Financial Performance of HDFC Standard Life

8/3/2019 Financial Performance of HDFC Standard Life

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HDFC STANDARD LIFE

A Project ReportOn

Financial Performance Analysis of HDFC

Standard Life

Submitted by

SOWMYA H.N

1EC09MBA29

MBA (Finance)

East point college of Engineering for Women

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PART A

(Corporate Exposure)



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1. INDUSTRY PROFILE

A. Insurance: General IntroductionInsurance is a protection against financial loss arising on the happening of an unexpected

event. Insurance may be described as a social device to reduce or eliminate risk of loss to

life and property. While it becomes somewhat impossible for a man to bear by himself

100% loss to his own property or interest arising out of an unforeseen contingency,

insurance is a method or process which distributes the burden of the loss on a number of

persons within the group formed for this particular purpose. Insurance, whether life or

non-life, provides people with a reasonable degree of security and assurance that they

will be protected in the event of a calamity or failure of any sort. Insurance policy helps

in not only mitigating risks but also provides a financial cushion against adverse financial

burdens suffered. Insurance policies cover the risk of life as well as other assets and

valuables such as home, automobiles, jewelry etc. Under the plan of insurance, a large

number of people associate themselves by sharing risks attached to individuals. The risks,

which can be insured against, include fire, the perils of sea, death and accidents and

burglary. Any risk contingent upon these, may be insured against at a premium

commensurate with the risk involved. Thus collective bearing of risk is insurance.

Insurance policies can be classified into two categories. Which are given below: -

Life Insurance Policy

General Insurance Policy

Life insurance:

Life insurance is a guarantee that your family will receive financial support, even in your

absence. It thus protects to your family from the financial crises. It serves as a protective

cover to your family. Life insurance orLife Assurance is a contract between the policy

owner and the insurer, where the insurer agrees to pay a sum of money upon the

occurrence of the insured individual's death. In return, the policy owner agrees to pay a

stipulated amount called a premium at regular intervals or in lump sums (so-called "paid

up" insurance).



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The first comprehensive legislation was introduced with the Insurance Act of 1938 that

provided strict State Control over the insurance business. The insurance business grew at

a faster pace after independence. Indian companies strengthened their hold on this business but despite the growth that was witnessed, insurance remained an urban

phenomenon.

The Government of India in 1956, brought together over 240 private life insurers and

provident societies under one nationalized monopoly corporation and Life Insurance

Corporation (LIC) was born. Nationalization was justified on the grounds that it would

create the much-needed funds for rapid industrialization. This was in conformity with the

Government's chosen path of State led planning and development.

The non-life insurance business continued to thrive with the private sector till 1972. Their

operations were restricted to organized trade and industry in large cities. The general

insurance industry was nationalized in 1972. With this, nearly 107 insurers were

amalgamated and grouped into four companies- National Insurance Company, New India

Assurance Company, Oriental Insurance Company and United India Insurance Company.

These were subsidiaries of the General Insurance Company (GIC).

Key Milestones

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate

the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect

statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended by the Insurance Act with the

objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers along with provident societies were taken over by

the central government and nationalized. LIC was formed by an Act of Parliament- LIC

Act 1956- with a capital contribution of Rs. 5 Crores from the Government of India.



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D. Present Scenario Life Insurance Industry In India:

Insurance is a federal subject in India. The insurance sector has gone through a number

of phases and changes. Since 1999, when the government opened up the insurance sector

by allowing private companies to solicit insurance and also allowing foreign direct

investment of up to 26%, the insurance sector has been a booming market. However, the

largest life-insurance company in India is still owned by the government.

The life insurance industry in India grew by an impressive 47.38%, with premium

income at Rs. 1560.41 billion during the fiscal year 2006-2007. Though the total volume

of LIC's business increased in the last fiscal year (2006-2007) compared to the previous

one, its market share came down from 85.75% to 81.91%.

The 17 private insurers increased their market share from about 15% to about 19% in a

year's time. The figures for the first two months of the fiscal year 2007-08 also speak of

the growing share of the private insurers. The share of LIC for this period has further

come down to 75 percent, while the private players have grabbed over 24 percent. With

the opening up of the insurance industry in India many foreign players have entered the

market. The restriction on these companies is that they are not allowed to have more thana 26% stake in a companys ownership.

Since the opening up of the insurance sector in 1999, foreign investments of Rs. 8.7

billion have poured into the Indian market and 19 private life insurance companies have

been granted licenses.

Innovative products, smart marketing, and aggressive distribution have enabled fledgling

private insurance companies to sign up Indian customers faster than anyone expected.

Indians, who had always seen life insurance as a tax saving device, are now suddenly

turning to the private sector and snapping up the new innovative products on offer. Some

of these products include investment plans with insurance and good returns (unit linked

plans), multi purpose insurance plans, pension plans, child plans and money back plans.



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Major Life insurance Companies in India are:

1. Aviva Life Insurance

2. Bajaj Allianz

3. Birla S un Life Insurance

4. HDFC Standard Life Insurance

5. ICICI Prudential

6. ING Vysya

7. Kotak Mahindra

8. LIC

9. Max New York Life Insurance

10. Metlife India Insurance

11. Reliance Life Insurance

12. SBI Life Insurance

13. Shriram Life Insurance

14. TATA AIG Life Insurance

http://www.iloveindia.com/finance/insurance/companies/bajaj-allianz.htmlhttp://www.iloveindia.com/finance/insurance/companies/birla-sun-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/hdfc-standard-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/icici-prudential.htmlhttp://www.iloveindia.com/finance/insurance/companies/ing-vysya-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/kotak-mahindra-old-mutual.htmlhttp://www.iloveindia.com/finance/insurance/companies/lic.htmlhttp://www.iloveindia.com/finance/insurance/companies/max-new-york-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/metlife-india-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/reliance-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/sbi-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/shriram-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/birla-sun-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/hdfc-standard-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/icici-prudential.htmlhttp://www.iloveindia.com/finance/insurance/companies/ing-vysya-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/kotak-mahindra-old-mutual.htmlhttp://www.iloveindia.com/finance/insurance/companies/lic.htmlhttp://www.iloveindia.com/finance/insurance/companies/max-new-york-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/metlife-india-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/reliance-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/sbi-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/shriram-life-insurance.htmlhttp://www.iloveindia.com/finance/insurance/companies/bajaj-allianz.html


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2. COMPANY PROFILE

HDFC Standard Life, one of Indias leading private life insurance companies, offers a

range of individual and group insurance solutions. It is a joint venture between Housing

Development Finance Corporation Limited (HDFC), Indias leading housing finance

institution and Standard Life plc, the leading provider of financial services in the United

Kingdom.

HDFC Ltd. holds 72.43% and Standard Life (Mauritius Holding) Ltd. holds 26.00% of

equity in the joint venture, while the rest is held by others

HDFC Standard Lifes product portfolio comprises solutions, which meet various

customer needs such as Protection, Pension, Savings, Investment, and Health. Customers

have the added advantage of customizing their Plans, by adding optional benefits called

riders, at a nominal price. The company currently has 25 retail and 4 group products in its

portfolio, along with five optional rider benefits catering to the savings, investment,

protection and retirement needs of customers. HDFC Standard Life continues to have one

of the widest reaches among new insurance companies through a network of 595 offices

serving over 720 cities and towns across the country.

The company has also increased its depth in existing markets with a strong base of more

than 207,000 Financial Consultants. At HDFC Standard Life, we work towards helping

our customers to live with pride and self-respect. Being customer centric is a value dear

to our heart. "Raising the bar", "Soar for More" is our business mantra; in doing so, rigor

of processes is also what we adhere to. Integrity is our way of life. Providing a

challenging work environment to employees goes hand in hand with our motto of

customer delight.

