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Whether a share is cheap or expensive, we will learn from Rakesh ji himself in today's video how to calculate cash flow based valuation, that is, how to find out by looking at the cash flow of a company whether its current price, share price or market cap is cheap or expensive, very easily and welcome to this video of our legend Rakesh Jhunjhunwala ji, from what sir said about India youtube2 valuation, we will find out how you can calculate the price of other shares, okay, so let's listen to Rakesh ji for a minute, after that I will explain what he is trying to say, sir said that the current market cap is Rs 1 lakh crore, when this interview took place a year ago, then he was asking that when will Zomato generate cash of Rs 3000 crore, on that day its market cap of Rs 1 lakh crore will be justified, so you have understood one thing that if a company has a market cap of Rs 1 lakh crore, then Rakesh Jhunjhunwala ji is saying that it should have a cash flow of Rs 3000 crore, okay here Rakesh ji is saying that tulip used to be a flower long ago in foreign countries, which was said to be very useful and its price was speculative.
When the First World War happened in 19142, at that time only railway stocks were in business, even then it was said that railway stocks would last a lifetime and their valuation was sky high. As soon as automobiles and vehicles came, all their share prices crashed. Similarly, Sir says that the speculative price is there, you take it much beyond its real price thinking that the company will become very big with a fancy name.
Generally, we make such mistakes, then there is always a fear of loss there. So, if a company has a market cap of Rs 1 lakh crore, then it should have a cash flow of Rs 3000 crore. I will tell you now and let us take it a little longer by example. Remember, always remember the stock market, it is important how long it gets, it is more important how long it lasts.
Whatever time is there in the stock market. The time taken to make money or create value is not important, what is important is how long it lasts. Suppose the current market cap of Metro has almost become equal to Asian Paints. Asian Paints is also a company worth Rs 215,000 crore. Zomato is also a company worth Rs 210,000 crore.
It took Asian Paints 30 years to reach this market cap. It has multiplied the investors' money by more than 1,000 times, but Zomato has only quadrupled its value at ₹776. You must be aware that when the IPO came, if you look from there, it has only multiplied by four to five times and has got the same market cap.
Meaning, actually, those who would have invested before this IPO, when the share was unlisted, their money has actually multiplied by that much, which you see in N-Pat. But from here, if you look at its market cap, how much cash flow does it need? If its market cap is currently Rs 2 lakh crore, then cash worth Rs 6,000 crore.
We need flow. Right now it is generating a cash flow of 600 crores, so it is 10 times more valuable. I will explain this further in the screener. Let's just finish this interview in a minute. Sm Paper, I can tell you years, 4 years, 5 years. When I go down, then father will also meet me. Okay, so now we will start.
Now let me show you the market cap of Asian Paints. Right now the market cap of Asian Paints is 214000 crores. 214000 crores. So according to Sir, in the market cap of 1 lakh crore, what should be the cash flow of 3000 crores. So, how much cash flow should there be for a company worth 214 14000 crores.
There should be a cash flow of approximately 6000 crores. Now if you look here, this cash flow is written here. If you click on this cash flow on screener.in, there is free data, you will get the cash flow here. Now look at the cash flow, there is a cash flow of 6000 crores in March. In 2024, the data for March 2025 will come, so you can compare it better this year because it has been almost a year since then, so now this cash flow is increasing and decreasing, you will have to see, still you see there is a cash flow of Rs 6000 crore and secondly, the cash flow is continuously increasing, you will see there is a consistency in the cash flow, that is, it is not that it is going up and down, the cash flow is sometimes increasing and sometimes decreasing, what happens in cyclical companies like auto sector companies like Tata Motors or tyre companies, the cash flow sometimes increases and sometimes decreases, it increases for two years and then decreases, you cannot calculate it by directly multiplying it with the current number because it is not believable, it will decrease next year, the data of this year which will come for March 2025 will decrease in that because you can see that their sales have fallen, the demand for vehicles has decreased in the cycle that is going on right now, so such companies where the cash flow is consistent Where you can believe that yes, it will come next year as well, it will be the same or will keep increasing, it will come in the same flow, there is Titan Company, Asian Paints, PD Lite, who have generated very good returns, we can learn from them and apply this learning to the new companies that have come and see which company is the best in terms of valuation, so what did you understand, cash flow should be consistent, after that you see, this is approximately 6100 crores, this is last year's data, I have taken it just for reference, but if you take this data also, 6000, then what sir said is absolutely correct that the good companies, if they have a market of approximately 1 lakh crore, then they generate cash of 3000 crores, now if I go and see this number in Zomat, this is the market cap of Zomat, now if I look at the market cap of Zomat, it is almost the same, like Asian Paints had 214000 crores, now for those who do not know what market cap is, if you If you have 28000 crores today, then you can buy the entire Zomato.
