A Research Project On

Fundamental Analysis of ICICI Bank
On the fulfillment of two year Full time Post Graduate Diploma in Management

Guru Nanak Institute of Management, Punjabi Bagh, New Delhi

Submitted By
NEETU HANS Roll No-6003 Specialization: Finance PGDM

Supervised By
Mr. N.P Singh Asst. Prof. Finance

A Research Project On

Fundamental Analysis of ICICI Bank
On the fulfillment of two year Full time Post Graduate Diploma in Management

Guru Nanak Institute of Management, Punjabi Bagh, New Delhi

Submitted By
NEETU HANS Roll No-6003 Specialization: Finance PGDM

Supervised By
Mr. N.P Singh Asst. Prof. Finance

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Certificate
This is to certify that the project work done on “Fundamental analysis of ICICI bank” is a bonafide work carried out by Neetu Hans under my supervision and guidance. The project report is submitted towards the fulfillment of two year, full time Post Graduate Diploma in Management. This work has not been submitted anywhere else for any other degree/diploma.

Prof N.P Singh (Project Guide)

R.P Singh (Director General)

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Acknowledgement
The present research work cannot see the light of the day unless it is blessed by the benign assistance of eminent person. The help and co-ordination that I have received from various quarters of in bringing this work to completion makes me feel deeply indebted. This is not a work of individual but a number of persons who helped me directly or indirectly in this journey. So, I wish to express great fullness to all those who have helped & assisted me in bringing the final shape of this report. First of all, I wish to express my deep sense of gratitude to our Director Dr R.P. Singh for his guidance and moral support all along the period of my study in the institute. I am deeply indebted to my project guide Prof N.P Singh for his kind advice, encouragement, support & proper guidance during the course of preparation of this project. I got tremendous support in mastering fact & figures from him. Really He had been a great source of information during the period of study. Last but not the least I wish to express my deep sense of gratitude to all those who were knowingly or unknowingly with me during the project tenure.

NEETU HANS

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5.TABLE CONTENTS Sr. 6 14 17 26 33 36 38 45 52 72 76 80 5 . Introduction to fundamental analysis Economic analysis Industry analysis Company analysis Research methodology Data analysis Economic Industry Company 7. 6. 4. Finding & Limitations Conclusion & Suggestion Bibliography Page no. 9.no TITLE 1. 2. 3. 8.

INTRODUCTION TO FUNDAMENTAL ANALYSIS (Chapter-1) 6 .

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What is analysis?
The examination and evaluation of the relevant information to select the best course of action from among various alternatives. The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value. Technical analysis takes a completely different approach; it doesn't care one bit about the "value" of a company or a commodity. Technicians (sometimes called chartists) are only interested in the price movement in the market.

What is technical analysis?
Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

What is fundamental analysis?
Fundamental Analysis involves examining the economic, financial and other qualitative and quantitative factors related to a security in order to determine its intrinsic value. It attempts to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies). Fundamental analysis, which is also known as quantitative analysis, involves delving into a company‟s financial statements (such as profit and loss account and balance sheet) in order to study various financial indicators (such as revenues, earnings, liabilities, expenses and assets). Such analysis is usually carried out by analysts, brokers and savvy investors. Many analysts and investors focus on a single number--net income (or earnings)--to evaluate performance. When investors attempt to forecast the market value of a firm, they frequently rely on earnings. Many institutional investors, analysts and regulators believe earnings are not as relevant as they once were. Due to nonrecurring events, disparities in measuring risk and management's ability to disguise fundamental earnings problems, other measures beyond net income can assist in predicting future firm earnings.

Two Approaches of fundamental analysis
While carrying out fundamental analysis, investors can use either of the following approaches: 1 .Top-down approach: In this approach, an analyst investigates both international and national economic indicators, such as GDP growth rates, energy prices, inflation and interest rates. The

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search for the best security then trickles down to the analysis of total sales, price levels and foreign competition in a sector in order to identify the best business in the sector. 2. Bottom-up approach: In this approach, an analyst starts the search with specific businesses, irrespective of their industry/region.

How does fundamental analysis works?
Fundamental analysis is carried out with the aim of predicting the future performance of a company. It is based on the theory that the market price of a security tends to move towards its 'real value' or 'intrinsic value.' Thus, the intrinsic value of a security being higher than the security‟s market value represents a time to buy. If the value of the security is lower than its market price, investors should sell it.

The steps involved in fundamental analysis are:
1. Macroeconomic analysis, which involves considering currencies, commodities and indices. 2. Industry sector analysis, which involves the analysis of companies that are a part of the sector. 3. Situational analysis of a company. 4. Financial analysis of the company. 5. Valuation The valuation of any security is done through the discounted cash flow (DCF) model, which takes into consideration: 1. Dividends received by investors 2. Earnings or cash flows of a company 3. Debt, which is calculated by using the debt to equity ratio and the current ratio (current assets/current liabilities)

Fundamental Analysis Tools These are the most popular tools of fundamental analysis. Earnings per Share – EPS Price to Earnings Ratio – P/E
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Projected Earnings Growth – PEG Price to Sales – P/S Price to Book – P/B Dividend Payout Ratio Dividend Yield Book Value Return on Equity Ratio analysis

Financial ratios are tools for interpreting financial statements to provide a basis for valuing
securities and appraising financial and management performance. A good financial analyst will build in financial ratio calculations extensively in a financial modeling exercise to enable robust analysis. Financial ratios allow a financial analyst to: Standardize information from financial statements across multiple financial years to allow comparison of a firm‟s performance over time in a financial model. Standardize information from financial statements from different companies to allow apples to apples comparison between firms of differing size in a financial model. Measure key relationships by relating inputs (costs) with outputs (benefits) and facilitates comparison of these relationships over time and across firms in a financial model.

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:
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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? Liquidity ratios 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?

WHY ONLY FUNDAMENTAL ANALYSIS Long-term Trends
Fundamental analysis is good for long-term investments based on long-term trends, very long-term. The ability to identify and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who pick the right industry groups or companies.

Value Spotting
Sound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors think long-term and value. Graham and Dodd, Warren Buffett and John Neff are seen as the champions of value investing. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying power.

Business insights
One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such pains taking research and analysis, an investor will be familiar with the key revenue and profit drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians will agree to that.

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DATA SOURCES Secondary data has been collected from various sources to analyze the fundamentals. Knowing Who's Who Stocks move as a group. cyclical (transportation) or incomeoriented (high yield). but there‟s little in the charts that tell us why a group of people make the choices that create the price patterns Objective of the study To analyze economy by using some economic indicators like GDP. To carry out financial and non-financial analysis of ICICI bank as a whole for the selected period. fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. By studying these groups. low-risk (utilities). Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations.A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. investors can better position themselves to categorize stocks within their relevant industry group. By understanding a company's business. non-cyclical (consumer staples). which were not really internet companies. value driven (oil). and inflation rate etc for the selected period of 5 years. The secondary data has been collected from Books ACE equity database Internet-websites 12 . The charts of the technical analyst may give all kinds of profit alerts. signals and alarms. but plain retailers. To analyze the industry especially private bank industry for the selected period of 5 years. This has happened with many of the pure internet retailers. Business can change rapidly and with it the revenue mix of a company. growth oriented (computer). investors can better position themselves to identify opportunities that are high-risk (tech). A stock's price is heavily influenced by its industry group. In addition to understanding the business.

inferences. CHAPTER 4: DATA ANALYSIS This is the chapter of all observations. analysis and conclusions that will be made out of the data analysis during the course of study. CHAPTER 3: DATA SOURCE AND RESEARCH METHODOLOGY This chapter will give an inside into source of data and method of undertaking research. CHAPTER 1: INTRODUCTION TO STUDY This chapter will be introductory in nature covering the relevance of study. CHAPTER PLAN It is proposed to divide the project into following chapters. CHAPTER 2: CONCEPTUAL FRAMEWORK OF FUNDAMENTAL ANALYSIS This chapter will include a comprehensive study of the concept of Fundamental analysis And its tools. BIBLIOGRAPHY 13 .PERIOD OF STUDY: The period of study for the analysis is five years from 2006-2010. CHAPTER 5: LIMITATIONS AND SUGGESTIONS All the limitations and stumbling blocks that will be encountered during the study will be discussed in this chapter along with the future scope and suggestions.

