StanChart Plc: An Asian play

Currently,the bank has a market capitalisation of $55 billion. For perspective,that is more than twice that of ICICI Bank,which currently has a market capitalisation of close to $24 billion. StanChart’s profit after tax last year was $3.4 billion while ICICI Bank’s net profits for the year ended March 2009,were $ 835 million (Rs 3,758 crore). A comparison with its peer group,done by Bloomberg,shows that StanChart trades at a price-to earnings ratio of just over 15 times the earnings for the 12 months to December 2009. So it’s cheaper than China Merchants Bank which trades at 19 times and much cheaper than HSBC Holdings which is trading close to 29 times.

Indian investors though,may tend to compare the IDR issue with the other opportunities available among Indian bank stocks. And there are several given that the Indian economy is on a roll and that banks are typically a play on the economy. StanChart is undoubtedly a fine bank and well-positioned to take advantage of the growth in India and Indian investors must remember that StanChart also has an exposure to the rest of Asia and Africa,which are growing markets. Also,it’s a well-managed bank and therefore,StanChart stock should command the kind of valuation that it gets globally in India too. It’s possible,however,that the valuation may be slightly lower though because

Indian investors may prefer a pure India play. There are also some concerns regarding country risks in a couple of African nations.

Perhaps,that’s also probably why the management has chosen not to dilute its equity too much at this juncture; while it had earlier decided to mop up about $1 billion,the amount now being mentioned is a much smaller ’upwards of $500 million”. Since it is adequately capitalised and doesn’t really need the money,it may as well raise a smaller amount just now. In a couple of years when the Indian operations start contributing a larger chunk of the profits,that would then help the bank command an even better valuation.