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INTRODUCTION TO

FUNDAMENTAL ANALYSIS

(Chapter-1)

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What is analysis? The examination and evaluation of the relevant information to select the best course of action from among various alternatives. The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value. Technical analysis takes a completely different approach; it doesn't care one bit about the "value" of a company or a commodity. Technicians (sometimes called chartists) are only interested in the price movement in the market.

What is technical analysis? Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.

What is fundamental analysis? Fundamental Analysis involves examining the economic, financial and other qualitative and quantitative factors related to a security in order to determine its intrinsic value. It attempts to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies). Fundamental analysis, which is also known as quantitative analysis, involves delving into a company‟ s financial statements (such as profit and loss account and balance sheet) in order to study various financial indicators (such as revenues, earnings, liabilities, expenses and assets). Such analysis is usually carried out by analysts, brokers and savvy investors. Many analysts and investors focus on a single number--net income (or earnings)--to evaluate performance. When investors attempt to forecast the market value of a firm, they frequently rely on earnings. Many institutional investors, analysts and regulators believe earnings are not as relevant as they once were. Due to nonrecurring events, disparities in measuring risk and management's ability to disguise fundamental earnings problems, other measures beyond net income can assist in predicting future firm earnings.

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Two Approaches of fundamental analysis While carrying out fundamental analysis, investors can use either of the following approaches:

1 .Top-down approach: In this approach, an analyst investigates both international and

national economic indicators, such as GDP growth rates, energy prices, inflation and

interest rates. The search for the best security then trickles down to the analysis of total

sales, price levels and foreign competition in a sector in order to identify the best

business in the sector.

2. Bottom-up approach: In this approach, an analyst starts the search with specific

businesses, irrespective of their industry/region.

How does fundamental analysis works? Fundamental analysis is carried out with the aim of predicting the future performance of a company. It is based on the theory that the market price of a security tends to move towards its 'real value' or 'intrinsic value.' Thus, the intrinsic value of a security being higher than the security‟ s market value represents a time to buy. If the value of the security is lower than its market price, investors should sell it.

The steps involved in fundamental analysis are:

1. Macroeconomic analysis, which involves considering currencies, commodities and indices.

2. Industry sector analysis, which involves the analysis of companies that are a part of the sector.

3. Situational analysis of a company.

4. Financial analysis of the company.

5. Valuation The valuation of any security is done through the discounted cash flow (DCF) model, which takes into consideration:

1. Dividends received by investors

2. Earnings or cash flows of a company

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3. Debt, which is calculated by using the debt to equity ratio and the current ratio (current assets/current liabilities)

Fundamental Analysis Tools These are the most popular tools of fundamental analysis. Earnings per Share – EPS Price to Earnings Ratio – P/E Projected Earnings Growth – PEG

Price to Sales – P/S Price to Book – P/B Dividend Payout Ratio Dividend Yield Book Value Return on Equity Ratio analysis

Financial ratios are tools for interpreting financial statements to provide a basis for

valuing securities and appraising financial and management performance. A good financial analyst will build in financial ratio calculations extensively in a financial modeling exercise to enable robust analysis. Financial ratios allow a financial analyst to: Standardize information from financial statements across multiple financial years to allow comparison of a firm’s performance over time in a financial model. Standardize information from financial statements from different companies to allow apples to apples comparison between firms of differing size in a financial model. Measure key relationships by relating inputs (costs) with outputs (benefits) and facilitates comparison of these relationships over time and across firms in a financial model.

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In general, there are 4 kinds of financial ratios that a financial analyst will use most frequently, these are: Performance ratios Working capital ratios Liquidity ratios Solvency ratios

These 4 financial ratios allow a good financial analyst to quickly and efficiently address the

following questions or concerns:

Performance ratios What return is the company making on its capital investment? What are its profit margins? Working capital ratios How quickly are debts paid? How many times is inventory turned? Liquidity ratios

Can the company continue to pay its liabilities and debts?

Solvency ratios (Longer term)

What is the level of debt in relation to other assets and to equity? Is the level of interest payable out of profits?

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WHY ONLY FUNDAMENTAL ANALYSIS

Long-term Trends

Fundamental analysis is good for long-term investments based on long-term trends, very long-term. The ability to identify and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who pick the right industry groups or companies. Value Spotting Sound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors think long-term and value. Graham and Dodd, Warren Buffett and John Neff are seen as the champions of value investing. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying power.

Business insights

One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such pains taking research and analysis, an investor will be familiar with the key revenue and profit drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians will agree to that. A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. In addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. A stock's price is heavily influenced by its industry group. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech), low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation) or income-oriented (high yield). Knowing Who's Who Stocks move as a group. By understanding a company's business, investors can better position themselves to categorize stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. This has happened with many of the pure internet retailers, which were not really internet companies, but plain retailers. Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations. The charts of the

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technical analyst may give all kinds of profit alerts, signals and alarms, but there‟ s little in the charts that tell us why a group of people make the choices that create the price patterns

Objective of the study

To analyze economy by using some economic indicators like GDP, and inflation rate etc for the selected period of 5 years.

