If you thought we are going to be recommending the obvious banking stocks like HDFC Bank, IndusInd Bank or Yes Bank, the answer is "no". These banks are great to own due to low level of non performing assets, but, are extremely expensive. So, let us take a look at four highly undervalued banking stocks to buy in India, which are not very expensive based on simple parameters like dividend yields, price to book and p/e ratio.
Karur Vysya Bank
This bank is priced at Rs 100, with a face value of Rs 2. There are a number of things that we like about Karur Vysya Bank. The first is that the dividend yield works to near 3 per cent and is tax free. The second is that the price to book value is just 1.33 times, which is excellent for a private sector bank. Apart from this the excellent control over non performing assets makes this bank stock a great bet. Check stock quote of Karur Vysya Bank here
A closer look at fundamentals of Karur Vysya Bank
For the quarter ending December 31, 2016, Karur Vysya Bank reported a net profit of Rs 115 crores taking the EPS to Rs 1.90. The gross non performing assets were placed at 2.66 per cent, which is not bad at all considering what banks in the economy are facing right now. The Bank in 2017-18, can report an EPS of Rs 10, which makes the stock undervalued at a p/e of just 10 times for a private sector bank. With NPAs under control, a low p/book and good dividend yields the stock is a good pick.
This is another good banking stock that is worth investing in. The stock at Rs 137, is trading below its book value of Rs 153 and the dividend yield of near 3.7 per cent is also pretty good. For the year 2017-18 we believe the bank can report an EPS of Rs 20 at the very least. If we apply a p/e of 10 the bank should quote at a price of Rs 200, as against the current price of Rs 137. The NPAs of the bank are also not a major cause of concern like some government owned banks or larger private sector banks like ICICI Bank. One of the best banking shares to buy at the current levels.
South Indian Bank
This is another bank that we liked at the current levels of Rs 20. The stock has a face value of Re 1 and gives a dividend yield of 2.4 per cent. The bank reported an EPS of Rs 0.82 for the quarter ending December 31, 2016. If the bank keeps maintaining the same EPS every quarter, it can report an EPS of Rs 3.2 for 2017-18 or in fact even more. This makes the stock undervalued at just 7 times one year forward earning. Again, this is very low for a private sector bank with a solid branch presence in South India. Another great banking pick at the current levels of Rs 20. Check stock quote of South Indian bank here
If you are betting on some speedy recovery in non performing assets, you have to bet on public sector banks and Union Bank is one stock, which has the potential to rally, being a larger player in the banking space. Also, we are suggesting Union Bank, because the stock has also dipped from levels of Rs 166 recently, to the current levels of Rs 144. As economic growth gathers steam and NPAs fall, Union Bank should rally. If you get Union Bank at a price of Rs 135 and Bank of Baroda at Rs 155, both could be stocks that you could buy on declines.
The article is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article. The author and his family do not own any shares in the above mentioned stocks.