Valuation Multiples Demystified: Post-Issue PE, EV/EBITDA & RoNW in IPO Analysis

1. The Danger of Pre-Issue Earnings Trap

A common pitfall for retail investors is calculating the Price-to-Earnings (P/E) ratio using pre-IPO share capital. When an IPO involves a substantial fresh issue, total shares outstanding increase significantly, which dilutes post-issue earnings per share (EPS).

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2. Core Financial Multiples Explained

#### 1. Post-Issue P/E Ratio $$\text{Post-Issue P/E} = \frac{\text{Cap Price} \times \text{Post-Issue Total Shares}}{\text{Trailing 12-Month Net Profit}}$$ Compare this figure directly with listed competitors to see if the issuer offers an attractive entry discount.

#### 2. Enterprise Value to EBITDA (EV/EBITDA) Enterprise Value accounts for both equity and net debt: $$\text{EV} = \text{Market Capitalization} + \text{Total Debt} - \text{Cash \& Equivalents}$$ This multiple normalizes capital structure differences, making it ideal for comparing manufacturing, infrastructure, and hospital companies.

#### 3. Return on Net Worth (RoNW / RoE) Measures how profitably management deploys equity shareholder capital. High-quality compounders sustain RoNW above 18%–25% over multiple consecutive years.

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3. Peer Comparison Framework

Always review the Basis for Issue Price section in the RHP. Check if the listed peers cited have comparable product mix, geographical reach, and operating margins.