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A
PROJECT REPORT
ON
EQUITY RESEARCH (FUNDAMENTAL ANALYSIS)
FOR
INDIA INFOLINE LTD.
SUBMITTED BY
CHOTHANI HITESH HASMUKH
( BATCH - 2006-08 )
BRACTs
VISHWAKARMA INSTITUTE OF MANAGEMENT,
KODHAWA PUNE- 411014.
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ACKNOWLEDGEMENT
This project bears imprint of all those who have directly or
indirectly helped and extended their kind support in completing this
project.
- Chothani Hitesh H.
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INDEX
Sr. No.
Title
Page No.
1.
EXECUTIVE SUMMARY
2.
COMPANY PROFILE
3.
4.
THEREOTICAL BACKGROUND
10
5.
RESEARCH METHODOLOGY
18
6.
DATA ANAYLSIS/FINDINGS
20
7.
LIMITATIONS
55
8.
CONCLUSION
57
9.
RECOMMANDATION
60
10.
BIBLIOGRAPHY
62
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INTRODUCTION
The stock markets are the most volatile markets and are difficult to understand
as the weather. Though this does not mean that the markets cannot be predicted but
it only means that trends may change without warning, as with weather.
The stock markets are characterized by almost all factors, again starting right
from weather and ending at the political environment. Effects of one market also
causes a spillover into the other and an external cause in one market can lead to the
reaction in another market. For instance, its been proved that a delayed monsoon in
India will create the problems of flooding in the European countries, effecting
adversely economies of both the regions.
The pulse of the market also depends upon timely exit and entry. For arriving
at a correct conclusion reasonable data is required to understand the mechanics of
the stock and the industry vis--vis global and local in which the company
operates. While a practical long-term view will help reduce risks, marrying the stock
on the other hand may totally increase risks.
By going through the Industry Reports, Financials the investor can arm
himself with reasonable information about the stocks, which are being tracked by the
investor. However, for consistent monitoring of stocks, it is imperative that the
investor has limited exposure to the stocks, which are being capable of being tracked
by him a too big a portfolio will divert attention and ultimately harm investor
interests.
In the present project an attempt is made to study the importance of fundamental
analysis for investors.
Shares: -
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The companies Act 1956 defines Shares as a share in the capital of a company and
includes stock except where distinction between stock and share is expressed or
implied. A share is regarded as property, which can be bought and sold like any other
property. It also consists other rights given by Articles of Association of company.
Equity or ordinary shares: These are those shares, which do not enjoy any special rights in respect of payment of
dividend or repayment of capital. The return of capital to equity shareholders is not
guaranteed. Also when the company is wound up, capital of equity shareholders is
lastly paid, only after all other claims have been paid in full. That is why equity is also
called as The Risk Bearing or Venture Capital.
1. You can earn good rate of dividend or can make better profit on market
fluctuation.
2. Bonus issue: - These are given as free gift to existing shareholders either fully
or partly paid up out of accumulated profits.
3. Existing shareholders can get Right issue in case of further issue of capital
by company.
4. Equity shareholders have Right to vote in annual general meeting and other
rights like call meeting, winding up of the company.
5. Shareholders get free copy of Annual Report in which details of all business
conducted in last year is mentioned.
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8. Liquidity: -Because of large market for share investor can convert his
investments into liquid money easily.
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company's business in order to determine whether or not the stock should be bought
or sold.
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EXECUTIVE SUMMARY
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In India many traditional people are very risk averse. They are not aware of
the investment opportunities in the stock market. They consider stock market as a
game of gambling. But the original scenario is quite different. There is no doubt that
there are speculators who try to hike the price of a stock artificially. Investing in
equities involves high risk and the return on it totally depends on the companies
performance. But investing in the right stock at the right price and holding for a
longer time horizon would surely be a better investment.
The strategy of selecting stocks that trade for less than their intrinsic value is
called value investing. Value investors actively seek stocks of companies that they
believe the market has undervalued. They believe the market overreacts to good and
bad news, causing stock price movements that do not correspond with the company's
long-term fundamentals. The result is an opportunity for value investors to profit by
buying when the price is deflated. The very definition of value investing is subjective.
Some value investors only look at present assets/earnings and don't place any value on
future growth. Other value investors base strategies completely around the estimation
of future growth and cash flows. Despite the different methodologies, it all comes
back to trying to buy something for less than its worth. The purpose behind this
project was to learn the mannerisms of the stock market trading and analyzing a stock
for a good investment opportunity.
The reason behind choosing this project is that it provides hands on experience
with what goes on in the stock market on a day to day basis. The field of equity
research is very vast and one has to look into various aspects of the functioning of the
company to get to any conclusion about the possible performance of the company in
the market. Investors like warren buffet made a fortune out of investments in the stock
market, which is quiet impossible without proper research about the companies. The
field of equity research is full of challenges.
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The project is done with India Infoline Securities Limited a very well known
company in the field of stock broking and capital market services sector. This project
gave me a chance to get valuable insights from a hoard of vastly experienced people
in this field and to get various approaches each one adopts to evaluate various
companies. The duration of the project was two months. These two months were not
only limited to learning and devoting time towards equity research but it also
provided an insight on what various services such broking houses provide and what
efforts are required to manage such organizations.
