2 Consistent Compounder Stocks

Introduction:

Currently, 65% of the banking sector is controlled by the public sector banks whereas only 35% is controlled by private banks, but this scenario can be completely reversed after some time and private sector banks can control 65% of the market share in India. After the pandemic situations, HDFC Bank and Kotak Bank are the two which are looking strong and risk-averse.

Reasons why these two stocks can be consistent compounders:

• These two banks are increasing their focus on retail banking and the HDFC Bank is especially looking more into the corporate banking business.
• Both the banks have strong liabilities portfolios as well which fund their short-term assets in terms of term deposits and CASA.
• Various value unlocking opportunities are also available for both banks. In the case of HDFC Bank, HDB Financial or HDFC Securities can also list in the coming time.
• HDFC Cards which is a no. 1 player in the market can also list in the stock market.
• In the case of Kotak Bank, Kotak AMC, Kotak Life, Kotak Securities, etc. are also not listed in the stock market.

Valuation:

1. HDFC Bank:

• The 3-year median P/E of HDFC Bank is at 26.84x whereas the current P/E is at 26.07x which is below 3 years P/E.
• In 10 years the stock is trading at the same P/E levels which means that despite being a premium valuation, the stock is proved a consistent compounder.

2. Kotak Bank:

• The 3-year median P/E of Kotak Bank is at 36.3x whereas the current P/E is at 33.84x which is below 3 years P/E whereas the 5-year median P/E stands at 35.59x.
• In 10 years the stock is trading below-median P/E levels which means that the stock has a high potential.

Profitability:

1. HDFC Bank:

• The 10-year CAGRof profit growth stands at 19.76%,  5-year CAGR of profit growth is at 19.98% whereas the 3-year CAGR is growth in the profits for the company is at 19.81%.
• The 1 year TTM growth of the company’s profit fell to 16.8% which is due to hard times in the last year.

2. Kotak Bank:

• The 5-year CAGR of profit growth is at 23.06% whereas the 3-year CAGR is growth in the profits for the company is at 20.26%.
• The 1 year TTM growth of the company’s profit fell to 16.25% which is due to hard times in the last year.

Conclusion:

These 2 banks as we can see are consistently increasing their profits as well as growth opportunities are immense. They are consistent compounders because they have a clear focus on which segment to focus and not like cyclical stocks. One should follow his/her due diligence before making any investment decisions.