ECONOMIC ANALYSIS (Chapter.2) 14 .

It is a gross measurement because it includes the total amount of goods and services produced. not necessarily through tax policies but also through foreign policies and administrative procedures. most sectors and companies usually face survival problems.The economic analysis aims at determining if the economic climate is conclusive and is capable of encouraging the growth of business sector. especially the capital market. Hence. It is important to predict the direction of the national economy because economic activity affects corporate profits. most industry groups and companies are expected to benefit and grow. It is calculated by adding the market values of all the final goods and services produced in a year. to predict share prices. Tools for Economy Analysis The most used tools for performing economic analysis are: Gross Domestic Product (GDP) Monetary policy and Liquidity Inflation Interest rates International influences Fiscal policy Influences on long term expectations Influences on short term expectations 1) Gross Domestic product GDP is one measure of economic activity. When the economy declines. It is domestic production because it includes only goods and services produced within the country. of which some merely replace goods that have depreciated or have worn out. When the economy expands. Exploring the global economy is essential in an international investment setting. This is the total amount of goods and services produced in a country in a year. 15 . The selection of country for investment has to focus itself to examination of a national economic scenario. an investor has to spend time exploring the forces operating in overall economy.

increases in interest rate. the erection of trade barriers. 3) Interest rate Interest rate is the price of credit. In particular. if prices rise steadily. In general. and services. and harm the export sector of an economy. or other factors. through spending. after a number of years.2) Inflation Inflation can be defined as a trend of rising prices caused by demand exceeding supply. It is the percentage fee received or paid by individual or organization when they lend and borrow money. fiscal policy refers to the efforts by the government to stimulate the economic directly. will lead to reduced borrowing and economic slowdown. even a small annual increase in prices of say 1 % will tend to influence the purchasing power of the nation. goods. government policy. currency restrictions can hinder the free flow of currency. whether caused by inflation. 4) International influences Rapid growth in overseas market can create surges in demand for exports. In contrast. Over time. leading to growth in export sensitive industries and overall GDP. 5) Fiscal policy The fiscal policy of the government involves the collection and spending of revenue. quotas. rising risk premium. 16 . . consumers will be able to buy only fewer goods and services assuming income level does not change with inflation. In others word.

Industry Analysis (Chapter-3) 17 .

business publications and the department of economic analysis perform a comprehensive industry analysis. management preferences. Product lines Product growth Complementary product Economics of scale Suppliers Labors Substitute products Buyers and their behavior Product pattern (cyclical. Industry analysis involves reviewing the economic. seasonal) Cost structure Tools for industry analysis Cross-sectional industry Industry performance over time Differences in industry risk Prediction about market behavior Competitors over the industry life cycle 18 . industry associates. Data needs for industry analysis Industry analysis requires a variety of quantitative and qualitative data. the condition of competitors. Major factors can include the power wielded by suppliers and buyers. And the likelihood of new market entrants. buyers and suppliers.An industry analysis helps inform business managers about the viability of their current strategy and on where to focus a business among its competitors in an industry. Though one single source for all the data needs might not found. substitute products. political and market factors that influence the way the industry develops. The analysis examines factors such as competition and the external business environment. A suggestive list of data categories that are utilized for performing industry analysis is listed below.

and no two banks could have common directors. and it became an institution owned by the Government of India. Indian banking system has reached even to the remote corners of the country. Not long ago. Today. the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate. Bankers. were used to the 4-6-4 method (Borrow at 4%. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. and inspect the banks in India. This is one of the main reasons of India's growth process. Lend at 6%. Post independence In 1948. ICICI Bank and HDFC Bank. an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Gone are days when the most efficient bank transferred money from one branch to other in two days." 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.THE INDIAN BANKING SECTOR REVIEW Without a sound and effective banking system in India it cannot have a healthy economy. till this time. 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. 19 . In 1949. It is no longer confined to only metropolitans or cosmopolitans in 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. 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. Go home at 4) of functioning. India's central banking authority. the Reserve Bank of India. he has a choice. control. For the past three decades India's banking system has several outstanding achievements to its credit. Now it is simple as instant messaging or dial a pizza. Liberalization The new policy shook the Banking sector in India completely. was nationalized. Money has become the order of the day. in fact. which came to be known as New Generation techsavvy banks. UTI Bank (now re-named as Axis Bank).

Most banks have enjoyed high growth and their valuations have appreciated significantly during this period.000 branches and 17.2% and 6. no new bank could be setup in India for about two decades. India has 88 scheduled commercial banks (SCBs) . followed by the taking over of the seven associated banks as its subsidiary. the public sector banks hold over 78 percent of total assets of the banking industry. commercial banks are the oldest institutions. New Private Sector Banks After the nationalization of the major banks in the private sector in 1969 and 1980. Initially they were set up in large numbers. and effectively allocating capital and maintaining system stability. a rating agency. efficiently managing intermediation cost. fostering financial inclusion. some them having their genesis in the nineteenth century. They have a combined network of over 67. mostly as corporate bodies with shareholding with private individuals. Thus 27 banks constitute the Public Sector Banks. the most pertinent issue is how well the banking sector is positioned to cater to continued growth. Looking ahead. A holistic assessment of the banking sector is possible only by looking at the roles and actions of banks. BANKING STRUCTURE IN INDIA The banking institutions in the organized sector. Public Sector Banks Public Sector Banks emerged in India in three stages. with the private and foreign banks holding 18. India‟s economy has been on a high growth trajectory.000 ATMs. their core capabilities and their ability to meet systemic objectives. contributing to GDP growth. Second the nationalization of 14 major commercial banks in 1969and last the nationalization of 6 more commercial Bank in 1980. creating unprecedented opportunities for its banking sector. Commercial Banks operating in India fall under different sub categories on the basis of their ownership and control over management. 29 private banks (these do not have government stake.5% respectively.28 public sector banks (that is with the Government of India holding a stake). which include increasing shareholder value. Today 27 banks constitute a strong Public Sector in Indian Commercial Banking. The 20 . According to a report by ICRA Limited. though there was no legal bar to that effect. First the conversion of the then existing Imperial Bank of India into State Bank of India in 1955. they may be publicly listed and traded on stock exchanges) and 31 foreign banks. Over the last four years.Current situation Currently.

1934. ICICI. companies. The minimum paid up capital of such banks would be 5 crores with promoters contribution at least Rs. and UTI etc.2009. They are to be set up in district towns and the area of their operations would be limited to a maximum of 3 districts. Maharashtra and Andhra Pradesh. a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act. so as to improve the image of commercial banking system and to win the confidence of the public. Scheduled Commercial Banks in India The commercial banking structure in India consists of: Scheduled Commercial Banks in India Unscheduled Banks in India Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act. 1970 (5 of 1970). 1955 (23 of 1955). There number was 38 as on 31. "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act.Narasimham Committee on financial sector reforms recommended the establishment of new banks of India. trusts and societies. Local Area Banks Such Banks can be established as public limited companies in the private sector and can be promoted by individuals. 1959 (38 of 1959). 1980 (40 21 . Foreign Banks Foreign commercial banks are the branches in India of the joint stock banks incorporated abroad. 2 crores.03. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section42 (6) a) of the Act. They have to work in a professional manner. At present. one each in Punjab. RBI thereafter issued guidelines for setting up of new private sector banks in India in January 1993. Gujarat. a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act. These guidelines aim at ensuring that new banks are financially viable and technologically up to date from the start. Eight private sector banks have been established including banks sector by financially institutions like IDBI. or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act. four local area banks are functional.

"Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act. They undertake the business of banking both in urban and rural areas on the principle of cooperation. asset quality and profitability with other regional banks over the last few years.640 branches or offices. there exists in India another set of banking institutions called cooperative credit institutions. or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act.356 employees and 27. In 1966. Public sector banks made up a large chunk of the infrastructure. SWOT ANALYSIS OF BANKING SECTOR STRENGTH Indian banks have compared favorably on growth. Bank lending has been a significant driver of GDP growth and employment. They have served a useful role in spreading the banking habit throughout the country. Cooperative Banks Besides the commercial banks. 22 . Hence the State Governments regulate these banks. number of all Scheduled Commercial Banks (SCBs) was 171 of which. The cooperative banks have been set up under various Cooperative Societies Acts enacted by State Governments. 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. 82 per cent of staff and 60. Indian banking system has reached even to the remote corners of the country. but does not include a co-operative bank". 1949 (10 of 1949). Extensive reach: the vast networking & growing number of branches & ATMs. These changes include strengthening prudential norms. 893. with 87.7 per cent of all offices.3 per cent of all automated teller machines (ATMs). there financial position is not sound and a majority of cooperative banks has yet to achieve financial viability on a sustainable basis. need was felt to regulate their activities to ensure their soundness and to protect the interests of depositors According to the RBI in March 2009. there are overall 56. enhancing the payments system and integrating regulations between commercial and co-operative banks. These have been made in existence in India since long. Taking into account all banks in India.088 ATMs. which is not a scheduled bank". Yet. Policy makers have made some notable changes in policy and regulation to help strengthen the sector. 1934 (2 of 1934).of 1980). 86 were Regional Rural Banks and the number of Non-Scheduled Commercial Banks including Local Area Banks stood at 5.

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. WEAKNESS Public Sector Banks need to fundamentally strengthen institutional skill levels especially in sales and marketing. 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. and in fee-based income and investment banking on the wholesale banking side. credit and operations. Structural weaknesses such as a fragmented industry structure. Given the demographic shifts resulting from changes in age profile and household income. consumer finance and wealth management on the retail side. strong and transparent balance sheets relative to other banks in comparable economies in its region. These require new skills in sales & marketing. 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. OPPORTUNITY The market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards. lack of institutional support infrastructure. consumers will increasingly demand enhanced institutional capabilities and service levels from banks. service operations. competition from foreign banks will only intensify. weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs). unless industry utilities and service bureaus. restrictions on capital availability and deployment. With increased interest in India. Old private sector banks also have the need to fundamentally strengthen skill levels. risk management and the overall organizational performance ethic & strengthen human capital. Indian banks are considered to have clean. 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. actively adopting acquisitions as a means 23 . restrictive labour laws.

to grow and reaching the next level of performance in their service platforms. If the new instruments find takers. Increase in the number of foreign players would pose a threat to the Public Sector Bank as well as the private players. explore this route for raising cheaper funds in the overseas markets. 24 . Hybrid capital: In an attempt to relieve banks of their capital crunch. 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. left with little headroom for raising equity. Attracting. Rise in inflation figures which would lead to increase in interest rates. Reach in rural India for the private sector and foreign banks 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. which were earlier not permitted to raise such funds. it would help PSU banks. This enabled banks and financial institutions.

Key players Andhra Bank Allahabad Bank Punjab National Bank UTI Bank Kotak Mahindra Bank Citibank HSBC Bank American Express Bank State Bank of India Vijaya Bank HDFC Bank ICICI Bank Centurion Bank of Punjab Standard Chartered Bank State Bank of Mysore ABN AMRO 25 .

Company analysis (Chapter-4) 26 .

this implies that there are certain unique characteristics for this particular company that had made it a success. those who buy the business.Analysis of the company consists of measuring its performance and ascertaining the cause of this performance. Each of these forces is discussed below. The identification of these characteristics. When some companies have done well irrespective of economic or industry failure. Company analysis ought to examine the levels of competition. Of these factors. is referred to as company analysis. seller‟s competition. and other forces that affect the company‟s ability to be profitable. Here. Porter model Porter's Five Forces is a framework for industry analysis and business strategy development formed by Michael E. Three of Porter's five forces refer to competition from external sources. competition from new entrants. Financial indicators are the profitability indicators and financial position indicators analyzed through the income and balance sheet statements. how easily new businesses can enter the industry. and finally. the business cycle that a company is undergoing is a very useful tool to assess the future performance from the company. Rather than on quantitative data. A very unattractive industry would be one approaching "pure competition". of the company. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. as revealed in the annual report. 27 . the competition from those who already in the industry. The focus of the qualitative data. Attractiveness in this context refers to the overall industry profitability. qualitative factors of a company also influence investment decision process of an institutional investor. It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. 1.as in the director‟s speech. understanding the competitive environment is most important. which includes the marketing edge of the company. The choice of an investible company broadly depends on the expectations about its future performance in general. exit competition. in which available profits for all firms are driven down to zero. How well a company deals with each of these forces will determine whether the company earns above or below average profit. those who buy from the business. Besides the quantitative factors. respectively. Tools for company analysis Company analysis involves choice of investment opportunities within a specific industry that comprises of several individual companies. Porter of Harvard Business School in 1979. demand. Operational indicators are capacity utilization and cost versus sales efficiency of the company. how costly it is to exit. A business faces five forces of competition (porter‟s model) namely. The remainder are internal threats. Quantitative indicators of company analysis are the financial indicators and operational efficiency indicators. whether quantitative or qualitative. buyer‟s competition. Competitive forces include the power of those who sell the business.

have been able to make a return in excess of the industry average. profitability is low and yet individual companies. A clear example of this is the airline industry. Porter's five forces include .Porter referred to these forces as the micro environment. and the threat of new entrants. The other elements are the value chain and the generic strategies (a) The threat of the entry of new competitors Profitable markets that yield high returns will attract new firms.) The most attractive segment is one in which entry barriers are high and exit barriers are low.three forces from 'horizontal' competition: threat of substitute products. requires a business unit to re-assess the marketplace given the overall change in industry information. the abnormal profit rate will fall towards zero (perfect competition). Few new firms can enter and non-performing firms can exit easily. which eventually will decrease profitability for all firms in the industry. etc. rights. to contrast it with the more general term macro environment. A change in any of the forces normally. by applying unique business models. Firms are able to apply their core competencies. the threat of established rivals. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. Economies of product differences Brand equity Switching costs or sunk costs Capital requirements Access to distribution 28 . The existence of barriers to entry (patents. and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers. As an industry. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. business model or network to achieve a profit above the industry average. This five forces analysis is just one part of the complete Porter strategic models. This results in many new entrants. Unless the entry of new firms can be blocked by incumbents.

when there are few substitutes.. Information-based products are more prone to substitution. or. e. Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution Bargaining leverage.Customer loyalty to established brands Absolute cost Industry profitability. and services (such as expertise) to the firm can be a source of power over the firm. components. charge excessively high prices for unique resources. the more profitable the industry the more attractive it will be to new competitors (b) The threat of substitute products or services The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives: Buyer propensity to substitute Relative price performance of substitute Buyer switching costs Perceived level of product differentiation Number of substitute products available in the market Ease of substitution. Suppliers of raw materials. particularly in industries with high fixed costs Buyer volume Buyer switching costs relative to firm switching costs Buyer information availability Ability to backward integrate Availability of existing substitute products Buyer price sensitivity Differential advantage (uniqueness) of industry products RFM Analysis (d) The bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs. which also affects the customer's sensitivity to price changes. as online product can easily replace material product. labor. Suppliers may refuse to work with the firm. Substandard product Quality depreciation (c) The bargaining power of customers (buyers) The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure.g. 29 .

and innovation. This applies to products and services. Vertical integration is a strategy to reduce a business' own cost and thereby intensify pressure on its rival. as well as other possible statements 3. other companies. or even the economy to judge the performance of the company. Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits. an individual or any other entity. Sustainable competitive advantage through innovation Competition between online and offline companies.g. Ratio analysis is predominately used by proponents of fundamental analysis. the industry. click-and-mortar -v. How will competition react to a certain behavior by another firm? Competitive rivalry is likely to be based on dimensions such as price. the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Financial statements are meant to present the financial information of the entity in question as clearly and concisely as possible for both the entity and for readers. Technological advances protect companies from competition. Financial statements for businesses usually include: income statements. balance sheet. Ratios are calculated from current year numbers and are then compared to previous years.slags on a bridge Level of advertising expense Powerful competitive strategy The visibility of proprietary items on the Web used by a company which can intensify competitive pressures on their rivals. The financial statements of the company: Records that outline the financial activities of a business.ability to forward vertically integrate and cut out the BUYER (e) The intensity of competitive rivalry For most industries. labor unions) Supplier competition . quality. There are many ratios that can be calculated 30 . statements of retained earnings and cash flows.Supplier switching costs relative to firm switching costs Degree of differentiation of inputs Impact of inputs on cost or differentiation Presence of substitute inputs Strength of distribution channel Supplier concentration to firm concentration ratio Employee solidarity (e. until competitors imitate them. Ratio analysis: A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. 2. Examples of recent technology advantage in have been mp3 players and mobile telephones.

ROE: Of all the fundamental ratios that investors look at. offering a different take on management's effectiveness reveals how much profit a company earns for every dollar of its assets. one of the most important is return on equity. debt-equity ratio. Earnings per share serve as an indicator of a company's profitability. ROE is calculated as: Annual Net Income Average Shareholders' Equity 7. which.+from the financial statements pertaining to a company's performance. A high ROI means that investment gains compare favorably to investment costs GAINS. ROA: Return on assets. 31 . EPS: The portion of a company's profit allocated to each outstanding share of common stock. earnings per share. equipment. financing and liquidity. accounts receivable. property. decisions. asset turnover and working capital. Some common ratios include the price-earnings ratio. inventory and furniture.INVESTMENT COSTS INVESTMENT COSTS 6. ROI: Return on Investment is one of several commonly used approaches for evaluating the financial consequences of business investments. Assets include things like cash in the bank. It's a basic test of how effectively a company's management uses investors' money .ROE shows whether management is growing the company's value at an acceptable rate. activity. ROI analysis compares the magnitude and timing of investment gains directly with the magnitude and timing of investment costs. ROA is calculated like this: Annual Net Income Total Assets 5. 4. or actions.

one time dividends S . the dividend yield is the return on investment for a stock. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued. DIVIDEND YEILD: financial ratio that shows how much a company pays out in dividends each year relative to its share price. P/O RATIO: The amount of earnings paid out in dividends to shareholders. Investors can use the payout ratio to determine what companies are doing with their earnings Calculated 10.Shares outstanding for the period 9. Dividend yield is calculated as follows: 32 .Calculated as: 8.Sum of dividends over a period (usually 1 year) SD .Special. DPS can be calculated by using the following formula: D . In the absence of any capital gains. DPS: The the sum of declared dividends for every ordinary share issued.

RESEARCH METHODOLOGY (Chapter-5) 33 .

growth. The research methodology using for find out the solution of the research problem is analytical research methodology and some extend descriptive research methodology Secondary Data The sources of secondary data for solve the problems are:Company Annual Report ACE equity database Internet-websites Period of study The period of the study is 5 years i. and value in the market. Tools These are the most popular tools of fundamental analysis.Research methodology Research methodology is a way to systematically solve the research problem.e. They focus on earnings. Earnings per Share – EPS Price to Earnings Ratio – P/E Projected Earning Growth – PEG Price to Sales – P/S Price to Book – P/B Dividend Payout Ratio Dividend Yield Book Value Ratio Analysis Liquid ratio 34 . (2006-2010). Company 5 years data has been taken for the analysis.

dividend per share. 35 . graphs and tables of financial statement for example balance sheet. profit loss a/c.Turnover ratio Valuation ratio Techniques The technique used in the analysis of the company is excel sheets. ratio analysis. valuation ratio etc. cash flow statement.

DATA ANALYSIS (Chapter-6) 36 .

some of which include data mining. in which items are more precisely described as data in terms of quantity and in which numerical values are used. There are a variety of specific data analysis method. text analytics. and data visualizations Data can be of several types Quantitative data is a number Qualitative data is a pass/fail or the presence of a characteristic Quantitative data is data measured or identified on a numerical scale.The process of evaluating data using analytical and logical reasoning to examine each component of the data provided. Data from various sources is gathered. However. This is almost the converse of quantitative data. This form of analysis is just one of the many steps that must be completed when conducting a research experiment. nationality or commodity type. 37 . histograms and graphs. business intelligence. and then analyzed to form some sort of finding or conclusion. Qualitative data described items in terms of some quality or categorization that may be 'informal' or may use relatively ill-defined characteristics such as warmth and flavor. reviewed. The term qualitative data is used to describe certain types of information. and results can be displayed using tables. data originally obtained as qualitative information about individual items may give rise to quantitative data if they are summarized by means of counts. charts. Numerical data can be analyzed using statistical methods. qualitative data can include well-defined aspects such as gender. However.

ECONOMY ANALYSIS 38 .

6 per cent chance that it will fall in 6. The forecasters have assigned highest 29. The survey showed the economists expect GDP growth in the April-June quarter to be 8. Expert expects that India s economy to grow by 8.8 per cent y-o-y thanks to improved harvests.Analysis of Indian Economy India's economy expanded 8.5%.0 percent . Recently RBI changed the repo rate from 5. which peaked at 11% last month. Interest rates have been increased by the banks to contain the inflation. The Reserve Bank of India has stated that it had seen an annual growth of 8. GDP growth is placed at 8.6% onyear expansion in the first.9 per cent in 2010.1 percent up from 7. Agricultural output raised 2.1% in 2010 based on a steep gain in industrial output and resurgent private consumption investment and exports. lifted by robust activity in manufacturing. CRR rate they keeping unchanged.9 percent in the last survey. But even thought there has been a rise in the interest rates there hasn‟t been much change in the distribution of loans. 39 . The main priority of the Reserve Bank is to curb the ongoing inflation.0 percent from 3. Were these scenarios to continue growth would lift further to 8.1 percent and for services it was steady at 9. Industrial production increased by 12% and in the mining sector by 9%.11. Agricultural output along with strong development in the Industrial. Almost every sector of the economy is poised to grow faster and a 9 per cent growth in 2010-11 is not difficult if domestic policies and external factors do not come in the way.75% to 6% and reverse repo rate 4. They also expect the Reserve Bank of India (RBI) to continue gradually raising interest rates and to keep a tight leash on liquidity to tame inflation. for industry to 9.0-6. the Indian customer is hardly affected with the hiked interest rates. but it could slow down the growth of the Indian economy in the coming months.0 percent from 8. This six time I a year they revise key parameter to control inflation.5 percent.8% in the second quarter from a year earlier. For the July-September quarter. According to 2010 data the shares of banking sector value add in GDP has been increased 7.5% steadily.3 percent.5% to 5%.3% in 2011 said Chief Economist.7% from 2. Mining and banking sector have helped to boost the Indian economy. compared to an 8. They raised their forecasts slightly for agriculture growth to 4.

50 6.58 percent in October from 8. higher than 9. pointing to inflationary risks.80 8.in Asia's third-largest economy slowed unexpectedly in September to 4.9% IN THE THIRD QUARTER India's domestically-powered economy grew more than expected in the September quarter. data showed on Tuesday.50 7. which accounts for over 50 percent of GDP.10 40 .90 Dec - 8. Wholesale price inflation.8 percent in the September quarter.82 percent the previous month.INDIA GDP SURGES 8.50 Jun 8.90 6.matching the revised figure for the previous quarter.3 percent from 7. economist at MF Global in Mumbai. grew 9.1 percent from 19 percent in the previous quarter. Consumer price inflation eased to an annual 9. some analysts said." said Anjali Varma. Signs of easing inflation.3 percent in the previous quarter. defying weakness elsewhere and putting pressure on the Reserve Bank of India (RBI) to tighten monetary policy although a rate increase next month still looks unlikely.7 percent in October from 9. the central bank is unlikely to get aggressive again in raising rates.62 percent a month earlier.80 Sep 8.4 percent from a year earlier. while annualized private consumption accelerated to 9.92 percent growth Year 2010 2009 2008 Mar 8. a fragile global economy and weaker industrial output in September were likely to forestall any rise in rates in the near-term. Industrial output growth -. which is more closely watched as it covers a higher number of products.60 5.8 percent in the previous quarter. The services sector.60 6.00 7. down from the previous month's upwardly revised 6. Investment growth slowed on an annualized basis to 11. "Unless the full year growth looks likely to cross 9 percent. eased to 8.9 percent in the September quarter -. Annual gross domestic product grew 8.a key indicator of growth momentum -.

has also facilitated impressive growth in the commercial banking sector (Chart 5. the ratio of commercial banking assets to GDP increased to 98.March 2009 from 91. Though the growth rate of the consolidated balance sheet of commercial banks moderated in 2008-09 at 21 per cent as compared to 25 per cent in 2007-08.5 per cent at end. Accordingly. the sector continued to grow at a rate higher than that of the nominal GDP (at current market prices). 41 . especially since 2005.Healthy economic growth.6 per cent as at end-March 2008.2).

