Thread by @sahil_vi

Thanks for sharing 🙏. Loved it. Much to learn from both camps.
Reminds me of an anecdote which happened recently. Wanted to share some knowledge on how I value #lauruslabs
#Valuations by their nature are subjective so some of these will be opinions.

https://twitter.com/soicfinance/status/1396052211986100229

Someone recently asked me following:
#lauruslabs has publicly stated guidance of doing 1B$ revenue in Fy23, with 30% EBITDA margins. They calculated profits to be 2340cr in Fy23. So P/E based on Fy23 earnings would be 14.
Question: Is this cheap?

My Answer (Rest of the thread):
Philosophical: Valuations lie in the eyes of the beholder & are most difficult part of any investment thesis; personally. There is no single “valuation”. Each investor must make their own decision on how to value, what's cheap, what is expensive.

My understanding:
I personally think valuations are completely driven by narratives/perceptions around (growth & unit economics) & (opportunity cost).

If as a collective, market thinks a company will grow topline at 10-12% for 10-20 years with high and stable or improving unit economics and with some operating leverage higher bottomline growth, then valuations would remain elevated.

However, P/E of 100 is elevated. P/E of 50 is also elevated (to most investors). Why I added opportunity cost is that some growth hungry investors would decide to sell off their 12-15% #asianpaints compounder and rather go after economy facing stocks like #princepipes, acrysil

As long as the narrative around growth and unit economics remains, valuations would remain elevated (but can reduce due to opportunistic investors moving out) as price discounts decades of growing stable profits and improving unit economics.

Does the market believe that #lauruslabs earnings are as predictable as some of high P/E companies (Asian Paints)? No.
Hence, looking at Fy23 earnings, whether 14 P/E is expensive or cheap would depend on **Laurus’s growth prospects and unit economics in Fy24 and beyond**.

For understanding this, one needs to have a clear and in-depth understanding of the management credibility, industry structure, #lauruslabs business and all management commentary about future (specially FY24 and beyond).

At this point, I request the reader to take a step back and ponder over that previous tweet and its implications.
What this implies is that business, industry and management understanding are **prerequisites** for valuation analysis.

Business (including industry and management) analysis always, always comes before valuation analysis.
Always.
Always.
Stop calculating the P/E which is just a number, start reading concalls. Start reading Investor presentations. Then, and only then the P/E might make sense

Coming back to #lauruslabs key questions to ponder over: All for FY24 beyond timeframe: What would the growth prospects be? What would the unit economics be? Are both trending down or trending up. How stable or sustainable are they versus lumpy or one-off.

Are there going to be far superior opportunities to Pharma/Laurus in Fy23 which cause opportunistic investors to jump ship depressing valuations?
Answers to these Qs & experience based on studying evolution of valuations of companies over market cycles can help an investor answer

Whether a P/E of 14 based on FY23 profits is cheap, or not.
Practically, for someone to answer these questions for #lauruslabs , I can recommend the following excellent sources. To the hard working investor, the answer will definitely come.

1. @unseenvalue sir’s alpha series IIC talk on CRAMS space: indianinvestingconclave.com/recordings/97
2. @unseenvalue sir's and @soicfinance 's seminar on Biotech:

https://twitter.com/soicfinance/status/1372846860583333890?s=20

3. This excellent (cannot stress enough) VP collaborators thread on Laurus labs: forum.valuepickr.com/t/laurus-labs-…

4. Recent management interviews such as this one: where Dr chava talks about richcore and the CMS business strategic outlook.
5. Obvious suspect places like latest concalls, ARs and investor presentations. 1st two, you can conveniently find on screener.

In short we have to consume all publicly available direct evidence/sources (interviews, concalls, ARs, Investor Presentations) as well as read/watch industry reports/seminars & understand broader trends to figure out the growth & unit economics, business mix directions.

lastly, there is another interesting aspect to valuations. I quote roughly verbatim from @soicfinance astral video "One does not need a weighing scale to tell whether someone is fat or not."

Similarly we do not need exact estimates of FY23 beyond growth and product mix changes and unit economics to tell whether a P/E of 14 is expensive or cheap.
We only need to evaluate whether there are enough growth & unit economics triggers to sustain or improve P/E of 14 :)

If you read the thread till here and liked it, please retweet so maximum investors specially new/inexperienced ones can benefit.

tagging a few people that are interested in #lauruslabs and others that might find the thread interesting :-)
@punitbansal14 @nid_rockz @saketreddy @SwarnashishC

@threader_app compile