Valuation Logic for Indonesian IPOs: Why PER Is Not the Only Number That Matters

When founders begin thinking about an IPO valuation, the most common starting point is a multiple: "Companies in our sector trade at 15x earnings, so we should be valued at X." This is not wrong as an analytical reference, but it is an incomplete framework that frequently leads to unrealistic expectations and, in some cases, poorly structured offerings.

This article explains how IPO valuation on the Indonesian market actually works, what metrics matter most by sector, and why the most disciplined approach begins not with a multiple but with a capital requirement.

The three valuation metrics that matter on IDX

Most Indonesian equity analysts use three primary valuation approaches, often in combination:

Price-to-Earnings Ratio (PER) measures price relative to net profit. It is the most widely cited metric in Indonesian retail investor media and in analyst reports. A PER of 15x means investors are paying IDR 15 for every IDR 1 of annual net profit.

Price-to-Book Value (PBV) measures price relative to net equity on the balance sheet. It is particularly relevant for financial sector companies, property developers, and capital-intensive businesses where the asset base is a primary driver of value.

EV/EBITDA measures enterprise value relative to earnings before interest, tax, depreciation, and amortisation. It is used most frequently for infrastructure, telecommunications, energy, and industrial businesses where capital structures vary significantly across comparables.

The identity that connects PER and PBV is worth understanding: PBV = PER x ROE. This means that a premium PBV is only defensible if the company's return on equity justifies it. A company with a 10% ROE cannot credibly support the same PBV as a company with a 25% ROE, even if both are in the same sector.

Why the capital requirement should come first

The most disciplined approach to IPO valuation works in the following sequence:

1. Define the capital requirement: how much the company needs to raise, and for what specific purposes.
2. Determine the free float: IDX requires a minimum free float after the IPO. For most Papan Pengembangan listings, this is 20% of total issued shares. The offering size as a percentage of total shares sets the free float.
3. Derive the implied valuation: if the company needs to raise IDR 100 billion and that represents a 25% free float, the implied post-money market capitalisation is IDR 400 billion.
4. Test the implied valuation against sector comparables: does IDR 400 billion represent a reasonable multiple given the company's financial performance? If yes, the structure is defensible. If the implied multiple is significantly above sector medians, either the capital requirement needs to be reconsidered, the free float adjusted, or the financial performance story needs to be substantially stronger.

This sequence keeps the valuation grounded in what the company actually needs and what the market can reasonably support, rather than what the founder would like.

Sector-specific benchmarks on IDX

Sector median multiples on IDX shift with market conditions, but as general reference points for mid-market companies:

• Consumer and retail: PER typically 12x to 20x for established brands, lower for early-stage growth companies.
• Healthcare and pharmaceuticals: PER 15x to 25x, reflecting growth premiums in the sector.
• Logistics and distribution: PER 8x to 14x for asset-heavy operators; EV/EBITDA more commonly used for infrastructure-linked businesses.
• Financial services: PBV 1.0x to 2.5x for well-governed mid-tier lenders and multifinance companies.
• Property and construction: PBV 0.4x to 1.2x, reflecting the discount the market typically applies to Indonesian property developers.

These ranges are reference points only. The actual defensible multiple for your company depends on its specific financial profile, growth trajectory, management quality, and the market conditions at the time of listing.

The discount problem

IPO pricing on IDX typically involves a discount to the comparable trading multiples of listed peers. This discount, sometimes called the IPO discount, compensates investors for the liquidity risk of subscribing to a new issue with limited secondary market history.

For mid-market Papan Pengembangan listings, this discount typically ranges from 10% to 25% relative to trading comparables. A company that ignores this discount when setting its offering price range will either underprice itself relative to its ambitions, or overprice relative to what investors will accept, resulting in a weak book and a struggling aftermarket performance.

What overpricing costs

The temptation to price aggressively is understandable. The consequence of overpricing is not simply a lower first-day return. An overpriced book closes weakly, requiring the underwriter to apply stabilisation. Post-listing trading frequently falls below the offering price. This creates a permanent reputational mark on the company in the institutional investor community, affecting secondary market liquidity and the company's ability to raise additional capital in the future.

A well-priced offering that trades up modestly in the weeks after listing builds a far stronger foundation for the company's long-term capital market presence than one that was optimistically priced and has since traded down.