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PROJECT REPORT ON EQUITY RESEARCH ON BANKING SECTOR IN BIRLA SUNLIFE INSURANCE LIMITED
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT OF MASTER OF MANAGEMENT STUDIES
BY SAINI SIMRANJEET MALKEET SINGH ROLL NO: 2010127 MMS-II (SEM III) YEAR 2010-2012
LALA LAJPATRAI INSTITUTE OF MANAGEMENT MAHALAXMI, MUMBAI - 400034
Equity research on Banking sector
PROJECT REPORT ON EQUITY RESEARCH ON BANKING SECTOR IN BIRLA SUNLIFE INSURANCE LIMITED
SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT OF MASTER OF MANAGEMENT STUDIES
BY SAINI SIMRANJEET MALKEET SINGH ROLL NO: 2010127 MMS-II (SEM III) YEAR 2010-2012
Equity research on Banking sector
SUMMER INTERNSHIP PROJECT
SUBMITTED BY SAINI SIMRANJEET MALKEET SINGH ROLL NO – 2010127 MMS – II (SEM III) Year 2010-2012
Equity research on Banking sector .
B. Arati Kale Project Guide Management ____________________ Dr V. Lala Lajpatrai Institute of . Angadi Director. to any other University. Date: 29th August 2011 ____________________ Prof. The project was completed for “name of the company “. Saini Simranjeet Malkeet Singh.Equity research on Banking sector Certificate This is to certify that the project work titled “Equity research of Banking sector” is a summer internship work carried out by Ms. under the guidance of Nikesh Ruparel. I further certify that the said work has not been submitted in the part or in full.
.Equity research on Banking sector DECLARATION I. Ms. student of Lala Lajpatrai Institute of Management of MMS II (Semester III) hereby declare that I have completed the summer internship project on Equity research of banking sector with Birla Sunlife Insurance Limited in the Academic year 20102012. The information submitted is true & original to the best of my knowledge. Saini Simranjeet Malkeet Singh.
Angadi. First and foremost. Narendran for being an excellent mentor and helping me whenever I approached him. for giving me the opportunity to do this project in (name of the company). . I am very grateful to Dr. I would also like to thank my prof. siblings and friends for their much valued support.Equity research on Banking sector ACKNOWLEDGEMENT At the outset of this project. I would also like to thank the entire Finance department for providing me their precious time and making this internship a successful learning experience. Last but not the least. I take pride in thanking my family. My sincere thanks to Prof. Mr. I would like to express sincere thanks to Birla Sunlife Insurance for giving me this opportunity to work with them. completion of this project would not have been possible. Arati Kale for her valuable guidance and advice in completing this project. I would like to thank Nikesh Ruparel for being extremely supportive and guiding me throughout my internship and giving me constant motivation and expert advice. The list is endless but to name a few special people. I would like to express my profound thanks to a few people without whose help. Director of Lala Lajpat Rai Institute of Management.
4 7 8 9 10 11 12 INDEX Introduction Company Profile Introduction to Equity Fundamental Analysis Qualitative Factor.1 6.Company Quantitative Factor-Ratios Technical Analysis Introduction to Trendline Introduction to Support & Resistance Introduction to Indicators Moving Averages Analysis of Banking Sector Recent development in Banking sector SWOT Analysis of Banking sector Banking Structure in India Income & Expenses profile of Banks Analysis of Punjab National Bank Analysis of State Bank of India Technical Analysis of Banks Findings Conclusion Recommendation PAGE NO .Industry Qualitative Factor.NO 1 2 3 4 4.1 4.2 6.4 6 6.3 5 5.2 4.Equity research on Banking sector SR.1 5.3 6.2 5.3 5.
which means that the Indian investor is not able to take the maximum advantage of India’s growth. Number of companies listed in stock exchange (BSE & NSE) has been increasing every year with new IPO’s coming in the market. sell. Thus Indian equity markets today are attracting investors from around the world to take advantage of India’s growth story. sell short. If the industry looks positive then analyze various companies in the sector. Many Indian companies are expanding their business globally with mergers and acquisitions. industry and company. Fundamental analysis is very helpful to the investor. which is reflected in the investment purpose. the complete scenario of the industry. Companies in India are growing at farter rate as compared to their growth rate a decade back. . hold. or simply avoid the security in question. they are economic. They just invest on the basis of tips given by brokers or friends which is not correct. In this report I have explained How to do fundamental analysis & technical analysis with analysis of banking sector and few companies in the sector. Any investors who go to systematic investment. Fundamental analysis consist of three parts. he/she would like to know. A Company is analyzed fundamentally to check its performance and financial strength.Equity research on Banking sector EXECUTIVE SUMMARY Indian Economy being one of the fastest developing economies in the world. In India people are realizing that equity has potential to give highest return as compared to other investment avenues however people do not have proper knowledge in which stock to invest their hard earned money to get good returns. risk & volatility of the covered security. and thus assist investors to decide whether to buy. The penetration of retail investors in the Indian Markets is just around 5%. With the help of this analysis investors comes to know whether to make an investment in a particular stock. This report is meant to narrow down this gap between retail investors and equity markets by simplifying the basic investment strategies and give a basic understanding of how stocks are analysed for investment using the the theories of fundamental and technical analysis Equity Research helps the investor to know about the value. As companies grow their shareholders are benefitted with good dividend and capital appreciation on investment in equity shares of such companies.
The variability of the given equity. Some key aspects that affect the earnings persistence can be summarized as follows: .Equity research on Banking sector INTRODUCTION ABOUT THE PROJECT OBJECTIVE OF THE STUDY: • The primary objective of equity research is to analyze the earnings persistence. • There was a limited time period to complete the project. RESEARCH METHODOLOGY: Formation of the Problem Which significant ratios determine investment decision in share market? What trend the banks are following (uptrend or downtrend)? Collection of Data Secondary Data: The sources of secondary data are:• Company Annual Report • Internet-Websites Research Limitation • Information available on the websites was not updated. • To find out how effectively resources are used within the enterprise SCOPE: The scope of project is limited to Understanding the basics of Fundamental analysis and apply it to take a decision of investing in banking Stocks. . given the various variance factors To acquire a deep knowledge of the Banking Sector through fundamental and technical analysis.The stability of the equity under consideration . • To evaluate the share of major banks like State bank of India and Punjab National Bank on the basis of fundamental and technical analysis. • To assess the financial health & management effectiveness of the Company.The predictability of the value of the given equity under the given circumstances .
With an experience of over 9 years. BSLI has contributed significantly to the growth and development of the life insurance industry in India and currently ranks amongst the top 5 private life insurance companies in the country. BSLI has several firsts to its credit. . COMPANY PROFILE Established in 2000. offers a formidable protection for its customers’ future. BSLI also enjoys the prestige to be the originator of practice to disclose portfolio on monthly basis. It was the first Indian Insurance Company to introduce “Free Look Period” and the same was made mandatory by IRDA for all other life insurance companies. a well known and trusted name globally amongst Indian conglomerates and Sun Life Financial Inc. Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla Group. To establish credibility and further transparency. Additionally. Known for its innovation and creating industry benchmarks.. leading international financial services organization from Canada. The local knowledge of the Aditya Birla Group combined with the domain expertise of Sun Life Financial Inc.Equity research on Banking sector 2. BSLI pioneered the launch of Unit Linked Life Insurance plans amongst the private players in India.
product range.000 empanelled advisors. In FY 2008-09. pure term plan. private equity and retail broking. the company has a robust capital base of Rs. Aditya Birla Group through Aditya Birla Financial Services Group (ABFSG). Aditya Birla Finance. Additionally. security based lending. the extensive reach through its network of 600 branches and 175. The seven companies representing ABFSG are Birla Sun Life Insurance Company. Add to this. reach and ears on ground. distribution & wealth management. . while as on March 31. Aditya Birla Capital Advisors and Apollo Sindhoori Capital Investment. Enhance the financial future of our customers including enterprises. and money at all stages and under all circumstances. registering a growth rate of 36%. has a strong presence across various financial services verticals that include life insurance. health plan and retirement plan) that the company offers. 2009. Aditya Birla Money. The AUM of BSLI stood at Rs. To ensure that our customers have an impeccable experience. insurance broking. the Aditya Birla Group is in the league of Fortune 500 worldwide.00% for FY 2008-09. the consolidated revenues of ABFSG from these businesses crossed Rs.000 employees. health. Birla Sun Life Asset Management Company. fund management. which gets further accentuated by the complete bouquet of insurance products (viz. 2009. 4763 crore. MISSION To help people mitigate risks of life. 8165 crs as on February 28. helped BSLI cover more than 2 million lives since it commenced operations and establish a customer base spread across more than 1500 towns and cities in India. 2000 crore. It is anchored by an extraordinary force of 100. life stage products. This impressive combination of domain expertise. VALUES • Integrity • Commitment • Passion • Seamlessness • Speed A US $28 billion corporation. VISION To be a leader and role model in a broad based and integrated financial services business. Birla Insurance Advisory & Broking Services. accident.Equity research on Banking sector These category development initiatives have helped BSLI be closer to its policy holders’ expectations. BSLI has the best Turn Around Time according to LOMA on all claims Parameters. BSLI has ensured that it has lowest outstanding claims ratio of 0. The group operates in 25 countries across six continents – truly India's first multinational corporation. Such services are well supported by sound financials that the Company has. belonging to 25 different nationalities.
