@Prasanth_Kothuri
Its not just book value regards cub. Think of it this way… Imo they are as “safe” as a blue chip bank regards frauds as any of the large banks in the world based on their long standing history. Im not sure about banks abroad but book value is a safe parameter to judge banks/financial institutes in india.
Usually they fall into buckets(note that im just typing short overly simplified notes and not in detail since the post is going to be long as it is)
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Banks like hdfc with 10 to 15 percent growth and long infinite runways and perceived trust get a 2.5 to 3.5 multiple
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HFCs like gruh finance(which was almost a monopoly back then) got the high 8 to 10 multiples. Even a year ago hfcs were trading at 7+ multiples but have cooled down now to 3.5 to 4.5(aavas/aptus which ive invested in for my wifes pf during this downturn). They can grow at staggering rates of 30 plus for years in a country like india with crazy yields/nims unseen anywhere else in the world with low npas
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Well run Nbfcs with high yields like bajaj finance etc still get a huge book value multiple.
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Public sector banks get low multiples because noone trusts the book and any day there may be huge write offs bringing the stated book value down
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Fast growth/stable banks like idfc/axis etc with a 2.5 to 3 multiple.
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No growth struggling banks like dcb with a low multiple
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And then you have small to medium sized banks like CUB which have perceived trust(100 years) and are conservative with their growth(conservative is good when lending). These are in that grey zone… the market doesnt know what to price its multiple at in the short term due to temporary issues and they are worried about book degrading. Imo this is where money can be made for a simple reason… once the temporary issues get resolved and the bank can afford to get slightly agressive(currently they have basically slowed their loans and leverage is near lows) i can see market perception changing. Imagine its FY26… Covid issues are cleared and npas inch down to pre covid. Bank is already working on better digitization and npa recognition so all the noise goes away. Leverage goes up and hence bank grows at higher than even their usual 15 percent a year to make up for a flat couple of years. Then you have optionalities like new geographies and products to track(businesses are ever evolving) and perceived market trust due to being profitable for decades(and no immediate danger of going bust due to their innate conservatism). I would pay a multiple of atleast 2.5 for a bank like that. And while i understand that there are high growth banks/institutes in the buckets above that can be chased i prefer low risk with high upside bets instead. If the banks/institutes above hit a pothole and growth slows to under 20 percent theres a chance for a derating. Im placing my bet knowing that the derating is already here(maybe another 10 percent down) and all of the optionalities above could lead to a re rating and growth over the next 5 years.
Note that i could be wrong and this may not be a home run like laurus etc… but as things stand its a low risk, pain in the short term, high upside over the medium term ie 5 year bet for me. Also, i love tracking lending institutes and so its in my circle of competence. This could go wrong in many ways ie npas could inch higher/geographical risk/competition has a leg up last few years/treasury gains will be lower hitting quarterly profits etc… but at current prices the pain wouldnt be too much
Note that i dont track banks abroad but im assuming low yields/nims/low growth in a developed almost fully banked country vs india where its the exact opposite would lead to low price multiples basis book
Disc: Also heavily invested in idfc + idfc first and ugro capital. Also invested in aptus+aavas(70:30) via my wifes portfolio. Not a sebi advisor. I understand there is an element of hope investing above… but there is a method to the madness too and its not just what goes down must come up
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