The average price-earnings (P-E) ratio of listed Indian companies has fallen below 10 per cent from 33.49 on January 8 this year when the Bombay Stock Exchange Sensitive Index touched its all-time high. The average P-E is 9.61 now.
The P-E ratio of some of the top business houses such as Tata, A V Birla, O P Jindal, Mahindra and Mahindra, KK Birla and Bajaj has fallen more than two-thirds from the January 8 peak. New generation entrepreneurs such as Anil Agarwal, Hinduja, Videocon and Amtek are also not far behind.
The top 50 business groups, which accounted for 27 per cent of the total market cap of the BSE-listed stocks, have registered a 69 per cent decline in market value from the peak level of Rs 24.82 lakh crore on January 8 to Rs 7.58 lakh crore now. The average P-E of the top 50 business groups has declined from 33.9 to 9.61 during the same period.
Twenty nine of these companies currently trade below a P/E ratio of less than 10 times. Eleven of them are trading at P/E ratio of less than five times as compared to over 10 times at the beginning of the current calendar year.
The B K Birla group, Videocon group, Murugappa group and Ramco group are trading at a P/E ratio of three to five times. The Bangur group, R P Goenka group, B C Jindal group, Welspun group and the Hinduja group are trading at a P/E ratio of four to six times.
| FREE FALL | |||||
| Business house | M-cap in Rs crore | Price-earning ratio | |||
| Jan 8, 08 | Dec 1, 08 | %chg | Jan 8, 08 | Dec 1, 08 | |
| Mukesh Ambani | 5,95,063 | 2,07,321 | -65.2 | 41.0 | 12.9 |
| Tata | 3,18,979 | 1,21,223 | -62.0 | 22.4 | 7.7 |
| Anil Ambani | 3,38,261 | 69,258 | -79.5 | 69.8 | 17.2 |
| A V Birla | 1,44,137 | 42,272 | -70.7 | 20.0 | 5.6 |
| Vedanta | 1,25,390 | 36,533 | -70.9 | 20.5 | 4.8 |
| Dilip S Shanghvi | 25,827 | 23,074 | -10.7 | 28.8 | 19.6 |
| Adani | 78,200 | 17,596 | -77.5 | 170.8 | 24.6 |
| O P Jindal | 87,111 | 16,987 | -80.5 | 25.2 | 5.0 |
| Munjal | 14,415 | 15,289 | 6.1 | 15.7 | 12.6 |
| M&M | 46,240 | 13,384 | -71.1 | 21.3 | 5.8 |
The PE ratio is calculated by dividing the market price of a company's share by the earning per share (EPS), while the earnings per share is calculated by dividing the net profit of the company by number of shares. The average P/E ratio of the business group is calculated by dividing the aggregate market capitalisation of group companies by the aggregated net profit.
The PE ratio of business groups operating in infrastructure and construction sectors have declined more than 80 per cent due to the slowdown in global economy and credit crisis. For example, the GMR group, Indiabulls, Jaiprakash and Essar have seen their P-E ratio decline to one-sixth of the January 8, 2008 level.