NEW YORK ( TheStreet) -- HDFC Bank (NYSE: 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, increase in stock price during the past year, impressive record of earnings per share growth and expanding profit margins. 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 gross profit margin for HDFC BANK LTD is rather high; currently it is at 62.30%. 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 17.00% is significantly lower than the same period one year prior.
- HDFC BANK LTD has improved earnings per share by 22.0% 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, HDFC BANK LTD increased its bottom line by earning $5.75 versus $4.55 in the prior year. For the next year, the market is expecting a contraction of 80.0% in earnings ($1.15 versus $5.75).
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- 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.
- The revenue growth came in higher than the industry average of 1.1%. Since the same quarter one year prior, revenues rose by 27.0%. Growth in the company's revenue appears to have helped boost the earnings per share.