Question

Choose two companies in the same industry whose financial statements are available online. Complete several financial ratios for each company and compare them. What did your analysis tell you about these companies? What sorts of decisions would this analysis help you make; such as buying stocks, considering accepting an employment offer, etc.?

Answer 1

HDFC BANK STOCK vs KOTAK BANK STOCK

A comparison between these 2 banks has been presented here. Basic information parameters HDFC and KOTAK Bank.

Paramater	HDFC BANK	KOTAK BANK
Market cap(₹crore)	₹5,65,833	₹236224
Stock P/E	29.7	35.8
ROCE	7.32%	7.93%
ROE	17.87%	13.87%
Total capital employed(₹ crore)	₹1,17,637	₹25,779
Total assets (₹ crore )	₹10,63,988	₹3,37,720
Average ROCE -3 years	7.67	8.43
Interest coverage ratio	1.64	1.7
D/E ratio	8.58	4.95
D/B ratio	5.32	4.68
DIvidend yield	0.6	0.06
Promoters holding	21.43%	30.02%
PEG ratio	1.41	1.55
Interest coverage	1.64	1.7
PAT growth 5 years	21.05%	23.05%
Sales growth 5 years	18.01%	18.32%
Gross NPA	1.30%	2.22%
Net NPA	0.40%	0.98%

• In terms of PE ,KOTAK bank seems to be little over- priced comparison to HDFC bank.
• ROE of HDFC bank is better than of KOTAK bank.
• ROCE of both the bank is almost same.
• Total capital employed of HDFC bank is almost four time of KOTAK bank.
• Total assets are the loan given in the market.
• If the interest coverage ratio of a company falls below 2.5 then it can be a alarming sign.but this can be said in the case of banks,because their itself is of borrowing and lending .In case of banks,having interest coverage ratio above 1 is healthy. The banks have almost similar value but KOTAK has little advantage.
• Banks will always higher D/E ratio value as their business is of lending itself.
• In term of P/B ratio, HDFC bank looks over priced.
• Both the banks have dividend yield lower than the industry average .Lower the dividend yield the better it is for a bank.This means that promoters wants to still re invest the money rather than taking a payout as a dividend.
• The major promoters holder in HDFC bank is HDFC ltd and the promoters of KOTAK bank are Mr. Uday KOTAK family. RBI has instructed the promoters of KOTAK bank to reduce their holding in the bank up to 20%.
• The PAT growth of KOTAK bank is more.
• Sales growth of both the banks are almost same.

Gross NPA and Net NPA are two of the most important parameters .HDFC bank scores very well here as their Gross NPA is very low in regards of their loans given in the market. In net NPA too HDFC bank has upper hand over KOTAK bank.

HDFC bank reported a net interest income growth of 22.9% ,driven by assets growth and a core interest margin of 4.3%." Considering the strong positioning ,healthy balance sheet growth and superior assets quality management , we believe the bank is well poised to deliver consistently with margin leadership and robust return ratios. We continue to remain to longer term perceptive and maintain our buy rating on the stock.