Are Gujarat Gas and Inox Leisure Investment Worthwhile at Current Levels?
The stock market can often be a maze for investors seeking high returns and sustainable growth. This article delves into the current valuation and future price projections for Gujarat Gas Ltd and Inox Leisure Ltd. Both companies present different investment prospects, depending on your return expectations and the market dynamics. Let's explore these companies closely to determine if they are worthwhile investments.Analysis of Gujarat Gas Ltd
As an integrated oil and gas company, Gujarat Gas Ltd operates within the natural gas distribution sector. The company's performance as of the latest available data can be scrutinized through its financial ratios and market metrics.
Current Valuation and Future Projections
As of the date of analysis on November 11, 2019, Gujarat Gas Ltd is trading at an intrinsic fair value of INR 115.15, based on the discounted cash flow (DCF) method. Currently, the stock is priced at INR 196.35. According to earnings estimates for March 2020, the projected price is INR 227.5. This suggests a potential upside of approximately 17.7% within the next six to twelve months, assuming a return expectation of 10%.
Key Financial Highlights
Return on Equity (ROE): 19% -indicative of efficient use of shareholders' equity. Return on Assets (ROA): 6% - signifies the profitability of the company's assets. Market Capitalisation: INR 10,195 crores. Net Profit: INR 4,17 crores. Total Income: INR 7,847 crores. Enterprise Value: INR 12,392 crores. Price to Earnings (P/E): 24.45 (considered high and may not be favorable for all investors). Enterprise Value to Total Income: 1.58 (often seen as a favorable metric). Enterprise Value to Total Income to Firm Margin: 26.37 (considered above average). Price to Book Value (P/B): 4.67 (also considered high). Debt to Equity: 1.01 (a healthy ratio).Investment Rationale
Gujarat Gas's natural gas business involves the distribution of gas from supplies to centers of demand and end customers. While the company presents significant earning potential, investors should consider the elevated P/E and P/B ratios. The high PE and PB suggest that the stock is currently quite expensive relative to its earnings and book value. However, if the projected earnings of INR 227.5 in March 2020 materialize, the stock price may rise further, offering potential long-term value.
Analysis of Inox Leisure Ltd
Inox Leisure Ltd is a major player in the specialty retail sector, particularly known for operating and managing multiplexes and cinema theaters in India. Here, we will evaluate its current valuation and future market projections.
Current Valuation and Future Projections
As of the same date, Inox Leisure Ltd is trading at an intrinsic fair value of INR 335.5, based on the DCF method. Currently, the stock is priced at INR 367.9. Estimates for March 2020 suggest the stock will rise to INR 646.35, representing a potential increase of over 74% in the next six to twelve months, as per a 10% return expectation.
Key Financial Highlights
Return on Equity (ROE): 14% - a decent return but lower than Gujarat Gas. Return on Assets (ROA): 9% - indicative of moderate profitability. Market Capitalisation: INR 3,388 crores. Net Profit: INR 133 crores. Total Income: INR 1,669 crores. Enterprise Value: INR 3,496 crores. Price to Earnings (P/E): 25.38 (considered high and may not be favorable for all investors). Enterprise Value to Total Income: 2.09 (considered favorable). Enterprise Value to Total Income to Firm Margin: 24.40 (considered favorable). Price to Book Value (P/B): 3.52 (considered high). Debt to Equity: 0.11 (a very healthy ratio).Investment Rationale
Inox Leisure’s business model focuses on multiplexes and cinema theaters, indicating strong operations in the entertainment sector. While the company's P/E and P/B ratios are high, indicative of an expensive valuation, the projected earnings for March 2020 suggest substantial growth potential. If these estimates are accurate, Inox Leisure could offer robust returns to investors over the next several months.
Conclusion
Both Gujarat Gas and Inox Leisure present compelling investment cases, but the decision to invest should be made with consideration of individual risk tolerance, market trends, and long-term growth prospects. Gujarat Gas, despite its lower ROE and ROA, may still offer a good long-term investment opportunity based on its strong earnings estimates. Inox Leisure, on the other hand, might be more attractive if your focus is on potential short-term gains, as its projected returns are significantly higher.
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