To analyze the industry especially private bank industry for the selected period of 5 years.

To carry out financial and non-financial analysis of ICICI bank as a whole for the selected period.

Data sources Secondary data has been collected from various sources to analyze the fundamentals. The secondary data has been collected from

Books

Internet-websites

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PERIOD OF STUDY: The period of study for the analysis is five years from 2008-2012.

CHAPTER PLAN

It is proposed to divide the project into following chapters.

CHAPTER 1: INTRODUCTION TO STUDY

This chapter will be introductory in nature covering the relevance of study.

CHAPTER 2: CONCEPTUAL FRAMEWORK OF FUNDAMENTAL ANALYSIS

This chapter will include a comprehensive study of the concept of Fundamental

analysis and its tools.

CHAPTER 3: DATA SOURCE AND RESEARCH METHODOLOGY

This chapter will give an inside into source of data and method of undertaking research.

CHAPTER 4: DATA ANALYSIS

This is the chapter of all observations, inferences, analysis and conclusions that will be

made out of the data analysis during the course of study.

CHAPTER 5: LIMITATIONS AND SUGGESTIONS

All the limitations and stumbling blocks that will be encountered during the study will

be discussed in this chapter along with the future scope and suggestions.

BIBLIOGRAPHY

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ECONOMIC ANALYSIS

(Chapter- 2)

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The economic analysis aims at determining if the economic climate is conclusive and is capable of encouraging the growth of business sector, especially the capital market. When the economy expands, most industry groups and companies are expected to benefit and grow. When the economy declines, most sectors and companies usually face survival problems. Hence, to predict share prices, an investor has to spend time exploring the forces operating in overall economy. Exploring the global economy is essential in an international investment setting. The selection of country for investment has to focus itself to examination of a national economic scenario. It is important to predict the direction of the national economy because economic activity affects corporate profits, not necessarily through tax policies but also through foreign policies and administrative procedures.

Tools for Economy Analysis The most used tools for performing economic analysis are: Gross Domestic Product (GDP) Monetary policy and Liquidity Inflation Interest rates International influences Fiscal policy Influences on long term expectations Influences on short term expectations

1. Gross Domestic product GDP is one measure of economic activity. This is the total amount of goods and services produced in a country in a year. It is calculated by adding the market values of all the final goods and services produced in a year.

It is a gross measurement because it includes the total amount of goods and services produced, of which some merely replace goods that have depreciated or have worn out.

It is domestic production because it includes only goods and services produced within the country.

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2. Inflation

Inflation can be defined as a trend of rising prices caused by demand exceeding supply. Over time, even a small annual increase in prices of say 1 % will tend to influence the purchasing power of the nation. In others word, if prices rise steadily, after a number of years, consumers will be able to buy only fewer goods and services assuming income level does not change with inflation.

3. Interest rate Interest rate is the price of credit. It is the percentage fee received or paid by individual or organization when they lend and borrow money. In general, increases in interest rate, whether caused by inflation, government policy, rising risk premium, or other factors, will lead to reduced borrowing and economic slowdown.

4. International influences

Rapid growth in overseas market can create surges in demand for exports, leading to growth in export sensitive industries and overall GDP. In contrast, the erection of trade barriers, quotas, currency restrictions can hinder the free flow of currency, goods, and services, and harm the export sector of an economy.

5. Fiscal policy The fiscal policy of the government involves the collection and spending of revenue. In

particular, fiscal policy refers to the efforts by the government to stimulate the economic

directly, through spending.

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Industry Analysis

(Chapter-3)

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An industry analysis helps inform business managers about the viability of their current strategy and on where to focus a business among its competitors in an industry. The analysis examines factors such as competition and the external business environment, substitute products, management preferences, buyers and suppliers. Industry analysis involves reviewing the economic, political and market factors that influence the way the industry develops. Major factors can include the power wielded by suppliers and buyers, the condition of competitors. And the likelihood of new market entrants.

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

Product lines

Product growth

Complementary product

Economics of scale

Suppliers

Labors

Substitute products

Buyers and their behavior

Product pattern (cyclical, seasonal)

Cost structure

Tools for industry analysis

Cross-sectional industry

Industry performance over time

Differences in industry risk

Prediction about market behavior

Competitors over the industry life cycle

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

The new policy shook the Banking sector in India completely. Bankers, till this time, were

used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. In the

early 1990s the then Narsimha Rao government embarked on a policy of liberalization and

gave licenses to a small number of private banks, which came to be known as New

Generation tech-savvy banks, which included banks such as Global Trust Bank (the first of

such new generation banks to be set up) which later amalgamated with Oriental Bank of

Commerce, UTI Bank (now re-named as Axis Bank), ICICI Bank and HDFC Bank.

