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INTRODUCTION TO

FUNDAMENTAL ANALYSIS
(Chapter-1)

What is analysis?
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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.

There is a two type of analysis:


1.fundamental analysis
2. technical analysis
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 companys
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
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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 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 securitys 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.
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Earnings per Share EPS


Price to Earnings Ratio P/E 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
performance.

securities

and

appraising

financial

and

management

A good financial analyst will build in financial ratio calculations extensively in


a financial mode ling 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 firms 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:

Performance ratios
What return is the company making
investment? What are its profit margins?

on

its

capital

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.
A good understanding can help investors avoid companies that are prone to
shortfalls and identify those that continue to deliver. In addition to
understanding the business, fundamental analysis allows investors to
develop an understanding of the key value drivers and companies within an
industry. A stock's price is heavily influenced by its industry group. By
studying these groups, investors can better position themselves to identify
opportunities that are high-risk (tech), low-risk (utilities), growth oriented
(computer), value driven (oil), non-cyclical (consumer staples), cyclical
(transportation) or income-oriented (high yield).

Knowing Who's Who Stocks move as a group. By understanding a company's


business, investors can better position themselves to categorize stocks within
their relevant industry group. Business can change rapidly and with it the
revenue mix of a company. This has happened with many of the pure internet
retailers, which were not really internet companies, but plain retailers.
Knowing a company's business and being able to place it in a group can
make a huge difference in relative valuations. The charts of the technical
analyst may give all kinds of profit alerts, signals and alarms, but theres

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, and
inflation rate etc for the selected period of 5 years.
To analyze the industry especially private bank industry for the
selected period of 5 years.
To carry out financial and non-financial analysis of ICICI bank as a whole
for the selected period.

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

ICICI Bank Corporate Office Address:


ICICI Bank Towers, Bandra-Kurla Complex, Mumbai 400051.

PROMOTERS
ICICI Bank

ICICI Bank Limited (NYSE:IBN) is India's leading private sector bank, with
consolidated total assets of Rs 8260.79 bn. as at March 31, 2015. ICICI Bank's
subsidiaries include India's leading private sector insurance companies, the
largest online retail brokerage and among its largest mutual funds and private
equity firms. ICICI Bank's presence currently spans 17 countries, including India.

VISION & VALUES

10

Our vision:

To be the dominant Life, Health and Pensions player built on trust by world-class
people and service.
This we hope to achieve by:
Understanding the needs of customers and offering them superior products and
service;
Leveraging technology to service customers quickly, efficiently and conveniently ;
Developing and implementing superior risk management and investment
strategies to offer sustainable and stable returns to our policyholders;
Providing an enabling environment to foster growth and learning for our
employees;
And above all, building transparency in all our dealings.

Our values:

The success of the company will be founded in its unflinching commitment to 5


core values -- Integrity, Customer First, Boundary-less, Humility and Passion.
Each of the values describe what the company stands for, the qualities of our
people and the way we work. Every member of the ICICI Prudential team is
committed to the 5 core values and these values shine forth in all we do.

subsidiar
ICICI Prudential Life Insurance Company Limited
ICICI Lombard General Insurance Company Limited
ICICI Prudential Asset Management Company Limited

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ICICI Prudential Trust Limited


ICICI Securities Limited
ICICI Securities Primary Dealership Limited
ICICI Venture Funds Management Company Limited
ICICI Home Finance Company Limited
ICICI Investment Management Company Limited
ICICI Trusteeship Services Limited
ICICI Prudential Pension Funds Management Company Limited[48]

International
ICICI Bank USA
ICICI Bank UK PLC
ICICI Bank Canada
ICICI Bank Eurasia Limited Liability Company
ICICI Securities Holdings Inc.
ICICI Securities Inc.
ICICI International LImited

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Awards and Achievements of ICICI


2014
According to the Brand Trust Report 2014, ICICI Bank was ranked 28th among India's
most trusted brands, a research conducted by Trust Research Advisory.[71]
ICICI Bank was ranked second at the 'National Energy Conservation Award 2014'
under the office buildings (less than 10 lakh kWh/year consumption) category.[72]
ICICI Bank was fifth in the world and second in India on the 'Top Companies for
Leaders' in a study conducted by Aon Hewitt.[73]
ICICI bank won the Best Private Sector Bank - Global Business Development
by Polaris Financial Technology Banking Awards 2014.
IDBRT awarded ICICI for 'Best Bank Award for Business Intelligence Initiatives
among Large Banks' and 'Best Bank Award for Social Media and Mobile Banking
Among Large Banks'.[74]
ICICI bank was awarded the Certificate of Recognition as one of the Top 5
Companies in Corporate Governance in the 14th The Institute of Company
Secretaries of India National Awards for Corporate Governance. They were
honoured by Arun Jaitley.[75]
ICICI Bank has been honoured as The Best Service Provider - Risk Management,
India at The Asset Triple A Transaction Banking, Treasury, Trade and Risk
Management Awards 2014.
ICICI Bank was awarded the 'Best Retail Bank in India', 'Best Microfinance
Business' and 'Best Retail Banking Branch Innovation' under the 'Excellence in
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Retail Financial Services awards 2014' and Technology Implementation Award for
Lending Platform Implementation by The Asian Banker.[76][77]
2015

ICICI Bank won an award in the BFSI Leadership Summit & Awards in the 'Best
Phone Banking for End-users category[78]
ICICI Bank won in six categories and was the first runner-up in one category
among Private Sector Banks at IBA Banking Technology Awards, 2015. The bank
was declared winner in the six categories of Best Technology Bank of the Year,
Best use of Data, Best Risk Management Initiatives, Best use of Technology in
Training, Human Resources and e-Learning initiatives, Best Financial Inclusion
Initiative and Best use of Digital and Channels Technology. ICICI Bank was the
first runner-up in Best use of Technology to Enhance Customer Experience[79]
ICICI Bank has been declared as the first runner up at Outlook Money Awards
2015 in the category of Best Bank
ICICI Bank has been adjudged the Best Retail Bank in India by The Asian Banker.
It has also emerged winners in the categories of Best Internet Banking Initiative
and Best Customer Risk Management Initiative awards given by The Asian
Banker.[80]

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15

Industry Analysis
(Chapter-3)

16

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. The analysis examines factors such as
competition and the external business environment, substitute products,
management preferences, buyers and suppliers. Industry analysis involves
reviewing the economic, political and market factors that influence the way
the industry develops. Major factors can include the power wielded by
suppliers and buyers, the condition of competitors. And the likelihood of new
market entrants.

