ASSIGNMENT – 2

BASICS OF FINANCIAL
MANAGEMENT

SUBMITTED TO
PROF. MANISHA SANGHVI

AKSHITA SHEKHAWAT
DIVISION : E
ROLL NO. : 05
PRN: 20020441032
 ICICI BANK LTD.

HISTORY & ABOUT

The creation of Industrial Credit and Investment Corporation of India (ICICI) was an
initiative by the World Bank which is a milestone in the growth of the Indian Capital Market.
It was incorporated in the year 1955, as a company registered under the Companies Act. In
the 1990s, ICICI transformed its business from a financial institution limited to development
projects to a diversified financial services group. Ever progressing with the times, ICICI
addressed a need to upgrade its corporate structure to that of universal banking.
The ICICI was incorporated to finance small scale and medium industries in the private
sector.
ICICI Group 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 group
companies and subsidiaries in the areas of personal banking, investment banking, life and
general insurance, venture capital and asset management. The service offered by the company
includes Deposits, Loans, Cards, Investments & Insurance & Demat. In the NRI segment
services offered include Money Transfer, Bank Accounts, Investment, Home Loans,
Insurance, Loans against FD, etc.
ICICI Bank is India's largest private sector bank with total consolidated assets of Rs. 9,860.43
billion (US$ 152.0 billion) at March 31, 2017 and profit after tax of Rs. 98.01 billion (US$
1.5 billion) for the year ended March 31, 2017. ICICI Bank currently has a network of 4,850
Branches and 14,164 ATM's across India.

CAPITAL STRUCTURE

Period Instrument Authorized Issued -PAIDUP-

Capital Capital

FromTo (Rs. cr) (Rs. cr) Shares (nos) Face Capital

Value

2019- Equity 2500 1,294.55 6,472,765,203 2 1,294.55

2020 Share

2018- Equity 2500 1,289.25 6,446,239,653 2 1,289.25

2019 Share
 2017- Equity 2000 1,285.60 6,427,990,776 2 1,285.60
2018 Share

2016- Equity 1275 1,164.90 5,824,476,135 2 1,164.90

2017 Share

2015- Equity 1275 1,162.95 5,814,768,430 2 1,162.95

2016 Share

2014- Equity 1275 1,159.45 5,797,244,645 2 1,159.45

2015 Share

20132014 Equity 1275 1,154.99 1,154,987,255 10 1,154.99

Share

20122013 Equity 1275 1,153.58 1,153,581,715 10 1,153.58

Share

20112012 Equity 1275 1,152.71 1,152,714,442 10 1,152.71

Share

20102011 Equity 1275 1,151.77 1,151,772,372 10 1,151.77

Share

20092010 Equity 1275 1,114.85 1,114,845,314 10 1,114.85

Share

Table 1.1

Capital structure refers to the amount of debt and/or equity employed by a firm to fund its
operations and finance its assets. A firm’s capital structure is typically expressed as a debt-to-
equity or debt-to-capital ratio. The concept is extremely important because it can influence
the return a company earns for its shareholders and whether or not a firm survives in a
recession or depression. As we can see from Table 1.1 the number of shares offered has shot
up tremendously in the past 10 years resulting in reduced ownership while giving up equity,
which helps in lowering the interest paid.
SHAREHOLDER PATTERN

Standalone August 2020 March 2020 June 2019 March 2019

Promoters 0 0 0 0

Pledged 0 0 0 0

FII/FPI 44.89 43.7 43.2 43.02

Total DII 47.49 48.76 49.31 49.53

Fin.Insts 0.16 0.15 0.02 0.02

Insurance Co 14.1 14.52 15.59 15.95

MF 27.46 27.61 27.97 27.92

Others DIIs 5.77 6.48 5.73 5.64

Others 7.61 7.54 7.49 7.44

Total 99.99 100 100 99.99

Table 1.2
Shareholding pattern shows how the total number of shares equity outstanding in the
company is divided between various owners (individuals and institutions). It shows how the
ownership is split among the entities that make up its owners.
Here its noticeable that the FII confidence is increasing even during the pandemic. This is a
clear indicator of the confidence in the company with regards to good future growth. Also,
the holding are diverse in nature as seen in the table displayed above.

Shareholding Pattern

FII/FPI
8% Fin.Insts
6%
45% Insurance Co
27% MF

14%0% Others DIIs

Others

Fig 1.1
STOCK PRICE ANALYSIS

Stock analysis is a method for investors and traders to make buying and selling decisions. By
studying and evaluating past and current data, investors and traders attempt to gain an edge in
the markets by making informed decisions.
There are two basic types of stock analysis: fundamental analysis and technical analysis.
Fundamental analysis concentrates on data from sources, including financial records,
economic reports, company assets, and market share. While technical analysis focuses on the
study of past and present price action to predict the probability of future price movements.