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COMPANY PROFILE
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COMPANY VISION:
The companies Vision is to be the most respected company in the financial
services space.
The box below elaborates how the company proposes to attain the vision of being the
most respected company in the space.
SHAREHOLDERS
GENERAL PUBLIC
Corporate Governance
with derisking
Transparency
CUSTOMERS
EMPLOYEES
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SLOGAN:
ITS ALL ABOUT MONEY, HONEY!
Equities Broking:
India Infoline provided the prospect of researched investing to its clients, which
was hitherto restricted only to the institutions. Research for the retail investor did not
exist prior to India Infoline. India Infoline leveraged technology to bring the
convenience of trading to the investors location of preference (residence or office)
through computerized access. India Infoline made it possible for clients to view
transaction costs and ledger updates in real time.
Research:
Sound investment decisions depend upon reliable fundamental data and stock
selection techniques. India Infoline Equity Research is proud of its reputation for, and
we want you to find the facts that you need. Equity investment professionals routinely
use our research and models as integral tools in their work. They choose Ford Equity
Research when they can clear your doubts.
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Commodities:
India Infolines extension into commodities trading reconciles its strategic intent
to emerge as a one-stop solutions financial intermediary. Its experience in securities
broking has empowered it with requisite skills and technologies. The Companys
commodities business provides a contra-cyclical alternative to equities broking. The
Company was among the first to offer the facility of commodities trading in Indias
young commodities market (the MCX commenced operations only in 2003). Average
monthly turnover on the commodity exchanges increased from Rs 0.34 bn to Rs 20.02
bn. The commodities market has several products with different and non-correlated
cycles. On the whole, the business is fairly insulated against cyclical gyrations in the
business.
Insurance:
An entry into this segment helped complete the clients product basket;
concurrently, it graduated the Company into a one-stop retail financial solutions
provider. To ensure maximum reach to customers across India, we have employed a
multi pronged approach and reach out to customers via our Network, Direct and
Affiliate channels. Following the opening of the sector in 1999-2000, a number of
private sector insurance service providers commenced operations aggressively and
helped grow the market.
The Companys entry into the insurance sector derisked the Company from a
predominant dependence on broking and equity-linked revenues. The annuity based
income generated from insurance intermediation result in solid core revenues across
the tenure of the policy.
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Mortgages:
During the year under review, Indiainfoline acquired a 75% stake in Moneytree
Consultancy Services to mark its foray into the business of mortgages and other loan
products distribution. The business is still in the investing phase and at the time of the
acquisition was present only in the cities of Mumbai and Pune. The Company brings
on board expertise in the loans business coupled with existing relationships across a
number of principals in the mortgage and personal loans businesses. Indiainfoline
now has plans to roll the business out across its pan-Indian network to provide it with
a truly national scale in operations.
HEAD OFFICE:
India Infoline Ltd.,
75, Nirlon Complex,
Off. Western Express Highway,
Goregaon (East),
Mumbai 400063.
WEB ADDRESS:
www.indiainfoline.com
www.5paise.com
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THEREOTICAL BACKGROUND
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Oriental Bank of Commerce was the first nationalized bank to have access to
the capital markets. It raised a sum of Rs. 387.24 crore in October 1994, reducing the
government shareholding to 66.5%. In these way all the the public sector banks came
down to the capital market as and when required. The government share holding is
still the highest in all the public sector banks though all the banks have bought their
IPOs to the market.
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The public sector banks are one of the major sources of finance for small,
medium as well as large firms. These banks are very important from the point of
deposit mobilization. The public sector banks are those which have a strong network
of branches and they have reached the remote areas of the country. For e.g. the state
bank of India has a great network of branches and ATMs. SBI is the largest bank of
the country and is an agent of the Reserve bank Of India.
The public sector is a great source for fund mobilization and asset allocation.
The banks considered herein are the banks that have highest market capitalization
among the Public Sector Banks of the banking industry.
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Demand
Indian economy is growing at an impressive rate. The Industrial production
remained robust during April-May 2007, recording a year-on-year expansion of 11.7
per cent. The manufacturing sector remained the key driver of industrial activity, with
growth of 12.7 per cent. While growth of the mining sector remained subdued, that of
the electricity sector was higher than that during April-May 2006. The manufacturing
sectors robust performance was largely contributed by machinery and equipment,
food products, basic metal and alloy industries and chemicals and chemical
products. The higher growth in food products and wood and wood products could
be partly attributed to the base effect.
Robust growth in bank deposits and nonfood credit off take and exports of
business process outsourcing and information technology-enabled services helped in
sustaining the growth of the sub-sector financing, insurance, real estate and business
services. All these sectors are directly or indirectly connected to the bank or are
dependent on the banks for the growth.
Barriers to entry
Getting license for opening a bank is a rigorous process. The Reserve Bank of
India has laid down many criteria for getting a license for any organization to run a
banking business. It requires a specific amount of capital as prescribed by the RBI.
There is a huge investment in technology. Now days the business houses are in
requirement of speed banking so investment in technology is very important. For
growth of the bank it is very important for a bank to build a strong branch network.
Again there are rules laid out by the RBI for opening of the branches. Banks have to
open branches in the rural area to get a license to open a branch in the urban area.