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

BANKING STRUCTURE IN INDIA The banking institutions in the organized sector, commercial banks are the oldest institutions, some them having their genesis in the nineteenth century. Initially they were set up in large numbers, mostly as corporate bodies with shareholding with private individuals. Today 27 banks constitute a strong Public Sector in Indian Commercial Banking. Commercial Banks operating in India fall under different sub categories on the basis of their ownership and control over management; Public Sector Banks Public Sector Banks emerged in India in three stages. First the conversion of the then existing Imperial Bank of India into State Bank of India in 1955, followed by the taking over of the seven associated banks as its subsidiary. Second the nationalization of 14 major commercial banks in 1969and last the nationalization of 6 more commercial Bank in 1980. Thus 27 banks constitute the Public Sector Banks. New Private Sector Banks

After the nationalization of the major banks in the private sector in 1969 and 1980, no new

bank could be setup in India for about two decades, though there was no legal bar to that

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effect. The Narasimham Committee on financial sector reforms recommended the

establishment of new banks of India. RBI thereafter issued guidelines for setting up of

new private sector banks in India in January 1993. These guidelines aim at ensuring that

new banks are financially viable and technologically up to date from the start. They

have to work in a professional manner, so as to improve the image of commercial

banking system and to win the confidence of the public. Eight private sector banks have

been established including banks sector by financially institutions like SIDBI, ICICI, and

UTI etc.

Local Area Banks Such Banks can be established as public limited companies in the

private sector and can be promoted by individuals, companies, trusts and societies. The

minimum paid up capital of such banks would be 5 crores with promoters contribution

at least Rs. 2 crores. They are to be set up in district towns and the area of their

operations would be limited to a maximum of 3 districts. At present, four local area

banks are functional, one each in Punjab, Gujarat, Maharashtra and Andhra Pradesh.

Foreign Banks Foreign commercial banks are the branches in India of the joint stock

banks incorporated abroad. Their number was 38 as on 31.03.2011.

Scheduled Commercial Banks in India The commercial banking structure in India consists of: Scheduled Commercial Banks in India Unscheduled Banks in India Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section42 (6) a) of the Act. "Scheduled banks in India" means the State Bank of India constituted under the State

Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of

India (Sub sidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank

constituted under section 3 of the Banking Companies (Acquisition and Transfer of

Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies

(Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank

being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of

1934), but does not include a co-operative bank". "Non-scheduled bank in India" means a

banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949

(10 of 1949), which is not a scheduled bank".

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Cooperative Banks

Besides the commercial banks, there exists in India another set of banking institutions

called cooperative credit institutions. These have been made in existence in India since

long. They undertake the business of banking both in urban and rural areas on the

principle of cooperation. They have served a useful role in spreading the banking habit

throughout the country. Yet, there financial position is not sound and a majority of

cooperative banks has yet to achieve financial viability on a sustainable basis.

The cooperative banks have been set up under various Cooperative Societies Acts

enacted by State Governments. Hence the State Governments regulate these banks. In

1966, need was felt to regulate their activities to ensure their soundness and to protect

the interests of depositors According to the RBI in March 2011, number of all Scheduled

Commercial Banks (SCBs) was 171 of which, 86 were Regional Rural Banks and the

number of Non-Scheduled Commercial Banks including Local Area Banks stood at 5.

Taking into account all banks in India, there are overall 86,640 branches or offices,

1,093,356 employees and 35,088 ATMs. Public sector banks made up a large chunk of

the infrastructure, with 87.7 per cent of all offices, 82 per cent of staff and 60.3 per cent

of all automated teller machines (ATMs).

SWOT ANALYSIS OF BANKING SECTOR

STRENGTHS

Indian banks have compared favorably on growth, asset quality and profitability with

other regional banks over the last few years. The banking index has grown at a

compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per

cent growth in the market index for the same period. Policy makers have made some

notable changes in policy and regulation to help strengthen the sector. These changes

include strengthening prudential norms, enhancing the payments system and

integrating regulations between commercial and co-operative banks. Bank lending has

been a significant driver of GDP growth and employment. Extensive reach: the vast

networking & growing number of branches & ATMs. Indian banking system has

reached even to the remote corners of the country.

In terms of quality of assets and capital adequacy, Indian banks are considered to have

clean, strong and transparent balance sheets relative to other banks in comparable

economies in its region.

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WEAKNESS

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

Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in PSU banks below 51% thus choking the headroom available to these banks for raining equity capital.

