Why Mr Market is valuing Rs 179cr more than Rs 2.6 lakh cr

Such comparisons between staid old-world companies with plenty of assets, sales and earnings and “new-age” fast-growing companies that potentially stare at game-changing opportunities, aren’t new.

But a more conspicuous name was oil retailer BPCL, valued by Mr Market at Rs 47,150 crore. With all of its Rs 2.6 lakh crore sales and Rs 4,000 crore profits. And this is after the company’s value has doubled this year.

Now, Investing 101 tells us how it is may be ridiculous to compare two companies with complete different business lines, operating environments, maturity of business, sales growths, etc.

But at some level, the contrast couldn’t be more striking, thanks to Flipkart’s USD 1 billion-USD 3 billion in gross merchandise value sales this year (depending on which media report you read) -- or Rs 6,500-Rs 19,500 crore -- and not a dime in profits.

Of course, BPCL’s highly-regulated operating environment and mature market will make sure it grows at a speed only a fraction of Flipkart’s.

But as investors pour in billions of fresh capital into fledgling e-commerce firms at ever-increasing valuations, it underscores the beauty of, and uncertainty in, investing where you have several strong arguments for and against an investment case.

Sure, Flipkart has grown at more than 300 percent while global peer Amazon, valued at more than 12 times, has grown at some 22 percent in the past few years.

And sure, at Rs 179 crore in actual net sales (not gross merchandise value – know about the difference here) and Rs 400 crore in losses in fiscal year 2014, Flipkart’s price-to-sales and price-to-earnings valuation metrics are so expensive, they are probably not even calculable.

But only time will tell which argument comes out ahead. As Buffett says: "In the business world, the rearview mirror is always clearer than the windshield."

Also read: Flipkart raises $700 million in fresh round of funding