# Relative Valuation India > Value an Indian company against peers using multiples, with the adjustments Indian markets actually require — holding company discounts, promoter and float effects, Ind AS 116 lease distortions, cross-holdings and the India premium. Use when comparing an Indian stock to peers, building a comp set, judging whether a stock is expensive or cheap on P/E, EV/EBITDA, P/B or PEG, or explaining why an Indian company trades at a different multiple from a global comparable. - Skill: `sharma23yash-oss/relative-valuation-india` (Agent Skill) - Install (CLI): `npx skillmds@latest add sharma23yash-oss/relative-valuation-india` - Raw SKILL.md: https://api.skillmd.com/api/skills/sharma23yash-oss/relative-valuation-india/raw - Safety review: pending - Works with: Claude Code, Claude.ai, OpenAI Codex - Category: Coding & Dev Tools - License: MIT - Author: sharma23yash-oss (https://skillmd.com/u/sharma23yash-oss) - Updated: 2026-09-17 - Page: https://skillmd.com/skills/sharma23yash-oss/relative-valuation-india --- # Relative Valuation (India) Multiples are not a valuation method. They are a way of asking "what is the market assuming about this company relative to that one?" Used carelessly they smuggle in every assumption you thought you were avoiding. ## Choosing the multiple | Multiple | Use for | Breaks when | |---|---|---| | **EV/EBITDA** | Capital-intensive, differing leverage, cross-border comps | Ind AS 116 makes lease-heavy businesses look artificially cheap; ignores capex intensity | | **EV/EBIT** | Comparing across different asset lives | Depreciation policy differences | | **P/E** | Stable, profitable, similar leverage | Loss-making, cyclical peaks/troughs, differing tax regimes | | **P/B** | Banks, NBFCs, insurance, asset-heavy | Asset-light businesses; understated legacy land at cost | | **P/ABV** | Lenders — see `bank-nbfc-analysis` | | | **EV/Sales** | Pre-profit growth, or a full cyclical trough | Says nothing about profitability | | **PEG** | Growth companies | Growth rate is an estimate; PEG is two estimates stacked | | **EV/Capacity** (per tonne, per MW, per room, per subscriber) | Cement, power, hotels, telecom | Ignores utilisation and pricing | | **Mcap/AUM, P/E on core** | Asset managers, holdcos | | **Rule:** use at least two multiples with different denominators. If P/E and EV/EBITDA disagree, the gap is leverage, other income, or tax — find out which. ## Building the comp set An Indian comp set is not "companies in the same sector on the exchange". Screen on: 1. **Business model**, not sector label. An IT products company is not comparable to an IT services company. 2. **Size** within roughly an order of magnitude 3. **Growth** within a comparable band 4. **Return on capital** — the single biggest driver of multiple dispersion in Indian equities 5. **Capital intensity** and working capital cycle 6. **Governance and float quality** — a promoter-pledged, thinly traded name is not comparable to an institutionally-held large cap even in the same business Include, and label separately, the **global comparables**. Indian names in the same business routinely trade at 1.5–2.5× the multiple of their global peers. Do not "correct" this — explain it. ## Why Indian multiples are structurally higher When asked why an Indian company trades at 40× while its global peer trades at 18×, the honest answer has these components. Name them; do not hand-wave "India premium". - **Higher nominal growth.** Indian nominal GDP growth in the high single digits versus 3–4% in developed markets mechanically supports a higher terminal multiple. - **Higher cost of equity** — which works the *other* way. India's Ke is higher (Rf ~6.5–7% plus ~7% ERP), which should compress multiples. That it does not means growth expectations are doing heavy lifting. - **Domestic flow structure.** Sustained monthly SIP inflows into domestic equity mutual funds create a price-insensitive bid, particularly in mid and small caps. - **Limited free float.** High promoter holding shrinks investable float; index and fund demand chases a small supply. - **Scarcity of listed exposure** to certain themes. - **Quality skew.