Impediments in sectoral reforms: Opposition from Left and resultant cautious approach from the North Block in terms of approving merger of PSU banks may hamper their growth prospects in the medium term.

OPPORTUNITIES

The market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards, consumer finance and wealth management on the retail side, and in fee-based income and investment banking on the wholesale banking side. These require new skills in sales & marketing, credit and operations. With increased interest in India, competition from foreign banks will only intensify. Given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks. New private banks could reach the next level of their growth in the Indian banking

sector by continuing to innovate and develop differentiated business models to

profitably serve segments like the rural/low income and affluent/HNI segments;

actively adopting acquisitions as a means to grow and reaching the next level of

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performance in their service platforms. Attracting, developing and retaining more

leadership capacity.

Foreign banks committed to making a play in India will need to adopt alternative

approaches to win the “race for the customer” and build a value-creating customer

franchise in advance of regulations potentially opening up post 2009.

Reach in rural India for the private sector and foreign banks

Liberalization of ECB norms: The government also liberalised the ECB norms to permit

financial sector entities engaged in infrastructure funding to raise ECBs. This enabled

banks and financial institutions, which were earlier not permitted to raise such funds,

explore this route for raising cheaper funds in the overseas markets.

Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has

allowed them to raise perpetual bonds and other hybrid capital securities to shore up

their capital. If the new instruments find takers, it would help PSU banks, left with little

headroom for raising equity.

THREATS

Threat of stability of the system: failure of some weak banks has often threatened the

stability of the system.

Rise in inflation figures which would lead to increase in interest rates.

Increase in the number of foreign players would pose a threat to the Public Sector Bank

as well as the private players.

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Key players

Andhra Bank State Bank of India

Allahabad Bank Vijaya Bank

Punjab National Bank HDFC Bank

UTI Bank ICICI Bank

Kotak Mahindra Bank Centurion Bank of Punjab

Citibank Standard Chartered Bank

HSBC Bank State Bank of Mysore

American Express Bank ABN AMRO

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Company analysis

(Chapter-4)

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

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1. Porter model Porter's Five Forces is a framework for industry analysis and business strategy development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven down to zero. Three of Porter's five forces refer to competition from external sources. The remainders are internal threats. Porter referred to these forces as the micro environment, to contrast it with the more

general term macro environment. They consist of those forces close to a company that

affect its ability to serve its customers and make a profit. A change in any of the forces

normally, requires a business unit to re-assess the marketplace given the overall change

in industry information. The overall industry attractiveness does not imply that every

firm in the industry will return the same profitability. Firms are able to apply their core

competencies, business model or network to achieve a profit above the industry

average. A clear example of this is the airline industry. As an industry, profitability is

low and yet individual companies, by applying unique business models, have been able

to make a return in excess of the industry average.

Porter's five forces include - three forces from 'horizontal' competition: threat of

substitute products, the threat of established rivals, and the threat of new entrants; and

two forces from 'vertical' competition: the bargaining power of suppliers and the

bargaining power of customers.

This five forces analysis is just one part of the complete Porter strategic models. The

other elements are the value chain and the generic strategies

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a) The threat of the entry of new competitors Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will fall towards zero (perfect competition).

The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily.

Economies of product differences

Brand equity

Switching costs or sunk costs

Capital requirements

Access to distribution

Customer loyalty to established brands

Absolute cost

Industry profitability; the more profitable the industry the more attractive it will be to new competitors

b) The threat of substitute products or services

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives:

Buyer propensity to substitute

Relative price performance of substitute

Buyer switching costs

Perceived level of product differentiation

Number of substitute products available in the market

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Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product.

Substandard product

Quality depreciation

c) The bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.

Buyer concentration to firm concentration ratio

Degree of dependency upon existing channels of distribution

Bargaining leverage, particularly in industries with high fixed costs

Buyer volume

Buyer switching costs relative to firm switching costs

Buyer information availability

Ability to backward integrate

Availability of existing substitute products

Buyer price sensitivity

Differential advantage (uniqueness) of industry products

RFM Analysis

d) The bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers

of raw materials, components, labor, and services (such as expertise) to the firm can be a

source of power over the firm, when there are few substitutes. Suppliers may refuse to

work with the firm, or, e.g., charge excessively high prices for unique resources.

Supplier switching costs relative to firm switching costs

Degree of differentiation of inputs

Impact of inputs on cost or differentiation

Presence of substitute inputs

Strength of distribution channel

Supplier concentration to firm concentration ratio

Employee solidarity (e.g. labor unions)

Supplier competition - ability to forward vertically integrate and cut out the BUYER

(e) The intensity of competitive rivalry

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For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

Sustainable competitive advantage through innovation

Competition between online and offline companies; click-and-mortar -v- slags on a bridge

Level of advertising expense

Powerful competitive strategy

The visibility of proprietary items on the Web used by a company which can intensify competitive pressures on their rivals.