Our innovative solutions and customer-friendly services have been admired.Birla Sun Life Insurance was among the top five nominees in the category.Equity research on Banking sector Sun Life Financial is a leading international financial services organisation providing a diverse range of protection and wealth accumulation products and services to individuals and corporate customers. Indonesia. 2006. • Recruiting and Staffing Best in Class Awards. As of December 31. winning is a way of life. AWARDS At Birla Sun Life Insurance. Sun Life Financial and its partners today have operations in key markets worldwide. Hong Kong. India. 2008. including Canada. • Birla Sun Life Insurance was presented 'The Hewitt Best Employers In India Awards 2004' Trophy.Best Life Insurer (Runner Up) 2004 TROPHY • The 8th Asia Insurance Industry Awards 2004 . the Philippines. • Outlook Money Awards 2004 BSLI . • Birla Sun Life Insurance was awarded 'The Great Place to Work Seminar Series 2007’ Presented by Anil Sachdev (Chairman & MD of Grow Talent Company Ltd) Robert Levering (Co-founder Great Place to Work Institute) and Jehangir Pocha (Business World Magazine). Japan. This is a Certificate of Excellence for Enhancing the image of India presented by Dr. the United Kingdom.BSLI awarded for its 'Successful Performance' for 4 years April 2005. Ireland. China and Bermuda. the Sun Life Financial group of companies had total assets under management of $381 billion. the United States. Bhishma Narain Singh (Former . • The Indo-Canadian Business Chamber. Chartered in 1865. appreciated and rewarded by customers and the industry at large. • The Bhartiya Shiromani Puraskar awarded to BSLI at the seminar on "Economic Development” New Delhi. on February 13.
legal & regulatory requirements. • FUTURE BUSINESS CONTINUITY PLAN Birla Sun Life Insurance is one of the few Indian companies to have a fully operational Business Continuity Plan (BCP) to ensure minimal impact to the organisation. BSLI’S BUSINESS CONTINUITY MANAGEMENT POLICY To have a planned response in the event of any contingency ensuring recovery of critical activities at agreed levels within agreed timeframe thereby complying with various regulatory requirements and minimizing the potential business impact to BSLI. • Sponsorship Acknowledgement for .Equity research on Banking sector Governor of Tamil Nadu & Assam) in association with the "Institute of Economic Studies (IES)". • Hewitt Best Employers in India 2004. and most importantly. Our Business Continuity Planning (BCP) Program is a response plan which would ensure that in the event of a disaster we would be able to restore and recover operations for critical processes within a predetermined time after the disaster.The Asia Insurance Review. its customers. • Ensuring that we adhere to our clients. contractual. . Additionally to create a system that fosters continuous improvement of business continuity management. its people. BUSINESS CONTINUITY MANAGEMENT SYSTEM OBJECTIVES (BCMS) The objectives of BSLI's BCMS are as follows • Ensuring a Proactive response to any contingency • Ensuring recovery of identified critical activities within agreed timeframe.
after all liabilities are paid. paid only after all other creditors are paid. have the next claim/right on the residual proceeds. negative equity exists. equity is the residual claim or interest of the most junior class of investors in assets. for accounting purposes. this is the accounting equation. What is Equity Shares? . In such cases where even creditors could not get enough money to pay their bills. If valuations placed on assets do not exceed liabilities. This definition is helpful to understand the liquidation process in case of bankruptcy. nothing is left over to reimburse owners' equity. owners put some funding into the business to finance assets. After liabilities have been accounted for. a series of creditors. Businesses can be considered to be. INTRODUCTION TO EQUITY What is Equity? In accounting and finance. Ownership equity is also known as risk capital. Thus owners' equity is reduced to zero.Equity research on Banking sector 3. ranked in priority sequence. all the secured creditors are paid against proceeds from assets. shareholders' funds. sums of liabilities and assets. Shareholders' equity (or stockholders' equity. liable capital and equity. spread among individual shareholders of common or preferred stock. This creates liability on the business in the shape of capital as the business is a separate entity from its owners. In an accounting context. the positive remainder is deemed the owner's interest in the business. shareholders' capital or similar terms) represents the remaining interest in assets of a company. Ownership equity is the last or residual claim against assets. At the start of a business. Afterward. At first.
Government as well as corporate. Research studies have proved that the equities have outperformed most other forms of investments in the long term. Equities are high risk investments. when compared to other investment options. this does not mean all equity investments would guarantee similar high returns.Equities have the potential to increase in value over time.000 units of Rs 10 each. The primary market provides the channel for sale of new securities. it is referred to as venture capital investing and is generally understood to be higher risk than investment in listed going-concern situations. Anyone who wishes to buy shares of a company can buy it from an existing shareholder of a company.Equity research on Banking sector Total equity capital of a company is divided into equal units of small denominations. in a company the total equity capital of Rs 2. 00. Investors can buy shares of a company through IPO (Initial Public Offering) when it is first time issued to the public. Equities are considered the most challenging and the rewarding.00. Thus. Once shares are issued to the public it is traded in the secondary market. to raise resources to meet their requirements of investment and/or discharge some obligation. Research studies have proved that investments in some shares with a longer tenure of investment have yielded far superior returns than any other investment. One needs to study them carefully before investing.00. EQUITY INVESTMENT Equity investments generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gain as the value of the stock rises.00. How to invest in Equity Shares? Investors can buy equity shares of a company from Security market that is from Primary market or Secondary market. However.000 is divided into 20. It also sometimes refers to the acquisition of equity (ownership) participation in a private (unlisted) company or a startup (a company being created or newly created). Why should one invest in Equity in particular? When you buy a share of a company you become a shareholder in that Company . Stock exchange only acts as facilitator for trading of equity shares.000 equity shares of Rs 10 each. Primary market provides opportunity to issuers of securities. the company then is said to have 20. Each such unit of Rs 10 is called a Share. It also provides your portfolio with the growth necessary to reach your long term investment goals. When the investment is in infant companies. each called a share. . For example. The holders of such shares are members of the company and have voting rights.
the analyst will "model" the company's financial statements. some of which could be very complex. The analyst would try to quantify what that means for Dell's sales and profits. each of which focuses on being an "expert" on a particular industry. In other words. and telcommunications and utilities sectors. These stocks trade on various stock markets such as the NSE (National Stock exchange). BSE (Bombay Stock exchange). materials. AMEX (which are the main U. if Microsoft decided to begin to sell computers that would likely be a problem for Dell since that would mean that Dell has more competition. In addition to just monitoring current events with companies. healthcare. investors should sell it.S. or monitors a number of stocks. For example. or stocks. then analyzing companies in the chosen sector using fundamental and technical analysis. a particular company can sell and how much profit the company could make. consumer staples. industrials. understanding its growth prospects. stock markets) or foreign stock markets. the analyst will try to predict how many computers. For example. equity research analysts typically write equity research reports. a PC hardware equity research analyst would probably spend a great deal of time monitoring the business of Dell Computer and any news that may affect dell. As part of that analysis. Those 10 sectors are the consumer discretionary. energy. information technology. etc. The process of investment starts with analyzing a sector. The intrinsic value of a security being higher than the security’s market value represents a time to buy. equity research analysis closely “follows”. . Literature Review To be able to value equity. researching and analyzing equities. There are numerous industries within the 10 sectors. Equity research is. If the value of the security is lower than its market price. New York Stock Exchange. which explain and analyze what a company's business is. To create the model. On a daily basis. Equity research analysts are usually employed by financial firms that have equity research departments made up of numerous analysts. the analyst will use Microsoft Excel. NASDAQ. which is a spreadsheet program that allows for easy calculation of numerous equations.Equity research on Banking sector It is important for investors to note that while equity shares give highest return as compared to other investment avenues it also carries highest risk therefore it is important to find ‘ real value’ or ‘ intrinsic value’ of the security before investing in it. financials. we need to first understand how equity is to be analyzed.
Porter in his book “Competitive Strategy: Techniques for Analyzing Industries and Competitors“ The Five Competitive Forces are typically described as follows: 1. 4. product. and its competitors and markets. Fundamental analysis is performed on historical and present data. including macroeconomic factors (like the overall economy and industry conditions) and company-specific factors (like financial condition and management). but with the goal of making financial forecasts. Technical Analysis 4. FUNDAMENTAL ANALYSIS Introduction Fundamental analysis is a technique that attempts to determine a security’s value by focusing on underlying factors that affect a Company’s actual business and its future prospects. 3. A fundamental analyst believes that analyzing strategy. 2. 5. its management and competitive advantages. Bargaining Power of Suppliers Bargaining Power of Customers Threat of New Entrants Threat of Substitutes Competitive Rivalry between Existing Players Therefore Equity Share of any company can be analyzed through 1. Fundamental analysis of a business involves analyzing its financial statements and health. financial stats and many other readily and not-so-readily quantifiable numbers will help choose stocks that will outperform the market.Equity research on Banking sector Sector analysis is done using the model of the Five Competitive Forces developed by Michael E. Fundamental analysts attempt to study everything that can affect the security's value. management. To make a projection on its business performance. Fundamental Analysis 2. There are several possible objectives: • • • To conduct a company stock valuation and predict its probable price evolution. To evaluate its management and make internal business decisions. .
market share among firms. • • Qualitative – related to or based on the quality or character of something. fundamentals can include anything related to the economic well-being of a company. Fundamental analysis serves to answer questions. but fundamentals also include everything from a company’s market share to the quality of its management. The various fundamental factors can be grouped into two categories: quantitative and qualitative. Obvious items include things like revenue and profit. QUALITATIVE FACTOR – THE INDUSTRY Each industry has differences in terms of its customer base. such as: • • • • • Is the company’s revenue growing? Is it actually making a profit? Is it in a strong-enough position to beat out its competitors in the future? Is it able to repay its debts? Is management trying to "cook the books"? Fundamentals: Quantitative and Qualitative As mentioned in the introduction. Learning about how the industry works will give an investor a deeper understanding of a company's financial health. competition. regulation and business cycles. • Customers . Quantitative – capable of being measured or expressed in numerical terms. industry-wide growth. often as opposed to its size or quantity.Equity research on Banking sector • To calculate its credit risk.
this could also suggest that the company possesses some sort of "economic moat. The current market for audio compact cassettes is only a fraction of what it was during the peak of its popularity. . companies will always disclose in their annual report if any one customer accounts for a majority of revenues. that same company would probably have a rough time now due to the advent of newer technologies. think of a military supplier who has 100% of its sales with the Indian government. The fact that a company possesses an 85% market share tells you that it is the largest player in its market by far. However. In some markets. along with its market share. One change in government policy could potentially wipe out all of its sales.Equity research on Banking sector Some companies serve only a handful of customers. For this reason. This is crucial because without new customers. a factor demanding careful consideration. • Industry Growth One way of examining a company's growth potential is to first examine whether the amount of customers in the overall market will grow. In general. Furthermore. Market share is important because of economies of scale. When the firm is bigger than the rest of its rivals. it is in a better position to absorb the high fixed costs of a capital-intensive industry. a company has to steal market share in order to grow. For example. it's negative if a business relies on a small number of customers for a large portion of its sales because the loss of each customer could dramatically affect revenues. a manufacturing company dedicated solely to creating audio compact cassettes might have been very successful in the '70s. there is zero or negative growth. • Market Share Understanding a company's present market share can tell volumes about the company's business. For example. such as CDs and MP3s. while others serve millions. a competitive barrier serving to protect its current and future earnings." in other words. '80s and early '90s.
