| Author |
Message |
kanagala
Senior Member
Joined: 31/Mar/2007
Location: India
Online Status: Offline
Posts: 1229
|
   Posted: 08/Nov/2007 at 9:03am |
|
Sir,
Ideally, it should take 18months (assuming it takes 18months to improve the ROE back to initial ROE) to get those returns. Why do you think, share price should appreciate quickly earlier than 18 months after the dilution.
Edited by kanagala - 08/Nov/2007 at 9:09am
|
|
While one person hesitates because he feels inferior, the other is busy making mistakes and becoming superior.
|
 IP Logged |
|
|
|
 |
|
kanagala
Senior Member
Joined: 31/Mar/2007
Location: India
Online Status: Offline
Posts: 1229
|
Posted: 08/Nov/2007 at 9:06am |
|
Ok sir. I got it. You are discounting the future earnings as usual. It
just that, EPS is going to shoot up in 18months with enhanced capital.
Amazing concept. Most of the research reports used to mention that,
equity dilution is BV accretive. so it is a buy. But no one explained
like this. You are great sir.
Edited by kanagala - 08/Nov/2007 at 9:09am
|
|
While one person hesitates because he feels inferior, the other is busy making mistakes and becoming superior.
|
|
IP Logged |
|
|
|
basant
Admin Group
Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
|
Posted: 08/Nov/2007 at 9:38am |
Originally posted by MPD05
Sounds very interesting, Basant. The logic is intuitive. However, one needs to look at what the sector as a whole did over the same period.
Over the same period (18/7 - 11/05), the Bank Nifty did 33%. Moreover, almost all of these gains came from mid Sept. onwards. What is interesting is the price appreciation pattern in HDFC is almost identical; almost all the gains accrued after mid Sept.
Interestingly, Axis bank not only out-performed the index by a substantial margin but also its gains started accruing from August itself.
My only question to you is whether the performance of Axis bank is capturing purely the size effect i.e., it is now being re-rated and being viewed as a high quality, top tier bank like HDFC Bank?
|
I do not know it could be both but when in doubt I try to stay with the logic and the math. Axis prior to dilution had a price to book of 5 times. So sometime over the next 2 years we could actually have that same price to book again - that is the theory I am banking on.
Sometimes these simple startegies work better then the complex ones and if the market was wiling to pay 5 times book without any formal information about the dilution then why should it not pay that same price to book again - as the RoE improves. 
|
|
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
|
|
IP Logged |
|
|
|
kanagala
Senior Member
Joined: 31/Mar/2007
Location: India
Online Status: Offline
Posts: 1229
|
Posted: 08/Nov/2007 at 9:39am |
|
If they raise X cr, they can lend 10x cr if they are allowed to lend 10times their networth. At 3% NIM, they can make 30% return on intial X. So, share price has to appreciate at least 30% of % of increase of BV.
Edited by kanagala - 08/Nov/2007 at 9:40am
|
|
While one person hesitates because he feels inferior, the other is busy making mistakes and becoming superior.
|
|
IP Logged |
|
|
|
basant
Admin Group
Joined: 01/Jan/2006
Location: India
Online Status: Offline
Posts: 18403
|
Posted: 08/Nov/2007 at 9:49am |
Originally posted by kanagala
If they raise X cr, they can lend 10x cr if they are allowed to lend 10times their networth. At 3% NIM, they can make 30% return on intial X. So, share price has to appreciate at least 30% of % of increase of BV.
|
NIM has to be adjusted for operating expsnses and provisions etc. Better to take the RoE concept which is RoA x leverage. Stocks go up on the basis of net profit accreation unless it is from the R- group. 
|
|
'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
|
|
IP Logged |
|
|
|
s_praharaj
Senior Member
Joined: 10/Sep/2006
Location: India
Online Status: Offline
Posts: 357
|
Posted: 09/Nov/2007 at 2:31pm |
Repeated equity dilution works in favour for Banks. The more the premium on equity dilution, better for fundamentals and future earnings. I am positive on ICICI Bank because it raised a huge capital with a premium of 940/-.This huge premium will enormously contribute to its Book value and earnings, which will be visible in 2008 results.
But these kind of advantages are only availaable to private sector Banks to a large extent. For PSU Banks, the Govt holding has to be more than 51%. So PSU Banks can not raise capital more often. Those PSU Banks where Govt holding is higher can still raise capital at a higher premium and get benefitted,(till govt holding comes to 51%) where as others can not. Considering such a scenario among PSU Banks CANARA BANK is better placed than its peers. I mean when we consider top 5 PSU Banks.
|
|
Shashi Praharaj
|
|
IP Logged |
|
|
|
muralimohan001
Senior Member
Joined: 22/Sep/2006
Location: United States
Online Status: Offline
Posts: 217
|
Posted: 09/Nov/2007 at 8:33pm |
Dear Shashi,
Very interesting message from you about icici. You message gives extra confidence to icici share holders.
I remember the same thing mentioned by Kamath long back several times about the equity dilution.
|
|
If money is your hope for independence, you will never have it. The
only real security that a man can have in this world is a reserve of
knowledge, experience and ability.
|
|
IP Logged |
|
|
|
kanagala
Senior Member
Joined: 31/Mar/2007
Location: India
Online Status: Offline
Posts: 1229
|
Posted: 09/Nov/2007 at 11:14pm |
|
Shashi jee,
Their insurance business is eating up lot of the capital. I am not sure how much of that capital is going into core banking operation.
It all depends on when they are going to get external capital for insurance biz.
|
|
While one person hesitates because he feels inferior, the other is busy making mistakes and becoming superior.
|
|
IP Logged |
|
|
|
Active Topics
Memberlist
Calendar
Search
Help
Register
Login