How will competition react to a certain behavior by another firm? Competitive rivalry is likely to be based on dimensions such as price, quality, and innovation. Technological advances protect companies from competition. This applies to products and services. Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits, until competitors imitate them. Examples of recent technology advantage in have been mp3 players and mobile telephones. Vertical integration is a strategy to reduce a business' own cost and thereby intensify pressure on its rival.

2. The financial statements of the company:

Records that outline the financial activities of a business, an individual or any other entity. Financial statements are meant to present the financial information of the entity in question as clearly and concisely as possible for both the entity and for readers. Financial statements for businesses usually include: income statements, balance sheet, statements of retained earnings and cash flows, as well as other possible statements

3. Ratio analysis:

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

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RESEARCH METHODOLOGY (Chapter-5)

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Research methodology Research methodology is a way to systematically solve the

research problem. The research methodology using for find out the solution of the

research problem is analytical research methodology and some extend descriptive

research methodology

Secondary Data

The sources of secondary data for solve the problems are:-

Company Annual Report

Internet-websites

Period of study

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

for the analysis.

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

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Liquid ratio Turnover ratio Valuation ratio

Techniques

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

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DATA ANALYSIS

(Chapter-6)

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The process of evaluating data using analytical and logical reasoning to examine each component of the data provided. This form of analysis is just one of the many steps that must be completed when conducting a research experiment. Data from various sources is gathered, reviewed, and then analyzed to form some sort of finding or conclusion. There are a variety of specific data analysis method, some of which include data mining, text analytics, business intelligence, and data visualizations Data can be of several types

Quantitative data is a number

Qualitative data is a pass/fail or the presence of a characteristic Quantitative data is data measured or identified on a numerical scale. Numerical data

can be analyzed using statistical methods, and results can be displayed using tables,

charts, histograms and graphs.

The term qualitative data is used to describe certain types of information. This is almost

the converse of quantitative data, in which items are more precisely described as data in

terms of quantity and in which numerical values are used. However, data originally

obtained as qualitative information about individual items may give rise to quantitative

data if they are summarized by means of counts.

Qualitative data described items in terms of some quality or categorization that may be

'informal' or may use relatively ill-defined characteristics such as warmth and flavor.

However, qualitative data can include well-defined aspects such as gender, nationality

or commodity type.

35

ECONOMY ANALYSIS

36

Analysis of Indian Economy

India's economy expanded 8.8% in the second quarter from a year earlier, compared to

an 8.6% on-year expansion in the first, lifted by robust activity in manufacturing.

Agricultural output along with strong development in the Industrial, Mining and

banking sector have helped to boost the Indian economy. Agricultural output raised 2.8

per cent y-o-y thanks to improved harvests. Industrial production increased by 12% and

in the mining sector by 9%. According to 2011 data the shares of banking sector value

add in GDP has been increased 7.7% from 2.5%.The forecasters have assigned highest

29.6 per cent chance that it will fall in 6.0-6.9 per cent in 2011- 12. They raised their

forecasts slightly for agriculture growth to 4.0 percent from 3.5 percent, for industry to

9.0 percent from 8.1 percent and for services it was steady at 9.0 percent. The survey

showed the economists expect GDP growth in the April-June quarter to be 8.1 percent

up from 7.9 percent in the last survey. For the July-September quarter, GDP growth is

placed at 8.3 percent. The Reserve Bank of India has stated that it had seen an annual

growth of 8.5% steadily. The main priority of the Reserve Bank is to curb the ongoing

inflation, which peaked at 11% last month. Interest rates have been increased by the

banks to contain the inflation, but it could slow down the growth of the Indian economy

in the coming months. But even though there has been a rise in the interest rates there

hasn’t been much change in the distribution of loans, the Indian customer is hardly

affected with the hiked interest rates. Almost every sector of the economy is poised to

grow faster and a 9 per cent growth in 2011-12 is not difficult if domestic policies and

external factors do not come in the way. Expert expects that India s economy to grow by

8.5% in 2011 based on a steep gain in industrial output and resurgent private

consumption investment and exports. Were these scenarios to continue growth would

lift further to 8.3% in 2012 said Chief Economist. They also expect the Reserve Bank of

India (RBI) to continue gradually raising interest rates and to keep a tight leash on

liquidity to tame inflation. Recently RBI changed the repo rate from 5.75% to 6% and

reverse repo rate 4.5% to 5%. CRR rate they keeping unchanged. This six time I a year

they revise key parameter to control inflation.

37

INDIA GDP SURGES 8.9% IN THE THIRD QUARTER

India's domestically-powered economy grew more than expected in the September quarter, defying weakness elsewhere and putting pressure on the Reserve Bank of India (RBI) to tighten monetary policy although a rate increase next month still looks unlikely. Annual gross domestic product grew 8.9 percent in the September quarter -- matching the revised figure for the previous quarter.