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Competition:
There is high competition in the banking sector because of various kinds of
banks working in India. There are public sector banks, private sector and foreign
banks. The private sector banks are the banks which attracts the business house and
the high income class people. They normally are providing better service than the
public sector bank. The foreign banks operating in India are doing their business quite
efficiently. They have shown higher return on asset than the domestic banks, higher
non interest income, attained higher capital adequacy ratio and lower NPAs. The
public sector banks are facing a good competition from the scheduled co-operative
bank like The Cosmos Co operative bank. The non banking financial companies
(NBFC) are also giving a good competition being in similar business lines.
Supply:
Liquidity is controlled by the Reserve Bank of India (RBI). This may be done
by the RBI by the means of CRR or SLR.
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There are specific angles that one has to consider while evaluating the impact
of CRR on banks. In time of boom, like is the currently, lending will give a higher
rate of return to banks. Hence, if they have to keep a large proportion of their funds
away from lending and in the form of deposits, it is a loss of opportunity for them.
This will bring down their earnings.
An increase in CRR would also mean that money is sucked out of the system.
This would mean that funds are hard to come by and hence banks will have to pay
more to depositors in order to induce them to keep their funds banks. This will push
up the cost of funds for banks. Due to this banks will also have to raise lending rates
in order to meet the increased cost while maintaining their margins.
The market will analyze banks on the basis of their margins, and whether they
will be able to maintain this going forward. A CRR rise in it self means tougher
condition for banks but what is important is that they should also be able to keep pace
with this entire situation. That is the key to the way in which the bank stocks will
perform in the market.
Effective Since
4.50
4.75
(+0.25)
October 2, 2004
5.00
(+0.25)
5.00
5.00
5.25
(+0.25)
January 6, 2007
5.50
(+0.25)
5.50
5.75
(+0.25)
March 3, 2007
6.00
(+0.25)
6.25
(+0.25)
6.50
(+0.25)
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RESEARCH METHODOLOGY
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Observation method
General library
Trade-Books
Internet etc.
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GDP Trend
10
8
9
9.4
7.5
GDP Growth %
4
2
0
2004-05
2005-06
2006-07
Year
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Inflation Trend
8
Inflation (%)
7
6
4.5
6.7
6.4
6
4.9
6.5
6.5
6.3
5.3
4
3
2
1
0
29/04/05 26/10/06 9/6/2006 31/10/06 6/1/2007 31/01/07 17/02/07 3/3/2007 30/03/07 14/04/07
Date
BALANCE OF PAYMENTS
Indias balance of payments in 2006-07 reflected a number of positive
features, merchandise trade continue to exhibit robust growth during 2006-07,
although there was some loss of pace from a strong growth of 2005-06. The higher
growth of imports vis--vis experts lead to a persistent rise in trade deficit, on the
balance of payments basis. Nonetheless the current account deficits as per cent of
GDP remain unchanged (1.1% of GDP) from the previous year since the widening of
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the merchandise trade deficit was offset to a large extent by the continuing buoyancy
in net invisibles surplus.
Net capital inflows to India remained buoyant (4.9% of GDP), fart exceeding
the current account deficit. Higher capital flows could be attributed to the
strengthening of micro economic fundamentals, greater investor confidence and
ample global liquidity. Net FDI inflows from abroad US$ 19.4 billion exceeded FII
inflows (net) during 2006-07 aggregating US$ 3.2 billion the debt flows (net) at US$
25.0 billion were led by external commercial borrowings reflecting strong investment
demand. Net capital flows, after financing the current account deficit, led to accretion
of US$ 36.6 billion, excluding valuation changes, to foreign exchange reserves during
2006-07.
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NSE: SBIN
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BANK PROFILE:
State Bank of India was established on the 1st July, 1955, by acquiring the total
asset and the liabilities of the Imperial Bank of India. The State Bank of India has a
paid up capital of Rs. 526.30 crore.
Reserve Bank of India is the single largest shareholder of the bank. SBIs shares and
bonds are listed for trading on all the major Indian stock exchanges viz., Bombay,
New Delhi, Kolkata, Chennai and Ahemdabad; and at the National Stock exchange.
SBI has one of the largest market capitalization of all the companies traded on the
exchanges. The banks GDRs are listed on the London Stock Exchange.
State Bank of India (SBI), formed in 1955 is the largest public sector bank in India.
The Government of India holds 59.73 percent of the total equity shares of the bank;
institutional investors hold 23.48 percent shares, while the Public holds 6.36 percent.
Mr. T. S. Bhattacharya is the chairman of the bank.
Core sectors to which services of the bank extends are Personal banking, NRI's,
Agricultural and Rural sectors, International banking, Corporate banking, Small and
Medium Sized Enterprises (SME), Government banking, etc. Some of the primary
services provided are working capital finance, project finance, deferred payment
guarantees, capex loans, corporate term loans, structured finance, dealer financing,
channel financing, equipment leasing, loan syndication, financing Indian overseas
firms, packing credit, external commercial borrowings, foreign currency loans, Letter
of Credits, guarantees, etc. Facilities provided by the bank are ATM services, Internet
banking, e-payments, e-rail booking, safe deposit locker, gift cheques, foreign inward
remittance, foreign travel card etc. The bank also provides non-banking services in
areas like capital markets, mutual funds, security trading, insurance, factoring services
and credit card business etc., through its subsidiaries.