With the impact of the financial crisis gradually affecting the global economy. investments grew by 34. 42 .3 per cent. on the back of fiscal and monetary measures.3 per cent as on September 2008). This trend is clearly shown by the movements in incremental credit-deposit (CD) and investment-deposit (ID) ratio in recent periods (Chart 5.5). there are early signs of credit growth recovering in line with the economy. credit off-take slowed down further and the year on year growth in bank credit during the first half year of 2009-10 stood at 12. During the same period. However.5 per cent (as compared to 6.

Inflation rate refers to a general rise in prices measured against a standard level of purchasing power.89 11.88 2009 10. and the GDP deflator.47 8.45 9.86 13.64 11.03 7.63 2008 5.29 7. From 1969 until 2010.91 13.49 13.51 5.97 8. The most well known measures of Inflation are the CPI which measures consumer prices. historical data and news.73 11. This page includes: India Inflation Rate chart.72 11.86 14.45 9.33 Dec 9.47 2010 16.02 9.45 10.63 7.87 8.33 9.INDIA INFLATION RATE The inflation rate in India was last reported at 9.33 13.31 percent in May of 1976.82 Oct 9.99 percent reaching an historical high of 34.25 9. the average inflation rate in India was 7.70 Nov 8.77 10.70 7.81 8. year Jan Feb Mar Apr May Jun Jul Aug Sep 9. which measures inflation in the whole of the domestic economy.70 43 .68 percent in September of 1974 and a record low of -11.75 9.22 14.69 11.51 14.47 percent in December of 2010.

00 3.00 6.75 3.00 3.75 3.00 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 3.25 3.25 6.25 5.00 3.00 6.50 5.25 6.25 3.India Interest Rate The benchmark interest rate (reverse repo) in India was last reported at 5. interest rate decisions are taken by the Reserve Bank of India's Central Board of Directors.50 percent in August of 2000 and a record low of 3.5 percent. India's average interest rate was 5.25 percent in April of 2009.00 5.50 6.50 3.08 3. Year 2011 2010 2009 2008 Jan 5.25 6.38 6.00 4.25 4.50 44 . From 2000 until 2010.25 6.38 3. The official interest rate is the benchmark repurchase rate.25 6.25 4.75 6.63 3. In India.25 6.25 3.82 percent reaching an historical high of 14.00 3.00 4.00 3.00 5.00 3.

INDUSTRY ANALYSIS 45 .

which comprise the Reserve Bank of India (RBI). A few banks have established an outstanding track record of innovation. consumer finance and wealth management on the retail side. Second. The failure to respond to changing market realities has stunted the development of the financial sector in many developing countries. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan. 90. have made several notable efforts to Improve regulation in the sector. The cost of banking intermediation in India is higher and bank penetration is far lower than in other markets. consumers will increasingly demand enhanced institutional capabilities and service levels from banks.4 per cent during the rest of the decade as against the growth rate of 16.000 crores That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. competition from foreign banks will only intensify. India‟s banking industry must strengthen itself significantly if it has to support the modern and vibrant economy which India aspires to be. improved regulations. Fourth. rather than a limiting. and in fee-based income and investment banking on the wholesale banking side. While the onus for this change lies mainly with bank managements. The policy makers. Third. In this “white paper”. which has harmed the long-term health of their economies. This will expose the weaker banks. profitability and non-performing assets (NPAs). the market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards. However. The sector now compares favorably with banking sectors in the region on metrics like growth. an enabling policy and regulatory framework will also be critical to their success. Growth in the Indian banking industry The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. A weak banking structure has been unable to fuel continued growth. These require new skills in sales & marketing. banking sector in India.The last decade has seen many positive developments in the Indian banking sector. First. growth and value creation in the sector remain limited to a small part of it. Bank assets are expected to grow at an annual composite rate of 13. given the demographic shifts resulting from changes in age profile and household income.7 per cent that existed between 1994-95 and 2002-03. This is Reflected in their market valuation. the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided. OPPORTUNITIES AND CHALLENGES FOR PLAYERS The bar for what it means to be a successful player in the sector has been raised. It is expected that there will be large additions to the capital base and reserves on the liability side. Ministry of Finance and related government and financial sector regulatory entities. 46 . growth and value creation. credit and operations. innovation. with increased interest in India. Four challenges must be addressed before success can be achieved. The total assets of all scheduled commercial banks by end-March 2010 are estimated at Rs 40. we emphasize the need to act both decisively and quickly to build an enabling.

93 9732.9 6429.89 350. EPS(Rs) PBIDTM% (Rs.96 Kotak Bank HDFC Bank 201003 3255. In Crore) PATM% ROCE% ROE% 201003 2706.31 Axis Bank 201003 11638.06 39.95 16.73 2948.66 6.53 62.39 19.Peer Group Comparison (Standalone) Company Name Indusind Bank Year End Net Sales PBIDT PAT Adj.68 13.7 64.62 1297 561.15 Interpretation Here we can see that ICICI has highest net sales with 25706.11 8.23 6.84 17.18 4024.93 cr.02 5240.1 37.53 26 12.52 201003 16172.03 21.98 36.94 7.76 18.31 8.99 703.93 cr.56 2514.23 5.53 19.61 6. And PAT is also highest among the peer group with 4027. 47 .06 45.51 ICICI Bank 201003 25706.42 39.86 15.18 7. That means ICICI is most favorable company to invest in terms of profit.

04 6.21 5.77 44.02 7.2 Core Operating Income Growth Operating Profit Growth Net Profit Growth Advances Growth Liquidity Ratios 9.78 7.46 2009 89 14.45 45.07 0.44 6.56 51.41 17.44 37.34 12.49 2007 71 12.72 0.26 0.73 8.94 1.99 30.65 5.73 48 .44 32.36 6.22 0.38 6.74 7.69 7 1.2 0.36 5.87 4.22 5.35 48.17 10.28 1.8 37.18 13.07 7.25 7.72 Loans/Deposits(x) Cash/Deposits(x) Investment/Deposits(x) Inc Loan/Deposit (%) 0.89 44.43 18.08 60.56 102.1 1.14 1.38 8.63 8.87 7.1 4.55 2008 83 12.42 107.44 25.37 5.48 38.27 4.55 20.82 2006 68 11.07 0.06 0.43 22.23 7.47 19.19 0.1 0.38 50.18 0.45 3.19 7.04 46.28 11.8 8.66 86.96 42.Bank – Private Industry Ratios Description No Of Companies Margin Ratios Yield on Advances Yield on Investments Cost of Liabilities NIM Interest Spread Performance Ratios ROA (%) ROE (%) ROCE (%) Efficiency Ratios Cost Income Ratio Core Cost Income Ratio Operating Costs to Assets Growth Ratio 2010 74 13.19 14.31 6.09 5.84 14.45 6.58 0.79 16.11 42.41 4.6 55.09 0.28 0.09 2.66 51.35 127.4 50.63 0.86 46.92 7.02 5.

NET PROFIT: the NP ratio establishes the relationship between the net profit (after tax) of the firm and the net sales. 49 . The return from the point of view of equity shareholders may be calculated by comparing the net profit less preference dividend with there total contribution to the firm. Its measures the efficiency of the management in generating additional revenue over and above the total cost of operations. ROA shows as to how much is the profit earn by the firm per rupee of assets used. Net profit ratio has decreased over the years which mean that the overall profitability of the industry has fallen down.Interpretation ROE: ROE examines profitably from the perspective of equity investors by relating profits available for the equity share holders with the book value of equity investments. ROE is calculated by establishing the relationship between the profits and the assets employed to earn that profit. Here industry ROA is almost stable. Over the years ROE of the industry have declined ROA: ROA measures a profitability of the firm in terms of assets employed in the firm.