** Indian large caps that survive selection have genuinely high ROCE. The test of whether the premium is justified: does the implied growth-and-return combination survive a reverse DCF (see `dcf-india`)? Usually the honest conclusion is "partly justified, partly flow-driven". ## India-specific adjustments — do these every time ### 1. Ind AS 116 (leases) Since Ind AS 116, operating leases sit on the balance sheet as a right-of-use asset and a lease liability. Rent leaves EBITDA and reappears as depreciation and interest. - **EBITDA is inflated** for retail, QSR, aviation, hospitals, hotels and warehousing. - **EV must include the lease liability as debt**, or EV/EBITDA is systematically understated. - When comparing an Indian company to a peer on a different standard or a pre-116 history, restate one side. Say which. ### 2. Holding company discount Indian conglomerates and promoter holdcos trade at large discounts to the sum of their stakes. ``` NAV = Σ (stake % × market cap of each listed holding) + fair value of unlisted businesses + net cash − net debt at the holdco Holdco discount = 1 − (holdco market cap / NAV) ``` Observed discounts in India commonly run **40–70%**, driven by: no operating control transfer, dividend leakage and double taxation, poor capital allocation history, and the absence of a catalyst. Do not model the discount closing without naming the catalyst that closes it (demerger, buyback, listing of an unlisted arm, a stated capital-return policy). ### 3. Cross-holdings and treasury Strip investments in group companies out of the operating entity before computing an operating multiple, and value them separately. Otherwise a company looks expensive on EV/EBITDA because a third of its EV is a stake in something else. ### 4. Standalone vs consolidated Use consolidated for both the subject and every comp. Mixing them is a silent error. ### 5. Other income Indian companies frequently carry large treasury books. Compute a **core P/E**: ``` Core earnings = PAT − post-tax other income Core P/E = (Market cap − surplus cash − investments) / Core earnings ``` ### 6. Promoter and float effects Adjust for: promoter pledge (a discount), a very low free float (a liquidity premium in bull markets that reverses violently), and pending or likely index inclusion or exclusion. ## Where to anchor a "fair" multiple Three anchors, in order of usefulness: 1. **The company's own history.** 5-year and 10-year median forward P/E and EV/EBITDA, plus the standard deviation band. Where does it sit today, and has the business changed enough to justify a re-rating? 2. **The peer set median**, regressed against ROCE and growth. A simple cross-sectional regression of `EV/EBITDA` on `ROCE` and `revenue CAGR` across the comps will usually explain most of the dispersion and tells you whether the subject is cheap *for a reason*. 3. **The implied multiple from a DCF.** If the DCF and the peer median disagree by more than ~25%, one of them contains an assumption you have not examined. Also useful for context: Nifty 50 and Nifty Midcap 150 index-level trailing and forward P/E versus their own long-run medians, published by NSE. ## Output format ```markdown # — Relative Valuation, ## Comp set | Company | Mcap ₹cr | Rev CAGR 3y | EBITDA mgn | ROCE | Net D/E | P/E (fwd) | EV/EBITDA | P/B | |---|---|---|---|---|---|---|---|---| | | | | | | | | | | | peer 1 ... | | | | | | | | | | **Median** | | | | | | | | | | *Global comps (labelled separately)* | | | | | | | | | ## Adjustments applied - Ind AS 116 lease liability added to EV: ₹X cr - Cross-holdings valued separately: ₹Y cr - Core P/E (ex-other income): ... ## Own-history band | | 10y median | 5y median | Today | z | | Fwd P/E | | | | | | EV/EBITDA | | | | | ## Assessment ## Implied value | Method | Multiple | Value/share | | Peer median EV/EBITDA | | | | Own 5y median fwd P/E | | | | DCF cross-check | | | ``` ## Hard rules - **Date the multiples and name the earnings basis** — trailing twelve months, FY26E consensus, or your own estimate. Comparing your forward estimate to a peer's trailing multiple is not a comparison. - **Never average multiples across companies with very different leverage** without moving to an EV basis. - **Exclude outliers explicitly**, and say why. A loss-making peer has no P/E; dropping it silently biases the median. - A cheap multiple is a question, not a conclusion. Run `forensic-redflags-india` before calling anything a bargain. - Analysis, not advice.