The two important parameters for the valuation of Bank Stocks and Anomalies
1) Price to Book Value
2) Price to Earnings Ratio
3) Asset Quality
4) CASA , CAR , Basel - Regulation compliance etc
1) In P/BV the Private Banks are ranging from 3-6 with a few exceptions where as the PSU banks are ranging from 1-2.5
2) P/E ratio of PSU banks is typically around 6-10 with exception of SBI which has 16-17 where as Private bank stocks are typically trading between 16-40 P/E ratios
3) On any day the Asset quality of PSU banks is far better than Private banks
4) Most of the PSU banks are already way ahead of what they should be in terms of CAR and CASA and other provisions and where as the biggest private banks ICICI is still struggling to meet the statutory levels
Now taking into consideration what makes the Kotak Mahindra Bank trade at almost five times the valuation of BOB/Canara etc
And what makes the ICICI bank trading at almost double the valuations of SBI ?
Are these higher valuations have any justification in the present scenario???
@naren I think, we need to consider PEG here. i.e. price earnings to growth.
If u consider the CAGR (compounded annual growth rate), it is way higher for pvt banks like hdfc bank, icici bank, yes bank etc. So i think they command premiere valuations.
Also, not only banking, but in most of the sectors, pvt companies hv been commanding higher valuations, over PSUs.
@naren I think, we need to consider PEG here. i.e. price earnings to growth.
If u consider the CAGR (compounded annual growth rate), it is way higher for pvt banks like hdfc bank, icici bank, yes bank etc. So i think they command premiere valuations.
Also, not only banking, but in most of the sectors, pvt companies hv been commanding higher valuations, over PSUs.
That's what exactly my question is when fundamentally PSU banks are strong in each and every aspect except may be HR policies why are private banks commanding premium?
In other sectors for example take NALCO & Hindalco both of them are trading at similar valuations , to be precise NALCO is a bit costly than Hindalco, even though Hindalco beats out NALCO in terms of size , diversification , performance etc.
Similarly BHEL is trading at similar valuation to LT even though LT is better in many aspects.
But when it comes to banks it's the other way round and still PSU banks are lagging on bourses
As you said we can take PEG or CAGR but these two are directly related to the valuation itself rather than being the parameters of valuation. It is so because PEG will increase gradually as the PE expands , and this PEG concept is good for companies which are performing better with each quarter for example like Infy , Because Infy can command premium over the peers for obvious reasons of better management, high transparency and constant growth but for banks it is not the case.
CAGR is just a compounded rate of stock price which is just another indication of higher valuation rather than the factor which is causing that higher valuation.
That's what exactly my question is when fundamentally PSU banks are strong in each and every aspect except may be HR policies why are private banks commanding premium?
In other sectors for example take NALCO & Hindalco both of them are trading at similar valuations , to be precise NALCO is a bit costly than Hindalco, even though Hindalco beats out NALCO in terms of size , diversification , performance etc.
Similarly BHEL is trading at similar valuation to LT even though LT is better in many aspects.
But when it comes to banks it's the other way round and still PSU banks are lagging on bourses
As you said we can take PEG or CAGR but these two are directly related to the valuation itself rather than being the parameters of valuation. It is so because PEG will increase gradually as the PE expands , and this PEG concept is good for companies which are performing better with each quarter for example like Infy , Because Infy can command premium over the peers for obvious reasons of better management, high transparency and constant growth but for banks it is not the case.
CAGR is just a compounded rate of stock price which is just another indication of higher valuation rather than the factor which is causing that higher valuation.
CAGR is not a compounded rate of stock price
It is compounded annual growth rate of the earnings/net worth of the company. If the earnings have grown from 10 to 20 for one company and for other company it has grown from 20 to 30, then obviously percentage growth comes into picture. First company will obviously command richer PE compared to 2nd because growth rate is higher. Remember I am talking about higher PE and not higher Market Capital. PE is relative (i.e. will be based upon PERCENTAGE growth rate) Market Cap is absolute ( i.e. based upon ABSOLUTE amount of Net Profit).
If u see private banks like HDFC, ICICI etc. then u will know they have a higher rate of growth in earnings.
And the valuations are not dependent only on financial performance. The major stakes in these Private banks are held by FIIs. ( direct and indirect foreign holdings in ICICI Bank and HDFC are around 67 % and 73% respectively ) And in PSUs, major holdings are by Government. So it is obvious that FIIs have a bigger chunk and thereby bigger demand for stakes in Private Banks. In PSUs, the CONTROLLING STAKE will remain with Government. But in Pvt companies, the controlling stakes are available to be picked up. :lookround:
Thats why, I feel, Private Banks command higher valuations.
And one more thing, in the market, 1+1 may not always equal 2. So there may not be the exact answers to all the things.