they can drastically affect the attractiveness of a company for investment purposes. However. In other industries. For example. Companies operating in industries with few alternatives have the ability to pass on costs to their customers. if any.no one wants an ineffective drug that causes deaths to reach the market. In these instances. the Food and Drug Administration (FDA) requires that new drugs must pass a series of clinical trials before they can be sold and distributed to the general public. In industries where one or two companies represent the entire industry for a region (such as utility companies). the drug industry is one of most regulated industries. you have little.Equity research on Banking sector • Competition Simply looking at the number of competitors goes a long way in understanding the competitive landscape for a company. This refers to the ability of a supplier to increase prices and pass those costs on to customers. And for good reason . investors should always be on the lookout for regulations that could potentially have a material impact upon a business' bottom line. the consequence of all this testing is that it usually takes several years and millions of dollars before a drug is approved. Industries that have limited barriers to entry and a large number of competing firms create a difficult operating environment for firms. As important as some of these regulations are to the public. . A great example of this is Wal-Mart. All in all. while there is the potential for sizable profits. that Wal-Mart practically sets the price for any of the suppliers wanting to do business with them. • Regulation Certain industries are heavily regulated due to the importance or severity of the industry's products and/or services. Keep in mind that all these costs are above and beyond the millions that the drug company has spent on research and development. They are so dominant in the retailing business. governments usually specify how much profit each company can make. One of the biggest risks within a highly competitive industry is pricing power. Investors should keep these regulatory costs in mind as they assess the potential risks and rewards of investing. they are limited due to regulation. As a result. If you want to sell to Wal-Mart. regulation can play a less direct role in affecting industry pricing. pricing power.
let’s take a look at some of the qualitative aspects of a company. Usually there will be a quick biography on each executive with . Following are the qualitative factors of the company that investor should be aware of – • Business Model One of the most important questions that should be asked is what exactly does the company do? This is referred to as a company's business model. create a moat around a business allowing it to keep competitors at bay and enjoy growth and profits. It makes sense .Every public company has a corporate information section on its website. • Management A company relies upon management to steer it towards financial success. its shareholders can be well rewarded for decades. • Competitive Advantage Another business consideration for investors is competitive advantage. A company's long-term success is driven largely by its ability to maintain a competitive advantage and keep it. such as Reliance’s brand name and Microsoft's domination of the personal computer operating system.even the best business model is doomed if the leaders of the company fail to properly execute the plan. Powerful competitive advantages. Some believe that management is the most important aspect for investing in a company. When a company can achieve competitive advantage.Equity research on Banking sector QUALITATIVE FACTOR – THE COMPANY Before diving into a company's financial statements. Its how a company makes money? You can get a good overview of a company's business model by checking out its website or annual report.
Equity research on Banking sector
their employment history, educational background and any applicable achievements. Don't expect to find anything useful here. Let's be honest: We're looking for dirt, and no company is going to put negative information on its corporate website. Instead, here are a few ways for you to get a feel for management: 1. Management Discussion and Analysis (MD&A) The Management Discussion and Analysis is found at the beginning of the annual report. In theory, the MD&A is supposed to be frank commentary on the management's outlook. Sometimes the content is worthwhile, other times it's boilerplate. One tip is to compare what management said in past years with what they are saying now. Is it the same material rehashed? Have strategies actually been implemented? If possible, sit down and read the last five years of MD&As.
2. Ownership and Insider Sales Just about any large company will compensate executives with a combination of cash, restricted stock and options. It is a positive sign that members of management are also shareholders. The ideal situation is when the founder of the company is still in charge. Examples include Mukesh Ambani & Ajim Premji When you know that a majority of management's wealth is in the stock, you can have confidence that they will do the right thing. As well, it's worth checking out if management has been selling its stock. This has to be filed with the Securities and Exchange Board of India (SEBI), so it's publicly available information. Talk is cheap - think twice if you see management unloading all of its shares while saying something else in the media. 3. Past Performance Another good way to get a feel for management capability is to check and see how executives have done at other companies in the past. You can normally find biographies of top executives on company web sites. Identify the companies they worked at in the past and do a search on those companies and their performance. 4. Conference Calls Some of the big market capitalisation companies have conference calls do that management can address critical issues such as performance review, critical developments etc. The excerpts of these are later displayed on the company’s web sites so as to enable investors to access these.
Equity research on Banking sector
Now as we know the qualitative factor of fundamental analysis, let’s proceed to the quantitative factor of fundamental analysis. Quantitative factor include analysis of financial statement of the company. RATIO ANALYSIS Financial ratios are tools for interpreting financial statements to provide a basis for valuing securities and appraising financial and management performance. In general, there are 4 kinds of financial ratios that a financial analyst will use most frequently, these are:
• • • •
Performance ratios Working capital ratios Liquidity ratios Solvency ratios
These 4 financial ratios allow a good financial analyst to quickly and efficiently address the following questions or concerns: Performance ratios
What return is the company making on its capital investment? What are its profit margins?
Working capital ratios
How quickly are debts paid? How many times is inventory turned?
Equity research on Banking sector
Can the company continue to pay its liabilities and debts?
Solvency ratios (Longer term)
What is the level of debt in relation to other assets and to equity? Is the level of interest payable out of profits?
Following are some ratios which are used to analyze companies’ performance
1. Current Ratio: Current ratio is calculated in order to work out firm’s ability to pay
off its short-term liabilities. This ratio is also called working capital ratio. This ratio explains the relationship between current assets and current liabilities of a business. Where current assets are those assets which are either in the form of cash or easily convertible into cash within a year. Similarly, liabilities, which are to be paid within an accounting year, are called current liabilities. Current Ratio = Current Assets/Current Liabilities Current Assets include Cash in hand, Cash at Bank, Sundry Debtors, Bills Receivable, Stock of Goods, Short-term Investments, Prepaid Expenses, Accrued Incomes etc. Current Liabilities include Sundry Creditors, Bills Payable, Bank Overdraft, Outstanding Expenses etc. Objective and Significance: Current ratio shows the short-term financial position of the business. This ratio measures the ability of the business to pay its current liabilities. The ideal current ratio is supposed to be 2:1 i.e. current assets must be twice the current liabilities. In case, this ratio is less than 2:1, the short-term financial position is not supposed to be very sound and in case, it is more than 2:1, it indicates idleness of working capital.
2. Liquid Ratio: Liquid ratio shows short-term solvency of a business in a true manner.
It is also called acid-test ratio and quick ratio. It is calculated in order to know how quickly current liabilities can be paid with the help of quick assets. Quick assets mean those assets, which are quickly convertible into cash. Liquid Ratio = Liquid Assets/Current Liabilities
Outstanding Expenses etc 3. Bills Payable. it means the firm has adopted the impudent policy of using short-term funds for acquiring fixed assets.Equity research on Banking sector Where liquid assets include Cash in hand. It is well established that fixed assets should be financed only out of long-term funds. In other words. If the ratio is less than 1. Short-term Investments etc. Loan from financial institution etc. Sundry Debtors. Debt Equity Ratio = Debt/Equity Where Debt (long term loans) include Debentures. Mortgage Loan. Bank Overdraft.term Loans – Fictitious Assets Net Fixed Assets means Fixed Assets at cost less depreciation. This ratio should be equal to 1. Proprietors are always keen to have more funds from borrowings because: (i) Their stake in the business is reduced and subsequently their risk too (ii) Interest on loans or borrowings is a deductible expenditure while computing taxable profits. Objective and Significance: This ratio indicates as to what extent fixed assets are financed out of long-term funds. Bank Loan. Fixed Assets Ratio = Long-term Funds/Net Fixed Assets Where Long-term Funds = Share Capital (Equity + Preference) + Reserves and Surplus + Long. Cash at Bank. 4. Equity (Shareholders’ Funds) = Share Capital (Equity + Preference) + Reserves and Surplus – Fictitious Assets Objective and Significance: This ratio is a measure of owner’s stock in the business. Public Deposits. Bills Receivable. The normally acceptable debt-equity ratio is 2:1. all current assets are liquid assets except stock and prepaid expenses. Fixed Assets Ratio: Fixed Assets Ratio establishes the relationship of Fixed Assets to Long-term Funds. On the other hand. Current liabilities include Sundry Creditors. It is also known as ‘External-Internal’ equity ratio. Debt-Equity Ratio: Debt equity ratio shows the relationship between long-term debts and shareholders funds’. a very . This ratio workout the proportion of investment of funds from the point of view of long-term financial soundness. Dividend on shares is not so allowed by Income Tax Authorities. It will also include trade investments.
Equity research on Banking sector high ratio would indicate that long-term funds are being used for short-term purposes. This ratio is also known as stock velocity or inventory turnover ratio. 7. the lower is the investment in working capital and the greater are the profits. However. It helps to maintain a proper amount of stock to fulfill the requirements of the concern. This ratio provides guidelines to the management while framing stock policy. a very high turnover indicates a sign of over-trading and puts the firm in financial difficulties. A low working capital turnover ratio indicates that the working capital has not been used efficiently. It measures how fast the stock is moving through the firm and generating sales. Debtors Turnover Ratio = Net Credit Sales/Average Accounts Receivables Where Average Accounts Receivables = [Opening Debtors and B/R + Closing Debtors and B/R]/2 Credit Sales = Total Sales – Cash Sales . This ratio measures the efficiency of utilization of working capital. The higher is the ratio. Stock Turnover Ratio: Stock turnover ratio is a ratio between cost of goods sold and average stock. A proper inventory turnover makes the business to earn a reasonable margin of profit. Working Capital Turnover Ratio: Working capital turnover ratio establishes a relationship between net sales and working capital. 5. i. This ratio is also known as Debtors’ Velocity. Working Capital Turnover Ratio = Net Sales or Cost of Goods Sold/Net Working Capital Where Net Working Capital = Current Assets – Current Liabilities Objective and Significance: This ratio indicates the number of times the utilisation of working capital in the process of doing business. Debtors’ Turnover Ratio: Debtors turnover ratio indicates the relation between net credit sales and average accounts receivables of the year. for financing working capital. Stock Turnover Ratio = Cost of Goods Sold/Average Stock Where Average Stock = [Opening Stock + Closing Stock]/2 Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses – Closing Stock Objective and Significance: Stock is a most important component of working capital.e. 6.