Data needs for industry analysis


Industry analysis requires a variety of quantitative and qualitative data.
Though one single source for all the data needs might not found, industry
associates, business publications and the department of economic analysis
perform a comprehensive industry analysis. A suggestive list of data
categories that are utilized for performing industry analysis is listed below.

Product lines
Product growth
Complementary product
Economics of scale
Suppliers
Labors
Substitute products
Buyers and their behavior
Product pattern (cyclical, 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

17

THE INDIAN BANKING SECTOR REVIEW


Without a sound and effective banking system in India it cannot have a healthy
economy. 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.
For the past three decades India's banking system has several outstanding
achievements to its credit. It is no longer confined to only metropolitans or
cosmopolitans in India; in fact, Indian banking system has reached even to the
remote corners of the country. This is one of the main reasons of India's growth
process. The government's regular policy for Indian bank since 1969 has paid
rich dividends with the nationalization of 14 major private banks of India. Not
long ago, an account holder had to wait for hours at the bank counters for
getting a draft or for withdrawing his own money. Today, he has a choice. Gone
are days when the most efficient bank transferred money from one branch to
other in two days. Now it is simple as instant messaging or dial a pizza. Money
has become the order of the day.
Post-independence
In 1948, the Reserve Bank of India, India's central banking authority, was
nationalized, and it became an institution owned by the Government of India.
In 1949, the Banking Regulation Act was enacted which empowered the Reserve
Bank of India (RBI) "to regulate, control, and inspect the banks in India.
"The Banking Regulation Act also provided that no new bank or branch of an
existing bank may be opened without a license from the RBI, and no two banks
could have common directors.

Liberalizatio
n
The new policy shook the Banking sector in India completely. Bankers, till this
time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4)
of functioning. 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,
which came to be known as New Generation tech-savvy banks, which included
banks such as Global Trust Bank (the first of such new generation banks to be set

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up) which later amalgamated with Oriental Bank of Commerce, UTI Bank (now renamed as Axis Bank), ICICI Bank and HDFC Bank.

Current situation
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector
banks (that is with the Government of India holding a stake), 29 private banks
(these do not have government stake; they may be publicly listed and traded on
stock exchanges) and 31 foreign banks. They have a combined network of over
67,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a
rating agency, the public sector banks hold over 78 percent of total assets of the
banking industry, with the private and foreign banks holding 18.2% and 6.5%
respectively.
Over the last four years, Indias economy has been on a high growth trajectory,
creating unprecedented opportunities for its banking sector. Most banks have
enjoyed high growth and their valuations have appreciated significantly during
this period. Looking ahead, the most pertinent issue is how well the banking
sector is positioned to cater to continued growth. A holistic assessment of the
banking sector is possible only by looking at the roles and actions of banks, their
core capabilities and their ability to meet systemic objectives, which include
increasing shareholder value, fostering financial inclusion, contributing to GDP
growth, efficiently managing intermediation cost, and effectively allocating
capital and maintaining system stability.

BANKING STRUCTURE IN INDIA


The banking institutions in the organized sector, commercial banks are the oldest
institutions, some them having their genesis in the nineteenth century. Initially
they were set up in large numbers, mostly as corporate bodies with shareholding
with private individuals. Today 27 banks constitute a strong Public Sector in
Indian Commercial Banking. Commercial Banks operating in India fall under
different sub categories on the basis of their ownership and control over
management;
Public Sector Banks
Public Sector Banks emerged in India in three stages. First the conversion of the
then existing Imperial Bank of India into State Bank of India in 1955, followed by

19

the taking over of the seven associated banks as its subsidiary. Second the
nationalization of 14 major commercial banks in 1969and last the nationalization
of 6 more commercial Bank in 1980. Thus 27 banks constitute the Public Sector
Banks.

New Private Sector


Banks
After the nationalization of the major banks in the private sector in 1969 and 1980,
no new bank could be setup in India for about two decades, though there was no
legal bar to that
effect. The Narasimham Committee on financial sector reforms recommended
the establishment of new banks of India. RBI thereafter issued guidelines for
setting up of new private sector banks in India in January 1993. These
guidelines aim at ensuring that new banks are financially viable and
technologically up to date from the start. They have to work in a professional
manner, so as to improve the image of commercial banking system and to
win the confidence of the public. Eight private sector banks have been
established including banks sector by financially institutions like SIDBI, ICICI,
and UTI etc.

Local Area Banks Such Banks can be established as public limited


companies in the private sector and can be promoted by individuals,
companies, trusts and societies. The minimum paid up capital of such banks
would be 5 crores with promoters contribution at least Rs. 2 crores. They are
to be set up in district towns and the area of their operations would be
limited to a maximum of 3 districts. At present, four local area banks are
functional, one each in Punjab, Gujarat, Maharashtra and Andhra Pradesh.
Foreign Banks Foreign commercial banks are the branches in India of the joint
stock banks incorporated abroad. Their number was 38 as on 31.03.2011.

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, 1934. RBI
in turn includes only those banks in this schedule which satisfy the criteria
laid down vide section42 (6) a) of the Act.

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"Scheduled banks in India" means the State Bank of India constituted under
the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined
in the State Bank of India (Sub sidiary Banks) Act, 1959 (38 of 1959), a
corresponding new bank constituted under section 3 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970),
or under section 3 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included
in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but
does not include a co-operative bank". "Non-scheduled bank in India" means a
banking company as defined in clause (c) of section 5 of the Banking Regulation
Act, 1949 (10 of 1949), which is not a scheduled bank".

Cooperative Banks
Besides the commercial banks, there exists in India another set of banking
institutions called cooperative credit institutions. These have been made in
existence in India since long. They undertake the business of banking both in
urban and rural areas on the principle of cooperation. They have served a
useful role in spreading the banking habit throughout the country. Yet, there
financial position is not sound and a majority of cooperative banks has yet to
achieve financial viability on a sustainable basis.
The cooperative banks have been set up under various Cooperative Societies
Acts enacted by State Governments. Hence the State Governments regulate
these banks. In 1966, need was felt to regulate their activities to ensure their
soundness and to protect the interests of depositors According to the RBI in
March 2011, number of all Scheduled Commercial Banks (SCBs) was 171 of
which, 86 were Regional Rural Banks and the number of Non-Scheduled
Commercial Banks including Local Area Banks stood at 5. Taking into account
all banks in India, there are overall 86,640 branches or offices, 1,093,356
employees and 35,088 ATMs. Public sector banks made up a large chunk of
the infrastructure, with 87.7 per cent of all offices, 82 per cent of staff and
60.3 per cent of all automated teller machines (ATMs).

