matters. Half of India's market capitalisation is in financials, cyclicals, government-linked and regulated businesses. Using a manufacturer's DCF on them produces confident nonsense.
Lessons¶
| # | Lesson | One line | Time |
|---|---|---|---|
| 07.1 | Banks & NBFCs | The lender's statements, asset quality, capital, ALM, the RoA tree; justified P/B and residual income on Nirmal at ₹402 | 120 min |
| 07.2 | Insurers, AMCs, exchanges & brokers | EV/VNB and P/EV; combined ratios and float; AUM yields and TER; volumes, take rates and the 2024–25 F&O measures | 100 min |
| 07.3 | Cyclicals & commodities | The P/E paradox; normalised earnings; EV/tonne and replacement cost; cost curves; price decks | 90 min |
| 07.4 | High-growth & loss-making companies | Contribution margins, cohorts, path to profitability, implied terminal multiples, dilution; the 2021 cohort | 90 min |
| 07.5 | Holdcos, conglomerates, PSUs & MNC subsidiaries | SOTP and argued discounts; PSU ownership dynamics; royalties and delisting optionality | 90 min |
| 07.6 | Real estate, infra, utilities & telecom | Pre-sales and NAV; contract types and order books; regulated equity; ARPU, spectrum and AGR | 100 min |
Connections¶
- Back: 06.5 (justified multiples), 06.7 (residual income, SOTP, Merton), 04.5.
- Forward: Module 08 applies these methods sector by sector; Module 13 has lender (I3, I4, I5, I7), cyclical (I15), loss-maker (I8, G5) and holdco/conglomerate (I12) cases.
- Running example: Nirmal Finance.
You're ready to move on when you can…¶
- Build a lender's RoA tree, run the asset-quality roll-forward, and value it by justified P/B and residual income; state Nirmal's implied RoE at ₹402.
- Explain embedded value and VNB, combined ratio and float, TER and AUM mix, take rate and regulatory risk.
- Normalise a cyclical's earnings, compute EV/tonne against replacement cost and read a cost curve.
- Build a path-to-profitability model and translate an EV/Sales multiple into an implied terminal multiple.
- Build a SOTP with an argued holdco discount and analyse a PSU's or MNC subsidiary's specific risks.
- Value a developer on NAV, a regulated utility on its equity base, and a telecom operator with spectrum in EV.
Tested by: Mock 3 — Valuation (the bank valuation) and Mock 4.