8. It determines the efficiency with which the trade debtors are managed. Higher the ratio. the increment shows the efficiency of the concern. Objective and Significance: The objective of capital turnover ratio is to calculate how efficiently the capital invested in the business is being used and how many times the capital is turned into sales. Higher the ratio. Net Profit Ratio can be calculated in the following manner: Net Profit Ratio = Net Profit/Net Sales x 100 Where Net Profit = Gross Profit – Selling and Distribution Expenses – Office and Administration Expenses – Financial Expenses – Non Operating Expenses + Non Operating Incomes. better it is as it proves that the debts are being collected very quickly. The ratio indicates the times by which the capital employed is used to generate sales.Equity research on Banking sector Objective and Significance: This ratio indicates the efficiency of the concern to collect the amount due from debtors. Tax and Dividend/Capital Employed x 100 . 9. It is calculated as follows: Capital Turnover Ratio = Net Sales/Capital Employed Where Net Sales = Sales – Sales Return Capital Employed = Share Capital (Equity + Preference) + Reserves and Surplus + Long-term Loans – Fictitious Assets. 10. better the efficiency of utilisation of capital and it would lead to higher profitability. Capital Turnover Ratio: Capital turnover ratio establishes a relationship between net sales and capital employed. This ratio is helpful to determine the operational ability of the concern. Return on Investment or Return on Capital Employed: This ratio shows the relationship between the profit earned before interest and tax and the capital employed to earn such profit. And Net Sales = Total Sales – Sales Return Objective and Significance: In order to work out overall efficiency of the concern Net Profit ratio is calculated. Net Profit Ratio: Net Profit Ratio shows the relationship between Net Profit of the concern and Its Net Sales. While comparing the ratio to previous years’ ratios. Return on Capital Employed = Net Profit before Interest.
This ratio has great interest to equity shareholders. . To shareholders it indicates how much their capital is earning and to the management as to how efficiently it has been working. Of Equity Shares Objective and Significance: Earning per share helps in determining the market price of the equity share of the company. The return on equity measures the profitability of equity funds invested in the firm. Return on Equity = Net Profit after Interest. Return on Equity: Return on equity is also known as return on shareholders’ investment.Equity research on Banking sector Where Capital Employed = Share Capital (Equity + Preference) + Reserves and Surplus + Long-term Loans – Fictitious Assets Or Capital Employed = Fixed Assets + Current Assets – Current Liabilities Objective and Significance: Return on capital employed measures the profit. the return on capital expresses all efficiencies and inefficiencies of a business. The profit being the net result of all operations. Tax and Preference Dividend/Equity Shareholders’ Funds x 100 Where Equity Shareholders’ Funds = Equity Share Capital + Reserves and Surplus – Fictitious Assets Objective and Significance: Return on Equity judges the profitability from the point of view of equity shareholders. tax and preference dividend) by the number of equity shares. the better it is. 11. The higher the ratio. The ratio establishes relationship between profit available to equity shareholders with equity shareholders’ funds. Earning Per Share = Net Profit after Interest. This ratio has a great importance to the shareholders and investors and also to management. The investors favour the company with higher ROE. which a firm earns on investing a unit of capital. This ratio influences the market price of the shares. It also helps to know whether the company is able to use its equity share capital effectively with compare to other companies. It also tells about the capacity of the company to pay dividends to its equity shareholders. Earning Per Share: Earning per share is calculated by dividing the net profit (after interest. Tax and Preference Dividend/No. 12.
Price Earning Ratio = Market Price per Equity Share/ Earning per Share.2000 per share divided by Rs. if a company is reporting a profit of Rs. Technical analysis is the process of analyzing a security's historical prices in an effort to determine probable future prices. What is the current price? .200 per share. or next year? Wouldn't investing be easy if we knew the answers to these seemingly simple questions? technical analysis has the answers to these questions. 15-minute or hourly). as technical analysts are called. the P/E ratio is 10 because you are paying ten-times earnings (Rs. low or close for a given security over a specific timeframe. The time frame can be based on intraday (tick. Technicians. high.. technical analysis is the study of prices. futures or any tradable instrument where the price is influenced by the forces of supply and demand.2000 per share. and the stock is selling for Rs. Technical analysis is applicable to stocks.Equity research on Banking sector 13. TECHNICAL ANALYSIS INTRODUCTION Should I buy today? What will prices be tomorrow.200 per share earnings = 10 P/E. Price refers to any combination of the open. This is done by comparing current price action (i. weekly or monthly price data and last a few hours or many years. with charts being the primary tool. Technical analysts are sometimes referred to as chartists because they rely almost exclusively on charts for their analysis. daily. commodities. Price/Earning Ratio: This ratio shows the relationship between market price per share and earning per share. next week. current expectations) with comparable historical price action to predict a reasonable outcome. are only concerned with two things: 1. 5-minute.) This ratio is calculated to find out the possibility of capital appreciation in future. indices.e. 5. Simply put. In other words.
In statistical terms. (Chart for Minnesota Mining & Manufacturing) On the chart.Equity research on Banking sector 2. The objective of analysis is to forecast the direction of the future price. After all. Technicians believe it is best to concentrate on what and never mind why. more buyers (demand) than sellers (supply). Prices are plotted from left to right across the x-axis with the most recent plot being the furthest right. The price plot for MMM extends from . charts are referred to as time series plots. By focusing on price and only price. the y-axis (vertical axis) represents the price scale and the x-axis (horizontal axis) represents the time scale. technical analysis represents a direct approach. What is the history of the price movement? The price is the end result of the battle between the forces of supply and demand for the company's stock. the value of any asset is only what someone is willing to pay for it. Why did the price go up? It is simple. What is Chart? A price chart is a sequence of prices plotted over a specific timeframe.
high and low data points are not available. Sometimes only closing data are available for certain indices. thinly traded stocks and intraday prices 2. over a period of time. Bar Chart Perhaps the most popular charting method is the bar chart. By paying attention to only the close. Line charts are also used when open. high or low. intraday swings can be ignored. Connecting the dots. Line Chart The line chart is one of the simplest charts.Equity research on Banking sector January 1. of a security over a period of time. creates the line. The high and low are . low and close are required to form the price plot for each period of a bar chart. or price points. (Chart for Sun Microsystems) Some investors and traders consider the closing level to be more important than the open. The high. 2000. It is formed by plotting one price point. usually the close. 1999 to March 13. What are the different Charts used in Technical Analysis? 1.
Candlestick Chart Originating in Japan over 300 years ago. . A weekly candlestick is based on Monday's open.Equity research on Banking sector represented by the top and bottom of the vertical bar and the close is the short horizontal line crossing the vertical bar. 3. A daily candlestick is based on the open price. the open. low and close for a particular day. low and close are all required. Weekly charts would have a bar for each week based on Friday's close and the high and low for that week. high. the weekly high-low range and Friday's close. each bar represents the high. On a daily chart. and the close. For a candlestick chart. the intraday high and low. candlestick charts have become quite popular in recent years.
. The white and black portion formed from the open and close is called the body (white body or black body).Equity research on Banking sector Many traders and investors believe that candlestick charts are easy to read. White (clear) candlesticks form when the close is higher than the open and black (solid) candlesticks form when the close is lower than the open. The lines above and below are called shadows and represent the high and low. especially the relationship between the open and the close.
Equity research on Banking sector INTRODUCTION TO TRENDLINE Trendlines are an important tool in technical analysis for both trend identification and confirmation. The trendline is formed by joining previous lowest closing prices of the stock. Following charts show Uptrend and Downtrend movement in stocks The above chart of GoodYear Tire shows uptrend movement in stock. . When a stock is in uptrend it is good stock to buy and when a stock is in down trend it is advisable to sell that particular stock or wait for trend in the stock to change before taking buying decision. selling or holding the stock. Trends in charts are found to take decision regarding buying. A trendline is a straight line that connects two or more price points and then extends into the future to act as a line of support or resistance.
The trendline is formed by joining previous highest closing prices of the stock.Equity research on Banking sector The above chart of MERK&CO shows downtrend movement in stock. breakout in the trendline indicates the trend reversal in the stock. . Breakout in downtrend line give bullish signal and it is the time to buy that particular stock whereas breakout in uptrend line give bearish signal. it is advisable to sell the stock as the trend in the stock has changed and the stock may further fall in price. Note: Trendline as it shows the uptrend or downtrend movement in stock.
In the financial markets. it is believed that demand will overcome supply and prevent the price from falling below support. Supply is synonymous with bearish. By the time the price reaches the support level. The logic dictates that as the price declines towards support and gets cheaper. The logic dictates that as the price advances towards resistance. prices are driven by excessive supply (down) and demand (up). prices decline. bears and selling. When supply and demand are equal. As demand increases. it is believed that supply will overcome demand and prevent the price from rising above resistance. prices move sideways as bulls and bears slug it out for control. What is Support? Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. What is Resistance? Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. . sellers become more inclined to sell and buyers become less inclined to buy. By the time the price reaches the resistance level. buyers become more inclined to buy and sellers become less inclined to sell.Equity research on Banking sector INTRODUCTION TO SUPPORT AND RESISTANCE Support and resistance represent key junctures where the forces of supply and demand meet. prices advance and as supply increases.
5 with double top confirmation and it has Support at 45. .Equity research on Banking sector The above chart of PHILLIP MORRIS shows that the stock has Resistance at 51. Note: When a resistance level is successfully penetrated. it is the right time to buy the stock as the stock is expected to rise further whereas breakout in the support level is bearish sign for the stock and investors are advised to sell the stock when it’s price goes below support level as it is expected that the stock may further fall in price. Breakout in the resistance level gives bullish signal. Similarly when a support level is successfully penetrated. that level becomes a support level.5 with double bottom confirmation. that level becomes a resistance level.