CAGR is not a compounded rate of stock priceIt is compounded annual growth rate of the earnings/net worth of the company. If the earnings have grown from 10 to 20 for one company and for other company it has grown from 20 to 30, then obviously percentage growth comes into picture. First company will obviously command richer PE compared to 2nd because growth rate is higher.
just to add to your examples.if my revenue/stock price is 10,11,12,13,14,15 for six years,then my CAGR would be (10*11*12*13*14*15)^(1/6)
CAGR is not a compounded rate of stock price
Remember I am talking about higher PE and not higher Market Capital. PE is relative (i.e. will be based upon PERCENTAGE growth rate) Market Cap is absolute ( i.e. based upon ABSOLUTE amount of Net Profit).
If u see private banks like HDFC, ICICI etc. then u will know they have a higher rate of growth in earnings.
And the valuations are not dependent only on financial performance. The major stakes in these Private banks are held by FIIs. ( direct and indirect foreign holdings in ICICI Bank and HDFC are around 67 % and 73% respectively ) And in PSUs, major holdings are by Government. So it is obvious that FIIs have a bigger chunk and thereby bigger demand for stakes in Private Banks. In PSUs, the CONTROLLING STAKE will remain with Government. But in Pvt companies, the controlling stakes are available to be picked up. :lookround:
Thats why, I feel, Private Banks command higher valuations.
And one more thing, in the market, 1+1 may not always equal 2. So there may not be the exact answers to all the things. :thumbsup:
sc@rf@ce Saysjust to add to your examples.if my revenue/stock price is 10,11,12,13,14,15 for six years,then my CAGR would be (10*11*12*13*14*15)^(1/6)
I agree with both of you
But calculating CAGR we can take net worth approach or investment approach
And when we are talking of valuation of stocks the investment approach is the preferred and apt method , For details on calculation process
Compound Annual Growth Rate (CAGR) Definition
Controlling stake has got nothing to do with the valuation , In the short term the controlling stake may be used to ramp up trading interest in the counter but ultimately it boils down to the Asset Quality , Return on Investment( which is directly related to share price and pay out ratio) as far as minority share holders are concerned and the performance.
If you could explain the bigger chunk bigger demand sentence more clearly it would be helpful.
Why would one want to buy a low quality asset at a higher price where the similar asset of much better quality available at relatively reasonable price?
I agree with both of you
But calculating CAGR we can take net worth approach or investment approach
And when we are talking of valuation of stocks the investment approach is the preferred and apt method , For details on calculation process
Compound Annual Growth Rate (CAGR) Definition
Controlling stake has got nothing to do with the valuation , In the short term the controlling stake may be used to ramp up trading interest in the counter but ultimately it boils down to the Asset Quality , Return on Investment( which is directly related to share price and pay out ratio) as far as minority share holders are concerned and the performance.
If you could explain the bigger chunk bigger demand sentence more clearly it would be helpful.
Why would one want to buy a low quality asset at a higher price where the similar asset of much better quality available at relatively reasonable price?
Firstly, the last line in bold
Who will decide what is low quality and which is better quality. The FIIs/ fund managers cant be fool when they are buying at higher valuations :lookround:Let me give u an example again
EIH Ltd (Eastern India Hotels) is currently trading at a PE of 247. A much better quality Company Indian Hotels (Tata group) is trading at 59 PE. (Moneycontrol figures)
Why???
Because EIH has always been a cause of interest by raiders. ITC holds a major chunk apart from Promoters. Even Reliance bought a stake in the company few days ago. Its a fight of Controllong Interest. So even a lower quality company is trading at much higher PE.
FIIs have very large stakes in Private Banks. In India, FIIs move the markets. So no wonder, these banks are trading at a higher price.
Firstly, the last line in bold
Let me give u an example again
EIH Ltd (Eastern India Hotels) is currently trading at a PE of 247. A much better quality Company Indian Hotels (Tata group) is trading at 59 PE. (Moneycontrol figures)
Why???
Because EIH has always been a cause of interest by raiders. ITC holds a major chunk apart from Promoters. Even Reliance bought a stake in the company few days ago. Its a fight of Controllong Interest. So even a lower quality company is trading at much higher PE.
FIIs have very large stakes in Private Banks. In India, FIIs move the markets. So no wonder, these banks are trading at a higher price.
FIIs are not fools, They are ppl with deep pockets who are making fools of retail investors.
It looks like one long discussion, Let's continue in detail about this tomorrow good night
Where can I get the link for Ex-Date calendar of Indian companies?
TIA.
is t ok to sell 1 futur lot of tisco@640 and apply for 4 lots in fpo:lookround:
Where can I get the link for Ex-Date calendar of Indian companies?
