There is no holy grail. Everyone please understand the attempt is not to present Future Value creation or EPA model as the end-all. It is another very useful decision-making parameter to keep in the head - and I stick my neck out to say that most investors (like me) do not have this firmly entrenched in their heads - else I was bound to have heard a lot more on this in the last 3 years
Let me illustrate it the other way taking a value-destruction or very little future value-addition example from our own VP Portfolio - Manjushree Technopack.
Those who are familiar will recall that we made a very quick 3x - 32 to 100 in 4-5 months here in 2009. And since then Manjushree has reached 200+ in 2014. **Its a cool 7x in 5 years and most people will take that right. **But as we all know we have much better examples of value creation in the same time frame by Astral, Ajanta & Mayur and even Atul Auto.
If we look closely at Manjushree we will realise that Mr MArket is valuing its mostly for its steady-state franchise of being the largest PET bottler in South Asia. It isn’t paying up really for any Future Value being created. Because there isnt. Value is being destroyed as in most years Manjushree adds negative EPA - RoIC at 9-10% is less than its Cost of Capital today. in the early years Founders funds were enough to fund the business and that was EPA accretive not any more.
Now where would you allocate more Capital? When it was available at 4x valuations with drastically improving margins - it was a great opportunistic call - and went from 30 to 100 in no time. Now it may not make that great a sense fro the next 3-5 years, isn’t it.