21

SWOT ANALYSIS OF BANKING SECTOR


STRENGTHS
Indian banks have compared favorably on growth, asset quality and
profitability with other regional banks over the last few years. 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. Policy makers have made some notable changes in policy and
regulation to help strengthen the sector. These changes include
strengthening prudential norms, enhancing the payments system and
integrating regulations between commercial and co-operative banks. Bank
lending has been a significant driver of GDP growth and employment.
Extensive reach: the vast networking & growing number of branches &
ATMs. Indian banking system has reached even to the remote corners of the
country.
In terms of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheets relative to
other banks in comparable economies in its region.

WEAKNESS
Public Sector Banks need to fundamentally strengthen institutional skill levels
especially in sales and marketing, service operations, risk management and
the overall organizational performance ethic & strengthen human capital.
Old private sector banks also have the need to fundamentally strengthen skill
levels.
The cost of intermediation remains high and bank penetration is limited to only a
few customer segments and geographies.
Structural weaknesses such as a fragmented industry structure, restrictions
on capital availability and deployment, lack of institutional support
infrastructure, restrictive labour laws, weak corporate governance and
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ineffective regulations beyond Scheduled Commercial Banks (SCBs), unless


industry utilities and service bureaus.
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.
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.

OPPORTUNITIES
The market is seeing discontinuous growth driven by new products and
services that include opportunities in credit cards, consumer finance and
wealth management on the retail side, and in fee-based income and
investment banking on the wholesale banking side. These require new skills
in sales & marketing, credit and operations.
With increased interest in India, competition from foreign banks will only
intensify.
Given the demographic shifts resulting from changes in age profile and
household income, consumers will increasingly demand enhanced
institutional capabilities and service levels from banks.
New private banks could reach the next level of their growth in the Indian
banking sector by continuing to innovate and develop differentiated business
models to profitably serve segments like the rural/low income and
affluent/HNI segments; actively adopting acquisitions as a means to grow and
reaching the next level of performance in their service platforms. Attracting,
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 valuecreating customer franchise in advance of regulations potentially opening up
post 2009.
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. This enabled banks and financial institutions, which were earlier
23

not permitted to raise such funds, explore this route for raising cheaper funds
in the overseas markets.
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. If the new instruments find takers, it
would help PSU banks, left with little headroom for raising equity.

THREATS
Threat of stability of the system: failure of some weak banks has often
threatened the stability of the system.
Rise in inflation figures which would lead to increase in interest rates.
Increase in the number of foreign players would pose a threat to the Public
Sector Bank as well as the private players.

Key players

Andhra Bank

State Bank of India

Allahabad Bank

Vijaya Bank

Punjab National Bank

HDFC Bank

UTI Bank

ICICI Bank

Kotak Mahindra Bank

Centurion Bank of Punjab

Citibank

Standard Chartered Bank

HSBC Bank

State Bank of Mysore

American Express Bank

ABN AMRO

24

Company analysis
(Chapter-4)

25

Analysis of the company consists of measuring its performance and


ascertaining the cause of this performance. When some companies have
done well irrespective of economic or industry failure, this implies that there
are certain unique characteristics for this particular company that had made
it a success. The identification of these characteristics, whether quantitative
or qualitative, is referred to as company analysis. Quantitative indicators of
company analysis are the financial indicators and operational efficiency
indicators. Financial indicators are the profitability indicators and financial
position indicators analyzed through the income and balance sheet
statements, respectively, of the company. Operational indicators are capacity
utilization and cost versus sales efficiency of the company, which includes
the marketing edge of the company.
Besides the quantitative factors, qualitative factors of a company also
influence investment decision process of an institutional investor. The focus
of the qualitative data, as revealed in the annual report- as in the directors
speech. Rather than on quantitative data.
Tools for company analysis
Company analysis involves choice of investment opportunities within a
specific industry that comprises of several individual companies. The choice
of an investible company broadly depends on the expectations about its
future performance in general. Here, the business cycle that a company is
undergoing is a very useful tool to assess the future performance from the
company.
Company analysis ought to examine the levels of competition, demand, and
other forces that affect the companys ability to be profitable. Of these
factors, understanding the competitive environment is most important.
A business faces five forces of competition (porters model) namely, sellers
competition, buyers competition, competition from new entrants, exit
competition. Competitive forces include the power of those who sell the
business, those who buy the business; those who buy from the business, how
easily new businesses can enter the industry, how costly it is to exit, and
finally, the competition from those who already in the industry. How well a
company deals with each of these forces will determine whether the
company earns above or below average profit. Each of these forces is
discussed below.

26

1.Porter model
Porter's Five Forces is a framework for industry analysis and business strategy
development formed by Michael E. Porter of Harvard Business School in 1979.
It draws upon Industrial Organization (IO) economics to derive five forces that
determine the competitive intensity and therefore attractiveness of a market.
Attractiveness in this context refers to the overall industry profitability. An
"unattractive" industry is one in which the combination of these five forces
acts to drive down overall profitability. A very unattractive industry would be
one approaching "pure competition", in which available profits for all firms
are driven down to zero.
Three of Porter's five forces refer to competition from external sources. The
remainders are internal threats.
Porter referred to these forces as the micro environment, to contrast it with
the more general term macro environment. They consist of those forces close
to a company that affect its ability to serve its customers and make a profit.
A change in any of the forces normally, requires a business unit to re-assess
the marketplace given the overall change in industry information. The overall
industry attractiveness does not imply that every firm in the industry will
return the same profitability. Firms are able to apply their core competencies,
business model or network to achieve a profit above the industry average. A
clear example of this is the airline industry. As an industry, profitability is low
and yet individual companies, by applying unique business models, have
been able to make a return in excess of the industry average.
Porter's five forces include - three forces from 'horizontal' competition: threat
of substitute products, the threat of established rivals, and the threat of new
entrants; and two forces from 'vertical' competition: the bargaining power of
suppliers and the bargaining power of customers.
This five forces analysis is just one part of the complete Porter strategic models.
The other elements are the value chain and the generic strategies