8 incredible years and still going strong, we have literally made our mark with footprints

over 600 cities & towns in India. The growth engine is driven by more than 16,000

committed employees who take pride in working for HDFC Standard Life, a distribution

channel with over 2,00,000 customer centric financial consultants and equally strong



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channel partners in private and public sector banking. While accelerating our growth, we

foster a learning culture towards creating thought leadership in the industry.

A. Background and Inception of HDFCSL:

HDFC Standard Life first came together for a possible joint venture, to enter the Life

Insurance market, in January 1995. It was clear from the outset that both companies

shared similar values and beliefs and a strong relationship quickly formed. In October

1995 the companies signed a 3 year joint venture agreement.

Around this time Standard Life purchased a 5% stake in HDFC, further strengthening the

relationship.

The next three years were filled with uncertainty, due to changes in government and

ongoing delays in getting the IRDA (Insurance Regulatory and Development authority)

Act passed in parliament. Despite this both companies remained firmly committed to the

venture.

In October 1998, the joint venture agreement was renewed and additional resource made

available. Around this time Standard Life purchased 2% of Infrastructure Development

Finance Company Ltd. (IDFC). Standard Life also started to use the services of the

HDFC Treasury department to advise them upon their investments in India.

Towards the end of 1999, the opening of the market looked very promising and both

companies agreed the time was right to move the operation to the next level. Therefore,

in January 2000 an expert team from the UK joined a hand picked team from HDFC to

form the core project team, based in Mumbai.

Around this time Standard Life purchased a further 5% stake in HDFC and a 5% stake in

HDFC Bank.

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In a further development Standard Life agreed to participate in the Asset Management

Company promoted by HDFC to enter the mutual fund market. The Mutual Fund was

Launched on 20th July 2000.

Incorporation of HDFC Standard Life Insurance Company Limited:

The company was incorporated on 14th August 2000 under the name of HDFC Standard

life insurance company limited. Their ambition from the beginning was to be the first

private company to re-enter the life insurance market in India. On the 23rd of October

2000, this ambition was realized when HDFC Standard Life was the first life company to

be granted a certificate of registration.

HDFC and Standard Life have a long and close relationship built upon shared values and

trust. The ambition of HDFC Standard Life is to mirror the success of the parent

companies and be the yardstick by which all other insurance companies in India are

measured.

Associate Companies:


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Other Companies

HDFC Trustee Company Ltd.

GRUH Finance Ltd.

HDFC Developers Ltd.

HDFC Property Ventures Ltd.

HDFC Ventures Trustee Company Ltd.

B. Nature of the Business Carried:

HDFC STANDARD LIFE is into a business of insurance. It is one of the first privateinsurance companies. Its sell various insurance policy based on the needs of consumer. It

has traditional insurance plan as well as modern ULIP plan in its portfolio.

C. Vision, Mission and Quality Policy:

Vision

'The most successful and admired life insurance company, which means that we are the

most trusted company, the easiest to deal with, offer the best value for money, and set the

standards in the industry'.

'The most obvious choice for all'.


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Mission

We aim to be the top new life insurance company in the market, this does not just meanbeing the largest or most productive company in the market rather it is a combination of

several thing like,

Customer service of the highest order

Value for money for customer

Professionalism in carrying our business

Innovative product to cater to different needs of different customer

Use of technology to improve service standard

Increasing market share

Our Values

Values that we observe while we wo

Integrity

Innovation

Customer centric

People Care One for all and all for one

Team work

Joy and Simplicity

D. Products/Services Profile:

Protection Plans

HDFC Term Assurance Plan

HDFC Loan Cover Term Assurance Plan

HDFC Home Loan Protection Plan


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Children's Plans

HDFC Children's PlanHDFC Unit Linked Young Star II

HDFC Unit Linked Young Star Plus II

HDFC Unit Linked YoungStar Champion

Retirement Plans

HDFC Personal Pension Plan

HDFC Unit Linked Pension II

HDFC Unit Linked Pension Maximiser II

HDFC Immediate Annuity

Rural Products

HDFC Garmin Bima Mitra Yojana

HDFC Bima Bachat Yojana

HDFC Development Insurance Plan

Savings & Investment Plans

HDFC Unit Linked Endowment Plus II

HDFC SimpliLife

HDFC Unit Linked Endowment II

HDFC Unit Linked Enhanced Life Protection II

HDFC Unit Linked Wealth Maximiser Plus

HDFC Unit Linked Wealth Multiplier

HDFC Unit Linked Endowment Winner

HDFC Endowment Assurance Plan

HDFC Money Back Plan

HDFC Single Premium Whole of Life Insurance Plan

HDFC Assurance Plan

HDFC Savings Assurance Plan


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Health Plans

HDFC Critical Care PlanHDFC SurgiCare Plan

Group Plans

Group Term Insurance Plan

Group Variable Term Insurance Plan

Group Unit Linked Plan - Gratuity

Group Unit Linked Plan Superannuation

Group Unit Linked Plan - Leave Encashment

HDFC offers products as per the life stages of the customers and their respective needs.


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Your insurance need will change as your life does, from starting to work to enjoying your

golden years and all the stages in between. Each one of these stages may pose a different

insurance need/cover for you. In this section, we have drawn up the basic life stages and

help you analyze various insurance needs accordingly.

E. Areas Of Operations:

HDFC Standard Life continues to have one of the widest reaches among new insurance

Companies. The company strengthened its number of offices from 103 to 572 across the


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country in less than 3 years. Through these offices, the company today services customer

needs in over 730 cities and towns. HDFCSLIC is head quartered at Mumbai and has

established its presence in the states of:

Andhra Pradesh Assam

Bihar Chatthisgarh

Delhi Goa

Gujarat Haryana

Himachal Pradesh Jharakhand

Karnataka Kerala

Madhya Pradesh Maharashtra

Meghalaya Orissa

Punjab Rajasthan

Tamil Nadu Uttar Pradesh

Uttaranchal West Bengal

Some of the cities in which HDFCSLIC has its branches are:

Ahmedabad, Bangalore,

Chennai, Chandigarh,

Hyderabad, Jaipur,

Jalandar, Jodhpur,

Ludiana, Kanpur,

Kolkata, Lucknow,

Mangalore, Meerut

Mysore, New Delhi,

Noida,

Pune, Trichur,

Trivandrum, Vishakapatnam, etc


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Branch Locations Site Map:

F. Ownership Pattern:


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HDFC Standard Life Insurance Company Limited was one of the first companies to be

granted license by the IRDA to operate in life insurance sector. Reach of the JV player is

highly rated and been conferred with many awards. HDFC is rated AAA by both

CRISIL and ICRA. Similarly, Standard Life is rated AAA both by Moodys and

Standard and Poors.

HDFC Limited:

HDFC Limited, India's premier housing finance institution has assisted more than 3.4

million families own a home, since its inception in 1977 across 2400 cities and towns

through its network of over 271 offices. It has international offices in Dubai, London and

Singapore with service associates in Saudi Arabia, Qatar, Kuwait and Oman to assist

NRI's and PIO's to own a home back in India. As of December 2009, the total asset size

has crossed more than Rs. 104,560 crores including the mortgage loan assets of morethan Rs.90,400 crores. The corporation has a deposit base of over Rs. 23,000 crores,

earning the trust of nearly one million depositors. Customer Service and satisfaction has

been the mainstay of the organization. HDFC has set benchmarks for the Indian housing

finance industry. Recognition for the service to the sector has come from several national

and international entities including the World Bank that has lauded HDFC as a model

housing finance company for the developing countries. HDFC has undertaken a lot of

consultancies abroad assisting different countries including Egypt, Maldives, andBangladesh in the setting up of housing finance companies .

