HDFC Bank is one of the leading private sector bank with biggest network of its branches and ATM machine. They are also one of the leaders in the asset management business and has a track record of growing their profits by 30% every year.

But from last eight quarters they are facing a lot competition and are growing their net profits by 21%. Looking at the recent first half of the 2016, HDFC Bank’s total income has grown by 25% and same time cost of their funds jumped up by 27% resulting into a growth of 21% in their earnings compare to first half of 2015.

Deposits have gone up by 12% and their loan book had grown by 15%. Overall their balance sheet had seen a growth of 12%. The NPA’s are also under control and we think that it is in good shape to keep growing its earnings by this pace for another couple of years. We do also believe that once interest rates start rolling down then there is a good probability that the cost of funds will also go down.

At the moment most of the investors are rebalancing their valuations calculations with the new earnings growth rate. HDFC Bank results had met most of the analysts’ earnings expectation and we do think that it is trading at very expensive valuations today.

But if you are a long term investor and your rate of return is less than what the expected earnings growth are than you might find them trading at cheap price today.

We do own HDFC Bank in our portfolio.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds.