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Ghandhara Industries (KAR:GHNI) Earnings Power Value (EPV) : ₨202.53 (As of Sep24)


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What is Ghandhara Industries Earnings Power Value (EPV)?

As of Sep24, Ghandhara Industries's earnings power value is ₨202.53. *

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

Margin of Safety is -135.89

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future. Assumption: Current profitability is sustainable.


Ghandhara Industries Earnings Power Value (EPV) Historical Data

The historical data trend for Ghandhara Industries's Earnings Power Value (EPV) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

Ghandhara Industries Earnings Power Value (EPV) Chart

Ghandhara Industries Annual Data
Trend Jun15 Jun16 Jun17 Jun18 Jun19 Jun20 Jun21 Jun22 Jun23 Jun24
Earnings Power Value (EPV)
Get a 7-Day Free Trial Premium Member Only Premium Member Only 225.93 337.47 224.77 90.19 225.54

Ghandhara Industries Quarterly Data
Dec19 Mar20 Jun20 Sep20 Dec20 Mar21 Jun21 Sep21 Dec21 Mar22 Jun22 Sep22 Dec22 Mar23 Jun23 Sep23 Dec23 Mar24 Jun24 Sep24
Earnings Power Value (EPV) Get a 7-Day Free Trial Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 99.16 77.87 138.14 225.54 219.35

Competitive Comparison of Ghandhara Industries's Earnings Power Value (EPV)

For the Auto Manufacturers subindustry, Ghandhara Industries's Earnings Power Value (EPV), along with its competitors' market caps and Earnings Power Value (EPV) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.


Ghandhara Industries's Earnings Power Value (EPV) Distribution in the Vehicles & Parts Industry

For the Vehicles & Parts industry and Consumer Cyclical sector, Ghandhara Industries's Earnings Power Value (EPV) distribution charts can be found below:

* The bar in red indicates where Ghandhara Industries's Earnings Power Value (EPV) falls into.



Ghandhara Industries Earnings Power Value (EPV) Calculation

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. This valuation tool excludes the potential growth that a company may have so that needs to be looked at separately. Since future growth is excluded from the analysis, only the maintenance capital expenditures are subtracted from after-tax EBIT (earnings before interest and taxes) and growth capex is ignored.

Ghandhara Industries's "Earning Power" Calculation:

Average of Last 20 Quarters Last Quarter
Revenue 16,657
DDA 178
Operating Margin % 6.08
SGA * 25% 182
Tax Rate % 19.47
Maintenance Capex 120
Cash and Cash Equivalents 397
Short-Term Debt 1,237
Long-Term Debt 72
Shares Outstanding (Diluted) 43

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating Income.

2. Look at average margins over a business/Industry cycle: Average Operating Margin = 6.08%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins. Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenues as the sustainable revenue.
EPV analysis recognises that part of SG&A expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SG&A (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = ₨16,657 Mil, Average Operating Margin = 6.08%, Average Adjusted SGA = 182,
therefore "Normalized" EBIT = Sustainable Revenue * Average Operating Margin + Average Adjusted SGA = 16,657 * 6.08% +182 = ₨1193.91339805 Mil.

4. Multiply by one minus Average Tax Rate (NOPAT):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = 19.47%, and "Normalized" EBIT = ₨1193.91339805 Mil,
therefore After-tax "Normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = 1193.91339805 * ( 1 - 19.47% ) = ₨961.41070291374 Mil.

5. Add back Excess Depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess Depreciation = Average DDA * % of Excess Depreciation (after tax at 1/2 average tax rate) = 178 * 0.5 * 19.47% = ₨17.3045964 Mil.
"Normalized" Earnings = After-tax "Normalized" EBIT + Excess Depreciation = 961.41070291374 + 17.3045964 = ₨978.71529931374 Mil.

6. Adjusted for Maintenance Capital Expenditure:

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditures as maintenance CAPEX.
Ghandhara Industries's Average Maintenance CAPEX = ₨120 Mil *.
* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. Ghandhara Industries's current cash and cash equivalent = ₨397 Mil.
Ghandhara Industries's current interest bearing debt = Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation = 72 + 1,237 = ₨1309.431 Mil.
Ghandhara Industries's current Shares Outstanding (Diluted Average) = 43 Mil.

Ghandhara Industries's Earnings Power Value (EPV) for Sep24 is calculated as:

EPV = ( ( Norm. Earnings-Maint. CAPEX *) / WACC + CashandEquiv - Int. Bearing Debt ) / Shares Outstanding (Diluted Average)
= ( ( 978.71529931374 - 120)/ 9%+397-1309.431 )/43
=202.53

Margin of Safety (EPV)=( Earnings Power Value (EPV)-Current Price )/Earnings Power Value (EPV)
=( 202.52772152422-477.74 )/202.52772152422
= -135.89%

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.


Ghandhara Industries  (KAR:GHNI) Earnings Power Value (EPV) Explanation

Assumption: Current profitability is sustainable.

Earnings power value (EPV) uses a very basic equation which assumes no growth, although it does rely on an assumption about the cost of capital as well as the fact that current earnings are sustainable. It also involves several adjustments to clean up the underlying Earnings figures.


Be Aware

Though using today's earnings in calculating Earnings Power Value, GuruFocus is normalizing these earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average earnings over 5 years.


Ghandhara Industries Earnings Power Value (EPV) Related Terms

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Ghandhara Industries Business Description

Traded in Other Exchanges
N/A
Address
F-3, Hub Chowki Road, S.I.T.E, P.O. Box No. 2706, Karachi, SD, PAK, 75730
Ghandhara Industries Ltd is a Pakistan based company. It is engaged in the manufacturing, assembly and marketing of Isuzu DMAX Pickups, ISUZU Trucks, Bus Chassis and fabrication of Bus and Load bodies. Its products include Rigid Truck & Prime Mover, Hi- spark single cab, Microbus, Pickup, cross crew cab, lander single cab, Light Commercial Vehicles and others.

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