Private banks pip PSBs in PE ratio

Written by Pradip Kumar Dey | FE Research Bureau | Updated: Aug 29 2007, 05:20am hrs
Price to earning (P/E) ratios of private sector banks continue to outperform public sector banks. A comparison between 20 public sector banks operating in the country and 16 private banks, all profit making, shows private sector banks performed better in terms of P/E on August 28, 2007.

In the case of private sector banks, P/E at aggregate level showed an increase on August 28, 2007, against that of August 28, 2006 and in the case of public sector banks, P/E also showed a nominalduring the same period.

According to Anantpadmanabhan Sarma, excutive vice presindent, IDBI Capital, the difference could be due to the investment by private banks in various subsidiaries like broking arms, insurance and other such financial products companies.

However, a major jump has been witnessed in Bankex stocks. P/E of Bankex jumped by 2.17 points to 15.48 times. This compares with 13.31 times last year.

Market cap of Bankex during the study period gained 47.4% to Rs 3,35,500 crore from last years Rs 2,27,630 crore.

An analyst from a broking firm said, The high proportion of fee income made the private sector banks more attractive thus they get a higher discounts. But we feel that in the coming quarters the PSBs will catch up.

The aggregate market capital of 20 public sector banks have increased by 40.3% from Rs 1,33,495 crore on August 28, 2006 to Rs 1,87,303 crore on August 28, 2007. Their four quarters trailing net profit increased by 28.1% during the study period, raising the P/E ratio from 9.07 on August 28, 2006 to 9.93 on August 28, 2007. With higher market capital growth, public sector banks have succeeded in raising their P/E.

Private sector banks, on the other hand, has achieved a 56.3% growth in market capital on August 28, 2007, but the trailing net profit increased by 31.6% to Rs 7,086 crore.The P/E ratio has increased from 22.33 on August 28, 2006 to 26.53 on August 28, 2007. Significant increase in P/E ratio was seen in the case of Kotak Mahindra Bank. The P/E ratio of Kotak Mahindra Bank increased from 83.09 on August 28, 2006 to 137.99 on August 28, 2007. In ICICI Bank, the P/E increased from 20.18 to 23.86 on August 28, 2007.

Among the public sector banks, Dena Bank showed a significant improvement in the P/E. The price to earning ratio rose from 2.67 on August 28, 2006, to 6.86 on August 28, 2007. In the case of SBI, the P/E improved from 12.14 to 15.77.