Standard Life:

Standard Life is one of the UK's leading long term savings and investments companies

headquartered in Edinburgh and operating internationally. Established in 1825, Standard

Life provides life assurance and pensions, investment management and healthcare


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insurance products to over 6 million customers worldwide. The Group has around 10,000

employees across the UK, Canada, Ireland, Germany, Austria, India, USA, Hong Kong

and mainland China. At the end of December 2010 the Group had total assets underadministration of 170.1bn. Standard Life's diverse business includes one of the largest

life and pensions businesses in the UK with more than 4 million customers; Standard Life

Investments, which currently manages assets of over 138.7bn globally and Standard

Life Healthcare, a private medical insurance company which is one of the largest in the

UK. On 10 July 2006, after 80 years as a mutual company, Standard Life Assurance

Company demutualised and Standard Life plc was listed on the London Stock Exchange.

Standard Life now has approximately 1.5 million individual shareholders in over 50

countries around the world.

G. Competitors Information:

Life Insurance Corporation of India (LIC)

Life Insurance Corporation of India (LIC) was established on 1 September 1956 to spread

the message of life insurance in the country and mobilise peoples savings for nation-

building activities. LIC with its central office in Mumbai and seven zonal offices at

Mumbai, Calcutta, Delhi, Chennai, Hyderabad, Kanpur and Bhopal, operates through 100

divisional offices in important cities and 2,048 branch offices. LIC has 5.59 lakh active

agents spread over the country.

The Corporation also transacts business abroad and has offices in Fiji, Mauritius and

United Kingdom. LIC is associated with joint ventures abroad in the field of insurance,

namely, Ken-India Assurance Company Limited, Nairobi; United Oriental Assurance

Company Limited, Kuala Lumpur; and Life Insurance Corporation (International), E.C.

Bahrain. It has also entered into an agreement with the Sun Life (UK) for marketing unit

linked life insurance and pension policies in U.K.

In 1995-96, LIC had a total income from premium and investments of $ 5 Billion while

GIC recorded a net premium of $ 1.3 Billion. During the last 15 years, LIC's income


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grew at a healthy average of 10 per cent as against the industry's 6.7 per cent growth in

the rest of Asia (3.4 per cent in Europe, 1.4 per cent in the US).

LIC has even provided insurance cover to five million people living below the poverty

line, with 50 per cent subsidy in the premium rates. LIC's claims settlement ratio at 95 per

cent and GIC's at 74 per cent are higher than that of global average of 40 per cent.

Compounded annual growth rate for Life insurance business has been 19.22 per cent per

annum

Max New York Life Insurance Co. Ltd.

Max New York Life Insurance Company Limited is a joint venture that brings together

two large forces - Max India Limited, a multi-business corporate, together with New

York Life International, a global expert in life insurance. With their various Products and

Riders, there are more than 400 product combinations to choose from. They have a

national presence with a network of 57 offices in 37 cities across India.

ICICI Prudential Life Insurance Company Ltd.

ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a

premier financial powerhouse and prudential plc, a leading international financial

services group headquartered in the United Kingdom. ICICI Prudential was amongst the

first private sector insurance companies to begin operations in December 2000 after

receiving approval from Insurance Regulatory Development Authority (IRDA). The

company has a network of about 56,000 advisors; as well as 7 banc assurance and 150

corporate agent tie-ups.

Kotak Mahindra Life Insurance Co. Ltd.

Kotak Mahindra Old Mutual Life Insurance Ltd. is a joint venture between Kotak

Mahindra Bank Ltd. (KMBL), and Old Mutual plc.

Birla Sun Life Insurance Company Ltd.

Birla Sun Life Insurance Company is a joint venture between Aditya Birla Group and

Sun Life financial Services of Canada.


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Tata AIG Life Insurance Company Ltd.

SBI Life Insurance Company Limited

ING Vysya Life Insurance Company Private Limited

Allianz Bajaj Life Insurance Company Ltd.

Metlife India Insurance Company Pvt. Ltd.

AMP SANMAR Assurance Company Ltd.

Dabur CGU Life Insurance Company Pvt. Ltd.

HDFC Standard Lifes Market Share

Insurance Company Market Share(in per cent)

LIC 48.1%

ICICI Prudential 13.7 %

Bajaj Allianz 10.3%

SBI Life 6.2%

HDFC Standard Life 4.1%

Birla Sun life 3.4%

Reliance Life 3.4%Max New York 2.4%

OM Kotak 1.9%

AVIVA 1.8%

Tata AIG 1.5%

Met Life 1.4%


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H. Infrastructure Facilities:

The company opened 23 offices during the year, taking the total to 595 across the country

and most of the offices have below given infrastructural facilities.

Telephone

Intranet and internet

Conference room

Seminar room

Training room

Laptop from IT department to senior manager

Help line : product knowledge of HDFCSL

Company e-mail

For each and every employee and advisors of the company will get their personal ID

where in they can login from any part of the country and update things, Like perk,

commission account, keep in track of product, target.

I. Achievements/ Awards:

Year Award

2003 Company of the Year


2001 Best Personal Pension Provider


1999 Company of the Decade

1996-99 Company of the year

1995 4 star service award

1992-94 Overall best company


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1991 3 star service award

Standard Life has been awarded the "Raising Standards" quality mark.

This shows that the Company:

uses clear language to describe their products on key documents,

have appropriate products and

Provide a quality service for the customers.

Money Marketing Awards

Company of the Year every year from 1999 to 2005

Best Pension Provider 2004 and 2005

Best Group Pension Provider every year from 1998 to 2003

Best Personal Pension Provider every year since 1998 to 2003

Best Life Investment Product Provider 2003 and 2004

Gold Award in the Poster Campaign Category (Advertising) 2004

Money facts Investment, Life & Pensions Awards

Best Pension Product 2003, 2004 and 2005

Best Pension Service 2003, 2004 and 2005

Bank hall Achievement Awards

Pension Provider of the Year 2003 and 2004

Financial Adviser Provider Awards


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Overall Winner in 1999, 2000, 2001 and 2002

Pensions Provider of the Year 1999, 2000, 2001, 2002 and 2003

Pensions Company of the Year 2004 Individual Pensions Company of the Year 2004

Group Pensions Provider of the Year 2004

Health Insurance Company of the Year 2004

Financial Adviser Service Awards

Company of the Year every year from 1997 to 2001 5 Star Life and Pensions Provider every year from 1996 to 2004

5 Star Investment Provider every year from 1996 to 2002 and 2004

Pensions Management Administration and Service Awards

Overall Winner - Personal Pensions 2003

Overall Winner - Stakeholder Pensions 2002 and 2003

Overall Winner - Group Personal Pensions 2002 and 2004

Member Communications - Personal Pensions, Group Personal Pensions &

Stakeholder Pensions 2003

Backup (branch office) - Personal Pensions 2003

J. Work Flow Model:

M A N A G E R

C H A N N E L

D E V E L O P M E N T

M A N A G E R

F IN A N C IA L

C ON S U L T A N T SC


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M A N A G E R C O R P O R A T E S C U S

K. Future Growth and Prospects:

HDFC Standard Life Insurance has increased its capital by Rs. 50 crores. This was

necessitated on account of the strong growth shown by the company in the current

financial year in its life insurance and pension business. The two partners in the joint

venture, HDFC and Standard Life Assurance Company of the U.K., have brought in the

additional capital and the share capital of the company now stands at Rs. 218 crores.