Deepinder Goyal should also agree to sell it, but you can buy it if he is ready to sell, then this is its market price, the entire company will be sold for this much, so you think that to buy one share you have to pay ₹ 1,166, stop that thinking for once because what will happen with this, you will find the MRF share worth 5 lakhs expensive and Zomato cheap, this does not happen, you think that for how much is the entire company getting and for the amount that the entire company is getting, is this shop worth it to me or not, what will happen with this, you will understand whether it is expensive or cheap, now you see, Zomato is also a company worth 208000 crores, which you had here, now I will tell you again how much was there in Asian Paints, the same number is 214000 crores and how much is there in Zomato, 208000, look carefully, N Paint 214000, Zomato 208 8000 Now come to the cash flow, the same numbers in cash flow will work the same way, how much is there in Zomat in cash flow, the cash flow in Zomat is 646 crores and the same number is there in Asian Paints, 6000 6000 and here 600 means that Asian Paints is already generating cash of 6000 crores, this is such a grocery shop next to you which is generating cash of ₹ crores every year from its work, so you are ready to buy that shop for 215000 crores but Zomat is such a shop next to it in which the covers are very good, in which there is a beautiful decoration but it is earning only ₹ 46 crores, you are ready to buy it for 208000 crores, so this shows how much you believe in the future that the company will earn a lot in the future, if it does not earn, by mistake if these speculative things like the Tulip shop and the Railway shop are called Isn't it true that if this turns out to be the case then a lot of money of the people will be lost.
Now if you put this thing in the calculator that if it is 1 lakh crore, I do n't even know how to write it, the market cap of 1 lakh crore, so let's divide it by 1 lakh and see, then how much did Sir tell you, there should be a minimum cash flow of 3000 crores, so that means 33.3, so I say you start calculating it directly by 30 to 35, that means if you know that Zomato is generating a cash flow of 6100 crores, then if you want to find out its correct market price, market price means total market cap, then what do you do, multiply 6100 here, multiply 6100 by 30, then what is the result, 183000, that means the minimum market cap should be approximately 183000 crores and if you multiply it by 35, we have made a range that whatever will be the cash flow of the year, we will multiply it by 30 and 35, so 213000 crores So whenever the market cap of the market comes between 183000 to 213000 crores, then you should understand that it is the right valuation.
The type of valuation that Asian Pat HL gets, the same valuation is being given to your new company and if the market cap of your company is already much higher than this, then understand that it is getting expensive and if it is getting less than this, then you should understand that it is getting cheap but what I said, the cash flow should be consistent, that is, it should be continuously increasing like this, it should be going up and down like this, sometimes it becomes negative for many years, then it becomes positive once, then it is getting negative again and again, then you cannot believe beyond that, you will have to justify its valuation in a different way, but for the good companies which are continuously generating cash, what you have to do there simply according to Rakesh ji is that whatever is your annual cash flow, multiply it by 30 and 35, multiply it by two times, if the market cap is in between that then it is correct.
If the market cap is more than that currently then it is an expensive company, if the market cap is less than that then it is a cheap company, so if you take 646 as 646 or 650, let's consider this year's number as 646 or 650, this year's number has not come yet, you will have to see the number for March 2025, if you multiply it by 35 then it comes to 22750, that is, market cap of 2000 22750 crores and right now the market cap is almost 10 times, so the price of the share is 10 times more speculative price in it, as per Asian Paints or good companies, then the correct price of the share can be the method, so there is 10 times risk, if cash flow does not come, if any other competitor of yours comes in the market, people had the same feeling in Amazon2 coin also, but later it became very big, it is possible that Zomato may increase this 646 crores later, the number that comes for this year will have to be seen how much it is, but you should understand the risk, it is not being said that this will not happen It is possible, but if you invest in 10 companies like this, then eight of them will crash, only one or two may do well.
