Relative Valuation
Valuing a company by comparing its multiples with those of similar companies or with its own history.
Formula
Implied Value = Peer Group Median Multiple x Company's Corresponding Financial Metric
Unit
₹ crore
In depth
Relative valuation is fast, market-anchored and the way most equity is actually priced, but it inherits whatever error is in the comparison set — in a bubble every peer is expensive and the method reports fair value. It answers whether a company is cheap relative to others, never whether the group as a whole is sensibly priced. The choice of peers does most of the work, and differences in growth, margin, leverage and capital intensity must be adjusted for rather than assumed away. Used alongside a DCF it is a useful cross-check; used alone it is a popularity measurement.
Worked example
Peers trade at a median EV/EBITDA of 12 while the company trades at 10 on EBITDA of ₹220 crore. The implied enterprise value is 12 x 220 = ₹2,640 crore against an actual ₹2,200 crore — a 20% gap, assuming the peers are correctly priced.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Relative Valuation” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.