fundamental_analysis_of_icici

8/7/2019 fundamental_analysis_of_icici

1/21

Fundamental Analysis Of

ICICI Bank

Submitted ToSubmitted By

Dr. G.S. BatraMandeep Singh

MBA II (C)

5879

School Of Management Studies

Punjabi University

Patiala


2/21

FUNDAMENTAL ANALYSIS

Fundamental analysis is the examination of the underlying forces that affect the well being of theeconomy, industry groups, and companies. As with most analysis, the goal is to derive a forecast

and profit from future price movements.

At the company level, fundamental analysis involves examination of financial data,

management, business concept and competition.

At the industry level, an examination of supply and demand forces for the products

offered.

For the national economy, fundamental analysis focus on economic data to assess the

present and future growth of the economy.

To forecast future stock prices, fundamental analysis combines economic, industry, and company

analysis to derive a stock's current fair value and forecast future value. If fair value is not equal

to the current stock price, fundamental analysts believe that the stock is either over or under

valued and the market price will ultimately gravitate towards fair value. Fundamentalists do not

heed the advice of the random walkers and believe that markets are weak-form efficient. By

believing that prices do not accurately reflect all available information, fundamental analysts

look to capitalize on perceived price discrepancies.

Economic analysis with favorable GDP with savings, investment, stable prices, balance of

payments,and infrastructure facilities which provides a best environment for common stock

investment.

Industrial analysis growth follows a pattern. This replicates the banking industry monitory

policy, CPR, SLR, and the flow of the industry.


3/21

Company analysis explains of the profile of the companies and then deals with financial

statement analysis of the companies.

ECONOMIC ANALYSIS

The level of economy has an impact on investment in many ways. If the economic growth

rapidly, the industry can also be expected to show rapid growth and vice versa. When the level of

economic activity is low, stock price are low, and when the level of economic activity is high the

stock price are high reflecting the prosperous outlook for sales and profit of the firms vigorous

growth with strong macroeconomic fundamentals has characterized developments in stock

market.

The economy is like the tide and the various industry groups and individual companies are like

boats. When economy expands most industry groups and companies benefits and grows. When

the economy declines, most sectors and companies usually suffer. The stock market does not

operate in a vacuum it is an integral part of the whole economy of a country.

To gain an insight into the complexities of stock market one needs to develop a sound economic

understanding and be able to interpret the impact of important economic indicators on stock

markets.

The following are some important factors which should be taken into account while doing

fundamental analysis:

Economic growth

Per capita income

Industrial production Inflation

Interest rates

Foreign exchange reserves

Budgetary deficit

Domestic savings and investment


4/21

Tax rates

Infrastructure

Political situation

Key Economic Indicators of Indian economy

1 Indian GDP Growth rate

The Gross Domestic Product (GDP) in India expanded at an annual rate of 8.90 percent in the

last quarter. India Gross Domestic Product is worth 1217 billion dollars or 1.96% of the world

economy, according to the World Bank. India's diverse economy encompasses traditional village

farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of

services. Services are the major source of economic growth, accounting for more than half ofIndia's output with less than one third of its labor force. The economy has posted an average

growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage

points.


5/21

2 India Interest Rate

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2011 5.50

2010 3.25 3.25 3.38 3.63 3.75 3.75 4.08 4.50 5.00 5.25 5.25

2009 4.50 4.00 3.75 3.38 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25

2008 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 5.50

* The table above displays the monthly average.


6/21

3 Inflation Rate

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov D

2010 16.22 14.86 14.86 13.33 13.91 13.73 11.25 9.88 9.82 9.70 8.33

2009 10.45 9.63 8.03 8.70 8.63 9.29 11.89 11.72 11.64 11.49 13.51 14

2008 5.51 5.47 7.87 7.81 7.75 7.69 8.33 9.02 9.77 10.45 10.45 9.

* The table above displays the monthly average.

The inflation rate in India was 8.33 percent in November of 2010. Inflation rate refers to a

general rise in prices measured against a standard level of purchasing power. The most well

known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator,

which measures inflation in the whole of the domestic economy.


7/21

4 FDI in India

Foreign direct investment (FDI) is probably one of the most significant factors leading to the

globalization of the international economy. FDI inflows to the developing countries increased

remarkably in the 1990s and now accounts for about 40 per cent of global FDI.

