Tuesday, July 10, 2012

H D F C Bank Ltd.

H D F C Bank Ltd.

H D F C Bank Ltd.

Learner Assignment - Data, Information, News, Analysis and Valuation

Data and News Relevant for analysis and valuation of the company will be given in this knol as a part of learning effort by students of investment analysis, security analysis and equity research courses. The information is meant for demonstrating the application of textbook principles by learners only. It is not for commercial decision making by investors. Investors are advised to contact and consult registered investment advisors only.

Assignment of Vidushi Aggarwal

PGDIE-38, NITIE

2008-2010

 

HDFC Bank

 

FINANCIAL RESULT

 

(1) Quaterly Results

 

Quarterly Results
------------------- in Rs. Cr. -------------------
 
Dec '07
Mar '08
Jun '08
Sep '08
Dec '08
Sales Turnover
2,726.90
2,956.18
3,621.73
3,991.21
4,468.50
Other Income
678.89
549.34
593.42
643.11
939.39
Total Income
3,405.79
3,505.52
4,215.15
4,634.32
5,407.89
Total Expenses
1,473.25
1,567.88
1,633.85
1,732.74
1,992.35
Operating Profit
1,253.65
1,388.30
1,987.88
2,258.47
2,476.15
Gross Profit
1,932.54
1,937.64
2,581.30
2,901.58
3,415.54
Interest
1,289.32
1,314.08
1,898.26
2,124.76
2,489.25
PBDT
643.22
623.56
683.04
776.82
926.29
PBT
643.22
623.56
683.04
776.82
926.29
Tax
213.86
152.45
218.69
248.84
304.55
Net Profit
429.36
471.11
464.35
527.98
621.74
Earnings Per Share
12.13
13.29
10.94
12.42
14.62
Equity
354.08
354.43
424.62
425.03
425.14
Face Value
10.00
10.00
10.00
10.00
10.00
 
Source : Asian CERC
 
 

(2) Half-yearly Results

 
Half Yearly Results ------------------- in Rs. Cr. -------------------
Sep '06 Mar '07 Sep '07 Mar '08 Sep '08
6 mths 6 mths 6 mths 6 mths 6 mths
Sales Turnover 3,139.95 3,749.07 4,488.64 5,683.08 7,612.94
Other Income 748.50 767.73 998.20 1,228.23 1,236.53
Total Income 3,888.45 4,516.80 5,486.84 6,911.31 8,849.47
Total Expenses 1,701.43 1,885.62 2,189.27 3,041.13 3,366.59
Operating Profit 1,438.52 1,863.45 2,299.37 2,641.95 4,246.35
Gross Profit 2,187.02 2,631.18 3,297.57 3,870.18 5,482.88
Interest 1,476.72 1,702.73 2,283.72 2,603.40 4,023.02
PBDT 710.30 928.45 1013.85 1266.78 1459.86
PBT 710.30 928.45 1013.85 1266.78 1459.86
Tax 208.06 289.24 324.14 366.31 467.53
Net Profit 502.24 639.21 689.71 900.47 992.33
Earnings Per Share(Rs) 15.98 20.01 19.51 25.41 23.35
Equity 314.37 319.39 353.45 354.43 425.03
Face Value(Rs) 10.00 10.00 10.00 10.00 10.00

http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/hdfcbank/02/24/halfyearly/marketprice/HDF01

 

