Breakout seen in Indian Bank

Today, Indian bank closed 6% up. Is this a breakout in the counter? This bank had secured rank 1 in the valuation data that I had published last week.

In the private banking space I like Karur vysya and JK Bank. Both these banks have shown aggressive growth in the past three years and are undervalued when compared to say a Yes Bank.

PSU banks valuation data as on March 31, 2010

As, promised I am sharing the spreadsheet, where I have tried to value the different PSU banks with an asset base of over 20,000 crore(with some exceptions). This spreadsheet is the first draft. There is still some work that needs to be done on this. Once I complete the valuation of the PSU banks I will turn over to the smaller private banks(since they are undervalued and have the potential to become the next HDFC).

Please note the following before you open the sheet:

1. As mentioned before this is not a fool proof method, as I am not assigning weights to the ranks.
2. I have not included the June, 2010 results, as I was more inclined on valuing the bank on their performance for the whole financial year.
3. I have not included the growth of the banks for the last few years. Therefore even though the sheet might show Indian Bank to be the winner, there is a very high probability that a PNB has been growing more aggressively.

Please find the link below
Relative Valuation - PSU Banks.

Who is the winner amongst PSU banks?

As promised, I have been researching PSU banks(large cap) for one week now. I am almost done with the research, and couldn't wait to share the results with you. Seems like Indian Bank and PNB have emerged as the top contenders. This is based on their financial position as on March 31, 2010. I have not included the June 2010 results in my analysis. Will do so in the coming weeks.

Let me explain how I have conducted my research.

1. Made a list of all the large cap banks, with an asset base of more than 20,000 crores(with some exceptions though).
2. Retrieved each banks annual report from the Internet.
3. Collated the data and calculated the respective ratios.
4. Assigned ranks based on the numbers.

I must admit that this approach has an inefficiency of not assigning weights to each ratio. But we will discuss the pros and cons in the coming weeks. I will also be sharing the complete data by next week.

Started Valuing PSU banks

As promised, I have started the process of valuing the PSU banks in India. Listed below is the strategy that I am going to adopt. This time I will be sticking to the process of relative valuation.

1. I will be selecting around 8 banks based on their market cap and asset base. I wont be selecting very small banks.

Valuing a Bank

I have always believed that if an economy grows, the banking system has to grow. Or you can say that a prospering banking system implies a prospering economy. The housing burst in the USA, which propelled the world to a slowdown is a testimony to the importance of a prudent banking system. As far as India is concerned, we have world class banks in HDFC and ICICI along with Axis and Yes Bank, which have the potential to be right at the top. But, the major financing to the country comes from the PSU banks, which are not as structured and efficient as the private players mentioned above. As far as the PSU banks are concerned, the picture today is much better than what it was in the begining of the millennium. Reforms from RBI, such as maintaining a 10% CAR(capital adequacy ratio) and maintaining a provision for the NPA's, along with the operational efficiency demonstrated by the PSU's have paved the way for these banks to be the best in the world.