HDFC Bank: long-term thews

Updated: Feb 26 2008, 06:43am hrs
There will be myriad of views on the valuation ratio of HDFC Bank and the Centurion Bank of Punjab. One arithmetic is simply compelling: in one shot the bank will be able to grow from 750 odd branches to 1150 branches. Given the rate at which the central bank allows branch expansion to take place, this would have taken more than six years. One share of HDFC Bank for 29 shares of Centurion Bank of Punjab looks a tad prohibitive considering that HDFC Bank, which has one of the most attractive net interest margins at around 4.5% levels, will see it slide due to the 3.6% level of CBoP, and that it would now carry Rs 254 crore worth non-performing assets (NPA) from CBoP's books. The strong asset quality of HDFC Bank will deteriorate. The combined NIM is slated to be around 4.1%. Analysts reckon that despite a 27% dilution in HDFC Bank's equity, it will build long-term strengths and the bank will be able to utilise the strengths that CBoP has built in the retail space. Intangibles like value of personnel, the value of its branding and its ATM network have allowed CBoP to get a better ratio. Overall, while earnings growth estimates have been re-adjusted downwards, they still remain positive for the bank. In the long term, a positive consensus prevails.

R Power: solace for speculators

Reliance Power shareholders, who received solace with the announcement of a bonus of 3:5, saw the share price close at Rs 450 per share, the institutional issue price.

The good news is that Reliance Energy shareholders have nothing to lose thanks to

Anil Ambani's move to let his personal holding in Reliance Power fall to 40% from 45% and to enable Reliance Energy's stake in Reliance Power to be maintained at 45%. This altruistic move is seen by the market as a great opportunity for the high net worth individuals to lessen their woes. There are also others who made hay when the stock tumbled. Besides, the equity dilution is expected to be at around 6%, while nothing has changed on the earnings front. So long-term and short-term valuation parameters remain unchanged -- a lot of potential based on little delivery.

A section of investors believes that even this bonus issue move, which cost Anil Ambani Rs 5,000 crore, is not that significant if one considers the gains that he made, post-listing, since the valuation is now Rs 75,000 crore. Fundamentally, the power industry is unique, because there is a fixed return on equity applicable for projects. When plants reach optimum capacity, the earnings growth is limited to the power generating capacity at best.

Contributed by Akash Joshi