HDFC Standard Life Insurance was capitalised at Rs. 168 crores on day one, well above

the minimum requirement of Rs. 100 crores stipulated by the Insurance Regulatory and

Development Authority (IRDA). In order to fund the future growth in its business, the

paid-up capital is now being increased by Rs. 50 crores. The company had seen a

substantial increase in business over the two years and had declared two bonuses. The

company is looking at introducing new products for individuals and companies in thecoming months.

3. MCKENSYS 7S FRAME WORK


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Structure:

The company was on 14th August 2000, and is based in Mumbai, India. HDFC Standard

Life Insurance Company Limited operates as a subsidiary of Housing Development

Finance Corporation Limited.

HDFC Standard Life Insurance Co. Ltd. is a joint venture between Housing Development

Finance Corporation Limited (HDFC Limited) - India's leading housing finance

institution, and a Group Company of the Standard Life Plc, UK.

HDFC Standard Life Insurance is a new Indian life insurance company that operates out

of 52 locations. HDFC Standard Life Insurance Company Ltd. is one of Indias leading

private life insurance companies, which offers a range of individual and group insurance

solutions. It is a joint venture between Housing Development Finance Corporation

Limited (HDFC Ltd.), Indias leading housing finance institution and one of the

subsidiaries of Standard Life plc, leading providers of financial services in the United

Kingdom. Both the promoters are well known for their ethical dealings and financial


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strength and are thus committed to being a long-term player in the life insurance industry

all important factors to consider when choosing your insurer. HDFC Standard Life

Insurance is the first private life insurance company to be granted a license by IRDA.

Skill:

At HDFC Standard Life, we work towards helping our customers to live with pride and

self respect. Being customer centric is a value dear to our heart. "Raising the bar", "Soar

for More" is our business mantra; in doing so, rigor of processes is also what we adhere

to .Integrity is our way of life. Providing a challenging work environment to employees

goes hand in hand with our motto of customer delight. 8 incredible years and still going

strong, we have literally made our mark with footprints over 600 cities & towns in India.

The growth engine is driven by more than 16,000 committed employees who take pride

in working for HDFC Standard Life, a distribution channel with over 2,00,000 customer

centric financial consultants and equally strong channel partners in private and public

sector banking. While accelerating our growth, we foster a learning culture towards

creating thought leadership in the industry.

Strategy:

Lead a life of respect and dignity even after retirement HDFC Unit Linked Pension

Maximizer II Ideally, just how spending comes to you, so must saving and investing. You

are able to finance your expenses and take care of your expenses in present times.

However, to ensure that you are able to maintain the same standard of living post

retirement, you need to make the right kind of investment today. HDFC Unit Linked

Pension Maximize II is a unique Single Premium unit linked plan, designed to provide a

post-retirement income for life with the freedom to maximize your investment returns.

This plan also gives Bumper Addition of 10% of initial single premium at vesting and on

death. Features Please roll over your mouse over circles for explanation. Advantages This

plan is designed to provide you a post retirement income for life You can choose your


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initial single premium, the investment strategy and retirement date. At the end of the

policy term, you will receive the accumulated value of your funds including Bumper

Additions, which will be used to provide your pension income in your golden years

Strategies:Strategies Employed to achieve the target are as follows:-

Tele calling

Contacting the person directly (interview)

Collect references

Shared Values:

These are the core values of the company that are evidenced in the corporate culture &

the general work ethic. The values followed by HDFC SLIC are:

Integrity

Innovation

Customer centric

People Care One for all and all for one

Team work

Joy and Simplicity

Style:

One element of manager is how he\she choose tom spend time, another aspect is

symbolic behavior. This suggests a seconds attribute that is by no means confused to that

of top. The style is reflected of culture, more than to change the organization or

performance.

The HDFC is basically is a democratic system. Before taking any decision meeting is

conducted and a final decision is taken and decision is taken with the consent of all.

Every employee gets chance to give his \her opinion. Every employee can participate


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decision making processes of the organization .The HDFC is a unit union body hence it

takes people into confidence. it does not take any decision unilaterally .Managers are

evaluated based on the quality of their decision making and opinion of fellow employee.Hence participative and democratic type of system is the best system for such a big

organization like HDFC standard life ltd.

Staff:

Work Culture the company attributes its success to the contributions made by its

employees. We believe that our strength is our people, so our endeavour is to surpass

their expectations and give them the best possible work environment and benefits thatmatch the best in the industry. Talent management initiatives in HDFC Standard Life are

driven by a set of organizational core competencies (Mantra 10) as well as position-

specific competencies. The competency set includes knowledge, skills, experience, and

personal traits (demonstrated through defined behaviors) based on the bedrock of sharp

vision and strong values of HDFC Standard Life. In this endeavor of shaping and

nurturing our talent pool, HDFC Standard Life adopts a four-step model: Acquiring and

Retaining Talent HDFC Standard Life believes in building capability for superior

performance leading to a superior shareholder value. We have a bouquet of people

processes like Assessments, Potential Review.

The company had 14,506 employees as of March 31, 2009 as compared to 15,411

employees as of March 31, 2008. Under the provisions of Section 217 (2A) of the

Companies Act, 1956 and the rules framed there under, the names and other particulars of

employees are set out in the annexure to this Report

Systems:

All the processes & information flows that links the organization together.

Communications practice and system.

Management reporting system.


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Approval process.

Planning/budgeting system.

4. SWOT ANALYSIS

SWOT analysis is an acronym for the internal strengths and weaknesses of affirm and the

external opportunities and threads facing that firm. SWOT analysis helps managers to

have aquick overview of the firms strategic situation and assess whether there is a sound

fit between internal resources, values, and external environment.

Strength:

Financial Expertise:

As a joint venture of leading financial services groups. HDFC standard Life has the

financial expertise required to manage your long-term investments safely and efficiently.

Range of Solutions:

Have a range of individual and group solutions, which can be easily customized to

specific needs. Our group solutions have been designed to offer you complete flexibility

combined with a low charging structure.

Strong Ethical Values:

HDFC is an ethical and Cultural Organization. False selling or false commitment with the

customers is not allowed.

Most respected Private Insurance Company:

HDFC was awarded No-1 Private Insurance Company In 2004 by the World Class

Magazine Business World. Integrity, Innovation and Customer Care.

The company is positioned it is first private company in the insurance sector in India.


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Huge source of reserve base.

The company opened 23 offices during the year, taking the total to 595 across the

country.

Corporate Agents and Brokers are able to service customers in over 720 cities and

towns across the country.

The company also reduced premium rates on its term insurance plans and passed on a

substantial benefit to customers.

Effective user of banc assurance.

The company also provides innovative products to cater to different needs of

different.

Domestic image of HDFC supported by Prudentials international image is strength

of the company.

Large pool of technically skilled manpower with in depth knowledge and

understanding of the market.

Strong and well spread network of qualified intermediaries and sales person

The company provides customer service of the highest order

Huge basket of product range which are suitable to all age and income groups

The company also provides innovative products to cater to different needs of different

customers

Have around 145000 financial advisor

Free switching options online informing customers about the performance of their

investment by sending monthly reports and statements

Weakness

The return given by the company on its ULIP plan is very much below the market

leader which reflects poor investment strategy.

Though company is positioned as first private company in the insurance sector in India its

market share stand at 4% which is very much low.


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Dividend - As the company has not earned profits, the directors do not recommend any

Dividend.