Some investors and traders use indicators to predict the direction of future prices. • An indicator can act as an alert to study price action a little more closely. to confirm and to predict. Some indicators may use only the closing prices. while others incorporate volume and open interest into their formulas. Or. If there is a breakout on the price chart. Regardless of the complexity of the formula. • • Following are various indicators used in Technical Analysis • • • • • • • • Average Directional Index (ADX) Average True Range (ATR) Bollinger Bands Commodity Channel Index (CCI) Moving Average Moving Average Convergence Divergence (MACD) Relative Strength Index(RSI) Stochastic Oscillator . If momentum is waning. Indicators can be used to confirm other technical analysis tools. a corresponding moving average crossover could serve to confirm the breakout. Or. An indicator offers a different perspective from which to analyze the price action.Equity research on Banking sector INTRODUCTION TO INDICATORS An indicator is a series of data points that are derived by applying a formula to the price data of a security. low or close over a period of time. Price data includes any combination of the open. Why use indicators? Indicators serve three broad functions: to alert. a corresponding low in the On-BalanceVolume (OBV) could serve to confirm the weakness. indicators can provide unique perspective on the strength and direction of the underlying price action. it may serve as an alert to watch for a resistance breakout. if there is a large positive divergence building. The price data is entered into the formula and a data point is produced. if a stock breaks support. it may be a signal to watch for a break of support. high.
Equity research on Banking sector MOVING AVERAGES Moving averages are one of the most popular and easy to use tools available to the technical analyst. This can be especially helpful in volatile markets. The above chart of Sun Microsystems. Note: For long term investment horizon use 200 day SMA and for short or medium term investment horizon use 50 day SMA. Inc. If current stock price is above Moving Average Line then it is good stock to buy or hold. Selling or Holding the stock. moving averages smooth a data series and make it easier to spot trends. By using an average of prices. Moving Averages like other indicators are mainly used to confirm the trend reversal and take decision regarding Buying. Investors are advised to sell the stock at 50 as it is entering the bearish zone. . The chart shows breakout in 200 day SMA line at 50 which gives bearish signal. shows 50 day SMA (Simple Moving Average) and 200 day SMA line. Breakout in the Moving Average Line gives indication of buying or selling the stock.
For the past three decades India's banking system has several outstanding achievements to its credit. in fact. Now it is simple as instant messaging or dial a pizza. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. Liberalization The new policy shook the Banking sector in India completely. Go home at 4) of functioning.Equity research on Banking sector 6. till this time. Bankers. the Reserve Bank of India." The Banking Regulation Act also provided that no new bank or branch of an existing bank may be opened without a license from the RBI. Not long ago. THE INDIAN BANKING SECTOR Without a sound and effective banking system in India it cannot have a healthy economy. which included banks such as Global Trust Bank (the first of such new generation banks to be set up) which later amalgamated with Oriental Bank of Commerce. which came to be known as New Generation tech-savvy banks. he has a choice. were used to the 4-6-4 method (Borrow at 4%. an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. In 1949. and it became an institution owned by the Government of India. . In the early 1990s the then Narsimha Rao government embarked on a policy of liberalization and gave licenses to a small number of private banks. Gone are days when the most efficient bank transferred money from one branch to other in two days. and inspect the banks in India. This is one of the main reasons of India's growth process. UTI Bank (now re-named as Axis Bank). the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate. It is no longer confined to only metropolitans or cosmopolitans in India. Money has become the order of the day. Post Independence In 1948. ICICI Bank and HDFC Bank. Lend at 6%. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. and no two banks could have common directors. control. Indian banking system has reached even to the remote corners of the country. India's central banking authority. Today. was nationalized.
e. adequate capital provision. The Narasimhan Committee laid the foundation for the reformation of the Indian banking sector. The recent international consensus on preserving the soundness of the banking system has veered around certain core themes. in 1992 and 1998. the Narasimhan committee laid directions to introduce Special Tribunals and also lead to the creation of an Asset Reconstruction Fund. i. directed investments and fixed interest rates. For revival of weak banks. the lack of competitiveness vis-à-vis global standards. The developments. capital adequacy norms. Thus. inadequacy of capital and the erosion of profitability. low technological level in operations. reduction in CRR and SLR reserves. over staffing. thereby enhancing efficiency. sound practices of supervision and regulation. the Committee submitted two reports. productivity and profitability. the banking sector reforms have provided the necessary platform for the Indian banks to operate on the basis of operational flexibility and functional autonomy. all of which led to deterioration in the quality of loan portfolios.Equity research on Banking sector RECENT DEVELOPMENT IN BANKING SECTOR A retrospect of the events clearly indicates that the Indian banking sector has come far away from the days of nationalization. . transparency of operation. restructuring and recapitulating banks and enhancing the competitive element in the market through the entry of new banks. Until recently. To encourage speedy recovery of Non-performing assets. conducive public policy intervention and maintenance of macroeconomic stability in the economy. in general. which laid significant thrust on enhancing the efficiency and viability of the banking sector. As the international standards became prevalent. to maintain macroeconomic stability. However. The competitive environment created by financial sector reforms has nonetheless compelled the banks to gradually adopt modern technology to maintain their market share. for the first time that Indian public sector banks are being challenged by the foreign banks and private sector banks. These have significantly affected the operational environment of the Indian banking sector. Lastly. These are: effective risk management systems. the Verma Committee recommendations have laid the foundation. increase in the transparency of the banks’ balance sheets through the introduction of prudential norms and increase in the role of the market forces due to the deregulated interest rates. The reforms also include increase in the number of banks due to the entry of new private and foreign banks. have an emphasis on service and technology. the declaration of the Voluntary Retirement Scheme accounts for a positive development reducing the administrative costs of Public Sector banks. The reforms also brought about structural changes in the financial sector and succeeded in easing external constraints on its operation. Constituted in 1991. RBI has introduced the Asset Liability Management System. banks had to unlearn their traditional operational methods of directed credit. high NPAs and low levels of motivation had shackled the performance of the banking industry.
the banking sector reforms have lead to the development of a diversifying portfolio in retail banking. In order to survive and maintain strong presence. trend of mergers for better stability and also the concept of virtual banking. and insurance. . In order to ensure healthy competition. this has been proved by the increasing divergence of banks in retail banking for their development and survival. The deregulation process has resulted in delivery of innovative financial products at competitive rates. mergers and acquisitions has been the most common development all around the world.Equity research on Banking sector Branch size has been reduced considerably by using technology thus saving manpower. giving customer the best of the services.
strong and transparent balance sheets relative to other banks in comparable economies in its region. Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in PSU banks below 51% thus choking the headroom available to these banks for raining equity capital. enhancing the payments system and integrating regulations between commercial and co-operative banks. With increased interest in India. Old private sector banks also have the need to fundamentally strengthen skill levels. These require new skills in sales & marketing. risk management and the overall organisational performance ethic & strengthen human capital. Impediments in sectoral reforms: Opposition from Left and resultant cautious approach from the North Block in terms of approving merger of PSU banks may hamper their growth prospects in the medium term. restrictive labour laws. Indian banking system has reached even to the remote corners of the country. These changes include strengthening prudential norms. unless industry utilities and service bureaus. . asset quality and profitability with other regional banks over the last few years. Extensive reach: the vast networking & growing number of branches & ATMs. The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period. Structural weaknesses such as a fragmented industry structure. lack of institutional support infrastructure. consumer finance and wealth management on the retail side. competition from foreign banks will only intensify. credit and operations. Policy makers have made some notable changes in policy and regulation to help strengthen the sector. The cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. In terms of quality of assets and capital adequacy. weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs). WEAKNESS Public Sector Banks need to fundamentally strengthen institutional skill levels especially in sales and marketing.Equity research on Banking sector SWOT ANALYSIS OF BANKING SECTOR STRENGTH Indian banks have compared favorably on growth. service operations. Bank lending has been a significant driver of GDP growth and employment. OPPORTUNITY The market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards. and in fee-based income and investment banking on the wholesale banking side. Indian banks are considered to have clean. restrictions on capital availability and deployment.
the RBI has allowed them to raise perpetual bonds and other hybrid capital securities to shore up their capital. THREATS Threat of stability of the system: failure of some weak banks has often threatened the stability of the system. consumers will increasingly demand enhanced institutional capabilities and service levels from banks. it would help PSU banks. New private banks could reach the next level of their growth in the Indian banking sector by continuing to innovate and develop differentiated business models to profitably serve segments like the rural/low income and affluent/HNI segments. Liberalization of ECB norms: The government also liberalised the ECB norms to permit financial sector entities engaged in infrastructure funding to raise ECBs. . developing and retaining more leadership capacity Foreign banks committed to making a play in India will need to adopt alternative approaches to win the “race for the customer” and build a value-creating customer franchise in advance of regulations potentially opening up post 2009. Increase in the number of foreign players would pose a threat to the Public Sector Bank as well as the private players. Attracting.Equity research on Banking sector Given the demographic shifts resulting from changes in age profile and household income. Rise in inflation figures which lead to increase in interest rates. left with little headroom for raising equity. This enabled banks and financial institutions. Reach in rural India for the private sector and foreign banks. Hybrid capital: In an attempt to relieve banks of their capital crunch. explore this route for raising cheaper funds in the overseas markets. which were earlier not permitted to raise such funds. actively adopting acquisitions as a means to grow and reaching the next level of performance in their service platforms. If the new instruments find takers.
640 branches or offices.Equity research on Banking sector BANKING STRUCTURE IN INDIA According to the RBI in March 2009. there are overall 56.356 employees and 27. Public sector banks made up a large chunk of the infrastructure. .3 per cent of all automated teller machines (ATMs). number of all Scheduled Commercial Banks (SCBs) was 171 of which. 893.088 ATMs.7 per cent of all offices. with 87. 86 were Regional Rural Banks and the number of NonScheduled Commercial Banks including Local Area Banks stood at 5. Taking into account all banks in India. 82 per cent of staff and 60.
Equity research on Banking sector .