Consumer price inflation eased to an annual 9.7 percent in October from 9.82 percent the previous month, data showed on Tuesday. Wholesale price inflation, which is more closely watched as it covers a higher number of products, eased to 8.58 percent in October from 8.62 percent a month earlier. Investment growth slowed on an annualized basis to 11.1 percent from 19 percent in the previous quarter, while annualized private consumption accelerated to 9.3 percent from 7.8 percent in the previous quarter, pointing to inflationary risks. The services sector, which accounts for over 50 percent of GDP, grew 9.8 percent in the September quarter, higher than 9.3 percent in the previous quarter. Signs of easing inflation, a fragile global economy and weaker industrial output in September were likely to forestall any rise in rates in the near-term, some analysts said. "Unless the full year growth looks likely to cross 9 percent, the central bank is unlikely to get aggressive again in raising rates," said Anjali Varma, economist at MF Global in Mumbai. Industrial output growth -- a key indicator of growth momentum -- in Asia's third-largest economy slowed unexpectedly in September to 4.4 percent from a year earlier, down from the previous month's upwardly revised 6.92 percent growth.

Year March June September December

2011 8.30 7.80 7.70 6.90

2010 7.30 9.40 9.30 8.90

2009 6.10 5.80 6.30 8.60

38

Healthy economic growth, especially since 2005, has also facilitated impressive growth in

the commercial banking sector (Chart 5.2). Though the growth rate of the consolidated

balance sheet of commercial banks moderated in 2008-09 at 21 per cent as compared to 25

per cent in 2007-08, the sector continued to grow at a rate higher than that of the nominal

GDP (at current market prices). Accordingly, the ratio of commercial banking assets to GDP

increased to 98.5 per cent at end- March 2009 from 91.6 per cent as at end-March 2008.

With the impact of the financial crisis gradually affecting the global economy, credit off-

take slowed down further and the year on year growth in bank credit during the first half

year of 2009-10 stood at 12.3 per cent. During the same period, investments grew by 34.5

per cent (as compared to 6.3 per cent as on September 2008). However, there are early signs

of credit growth recovering in line with the economy, on the back of fiscal and monetary

measures. This trend is clearly shown by the movements in incremental credit-deposit (CD)

and investment-deposit (ID) ratio in recent periods (Chart 5.5).

39

40

INDIA INFLATION RATE

The inflation rate in India was last reported at 9.47 percent in December of 2010. From 1969

until 2010, the average inflation rate in India was 7.99 percent reaching an historical high of

34.68 percent in September of 1974 and a record low of -11.31 percent in May of 1976.

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. This page includes: India Inflation Rate chart, historical data and news.

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

2012 16.22 14.86 14.86 13.33 13.91 13.73 11.25 9.88 9.82 9.70 8.33 9.47

2011 10.45 9.63 8.03 8.70 8.63 9.29 11.89 11.72 11.64 11.49 13.51 14.97

2010 5.51 5.47 7.87 7.81 7.75 7.69 8.33 9.02 9.77 10.45 10.45 9.70

41

India Interest Rate

The benchmark interest rate (reverse repo) in India was last reported at 5.5 percent. In

India, interest rate decisions are taken by the Reserve Bank of India's Central Board of

Directors. The official interest rate is the benchmark repurchase rate. From 2000 until 2010,

India's average interest rate was 5.82 percent reaching an historical high of 14.50 percent in

August of 2000 and a record low of 3.25 percent in April of 2010.

42

INDUSTRY ANALYSIS

43

The last decade has seen many positive developments in the Indian banking sector. The

policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and

related government and financial sector regulatory entities, have made several notable

efforts to Improve regulation in the sector. The sector now compares favorably with

banking sectors in the region on metrics like growth, profitability and non-performing

assets (NPAs). A few banks have established an outstanding track record of innovation,

growth and value creation. This is Reflected in their market valuation. However,

improved regulations, innovation, growth and value creation in the sector remain

limited to a small part of it. The cost of banking intermediation in India is higher and

bank penetration is far lower than in other markets. India‟ s banking industry must

strengthen itself significantly if it has to support the modern and vibrant economy

which India aspires to be. While the onus for this change lies mainly with bank

managements, an enabling policy and regulatory framework will also be critical to their

success. The failure to respond to changing market realities has stunted the

development of the financial sector in many developing countries. A weak banking

structure has been unable to fuel continued growth, which has harmed the long-term

health of their economies. In this “white paper”, we emphasize the need to act both

decisively and quickly to build an enabling, rather than a limiting, banking sector in

India.