Unable to exploit rural market as compare to LIC

Low customer confidence on the private players

Vertical hierarchical reporting structure with many designations and cadres

Heavy management expenses and administrative costs.

Poor retention percentage of tied up agents.

Poor awareness for new products in consumers Poor Distribution network.

Very Huge Premium of policies compared to major rival LIC.

Target Upper class people only.

All Brochures are in English only.

The full charges are not revealed to the customers

Opportunities

HDFC should tie up with business organization and private maternity hospital to expand

business.

Innovative products, smart marketing, and aggressive distribution have enabled insurance

companies to sign up Indian customers faster than anyone expected. Indians, who had

always seen life insurance as a tax saving device, are now suddenly turning to the private

sector and snapping up the new innovative product.

Till date, only 20% of the total insurable population of India is covered under various life

insurance schemes, the penetration rates of health and other non-life insurances in India is

also well below the international level.

Insurable population According to IRDA only 10% of the population is insured, which

represents around 30% of the insurable population. This suggests more than 300m

People, with the potential to buy insurance, remain uninsured.

Insurance liberalization in India is expected to result in a wider choice of major

commercial insurance covers, such as fire, export credit.


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Threats

Changing government regulation

Huge competition in the market put pressure on the profit margin

Provision for entry of foreign player

Price War With Competitors

Taxation On The Product And Service

Competitors Have Superior Access To Channels Of Distribution

Other private insurance companies also vying for the same uninsured population

Big public sector insurance companies like Life Insurance Corporation (LIC) of India,

National Insurance Company Limited, Oriental Insurance Limited, New India Assurance

Company Limited and United India Insurance Company Limited. People trust and go to

them more

Poaching of customer base by other companies.

Most people dont understand the need or are not willing to take insurance policies in

general.

Competitors like ICICI Prudential, Bajaj Allianz

Big MNCs are coming to domestic market

Some brands in the market gives there product with more features

Fear of the market to crash down

5. LEARNING EXPERIENCE

My project at HDFC STANDARD Life Insurance Company has been an extremely

enriching one. My project was divided into two main parts. Part A is about Corporate

Exposure and Part B is about Study of Issue. My experience At HDFC was a really

great learning experience with a lot of new things learnt and as I also wish to specialize in


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FINANCE this experience is really a big bonus for me. The Learning I gained during my

project are mentioned below:

I gained a broader perspective about various investment opportunities and the risk

involved in them.

I came to know about the various technicalities about the Indian insurance industry.

Through this research I enriched my knowledge on various competitive strategies

adopted by different companies to survive in a highly competitive market.

Learnt in a more detailed way about the nature of work existing in the insurance industry,

the kind of deadlines they have to meet, the kind of pressure and levels of stress, which

they work under, and the kind of recognitions given to them after they meet or exceed

their targets


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CHAPTER 1

INTRODUCTION


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1. INTRODUCTION

Financial performance analysis is the process of identifying the financial strengths and

weaknesses of the firm and establishing relationship between the items of the balance

sheet and profit & loss account.

Financial ratio analysis is the calculation and comparison of ratios, which are derived

from the information in a companys financial statements. The level and historical trends

of these ratios can be used to make inferences about a companys financial condition, its

operations and attractiveness as an investment. The information in the statements is used

by

Trade creditors, to identify the firms ability to meet their claims i.e. liquidity position

of the company.

Investors, to know about the present and future profitability of the company and its

financial structure.

Management, in every aspect of the financial analysis. It is the responsibility of the

management to maintain sound financial condition in the company.

Financial statements provide a summarized view of the financial position and operations

of a firm. Basic limitation of the traditional financial statements is that, they do not give

all the information related to the financial operations of a firm. Nevertheless they provide

some extremely useful information to the extent that the balance sheet mirrors the

financial position on a particular date in terms of structure of assets liabilities and

owners equities and profit and loss account shows the results of operations during

certain period of time in terms the revenues obtained and cost incurred during the year.

Therefore much can be leant about firm from a careful examination of its financial

statements as invaluable documents. The analysis of financial statements is thus an

important aid to financial analysis.


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The focus of financial analysis is on key figures in the financial statements and the

significant relationship that exists between them. The analysis of the financial statement

is a process of evaluating the relationship between component parts of financialstatements to obtain a better understanding of the firms position and performance.

Financial analysis in brief is the process of selection, relation, evaluation of relevant

information.

Financial ratios are essentially concerned with the identification of significant accounting

data relationships, which give the decision-maker insights into the financial performance

of a company. The advantages of ratio analysis can be summarized as follows:

Ratios facilitate conducting trend analysis, which is important for decision making

and forecasting.

Ratio analysis helps in the assessment of the liquidity, operating efficiency,

profitability and solvency of a firm.

The comparison of actual ratios with base year ratios or standard ratios helps the

management analyze the financial performance of the firm.

Financial statement refers to statement

Income statement or profit and loss account

Balance sheet or position statement at the end of every year.

Balance sheet: The balance sheet is the most significant financial statement. It indicates

the firms financial solvency and liquidity. It communicates about assets, liabilities,

owners equity.

Profit and loss account: The earning capacityand potential of the firm are reflected by

itsprofit and loss account.

2. STATEMENT OF THE PROBLEM


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Financial performance analysis of HDFC standard life to know the financial growth in

market. Financial analysis is the technique which helps to know the financial position of

the company. There is rising competition between HDFC Standard Life and othercompanies. Evaluate the performance of the company by using ratios as a yardstick to

measure the efficiency of the company.

OBJECTIVES OF THE STUDY

Standardize financial information for comparison

Analyze the capital structure of the company with the help of Leverage ratio

Evaluate and analyze various facts of the financial performance of the company

Make comparisons between the ratios during different periods

To forecast the scale of the company for forthcoming year

SCOPE OF THE STUDY

It is useful for the management.

It gives information to the investors about the earning capacity of the business.

With the help of Ratio Analysis comparison of profitability and financial soundness

can be made between one firm and another.

Current year's ratios are compared with those of previous years and if some weak

spots are thus located remedial measures are taken to correct them.

It gives information to the financial institution for providing the finance to the

company

It gives information to the taxation authorities.

It gives information to the researchers for conducting research in respect of

profitability, efficiency, financial soundness and growth of that company.

METHODOLOGY


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Research methodology is a way to systematically solve the research problem. In it, step-

by-step methods are followed to solve a particular problem. It refers to a search for

knowledge. It can also be defined as a scientific and systematic search for pertinentinformation on a specific topic. In fact, research is an art of scientific investigation.

Research Design:

Descriptive research is used in this study. The researcher had to use fact and information

already available through financial statements of earlier years and analyse these to make

critical evaluation of the available material. Hence by making the type of the research

conducted to be both Descriptive and Analytical in nature.

Data Collection Procedure:

The required data for the study are basically secondary in nature and the data are

collected from the audited reports of the company.

Method of Analysis:

The data collected were edited, classified and tabulated for analysis.

The analytical tool used in this study is Ratio Analysis.

Source of Data:

Insurance company broacher

IRDA web site

Companies web sites

Annual report of company

Limitations of Study:

Lack of information provided by HDFC Standard Life.

It depends on past information.

Only the last 5 years data is considered for the study.


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Only limited sample size had been considered for the study and therefore, the

conclusions drawn based on this may not be a reflection of the entire industry

CHAPTER 2


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REVIEW OF LITERATURE

(RATIO ANALYSIS & ETRAPOLATION)

1. RATIO ANALYSIS

The term Ratio refers to the numerical and quantitative relationship between two items

or variables. This relationship can be exposed as

Percentages

Fractions

Proportion of numbers

Ratio analysis is defined as the systematic use of the ratio to interpret the financial

statements. So that the strengths and weaknesses of a firm, as well as its historical

performance and current financial condition can be determined. Ratio reflects a

quantitative relationship helps to form a quantitative judgment.