27

a)The threat of the entry of new competitors


Profitable markets that yield high returns will attract new firms. This results in
many new entrants, which eventually will decrease profitability for all firms in
the industry. Unless the entry of new firms can be blocked by incumbents, the
abnormal profit rate will fall towards zero (perfect competition).
The existence of barriers to entry (patents, rights, etc.) The most
attractive segment is one in which entry barriers are high and exit
barriers are low. Few new firms can enter and non-performing firms can
exit easily.
Economies of product differences
Brand equity
Switching costs or sunk costs
Capital requirements
Access to distribution
Customer loyalty to established brands
Absolute cost
Industry profitability; 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
28

Perceived level of product differentiation


Number of substitute products available in the market
Ease of substitution. Information-based products are more prone to
substitution, as online product can easily replace material product.
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,
which also affects the customer's sensitivity to price changes.
Buyer concentration to firm concentration ratio
Degree of dependency upon existing channels of distribution
Bargaining leverage, 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.
Suppliers of raw materials, components, labor, and services (such as
expertise) to the firm can be a source of power over the firm, when there are
few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge
excessively high prices for unique resources.
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.g. labor unions)
29

Supplier competition - ability to forward vertically integrate and cut out the
BUYER
(e) The intensity of competitive rivalry
For most industries, the intensity of competitive rivalry is the major determinant
of the competitiveness of the industry.
Sustainable competitive advantage through innovation
Competition between online and offline companies; click-and-mortar -vslags 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.
How will competition react to a certain behavior by another firm? Competitive
rivalry is likely to be based on dimensions such as price, quality, and
innovation. Technological advances protect companies from competition. This
applies to products and services. Companies that are successful with
introducing new technology are able to charge higher prices and achieve
higher profits, until competitors imitate them. Examples of recent technology
advantage in have been mp3 players and mobile telephones. Vertical
integration is a strategy to reduce a business' own cost and thereby intensify
pressure on its rival.

2. The financial statements of the company:


Records that outline the financial activities of a business, an individual or any
other entity. 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. Financial statements for businesses usually
include: income statements, balance sheet, statements of retained earnings
and cash flows, as well as other possible statements

3. Ratio analysis:
A tool used by individuals to conduct a quantitative analysis of information in
a company's financial statements. Ratios are calculated from current year
30

numbers and are then compared to previous years, other companies, the
industry, or even the economy to judge the performance of the company.
Ratio analysis is predominately used by proponents of fundamental analysis.
There are many ratios that can be calculated from the financial statements
pertaining to a company's performance, activity, financing and liquidity.
Some common ratios include the price-earnings ratio, debt-equity ratio,
earnings per share, asset turnover and working capital.

31

32

33

RESEARCH METHODOLOGY
(Chapter-5)

34

Research methodology Research methodology is a way to systematically


solve the research problem. 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
Internet-websites

Period of study
The period of the study is 5 years i.e. (2007-2012). Company 5 years data has
been taken for the analysis.

Tools
These are the most popular tools of fundamental analysis. They focus on
earnings, growth, and value in the market.
Earnings per Share EPS
Price to Earnings Ratio P/E
Projected Earnings Growth PEG
Price to Sales P/S
Price to Book P/B
Dividend Payout Ratio
Dividend Yield

35

Book Value Ratio Analysis


Liquid ratio
Turnover ratio
Valuation ratio

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

36

DATA ANALYSIS
(Chapter-6)

37

The process of evaluating data using analytical and logical reasoning to


examine each component of the data provided. This form of analysis is just
one of the many steps that must be completed when conducting a research
experiment. Data from various sources is gathered, reviewed, and then
analyzed to form some sort of finding or conclusion. There are a variety of
specific data analysis method, some of which include data mining, text
analytics, business intelligence, 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.
Numerical data can be analyzed using statistical methods, and results can be
displayed using tables, charts, histograms and graphs.
The term qualitative data is used to describe certain types of information.
This is almost the converse of quantitative data, in which items are more
precisely described as data in terms of quantity and in which numerical
values are used. However, data originally obtained as qualitative information
about individual items may give rise to quantitative data if they are
summarized by means of counts.
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. However, qualitative data can include well-defined
aspects such as gender, nationality or commodity type.

38

INDUSTRY ANALYSIS
The last decade has seen many positive developments in the Indian banking
sector. The policy makers, which comprise the Reserve Bank of India (RBI),
Ministry of Finance and related government and financial sector regulatory
entities, have made several notable efforts to Improve regulation in the
sector. The sector now compares favorably with banking sectors in the region
on metrics like growth, profitability and non-performing assets (NPAs). A few
banks have established an outstanding track record of innovation, growth
and value creation. This is Reflected in their market valuation. However,
improved regulations, innovation, growth and value creation in the sector
remain limited to a small part of it. The cost of banking intermediation in
India is higher and bank penetration is far lower than in other markets.
Indias banking industry must strengthen itself significantly if it has to
support the modern and vibrant economy which India aspires to be. While the
onus for this change lies mainly with bank managements, an enabling policy
and regulatory framework will also be critical to their success. The failure to
respond to changing market realities has stunted the development of the
financial sector in many developing countries. A weak banking structure has
been unable to fuel continued growth, which has harmed the long-term
health of their economies. In this white paper, we emphasize the need to
act both decisively and quickly to build an enabling, rather than a limiting,
banking sector in India.

OPPORTUNITIES AND CHALLENGES FOR PLAYERS


The bar for what it means to be a successful player in the sector has been
raised. Four challenges must be addressed before success can be achieved.
First, the market is seeing discontinuous growth driven by new products and
services that include opportunities in credit cards, consumer finance and
wealth management on the retail side, and in feebased income and
investment banking on the wholesale banking side. These require new skills
in sales & marketing, credit and operations. Second, banks will no longer
enjoy windfall treasury gains that the decade-long secular decline in interest
rates provided. This will expose the weaker banks. Third, with increased
interest in India, competition from foreign banks will only intensify. Fourth,
given the demographic shifts resulting from changes in age profile and
household income, consumers will increasingly demand enhanced
institutional capabilities and service levels from banks.
39

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. Based on
the projections made in the "India Vision 2020" prepared by the Planning
Commission and the Draft 10th Plan, the report forecasts that the pace of
expansion in the balance-sheets of banks is likely to decelerate. The total assets
of all scheduled commercial banks by end-March 2010 are estimated at Rs 40,
90,000 crores That will comprise about 65 per cent of GDP at current market
prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow
at an annual composite rate of 13.4 per cent during the rest of the decade as
against the growth rate of 16.7 per cent that existed between 1994-95 and 200203. It is expected that there will be large additions to the capital base and
reserves on the liability side.