(3) Annual Results

Yearly Results
------------------- in Rs. Cr. -------------------
 
Mar '04
Mar '05
Mar '06
Mar '07
Mar '08
Sales Turnover
2,548.93
3,093.49
4,475.34
6,889.02
10,115.00
Other Income
480.03
651.34
1,123.98
1,516.23
2,283.15
Total Income
3,028.96
3,744.83
5,599.32
8,405.25
12,398.15
Total Expenses
1,098.95
1,450.33
2,416.31
3,587.05
5,230.40
Operating Profit
1,449.98
1,643.16
2,059.03
3,301.97
4,884.60
Gross Profit
1,930.01
2,294.50
3,183.01
4,818.20
7,167.75
Interest
1,211.05
1,315.56
1,929.50
3,179.45
4,887.12
PBDT
718.96
978.94
1,253.51
1,638.75
2,280.63
PBT
718.96
978.94
1,253.51
1,638.75
2,280.63
Tax
209.46
313.38
382.73
497.30
690.45
Net Profit
509.50
665.56
870.78
1,141.45
1,590.18
Earnings Per Share
17.89
21.48
27.81
35.74
44.87
Equity
284.79
309.88
313.14
319.39
354.43
Reserves
2,407.09
--
4,986.39
6,113.76
1,142.80
Face Value
10.00
10.00
10.00
10.00
10.00
 
Source : Asian CERC
 
 

AWARDS:

 

  • Business India declares our Bank the 'Best Bank 2008'.

  • HDFC Bank chosen as one of Asia Pacific’s best 50 companies by Forbes magazine.

 
 

BACKGROUND INFORMATION:

 

a)   Board of Directors

 

Chairman                     Mr. Jagdish Capoor,       
Managing Director      Mr. Aditya Puri,              
Executive Director       Mr. Harish Engineer,     
Executive Director       Mr. Paresh Sukthankar, 
 
Directors :
Mr Keki Mistry                 
Mr. Vineet Jain
Mrs.Renu Karnad
Mr. Arvind Pande           
Mr. Ashim Samanta
Mr. C. M. Vasudev
Mr. Gautam Divan
Dr. Pandit Palande
Mr. Sanjay Dongre, Executive Vice President (Legal) & Company Secretary
 
 
 

b) Profile

 

  • HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets.

  • HDFC Bank was incorporated in August 1994, and, currently has a nationwide network of 1412 Branches and 2890 ATM's in 528 Indian towns and cities.

  • Deals in: Personal Banking, NRI Banking, Wholesale Banking

  • The Authorised capital of HDFC Bank is Rs550 crore (Rs5.5 billion).

  • The paid-up capital is Rs424.6 crore (Rs.4.2 billion)

The HDFC Group holds 19.4% of the bank's equity and about 17.6% of the equity is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue).  Roughly 28% of the equity is held by Foreign Institutional Investors (FIIs) and the bank has about 570,000 shareholders. (http://www.hdfcbank.com/aboutus/general/capital_structure.htm)
 
 

NEWS

 

  • Aditya Puri is CNN-IBN Indian of the Year (Business)
  • Karvy Stock Broking has rated HDFC Bank as an outperformer with a target price of Rs 1092 in its January 16, 2009 research report.

 

      

 ANALYSIS

 

1. Graham-Rao Method

 

Divident History 

 

Period

% Dividend

Dividend

  Mar 1999 

13

1.3

  Mar 2000

16

1.6

  Mar 2001 

20

2

  Mar 2002

25

2.5

  Mar 2003 

30

3

  Mar 2004 

35

3.5

  Mar 2005 

45

4.5

  Mar 2006 

55

5.5

  Mar 2007 

70

7

  Mar 2008 

85

8.5

 
 

S. N.

Fin. Yr.

Face Val.

Equity Share

Shares

PAT

EPS

Adjust. Factor

Adj. EPS

 

 

Rs.

Rs. Crore

No.s

Rs. Lacs

Rs. Crore

 

 

1

1998-99

10

200

200000000

82,40

4.12

0.589428766

2.428446515

2

1999-00

10

243.27

243278261

 120,04

5.93

0.716976026

4.251667833

3

2000-01

10

243.59

243596261

 210,12

8.64

0.716976026

6.194672862

4

2001-02

10

281.37

281374613

297,04

11.01

0.828168917

9.118139781

5

2002-03

10

282.04

282045713

 387,60

13.75

0.828168917

11.38732262

6

2003-04

10

284.79

284791713

 509,50

17.95

0.828168917

14.86563207

7

2004-05

10

309.88

309875308

 665,56

22.92

0.901130602

20.6539134

8

2005-06

10

313.14

313142408

 870,78

27.92

0.901130602

25.15956641

9

2006-07

10

319.39

319389608

 1,141,45

36.29

0.901130602

32.70202954

10

2007-08

10

354.43

354432096

 1,590,18

46.22

1

46.22

 

Seven yr Average

22.8716949

Avg/Beginning

2.5083729

Growth rate

29.80%

Fair P/E

20

Fair value

457.4338979

 
This Fair Value indicates the Long-Run Stable price of HDFC Bank share. If the current market Price is less than this fair value one should purchase the share.
 