49 14902.87 15.46 5710.64 8732.68 -1.71 6848.11 2009 89 136806.07 22481.01 14051.7 16043.73 62.01 19010.19 31161.6 33074.71 15899.76 9657.68 27871.24 170622.31 -22.39 8925.1 18421.92 -23.7 37886.12 24090.65 16710.25 65332.5 11246.12 182.72 117367.35 32827.85 2008 83 107590.09 2007 71 71311.53 12149.45 16440.48 42996.47 27165. This is a good sign for the investor who want to invest in the banking industry.54 142927.1 79499.93 35299.47 68370.84 37898.84 -30.22 38681.7 33745.15 3904.69 150510.87 21595.77 124713.51 1766.36 33282.84 17321.95 24155.8 28016.61 11823.31 85.15 35136.36 28555.79 18239.71 84711. APPROPRIATIONS Latest 98 135486.66 135607.71 29599.74 12304.31 33093.52 20011.55 24.77 172106.64 32858.43 55673.97 5498.56 10584.08 15392.23 2010 74 113327.75 140.83 36938.43 148141.87 133.6 10647.36 64406.41 34785.41 8910.55 24089.11 Interpretation Private bank industry profit & loss account shows that banking industry is having a large profit yoy and growing rapidly.99 -19.37 4792.74 12637.95 91323. 50 .84 3893.26 18213.Bank – Private Industry profit & Loss A/C DESCRIPTION No of Companies Interest Earned Other Income Total Income Interest Expended Operating Expenses Provisions and Contingencies Profit Before Tax Taxes Total Profit After Tax Extra items Profit brought forward Adjustments to PAT Total Profit & Loss IV.38 78145.16 2006 68 50355.

61 21.15 823.272.39 3.94 2.978.647.993.13 464.) 127. Cr.926.74 3.45 458.330.71 12.458.23 1.675.255.024.88 Net Profit Total Assets ICICI Bank HDFC Bank Axis Bank Kotak Mahindra IndusInd Bank YES BANK Federal Bank Karur Vysya ING Vysya Bank JK Bank 1.80 51 .65 512.36 54.322.50 4.757.36 4.87 37.13 4.546.15 Net Interest Income 25.056.31 35.00 267.00 353.706.56 180.880.105.744.454.00 316.49 561. (Rs.388.71 222.50 43.694.748.041.382.32 727.24 33.05 417.21 15.25 436.06 3.154.05 1.81 3.11 577.369.333.98 3.38 363.53 7.52 36.992.418.93 19.Competition Last Price Market Cap.49 33.45 2.03 318.350.92 4.436.673.589.449.65 3.62 3.24 42.68 109.399.55 336.928.17 10.

COMPANY ANALYSIS 52 .

greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. particularly fee-based services. and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. higher market share in various business segments. and was its wholly-owned subsidiary. the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities. The merger would enhance value for ICICI shareholders through the merged entity‟s access to low-cost deposits. an equity offering in the form of ADRs listed on the NYSE in fiscal 2000. entry into new business segments. In October 2001. and the move towards universal banking. the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail finance subsidiaries. ICICI‟s shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998. ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services. both wholesale and retail. the ICICI group‟s financing and banking operations. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations. ICICI Bank‟s acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001. an Indian financial institution. After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry. In the 1990s. seamless access to ICICI‟s strong corporate relationships built up over five decades. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002. and access to the vast talent pool of ICICI and its subsidiaries. with ICICI Bank. ICICI become the first Indian company and the first bank or financial institution from nonJapan Asia to be listed on the NYSE. In 1999. have been integrated in a single entity. the Government of India and representatives of Indian industry. by the High Court of Gujarat at Ahmedabad in March 2002. and would create the optimal legal structure for the ICICI group‟s universal banking strategy. 53 . Consequent to the merger. and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002.ICICI BANK LTD ICICI Bank was originally promoted in 1994 by ICICI Limited. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. ICICI Personal Financial Services Limited and ICICI Capital Services Limited. both directly and through a number of subsidiaries and affiliates like ICICI Bank. ICICI was formed in 1955 at the initiative of the World Bank.

ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking. Russia and Canada. The Bank currently has subsidiaries in the United Kingdom. 2009. Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates.01 billion (US$ 75 billion) at March 31. Malaysia and Indonesia. China.3.454 branches and about 4. South Africa. 2009 and profit after tax Rs. Their UK subsidiary has established branches in Belgium and Germany.58 billion for the year ended March 31. venture capital and asset management. branches in United States.ICICI Bank is India‟s second-largest bank with total assets of Rs. Sri Lanka. Thailand.721 ATMs in India and presence in 18 countries. The Bank has a network of 1. Bahrain. 54 . Singapore.37. Bangladesh. Hong Kong. life and non-life insurance.793.

icicibank.04 Landmark.com 55 .3 1.76 1277 803.Race Course Circle.SNAPSHORT OF ICICI BANK LTD Company Details Industry Chairman Managing Director Company Secretary ISIN Bloomberg Code Reuters Code Bank – Private K V Kamath Chanda D Kochhar Sandeep Batra INE090A01013 ICICIBC IN ICBK.com investor@icicibank.390007.Vadodara.24 11.4927 10 20.85 1.55 1020.BO Company Address Registered Office Phone Fax Website Email Price Information Latest Date Latest Price (Rs) Previous Close (Rs) 1 Day Price Var% 1 Year Price Var% 52 Week High (Rs) 52 Week Low (Rs) Beta Face Value (Rs) Industry PE 09-Mar-11 1033.Gujarat 91-0265-6617200/3983200 91-0265-2339926 www.

13 110 33.PRICE V/S SENSEX CHART Period: From 10/03/2010 To 09/03/2011 Company Size (Standalone) Market Cap(Rs Crore) EV (Rs Crore) Latest no.18 4024.19 6298.92 230510.37 56 .13 3888. of shares Share holding pattern as on 201012 Promoter No of shares Promoter % FII No of Shares FII % Total No of Shares Free Float % Financial Highlights (Standalone) Description 201003 Equity Paid Up Reserve Deposits Gross Block Interest Earned Operating Profit PAT Dividend % Adj.55 249.55 8925.34 7960.67 200703 899.02 0 0 451680100 39.16 165083.77 185491.95 200803 1112.56 21995.27 23413.73 110 37.48 202016.73 218347.56 118741. EPS(Rs) Adj.12 25706.05 7036 30788.59 5874.59 270.81 50503.98 120 36.37 417.68 4157.93 9732.42 2540.05 1148873022 200903 1113.1 463.6 45357.08 85 28. In Crore) 200603 889. Book Value(Rs) 1114.22 100 34.21 48419.83 7443.41 3110.53 244431.8 21316.23 1151422189 100 (Rs.23 3758.71 31092.76 444.6 7114.57 14306.17 5968.

29 7.69 26.99 21.61 1437.9 18.74 6.48 201009 Q on Q Var% 6309.05 18.91 16.53 1.06 38.88 57 .16 4.84 1101.14 20.57 1362.94 1236.02 34.13 9.24 -0.2 9.46 12.4 5.37 2211.1 -1.91 25.11 22. EPS(Rs) 201012 6695.1 1570.92 2342.08 9.96 1717.39 2368.2 200912 (Rs.49 16.95 45.82 482.44 Quarter on Quarter (Standalone) Particulars Interest Earned Total Expenditure Operating Profit PAT PBIDTM% PATM% Adj.24 2.27 35.11 30.Key Market Ratio (Standalone) Latest EPS (Rs) Latest CEPS (Rs) Price/TTM CEPS(x) TTM PE (x) Price/BV(x) EV/TTM EBIDTA(x) EV/TTM Sales(x) Dividend Yield% Mcap/TTM Sales(x) Latest Book Value (Rs) 40. In Crore) Y on Y Var% 9.6 10.51 -10.96 26.06 19.32 6089.