3. financial institutions. Floating in current and saving accounts. 2. 4. etc. Borrowing from RBI under Repo (Repurchase option). etc. 4.Equity research on Banking sector What are the sources of funds for banks in India? The banks in India generate their funds from two types of sources: Long-Term Sources: 1. and mutual funds. 3. Long-term borrowings from financial institutions like NABARD/SIDBI. etc. etc. Long-term fixed deposits generated from public and corporate clients. and MFs. Fixed deposits generated from public and corporate clients. Short and medium-term fixed deposits generated from public and corporate clients. Short-term borrowings from FIs by way of rated papers placed. Tier one and Tier two Capital in the form of equity/subordinate debts/debentures/preference shares. 6. Call money market. Market-linked borrowings from RBI.e. 5. FIs. 8. Internal accrual generated out of profits.. mutual funds. 7. funds generated among inter banking transactions where there is online trading of money between bankers. i. Short-Term Sources: 1. 2. Sale of liquid certificate deposits in the open market. and financial institutions. .
life and non-life insurance. thus covering 100% of its business and providing ‘Anytime Anywhere’ banking facility to all customers including customers of more than 3200 rural & semi urban branches.20 (Rs 514. PUNJAB NATIONAL BANK Profile With over 60 million satisfied customers and more than 5100 offices including 5 overseas branches. The Bank has also been offering Internet . debit card. Corporate Social Responsibility (CSR) practices. All branches of the Bank are under Core Banking Solution (CBS) since Dec’08.55. business and many other parameters. the Bank has the Gross and Net NPA ratio of 1. bullion business. best use of technology and good human resource management.79% and 0. PNB has achieved significant growth in business which at the end of March 2011 amounted to Rs 5. During the FY 2010-11. Advances. the Bank achieved a net profit of Rs 4433 crore. The Bank has been able to maintain its stakeholders’ interest by posting an improved NIM of 3. PNB has earned many awards and accolades during the year in appreciation of excellence in services.67% & Agriculture Credit to Adjusted Net Bank Credit at 19. the bank has also entered the credit card. transparent governance structure. Apart from offering banking products.42% as on Mar’11 as per Basel II with Tier I and Tier II capital ratio at 8. Bank always looked at technology as a key facilitator to provide better customer service and ensured that its ‘IT strategy’ follows the ‘Business strategy’ so as to arrive at “Best Fit”. PNB has remained fully committed to its guiding principles of sound and prudent banking. During the FY 2010-11.60 (Rs 123. The bank enjoys strong fundamentals. Bank has a strong capital base with capital adequacy ratio of 12.57% Mar’10).16% share of CASA to domestic deposits. with 39. Punjab National Bank continues to maintain its frontline position in the Indian banking industry.86 Mar’10) while the Book value per share improved to Rs 661.44% and 3. Assets. its ratio of Priority Sector Credit to Adjusted Net Bank Credit at 40.85% respectively. Since its humble beginning in 1895 with the distinction of being the first Swadeshi Bank to have been started with Indian capital.98% respectively. Deposit. Besides being ranked as one of India's top service brands.005 crore.77 Mar’10). Gold coins & asset management business. Operating and Net profit in the year 2010-11. As on March’11. large franchise value and good brand image.96% in Mar’11 (3. total Business.30% was also higher than the stipulated requirement of 40% & 18% respectively.Equity research on Banking sector 7. The Earning per Share improved to Rs 140. In particular. etc. PNB is ranked as the 2nd largest bank in the country after SBI in terms of branch network. PNB has continued to retain its leadership position amongst the nationalized banks. the bank has retained its NUMBER ONE position among the nationalized banks in terms of number of branches. The Bank has made rapid strides in this direction.
Besides.64% in Dana Bank of Kazakhstan. “PNB VIKAS”. The Bank has started several innovative initiatives for marginal groups like rickshaw pullers. dairy farmers.Equity research on Banking sector banking services to its customers which also enables on line booking of rail tickets. vegetable vendors.. provision of computers. purchase of airline tickets. etc. stationary items to poor girl students at various orphanages and schools etc. Bank acquired majority equity stake of 63. During the year. Towards developing a cost effective alternative channels of delivery. SHARE HOLDING PATTERN . Bank has formed “PNB PRERNA”. The Bank has launched a drive for biometric smart card based technology enabled Financial Inclusion with the help of Business Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile customer. two branches at Hong Kong and an Off Shore Banking Unit at Mumbai. Dubai. Bank has launched a welfare scheme of adoption of village viz. The association through its voluntary initiatives has undertaken activities like distribution of food to the poor and needy. construction workers. a wholly owned subsidiary in UK with 7 branches and a subsidiary each in Kazakhstan & Bhutan. etc. the Bank has been a frontrunner in the industry so far as the initiatives for Financial Inclusion is concerned. an association of the wives of the Bank’s senior management. Bank has selected 117 villages (60 in lead districts and 57 in non lead district) in different circles for all-round improvement in the living standards of the villagers. In addition to the above. With the help of advanced technology. Bank has Representative offices at Almaty. the Bank is planning to realize its global aspirations. Under the scheme. With its policy of inclusive growth. Backed by strong domestic performance. the Bank’s mission is “Banking for Unbanked”. Bank has opened one branch each at Kabul and Dubai. Shanghai and Oslo. books. the Bank with 5050 ATMs has the largest ATM network amongst Nationalized Banks. Nepal. payment of utilities bills. and joint venture with Everest Bank Ltd.
69 296.02% ForeignInstitutions.56 312.78 315.00 19.00 0. 4.592.62 23.589. 0.65% FinancialInstitutions.13 246.130.632.491.354.02% GeneralPublic.470.59 1.25 4. 0.99 63.145.81 0. 1.824.106.35 18.96% NBanksMutualFunds.67 95.37 268.162.58 5.00 0.30 0.918.653.898.89 154.63 1.058. 12. Money at Call Advances Investments 316.80 19.601.86 18.724.30% ForeignNRI.29% Promoters.134.76% .262.374.92 249.720.50 4.30 315.90 5. 3.99 1.722.914.0 Others.32 242.25 315.99 17. 19.30 0.385.27 378.513.69 344.21 77.00 12.328.73 31.00 0.81 316.488. 58.327.702.508.325.317.76 21.47 17.00 15.00% BALANCESHEET Rs (Crores) Mar '11 Mar '10 Mar '09 CAPITAL AND LIABILITIES: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net Worth Deposits Borrowings Total Debt Other Liabilities & Provisions Total Liabilities ASSETS Cash & Balances with RBI Balance with Banks.36 214.17 10.Equity research on Banking sector % Share Holding OtherCompanies.63 209.760.776.99 186.74 14.30 315.18 .329.42 12.915.
22 12.74 2.85 3.00 8.43 416.45 255.00 696.96 3.80 0.00 5.154.421.85 12.38 1.00 4.449.406.07 Mar '10 21.02 3.461.00 0.85 19.43 Mar '09 19.83 3.78 514.20 246.74 PROFIT AND LOSS STATEMENT Mar '11 INCOME Interest Earned Other Income Total Income EXPENDITURE Interest expended Employee Cost Selling and Admin Expenses Depreciation Miscellaneous Expenses Preoperative Exp Capitalised Operating Expenses Provisions & Contingencies TOTAL EXPENSES Net Profit for the Year Extraordionary Items Profit brought forward TOTAL Preference Dividend Equity Dividend Corporate Dividend Tax 26.981.00 0.02 0.876.00 6.020.918.179.325.295.88 0.36 0.07 296.58 30.245.62 79.30 2.59 0.00 0.14 4.00 8.433.618.433.16 2.466.50 0.73 37.06 15.218.104.22.168 2.25 101.91 3.513.42 191.124.456.00 3.06 2.46 26.465.00 630.77 3.65 31.96 2.813.919.924.126.42 378.632.99 113.986.49 21.61 107.60 1.46 222.270.14 1.701.215.67 116.36 1.533.88 0.56 4.87 3.090.090.81 1.944.64 3.79 68.00 7.367.930.Equity research on Banking sector Gross Block Accumulated Depreciation Net Block Capital Work In Progress Other Assets Total Assets Contingent Liabilities Bills for collection Book Value (Rs) 4.599.00 5.026.326.913.905.42 0.47 33.47 0.17 .21 1.00 5.215.31 25.53 632.397.48 4.121.25 2.48 3.032.565.612.337.137.701.11 0.941.832.10 2.01 3.320.69 22.761.00 693.50 0.
growing by 23. 4.570.00 416.8 crore from Rs.1 crore at end March2010.55 lakh crore at the end of March 2011 compared to Rs. 87.06 for the ear ended March 31. registering Year.49% amount to Rs. 4433 crore registered a growth of 13.5.88 COMMENTS 1. which is thrust area of the Bank. 8. While Business per employee grew to Rs. Education Loans.155. Under retail credit segment.42 lac crore (29. Growth in the credit was mainly driven by Retail and MSME.17 crore in March2011 from Rs.00 98. Deposits of the bank increased by 25.599.6% from Rs.36 lac crore last year. 2.00 737. 5. 4. 6. 7.74 1. While total business crossed Rs.532.7%). 2011 as against 25.22cr as on March 31.73 cr for the .86 220.10 0.190.365. Financial year 2010-11 was an eventful year with the Bank crossing number of milestones.77 1. 30. 3.78 7.39 2. Banks productivity indicators have shown improvement. Loans to MSME sector.00 632.48 1.258. Business Per Branch showed improvement to Rs.5%.090. 7326 crore last year.Equity research on Banking sector Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) Appropriations Transfer to Statutory Reserves Transfer to Other Reserves Proposed Dividend/Transfer to Govt Balance c/f to Balance Sheet Total 139. Banks Capital to Risk Asset Ratio (CRAR) complying with Basel II requirements stood at 12.03 200. Net interest income of the bank grew 2 2 .44 810. Auto Loans and Housing Loans with growth of 24% were the major contributors. 9056 crore for the FY ended 2010-11.on-Year (YoY) growth of 27. global deposits reached Rs.433.3%. 2010.00 514. registered a growth of 29.08 crore at the end of March 2010.913. Net Profit at Rs.5%) and global gross advances touched Rs.00 3.42 % at the end of March 2011.3%.46 1.12 lac crore (25.46 1.05 810. 10. Operating profit stood at Rs.50 123.06 0.032.94 220. 3. 312898. 104. 2.64 3. 2 4 % to Rs.00 4.
06 777.79 2.12 940.41 9.76 8.12 26.06 4.52 6. 186601.Equity research on Banking sector yearer ended M a r c h 2010 as compared to Rs.52 2.76 129. 249329.89 5.64 63.02 .03 Mar '10 15.56 108.55 2.74% to Rs.80 cr in December 8.64 12.02 Mar '09 13.24 4.36 15.79 5.42 78.61 0. 242106.81 9.46 21.14 5.25 2.98 15.15 0.83 23.15 15.19 14.49 22.64 116.31 15.01 0.53 14. Advances of the bank registered a growth of 29.96 14.3 1.55 5.89 60.18 10.16 77.82 9.21cr as on 31 s t March 2010 FINANCIAL RATIOS Mar '11 PROFITABILITY RATIOS Net Profit Margin Return on Long Term Fund(%) Return on Net Worth(%) Net Operating Profit Per Share (Rs) MANAGEMENT EFFICIENCY RATIOS Interest Income / Total Funds Interest Expended / Total Funds Operating Expense / Total Funds Total Income / Capital Employed(%) Interest Expended / Capital Employed(%) Asset Turnover Ratio PROFIT AND LOSS ACCOUNT RATIOS Interest Expended / Interest Earned Other Income / Total Income Operating Expense / Total Income BALANCE SHEET RATIOS Capital Adequacy Ratio Advances / Loans Funds(%) Total Debt to Owners Fund Debt – Equity Ratio LEVERAGE RATIOS Current Ratio 14.75 22.62 16.05 9.07 4.62 2.52 694.67cr for this year as against Rs.04 56.03 80.11 24.87 4.