The share price of the company has consistently been moving upwards until February-March
of 2020 where prices fell tremendously due to the stock market crash as a result of the Covid-
19 pandemic. To draw a year by year timeline, beginning of 2016 all Indian banks were
trading at their 52-week lows. As for ICICI Bank regulatory tightening by RBI had an impact
on investor sentiment. The bank however had the highest non-performing assets in the large
private banking space and gross NPA was hovering around 3.8% mark. Fall in the bank’s
share price reflected the pessimism and the stock trades were near its 52 week low price of Rs
239. Another element that remotely affected the stock price in 2016 was the alleged concerns
about loan irregularities by Arvind Gupta, an investor in both ICICI Bank and Videocon
Group against Chanda Kochhar, the then MD and CEO of ICICI Bank. However, his
complaint garnered no attention at that time. The rest of 2016 the prices gradually and
steadily moved upwards.
ICICI Bank reported 8% year-on-year fall in net profit at Rs 2,049 crore as a result of which
shares of ICICI fell over 3% for the quarter ended June 30, 2017. The scrip however touched
its fresh 52-week high of Rs 314.50 on July 27, 2017.
In March 2018, the CEO and MD Chanda Kochhar allegedly favoured Videocon Group in
lending practices. These allegations led to probes by multiple agencies and questioning of
Chanda Kochhar’s family. A Videocon promoter provided crores of rupees allegedly to
NuPower Renewables Pvt Ltd (NRPL), a firm set up with Kochhar’s husband, Deepak
Kochhar and two relatives six months after the Videocon group got Rs 3,250 crore as loan
from ICICI Bank in 2012. In the same month, the bank came out in defence of Chanda
Kochhar and said it had full faith in her. All of these activities did not reflect well on the
bank’s image an as a result ICICI Bank slumped to a historic loss in the quarter ended June
2018 due to a rise in provisions as the bank set aside more money to comply with the Reserve
Bank of India (RBI) guidelines on old nonperforming assets (NPAs) referred to the
bankruptcy courts. The bank reported a loss of ₹120 crore in June 2018 versus a profit of
₹2,049 crore a year before. This had a direct impact on the stock price and it fell to 261.20.
Shares of ICICI Bank Ltd in August 2018 surged as much as 8.6% after the lender clarified to
exchanges that the bank had made full disclosures about its loans and non performing assets
in its annual report, investor presentations and analysts calls.

Fig 1.2
ICICI Bank Ltd., with a 45% climb in 2019 was the most among a gauge of the nation’s
financial stocks. Quarterly Net Profit was at Rs. 1,908.03 crore in June 2019 up by 1696.01%
from Rs. 119.55 crore in June 2018.
In 2020, the stock market crash (Coronavirus Crash) was a major and sudden global crash
that started on 20 February and ended on 7 April. Due to this crash ICICI Bank share price
has crashed around 34 per cent in one month, from Rs 541.20 per stock levels to current Rs
355. According to stock market experts, ICICI Bank share price was at a high valuation and it
one of the top shares to buy at the time in then’s market price in one-year time horizon. The
share price was expected to rise up to Rs 600 in 12-months. On November 2nd shares of ICICI
Bank climbed 6 % after a host of brokerages raised the targets on the stock following the
private lender's better than expected September quarter results. While a multifold jump in
profit in ICICI Bank's September quarter results was expected, a 6.5 times jump in year-on-
year profit beat analysts estimates. The Rs 4,251 crore profit reported by the bank was its
highest ever quarterly profit so far.
RATIO ANAYSIS OF BANK

The relevance of certain turnover ratios don’t hold for the BFSI sector since banking firms
don't have a lot of working capital as they are not manufacturing firms holding inventory

Basic EPS (Rs.):

The portion of a company's profit allocated to each outstanding share of common stock.
Earnings per share serve as an indicator of a company's profitability.
(Net Income − Preferred Dividends) ÷ End-of-Period Common Shares Outstanding
As we can see from Table 1.3 the basic EPS of ICICI Bank has varied plenty with not
consistent increase or decrease in the past 5 years. In the YoY ratio analysis, 2016 was the