A. STEPS IN RATIO ANALYSIS

The first task of the financial analysis is to select the information relevant to the

decision under consideration from the statements and calculates appropriate ratios.

To compare the calculated ratios with the ratios of the same firm relating to the past

or with the industry ratios. It facilitates in assessing success or failure of the firm.


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Third step is to interpretation, drawing of inferences and report writing conclusions

are drawn after comparison in the shape of report or recommended courses of action.

B. BASIS OR STANDARDS OF COMPARISON

Ratios are relative figures reflecting the relation between variables. They enable analyst

to draw conclusions regarding financial operations. They use of ratios as a tool of

financial analysis involves the comparison with related facts. This is the basis of ratio

analysis. The basis of ratio analysis is of four types.

Past ratios, calculated from past financial statements of the firm.

Competitors ratio, of the some most progressive and successful competitor firm at

the same point of time.

Industry ratio, the industry ratios to which the firm belongs to

Projected ratios, ratios of the future developed from the projected or pro forma

financial statements

C. NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial statements. It is

the process of establishing and interpreting various ratios for helping in making certain

decisions. It is only a means of understanding of financial strengths and weaknesses of a

firm. There are a number of ratios which can be calculated from the information given in

the financial statements, but the analyst has to select the appropriate data and calculate

only a few appropriate ratios. The following are the four steps involved in the ratio

analysis.

Selection of relevant data from the financial statements depending upon the objective

of the analysis.

Calculation of appropriate ratios from the above data.


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Comparison of the calculated ratios with the ratios of the same firm in the past, or the

ratios developed from projected financial statements or the ratios of some other firms

or the comparison with ratios of the industry to which the firm belongs.

D. INTERPRETATION OF THE RATIOS

The interpretation of ratios is an important factor. The inherent limitations of ratio

analysis should be kept in mind while interpreting them. The impact of factors such as

price level changes, change in accounting policies, window dressing etc., should also be

kept in mind when attempting to interpret ratios. The interpretation of ratios can be made

in the following ways.

Single absolute ratio

Group of ratios

Historical comparison

Projected ratios

Inter-firm comparison

E. CLASSIFICATIONS OF RATIOS

The use of ratio analysis is not confined to financial manager only. There are different

parties interested in the ratio analysis for knowing the financial position of a firm for

different purposes. Various accounting ratios can be classified as follows:

1. Traditional Classification

2. Functional Classification

3. Significance ratios

i. Traditional Classification

It includes the following.


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Balance sheet (or) position statement ratio: They deal with the relationship

between two balance sheet items, e.g. the ratio of current assets to current liabilities

etc., both the items must, however, pertain to the same balance sheet.

Profit & loss account (or) revenue statement ratios: These ratios deal with the

relationship between two profit & loss account items, e.g. the ratio of gross profit to

sales etc.,

Composite (or) inter statement ratios: These ratios exhibit the relation between

a profit & loss account or income statement item and a balance sheet items, e.g. stock

turnover ratio, or the ratio of total assets to sales.

ii. Functional Classification

These include liquidity ratios, long term solvency and leverage ratios, activity ratios and

profitability ratios.

Liquidity ratio

Leverage ratio

Activity ratio

Profitability ratio

iii. Significance ratios

Some ratios are important than others and the firm may classify them as primary and

secondary ratios. The primary ratio is one, which is of the prime importance to a concern.

The other ratios that support the primary ratio are called secondary ratios.

2. EXTRAPOLATION

Extrapolation is a statistical method of finding out the unknown values from facts given.

It may be defined as an estimation of most likely figure of dependent variable from the

given independent variables.


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Technique of estimating a probable figure for future is called extrapolation.

A. Uses

It is method available to find the projections. For example, population forthcoming year.

Predication of future or estimating the future, in economic planning, policy formation, etc

Method of Extrapolation Used: Binomial Expansion Method

This method is based on the binomial theorem. This is simple to understand and easy to

calculate. This method is applicable when X variable advances by equal intervals i.e., 10,

20, 30 etc. If the increase is not uniform, for example 8, 15, 20 etc, then this method is

not applicable.


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CHAPTER 3

RESULTS AND DISCUSSION

(ANALYSIS / DESIGN, INTERPRETATION OF RESULTS)

1. RATIO ANALYSIS

A. LIQUIDITY RATIOS


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Liquidity refers to the ability of a concern to meet its current obligations as & when there

becomes due. The short term obligations of a firm can be met only when there are

sufficient liquid assets. The short term obligations are met by realizing amounts fromcurrent, floating (or) circulating assets The current assets should either be calculated

liquid (or) near liquidity. They should be convertible into cash for paying obligations of

short term nature. The sufficiency (or) insufficiency of current assets should be assessed

by comparing them with short-term current liabilities. If current assets can pay off current

liabilities, then liquidity position will be satisfactory.

To measure the liquidity of a firm the following ratios can be calculated

(a) CURRENT RATIO


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Current ratio may be defined as the relationship between current assets and current

liabilities. This ratio also known as Working capital ratio is a measure of general liquidity

and is most widely used to make the analysis of a short-term financial position (or)liquidity of a firm.

Current Assets

Current Ratio =

Current Liabilities

(Amount in Rs.)

Table 3.1 : Current Ratio

Year Current Assets Current Liabilities Ratio

2006 3,866,559 2,687,296 1.43

2007 5,325,536 3,905,497 1.36

2008 8,575,727 6,251,168 1.37

2009 9,643,629 9,029,038 1.06

2010 7,744,120 12,469,202 0.62

Graphical Representation


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Current Ratio

0

0.2

0.4

0.6

0.8

1

1.2

1.41.6

2006 2007 2008 2009 2010

Ratio

Ratio

Graph 3.1 : Current Ratio of 5 Years

Interpretation

HDFC standard life company is having a current ratio in year 2006 is 1.43 and in 2007 it

reduced to 1.36, in the year 2008 current ratio increased further in 1.37. Again it starts

reducing in the year 2009 is 1.06.But again the current ratio deteriorated in the year 2010

is 0.62.

The above analysis of statement shows that the current ration is having negative trend.

These is a moderate decrease in the financial year 2009 2010. This shows that company

is not in liquid position to meet the current liabilities. So it is very difficult to meet its

short term obligations also.

In the year 2010, the cash is reduced compared to previous year because of payment of

dividend. The advances reduced because employees set of their claims so that current

assets are decreased.

Here current ratio is below 1 (i.e., current liabilities exceeds current assets) for the year

2009 2010. This indicates that the firm may find difficult to pay its bills on time.


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(b) NET WORKING CAPITAL (NWC)

NWC represents the excess of current assets over current liabilities. This is measured as a

companys liquidity position.

Net Working Capital = Current Assets Current Liabilities

(Amount in Rs.)

Table 3.2 : Net Working Capital

Year Current Assets Current Liabilities NWC

2006 3,866,559 2,687,296 1,179,263

2007 5,325,536 3,905,497 1,420,039

2008 8,575,727 6,251,168 2,324,559

2009 9,643,629 9,029,038 614,591

2010 7,744,120 12,469,202 (4,725,082)



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Net Working Capital

-6,000,000

-5,000,000

-4,000,000

-3,000,000

-2,000,000

-1,000,000

0

1,000,000

2,000,0003,000,000

2006 2007 2008 2009 2010

NWC

NWC

Graph 3.2 : Net Working Capital of 5 Years

Interpretation

From the above graph it is clear that Net Working Capital gone down for the firm from

614,591 to (4,725,082).

