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Why Subsidiary + SOTP Valuation is Bad ?

January 30, 2008

In our post on how Analysts are Desperate to justify Stock price, we had written about number of stupid theories. Here is another one from an Analyst tracking the Retail Market in India and it is on Pantaloon Retail India Ltd.

Future Bazaar and Future Media: We no longer attribute any value to Future Bazaar and Future Media. We were earlier attributing Rs18/share and Rs 13 /share respectively. Our earlier valuations were based on the management indication for private placement in both these entities. However, the placement is yet to happen, and we see a fair chance of valuation basis being revised downwards. Additionally not enough disclosures are available from the management on these entities to enable us to have a valuation basis. Therefore we are conservatively not ascribing any value to these in our SOTP-based target price.

Stick to VALUE INVESTING. Once again go for SOTP valuation only if you are able to generate cash of the idle assets.

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