Few Stats:
America Banking penetration: Stands at 92% as of 2022
India Banking penetration expected to reach 50% by 2025
Median P/B of American banks 1.5 to 2
Current KMB P/B ratio: 2.7 (Historical median 4.1)
Banking is a boring business as it should be, the only surprise we get will be on the negative side. Doing the same old boring things day in and day out is what matters here, being conservative is synonym with past KMB
Now the investors has to ask few question to themselves in this counter, Is there a runway for growth ?
Can we trust the competence of the management (ROE Track record)
As to RBI Ban concerns, it is highly unlikely the management will be complacent especially after the PayTM crackdown.
Of all the banking institutions out there, KMB has more intrinsic value compared others due to having various successful subsidiaries, that currently hold enterprise discount.
What should the investors’ expectation be, can the bank grow beyond 15% cagr for next 10 years, the answer seems to be likely yes
is this better than other investment asset class, gold, real estate, silver, equity , debt, etc., , answer seems to again likely yes
Even at this level, even if the P/B derates the investors should still obtain 15-20%cagr over the years to come possibly decades to come.
And that should be enough for most people, having a drawdown or consolidating for 5 years is frustrating for the investors, after all we all are human beings, however, such is the nature of the market, all we can do is asses is there is major structural risk is there to this investment if not, you should hold on to it and pass it on to the next generation.
In my opinion, if that’s worth anything, we are having a bargain here that;s all I can say, just accumulate as much as you want and hold on to it , I think it’s undervalued not because of the historical PB multiple, rather it’s because of the management of the company and it’s runway of growth.
And one should actually talk to your friends and family who work in PSBs now and what’s the current situation at the branch level (regarding growth and NPA). If not now, in the next 2 or 3 quarters when the NPA cycle turns, one should be seeing and start reaping the benefit of staying patient at this counter. (Unpaid Credit card loans are at 1.8 lakh crore as of this moment, how much do you think will other bank’s share vs KMB ? ) also KMB is in/direct play on affluent India
(PS: ITC cagr is 18% over 30 years, yet it consolidated for 8 years, at least it had its own inherent risk such as the cigarette ban)
Boring is good in finance industry, patience and temperament will be rewarded
