A few days ago, Equifax Credit Information Services Ltd became the second credit bureau of India to offer a credit score or the “risk score”. Earlier, Credit Information Bureau (India) Ltd (Cibil) was the only bureau which provided credit scores, which it started in April.
Apart from the widely known Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), there are 23 other stock exchanges in India. These are regional exchanges which were set up long ago to help companies operating in those regions.
What is their current status?
For the past decade or so, regional exchanges have been facing the danger of being wiped out. The trading licence of eight of the 23 regional exchanges has already expired. Stakeholders of these exchanges are looking to exit, but are finding it difficult due to lack of proper guidelines. Over time, these exchanges have lost trading volumes with bigger companies moving to NSE and BSE, which offer hi-tech trading.
Which stocks are listed on them?
There are quite a few stocks listed on these exchanges. Most of these are the ones that were listed at the time when it was mandatory for companies to list on regional exchanges. After Securities and Exchange Board of India withdrew this mandate in 2003, no new listings have happened.
Should you invest?
Not at all. In fact, existing customers are finding it difficult to exit the stocks even at a loss in the absence of regular trading activity. Analysts say stocks listed only on the regional exchanges are not fundamentally strong. A majority of the stocks listed on these have businesses limited to only those regions and are, hence, reluctant to get listed on the bigger exchanges. Existing investors should exit at the first opportunity even if it means off-market trade.
What exactly is Enterprise Value?
What is it?
Enterprise value (EV) is an alternative to computing the value of a company based on market capitalisation of its equity, total debt and cash. It is considered a comprehensive tool to analyse the value of a company compared with simple market capitalisation of equity shares. An easier way to understand this concept is to consider it as the total sale price of an entity. So, if a company was to be bought out, this is the price to be paid.
How is it calculated?
EV is calculated by adding market capitalisation of equity shares (common and preference) to the market value of debt and minority interest (investment in another company). From this, the total cash and cash equivalents are taken out to arrive at the EV.
How is this used?
EV is seen in combination with other financial parameters to compare potential stock price returns among different companies. EV/EBITDA (earnings before interest, tax, depreciation and amortisation) is a commonly used ratio for analysing the value of a company. A low ratio can signify that a company is undervalued. This ratio is also called the enterprise multiple. Enterprise multiple comparison works best within an industry as it can vary across sectors. It is thus, important to compare this for companies within an industry.
What does it mean for you?
From the industry’s perspective, an undervalued company makes for a good takeover candidate. From an investor’s perspective, an undervalued company means better opportunity for rise in stock price. Keep in mind that financial parameters such as EV and EV/EBITDA should not be looked at in isolation. Remember to consider other parameters as well.
—Lisa Pallavi Barbora