So you have to understand the risk. My job is to explain the risk to you. So, to calculate the market cap, you understand that whatever your cash flow is, 6100, multiply it by 30 and 35. If the market cap is between 30 and 35, then it is correct. If it is more than that, then it is expensive at present.
Wait for it to come in between. If it is already below that, then it is cheap. But there should be good consistency in the cash flow, like here, only then will you look for a multi-bagger. You will compare it with companies like N Paint, Titan H, Hindustan Unilever, which have generated returns in the last 30 years.
You will not pick any company and say that I will compare it with this. Most of you will ask for the example of Tata Motors below this video. I will show you the example of Tata Motors right here so that Just so you do n't get confused, Tata Motors currently has a market cap of ₹ 250,000 crore (approximately Rs 1.25 lakh crore), which means it's slightly more than Asian Paints.
You might say this company should generate a cash flow of around ₹3,260,000 crore (approximately Rs 7,500 crore). However, understand that Tata Motors is generating a lot more. This year, if you look at its profit and cash flow, it generated a cash flow of ₹67,000 crore (approximately Rs 67,000 crore).
However, if you consider that this is a cyclical company, its cash flow increased from here to here. It rose from ₹22,000 to ₹36,000 crore (approximately Rs 35 lakh crore). It then started decreasing. You can see this in its profit and loss statement as well. In there, you'll find some cyclical companies whose profits first increase, then decrease, then increase again.
Then it decreases. Why does this happen? Because there comes a time in the economy when the demand for vehicles increases, then falls again, then increases, then falls again. These are called cyclical companies. Now, you will see this trend in all the companies associated with this company, tire companies or any other companies.
You cannot continuously give the same valuation to such a company. Based on one year's performance, look at its EPS. This EPS number you are seeing, you will see a cycle. If you draw it in Excel, you will see a cycle. Its EPS increased from ₹ to ₹, then fell to 40.25. And here it became negative for 4 years.
Now it increased again here. You will see an increase in these 3 years. But you might have heard that Tata Motors' vehicle sales have decreased again. Now you will see the next one or two years. It is possible that its profit may fall again, cash flow may fall. So, you cannot value it based on cash flow.
You can value only those companies which have consistency in EPS. And in cash flow, you will find many such companies there, you should try using it in them and if possible, watch this interview completely, you will learn a lot from this interview and hope you liked the video, if so, then tell me by commenting and follow the channel, subscribe and share it with your friends, people who buy very expensive companies just by hearing that this share is available for ₹10, the share is available for ₹, nothing happens with the share price, you have to see the total market cap, if you look carefully right now, the market cap of Zomato is 208000 and its share price is 216, now what do you people think that if MRF is worth ₹1 lakh, then it is expensive and Zomato of 216 is cheap, no you should see the market cap of MRF, right now the market cap of Zomato is 208000 crores and how much is the company earning cash flow 646 crores, now look at MRF, the share price of MRF is 109000 share price but its total market cap means the entire company to you You will get Zomato for Rs 4600 crore.
It will cost you Rs 208000 to buy the company. It will cost you Rs 46000 crore to buy MRF. That means MRF is a small company, it is a cheaper company than Zomato. Now if you want to see whether this valuation of Rs 46000 crore is correct or not, then first of all you come down to the cash flow and see if the cash flow is increasing.
So look at Rs 1000 here, this cash flow is the same. Look here, it has decreased again and here it is increasing again. So this tyre company which runs in cycles because it is linked to auto, if you look here also, what is the cash flow of Rs 3300 crore, that means the Rs 646 crore 600 crore in Zomato, MRF is giving it by generating a cash flow of Rs 3000 crore.
So this makes sense. If you multiply Rs 3000 by 30, it becomes Rs 90000. So you understand that the price of the company is calculated by looking at the market cap. The price of a share is not calculated by looking at it, because if there are less number of shares in the market then the price of the share will increase, suppose there is a company worth Rs 1 lakh crore and it has only one share in the entire world, then its price will be Rs 1 lakh crore only, if that company has 1 lakh shares then divide the total market cap by the number of shares, that is why start looking at the market cap and see whether it is expensive or cheap by comparing it with the previous multi-baggers that we got, so hope you liked the video, let's go, see you in the next video
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