The registered office of SBI is in Mumbai. The bank operates through a network of
14 Local Head Offices, 57 Zonal Offices and 5217 ATMs all over India. It also has 52
foreign offices in 34 countries across the globe. It has 3 training institutes located at
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Hyderabad and an academy at Gurgaon. The bank has also acquired two new
branches at Sydney and Muscat.
Shareholding Pattern
Indian Promoters
Foreign collaborators
Indian inst/Mutual Fund
FIIs
ADR/GDR
Free float
Shareholders
59.7%
0.01%
11.0%
11.9%
0.0%
17.3%
526,782
Market Capital
Face Value
52 Wks High/Low
Market Price
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FINANCIAL ANALYSIS
Rs in Crore
MARCH 2005
MARCH 2006
MARCH 2007
Capital
and
Liabilities
Equity Share Capital
526.30
526.30
526.30
Preference
Share
0.00
0.00
0.00
Capital
Reserves
23,545.84
27,117.79
30,772.26
Revaluation Reserves
0.00
0.00
0.00
Deposits
367,047.52
380,046.06
435,521.09
Borrowings
19,184.31
30,641.24
39,703.33
Other Liabilities &
49,767.97
55,829.23
60,283.15
Provisions
Total Liabilities
460,071.94
494,160.62
566,806.13
ASSETS
Cash & Balance with
16,810.33
21,652.70
29,076.43
RBI
Balance with Banks,
22,511.77
22,907.30
22,892.26
Money at Call
Advances
202,374.45
261,800.94
337,336.49
Investments
197,097.91
162,534.24
149,148.88
Net Block
2,576.42
2,673.11
2,676.92
Capital Work in
121.27
79.82
141.95
Progress
Other Assets
18,579.79
22,512.51
25,533.20
Total Assets
460,071.94
494,160.62
566,806.13
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Rs in Crore
MARCH 2005
MARCH 2006
MARCH 2007
INCOME
Interest Earned
32,428.00
35,979.57
39,491.03
Other Income
7,121.73
7,528.16
7,498.94
39,549.73
43,507.73
46,989.97
Total Income
EXPENDITURE
Interest expended
18,483.37
20,390.45
23,436.82
Employee Cost
6,907.35
8,123.05
7,932.58
Selling and Admin
2,414.61
2,872.92
3,288.55
Expenses
Depreciation
752.21
763.68
631.51
Miscellaneous
6,950.96
7,159.20
6,687.67
Expenses
Preoperative Exp
0.00
0.00
0.00
Capitalised
Operating Expenses
10,076.00
11,759.65
13,530.15
Provisions &
6,685.84
6,950.96
5,481.69
Contingencies
35,245.21
39,101.06
42,448.66
Total Expenditure
Net Profit for the
4,406.67
4,541.31
4,304.52
Year
Profit
brought
0.34
0.34
0.34
forward
4,304.86
4,407.01
4,541.65
Total Profit
Equity Dividend (%)
125.00
140.00
140.00
526300000
526300000
526300000
No of Share
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SBI
4,550.00
4,500.00
4,450.00
4,400.00
Net Profit (Rs in
4,350.00
Crores)
4,300.00
4,250.00
4,200.00
4,150.00
4541.65
4407.01
4,304.86
2005
2006
2007
Year
STOCK PRICE
1525
1245.6
938
908.15
1028.65
968.5
994.45
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31
/0
3/
07
31
/1
2/
06
30
/0
9/
06
31
/0
3/
06
30
/0
9/
05
31
/1
2/
05
Date
30
/0
6/
06
727.75
681.9
30
/0
6/
05
654.8
31
/0
3/
05
1800
1600
1400
1200
1000
800
600
400
200
0
Da
te
Price
SBI
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price
per
MARCH 2005
654.8
MARCH 2006
968
MARCH 2007
994
MARCH 2005
17.88
81.79
15.28
MARCH 2006
16.25
83.73
16.72
MARCH 2007
14.51
86.29
16.22
457.38
8.05
525.63
11.56
594.69
11.51
INTERPRATATION:
The profit of the bank is not increasing much, which can be the reason which
has bought the return on equity down. The other reason for ROE decreasing may be
high distribution of dividend. Slow growth of the EPS must not be the reason for the
shareholder to worry because the bank is being giving more than 100% dividend
which brings the profit down and therefore the EPS.
As against this the P/E is on an increase. The increasing book value shows that
the bank has collected a good sum for the shareholders as reserves. The dividend
payout ratio is growing which is good for the holders who like to have some kind of
cash flow from their investments. The market price of the share shows a substantial
capital appreciation in the year 2005-60, but shows volatility.
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BANK OF INDIA
BSE 532149
NSE - BANKINDIA
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BANK PROFILE
Bank of India was founded on 7th September, 1906 by a group of eminent
businessmen from Mumbai. The Bank was under private ownership and control till
July 1969 when it was nationalized along with 13 other banks.
Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50
employees, the Bank has made a rapid growth over the years and blossomed into a
mighty institution with a strong national presence and sizable international operations.