TIA.
No such calendar available as per my knowledge and Ex dates you can check in the corporate actions section on nse website
its been in last few years that private banks have come to the party thanx mainly to the greater management flexibility offered by them...mkt likes the clarity that they bring in to the table
& its nt just FIIs but DIIs and leading brokerage firms too have been bullish on them...:thumbsup:
Mkts always reward the performers sooner or later & ppl who know how to milk these cash cows (my fav being Yes Bank) have made gud riches
At the same time PSU banks have also had their moments under the sun and with better set of no.'s being posted they too catch the fancy of mkt participants...
Imp Tip : Mkts hate edgy feeling...like ADAG group stocks tanked fortnight back due to ban on trading by Anil Ambani and his cohorts . Another eg is of SKS Microfinance going down deep under owing to corporate governance issues . In both cases lack of clarity and mkt's interpretation of half-backed truth held the forte
company no. 1 rel power
why is reliance power trading at a pe 124 with 1 year return of -11%? whereas the industry average is pe 21.11
also at http://economictimes.indiatimes.com/reliance-power-ltd/profitandlose/companyid-4422.cms
the net income figure is broken down to 0 sales,where does the figure 223 cr Rs come from?
company no. 2: mindtree
here http://economictimes.indiatimes.com/mindtree-ltd/profitandlose/companyid-15673.cms
for march 08, the figures for manufacturing expenses almost swap with that for personal expenses.can someone tell me what is personal expense,and probable reason why this swap took place in '08?
Sometimes, we ask questions like why is this company so richly valued and other company so poorly valued. Then we try to justify valuations based on parameters like PE etc.. Just remember that the market is always right and if you are not convinced that it is, just go and buy it. Only time can prove you right or wrong.
makspce SaysSometimes, we ask questions like why is this company so richly valued and other company so poorly valued. Then we try to justify valuations based on parameters like PE etc.. Just remember that the market is always right and if you are not convinced that it is, just go and buy it. Only time can prove you right or wrong.
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my question was more to know if anyone had a justification for the same.sorry i am not investing anywhere,but trying to understand certain things,like why are people still interested in rel power when it has given so bad returns.if anyone knows the reasons why, please go ahead..
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my question was more to know if anyone had a justification for the same.sorry i am not investing anywhere,but trying to understand certain things,like why are people still interested in rel power when it has given so bad returns.if anyone knows the reasons why, please go ahead..
Even though RPOWER is not performing now , People are interested in buying it because of a few reasons.
1) It's a ADAG company and at any time it can bounce back and zoom
2) Many long term investors are interested in potential of the stock rather than the present performance especially in this case because many projects are in pipeline and once the cash flows start then that PE ratio will come down very fast.
3) At the M Cap of 33000 odd crores its third largest company in its sector , So it can't go ignored.
4) It's F&O; stock , So the trading interest will always be there
Even though RPOWER is not performing now , People are interested in buying it because of a few reasons.
1) It's a ADAG company and at any time it can bounce back and zoom
2) Many long term investors are interested in potential of the stock rather than the present performance especially in this case because many projects are in pipeline and once the cash flows start then that PE ratio will come down very fast.
3) At the M Cap of 33000 odd crores its third largest company in its sector , So it can't go ignored.
4) It's F&O; stock , So the trading interest will always be there
thanks bud :). can you help me with the other queries as well?
Even though RPOWER is not performing now , People are interested in buying it because of a few reasons.
1) It's a ADAG company and at any time it can bounce back and zoom
2) Many long term investors are interested in potential of the stock rather than the present performance especially in this case because many projects are in pipeline and once the cash flows start then that PE ratio will come down very fast.
3) At the M Cap of 33000 odd crores its third largest company in its sector , So it can't go ignored.
4) It's F&O; stock , So the trading interest will always be there
To add to to the above
5. Power sector stock stories are awaiting unleashing of much delayed n much wanted power sector reforms . RPower will be a major beneficiary with the opening of this sector as it can bid aggressively n outbid its rivals thnx to its deep pockets .:thumbsup:
I have been following the market since 7-8 months...
What is it about this 'Cals Refinery' stock...
People are very much interested in it, and almost everyday it is the most traded stock..
sc@rf@ce Saysthanks bud :). can you help me with the other queries as well?
I don't track Mind tree and am not a big fan of IT and ITES themes
I have been following the market since 7-8 months...
What is it about this 'Cals Refinery' stock...
People are very much interested in it, and almost everyday it is the most traded stock..
Nothing special about this stock , It's traded heavily just because its price is less. These stocks usually attract the retail investors bcoz of their low prices more often than not these are not the companies worth investing.
Some more falling in this cut are AUSTRAL COKE , BIRLA COTSYN etc