OPPORTUNITIES AND CHALLENGES FOR PLAYERS

The bar for what it means to be a successful player in the sector has been raised. Four

challenges must be addressed before success can be achieved. First, the market is seeing

discontinuous growth driven by new products and services that include opportunities

in credit cards, consumer finance and wealth management on the retail side, and in fee-

based income and investment banking on the wholesale banking side. These require

new skills in sales & marketing, credit and operations. Second, banks will no longer

enjoy windfall treasury gains that the decade-long secular decline in interest rates

provided. This will expose the weaker banks. Third, with increased interest in India,

competition from foreign banks will only intensify. Fourth, given the demographic

shifts resulting from changes in age profile and household income, consumers will

increasingly demand enhanced institutional capabilities and service levels from banks.

Growth in the Indian banking industry

44

The growth in the Indian Banking Industry has been more qualitative than quantitative

and it is expected to remain the same in the coming years. Based on the projections

made in the "India Vision 2020" prepared by the Planning Commission and the Draft

10th Plan, the report forecasts that the pace of expansion in the balance-sheets of banks

is likely to decelerate. The total assets of all scheduled commercial banks by end-March

2010 are estimated at Rs 40, 90,000 crores That will comprise about 65 per cent of GDP

at current market prices as compared to 67 per cent in 2002-03. Bank assets are expected

to grow at an annual composite rate of 13.4 per cent during the rest of the decade as

against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is

expected that there will be large additions to the capital base and reserves on the

liability side.

45

Peer Group Comparison (Standalone) (Rs. In Crore)

Company Name Year End Net Sales PBIDT PAT Adj. EPS(Rs) PBIDTM% PATM% ROCE% ROE%

Indusind Bank

2011 2706.99 703.89 350.31 8.53 26 12.94 7.53 19.51

ICICI Bank

2011 25706.93 9732.18 4024.98 36.1 37.86 15.66 6.18 7.96

Kotak Bank

2011 3255.62 1297 561.11 8.06 39.84 17.23 6.68 13.52

HDFC Bank

2011 16172.9 6429.73 2948.7 64.42 39.76 18.23 5.95 16.31

Axis Bank

2011 11638.02 5240.56 2514.53 62.06 45.03 21.61 6.39 19.15

Interpretation:

Here we can see that ICICI has highest net sales with 25706.93 cr. And PAT is also

highest among the peer group with 4027.93 cr. That means ICICI is most favorable

company to invest in terms of profit.

46

Bank – Private Industry Ratios

Description 2012 2011 2010 2009 2008

No Of Companies 74 89 83 71 68 Margin Ratios Yield on Advances 13.31 14.23 12.87 12.04 11.36

Yield on Investments 6.22 7.44 7.21 6.37 6.41

Cost of Liabilities 5.02 6.09 5.87 5.1 4.27

NIM 5.63 5.38 4.69 4.38 4.92

Interest Spread 8.28 8.14 7 6.94 7.1

Performance Ratios ROA (%) 1.17 1.28 1.34 1.19 1.18

ROE (%) 10.65 11.07 12.02 14.45 13.36

ROCE (%) 5.96 7.11 7.04 6.4 5.56

Efficiency Ratios Cost Income Ratio 42.89 42.45 46.35 50.66 51.38

Core Cost Income Ratio 44.25 45.19 48.74 51.78 50.8

Operating Costs to Assets 7.46 7.55 7.49 7.82 8.2

Growth Ratio Core Operating Income Growth 9.09 30.55 44.08 32.44 107.35

Operating Profit Growth 2.45 20.79 60.6 37.8 127.56

Net Profit Growth 3.73 16.84 55.86 37.48 102.66

Advances Growth 8.99 14.77 46.44 38.42 86.72

Liquidity Ratios Loans/Deposits(x) 0.2 0.26 0.22 0.18 0.19

Cash/Deposits(x) 0.09 0.07 0.1 0.07 0.06

Investment/Deposits(x) 0.47 0.44 0.43 0.41 0.43

Inc Loan/Deposit (%) 19.63 25.72 22.28 17.58 18.73

47

Interpretation

ROE: ROE examines profitably from the perspective of equity investors by relating

profits available for the equity share holders with the book value of equity investments. The return from the point of view of equity shareholders may be calculated by comparing the net profit less preference dividend with their total contribution to the firm. Over the years ROE of the industry have declined

ROA: ROA measures a profitability of the firm in terms of assets employed in the firm. ROE is calculated by establishing the relationship between the profits and the assets employed to earn that profit. ROA shows as to how much is the profit earn by the firm per rupee of assets used. Here industry ROA is almost stable.

NET PROFIT: the NP ratio establishes the relationship between the net profit (after tax) of the firm and the net sales. Its measures the efficiency of the management in generating additional revenue over and above the total cost of operations.

Net profit ratio has decreased over the years which mean that the overall profitability of the

industry has fallen down.

