Private banks pip public peers in average P/E ratio

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Mumbai: The price earning ratio (P/E) of private banks at aggregate level showed a decline on May 20, 2009, as against the figure recorded on May 20, 2008.

Simultaneously, P/E showed a marginal decline during the same period for public sector banks (PSBs), too. A comparative study between 22 PSBs operating in the country and 17 private banks, all profit making, reveals private banks’ P/E was higher than that of PSBs as on May 20, 2009.

An analyst from a broking firm said, “Private banks like ICICI, Kotak Mahindra, HDFC are rapidly increasing their asset base every year vis-à-vis public sector banks. Hence, they do enjoy much higher P/Es.”

However, a significant decline has been witnessed in Bankex stocks also. P/E of Bankex decreased 4.38 points to 11.90 times as against 16.28 times last year. M-Cap of Bankex during the study period lost 5.6% to Rs 4.05 lakh crore from last year's Rs 4.29 lakh crore.

The aggregate market capital of 22 public sector banks have increased 2.8% to Rs 2.42 lakh crore from Rs 2.36 lakh crore on May 20, 2008. Their four quarters trailing net profit has increased 31.2% during the study period, decreasing P/E from 9.66 on May 20, 2008 to 7.57 on May 20 this year. This is significant, with higher profit growth, the public sector banks have failed to increase their P/E. Top three PSBs, in terms of P/E on May 20, 2009 are SBI, PNB and IDBI Bank.

Private sector banks, on the other hand, have experienced 17.9% decline in market capital on May 20, 2009, but the trailing net profit has increased 16.3% to Rs 10,603 crore. And the P/E has decreased from 27.77 on May 20, 2008 to 19.60 on May 20, 2009. Significant decrease in P/E was seen in HDFC Bank. It plummeted from 39.19 on May 20 last year to 26.05 on May 20, 2009. In case of ICICI Bank, the P/E decreased from 24.84 to 21.00 during the same period. Top three private banks in terms of P/E this May are Kotak Mahindra, HDFC and IndusInd Bank.

Among the public sector banks, IDBI Bank showed a significant decline in the P/E. The price to earning ratio decreased from 9.88 to 7.50 on May 20 this year. In the case of SBI, the P/E decreased from 15.62 to 12.39.