Table 1.3
KEY FINANCIAL
RATIOS OF ICICI
BANK (in Rs. Cr.) Mar-20 Mar-19 Mar-18 Mar-17 Mar-16
PER SHARE
RATIOS
Basic EPS (Rs.) 14.81 6.61 12.02 15.91 17.53
Dividend/Share (Rs.) 0 1 1.5 2.5 5
KEY
PERFORMANCE
RATIOS
ROCE (%) 2.6 2.39 3.1 3.75 3.46
Return On Assets (%) 0.69 0.34 0.68 1.03 1.1
Interest Income/Total
Assets (%) 6.8 6.57 6.25 7.01 7.31
Non-Interest
Income/Total Assets
(%) 1.49 1.5 1.98 2.52 2.12
Return On
Equity/Networth (%) 7.98 3.82 7.16 10.03 11.15
Interest
Expenses/Total Assets
(%) 3.78 3.77 3.63 4.2 4.37
VALUATION
RATIOS
Enterprise Value (Rs.
Cr) 1,189,399.91 1,110,725.30 960,910.09 830,408.35 781,750.90
Price To Book Value
(X) 1.75 2.31 1.66 1.59 1.51
Price To Sales (X) 2.48 3.57 2.88 2.65 2.32
Earnings Yield (X) 0.05 0.02 0.04 0.06 0.07
PE Ratio 26.48 75.3 24.84 19.33 14.14
best for the bank since it recorded it’s highest EPS at Rs. 17.53. A higher EPS indicates
higher profitability and greater value because investors will pay more for a
company's shares if they think the company has higher profits relative to its share price. In
the next 3 years the ratio continuously reduced from Rs. 17.53 to Rs. 15.91 in 2017, further to
Rs. 12.02 and the lowest in the 5 year timeline at Rs. 6.61 in 2019. A declining trend can
signal to investors that a company is in trouble, which can lead to a decline in the stock price.
Finally, in 2020 there has been a rather big jump up to EPS at Rs. 14.81 which as mentioned
indicates that the bank now has a greater value than it did in the past two years.

Dividend/Share (Rs.):
Dividend per share (DPS) is the sum of declared dividends issued by a company for every
ordinary share outstanding. DPS is an important metric to investors because the amount a
firm pays out in dividends directly translates to income for the shareholder.
(Sum of dividend over a period – Special, one-time dividends in the period) / Shares
outstanding for the Period
ICICI bank’s dividend/share price was the highest in FY ending March 2016 at Rs. 5 per
share following which in the next 4 years it only dropped. This reflects poorly on the bank
since lower dividend per share translates to lower income for the shareholder.

Return on Capital Employed ROCE (%):

A financial ratio that determines a company's profitability and the efficiency the capital is
applied. A higher ROCE implies a more economical use of capital; the ROCE should be
higher than the capital cost.
Table 1.3 shows that over the 5 years the ROCE is ranging from 2.3% - 3.75%, highest being
in the FY ending March 2017 and lowest in FY ending March 2020. A higher ROCE shows a
higher percentage of the company's value can ultimately be returned as profit to
stockholders.

Return on Assets (ROA) (%):

Return on assets tells you what percentage of every dollar invested in the business was
returned as profit. It simply shows how effective the company is at using those assets to
generate profit. It’s the most commonly used benchmark for bank profitability since it
measures the company’s return on investment in a format that is easily comparable with other
institutions.
Return on Assets = ( Net Income - Preferred Dividend ) / Total Assets
Historically speaking, a ratio of 1% or greater has been considered pretty good. But this ratio
will fluctuate with the prevailing economic times. Larger banks also tend to have a lower
ratio. From Table 1.3, we can see that the ROA was just above 1% in 2016 and 2017
indicating that the bank at the time was on the higher side of profitability in the take 5 year
timeline. In march 2018, the percentage fell to 0.68 and further to 0.34 in march 2019 just
before which the ICICI Bank – Videocon Loan Case unfolded which tremendously affected
the profitability of the company. In 2020, the bank managed to stabilise and bring their ROA
up to 0.69%.

Interest Income/Total Assets (%):

This ratio refers to the interest earned on the total assets used for this purpose to determine
whether the rate is good, too high, or too low in order for the responsible management to
decide whether to continue leaving these assets as is or use them differently. A high ratio is a
good indicator (but a too high ratio is not necessarily a good indicator), while a low ratio
might indicate that banks rely on non-interest source of funds. Based on the understanding,
we can see in Table 1.3 that the interest income to total assets ratio is between 6% to 7.4%
which is a good sign as its neither too high nor too low and is stable.