Bank will continue its focus on sustaining the high earnings performance by keeping strict control on costs and revenue maximization. Net Interest Margin (NIM) stood at 3. Similarly.34% and 22. Capital adequacy ratio has also improved when compared to last year.12 .79% at the end of March2011. Gross NPA ratio stood at 1.13%.57% in FY 2009-10. Net NPA to Net Advances ratio stood atO.56 220 22. Advances and deposits have increased. Net profit of the bank has decreased due to inflation and RBI’s policies of increasing rates.24 20.315. Attribute PE ratio EPS (Rs) Sales (Rs crore) Face Value (Rs) Net profit margin (%) Last dividend (%) Return on average equity Value 6.47 9. 7.94 8. which indicates that it has high liquidity. with more dependency on debt as compared to equity. Punjab National Bank is a highly levered company. With better profit performance.24 10 14. Acid test ratio is quite good. respectively. 3. 6.75 COMMENTS 1. 4. Return on Assets (RoA) and Return on Equity (RoE) stood at 1. 2.98 139.96% compared to 3.85%. For the FY ended 2010-11. Income earned by the bank is double the expenses incurred by the firm when compared to total funds. 5.Equity research on Banking sector Quick Ratio 22.
They have to offer consistent banking experience to the customers irrespective of the channel he or she may prefer to use. As per Forbes magazine. rising incomes and changes in customer expectations. Corporate Social Responsibility (CSR) practices. new products. Bank has been conferred with the Gold trophy of SCOPE Meritorious Award for Best Managed Bank. 2. . transparent governance structure. 5. 4. PNB will continue to make investments in technology. With rapid economic growth. 3. banking services have to be refashioned. risk management and towards expanding franchise value. PNB tops the list of nationalized banks with a global ranking of 653.Equity research on Banking sector ACHIEVEMENTS AND FUTURE PROSPECTS 1. Financial Institution or Insurance Company for 2009-10 by Her Excellency the President of India. The Bank ranks at 257th position amongst worlds Top 1000 Banks. PNB has found place in the league tables in various categories. while Business Today ranked it as 14th Most Valuable Public Sector Companyfor 2010. Such investment will facilitate the Bank to retain competitive advantage. London. PNB figures as one of the top 5 banks in India according to The Banker magazine. best use of technology and good human resource management practices. India’s demography is undergoing significant changes. Business World recognized PNB as the 3rd best large bank and 5th Fastest Growing Bank for 2010. The Bank is ranked 24th Best Company amongst top 500 Indian Companies as per Economic Times. Bank has earned awards and accolades during the year in appreciation of excellence in services.
innovative. number of branches. structured products etc – each one of these initiatives having a huge potential for growth. looking at the vast untapped potential in the hinterland and proposes to cover 100. . STATE BANK OF INDIA PROFILE The State Bank of India. The bank is entering into many new businesses with strategic tie ups – Pension Funds. It is consolidating its global treasury operations and entering into structured products and derivative instruments. Mobile Banking. Custodial Services. Advisory Services. competitive and seamlessly integrated across channels. the Bank is the largest provider of infrastructure debt and the largest arranger of external commercial borrowings in the country. to expand its Rural Banking base. The Bank is forging ahead with cutting edge technology and innovative new banking models. nimble-footed and execute its strategy effectively. the bank will have to remain alert. Their products and services will have to be user-friendly. General Insurance.Equity research on Banking sector 6. market capitalization and profits is today going through a momentous phase of Change and Transformation – the two hundred year old Public sector behemoth is today stirring out of its Public Sector legacy and moving with an agility to give the Private and Foreign Banks a run for their money. It is the only Indian bank to feature in the Fortune 500 list. the country’s oldest Bank and a premier in terms of balance sheet size. It is also focusing at the top end of the market.000 villages in the next two years. Private Equity. Point of Sale Merchant Acquisition. As business opportunities expand. Today. on whole sale banking capabilities to provide India’s growing mid / large Corporate with a complete array of products and services. 8.
In a recently concluded mass internal communication programme termed ‘Parivartan’ the Bank rolled out over 3300 two day workshops across the country and covered over 130. It has also 7 Subsidiaries in India – SBI Capital Markets.000 employees in a period of 100 days using about 400 Trainers. the Bank is also attempting to change old mindsets. debit cards.Equity research on Banking sector The Bank is changing outdated front and back end processes to modern customer friendly processes to help improve the total customer experience. It is in the process of raising capital for its growth and also consolidating its various holdings. mobile banking. SBI DFHI. etc.forming a formidable group in the Indian Banking scenario. SBI Life and SBI Cards . and other electronic channels such as Internet banking. With about 8500 of its own 10000 branches and another 5100 branches of its Associate Banks already networked. The bank is also looking at opportunities to grow in size inIndia as well as Internationally. SBICAP Securities. With four national level Apex Training Colleges and 54 learning Centres spread all over the country the Bank is continuously engaged in skill enhancement of its employees. SBI Factors. SHARE HOLDING PATTERN . It presently has 82 foreign offices in 32 countries across the globe. The Bank is also in the process of providing complete payment solution to its clientele with its over 21000 ATMs. Throughout all this change. The workshops fired the imagination of the employees with some other banks in India as well as other Public Sector Organizations seeking to emulate the programme. today it offers the largest banking network to the Indian customer. attitudes and take all employees together on this exciting road to Transformation. to drive home the message of Change and inclusiveness. Some of the training programes are attended by bankers from banks in other countries.
88 0.986.11% N BanksM utualFunds 4.88 634.52% G eneralPublic 6.947.04 0.88 634.00 0.42% Promoters 61.32 0.351.00 57.00 57.70 .15% BALANCESHEET Rs (Crores) CAPITAL AND LIABILITIES: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net Worth 12 mths 635.00 64.20% CentralG ovt 0.00 65.314.00 635.00 0.00 64.20 12 mths 634.23% FinancialInstitutions 13.949.20% ForeignInstitutions 11.00 65.15% 3.02% O thers 0.00 0.88 0.Equity research on Banking sector % Share Holding O therComp aniesForeignN RI 0.312.82 0.00 0.04 12 mths 634.
736.431.07 63.935.290.2 0 804.96 1.697.117.932.968.63 7.953.962.7 4 429.478.053.479.09 96.23 103.47 152.81 119.503.68 795.546.719.7 3 742.83 80.053.786.29 1.413.432.038.70 1.394.294.7 7 105.04 1.603.37 166.713.85 1.501.403.395.76 1.92 14.223.27 964.57 13.06 912.95 332.78 .65 756.45 295.223.73 PROFIT AND LOSS ACCOUNT Rs (Crores) Mar '11 12 mths Mar '10 12 mths Mar '09 12 mths INCOME Interest Earned Other Income Total Income 81.736.90 4.63 542.127.15 285.18 35.914.41 263.993.336.50 28.08 94.65 3.28 8.432.011.568.917.600.964.574.36 14.07 11.35 76.248.092.892.13 53.413.831.60 907.45 70.Equity research on Banking sector Deposits Borrowings Total Debt Other Liabilities & Provisions Total Liabilities ASSETS Cash & Balances with RBI Balance with Banks.33 4.757.691.39 1.23 43.053.76 55.57 964.329.189.023.15 85.2 0 585.790.17 48. Money at Call Advances Investments Gross Block Accumulated Depreciation Net Block Capital Work In Progress Other Assets Total Assets Contingent Liabilities Bills for collection Book Value (Rs) 933.857.81 110.87 34.43 12.98 631.828.06 6.788.40 61.733.449.713.777.116.08 614.73 295.96 10.44 37.112.20 275.50 205.073.
Equity research on Banking sector EXPENDITURE Interest expended Employee Cost Selling and Admin Expenses Depreciation Miscellaneous Expenses Operating Expenses Provisions & Contingencies TOTAL EXPENSES Net Profit for the Year Extraordionary Items Profit brought forward TOTAL Preference Dividend Equity Dividend Corporate Dividend Tax Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) Appropriations Transfer to Statutory Reserves Transfer to Other Reserves Proposed Dividend/Transfer to Govt Balance c/f to Balance Sheet Total 48.34 9.39 42.729.34 9. In regard to special home loans.76 6. in excess of prudential requirements.34 7.65 236.141.4%).57 0.37 300.50 12. on account of higher regulatory requirements in respect of special home loans as well as for higher provision coverage ratio on loans.319.19 990.089.52 116.57 COMMENTS:1.28 88.747.00 0.40 2. as these loans are considered riskier.75 18.915.166.17 12.18 0.905.73 6.Bank has adhered to very conservative underwriting policies in respect of such loans.90 2.31 5. RBI required banks to provide higher provision of 2% (as against the usual rate of 0.41 0.00 1. be written back in the Banks books. which carry lower interest in the initial years.07 300.841.15 248.121.479.00 912.00 0.121.02 9. the additional provision would.48 12.141.370.023.00 1.796.904.532.00 24.06 763.01 4. As such.166.60 67. Similarly.959.480. therefore.810.660.00 0. 2.34 7.14 8.39 0.67 290.00 1. Bank had to make substantially higher provisions during the year.23 0.69 47.888.12 7.725.151.69 0. when these loans revert to the usual card rates of interest.121.166.867.370.358.30 31.76 144.488.50 2.14 529.23 932.96 2.03 143.898.52 0.66 7.941.123.65 7.00 1.322.35 0.55 9.34 9.66 6.370.430.15 306.53 76. which are all Standard.754.88 8.05 0.00 246.122. the .34 9.29 9.87 2.495.038.00 1.96 14.
