At 4.5 times book value, Aditya Puri’s colossus beats even biggies like BoA and BNP Paribas
CRYSTAL BARRETTO ET INTELLIGENCE GROUP
For most banks across the globe, the past five years have been a battle for survival with many falling by the wayside and others becoming wards of the state. In late 2008, India was also not immune with ICICI Bank, the nation’s second largest, experiencing some jitters. But one lender which has remained immune to the troubles swirling around the sector is HDFC Bank.
With a market capitalisation of . 1,38,469 crore (or $24.88 billion) on Tuesday, HDFC Bank has surpassed the biggest lender in the nation — State Bank of India — which has deposits that are almost six times that of the private lender.
The bank, which has been helmed during the 16 years of its existence by Aditya Puri, a former Citi banker who aspires to establish India’s Wells Fargo, where billionaire Warren Buffett takes pride in being a shareholder, has proved that it is not just size that matters, but how much every penny earns.
At 4.5 times book value, HDFC Bank is probably the most expensive bank in the world while giants like Bank of America and French lender BNP Paribas trade at less than one time their book value.
Investors are not paying a lavish premium for nothing. In a world where even JP Morgan chief executive Jamie Dimon proved to be vulnerable with almost $6 billion of losses in derivative trading, Puri has delivered what could be any bank chief’s dream — 20 quarters of at least 30% increase in earnings. All this without any Dimon-size missteps. HDFC Bank, founded in 1994, has grown its balance sheet 33 times since then. Its net interest margin, a key measure of profitability for banks, stands at 4% and is the highest in the global banking industry. Earnings per share, or EPS, have grown at a compounded annual rate of 25% over the past five years, while net interest income — the difference between interest earned and paid has grown at 29% — again the highest among global banks on both these counts. Even in terms of return on assets, HDFC Bank scores high with 1.69% return compared with most global banks which give less than one percent on an average. It gives returns on equity of 18.8%, slightly lower than what its Chinese counterparts — Industrial and Commercial Bank of China and Agricultural Bank of China — offer, but way superior to Citi or JP Morgan which offer 6-10%.