Non-Interest Income/Total Assets (%):

Bank's income that has been generated by non-interest related activities as a percentage
of total income (net-interest income plus non-interest income). Non-
interest related income includes net gains on trading and derivatives, net gains on other
securities, net fees and commissions and other operating income.
(non-interest income - non-interest expense)/ (total earning assets)
ICICI Bank in the drawn 5 year timeline has a non-interest income to total asset ratio ranging
from 1.49% to 2.52%. For a bank this range is decent since it’s primary source of income is
Interest related. Non-interest income would only be beneficial. In the fact that it would mean
the bank has diversified into new/more ventures to draw income. The highest percent is in the
FY year ending March 2017 at 2.52%.

Return On Equity/Networth (%):

Return on equity measures the percentage of profit we make for every dollar of equity
invested in the company. Ideally a financial company should have an ROE above 10%.
Return on Equity = ( Net Income - Preferred Dividend ) / Shareholder's Equity
ICICI bank in the years 2016 and 2017 made higher profits compared to the next three years,
as we have seen in the above mentioned ratios. As for the ROE too, the bank recorded
11.15% and 10.03% in the FYs 2016 and 2017, respectively. A high ROE indicates a bank is
more capable of generating more cash. In comparison, the ROE fell to 7.16% in March 2018
and further to 3.82%, an immense fall meaning the bank did not make as much profit or
generate as much cash in these financial years. Just as the pandemic hit the market, in March
2020 the bank recorded a 7.98% ROE, nearly a 4% jump from the previous FY.

Interest Expenses/Total Assets (%):

The interest expense ratio is calculated by dividing a business’s total interest expense on all
loans for one fiscal or calendar year by the earnings before interest, income taxes,
depreciation or amortization (commonly referred to as EBITDA). Ideally, the Interest
expense ratio should be lower than 25%. A situation where the interest expense ratio is more
than 25% usually indicates that the business has too much debt. In this case, management
needs to realize that risk to the business and take corrective action if necessary. As observed
in the table given above, the Interest expense ratio never exceeds 4.37% which is ideal for the
company, meaning there aren’t excessive debts in the company’s name.

Enterprise Value (Rs.Cr):

Enterprise value (EV) is a measure of a company's total value, often used as a more
comprehensive alternative to equity market capitalisation. Enterprise value is a popular
metric used to value a company for a potential takeover. In comparison to the PE ratio, EV
includes short term and long term debt subtracting the cash holdings from the market cap.
This makes EV a more viable source to value a company.

Price To Book Value (X):

Price to Book Ratio represents the relationship between the total value of an organisation's
outstanding shares and the book value of its equity. Value investors typically use the
P/B ratio, amongst other metrics, to determine whether a company's stocks are overvalued or
undervalued. It is used mostly to compare banks as most assets and liabilities of banks are
valued at market value.
In the data we can see that the P/B Ratio is ranging from 1.5 to 2.3 which is an indicator of a
goo ratio in the 5 year timeline. It is never too high or low meaning there are no valuation
discrepancies in the stock.

Price To Sales (X):

The price-to-sales (P/S) ratio is a valuation ratio that compares a company’s stock price to its
revenues. It is an indicator of the value that financial markets have placed on each dollar of a
company’s sales or revenues.
Market Value per Share / Sales per share
Ideally the price being paid by the investor for the share should be equivalent to the amount
of sales made per share. However, under practical market conditions this is highly unlikely
therefore an acceptable range would be between 1 to 2. As for ICICI’s data the ratio reached
a high of 3.57 FY ending 2019 which wouldn’t be as beneficial to the investors.

Earnings Yield (X):

The earnings yield refers to the earnings per share for the most recent 12-month period
divided by the current market price per share. The earnings yield (which is the inverse of
the P/E ratio) shows the percentage of a company's earnings per share. This metric is used
by investors to determine which assets seem under-priced or overpriced.
Table 1.3 shows earnings yield ranging from 0.2 to 0.7 in the 5 year time period, highest
being in FY ending march 2016 and lowest in FY ending March 2019.