resulting in higher loan-loss provisions and de-recognition of interest income 8. Deposits of Bank rose to 16. .67% in March’10 to 48.Equity research on Banking sector additional provision for enhancing the provision coverage ratio (so as to reach a coverage of 70%.56% at the end of March’10.32% from Rs. Consequently.33.1% (annualized).32% as at the end of March’11 was 276 bps higher than 73.41% rise recorded in FY’10.04. Gross Advances of Bank recorded a yoy growth of 20. 12.27% in FY’11 against growth of 29. Higher slippages of 3. 3. but addressed most of its pending issues. The bank took a charge through reserves and `8. Tax rate is abnormally high as the benefit of provisions do not have the benefit of tax deductions.22% at the end of December’10 due to higher growth in deposits in Q4FY’11. 8.66% in March’11. 1.84% in FY’10.480 crores in March’10 to Rs.14%. 32. 802 crores in March’11.116 crores in March’10 to Rs. Driven by loan growth of 20.72% despite profit on sale of investments declining by Rs. your Bank’s cost–income ratio fell below the psychological threshold of 50% to 47. it has declined from 77. Credit Deposit Ratio (Domestic) at 76.60% in FY’11 from 52. 5. however. With lower growth in operating expenses at 13. net interest income increased by 37. Non interest income rose by 5. 5 bn of standard asset provisions for teaser loans .526 crores against 13. an increase of 199 bps.45% yoy in FY’11 against a growth of 9. With sustained 26.59% in FY’10.71. interest income on advances has increased by 18. 4. driven by CASA growth of 22.6. as against the specific asset-wise coverage of around 59% for SBI is also in the nature of additional comfort in the balance sheet and is expected to be written back when the underlying exposures are resolved.41.5 bn impact on revised costs on provident fund (increase of 1% to 9. 9.20% rise in Savings Bank deposits. 7.14% yoy from Rs. 11.5% for FY2011) resulting in margin decline 7.11% in FY’10. 9. sequentially.196 crores in a rising interest rate scenario.2.32%. Fee income also recorded a handsome rise of 20% in FY’11.41% to Rs.8 bn through P & L during the current quarter for pensions on revised salary costs 6. Growth in interest expenses was contained mainly due to CASA deposits growth of 22. 10. CASA ratio improved from 46. SB I reported sharply lower earnings for this year.14%.933 crores in March’11.
06 0.80% in March’10.72 12.66% and 2 bps lower than 9.26% in March’11 from 5.67 0. RATIO ANALYSIS Mar '11 PROFITABILITY RATIOS Net Profit Margin Return on Long Term Fund(%) Return on Net Worth(%) MANAGEMENT EFFICIENCY RATIOS Interest Income / Total Funds Interest Expended / Total Funds Operating Expense / Total Funds Loans Turnover 8.38 0.14 Mar '10 10.15 Mar '09 12. though sequentially it is up from 5.58% in December’10.03 100. the yield on advances at 9.71 8.02 13.89 8.39 4.52 4.16 .09 2.55 96.74 8.69 2. In the same period.56% was 10 bps lower than 9.35 15.54 95.88 5.Equity research on Banking sector 13.20% in December’10. Average cost of deposits has come down by 54 bps to 5.29 2.
Operating profit rose by 34. . with more dependency on debt as compared to equity.1 31.48 4. showing that core operations remain robust.23% was 90 bps higher than 17.25 78.21 0.2 67.74 COMMENTS 1.28% in March’11 against 3.799 crores in FY’10.34 13.72% to 1. Acid test ratio is quite good.09 7.04 1. Capital adequacy ratio has also decreased when compared to last year. Though gross NPAs stood at 3.62 4.98 77. 2. State Bank of India is a highly levered company.04 5.73 0.40% in March’11 was 11 bps higher than 16.19 16.29% in March’10.07 8. 4. 7.24 60. 8.51 11. increased provisioning saw net NPAs move down from 1.75 0. 24. In the same period.28 1.5 8.04% to Rs.21 27.66% for financeial year 2010.22 13.39 74.63% in the same period.Equity research on Banking sector Total Income / Capital Employed(%) Interest Expended / Capital Employed(%) Asset Turnover Ratio PROFIT AND LOSS ACCOUNT RATIOS Interest Expended / Interest Earned Other Income / Total Income Operating Expense / Total Income BALANCE SHEET RATIOS Capital Adequacy Ratio Advances / Loans Funds(%) Debt Equity LEVERAGE RATIOS Current Ratio Quick Ratio 8.69 7. 33.66 1. 6.05% in March’10. 5. your Bank’s market share in low cost demand deposits at 18.04 9.61 13. 3. Advances and deposits have increased. Income earned by the bank is double the expenses incurred by the firm when compared to total funds. Net interest margin has improved to 3. which indicates that it has high liquidity.32% as compared to 2.91 14.240 crores in FY’11 from Rs.04 8. Bank’s market share in total deposits at 16.29 7.18 22.99 5.33%.26 66.
Two new lines of business viz.55 300 12. SME Current account and Supply Chain Finance.44 10 8.197. improving processes and matching organizational structures. Cash Management Product.15 24. . NRI remittances and Government business have been identified for strategising aggressive business plans. 2. Seven niche areas viz. Mobile Banking. Merchant Acquisition Business. Custodial Services and General Insurance have been successfully set up and are in the process of stabilization.Equity research on Banking sector Attribute PE ratio EPS (Rs) Sales (Rs crore) Face Value (Rs) Net profit margin (%) Last dividend (%) Return on average equity Value 80. Savings Bank.22 130.71 ACHIVEMENTS AND FUTURE PROSPECTS 1.
2010) in SHG-Bank Credit Linkage programme having credit linked so far 18.03. 4.50 lac enrollments done up to 31. 7. SBI Capital Markets Ltd.72 crores during FY’11 against Rs.Equity research on Banking sector 3. SBI is the top enroller with more than 9. 6. During the year.12 crores in FY’10.90 lac SHGs (1. SBI Cards has scripted an impressive turnaround and posted a net profit of Rs.000 crores mark and the company recorded a profit of Rs. 137. 366 crores in FY’11. SBI Life received the NDTV Profit Business Leadership 2010-11 award for organisational excellence.78 lac SHGs credit linked during FY11) and disbursed loans to the extent of Rs. gross premium of SBI Life crossed the Rs.03.2011.500 crores (cumulative) up to 31. After recording continuous losses for preceding three years. a yoy growth of 172%. and 85% yoy growth in revenue for infrastructure Group.03. 5. 7. clocking an impressive yoy growth of 33% and raising its market share to 19.2011. COMPARISON . 12.22% from 18% in FY’10. SBI is the first Bank to sign MoU with UIDAI to become a Registrar. 14. 374. posted a PAT of Rs.10 crores in FY’11. driven by an increase of 81% in fee income. The Bank is the market leader (market share around 29. The enrolment data will be used for opening ‘UID enabled’ accounts. After State Governments.88% as on 31.
Also it has come down to larger extend. Also when we talk about Non performing assets.Equity research on Banking sector Above graph shows the changes in stock prices of Punjab National Bank and State Bank of India. 9. EPS is also in favour of PNB.22 for SBI. we can find PNB having strong hold compared to SBI. When we compare net interest margin. whereas PNB has also seen a fall but its is marginal when compared to SBI. We can see that the stock of SBI is more volatile when compared to PNB. TECHNICAL ANALYSIS .98 which means we are paying for 6 yrs profit in advance which is 80. PE ratio also suggests PNB better then SBI as it is only 6. PNB is better then SBI.
But still nothing can be commented as to whether it will continue downtrend for some more time or not. which forms support price. The stocks also indicate bearish market trend. It has already reached to its 52 weeks low. Hence there are chances the stock will get underpriced and when we make of Bollinger band indicator it can be noticed by comparing moving averages the stock will follow an uptrend.Equity research on Banking sector PUNJAB NATIONAL BANK We can observe that according to technical analysis the stock pattern shows falling wedge trend. The expected target price is Rs 1055 STATE BANK OF INDIA .
It has already reached to its 52 weeks low. Hence there are chances the stock is undervalued and when we make of Bollinger band indicator it can be noticed by comparing moving averages the stock will follow an uptrend. But still nothing can be commented as to whether it will continue downtrend for some more time or not. . which forms support price.Equity research on Banking sector We can observe that according to technical analysis the stock pattern shows sidewards movement and downward trend. The stocks also indicate bearish market trend. The expected target price is Rs 2064.
EPS and PE ratio it is advisable to invest in Punjab National Bank. CONCLUSION . 11.Equity research on Banking sector 10. But after considering major factors like NIM. FINDINGS According to analysis it can be noticed that according to fundamental analysis both the Banks i.e Punjab National Bank and State Bank of India are having a sound position and we can invest in both the firms. NPA. According to technical analysis though there is downtrend we can invest in both the firms as the stocks are undervalued now and can give assured returns.
• Our training program helped us to understand various aspects of training module. in turn we were being provided training on equity research and wealth management. It was also found that people prefer LIC to make an investment than making an investment in any private company. mutual funds and our mentor advised to make project on equity research or on IPO or on mergers and acquisitions or on mutual funds. • We were given a traditional plan to sell the policy. 12.• Equity research on Banking sector We had done our summer internship as trainee in Birla Sunlife Insurance Company where we were asked to achieve target and. So it was difficult task to sell this policy. . • We also learnt preparing a dummy portfolio as an activity by choosing stocks and maintaining the NAV. We got knowledge of share market. When we approached to people we found that people were reluctant to make an investment in this plan for such a long period of time. This policy was for a long tenure of 22 years or 35 years. RECOMMENDATIONS • The training room should be more spacious.
• The policy documents also took time of 15-20 days to reach to the clients which can be improved if the policy gets login on the day when company receives all client details along with money. • Interns should be given two-three insurance plans to sell so that it becomes easy for interns to achieve the targets.• Equity research on Banking sector There is a need for an improvement in company’s system as it takes more time to execute the policy. . Smaller duration plans should be promoted as people are ready to invest in such plans. At times the operational system used to be down and because of that there was delay in login of the policy. • The company should start promoting by emphasizing on its recent achievement of 100% claim settlement. To overcome this. Company should even focus on ULIP plan though it is totally based on equity which is a risky investment but in a period of 10-12 years share market provides good returns to investors. The company should also come up with innovative products to meet the tough competition. This will surely help them to attract new customers and improve their market position. the company should have a smooth operational system in place.
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