PSBs, pvt peers price earnings ratios decline

Written by Pradip Kumar Dey | Mumbai | Updated: Mar 3 2009, 05:51am hrs
The price earnings ratio of private as well as public sector banks on February 25, 2009, at an aggregate level, showed a decline over February 25, 2008 levels.

However, private banks' price earnings ratio was higher than that of public sector banks (PSBs) on February 25, 2009. A comparison between 22 PSBs and 17 private banks operating in the country, all profit making, shows this.

"Private banks like ICICI Bank, Kotak Mahindra Bank and HDFC Bank are rapidly increasing their asset base every year vis--vis public sector banks.

Hence, they enjoy much higher price earnings ratio," said an analyst from a broking firm.

A significant decline has been witnessed in Bankex stocks during the period as well. The price earnings ratio of Bankex, on February 25, 2009, decreased by 13.06 points to 6.96, compared with 20.02 last year.

Market cap of Bankex during the study period declined 54% to Rs 2.22 lakh crore from last year's Rs 4.83 lakh crore.

The aggregate market capital of 22 public sector banks decreased 50.2%, from Rs 2.83 lakh crore on February 25, 2008, to Rs 1.41 lakh crore on February 25, 2009.

Their four quarters' trailing net profit increased 25.9% during the study period, decreasing price earnings ratio from 12.11 to 4.78.

This is significant, since it shows that with higher profit growth, public sector banks have failed to increase their price earnings ratio. Top three PSBs in terms of price earnings ratio on February 25, 2009 are SBI, Vijaya Bank and Bank of Baroda.

The market cap of private sector banks, on the other hand, declined 61.8% during the study period. The trailing net profit, however, increased 25.4% to Rs 10,536 crore. The price earnings ratio decreased from 33.69 on February 25, 2008 to 10.26 on February 25, 2009.

A significant decrease in the ratio was seen in the case of HDFC Bank; it slipped from 41.37 to 17.63. The price earnings ratio of ICICI Bank decreased from 32.24 to 9.1 during the study period.

The top three private banks, in terms of price earnings ratio, on February 25, 2009, were Kotak Mahindra Bank, HDFC Bank and IndusInd Bank.

Among public sector banks, IDBI Bank showed a significant decline in the ratio. It decreased from 11.94 to 4.52. For SBI, it decreased from 21.31 to 7.98.

The figures make it clear that banks have been unable to win investor confidence, despite a better profit performance.