Peer Group Comparison (Standalone)(Rs. In Crore


Company
Name
Indusind
Bank

Year End

PBIDT

PAT

2011

Net
Sales
2706.99

PBIDTM
%
26

PATM
%
12.94

ROCE%

ROE%

350.31

Adj.
EPS(Rs)
8.53

703.89

7.53

19.51

ICICI Bank

2011

25706.93

9732.18

4024.98

36.1

37.86

15.66

6.18

7.96

Kotak
Bank

2011

3255.62

1297

561.11

8.06

39.84

17.23

6.68

13.52

HDFC Bank

2011

16172.9

6429.73

2948.7

64.42

39.76

18.23

5.95

16.31

Axis Bank

2011

11638.02

5240.56

2514.53

62.06

45.03

21.61

6.39

19.15

40

Interpretation:
Here we can see that ICICI has highest net sales with 25706.93 cr. And PAT is
also highest among the peer group with 4027.93 cr. That means ICICI is most
favorable company to invest in terms of profit.

Bank Private Industry Ratios

Description

2012

2011

2010

2009

2008

No Of Companies

74

89

83

71

68

13.31
6.22
5.02
5.63
8.28

14.23
7.44
6.09
5.38
8.14

12.87
7.21
5.87
4.69
7

12.04
6.37
5.1
4.38
6.94

11.36
6.41
4.27
4.92
7.1

Margin Ratios
Yield on Advances
Yield on Investments
Cost of Liabilities
NIM
Interest Spread
Performance Ratios

41

ROA (%)
ROE (%)
ROCE (%)
Efficiency Ratios

1.17
10.65
5.96

1.28
11.07
7.11

1.34
12.02
7.04

1.19
14.45
6.4

1.18
13.36
5.56

Cost Income Ratio


Core Cost Income Ratio
Operating Costs to Assets
Growth Ratio

42.89
44.25
7.46

42.45
45.19
7.55

46.35
48.74
7.49

50.66
51.78
7.82

51.38
50.8
8.2

Core Operating Income


Growth
Operating Profit Growth
Net Profit Growth
Advances Growth
Liquidity Ratios

9.09

30.55

44.08

32.44

107.35

2.45
3.73
8.99

20.79
16.84
14.77

60.6
55.86
46.44

37.8
37.48
38.42

127.56
102.66
86.72

Loans/Deposits(x)
Cash/Deposits(x)
Investment/Deposits(x)
Inc Loan/Deposit (%)

0.2
0.09
0.47
19.63

0.26
0.07
0.44
25.72

0.22
0.1
0.43
22.28

0.18
0.07
0.41
17.58

0.19
0.06
0.43
18.73

Interpretation
42

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. The return from the point of view of equity shareholders
may be calculated by comparing the net profit less preference dividend with
their total contribution to the firm. 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. ROE is calculated by establishing the relationship
between the profits and the assets employed to earn that profit. ROA shows
as to how much is the profit earn by the firm per rupee of assets used. Here
industry ROA is almost stable.
NET PROFIT: the NP ratio establishes the relationship between the net
profit (after tax) of the firm and the net sales. 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 industry has fallen down.

Bank Private Industry profit & Loss A/C


DESCRIPTION

2012

2011

2010

2009

2008

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

98
135486.15
35136.24
170622.38
78145.22
38681.01
19010.41

74
113327.71
29599.54
142927.25
65332.36
33282.45
16440.68

89
136806.93
35299.77
172106.71
84711.83
36938.65
16710.7

83
107590.8
28016.66
135607.47
68370.19
31161.41
8910.47

71
71311.52
20011.95
91323.48
42996.95
24155.71
6848.84

34785.74
12304.43
148141.07
22481.31
-22.08

27871.76
9657.77
124713.26
18213.99
-19.49

33745.53
12149.69
150510.87
21595.84
-30.5

27165.39
8925.72
117367.79
18239.68
-1.46

17321.97
5498.1
79499.61
11823.87
133.84

43

Profit brought forward


Adjustments to PAT
Total Profit & Loss
IV. APPROPRIATIONS

15392.55
24.84
37898.7
37886.23

14902.92
-23.31
33093.6
33074.11

11246.87
15.64
32858.35
32827.85

5710.75
140.12
24090.55
24089.09

3893.12
182.71
15899.7
16043.16

Profit After Tax


25000
20000

18239.68

15000
10000
5000

22481.31

21595.84

18215.99
Profit After Tax

11823.87
8732.73

0
1

Interpretation:
Private bank industry profit & loss account shows that banking industry is having a
large profit yoy and growing rapidly. This is a good sign for the investor who wants
to invest in the banking industry.

Competition
Last
Price

Net Interest
Income

Net
Profit

ICICI Bank

Market Cap.
(Rs.
Cr.)
1,105.45 127,322.68

25,706.93

HDFC Bank

2,350.05 109,330.36

19,928.21

Axis Bank

1,333.45 54,744.24

15,154.81

Kotak Mahindra
IndusInd Bank
YES BANK
Federal Bank
Karur Vysya

458.00
267.00
316.25
436.05
417.00

3,255.62
3,589.36
4,041.74
3,673.23
1,757.94

4,024.98 363,399.7
1
3,926.39 222,458.5
6
3,388.49 180,647.8
7
561.11
37,436.31
577.32
35,369.52
727.13
36,382.50
464.55
43,675.61
336.03
21,993.49

