Axis Bank

Wrap Up 2013-14 – Part Two: Banking Sector

Many predictions are floating around about where the market will be in the next five years. The honest answer from my end is “I don’t know”. My job is not to predict the market or the prices of the individual stocks. You cannot predict the ‘uncertainty’ and markets are uncertain every day and every […]

Reflection….

I have been travelling in India from past 4 weeks and will be travelling back to Australia this week. The one very frequent exercise we do at Value Operations is to reflect and measure our goals and achievements we had regarding this trip.  We are under the process of doing that in our last […]

By |November 21st, 2013|Portfolio Point|0 Comments|

Can You beat Brokerage firms and professional investors…?

Here at Value Operations we are conducting an ongoing study of comparing investment portfolio recommended by major broking firms versus loosen A1 and A2 stocks bought at discount price to its intrinsic values.

Before getting into the plot, it is important to understand this is a hypothetical investment portfolio. In that regards it is not a collection of small high risk bets whose returns could easily rise. I will be very surprised to see high double digit returns by such an approach for that reason. Don’t forget it is easy to make returns of 50% on investment of one lac rupees but harder on hundred Crore or one thousand Crore rupees.

So we have imagined this scenario…

There are two brothers, where one lives in Banglore and another in Mumbai. Both of them inherited ten lakh rupees each from their parents and thought to invest that money into equity market. They also have a cousin who lives in Delhi and also invests in Equity market.

One of the two brothers who live in Banglore works in the IT sector and is working as a manager of one of the reputed IT Company. After inheriting ten lac rupees, he thought to invest them on an advice of Hedge Equities recommendation.

He already has a very busy schedule and travels a lot in relation to his work. While going through the recommendation he realised that Hedge Equities have also given a price target for each company. He found that many of the targets were in range of 20% – 30% range.

He did not wanted to trade frequently as he does not have time to regularly keep track of price in the market. So he decided to stick to those 10 companies for a year ignoring their targets and review the whole portfolio in next Christmas vacation.

Banglore Brother’s Portfolio:

Name

Date

Price

Shares Bought

Total amount invested

Axis Bank

30th Dec
  11

Rs 806.75

124

Rs 100,037.00

Syndicate Bank

30th Dec 11

Rs 68.50

1,448

Rs 99,188.00

Yes Bank

30th Dec 11

Rs 238.60

420

Rs 100,212.00

IDFC

30th Dec 11

Rs 91.75

1,090

Rs 100,007.50

Shriram Transport

30th Dec 11

Rs 419.40

238

Rs 99,817.20

L&T

30th Dec 11

Rs 995.10

100

Rs 100,505.10

Maruti Suzuki

30th Dec 11

Rs 920.05

109

Rs 100,285.45

Exide Industries

30th Dec 11

Rs105.05

952

Rs 100,007.60

BHEL

30th Dec 11

Rs 239

418

Rs 99,902.00

Guj state petronet

30th Dec 11

Rs77.85

1,285

Rs 100,037.25

Total

Rs 999,999.10

Cash

30th Dec 2011

Rs 0.90

On the other side his Mumbai brother has its own Accounting practice and has a good understanding of the working of the business. He follows well known brokerage firm advice in regards to his investments in Equities.

He also has a good time to do his own research but still prefers to take advice from brokerage firms before investing. As he is Accountant by profession, he had realised that trading frequently involves lot
of time, brokerage, taxes and anxiety which he finds it hard to tackle with in his day to day life.

After having a short conversation on phone with his Banglore brother, he also decided that he will invest ten lakh rupees for the long term.
He also made decision to ignore the brokerage targets as he is not investing for 20% -30% quick returns. But he also made decision to review his portfolio every quarter.

Mumbai Brother’s Portfolio:

Name

Date

Price

Shares Bought

Total amount invested

ICICI Bank

30th Dec
  11

Rs 684.60

146

Rs 99,951.60

Indusind Bank

30th Dec 11

Rs 225.35

444

Rs 100,055.40

HDFC

30th Dec 11

Rs 649.45

154

Rs 100,015.30

IDFC

30th Dec 11

Rs 91.75

1,092

Rs 100,191.00

IRB Infra

30th Dec 11

Rs 129.95

770

Rs 100,061.50

L&T

30th Dec 11

Rs 995.10

100

Rs 99,510.00

Bajaj Auto

30th Dec 11

Rs 1,592.80

63

Rs 100,346.40

Tata Motors

30th Dec 11

Rs 178.40

560

Rs 99,904.00

BHEL

30th Dec 11

Rs 239.00

418

Rs 99,902.00

Adani Ports

30th Dec 11

Rs 120.55

830

Rs 100,056.50

Total

Rs 999,993.70

Cash

30th Dec 2011

Rs 6.30

Both of our brothers had plans to celebrate New Year with their cousin who lives in Delhi. He is a public servant and works for government of India in foreign ministry.