In business volume, the Bank occupies a premier position among the nationalized
banks.
The Bank has 2644 branches in India spread over all states/ union territories including
93 specialized branches. These branches are controlled through 48 Zonal Offices.
There are 24 branches/ offices (including three representative offices) abroad.
The Bank came out with its maiden public issue in 1997. Total number of
shareholders as on 30/09/2006 is 2, 25,704.
While firmly adhering to a policy of prudence and caution, the Bank has been in the
forefront of introducing various innovative services and systems. Business has been
conducted with the successful blend of traditional values and ethics and the most
modern infrastructure. The Bank has been the first among the nationalized banks to
establish a fully computerized branch and ATM facility at the Mahalaxmi Branch at
Mumbai way back in 1989. The Bank is also a Founder Member of SWIFT in India. It
pioneered the introduction of the Health Code System in 1982, for evaluating/ rating
its credit portfolio.
The Bank's association with the capital market goes back to 1921 when it entered into
an agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing
House. It is an association that has blossomed into a joint venture with BSE, called
the BOI Shareholding Ltd. to extend depository services to the stock broking
community. Bank of India was the first Indian Bank to open a branch outside the
country, at London, in 1946, and also the first to open a branch in Europe, Paris in
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1974. The Bank has sizable presence abroad, with a network of 23 branches
(including three representative offices) at key banking and financial centers viz.
London, New York, Paris, Tokyo, Hong-Kong, and Singapore. The international
business accounts for around 20.10% of Bank's total business.
Shareholding Pattern
Indian Promoters
Foreign collaborators
Indian inst/Mutual Fund
FIIs
ADR/GDR
Free float
Shareholders
69.5%
0.0%
5.7%
16.1%
0.0%
8.8%
211,473
Market Capital
Face Value
52 Wks High/Low
Market Price
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FINANCIAL ANALYSIS
Rs in Crore
Capital
and
Liabilities
Equity Share Capital
Preference
Share
Capital
Reserves
Revaluation Reserves
Deposits
Borrowings
Other Liabilities &
Provisions
Total Liabilities
ASSETS
Cash & Balance with
RBI
Balance with Banks,
Money at Call
Advances
Investments
Net Block
Capital Work in
Progress
Other Assets
Total Assets
MARCH 2005
MARCH 2006
MARCH 2007
488.14
0.00
488.14
0.00
488.14
0.00
3811.12
165.61
78,821.44
5,961.95
4338.40
157.35
93,932.03
5,893.91
5257.75
149.48
119,881.74
6,620.83
5,756.16
7,476.39
9,269.07
95,004.42
112,286.22
141,667.01
3,904.73
5,588.41
7,196.89
3,621.52
5,857.57
10,208.65
55,528.89
28,686.32
791.58
65,173.75
31,781.75
799.29
84,935.89
35,492.76
777.89
22.59
10.68
11.41
2,448.79
95,004.42
3,074.77
112,286.22
3,043.52
141,667.01
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Rs in Crore
MARCH 2005
MARCH 2006
MARCH 2007
INCOME
Interest Earned
6,031.53
7,028.70
9,180.33
Other Income
1,155.79
1,184.38
1,562.95
7,187.32
8,213.08
10,743.28
Total Income
EXPENDITURE
Interest expended
3,794.64
4,396.72
5,739.86
Employee Cost
1,263.21
1,328.13
1,614.00
Selling and Admin
690.28
897.69
570.27
Expenses
Depreciation
98.84
96.73
96.73
Miscellaneous
1,120.31
999.78
1,271.83
Expenses
Preoperative Exp
0.00
0.00
0.00
Capitalized
Operating Expenses
1,932.32
2,115.14
2,608.42
Provisions &
1,120.31
999.78
1,271.83
Contingencies
6,847.27
7,511.64
9,620.11
Total Expenditure
Net Profit for the
701.44
1,123.17
340.05
Year
Profit
brought
0.00
220.00
541.76
forward
340.05
921.44
1,664.93
Total Profit
Equity Dividend (%)
20.00
30.00
35.00
No of Share
488140000
488140000
488140000
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2000
1500
Net Profit (Rs in
1000
Crores)
1664.93
921.44
500
340.05
0
2005
2006
2007
Year
STOCK PRICE
BOI Price
231.7
250
207.4
150
162
103.65
103.5
122.9
126.9
168
133.45
100.3
100
50
Date
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31
/0
6/
07
31
/0
3/
07
31
/1
2/
06
30
/0
9/
06
30
/0
6/
06
31
/0
3/
06
31
/1
2/
05
30
/0
9/
05
30
/0
6/
05
0
31
/0
3/
05
Price
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(in Rs )
Market
share
price
per
MARCH 2005
103.65
MARCH 2006
133.45
MARCH 2007
167.8
Particulars
ROE (%)
EPS (Rs)
Dividend Payout Ratio
P/E Ratio
Book Value Per Share
(Rs)
MARCH 2005
7.62
6.96
28.73
14.89
91.47
MARCH 2006
18.49
18.89
15.88
7.07
102.09
MARCH 2007
28.24
34.10
10.26
4.92
120.77
INTERPRETATION:
Percentage wise the net profit of the bank is very favorable. The growth in
return on equity is also showing that the bank is earning sufficiently for the
shareholders. The growing profits are leading towards the growth of the EPS. The
price trend also shows that the share is not much volatile and also shows an upward
trend. Holders for long term are benefited from the capital appreciation.