The most common way to calculate : P/E = share price divided by earnings per share DPS: The the sum of declared dividends for every ordinary share issued. a model that calculates the expected return of an asset based on its beta and expected market returns. Beta is used in the capital asset pricing model (CAPM). of a security or a portfolio in comparison to the market as a whole. Here beta is more than 1 (1.27% more volatile than the market. net profit and assets value as compared to competitors this indicates that ICICI is most favorable company for investors.Interpretation BETA: A measure of the volatility. It‟s easy to calculate. EPS: EPS indicates the profitability of a company.4927) beta of greater than 1 indicates that the security‟s price will be more volatile than the market. Dividends are a form of profit distribution to the shareholder. it‟s theoretically 49. Earning per Share is the Net Income (profit) of a company divided by the number of outstanding shares. 58 . And here EPS of the company increasing. Here dividend is highest in last 5 years. P/E: price-to-earnings ratio (P/E) is probably the most widely used – and thus misused investing metric. which explains its popularity. ICICI is having highest market capital. it indicates that company is growing YOY. Earning per Share is the single most popular variable in dictating a share‟s price. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued. This shows that company is earning profit. Stock‟s beta is 1.4927. or systematic risk. Having a growing dividend per share can be a sign that the company‟s management believes that the growth can be sustained.

72 1113.ICICI BANK LTD BALANCE SHEET DESCRIPTION SOURCES OF FUNDS: Share Capital Share Warrants & Outstanding Total Reserves Deposits Borrowings Other Liabilities & Provisions Total Liabilities APPLICATION OF FUNDS : Cash and balance with Reserve Bank of India Balances with banks and money at call Investments Advances Gross block Less: Accumulated Depreciation Less: Impairment of Assets Net Block Lease Adjustment Capital Work in Progress Other Assets Total Assets Contingent Liabilities Bills for collection Book Value Adjusted Book Value Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 1114.67 16489.11 562959.44 444.08 1211082.00 45357.48 202016.17 38521.12 3901.60 7114.18 363399.37 12657.08 7036.02 24163.92 344658.00 2927.11 5968.29 11359.95 463.91 4046.96 1462.88 18414.23 103058.43 3212.00 50503.95 444.57 15501.00 23413.56 59 .95 20574.45 91257.56 270.57 1987.96 834683.11 4108.05 65648.67 4338.85 71547.09 3801.71 19214.31 218310.51 251388.72 727084.56 2375.53 244431.93 363399.46 249.40 120892.84 195865.38 399795.64 344658.33 12430.69 17536.19 51256.95 395033.34 0.60 94263.68 0.42 8934.02 463.66 379300.43 42895.34 225616.89 0.14 3923.00 21316.53 8663.90 18706.37 270.62 29377.29 0.92 230510.85 3980.33 4278.80 181205.62 379300.06 6474.60 6298.00 6000.16 165083.60 111454.85 7443.00 48419.11 1239.82 93155.88 251388.56 249.71 3642.83 0.45 18264.73 218347.28 417.67 417.95 27514.03 38228.63 399795.37 8105.91 25227.08 1249.39 146163.

60 .

45 110.00 30788.63 120.45 5001.94 2540.30 85.73 998.00 28.93 7477.50 6690.98 2809. INCOME Interest Earned Other Income Total Income II.22 2728.76 39599.37 3648.89 18487.55 61 .86 5345.32 6194.65 6834.66 3403.44 3403.00 31092.15 791.66 100.10 898.55 7603.76 33.24 3110.37 35441.59 Mar-06 12.73 38696.00 37.59 34.61 556.38 4157.76 Mar-08 12.13 4180.22 293.00 25706.00 21995.04 537.37 Mar-07 12.00 5156.13 2436.27 5156. APPROPRIATIONS Equity Dividend % Earnings Per Share Adjusted EPS Mar-10 12.63 6834.ICICI BANK LTD PROFIT AND LOSS A/C DESCRIPTION No of Months I.00 14306.11 23484.59 6927.93 7045.55 28.37 37.11 3808.00 34.83 4386.24 8154.82 25813.18 2904.58 17592.56 2226.00 33.00 36.34 8810.57 5859.60 4024.07 188.81 3096.45 6194. PROFIT AND LOSS Profit After Tax Extra items Profit brought forward Adjustments to PAT Total Profit & Loss IV.10 36.30 2728. EXPENDITURE Interest Expended Operating Expenses Provisions and Contingencies Profit Before Tax Taxes Total III.84 34938.58 5056.32 1320.26 5116.10 Mar-09 12.97 1358.28 22725.14 3758.87 28923.65 33184.53 15946.02 9597.46 16358.00 110.34 29159.

62 .

62 6.36 9.04 15.10 14.75 1.61 6.99 10.42 0.41 10.37 1.55 8.51 11.21 1.37 11 34.64 63 .17 7.12 11.12 14.78 5.83 .74 7.ICICI BANK LTD FINANCIAL RATIOS RATIOS Per Share Ratios EPS DPS Profitability ratios GP Ratio NP Ratio ROE ROA Liquidity Ratios Current Ratio Quick Ratio 2010 2009 2008 2007 2006 36.04 0.81 13.59 10 28.50 15.06 12.96 12.94 14.76 11 37.94 0.72 6.70 0.10 12 33.08 12.96 1.62 1.

which is derived by dividing the profit after tax by the number of equity shares. 64 .Interpretation Earning per share (EPS): EPS is the profitability of the firm measures in terms of number of equity shares. Over the years EPS of the firm is increasing which indicates that per share earning of the firm has increased. EPS calculation in a time series analysis indicates whether the firm EPS is increasing or decreasing. but this increase in EPS is erroneous in the sense that the real earnings (ROE) have not increased.

Dividend per share over the years has increased which indicates that the amount of dividend distributed towards the shareholder has increased. 65 .Dividend per share (DPS): sometimes the equity shareholders may not be interested in the EPS but in the return which they are actually receiving from the firm in the form of dividends. In 2007 GP ratio had drastically fallen. The amount of profits distributed to shareholders per share is known as DPS and it is calculated by dividing total profits distributed by number of equity share. Gross profit ratio: the GP ratio is also called the average mark up ratio. It is calculated by comparing the gross profit of the firm with the net sales. which means operating efficiency of the firm has decreased but it has recovered over the next three years and become almost stable.

The return from the point of view of equity shareholders may be 66 . Its measures the efficiency of the management in generating additional revenue over and above the total cost of operations. Net profit ratio has decreased over the years which mean that the overall profitability of the firm has fallen down. ROE: ROE examines profitably from the perspective of equity investors by relating profits available for the equity share holders with the book value of equity investments.Net profit ratio: the NP ratio establishes the relationship between the net profit (after tax) of the firm and the net sales.

calculated by comparing the net profit less preference dividend with there total contribution to the firm. ROA: ROA measures a profitability of the firm in terms of assets employed in the firm. Over the years ROE of the firm have declined which indicates that the funds of the owner have not been used properly by the firm. ROE is calculated by establishing the relationship between the profits and the assists employed to earn that profit. and the firm has not been able to earn satisfactory return for the owner. ROA shows as to how much is the profit earn by the firm per rupee of assets used. ROA of the firm over the year is almost stable. 67 .

68 . Generally a current ratio of 2:1 is considered to be satisfactory but sometimes it varies from industry to industry therefore the firms current ratio should be compared with the standard for the specific industry only.Current Ratio: current ratio shows the firms ability to pay its current liability out of its current assets. This calculated by dividing quick assets by total current liabilities. Generally a quick ratio of 1:1 is considered to be satisfactory. Quick ratio of the firm is much higher than the ideal and its increasing over the years which means that the firm has enough quick assets to payoff its current liability. Quick ratio: this ratio establishes the relationship between quick current assets and current liabilities. Quick current assets excludes inventory and prepaid expenses from current assets as they are potentially illiquid. Current ratio of the firm has increased over the year which indicates that the firm has enough current assets to pay off its current liability.

