Not taking into account the recent acquisitions, their ROCE’s were also not so premium as their valuations.
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = ₹8.0b ÷ (₹70b - ₹14b) (Based on the trailing twelve months to December 2020).
Thus, PI Industries had an ROCE of 14%.
The trend of ROCE doesn’t look fantastic because it’s fallen from 31% five years ago, while the business’s capital employed increased by 379%. That being said, PI Industries raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed.
So Am I willing to pay such premiums for a decent long term view(5-6 years) where current investments would start giving results ? Probably this cycle would keep on continuing as they reinvest most of their profits.
Disc: Not invested