33,748.71
12,418.17
10,978.53
7,454.92
4,449.13

Total
Assets

44

ING Vysya
Bank
JK Bank

353.15

4,272.65

2,694.06

318.65

33,880.24

823.50

3,992.15

3,056.88

512.38

42,546.80

45

COMPANY ANALYSIS
ICICI BANK LTD

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian


financial institution, and was its wholly-owned subsidiary. ICICIs shareholding
in ICICI Bank was reduced to 46% through a public offering of shares in India
in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in
fiscal 2000, ICICI Banks acquisition of Bank of Madura Limited in an all-stock
amalgamation in fiscal 2001, and secondary market sales by ICICI to
institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955
at the initiative of the World Bank, the Government of India and
representatives of Indian industry. The principal objective was to create a
development financial institution for providing medium-term and long-term
project financing to Indian businesses. In the 1990s, 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 directly and through a number of subsidiaries and affiliates
like ICICI Bank. In 1999, ICICI become the first Indian company and the first
bank or financial institution from non-Japan Asia to be listed on the NYSE.
After consideration of various corporate structuring alternatives in the
context of the emerging competitive scenario in the Indian banking industry,
and the move towards universal banking, 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, and would create the optimal
legal structure for the ICICI groups universal banking strategy. The merger
would enhance value for ICICI shareholders through the merged entitys
access to low-cost deposits, greater opportunities for earning fee-based
income and the ability to participate in the payments system and provide
transaction-banking services. The merger would enhance value for ICICI Bank
shareholders through a large capital base and scale of operations, seamless
access to ICICIs strong corporate relationships built up over five decades,
entry into new business segments, higher market share in various business
segments, particularly fee-based services, and access to the vast talent pool
of ICICI and its subsidiaries. In October 2001, the Boards of Directors of ICICI
and ICICI Bank approved the merger of ICICI and two of its wholly-owned
46

retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI
Capital Services Limited, with ICICI Bank. The merger was approved by
shareholders of ICICI and ICICI Bank in January
2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the
High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002.
Consequent to the merger, the ICICI groups financing and banking operations,
both wholesale and retail, have been integrated in a single entity.
ICICI Bank is Indias second-largest bank with total assets of Rs.3,793.01
billion (US$ 75 billion) at March 31, 2009 and profit after tax Rs.37.58 billion
for the year ended March 31, 2009. The Bank has a network of 1,454
branches and about 4,721 ATMs in India and presence in 18 countries. 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, life and non-life insurance, venture capital and asset management.
The Bank currently has subsidiaries in the United Kingdom, Russia and
Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri
Lanka, Qatar and Dubai International Finance Centre and representative
offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand,
Malaysia and Indonesia. Their UK subsidiary has established branches in
Belgium and Germany.

47

SNAPSHOT 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.BO

Company Address
Registered
Office
Phone
Fax
Website
Email

Landmark,Race Course
Circle,Vadodara,390007,Gujarat
91-0265-6617200/3983200
91-0265-2339926
www.icicibank.com
investor@icicibank.com

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)
Face Value (Rs)
Industry PE

11th February,2012
1122.55
1130.10
-0.67%
22.02%
1231.00
767.00
10.00
12.71
48

PRICE V/S SENSEX CHART


ICICI bank
Sensex

20000
19000
Axis Title
18000
17000
16000

Company Size (Standalone)


Market Cap(Rs Crore)
EV (Rs Crore)
Latest no. of shares
Share holding pattern as on 201012
Promoter No of shares
Promoter %
FII No of Shares
FII %
Total No of Shares
Free Float %

118741.77
185491.05
1148873022
0
0
451680100
39.23
1151422189
100
49

Financial Highlights (Standalone)


(Rs. In Crore)

DESCRIPTION
Equity Paid
Up
Reserve
Deposits
Gross Block
Interest
Earned
Operating
Profit
PAT
Dividend %
Adj. EPS(Rs)
Adj. Book
Value(Rs)

2012
1114.81

2011
1113.21

2010
1112.6

2009
899.27

2008
889.8

50503.48
202016.6
7114.12
25706.93

48419.73
218347.83
7443.71
31092.55

45357.53
244431.05
7036
30788.34

23413.92
230510.19
6298.56
21995.59

21316.16
165083.17
5968.57
14306.13

9732.18

8925.23

7960.68

5874.41

3888.42

4024.98
120
36.1
463.02

3758.13
110
33.76
444.95

4157.73
110
37.37
417.67

3110.22
100
34.59
270.37

2540.08
85
28.55
249.56

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)

40.95
45.11
22.91
25.24
2.14
20.29
7.53
1.16
4.82
482.44

Quarter on Quarter (Standalone)


(Rs. In Crore)

Particulars

2012

2011

Interest
Earned

6695.96

6309.1

Q on Q Var
%
6.13

2010

Y on Y Var%

6089.57

9.96
50

Total
Expenditure
Operating
Profit
PAT
PBIDTM%
PATM%
Adj. EPS(Rs)

1717.92

1570.37

9.4

1362.39

26.1

2342.61

2211.94

5.91

2368.84

-1.11

1437.02
34.99
21.46
12.48

1236.27
35.06
19.6
10.74

16.24
-0.2
9.49
16.2

1101.06
38.9
18.08
9.88

30.51
-10.05
18.69
26.32

Dividend
25000
20000
15000
Dividend

10000
5000
0
2008

2009

2010

2011

2012

Interpretation
BETA: A measure of the volatility, or systematic risk, of a security or a
portfolio in comparison to the market as a whole. Beta is used in the capital
asset pricing model (CAPM), a model that calculates the expected return of
an asset based on its beta and expected market returns.
Here beta is more than 1 (1.4927) beta of greater than 1 indicates that the
securitys price will be more volatile than the market. Stocks beta is 1.4927;
its theoretically 49.27% more volatile than the market.
EPS: EPS indicates the profitability of a company. Earnings per Share are the
single most popular variable in dictating a shares price. Earnings per share
are the Net Income (profit) of a company divided by the number of
outstanding shares. And here EPS of the company increasing. This shows that
company is earning profit.

51

P/E: price-to-earnings ratio (P/E) is probably the most widely used and thus
misused investing metric. Its easy to calculate, which explains its popularity.
The most common way to calculate:
P/E = share price divided by earnings per share
DPS: The sum of declared dividends for every ordinary share issued.
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. Dividends are a form of
profit distribution to the shareholder. Having a growing dividend per share
can be a sign that the companys management believes that the growth can
be sustained. Here dividend is highest in last 5 years; it indicates that
company is growing YOY.
ICICI is having highest market capital, net profit and assets value as compared to
competitors this indicates that ICICI is most favorable company for investors.