 

2. Divident Discount Model

 

1.  Required Rate of Return:

Risk Free Rate of Return

NRFR = One year T-Bill Yield

Current (March’09) = 4.60%   (Source: http://stcipd.com/UserFiles/File/WeeklyReportFeb02.pdf)

 Risk Premium

Market Rate of Return ( Rm ) = 10%

Beta for HDFC Bank = 0.85

For individual companies, 

Required rate of return = RFR + Beta*Risk Premium, i.e. 4.6% + Beta*10%

                                    = 4.6 + 0.853 * 10

                                     =  13.1%

 

2.   Growth Rate:

     Step1: Divident Growth rate is calculated

 

Period

% Dividend

Dividend

  Mar 1999 

13

1.3

  Mar 2000

16

1.6

  Mar 2001 

20

2

  Mar 2002

25

2.5

  Mar 2003 

30

3

  Mar 2004 

35

3.5

  Mar 2005 

45

4.5

  Mar 2006 

55

5.5

  Mar 2007 

70

7

  Mar 2008 

85

8.5

 

Seven yr Avg

4.928571

Avg/Beginning

1.971429

Growth rate

22.20%

Step2: As the growth rate calculated above is greater than "Required Rate of Return (k) = 13.1%" hence we can not apply Infinite growth DDM model above. So, Assuming that this growth rate will continue for 6 yrss & then subsequently decreases to a Mature Growth rate of 6%, we will get:

Growth rates (%)

1st 6 yr :

22

2nd 6 yr :

11

6 yr onwards :

6

 

3.   Applying the Model:

The value of a share of common stock is the present value of all future dividends as:

 

Where:

Vj = value of common stock j

Dt = dividend during time period t

k = required rate of return on stock j

 

S. No.

Year

Growth

Dividend

Discounting Factor

Discounted Dividend

0

2008

22

8.5

1

 

1

2009

22

10.37

0.88

9.1256

2

2010

22

12.65

0.78

9.867

3

2011

22

15.43

0.69

10.6467

4

2012

22

18.82

0.61

11.4802

5

2013

22

22.96

0.54

12.3984

6

2014

11

28.01

0.48

13.4448

7

2015

11

31.09

0.42

13.0578

8

2016

11

34.51

0.37

12.7687

9

2017

11

38.31

0.33

12.6423

10

2018

11

42.52

0.29

12.3308

11

2019

11

47.2

0.26

12.272

12

2020

6

52.39

0.23

12.0497

 

 

 

 

Total

142.084

Applying Infinite DDM for 12th year onwards with a mature growth rate of 6%.  
Infinite Series Summation After 12th year

= 782.1605634

 Total = 142.084 + 782.16
          = 924.24
Therefore for 10 year divident data and required discount rates above, equity valuation (Fair Value) of HDFC Bank according to DDM comes out to be: Rs. 924.24.
 
Interpretation / Analysis of Result
It is considered that the market stock price will ultimately stabilize to its fair value. Hence, following are the decision rules for the HDFC Stock:
  • If the current market value of the stock is less than fair value i.e 924.24 then purchase the stock.
    If the current market value of the stock is greater than fair value i.e 924.24 then sell the stock.
 
 

Comments

Mcx Tips

I really appreciate your post and you explain each and every point very well.Thanks for sharing this information.And I'll love to read your next post too.

Regards:- http://www.mcxbhavishya.com/

mcx tips - 10 Oct 2011

visited

7.8.2009

value of disounted ddm is very low (6.794). It is totally wrong. Check and correct it.

You also see your batchmates work. Then you can see their errors and recognize your errors

Narayana Rao - 07 Aug 2009
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