Our Delhi brother also invests in Equity and currently he had saved ten lakh rupees and wants to invest that in the market for long term. He is a father of two month old daughter and has a plan to send her daughter to USA for her Degree and also spend lavishly on her wedding.

If her daughter today would have completed her high school studies and would like to go USA for higher studies, then to complete her graduation in USA will cost him approx $150,000 USD. He also has plans to spend five million rupees if her daughter got married today.

Currently he saves two lakh rupees every year, which he knows that it won’t help him to fulfil his plans for his daughter and he also has to think about his own retirement.

He has done some calculations and to fulfil his both dreams he has realised that he needs somewhere 30 million rupees in next 22 years. Today he has one million rupees, and he will have to invest them wisely and obtain a return of 17% per anum for next 22 years and keep reinvesting his returns.

Our Delhi brother believes in doing his own research and is happy to spend couple of hours every week in doing that. He is aware that he has a limited capital and is not willing to invest in any high risk companies. Same time he also wants to sleep in night and does not want to go through any anxiety.

So what he had decided is to take a very conservative approach and take time to build its portfolio as he wants to play this game for 22 years with limited capital. Our Delhi brother wants to stick with A1 and A2 companies and wants to invest with them when they are trading at discount.

Delhi Brother’s Portfolio:

Name

Date

Price

Shares Bought

Total investment

Fag Bearing

30th Dec 2011

Rs 1,046.70

95

Rs 99,436.50

Gandhi Spl Tubes

30th Dec 2011

Rs 124.95

800

Rs 99,960.00

LMW

30th Dec 2011

Rs 1,477.95

68

Rs 100,500.60

Amar Raja

30th Dec 2011

Rs 203

493

Rs 100,079.00

Cash

30th Dec 2011

Fixed term @

9%/anum

Rs 600,023.90

Total

30th Dec 2011

 

 

Rs 1,000,000.00

We will keep a track of these three portfolios as long as we can and want to help Delhi cousin achieve his dreams. In this exercise we also need your support as our Mumbai and Banglore brothers will need advice in regards to their portfolio.

We need angel advisers who are willing to adopt and track both brother’s portfolio.

Let’s look at quickly on how all the three portfolios have performed in their first quarter ending at 31st March 2012.

Banglore Brothers portfolio:

Name

Price

Shares Bought

Price @ 31st March
  12

Investment @ 31st
  March 2012

Axis Bank

Rs 806.75

124

Rs1,145.90

Rs 142,091.60

Syndicate Bank

Rs 68.50

1,448

Rs 111.05

Rs 160,800.40

Yes Bank

Rs 238.60

420

Rs 372.20

Rs 156,324.00

IDFC

Rs 91.75

1,090

Rs 135.10

Rs 147,259.00

Shriram Transport

Rs 419.40

238

Rs 598.50

Rs 142,443.00

L&T

Rs 995.10

100

Rs 1,306.85

Rs 130,685.00

Maruti Suzuki

Rs 920.05

109

Rs 1,349.10

Rs 147,051.90

Exide Industries

Rs105.05

952

Rs 148.90

Rs 141,752.80

BHEL

Rs 239

418

Rs 256.95

Rs 107,405.10

Guj state petronet

Rs77.85

1,285

Rs 76.35

Rs 98,109.75

Dividend received

 

Rs 1,136.96

Cash

Rs 0.92

Total

Rs 1,375,060.43

And

Mumbai Brothers portfolio:

 

 

Name

Price

Shares Bought

Price @ 31st March
  12

Investments @ 31st
  March 12

ICICI Bank

Rs 684.60

146

Rs 887.25

Rs 129,538.50

Indusind Bank

Rs 225.35

444

Rs 320.80

Rs 142,435.20

HDFC

Rs 649.45

154

Rs 673.60

Rs 103,734.40

IDFC

Rs 91.75

1,092

Rs 135.10

Rs 147,529.20

IRB Infra

Rs 129.95

770

Rs 186.25

Rs 143,412.50

L&T

Rs 995.10

100

Rs 1,306.85

Rs 130,685.00

Bajaj Auto

Rs 1,592.80

63

Rs 1,677.90

Rs 105,707.70

Tata Motors

Rs 178.40

560

Rs 275.70

Rs 154,392.00

By |April 21st, 2012|Research|15 Comments|

Should we do what Warren Buffett is doing?