Improved global sentiment and strong industrial output numbers in India are increasingly

attracting foreign investors in the country. Other factors being attributed to the revival in foreign

direct investment (FDI) in recent times include increasing consumer confidence.

India has been ranked at the third place in global foreign direct investments this year, following

the economic meltdown, and will continue to remain among the top five attractive destinations

for international investors during the next two years,

India attracted FDI inflows of US$ 1.74 billion during November 2009, a 60 per cent increase

over the US$ 1.08 billion achieved in same month last year. The cumulative amount of FDI

inflows from August 1991 to December 2009 stood at US$ 127.46 billion, according to the latest

data released by the Department of Industrial Policy and Promotion (DIPP). India attracted FDI

equity inflows of US$ 1.54 billion during December 2009. On a cumulative basis, FDI equity

inflows of US$ 20.92 billion were recorded during April-December 2009. India's FDI inflows

touched US$ 26.5 billion in the April-December period last fiscal. The country has attracted FDI

worth US$ 23.82 billion in the January-October 2009 period and October 2009 alone witnessed a

56 per cent year-on-year jump in FDI with inflows of US$ 2.33 billion, according to the

DIPP.The services sector comprising financial and non-financial services attracted FDI worth

US$ 3.54 billion during April-December 2009-10, while computer software and hardware sector

garnered about US$ 595 million during the said period.


8/21

5 Foreign exchange reserves

Foreign exchange reserves are very important for any economy as it is the main indicator of an

economy when it comes to comparison with other economies in global front.

Foreign exchange reserves increased by US$ 11 billion as against a decline of US$ 20 billion

during the corresponding period a year ago. Foreign exchange reserves stood at US$ 279 billion

as on March 31, 2010. The six-currency trade-based real effective exchange rate (REER) (1993-

94=100) appreciated by 15.5 per cent during 2009-10 up to February as against 10.4 per cent

depreciation in the corresponding period of the previous year.

According to the latest data released by the reserve bank of India, the value of gold in reservesrose $551 million to touch $18,537 million. Foreign currency assets comprising dollars, pounds

and euro, among others, on the other hand dipped $354 m during the week. Special Drawing

Rights (SDR) reserve currency with the International Monetary Fund and the reserve

capital with the IMF dipped by $6m and $34m, respectively, during the week.

In the banking sector, banks have again started parking funds in mutual funds in the absence of

lending opportunities during this time of the year. They parked an additional Rs 766 crore during

the fortnight ended April 23 to take their total MF exposure to Rs 1,06,285 crore.


9/21

INDUSTRY ANALYSIS

The purpose of industry analysis is to review prevailing conditions within specific industry andits segments. The company's industry obviously influences the outlook for the company. Even

the best stocks can post mediocre returns if they are in an industry that is struggling.

It is often said that a weak stock in a strong industry is preferable to a strong stock in a weak

industry.

To assess the industry group potential, an investor would want to consider the overall growth

rate, market size, and its importance to economy. While the individual company is still

important, its industry group is likely to exert as much as, or more, influence on the stock price.

When stock move the usually move as groups; there are very few lone guns out there. An

understanding of the industry sector involved, including the maturity of the sector and any

cyclical effects that the overall economies have on it, is also necessary.

The followings are some important factors which should be considered in

Fundamental Analysis

Growth: A growing industry gives room for profitability.

Profitability: Average profitability of the industry should be attractive.

Competition and market share:

Technology trends

Government policy


10/21

Monetary Policy in India

CRR Rates

RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from

time to time. Increase in CRR means that banks have fewer funds available and money is sucked

out of circulation. Thus we can say that this serves duel purposes i.e. it not only ensures that a

portion of bank deposits is totally risk-free, but also enables RBI to control liquidity in the

system, and thereby, inflation by tying the hands of the banks in lending money.

RBI decreased CRR for the banks when the global slowdown was taking toll of all the

economies and specially banking and finance institutions. RBI in first in its moves reduced CRR

from its August 2008 9% to 5% in January 2009. But recently RBI has started its normalization

policy and hiked CRR to 6% in its annual monetary policy.

