Pitch Chitravarna Paints: revenue of Rs 4,200 crore growing 14%, an 18% EBITDA margin, 32% return on capital, net cash, and a share price at 48 times earnings. Long or pass, and what has to be true for 48 times to work?

Pass at 48 times, and keep it on the list at a lower price. The business is excellent, but the price needs earnings growth of about 19.5% a year for ten years, against 14% today. At 14% growth, 48 times takes about 37 years to earn a 12% return. A decade of 14% growth supports roughly 30 times, so the pitch turns on price, not quality.

Think of the best restaurant in your city. The food is superb, but if a table costs ten times the usual bill, the meal can still be poor value. The quality of a business and the return on its shares are two different questions, and the price connects them. Chitravarna's 32% return on capital, net cash and steady growth answer the first question well. The pitch lives or dies on the second, so the job is to turn 48 times earnings into the growth it assumes, which is called a reverse valuationStarting from the current price and working out what future growth it already assumes, instead of forecasting growth and deriving a price..

Set the problem up plainly. You pay 48 times today's earnings. In N years, you assume the stock settles at 25 times, like any mature consumer company. For you to earn 12% a year, the share price must grow by 1.12 to the power N, and the multiple has shrunk by 25 over 48. So earnings must grow by 48 over 25 times 1.12 to the power N, and the shorter the runway, the faster they must grow. Over five years that is 27.6% a year; over ten years, 19.5%; over fifteen, 17.0%.

Test the ten-year case against the business. Revenue growing 14% a year cannot produce 19.5% earnings growth unless margins rise. Net margin would have to climb from 12% to about 19.3% over the decade, in an industry where raw materials follow crude oil and rivals keep adding capacity. The other route is faster revenue growth, which would need either a new category, such as waterproofing or adhesives, or share gains from dealers who already stock three brands. Neither is impossible. Both are assumptions the price has already paid for in full.

State the view, the condition and the price that changes it. A decade of 14% growth is worth about 30 times earnings, so at 48 times you are paying today for growth that has not happened yet. The pitch is a pass now, with two things that would flip it: a fall toward the low thirties, or evidence that margins can rise durably, such as a new category reaching scale. Say the limit too: the exit multiple of 25 is an assumption, and a market that keeps paying 40 times for quality would rescue the price. You are betting against that, and you should say so.