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Message Icon Topic: ICICI Bank vs. HDFC Bank. Post Reply Post New Topic
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sajanvm
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Quote sajanvm Replybullet Topic: ICICI Bank vs. HDFC Bank.
    Posted: 19/Jul/2006 at 9:54am

The lending business of banks is largely immune to a rising interest rate scenario. Ofcourse, if interest rates go up very much, then credit offtake will go down. But I think we are far away from that scenario.

Banks which have a large percentage of floating rate loans (issued when their borrowing costs were much lower) should do very well ? In particular, ICICI bank looks good. ICICI also has many valuable subsidiaries - value will get unlocked over a period of time.
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Quote basant Replybullet Posted: 19/Jul/2006 at 10:28am
Yes, The Indian Retail loan to GDP ratio is still very low so consumers will not think twice before signing for further credit and India is still a very much a growing consumer story. What could be very interesting is that many Banks are available at less then adjusted Book value. The money managers at some of these have also become smart. As you say over the past few months they have reallocated their asset portfolio in favour of HTM. Take a look at these figures:
 
Bank           Adj Book Value (Fy07)*   C.M.P                 Remarks
ICICI                          264                467     Huge value in Lombard,MF
S.BI                            709                694     Great play on India
HDFC Bank                 212                697      Boring Co. that provides
                                                                    consistent growth       
Bank of Baroda          233                176       Changing its face
PNB                            333                304   
 
                                                              *Consensus Brokerage estimates
 
The above data shows that in case of some banks we are getting something at lesser then what it is worth.I am not sure when but out of these HDFC Bank ICICI and BOB would start attracting buying at some point in time. And that point would be when the general public thinks that these stocks are finished. They have already fallen by more then 30% each from the peak.One need not react to Banking company astocks as  one does in the US economy where mortgages are slammed down for each percenatage rise in interest rates. The sheer under penetration of consumer loans might make things more easy then it appears.But for many of the banks like a Uco bank or an UBI there could be trouble since their retail portfolio is miniscule compared to their over all lending.
 


Edited by basant - 23/Jul/2006 at 10:15pm
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Quote prosperity Replybullet Posted: 06/Sep/2006 at 11:18pm
I fail to understand why don't u value ICICI Bank over HDFC Bank...
 
Both have excellent people @ the top...
Both are leaders in housing loan segment ....
Both have multiple avenues of revenues/profit - Insurance, AMC, etc. etc...
 
Advantage of ICICI over HDFC-
 
1) Reach of ICICI ATMS and ICICI Bank is very high
2) PE is lower than HDFC
 
So, what do u say ?
 
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Quote basant Replybullet Posted: 06/Sep/2006 at 11:35pm
Both HDFC Bank and ICICI are great banks but as an investor I would prefer HDFC BANk because I am sure that will grow its EPS by 30% CAAGR. the basic differences between the valuation of the two banks are: 
 
1) ICICI has been diluting equity so while the Net profit growth looks good the EPS growth has not been all that great hence the lower PE.
 
2) HDFC bank has a niche market whereas ICICI is all over theplace. In times of sluggish demand ICICI will face the heat because it camnnot beat the market it is itself the market.
 
3) HDFC Bank has an unmatched track record of growing at 30% for the last 10 years while ICICI has seen some swings in growth.
 
4) The value of subsidiaries in ICIC Bank is assumed to be worth Rs 150 per share.
 
5) On a price to adj book basis ICICI trades at 2 times while HDFC Bank trades at 4.5 times.
 
 


Edited by basant - 06/Sep/2006 at 11:42pm
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Quote prosperity Replybullet Posted: 06/Sep/2006 at 11:57pm
Agree that Diluting equity is bad ...
 
But ICICI being all over the place is VERY GOOD and i consider it as positive - this is what Peter Lynch said right ? 
 
ICICI earns a good amount by its high fee based income
Icicidirect is the leading online brokerage portal
 
The scale comes from innovative products ...
 
99.9 % Gold Scheme is one example of that
And ICICI has been doing it successfully for past 3 yrs...
 
its first mover in so many things ... its like a first habit to them...
 
8AM to 8 PM Mon-Sat ... isn't that ultra customer service
 
first to transfer funds all across india in minutes ...
 
so many firsts... first to have no annual fees in credit cards, first to have loan against property, against car, against NSC, etc....
 
and first to ask RBI to submit bid for UWB...
 
And see the clean action -
On Saturday, RBI told about UWB miseries...
On Sunday, ICICI informed the exchanges about the board meet on Monday
On Monday, before 11 - it became the first bank to formally tell RBI about UWB takeover bid...
 
And i personally like K V Kamath over Deepak Parikh ...  and u only said that IIM folks at top level can do wonders to the company .. K V Kamath is from IIM Ahmedabad...
 
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Quote Ajith Replybullet Posted: 07/Sep/2006 at 12:23pm
I do not know about returns but 10 years from now, I expect ICICI to be the leading global bank from India.Ofcourse, as long as Deepak Parekh is at the helm of affairs HDFC group will be the classiest financial outfit in India.
  


Edited by Ajith - 07/Sep/2006 at 12:25pm
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Quote basant Replybullet Posted: 07/Sep/2006 at 12:54pm

But if a Bank dilutes equity by making private placements the top line and the bottomline grows but the EPS does not (to that extent) so stock prices could underperform considering the kind of growth the bank sees. In HDFC Bank's case they are growing only by what they can manage.

WHile I would put both of them in the top league one for vision and expansion and the other for efficient use of capital don't you think that a shareholder  would be concerned where  money grows the most (It is diffferent from a concept of looking at the businesss and not the stock)and there HDFC bank with its superior ratios and efficient use of capital could deliver more even while ICICI bank goes out to become a global bank.

 

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Quote Ajith Replybullet Posted: 07/Sep/2006 at 2:08pm
Frequent outside(other than exising)equity dilution is something I  detest as it affects  returns(Karur came out with frequent rights).But if I remember correctly ICICI has a global business of billions of dollars and if they can manage growth-global and domestic, returns will be phenomenal and Rahul Bajaj and Temasek are unlikely to encourage equity dilution but I have no clue on the technicalities of capital adequacy fora growth-hungry bank.HDFC  is what we pure investors would always prefer instinctively 30 percent safe and good growth rate being more or less assured.
 Also we tend to back the smaller companies.When the markets tanked I
used to tell anyone who asked  Reliance is the safest bet ( Minimum risk)at 910 but I did not buy it myself.Will these megacorps become supermegacorps and give outsized returns as well?


Edited by Ajith - 07/Sep/2006 at 2:23pm
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