Reverse Repo Rates

The rates at which the Reserve Bank of India takes money from the commercial banks are known

as reverse repo rates. The private or public sector banks always prefer to provide loans to the

Central Bank as they know that their money would be in safe hands if given to it. The

commercial banks always prefer to lend during when the reverse repo rates are higher as it

provides generation of more revenues. So in other words we can define Reverse repo rate as the

rate at which the RBI absorbs liquidity from the commercial banks.

RBI has increase reverse repo rate in its annual monetary policy in April 2010.

Repo Rates

Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks. When

the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say

that in case, RBI wants to make it more expensive for the banks to borrow money, it increases

the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the

repo rate.


11/21


12/21

Bank Rate

Bank Rate is the rate at which central bank of the country (in India it is RBI) allows finance to

commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any

upward revision in Bank Rate by central bank is an indication that banks should also increasedeposit rates as well as Prime Lending Rate. This any revision in the Bank rate indicates could

mean more or less interest on your deposits and also an increase or decrease in your EMI. Bank

rate in India is 6% currently and there has been no change in the Bank rate from 2003.

Performance of Indian Banking Industry

The Indian banking system is financially stable and resilient to the shocks that may arise due to

higher non-performing assets (NPAs) and the global economic crisis, according to a stress testdone by the Reserve Bank of India (RBI).

Significantly, the RBI has the tenth largest gold reserves in the world after spending US$ 6.7

billion towards the purchase of 200 metric tones of gold from the International Monetary Fund

(IMF) in November 2009. The purchase has increased the country's share of gold holdings in its

foreign exchange reserves from approximately 4 per cent to about 6 per cent.

Following the financial crisis, new deposits have gravitated towards public sector banks.According to RBI's 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial

Banks: September 2009', nationalized banks, as a group, accounted for 50.5 per cent of the

aggregate deposits, while State Bank of India (SBI) and its associates accounted for 23.8 per

cent. The share of other scheduled commercial banks, foreign banks and regional rural banks in

aggregate deposits were 17.8 per cent, 5.6 per cent and 3.0 per cent, respectively.

With respect to gross bank credit also, nationalized banks hold the highest share of 50.5 per cent

in the total bank credit, with SBI and its associates at 23.7 per cent and other scheduled

commercial banks at 17.8 per cent. Foreign banks and regional rural banks had a share of 5.5 per

cent and 2.5 per cent respectively in the total bank credit.

The report also found that scheduled commercial banks served 34,709 banked centers. Of these

centers, 28,095 were single office centers and 64 centers had 100 or more bank offices.


13/21

The confidence of non-resident Indians (NRIs) in the Indian economy is reviving again. NRI

fund inflows increased since April 2009 and touched US$ 45.5 billion on July 2009, as per the

RBI's February bulletin. Most of this has come through Foreign Currency Non-resident (FCNR)

accounts and Non-resident External Rupee Accounts. India's foreign exchange reserves rose to

US$ 284.26 billion as on January 8, 2010, according to the RBI's February bulletin.

Growth of 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 assetsof 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 2002-03. It is expected that there will be large additions to the capital base and reserves on

the liability side.

Challenges to Banking industry in India

The banking industry in India is undergoing a major transformation due to changes in economic

conditions and continuous deregulation. These multiple changes happening one after other has a

ripple effect on a bank trying to graduate from completely regulated seller market to completed

deregulated customers market.

Deregulation: This continuous deregulation has made the Banking market extremely

competitive with greater autonomy, operational flexibility and decontrolled interest rate and

liberalized norms for foreign exchange. The deregulation of the industry coupled with decontrol

in interest rates has led to entry of a number of players in the banking industry. At the same time


14/21

reduced corporate credit off take thanks to sluggish economy has resulted in large number of

competitors batting for the same pie.

New rules: As a result, the market place has been redefined with new rules of the game. Banks

are transforming to universal banking, adding new channels with lucrative pricing and freebees

to offer. Natural fall out of this has led to a series of innovative product offerings catering to

various customer segments, specifically retail credit.

Efficiency: This in turn has made it necessary to look for efficiencies in the business. Banks

need to access low cost funds and simultaneously improve the efficiency. The banks are facing

pricing pressure, squeeze on spread and have to give thrust on retail assets.

Diffused Customer loyalty: This will definitely impact Customer preferences, as they are bound

to react to the value added offerings. Customers have become demanding and the loyalties are

diffused. There are multiple choices; the wallet share is reduced per bank with demand on

flexibility and customization. Given the relatively low switching costs; customer retention calls

for customized service and hassle free, flawless service delivery.