This is in reality deterioration in liquidity position. In the previous year the firm had Rs

1.06 of current assets for each Re current liabilities but by the end of current year the

amount of current assets for each rupee of current liabilities declined to Rs 0.62.

The lack or depletion of working capital due to management do not think of ploughing

back the cash generated from profit made. Therefore Net Working Capital is not

satisfactory.

(c) QUICK RATIO / ACID TEST


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Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to the

ability of a firm to pay its short-term obligations as & when they become due. Quick ratio

may be defined as the relationship between quick or liquid assets and current liabilities.An asset is said to be liquid if it is converted into cash with in a short period without loss

of value.

Quick Assets

Quick Ratio =

Current Liabilities

(Amount in Rs.)

Table 3.3 : Quick Ratio

Year

Current

Assets Advances Quick Asset

Current

Liabilities Ratio

2006 3,866,559 1,86,534 3,680,025 2,687,296 1.36

2007 5,325,536 4,26,305 4,899,231 3,905,497 1.25

2008 8,575,727 6,98,444 7,877,283 6,251,168 1.26

2009 9,643,629 1,424,882 8,218,747 9,029,038 0.91

2010 7,744,120 1,494,653 6,249,967 12,469,202 0.50


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Graphical Representation Ratio

Quick Ratio

0

0.2

0.4

0.6

0.8

1

1.21.4

1.6

2006 2007 2008 2009 2010

Ratio

Ratio

Graph 3.3 : Quick Ratio of 5 Years

Interpretation

The above table indicates that firm has less ability to meet it current liability through

quick assets. So that the company has unfavorable quick ratio.

As compared 4 previous years the quick ratio are satisfactory than current year. This

ratio helps in identifying the ability to command cash without disposing inventories

because it is assumed that inventory will not supply cash as readily as debtors or cash.

Thus acid test is supposed to improved, stringent, vision of the current ration in

measuring the liquidity of an enterprise.


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From the above table, it is depicted that ratios in year 2006 is 1.36, 1.25 in 2007 7 1.26 in

2008, 0.91 in the year 2009. It shows firm is having capable of meeting the short term

obligations. But in 2010 the ratio comes down to 0.50 so that company does not havefavorable quick ratio means not up to the ideal ratio.

(d) ABOSULTE LIQUIDITY RATIO

Although receivable, debtors and bills receivable are generally more liquid than

inventories, yet there may be doubts regarding their realization into cash immediately orin time. Hence, absolute liquid ratio should also be calculated together with current ratio

and quick ratio so as to exclude even receivables from the current assets and find out the

absolute liquid assets.

Absolute Liquid Assets

Absolute Liquid Ratio =

Current Liabilities

Absolute liquid assets include cash in hand etc. The acceptable forms for this ratio is 50%

(or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are considered to pay Rs.2 worth

current liabilities in time as all the creditors are nor accepted to demand cash at the same

time and then cash may also be realized from debtors and inventories.

(Amount in Rs.)

Table 3.4 : Absolute Liquidity Ratio

Year Absolute Liquid Assets Current Liabilities Ratio

2006 2,879,622 2,687,296 1.07

2007 3,863,556 3,905,497 0.86


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2008 4,493,238 6,251,168 0.71

2009 4,108,660 9,029,038 0.45

2010 2,826,362 12,469,202 0.22


Absolute Liquidity Ratio

0

0.2

0.4

0.6

0.8

1

1.2

2006 2007 2008 2009 2010

Ratio

Ratio

Graph 3.4 : Absolute Liquidity Ratio of 5 Years

Interpretation

The current assets which are ready in the form of cash are considered as absolute liquid

assets. Here cash is the absolute liquid assets.

In year 2010 the cash is decreased due to decrease in the deposit. At the same time

current liabilities are increased so that the ratio is depicted to 0.22.


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B. LEVERAGE RATIOS

The leverage or solvency ratio refers to the ability of a concern to meet its long termobligations. Accordingly, long term solvency ratios indicate firms ability to meet the

fixed interest and costs and repayment schedules associated with its long term

borrowings.

The following ratio serves the purpose of determining the solvency of the concern.

(a) PROPRIETORY RATIO

A variant to the debt-equity ratio is the proprietory ratio which is also known as equity

ratio. This ratio establishes relationship between share holders funds to total assets of the

firm.

Shareholders Funds

Proprietory Ratio =

Total Assets

(Amount in Rs.)

Table 3.5 : Proprietory Ratio

Year

Share

Holders

Funds Fixed Asset Current Asset Total Assets Ratio

2006 6,331,725 6,04,514 3,866,559 4,471,073 1.41

2007 8,360,441 7,36,054 5,325,536 6,061,593 1.37


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2008 13,263,132 1,331,800 8,575,727 9,907,527 1.33

2009 18,433,462 1,447,706 9,643,629 11,091,335 1.66

2010 20,417,327 1,143,777 7,744,120 8,887,897 2.29


Proprietory Ratio

0

0.5

1

1.5

2

2.5

2006 2007 2008 2009 2010

Ratio

Ratio

Graph 3.5 : Proprietory Ratio of 5 Years

Interpretation

HDFC Standard Life, is having proprietory ratio of 1.41, 1.37, 1.33, 1.66, 2.29 in the year

2006, 2007, 2008, 2009 and in 2010 respectively.

The above table shows that the ratio is increasing over the years. It denotes the company

is having stronger financial position of enterprise.


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Higher proprietory ratio denotes that the shareholders have provided the funds to

purchase the assets of the concern instead of relying on other sources of funds like bank

barrowings, trade creditors etc.

This ratio throw light on the general financial strength of the company over 5 years and

from the analysis the financial position of the company is have good sound.

(b) INTEREST COVERAGE RATIO

It is also known as time-interest-earned ratio. This ratio measures the debt servicing

capacity of a firm insofar as fixed interest on long-term loan is concerned.

EBIT

Interest Coverage Ratio =

Interest Expense

EBIT = Operating Profit = Operating Revenue Operating Expense

(Amount in Rs.)

Table 3.6 : Interest Coverage Ratio

Year

Operating

Revenue

Operating

Expense EBIT

Interest

Expense Ratio

2006 15,469,501 3,984,948 11,484,553 4,962 2,314.50

2007 28,226,248 5,767,403 22,458,845 11,391 1,917.63

2008 48,176,166 10,129,791 38,046,375 50,666 750.92

2009 55,183,763 17,603,683 37,580,080 37,954 990.14


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2010 69,556,324 15,090,403 54,465,921 29,724 1,832.38


Interest Coverage Ratio

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

2006 2007 2008 2009 2010

Ratio

Ratio

Graph 3.6 : Interest Coverage Ratio of 5 Years


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HDFC STANDARD LIFE

C. ACTIVITY RATIOS

Funds are invested in various assets in business to make sales and earn profits. The

efficiency with which assets are managed directly effect the volume of sales. Activity

ratios measure the efficiency (or) effectiveness with which a firm manages its resources

(or) assets. These ratios are also called Turn over ratios because they indicate the speed

with which assets are converted or turned over into sales.

(a) WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales.

Working Capital Turnover Ratio = Current Assets - Current Liabilities

It indicates the velocity of the utilization of net working capital. This indicates the no. of

times the working capital is turned over in the course of a year. A higher ratio indicates

efficient utilization of working capital and a lower ratio indicates inefficient utilization.

(Amount in Rs.)

