Wow this post has given me a very good understanding how the valuation works for banks, it’s part of past track records, why hdfcbk gets a pb ratio of 3-6.
So I guess market will give it a good PB ratio once it’s convinced about the asset quality of the bank for long term. So inspite it hitting a 15% ROE unless market is convinced of it’s underwriting quality over long term it won’t get premium valuation. But if banks like Bandhan Bank can get a pb ratio of 2 I guess IDFC first bank also deserves a PB ratio of 2 because it’s loans are less risky compared to Bandhan, provided that IDFC hits 15% ROE.
Disclosure: Invested at average price of 36 so has valuation as margin of safety.
Subscribe To Our Free Newsletter |