Misaligned mindset: These changes are creating challenges, as employees are made to adapt to

changing conditions. There is resistance to change from employees and the Seller market

mindset is yet to be changed coupled with Fear of uncertainty and Control orientation.

Acceptance of technology is slowly creeping in but the utilization is not maximized.

Competency Gap: Placing the right skill at the right place will determine success. The

competency gap needs to be addressed simultaneously otherwise there will be missed

opportunities. The focus of people will be on doing work but not providing solutions, on

escalating problems rather than solving them and on disposing customers instead of using the

opportunity to cross sell.

COMPANY ANALYSIS-ICICI Bank

Profile


15/21

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 Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$ 81

billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year

ended March 31, 2010. The Bank has a network of 2,000 branches and about 5,219 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.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock

Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New

York Stock Exchange (NYSE).


16/21

Share holding Pattern

Share holding pattern as on : 31/03/2010 31/12/2009 30/09/2009

Face value 10.00 10.00 10.00

No. Of

Shares

%

Holding

No. Of

Shares

%

Holding

No. Of

Shares

%

HoldingPromoter's holding

Sub total - - - - - -

Non promoter's holding

Institutional investors

Banks Fin. Inst. and

Insurance195985072 17.58 196772204 17.66 193684224 17.39

FII's 414589473 37.19 405186131 36.37 393903476 35.37

Sub total 693669873 62.22 681285777 61.15 666311911 59.84

Other investors

Private Corporate

Bodies29101511 2.61 30683910 2.75 32640436 2.93

NRI's/OCB's/Foreign

Others6312510 0.57 8344069 0.75 8661306 0.78

Directors/Employees 4001763 0.36 915614 0.08 933488 0.08

Govt. 2830 - 6760 - 7380 -

Others 317823760 28.51 324764614 29.15 335589655 30.14

Sub total 357238265 32.04 364710768 32.73 377828066 33.93

General public 63933067 5.73 68131224 6.12 69419969 6.23

Grand total 1114841205 100.00 1114127769 100.00 1113559946 100.00

Performance of Share

It was trading on near 325 Rs. in Feb 2009 but now its trading on in the range of Rs. 950-1050.

The share has performed continuously well on the stock exchange. The script is on the upward

trend on from the last 1 year its price is getting better as time progressing.

Annual Financial Results


17/21

Sales Turnover

2006

14,306.13

2007

22,994.29

2008

30,788.34

2009

31,092.55

2010

25,706

Other Income 4,983.14 5,929.17 8,810.77 7,603.72 7,477.6

Total Income 19,289.27 28,923.46 39,599.11 38,696.27 33,184.

Total Expenses 6,595.22 8,916.92 11,058.77 10,853.37 10,246

Operating Profit 7,710.91 14,077.37 19,729.57 20,239.18 15,460

Gross Profit 12,694.05 20,006.54 28,540.34 27,842.90 22,937

Interest 9,597.45 16,358.50 23,484.24 22,725.93 17,592

PBDT 3,096.60 3,648.04 5,056.10 5,116.97 5,345

PBT 3,096.60 3,648.04 5,056.10 5,116.97 5,345Tax 556.53 537.82 898.37 1,358.84 1,320

Net Profit 2,540.07 3,110.22 4,157.73 3,758.13 4,024

Earnings Per Share 28.55 34.58 37.37 33.76 36.10

Book Value -- -- -- -- --

Equity 889.83 899.34 1,112.68 1,113.29 1,114.8

Reserves 21,316.16 23,413.92 45,357.53 48,419.73 50,503.4

Face Value 10.00 10.00 10.00 10.00 10.00

Analysis of Key Components

Sales

ICICI Banks sales have increased more then 2 times from its 2006 figures in 2009. But this year

figures show a deep in the sales of the Banks. As the 2009 figure was 31092.55 Crs. which is for

2010 is 25706 Crs. This is shows a decline around 20 % in its Sales.

Net Profit


18/21

As the ICICI banks net profit decreased in 2009 from its net profit of 2008 but this time it has

increased again. The figure for 2010 is 4024 Crs. which is approximately 10% more then 3758

Crs. of 2009. Although the sales is less in 2010 but the less expenses, less interest and less tax

payments has increased the figure of profit for ICICI Bank.

