Rating Change #1
HDFC Bank Ltd (HDB) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, impressive record of earnings per share growth, expanding profit margins and compelling growth in net income. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.
Highlights from the ratings report include:
- The revenue growth greatly exceeded the industry average of 2.5%. Since the same quarter one year prior, revenues rose by 37.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market, HDFC BANK LTD's return on equity exceeds that of both the industry average and the S&P 500.
- HDFC BANK LTD has improved earnings per share by 38.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HDFC BANK LTD increased its bottom line by earning $1.15 versus $0.91 in the prior year. This year, the market expects an improvement in earnings ($1.23 versus $1.15).
- The gross profit margin for HDFC BANK LTD is rather high; currently it is at 55.90%. Regardless of HDB's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, HDB's net profit margin of 15.30% is significantly lower than the same period one year prior.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Commercial Banks industry average, but is greater than that of the S&P 500. The net income increased by 39.1% when compared to the same quarter one year prior, rising from $174.90 million to $243.33 million.
HDFC Bank Limited provides banking and financial services to individuals and businesses in India. The company offers savings, current, and demat accounts, as well as accepts fixed and recurring deposits. The company has a P/E ratio of 24.4, above the average banking industry P/E ratio of 21.8 and above the S&P 500 P/E ratio of 17.7. HDFC has a market cap of $22.11 billion and is part of the financial sector and banking industry. Shares are up 11.8% year to date as of the close of trading on Thursday.You can view the full HDFC Ratings Report or get investment ideas from our investment research center. -- Reported by Kevin Baker in Jupiter, Fla.
For additional Investment Research check out our Ratings Research Center. For all other upgrades and downgrades made by TheStreet Ratings Model today check out our upgrades and downgrades list.
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