PE Ratio:
The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its
current share price relative to its per-share earnings (EPS).
P/E Ratio=Market Value Per Share ÷ Earnings Per Share
In the FY ending 2016, ICICI Bank recorded a PE Ratio of 14.14 which in the 5 year analysis
is the lowest meaning the bank got more earnings for their investment hence making a low
PE stock a good value. However, it could also indicate that investors weren’t very confident
about the company's prospects. From Table 1.3 we can see that the PE for the next three FYs
continuously rose from 19.33 (2017) to 24.84 (2018) and finally to a huge jump at 75.3 in the
year ending March 2019. ICICI Bank and the then CEO and MD Chanda Kochhar in 2018
faced allegations of loan fraud and this resulted in a profitability fall. However, this didn’t
make the investors lose hope. They continued to believe that the future prospects of the bank
would be uphill, hence the high PE ratios. On the other hand a high PE ratio can indicate that
the stock is being over valued which may have been the case at them time. In 2020 March,
the PE ratio stabilised at 26.48

INDUSTRY COMPARISON
As for ICICI’s stand in the industry with respect to ratios, their stand is comparatively
moderate. Looking at the PE ratios of the rest of the banks ICICI is at 27.41 while the highest
is Axis bank at 59.04 and lowest going till -38.4 indicating that the bank is neither being
overvalued or undervalued currently. If we look at the ROCE of other banks such as Kotak
Mahindra, Axis Bank, HDFC; ICICI is at 2.67% which is moderate and almost same as two
of the three mentioned indicating that the bank has a good return on capital, however, HDFC
is on the higher side with a 3.33% FY ending March 2020. Taking Operating Profit Margin
into consideration, in comparison to the above mentioned banks ICICI is in negative at
11.38% indicating that the bank is not earning enough money from business operations.
However, ICICI has a moderate return of assets and return on equity percent while some
banks are above it, some are below too. As for the net profit margin, ICICI is not as well off
as HDFC and Kotak at a 10.6% however, investors see good future prospect for the bank and
expect the stock price to go back to Rs. 500-600 soon.

FINDINGS
Across-the board, whether private or PSU, banks have been making a strong comeback.
Looking at figures of ICICI Bank from the first week of November, they were at a very good
set of numbers. Their book is at almost Rs 8.36 lakh crore of deposits which includes saving,
current and term deposits. The cost of funds is the lowest in the industry at 4.22%. ICICI was
one of the shareholder funds at almost zero cost at Rs 1.36 lakh crore. NII grew by about
16%. Asset quality has been stable and they have done the highest provisioning on a
percentage basis. As the macro environment improves, ICICI Bank can get back to the pre
Covid levels of Rs 550-600 over a period of time.

REFERENCES
https://www.moneycontrol.com/financials/icicibank/ratiosVI/ICI02?classic=true
https://ticker.finology.in/company/ICICIBANK
https://www.icicicareers.com/website/know-us/history-and-facts/2015/Dec/history.html
https://www.business-standard.com/article/markets/l-t-sbi-bhel-axis-bank-icici-bank-at-52-
week-lows-is-there-hope-in-2016-116011200114_1.html
https://economictimes.indiatimes.com/markets/stocks/news/icici-bank-falls-8-on-decline-in-
q1-net-profit/articleshow/59804099.cms?from=mdr
https://www.livemint.com/
https://www.zeebiz.com/india/news-icici-bank-share-price-to-rise-70-pct-money-making-
opportunity-say-these-experts-122135
https://greyhouse.weissratings.com/ROA-ROE-and-What-These-Key-Measures-Mean-for-
YOUR-Bank
https://www.icicibank.com/annual-report-microsite/index.html

ANNEXURE (FINANCIAL STATEMENTS):

BALANCE SHEET

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS MARCH 2020

Equity Share Capital 1,294.76

TOTAL SHARE CAPITAL 1,294.76

Revaluation Reserve 3,114.87

Reserves and Surplus 112,091.29

Total Reserves and Surplus 115,206.16

TOTAL SHAREHOLDERS FUNDS 116,504.41

Deposits 770,968.99

Borrowings 162,896.76

Other Liabilities and Provisions 47,994.99

TOTAL CAPITAL AND LIABILITIES 1,098,365.15

ASSETS

Cash and Balances with Reserve Bank of India 35,283.96

Balances with Banks Money at Call and Short Notice 83,871.78

Investments 249,531.48

Advances 645,289.97

Fixed Assets 8,410.29

Other Assets 75,977.67

TOTAL ASSETS 1,098,365.15

INCOME STATEMENT

CASHFLOW STATEMENT
CASH FLOW OF ICICI BANK (in Rs. Cr.) MAR 20

12 mths

NET PROFIT/LOSS BEFORE EXTRAORDINARY ITEMS 14,048.04

AND TAX

Net CashFlow From Operating Activities 78,449.44

Net Cash Used In Investing Activities -37,107.40

Net Cash Used From Financing Activities -2,644.55

Foreign Exchange Gains / Losses 161.97

NET INC/DEC IN CASH AND CASH EQUIVALENTS 38,859.45

Cash And Cash Equivalents Begin of Year 80,296.29

Cash And Cash Equivalents End Of Year 119,155.74