BSE has announced that Satyam will be replaced by Sun Pharma in the BSE Index Sensex. What does it mean for the market as a whole ? EPS estimates changes significantly. Consensus EPS estimates for Sensex for FY10 is forecasted at Rs 970. Satyam EPS for FY10 was estimated at Rs 35. Consensus EPS for Sun Pharma is estimated at Rs 85 for FY10. Which means that EPS for the Sensex will get boosted by Rs 50 to Rs 1020 in FY10. This in turn reduces the forward price/earnings ratio. Market cap of Sensex will be up by Rs 10,000crs or $2bn. But the negative part is that EPS will de-grow by 6-7% YoY for Sun Pharma. Plus point is that it will serve as a defensive in case of market crash, excellent promoter (Dilip Sanghavi was awarded as the “Entrepreneur of the Year” by Economic Times in 2008 ) , ROE of around 25% and forward P/E ratio of 12-13x compared to 6x for Satyam (before Maytas deal) . All in all a positive for the investors !!
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