Contents
Definition
The Price-to-Book (P/B) ratio compares what the market pays for a company relative to the accounting value of its net assets:
P/B = Market Price per Share ÷ Book Value per Share
Book Value per Share = Total Shareholders’ Equity ÷ Total Shares Outstanding. Under Ind AS, shareholders’ equity includes paid-up equity capital, securities premium, retained earnings, and other comprehensive income (OCI). P/B above 1× means the market values the company above its liquidation book value; below 1× implies the market believes assets are worth less than their recorded value or that future ROE will fall below cost of equity.
How It Is Computed
Data sources:
- Book Value: Balance sheet filed under SEBI LODR 2015 Regulation 34 (annual) or Regulation 33 (quarterly). Aggregators (Screener.in, Tickertape, Trendlyne) compute BVPS automatically from Ind AS financials.
- Market Price: Exchange LTP at end of reporting period.
Key adjustments: (a) intangible assets (goodwill, brand value) are excluded to arrive at Tangible Book Value (TBV) — a stricter measure for acquisitive companies; (b) for banks, Tier-1 capital per Basel III is sometimes used in lieu of book equity; (c) revaluation reserves embedded in OCI may overstate book value for asset-heavy industries.
What High/Low Values Signal
Fama & French (1992, 1993) established book-to-market (inverse of P/B) as a systematic risk factor — their HML (High-minus-Low) factor captures the return premium of high book-to-market (low P/B) stocks over low book-to-market (high P/B) stocks. This value premium has been replicated in India (Sehgal & Balakrishnan 2002; Agarwalla, Jacob & Varma 2014, IIM Ahmedabad). The historical academic literature classifies stocks below the book-to-market median as “growth” and above as “value” (Fama-French 1993).
Nifty 50 index-level P/B has historically ranged from approximately 1.8× (2009 GFC trough) to 4.5× (2021 peak) with a long-run median near 3×, per NSE index analytics data.
Sector Dependency
P/B is most meaningful for sectors where balance sheet assets closely reflect economic value: banks and NBFCs (loans and investments), insurance (investment portfolios), and capital-intensive industrials (steel, cement, power). For asset-light businesses — IT services, FMCG, consumer platforms — book value understates economic value because human capital, brands, and software are unrecorded or at historical cost. Infosys trades at 6–8× book not because it is speculative but because its earnings power vastly exceeds net assets. P/B is most comparable within financial-sector sub-segments where credit quality differences translate directly into P/B divergence.
Worked Example
HDFC Bank Ltd (NSE: HDFCBANK) — data as of BSE filings, March 2025
HDFC Bank FY2025 annual report (consolidated, Ind AS): total shareholders’ equity approximately ₹3,85,000 crore; total shares approximately 762 crore.
Book Value per Share ≈ ₹3,85,000 Cr ÷ 762 Cr ≈ ₹505 per share
At approximately ₹1,820 (NSE closing, April 2025): P/B ≈ ₹1,820 ÷ ₹505 ≈ 3.6×
Five-year average P/B for HDFC Bank: approximately 3.4×. Sector median for listed Indian banks: approximately 1.5× (skewed down by PSU banks at 0.8–1.2×). HDFC Bank’s premium reflects superior asset quality, high ROE (~17%), and consistent loan growth. Figures are approximate; verify with current NSE/BSE data.
Caveats
- Goodwill distortion: Post-merger goodwill inflates assets and book value, making P/B optically low without real asset backing. Tangible Book Value corrects this.
- Ind AS OCI: Unrealised gains/losses on FVTOCI equity instruments flow through OCI and affect book value without passing through P&L, creating quarter-to-quarter book value volatility.
- Asset-light sectors: P/B is a poor valuation anchor for software, pharma R&D, or platform companies. Use P/E or EV/EBITDA instead.
- Historical cost accounting: Most assets are at historical cost less depreciation, not fair value — book value can materially understate replacement cost for old industrial assets.
See Also
- P/E Ratio
- Return on Equity (ROE)
- Book Value per Share
- Stock Analysis in India (Pillar)
- HDFC Bank — Stock Page
Primary Source
- NSE India Index Analytics (Nifty 50 P/B series): nseindia.com
- Fama, E. & French, K. (1993). “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, 33(1), 3–56.
- Agarwalla, S., Jacob, J. & Varma, J. (2014). “Four-Factor Model in Indian Equities Market.” IIM Ahmedabad Working Paper W.P. No. 2013-09-05.
- SEBI LODR 2015, Regulation 34: sebi.gov.in
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