Table 3.7 : Working Capital Turnover Ratio

Year Net Sales Net Working Capital Ratio


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2006 15469501 1,179,263 13.11

2007 28226248 1,420,039 19.87

2008 48176166 2,324,559 20.72

2009 55183763 6,14,591 89.78

2010 69556324 (4,725,082) (14.72)


Working Capital Turnover Ratio

-20

0

20

40

60

80

100

2006 2007 2008 2009 2010

Ratio

Ratio

Graph 3.7 : Working Capital Turnover Ratio of 5 Years

Interpretation

Income from the services is greatly increased due to the extra invoice for operations and

maintenance fee and the working capital is also increased from past 3 years but in the 4 th

year i.e., 2009 it is come down to 614,591.

In the year 2010 the net working capital is having the negative balance i.e., (4,725,082)

because the current assets are less than the current liabilities. Due to huge increase in the

current liabilities the overall net working capital as depicted.


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The above graph shows in the 2010 there is no control over the cash position.

(b) FIXED ASSETS TURNOVER RATIO

It is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit

earning capacity of the firm. Higher the ratio, greater is the intensive utilization of fixed

assets. Lower ratio means under-utilization of fixed assets.

Net Sales

Fixed Assets Turnover Ratio =

Net Fixed Assets

(Amount in Rs.)

Table 3.8 : Fixed Assets Turnover Ratio

Year Net Sales Net Fixed Assets Ratio

2006 15,469,501 6,04,514 25.58

2007 28,226,248 7,36,054 38.34

2008 48,176,166 1,331,800 36.17

2009 55,183,763 1,447,706 38.11

2010 69,556,324 1,143,777 60.81


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Fixed Assets Turnover Ratio

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010

Ratio

Ratio

Graph 3.8 : Fixed Assets Turnover Ratio of 5 Years

Interpretation

HDFC Standard Life is having the fixed assets turnover ratio 60.8 % in the year 2010.

The fixed assets turnover ratio measures the effectiveness is generating sales from its

investment in plant and property.


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D. PROFITABILTY RATIOS

The primary objectives of business undertaking are to earn profits. Because profit is the

engine, that drives the business enterprise.

(a) PROFIT MARGIN RATIO

Profit margin ratio this measures the relation between profit after tax and revenues of a

firm. The profit margin is indicative of managements ability to operate the business with

sufficient success not only recover from revenues of the period, the cost of merchandise

or services, the expenses of operating the business and the cost of the borrowed funds,

but also to leave a margin of reasonable compensation to the owners for providing their

capital at risk.

Net Profit

Profit Margin Ratio =

Net Revenue

(Amount in Rs.)

Table 3.9 : Profit Margin Ratio

Year Net Profit Net Revenue Ratio


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2006 (1,287,572) 15,469,501 (0.08)

2007 (1,255,611) 28,226,248 (0.04)

2008 (2,435,094) 48,176,166 (0.05)

2009 (5,029,631) 55,183,763 (0.09)

2010 (2,751,844) 69,556,324 (0.03)


Profit Margin Ratio

-0.1

-0.08

-0.06

-0.04

-0.02

0

2006 2007 2008 2009 2010

Ratio

Ratio

Graph 3.9 : Profit Margin Ratio of 5 Years

Interpretation

The profit margin ratio is the overall measure of the firms ability to turn each rupee ofincome from services (revenue) in to net profit.

HDFC Standard Life company is suffering from loss from the year 2006 2010

respectively. Event though having good sales and growth in the market company is not in

the position to make profit.


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There is a continues decrease in profit, the loss suffered by this company and also the

percentage of loss from the year 2006 to 2010 is 0.08, 0.04, 0.05, 0.09 and 0.03. In the

year 2006 it was facing more loss but later it went decreasing the loss.

A high return margin would ensure adequate returns to the owners as well as enable a

firm to withstand adverse economies conditions when revenue is declining, cost of

production is rising and demand for the product is falling.

(b) RETURN ON EQUITY RATIO

Shows the relationship between the profit and loss account and the equity (Net Worth) of

the firm. Common or ordinary share holders are entitled to residual profit. Rate of

dividend is not fixed; the earnings may be distributed to shareholders. Never the less, the

profits after taxes represents their returns. A return on shareholders equity is calculated

to see the profitability of owners investment. The shareholders equity or net worth will

include paid up capital, share premium and reserves and surplus less accumulated losses.

Net worth can also be found by subtracting total liabilities from total assets. The return on

equity is net profit after taxes divided by shareholders equity which is given by net worth.

Net Profit After Tax

Return On Equity Ratio =

Avg. Shareholders Equity

Beginning Share Holder Equity + Ending Share Holder

Equity

Avg. Shareholders Equity =

2

(Amount in Rs.)


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Table 3.10 : Return On Equity Ratio

Year

Net Profit

After Tax

BeginningShareholders

Equity

EndingShareholders

Equity

AverageShareholders

Equity Ratio

2006 (1,287,572) 1,316,269 3,165,972 2,241,120.5 (0.57)

2007 (1,255,611) 3,165,972 3,939,077 3,552,524.5 (0.35)

2008 (2,435,094) 3,939,077 6,379,641 5,159,359 (0.47)

2009 (5,029,631) 6,379,641 6,520,340 6,449,990.5 (0.77)

2010 (2,751,844) 65,203,40 5,752,361 6,136,350.5 (0.44)Graphical Representation

Return On Equity Ratio

-1

-0.8

-0.6

-0.4

-0.2

0

2006 2007 2008 2009 2010

Ratio

Ratio

Graph 3.10 : Return On Equity Ratio of 5 Years

Interpretation

The ROE indicates how well the firm has used the resources of owners. In fact this ratio

is one of the most important relationships in financial analysis. The earning of a

satisfactory return is the most desirable objective of a business. The ratio of net profit to


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owners equity reflects the extent to which this objective has been accomplished. This will

reveal the relative performance and strength of the companys in attracting future

investments.

There is continues decrease in rate of return on equity and also the percentage of

increasing shareholders equity. HDFC Standard Life is not in the position to earn a better

rate of return on equity from the year 2006 to 2010 respectively.

Here the current year ratio is -0.44 which is greater than previous year i.e., -0.77.

Comparatively current year relative performance of the company in attracting future

investment is not good.

(c) RETURN ON ASSETS

Profitability can be measured in terms of relationship between net profit and assets. This

ratio is also known as profit-to-assets ratio. It measures the profitability of investments.

The overall profitability can be known.

Net Profit after Tax

Return on Assets =Average Total assets

Beginning Total Assets + Ending Total Assets

Avg. Total Assets =

2

(Amount in Rs.)

Table 3.11 : Return On Assets Ratio

Year

Net Profit

After Tax

Beginning

Total Assets

Ending

Total Assets

Average

Total Assets Ratio


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2006 (1,287,572) 1,874,848 4,471,073 2,329,460.5 (0.55)

2007 (1,255,611) 4,471,073 6,061,593 5,266,333 (0.23)

2008 (2,435,094) 6,061,593 9,907,527 7,984,560 (0.30)2009 (5,029,631) 9,907,527 11,091,335 10,499,431 (0.47)

2010 (2,751,844) 11,091,335 8,887,897 9,989,616 (0.27)


Return On Asse ts Ratio

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

2006 2007 2008 2009 2010

Ratio

Ratio

Graph 3.11 : Return On Assets Ratio of 5 Years

Interpretation

This is the ratio between net profit and total assets. It is an indicator of how profitable a

company relative to its total assets.


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HDFC Standard Life is having the negative trend of Return on Asse

Financial Performance of HDFC Standard Life

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