ICICI BANK LTD BALANCE SHEET


DESCRIPTION

March201
2

March201
1

March201
0

March2009

March-2008

1114.89
0.00

1113.29
0.00

1462.68
0.00

1249.34
0.00

1239.83
0.00

50503.48
202016.60
94263.57
15501.18

48419.73
218347.82
93155.45
18264.66

45357.53
244431.05
65648.43
42895.38

23413.92
230510.19
51256.03
38228.64

21316.16
165083.17
38521.91
25227.88

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

363399.72 379300.96 399795.08 344658.11 251388.95


27514.29

17536.33

29377.53

18706.88

8934.37

11359.40

12430.23

8663.60

18414.45

8105.85
52

Investments
Advances
Gross block
Less: Accumulated
Depreciation
Less: Impairment of
Assets
Net Block
Lease Adjustment
Capital
Work
in
Progress

120892.80
181205.60
7114.12
3901.43

103058.31
218310.85
7443.71
3642.09

111454.34
225616.08
7036.00
2927.11

91257.84
195865.60
6298.56
2375.14

71547.39
146163.11
5968.57
1987.85

3212.69

3801.62

4108.90

3923.42

3980.71

19214.93 24163.62 20574.63


363399.72 379300.96 399795.08
Contingent Liabilities 727084.06 834683.00 1211082.3
3
Bills for collection
6474.95
6000.44
4278.28
Book Value
463.02
444.95
417.67
Adjusted Book Value 463.02
444.95
417.67
Other Assets
Total Assets

16489.92
12657.51
344658.11 251388.95
562959.91 395033.67
4046.56
270.37
270.37

4338.46
249.56
249.56

53

ICICI BANK LTD PROFIT AND LOSS A/C

54

DESCRIPTION

March201
2

March201
1

March2010

March200
9

March2008

Interest Earned
Other Income
Total Income
II. EXPENDITURE

25706.93
7477.65
33184.58

31092.55
7603.73
38696.28

30788.34
8810.76
39599.11

21995.59
6927.87
28923.46

14306.13
4180.89
18487.02

Interest Expended
Operating Expenses
Provisions and
Contingencies
Profit Before Tax
Taxes
Total
III. PROFIT AND LOSS

17592.57
5859.83
4386.86

22725.93
7045.11
3808.26

23484.24
8154.18
2904.58

16358.50
6690.56
2226.37

9597.45
5001.15
791.81

5345.32
1320.34
29159.60

5116.97
1358.84
34938.14

5056.10
898.37
35441.38

3648.04
537.82
25813.24

3096.61
556.53
15946.94

Profit After Tax Extra items


Profit
brought
forward
Adjustments to PAT
Total Profit & Loss
IV. APPROPRIATIONS
Equity Dividend %
Earnings Per Share
Adjusted EPS

4024.98
2809.65

3758.13
2436.32

4157.73
998.27

3110.22
293.44

2540.07
188.22

6834.63
6834.63
120.00
36.10
36.10

6194.45
6194.45
110.00
33.76
33.76

5156.00
5156.00
110.00
37.37
37.37

3403.66
3403.66
100.00
34.59
34.59

2728.30
2728.30
85.00
28.55
28.55

I. INCOME

55

ICICI BANK LTD FINANCIAL RATIOS

56

Ratios

2012

2011

2010

2009

2008

Per Share
Ratios
EPS

36.10

33.76

37.37

34.59

28.55

DPS

12

11

11

10

8.50

Profitability
ratios
GP Ratio

15.06

12.36

12.99

11.41

15.10

NP Ratio

12.17

9.74

10.51

10.81

14.12

ROE

7.96

7.83

11.75

13.37

14.62

ROA

1.08

0.96

1.12

1.04

1.21

Liquidity
Ratios
Current Ratio 1.94

0.78

0.72

0.61

0.62

Quick Ratio

5.94

6.42

6.04

6.64

14.70

EPS
40
35
30
25
20

EPS

15
10
5
0
2008

2009

2010

2011

2012

Interpretation
Earnings per share (EPS):
57

EPS is the profitability of the firm measures in terms of number of equity


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

DPS
14
12
10
8
6

DPS

4
2
0
2008

2009

2010

2011

2012

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. 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.

Dividend per share over the years has increased which indicates that the amount
of dividend distributed towards the shareholder has increased.

58

GP ratio
16
14
12
10
8

GP ratio

6
4
2
0
2008

2009

2010

2011

2012

Gross profit ratio:


The GP ratio is also called the average markup ratio. It is calculated by
comparing the gross profit of the firm with the net sales.
In 2007 GP ratio had drastically fallen, which means operating efficiency of the
firm has decreased but it has recovered over the next three years and become
almost stable.

NP
16
14
12
10
8

NP

6
4
2
0
2008

2009

2010

2011

2012

Net profit ratio:

59

The NP ratio establishes the relationship between the net profit (after tax) of
the firm and the net sales. 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
16
14
12
10
8

ROE

6
4
2
0
2008

2009

2010

2011

2012

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. The return from the point of view of equity shareholders
may be calculated by comparing the net profit less preference dividend with
their total contribution to 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, and the firm has not
been able to earn satisfactory return for the owner.

60

ROA
1.4
1.2
1
0.8
0.6

ROA

0.4
0.2
0
2008

2009

2010

2011

2012

ROA: ROA measures a profitability of the firm in terms of assets employed in


the firm. ROE is calculated by establishing the relationship between the
profits and the assists employed to earn that profit. 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.

Current Ratio
2.5
2
1.5
Current Ratio

1
0.5
0
2008

2009

2010

2011

2012

Current Ratio: Current ratio shows the firms ability to pay its current
liability out of its current assets. 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 of the firm has increased over the year which indicates that the firm
has enough current assets to pay off its current liability.
61

Quick ratio
16
14
12
10
8

Quick ratio

6
4
2
0
2008

2009

2010

2011

2012

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. 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 pay off its current
liability.

