HDFC bank traded at 4 times book because the profit growth and RoE were 20% in the past. But if an investor has to take a conservative estimate of book value increase of only Rs70 per share, then it leads to a profit growth of 0% and a decrease in RoE of at least 3% every year (15% in FY25, 12% in FY26 and so on).
BHEL was consistently delivering RoE of 20% and hence traded at P/B=9 till 2010 but then between 2016 and 2023, it traded at P/B of 0.6-0.9 when fundamentals changed.
So if HDFC bank profit growth is mid single digit and RoE is 10-12% (I am not of the view that HDFC bank will go this way in the next 10 yrs), then it will trade at 1.2-1.5 times book like Bank of America.
Hence such conservative estimate of EPS should also change the Price to book multiple assigned to the stock. It is mandatory for HDFC bank (or any other bank) to maintain a EPS growth rate of 10% to even trade at 2.5Xbook (assuming NPA remains same).
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