The P/E ratio showing a down trend may be because of the price not
increasing to the proportion of the profit. A lower P/E ratio is considered one of the
most important criteria for investment purpose. The growing book value indicates that
the bank has huge reserves and can be a potential for bonus.
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NSE: PNB
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BANK PROFILE:
Established in 1895 at Lahore, undivided India, Punjab National Bank (PNB)
has the distinction of being the first Indian bank to have been started solely with
Indian capital.The bank was nationalised in July 1969 along with 13 other banks.
From its modest beginning, the bank has grown in size and stature to become a frontline banking institution in India at present.
Punjab National Bank is the fourth largest banking entity in the country (in
terms of asset size) with 4.2% share of the total credit disbursals at the end of FY07.
Given its geographic concentration in the northern regions, the bank was a laggard in
terms of credit growth until FY04, which led to it barely sustaining its share of nonfood credit at 4.5%. However, not able to keep up with its private sector peers in
incremental credit disbursements and low retail credit exposure resulted in a loss of
market share (from 4.5% in FY04 to 4% in FY06). Nevertheless, an operating
overhaul in terms of asset quality and retention of high margins has helped the bank
position itself favourably amongst its peers and marginally enhance its share in FY07.
Adequate capital, high NPA coverage and interest rate insulation pegs the bank
amongst the frontrunners in the public sector banking space.
A professionally managed bank with a successful track record of over 110
years. Largest branch network in India 4525 offices including 432 Extension
counters spread throughout the country. Strategic business area covers the large Indo
Gangetic belt and the metropolitan centers. Rupee drawing arrangements with M/s
UAE Exchange Centre, UAE, M/s Al Fardan Exchange Co. Doha, Qatar,M/s
Bahrain Exchange Co, Kuwait, M/s Bahrain Finance Co, Bahrain,M/s Thomas Cook
Al Rostamani Exchange Co. Dubai,UAE, and M/s Musandam Exchange, Ruwi,
Sultanate of Oman.
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Indian Promoters
Foreign collaborators
Indian inst/Mut Fund
FIIs
ADR/GDR
Free float
Shareholders
57.8%
0.0%
16.2%
20.1%
0.0%
6.0%
240,135
Market Capital
Face Value
52 Wks High/Low
Market Price
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FINANCIAL ANALYSIS
BALANCE SHEET OF PUNJAB NATIONAL BANK FOR THE LAST THREE
YEARS.
(Rs in Crore)
MARCH 2005
MARCH 2006
MARCH 2007
Capital
and
Liabilities
Equity
Share
315.30
315.30
315.30
Capital
Preference Share
0.00
0.00
0.00
Capital
Reserves
7,533.51
8,758.68
9,826.31
Revaluation
312.49
302.38
293.85
Reserves
Deposits
103,166.89
119,684.92
139,859.67
Borrowings
2,718.29
6,664.87
1,948.86
Other Liabilities &
12,222.24
9,623.64
10,285.14
Provisions
Total Liabilities
126,268.72
145,349.79
162,529.13
ASSETS
Cash & Balance
9,460.20
23,394.55
12,372.03
with RBI
Balance with
1,397.14
3,273.49
Banks, Money at
1,628.83
Call
Advances
60,412.75
74,627.37
96,596.52
Investments
50,672.83
41,055.31
45,189.84
Net Block
965.23
1,030.23
1,009.82
Capital Work in
0.00
0.00
0.00
Progress
Other Assets
3,128.88
3,845.19
4,087.43
Total Assets
126,268.72
145,349.79
162,529.13
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Rs in Crore
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 Expenditure
Net Profit for the
Year
Extraordionary
Items
Profit
brought
forward
Total Profit
Equity Dividend
(%)
No of Share
MARCH 2005
MARCH 2006
MARCH 2007
8,459.85
2,186.36
10,646.21
9,584.15
1,901.00
11,485.15
11,537.48
1,932.71
13,470.19
4,453.11
2,121.23
670.70
4,917.39
2,114.98
721.53
6,022.91
2,352.45
778.97
183.28
1,807.77
186.64
2,105.30
194.80
2,580.98
0.00
0.00
0.00
3,437.48
3,300.70
4,216.64
1,345.50
1,827.75
1,690.56
9,236.09
1,410.12
10,045.84
1,439.31
11,930.11
1,540.08
0.00
0.00
-13.27
0.00
0.00
183.49
1,410.12
60.00
1,439.31
90.00
1,710.30
100.00
315300000
315300000
315300000
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1410.12
1439.31
2005
2006
1710.3
2007
Year
STOCK PRICE
PNB Price
600
500
Price
400
450.6
393.35
466.25
507
470.4
379.5
541.25
474.4
369.5
300
200
100
0
31/03/05 30/06/05 30/09/05 31/12/05 31/03/06 30/06/06 30/09/06 31/12/06 31/03/07
Date
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(in Rs )
Market
share
price
per
MARCH 2005
393.35
MARCH 2006
470.4
MARCH 2007
474.4
ROE (%)
EPS (Rs)
Dividend Payout Ratio
Price Earning Ratio
Book Value Per Share
(Rs)
MARCH 2005
17.28
44.72
13.42
8.80
258.84
MARCH 2006
15.35
45.64
19.72
10.30
297.40
MARCH 2007
16.40
54.24
18.44
8.30
330.97
INTERPRETATION:
The trends of profits are leading the EPS; i. e. the profit has shown a small
growth in the year 2005 06 and shows an increase in the year 2006 07, similarly
the EPS follows the trend. The dividend payout ratio is increasing and the share
holders are enjoying the current inflow of cash.