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)

March201
2
26.39
25.59
2.06

March201
1
9.85
8.76
0.75

March201
0
20.61
18.81
1.84

March200
9
24.67
22.13
3.16

March200
8
20.64
18.16
2.36

1.26

3.31

1.43

1.17

1.44

7.80
20.60
8.74
0.55

4.19
14.59
4.68
0.34

4.93
19.05
5.31
0.38

5.83
21.84
6.41
0.37

6.38
23.48
7.19
0.36
62

M Cap / Sales
High PE
Low PE

4.13
28.45
10.35

1.19
25.19
7.03

2.78
42.13
20.61

3.49
29.50
15.96

3.66
22.76
13.24

ICICI BANK LTD CASH FLOW RATIO

DESCRIPTION

March-2012 March-2011 March-2010 March-2009 March-2008

Cash Flow Per


share

16.77

-127.46

-104.54

256.45

52.29

Price to Cash
Flow Ratio

56.82

-2.61

-7.37

3.33

11.27

Free
Cash 102.15
Flow
per
Share
Price to Free
9.33
Cash Flow

241.13

198.79

-160.91

30.12

1.38

3.87

-5.30

19.56

Free Cash
Flow
Yield
Sales to cash
flow ratios

0.11

0.72

0.26

-0.19

0.05

13.75

-2.19

-2.65

0.95

3.07

Intrinsic value of ICICI Bank

Year
2008
2009
2010
2011
2012

EPS
36.10
33.76
37.37
34.59
28.55

P/E
26.39
9.85
20.61
24.67
20.64

63

1) Based on the past 5 year EPS data, estimated growth % can be


determine. And the estimated growth rate is 10.1%
2) Now, by using the current EPS we can compound it with the estimated
growth i.e. 10.1%
3) Current
EPS
is
40.95
40.95+(40.95*.101)=45.085

compounding

of

the

EPS

is

4) Now, based on the past 5 year P/E take the average of P/E value which is
20.432
5) Now multiply the step 3 & 4 and we will get the estimated share price.
6) Estimated share price is 921.176 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.

Expected Growth of ICICI in 2011 by Unicon Investment


research report

ICICI Bank registered a good financial performance in Q4FY12 with


standalone PAT up by 48% to INR 18.52 Bn from INR 10.06 Bn in Q4FY11. The
growth, being the highest in last 7 years, was aided by increase in interest
and non-interest income. The QoQ increase in Net Interest Income was better
than expected (a rise of 25.3% from INR 22.35 bn in Q4FY11 to INR 25.10 Bn
to Q4FY12). Net interest margin increased QoQ & YoY by 10 bps to 2.7%
respectively, on account of lower cost of funds, lower delinquencies and
growing CASA deposits. CASA ratio increased from 41.7% in Q4FY11 to
45.1% in Q4FY12. The total deposits increased by 11.7% YoY (INR 668.7 Bn
on March 31,2011 as compared to INR 532.18 Bn in March 31,2011). Noninterest income decreased by 13.2% QoQ and 11.1% YoY, this was primarily
because of MTM loss in treasury income (Q4FY12 value stood at INR 1.96 Bn)
and reduction in other income by 73.6% (QoQ). However, fee income
increased by 17.8% to INR 17.91 Bn on QoQ basis. Advances increased by
only 19% which was lower than the industry level of 21%, advances to
domestic 71orporate increased by 42.6% YoY. The retail advances like vehicle
loan and home loan are expected to grow in the near future. The Net NPAs
improved from 1.87% in Q4FY11 to 0.94% of net advances in Q4FY12. Loan
loss coverage ratio also increased to 76% on March 31, 2011 from 59.5% in
64

March 31 ,2011, much above the RBI regulation of 70%. Operating expenses
rose by 14.1% to INR 17.89 in Q4FY12 from INR 14.58 Bn in Q4FY11. Credit
to deposit ratio from domestic business stood at 75%, Cost to income ratio
was 42% due to healthy operating income growth. This was on account of
expanding network of the bank with 2529 branches and 6104 ATMs. ICICI
Banks growth in the past has been mainly retail-driven, the bank is now
looking to grow its large corporate and SME segment loan book as well.
Progress on the 4C strategy (CASA, capital conservation, cost control and
credit charges) has been good. At the CMP ICICI is trading at 2x of its FY12E
P/BV (standalone basis). We have Accumulate rating on the stock for a target
price of INR 1306, says Unicon Investment research report.

65

FINDINGS
In this project report there are many facts which say whether an investor
should invest in ICICI Bank or not. For the conclusion on this part, we have
analyzed economic, industry as well as company (ICICI Bank).

1) In the Economic Analysis we can see that economic is booming after 2010
and current position shows that this is the good time to invest after the
recession because GDP growth rate is increasing. And overall economy is
growing.

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.

3) In the analysis of ICICI Bank we can see that EPS is increasing yoy. And
dividend is also increasing so investor can invest in the company but on other
side we companys intrinsic value is less than the current price it shows that
the share price is overvalued and invester should sell the share. 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.

66

LIMITATIONS
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 timeconsuming. Time-consuming models often produce
valuations that are contradictory to the current price prevailing on the
exchange.
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 be quite timeconsuming process, 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.
Inadequacies of Data:
While making analysis one has to often wrestle with inadequate data. While
deliberate falsification of data may be rare, subtle misrepresentation and
concealment are common.
Future Uncertainties:
Future changes are largely unpredictable; more so when the economic and
business environment is buffeted by frequent winds of change. In an
environment characterized by discontinuities, the past record is a poor guide
to future performance.
Irrational Market Behavior:

67

The market itself presents a major obstacle while making analysis on account
of neglect or prejudice, undervaluation may persist for extended periods;
likewise, overvaluations arising from unsatisfied optimism and misplaced
enthusiasm may endure for unreasonable lengths of time

CONCLUSION
Fundamental analysis holds that no investment decision should be without
processing and analyzing all relevant information. Its strength lies in the fact
that the information analyzed is real as opposed to hunches or assumptions.
On the other hand, while fundamental analysis deals with tangible facts, it
does not tend to ignore the fact that human beings do not always act
rationally. Market prices do sometimes deviate from fundamentals. Prices rise
or fall due to insider trading, speculation, rumor, and a host of other factors.
Fundamental analysis is based on the analysis of the economic, 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. 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. And according to the industry analysis
investor can invest in the banks but he/she should be careful for the
investment. 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. EPS and dividend both are
increasing yoy and its 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 cant 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.

68

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

69

BIBLIOGRAPHY
Books:
Investment Analysis & Portfolio Management- Prasanna Chandra.
Financial management R.P Rustagi

Data base Websites:


http://www.business-standard.com/india/index2.php
http://www.equitymaster.com
http://economictimes.indiatimes.com/
http://finance.indiabizclub.com/info/indian_banking_industry
http://finance.indiamart.com/investment_in_india/banking_in_india.
html http://www.icicibank.com http://www.moneycontrol.com
http://www.nseindia.com http://www.rbi.org.in

70