In last budget government announced a key intention to reduce corporate taxes to make India par with other emerging nations
Note this is only proposal and there is no guarantee that this will fructify in next 4 years. Now imagine in 2019 that this becomes a reality
How will it improve CAGR returns from companies ?
5% is big saving and can fill corporate coffers tremendously with direct impact to FCF available to owners
So I did a thought experiment on how this tax edge could impact investor returns
Read carefully – Few key assumptions that you are making when relying on this analysis
- would stick to its promise of reducing corporate taxes by 5% in 4 years – To me this is biggest risk
- Predicting profit growth for next few years, in most business this is difficult if not impossible
- Assigning an PE exit multiple, this requires years of practice, we would be wise to be conservative on this
- Margins would be remain as 2015, for cyclic business this would lead to faulty outputs again if business had an extremely good or poor 2015 then results would be skewed on either side
- There would be no equity dilution, which