The P/E ratio is volatile because of the price volatility. The company with the
help of the growing profit is retaining the profit which in turn is supporting to the
book value of the share.
The investor must look over the return on equity and the deviations of the
share price that is depicted in the price graph. Investor with low risk profile must be
careful if they have this stock in their portfolio.
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BANK OF BARODA
BSE: 532134
NSE: BANKBARODA
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BANK PROFILE:
Bank of Baroda is the fifth largest banking entity in the country (in terms of
asset size) with 4% share of the total credit disbursals at the end of FY06. Given its
geographic concentration in the northern regions, the bank was a laggard in terms of
credit growth in the initial years of this decade, which resulted in a loss of market
share. However, brand and operating overhaul led to accelerated growth in the last
two fiscals, thus helping the bank stabilise its share and position itself favourably
amongst its peers.
Bank of Baroda (BSE: 532134) is a bank in India established on July 20, 1908
by Maharaja of Baroda Sir Sayajirao Gaekwad III in the princely state of Baroda, in
Gujarat. The bank, along with 13 other major commercial banks of India, was
nationalisd on 19th July, 1969, by the Government of India.
Bank of Baroda is the fifth largest bank in India. It has total assets in excess of
Rs. 1.78 lakh crores, or Rs. 1,780 bn., a network of over 2800 branches and offices,
and about 700 ATMs. Bank of Baroda offers a wide range of banking products and
financial services to corporate and retail customers through a variety of delivery
channels and through its specialised subsidiaries and affiliates in the areas of
investment banking, credit cards and asset management. In its international expansion
Bank of Baroda followed the Indian diaspora, and especially that of the Gujaratis. The
bank has received Reserve Bank of India approval to open offices in Australia, the
Maldives, and New Zealand. It is seeking approval for operatons in Bahrain,
Johannesburg, Kuwait, Mozambique, and Qatar, and is seeking to establish a joint
venture or subsidiary in Ghana and Trinidad and Tobago.
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Shareholding Pattern
Indian Promoters
Foreign collaborators
Indian inst/Mutual Fund
FIIs
ADR/GDR
Free float
Shareholders
53.8%
0.0%
14.7%
20.1%
0.0%
11.4%
224, 161
Market Capital
Face Value
52 Wks High/Low
Market Price
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FINANCIAL ANALYSIS
BALANCE SHEET OF BANK OF BARODA FOR THE LAST THREE
YEARS.
(Rs in Crore)
MARCH 2005
MARCH 2006
MARCH 2007
Capital
and
Liabilities
Equity
Share
294.53
365.53
365.53
Capital
Preference Share
0.00
0.00
0.00
Capital
Reserves
5,333.23
7,478.91
8,284.41
Revaluation
0.00
0.00
0.00
Reserves
Deposits
81,333.46
93,661.99
124,915.98
Borrowings
1,640.83
4,802.20
1,142.56
Other Liabilities &
6,062.18
7,083.90
8,437.70
Provisions
Total Liabilities
94,664.23
113,392.53
143,146.18
ASSETS
Cash & Balance
2,712.32
3,333.43
6,413.52
with RBI
Balance with
10,121.21
11,866.85
Banks, Money at
6,541.88
Call
Advances
43,400.38
59,911.78
83,620.87
Investments
37,074.44
35,114.22
34,943.63
Net Block
860.80
920.73
1,088.81
Capital Work in
0.00
0.00
0.00
Progress
Other Assets
4,074.41
3,991.16
5,212.50
Total Assets
94,664.23
113,392.53
143,146.18
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Rs in Crore
MARCH 2005
MARCH 2006
MARCH 2007
INCOME
Interest Earned
6,431.42
7,049.95
9,212.64
Other Income
1,344.39
1,394.05
1,434.03
8,444.00
10,646.67
7,775.81
Total Income
EXPENDITURE
Interest expended
3,452.15
3,875.09
5,426.56
Employee Cost
1,381.05
1,523.79
1,644.07
Selling and Admin
749.83
705.97
516.87
Expenses
Depreciation
81.88
111.13
194.28
Miscellaneous
1,667.02
1,357.20
1,649.33
Expenses
Preoperative Exp
0.00
0.00
0.00
Capitalised
Operating
2,010.81
2,547.14
2,797.04
Expenses
Provisions &
1,636.01
1,194.81
1,396.61
Contingencies
7,098.97
7,617.04
9,620.21
Total Expenditure
Net Profit for the
826.96
1,026.46
676.84
Year
Extraordionary
0.00
0.00
0.00
Items
Profit
brought
0.00
0.00
0.00
forward
Total Profit
676.84
826.96
1,026.46
Equity Dividend
50.00
50.00
60.00
(%)
No of Share
264530000
365530000
365530000
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1200
1000
800
Net Profit (Rs in
Crores)
600
400
826.96
676.84
1026.46
200
0
2005
2006
2007
Year
STOCK PRICE
BOB Price
350
288.45
300
Price
250
249
217.75
241.05
240
230.55
196.65
196.25
215.05
200
150
100
50
0
31/03/05 30/06/05 30/09/05 31/12/05 31/03/06 30/06/06 30/09/06 31/12/06 31/03/07
Date
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price
per
MARCH 2005
217.75
MARCH 2006
230.15
MARCH 2007
215.05
ROE (%)
EPS (Rs)
Dividend Payout Ratio
Price Earning Ratio
Book Value Per Share
(Rs)
MARCH 2005
12.02
25.59
19.54
8.51
212.75
MARCH 2006
10.54
22.62
22.10
10.17
214.60
MARCH 2007
11.87
28.03
21.37
7.67
236.64
INTERPRETATION:
The profit for the bank has increase but the return on equity is showing a
downward trend in the earlier year and then again rising. The issue of additional
equity share may be the reason for such a trend. The bank is also giving good
dividend to the shareholder.