Reserves

The reserves of ICICI bank has increased significantly from last 4-5 years in year 2008 its

increased 2 fold from its 2007 figure and the trend continues in 2010 also. As the reserves has

increased in this year also significantly.

Ratio Analysis of ICICI Bank

31-Mar-10 31-Mar-09 31-Mar-08

Profitability

Interest Income/Total Income (%) 80.40 77.80 76.00

Non Interest Income/Total Income (%) 19.60 22.20 24.00

Reported Net Profit/Total Income (%) 9.70 10.50 10.80

Net Interest Income/Total Income (%) 21.60 18.40 19.50

Net Interest Margin (%) 3.80 3.20 3.00

Return Related

ROE (%) 7.50 8.90 12.60

ROA (%) 1.00 1.00 0.90


19/21

Leverage & Capital Measures

Customer loans/deposits (%) 100.00 92.30 81.80

Investments/Deposits (%) 47.20 45.60 39.60

Total Liabilities/Networth 7.70 8.60 14.20

Growth (%)

Growth in Interest Income 0.99 39.98 53.75

Growth in Interest Expenses -- 43.56 70.45

Growth in Employee cost -- 28.59 49.38

Growth in PAT -- 33.68 22.45

Growth in Deposits -- 6.04 39.63

Growth in Borrowings 2.55 28.08 33.06

Per Share

Book Value Per Share (Rs) 444.90 417.50 269.70

Earnings Per Share (Rs) 33.80 37.40 34.60

Dividend Per Share (Rs) 11.00 11.00 10.00

Analysis of some of the key ratios

EPS

This ratio indicates profitability per equity share basis and is widely used by the prospective

equity shareholders as a guide to investment decision in the firm. As in the case of ICICI bank it

has a very good EPS of 36.10 as recorded latest.

But if we look at the trend of EPS of ICICI bank its increasing continuously from the last fiscal

year of 2010. This shows that the performance of ICICI bank and its share is good in current

time.

Price Earning Ratio


20/21

This help to establish relationship between market price per share to earning per share, this

indicates how the investors react to the performance of the business. The current P/E ratio of the

bank is 24.68 which is very good for the company.

It has been trading in the PE of 20-25 on the constant range. This show the fundamentals of the

companies are strong.

Debt/ Equity Ratio

It indicates the respective claim of outsiders and owners i.e. equity shareholders in the assets of

the firm. It indicates the financial soundness of the organization. Company having a Debt- equity

ration of 4.48 which is more then ideal ratio of 1:1 but this is the trend in all the banks as they get

so much debt in their capital structure.

Still the Bank is maintaining a good Debt- Equity ratio when it comes to the industry average.

Quick Ratio

It helps to judging immediate solvency position of a firm. Standard ratio is 1:1.Is is widely used

as indicator of the firms liquidity. ICICI Bank has a quick ratio of 5.58 which is very good. It

shows the liquidity of the bank, it can pay its liabilities faster and it doesnt have to face liquidity

crunch.

Net Profit Margin

Net profit margin is the ration which tells how much profit a firm earning on its sales. This

shows the profitability of the firm. In the case of ICICI banks its current net profit margin is 9.74

which is very healthy as it is earning good profit on its sales. Although if we look at the trend of

net profit margin its on the decline trend but still its very good.

Return of Average Equity

This ratio shows the return on the equity shares means earnings divided by no. of equity shares.

The current return of average equity is 7.58 for the ICICI bank which is quite healthy. This

shows that the shareholders getting a good share of the profit.


21/21

Recommendation

To Buy

Reasons to Invest in ICICI Bank

Modest loan growth (we expect 16% CAGR over FY10- 12), improvement in CASA

ratio (expect it to touch 40% by FY12) and reduction in bulk deposits will lead to

improved margins. Expect margins to increase by 10-15bp over FY11-12.

Reduced exposure to unsecured retail loans (down to 4.8% of loan book from 10% in

FY08) could lead to lower NPAs in future, driving earnings.

During the year ended March 31, 2010, the Bank has significantly strengthened its

deposit franchise. This is reflected in the strong growth in savings and current account

deposits and increase in the CASA ratio. The Bank continues to invest in expansion

of its branch network to enhance its deposit franchise and create an integrated

distribution network for both asset and liability products.

fundamental_analysis_of_icici

Documents