36 3.06 1.84 1.50 15.16 2.37 3.74 0.64 18.44 6.82 102.84 6.13 28.93 19.85 8.83 21.29 11.07 69 .15 9.27 30.61 241.31 0.26 7.19 0.61 18.36 1.13 3.16 1.38 0.79 3.45 3.77 56.37 198.75 3.60 8.12 19.59 4.46 -2.05 3.66 22.43 4.19 25.75 Mar-09 -127.87 0.48 7.30 -0.72 -2.41 0.35 Mar09 9.19 7.56 0.80 20.19 14.81 1.24 ICICI BANK LTD CASH FLOW RATIO DESCRIPTION Cash Flow Per share Price to Cash Flow Ratio Free Cash Flow per Share Price to Free Cash Flow Free Cash Flow Yield Sales to cash flow ratios Mar-10 16.45 10.67 22.33 -160.34 1.03 Mar08 20.49 29.55 4.05 5.19 0.61 Mar07 24.96 Mar06 20.39 23.38 2.ICICI BANK LTD VALUATION RATIO DESCRIPTION Adjusted PE (x) PCE(x) Price / Book Value(x) Dividend Yield(%) EV/Net Sales(x) EV/EBITDA(x) EV/EBIT(x) EV/CE(x) M Cap / Sales High PE Low PE Mar10 26.78 42.13 20.19 Mar-08 -104.54 -7.31 4.65 Mar-07 256.76 13.13 1.68 0.91 -5.95 Mar-06 52.38 23.26 -2.11 13.76 0.59 2.33 0.17 5.

based on the past 5 year P/E take the average of P/E value which is 20.85 20.1% 2) Now. 70 .101)=45.1% 3) Current EPS is 40.59 28. by using the current EPS we can compound it with the estimated growth i. 10.76 37.95+(40.67 20.085 4) Now. estimated growth % can be determine.55 P/E 26.37 34.432 5) Now multiply the step 3 & 4 and we will get the estimated share price.Intrinsic value of ICICI Bank Year 2006 2007 2008 2009 2010 EPS 36.95 compounding of the EPS is 40.95*. And the estimated growth rate is 10. 6) Estimated share price is 921.10 33.176 and current share price is 1033 which is higher than the estimated its means that share price is overvalued and investor should sell the shares for short term.64 1) Based on the past 5 year EPS data.e.39 9.61 24.

Net interest margin increased QoQ & YoY by 10 bps to 2. We have Accumulate rating on the stock for a target price of INR 1306.1% in Q4FY11. this was primarily because of MTM loss in treasury income (Q4FY11 value stood at INR 1. Loan loss coverage ratio also increased to 76% on March 31. The Net NPA‟s improved from 1.35 bn in Q4FY10 to INR 25.1% YoY. Progress on the „4C‟ strategy (CASA. Non interest income decreased by 13.7 Bn on March 31. the bank is now looking to grow its large corporate and SME segment loan book as well.18 Bn in March 31.87% in Q4FY10 to 0. This was on account of expanding network of the bank with 2529 branches and 6104 ATMs. However.94% of net advances in Q4FY11.7% in Q4FY10 to 45.Expected Growth of ICICI in 2011 by Unicon Investment research report “ICICI Bank registered a good financial performance in Q4FY11 with standalone PAT up by 44% to INR 14.58 Bn in Q4FY10.89 Bn in Q4FY11 from INR 14.8% to INR 17. fee income increased by 17.52 Bn from INR 10. Advances increased YoY by only 19% which was lower than the industry level of 21%.2010).” “ICICI Bank‟s growth in the past has been mainly retail-driven. capital conservation. on account of lower cost of funds.6% YoY. The growth. The QoQ increase in Net Interest Income was better than expected (a rise of 23.” “CASA ratio increased from 41.2010.91 Bn on QoQ basis. The total deposits increased by 11.5% in March 31.2011 from 59.7% YoY (INR 668.96 Bn) and reduction in other income by 73.6% (QoQ). was aided by increase in interest and non interest income. At the CMP ICICI is trading at 2x of its FY12E P/BV (standalone basis). cost control and credit charges) has been good.” says Unicon Investment research report 71 .3% from INR 20.10 Bn to Q4FY11). lower delinquencies and growing CASA deposits. Cost to income ratio was 42% due to healthy operating income growth.7% respectively. being the highest in last 7 years. Operating expenses rose YoY by 14.06 Bn in Q4FY10. The retail advances like vehicle loan and home loan are expected to grow in the near future. much above the RBI regulation of 70%.2% QoQ and 11.2011 as compared to INR 532. advances to domestic 71orporate increased by 42.1% to INR 17. Credit to deposit ratio from domestic business stood at 75%.

FINDINGS (Chapter-7) 72 .

3) In the analysis of ICICI Bank we can see that EPS is increasing yoy. And overall economy is growing. 73 . For the conclusion on this part. And dividend is also increasing so investor can invest in the company but on other side we company‟s intrinsic value is less than the current price it shows that the share price is overvalued and invester should sell the share. 1) In the Economic Analysis we can see that economic is booming after 2009 and current position shows that this is the good time to invest after the recession because GDP growth rate is increasing. industry as well as company (ICICI Bank). 2) In the industry analysis here overall industry PAT is increasing over the years which means banking industry is having much profit but on the other side banking industry Net Profit growth has decreased very much so investor should invest carefully.In this project report there are many facts which say whether an investor should invest in ICICI Bank or not. But if investor want to invest in the company for long term than he can have a good profit because company growing rapidly in terms of profit and net sales and its EPS & DPS are increasing over the years. we have analyzed economic.

LIMITATIONS 74 .

more so when the economic and business environment is buffeted by frequent winds of change. undervaluation may persist for extended periods. Company Specific: Valuation techniques vary depending on the industry group and specifics of each company. likewise. Future Uncertainties: Future changes are largely unpredictable. This limitation can be explained as under: Time Constrain: Fundamental analysis may offer excellent insights. The sales and inventory ratio may be very important for the cement sector company but these ratios are not very useful for the banking sector. but it can be extraordinarily timeconsuming. While deliberate falsification of data may be rare. overvaluations arising from unsatisfied optimism and misplaced enthusiasm may endure for unreasonable lengths of time. the past record is a poor guide to future performance. Irrational Market Behavior: The market itself presents a major obstacle while making analysis on account of neglect or prejudice. This can be quite time-consuming process. Inadequacies of Data: While making analysis one has to often wrestle with inadequate data. For this reason. Time-consuming models often produce valuations that are contradictory to the current price prevailing on the exchange. In an environment characterized by discontinuities.Fundamental analysis has some limitation involved in it. subtle misrepresentation and concealment are common. which can limit the amount of research that can be performed. a different technique and model is required for different industries and different companies. 75 .

CONCLUSION 76 .

On the other hand. industry as well as the company and in this research we can see that the economic indicators have an effect on the bank growth and assets. Prices rise or fall due to insider trading. and according to the industry analysis investor can invest in the banks but he/she should be careful for the investment. 77 .Fundamental analysis holds that no investment decision should be without processing and analyzing all relevant information. But according to financial analysis of ICICI bank its performance in the private industry is good and expected to grow further in the near future which is a good sign for investment. it does not tend to ignore the fact that human beings do not always act rationally. EPS and dividend both are increasing yoy and it‟s on the top in terms of profit and net interest income if we compared it with the other banks in the same industry but we can‟t ignore the intrinsic value of the company which is lower than the current value which shows then investor should sell the share of the company if he/she is investing for short term and for long term it is good for investor to invest in the company. Fundamental analysis is based on the analysis of the economic. speculation. rumor. while fundamental analysis deals with tangible facts. Market prices do sometimes deviate from fundamentals. Its strength lies in the fact that the information analyzed is real as opposed to hunches or assumptions. and a host of other factors. The above report says that our economic is growing after the recession and it is the good time for the one who want to invest.

SUGGESTION 78 .

 ICICI Bank is expanding its footholds on international level also. their profit and loss account. Increasing EPS indicate good earnings. Reasons:      Largest private  sector bank in India.The analysis carried out at on the ICICI Bank. balance sheet and ratios. second largest in entire banking Industry Strong increase in profit year-on-year basis. its Insurance and asset management business are also performing well. I shall suggest the investors to invest in ICICI Bank than the other banks as a value investment.       Increase in sharing profit with shareholders in form of dividend. 79 .

BIBLIOGRAPHY 80 .

nseindia.com/info/indian_banking_industry http://finance.com www.businessstandard.P Rustagi ACE EQUITY data base Websites: www. Financial management – R.php http://economictimes.com www.moneycontrol.html 81 .rbi.wikipedia.org.indiabizclub.Prasanna Chandra.com http://www.google.indiamart.Books: Investment Analysis & Portfolio Management.com/investment_in_india/banking_in_india.com www.org/wiki/Magnetic_ink_character_recognition http://finance.com mwww.icicibank.indiatimes.com/india/index2.equitymaster.com/ http://en.in www.

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