The volatility of the share price can be the reason for displaying such a P/E
trend. The dividend payout ratio shows a minor downtrend. The share is quit volatile.
We can say this because the price has almost not shown any movement over the
period.
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FINDINGS
COMPERATIVE ANANLYSIS OF THE BANKS
Bank
Name
SBI
BOI
PNB
BOB
ROE
Mar-05 Mar-07
17.88
14.51
7.62
28.24
17.28
16.4
12.02
11.87
EPS (Rs.)
Change
-3.37
20.62
-0.88
-0.15
Mar-05
81.79
6.96
44.72
25.59
P/E
Price as
on
30/06/07
MarMar-07 Change
07
86.29
11.51
4.5
27.14
34.1
4.92
54.24
9.52
8.3
28.03
2.44 7.67
1525.8
231.7
541.25
270.25
INTERPRATION
On comparing the major players of the public sector banking, we can see that
bank of India is being greater increase in the return of equity and EPS than the other
players. The return on equity is the highest for Bank of India. The profit of the bank is
also growing at quicker rate. The P/E is considered one of the important factor that
attract the buyer. The P/E ratio is the lowest indicating that a multiple of 5 of price to
earnings exhibits some potential for capital appreciation in the case of Bank of India.
The price of the share is also low so small investors are also attracted for investment.
The ratios considered above thus show that Bank of India has generated good
profit over the years. The lower P/E multiple shows that the stock is undervalued and
has a great potential to grow.
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LIMITATIONS
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Fundamental analysis has some limitation involved in it. This limitation can be
explained as under:
Time Constrain:
Fundamental analysis may offer excellent insights, but it can be
extraordinarily time-consuming. Time-consuming models often produce valuations
that are contradictory to the current price prevailing on the exchange. This is not to
say that there are not misunderstood companies out there
Industry/Company Specific:
Valuation techniques vary depending on the industry group and specifics of
each company. For this reason, a different technique and model is required for
different industries and different companies. This can get quite time-consuming,
which can limit the amount of research that can be performed.
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.
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CONCLUSION
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The public sector banks will see an upswing in the near future because there is
a huge requirement of the funds from both the sector goods as well as services.
The banking industry sees a bright future ahead. This industry has huge
growth prospects.
On comparing various Public sector banks with each other on the basis of the
financials Bank of India was found to be the best for a value investment.
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RECOMMANDATION
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The analysis carried out at India Infoline of the public sector banks, their profit
and loss account, balance sheet and ratios I shall suggests the investors to give priority
to BANK OF INDIA than other banks as a value investment. The reason is obvious
that the bank is fundamentally very strong.
The return that the bank has given on the shareholders investment is substantially
good. The profit growth of a company is a true indicator of a companys true
performance and due weight age must be given to it. The price of the stock is low
which attracts small investors. The kind of profit the bank is generating over the
period is quit appreciable. The capital appreciation of the share is also good for the
investor. The fundamental of the economy are also strong and looks that the market
would be touching new highs.
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BIBLIOGRAPHY:
Websites:
www.moneycontrol.com
www.bankofbaroda.com
www.bankofindia.com
www.nseindia.com
www.indiainfoline.com
www.equitymaster.com
www.rbi.org.in
www.wikipedia.com
Magazines:
Dalal Street.
Financial Daily:
Economic Times.
Books:
Security Analysis and Portfolio Management Prasana Chandra
Banking Law and Practice. H. C. Agarwal
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ANNEXURE
Formulae for Investment Ratios:
Return on Equity:
Equity Earnings (Profit) / Equity (Net worth) * 100.
Earning Per Share:
Equity Earnings (Profit) / No. of Outstanding Shares.
Dividend Payout Ratio:
Equity Dividends / Equity Earnings (Profit).
Price/Earning Ratio:
Market Price Per Share/ Earning Per Share
Book Value Per Share:
Paid up Equity Capital + Reserves and Surplus / No. of Outstanding Shares.
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