Learning from Experts - IIM Lucknow student learn the nuances of Firm Valuation

Contrarians are again out in the open to cash on increased market volatility and bearish sentiment of the investors. The investment decisions, however, requires answers to several questions like - What is the company worth? How can one value a company in an IPO and how does it change in the context of a going concern, potential acquisition, or when the company faces financial stress? To answer these questions, Sanjay Khanduri, Portfolio manager at Silver Spring Capital Management, Officer of Wharton Club of Hong Kong and an alumnus of IIM Lucknow, 1997 batch delivered a 90 minute crash course to budding students on company valuation at the premier institute.
Explaining the nuances of valuation in simple terms, he used the day to day examples to drive home the point. Using relative valuation approach, he explained how investors tend to over and under estimate the worth of a company. The audience was astounded when Khanduri said that LinkedIn is not overvalued at P/E multiple of 849, but he went on to solve the mystery using the earnings growth rate in a sophisticated way.
Khanduri also gave a glimpse to the dark side of valuation by showing small assumptions are intentionally tweaked to get the desired results and the importance of understanding the real options in valuations. He went on to emphasise the need to conduct due diligence to keep intact the integrity of the capital market.
He said that analyst tend to move to speculation and start depending on “gut feeling” rather than the fundamentals in a good market to make some quick money. This greed is one of the primary reasons for increased market volatility and mispricing in securities. He also gave tips on how to use different models effectively to value firms.
Responding to questions from the audience, he compared highly priced IPO’s to the real estate market. The base price of apartments is set by the price at which the first apartment is sold even if the first deal is overpriced. Similarly, if an IPO is highly priced and beginning trade volumes are high, the market treats that price as the base until someone conducts due diligence and comes out with the real value.
On the final note he left the excited audience with the mantra of valuation. “Valuation is all about assumptions. If you understand the assumptions, you will identify the right investments and make money in the long run.”
Practical learning through examples has been a common practice in most of the subjects taught at IIML. Students not only benefit from them academically but also learn the usage of concepts from the books into everyday activities of a professional investment banker and the likes. These lectures also play a part in the preparation of the students for the facing the real world after entering the corporate world

Indian Institute of Management, Lucknow is one of the premier management institutions in India.

Anuradha Manjul,
Public Relations & Media Relations Officer
Indian Institute of Management, Lucknow
Prabandh Nagar, Off Sitapur Road,
Lucknow - 226013, Uttar Pradesh, India

This release was published on openPR.