 

People are talking about GFCII as Euro zone is unravelling; meanwhile Warren Buffett’s Berkshire Hathaway is accumulating American bank shares of Wells Fargo & Co.

Wells Fargo & Co is worlds 24th largest bank and Buffett has accumulated almost 9.7 million shares in three months to June 2011(we don’t have recent information because Berkshire requested and was granted a permission not to disclose stock specific information). Between 1st March and 30th June Wells Fargo (WFC) traded as high as $33 and low price of $27.

WFC currently trades at $25.65 and its book value is $26.1 per share. Paying a small discount to its book value for a bank that earns 10% return doesn’t make any sense to me and paying a premium to its book value is less so. But the fact remains that one of the best investor of our generation thinks it is ok to buy selective American banks in current situation. Is Buffett is taking right decision and will make big as Butch Cassidy did or will he be caught in value trap? Should you be doing the same as Buffett with Indian banks?

Wells Fargo is USA biggest home lender (think of SBI or HDFC Bank in India) and Berkshire is biggest shareholder of that business.

Now before heading ahead with my views towards Indian banks let me tell you there are many who would have different view and would not agree with me. Which is fair, we live in democratic country and everyone has a right to express their view. Let me welcome to all who have different views to share them over here on my blog and I give you all the freedom to express over here.

Broadly, the local banking system is very strong compare to American or European markets. But due to the tightening of monetary policy almost all of the banks have noticed a drop in their deposit growths and also in credit growth. This has resulted in almost single digit or almost flat growth in earnings.

Many consumers who are the customers of bank are leveraged heavily and a pain of increase in borrowing rates has reflected in their spending activities. Until and unless they feel that their debts are under control they will not spend aggressively. So that translates that balance sheet of banks won’t see growth for a while.

Globally, the interest to look at banking sector to invest is very least. The five biggest bank of America excluding Bank of America reported 8% growth in their profits. While in the UK 5 major banks reported half yearly profit growth of 11% that is halve of reported last year. Overall in Europe the largest ten banks saw their profits fall by 8%. Some observers suggest that present problem of Europe will not impact bank as badly as it did during financial crisis. This is because the European debt is not complex and the stress test had been conducted and reports have been released widely.

India has a very little exposure to European debts, once the monetary tightening is eased the growth of deposits and credit will increase and Indian banks are sitting at bright spot.

Globally, banks are targeting cost to income ratio to be less than 40%. Despite high cost associated with reengineering system and procedures to meet heightened regulatory environment.

Locally, our banks have reported acceptable half yearly profits considering a sluggish growth seen in banking sector. Growth has been achieved by improving net interest margin and bringing cost to income ratio down. Though provision for doubtful debt have been almost doubled by many of the banks last year, they are still maintaining that provision and looks they will relax as interest rates starts falling down.

Axis Bank:

HDFC Bank:

ICICI Bank:

Punjab National Bank:

State Bank of India:

Bank of Baroda:

 

 

Operating Ratio

Axis Bank

Hdfc Bank

ICICI Bank

Sep-11

Mar-11

Sep-11

Mar-11

Sep-11

Mar-11

Profits (Crore)

1862.67

3388

2284

3926

2835

5151

Net Interest Margin

2.98%

2.70%

3.67%

3.80%

2.23%

2.22%

Return on Equity

17%

19%

16%

17%

10%

10%

Return on Asset

1.49%

1.40%

1.45%

1.42%

1.29%

1.27%

Cost to Income Ratio

26.92%

39.45%

31.77%

45.36%

28.43%

33.17%

Book Value/Share*

528.85

462.77

121.55

545.43

506.52

478.31

Forecast EPS G (1 yrs)

6.00%

8.00%

6.00%

Market stats

market Cap (Crore)

41502.1

41502.1

108953.65

108953.7

90937.7

90937.7

Market price

1006.15

1006.15

465.7

465.7

788.85

788.85

Price change 1st Jan

-25.43%

-0.71

-0.71%

-31.06%

-31.06%

Price/earnings**

11.64

12.19

25.56

27.59

16.79

17.64

Price/Book Value

1.9

2.17

3.83

4.27*

1.56

1.65v

Operating Ratio

Punjab N Bank

SBIN

Bank of Baroda

 

Sep-11

Mar-11

Sep-11

Mar-11

Sep-11

Mar-11

Profits (Crore)

2310

4433

4394

7370.35

2199

4242

Net Interest Margin

3.26%

3.12%

3.24%

2.66%

2.51%

2.46%

Return on Equity

19%

By |November 17th, 2011|Research|15 Comments|