48

Bank – Private Industry profit & Loss A/C

DESCRIPTION 2012 2011 2010 2009 2008 No of Companies 98 74 89 83 71

Interest Earned 135486.15 113327.71 136806.93 107590.8 71311.52

Other Income 35136.24 29599.54 35299.77 28016.66 20011.95

Total Income 170622.38 142927.25 172106.71 135607.47 91323.48

Interest Expended 78145.22 65332.36 84711.83 68370.19 42996.95

Operating Expenses 38681.01 33282.45 36938.65 31161.41 24155.71

Provisions and Contingencies 19010.41 16440.68 16710.7 8910.47 6848.84

Profit Before Tax 34785.74 27871.76 33745.53 27165.39 17321.97

Taxes 12304.43 9657.77 12149.69 8925.72 5498.1

Total 148141.07 124713.26 150510.87 117367.79 79499.61

Profit After Tax 22481.31 18213.99 21595.84 18239.68 11823.87

Extra items -22.08 -19.49 -30.5 -1.46 133.84

Profit brought forward 15392.55 14902.92 11246.87 5710.75 3893.12

Adjustments to PAT 24.84 -23.31 15.64 140.12 182.71

Total Profit & Loss 37898.7 33093.6 32858.35 24090.55 15899.7

IV. APPROPRIATIONS 37886.23 33074.11 32827.85 24089.09 16043.16

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

8732.73

11823.87

18239.68

21595.84

18215.99

22481.31

0

5000

10000

15000

20000

25000

1 2 3 4 5 6

Profit After Tax

Profit After Tax

49

Competition

Last Price Market Cap. (Rs. Cr.)

Net Interest Income

Net Profit

Total Assets

ICICI Bank 1,105.45 127,322.68 25,706.93 4,024.98 363,399.71

HDFC Bank 2,350.05 109,330.36 19,928.21 3,926.39 222,458.56

Axis Bank 1,333.45 54,744.24 15,154.81 3,388.49 180,647.87

Kotak Mahindra 458.00 33,748.71 3,255.62 561.11 37,436.31

IndusInd Bank 267.00 12,418.17 3,589.36 577.32 35,369.52

YES BANK 316.25 10,978.53 4,041.74 727.13 36,382.50

Federal Bank 436.05 7,454.92 3,673.23 464.55 43,675.61

Karur Vysya 417.00 4,449.13 1,757.94 336.03 21,993.49

ING Vysya Bank

353.15 4,272.65 2,694.06 318.65 33,880.24

JK Bank 823.50 3,992.15 3,056.88 512.38 42,546.80

50

COMPANY ANALYSIS

51

ICICI BANK LTD

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

institution, and was its wholly-owned subsidiary. ICICI‟ s shareholding in ICICI Bank

was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity

offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank‟ s acquisition

of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary

market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was

formed in 1955 at the initiative of the World Bank, the Government of India and

representatives of Indian industry. The principal objective was to create a development

financial institution for providing medium-term and long-term project financing to

Indian businesses. In the 1990s, ICICI transformed its business from a development

financial institution offering only project finance to a diversified financial services

group offering a wide variety of products and services, both directly and through a

number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first

Indian company and the first bank or financial institution from non-Japan Asia to be

listed on the NYSE. After consideration of various corporate structuring alternatives in

the context of the emerging competitive scenario in the Indian banking industry, and

the move towards universal banking, the managements of ICICI and ICICI Bank

formed the view that the merger of ICICI with ICICI Bank would be the optimal

strategic alternative for both entities, and would create the optimal legal structure for

the ICICI group’s universal banking strategy. The merger would enhance value for

ICICI shareholders through the merged entity’s access to low-cost deposits, greater

opportunities for earning fee-based income and the ability to participate in the

payments system and provide transaction-banking services. The merger would enhance

value for ICICI Bank shareholders through a large capital base and scale of operations,

seamless access to ICICI‟ s strong corporate relationships built up over five decades,

entry into new business segments, higher market share in various business segments,

particularly fee-based services, and access to the vast talent pool of ICICI and its

subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved

the merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI

Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI

Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January

2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the High

52

Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. Consequent

to the merger, the ICICI group’s financing and banking operations, both wholesale and

retail, have been integrated in a single entity.

ICICI Bank is India’s second-largest bank with total assets of Rs.3,793.01 billion (US$ 75

billion) at March 31, 2009 and profit after tax Rs.37.58 billion for the year ended March

31, 2009. The Bank has a network of 1,454 branches and about 4,721 ATMs in India and

presence in 18 countries. ICICI Bank offers a wide range of banking products and

financial services to corporate and retail customers through a variety of delivery

channels and through its specialized subsidiaries and affiliates in the areas of

investment banking, life and non-life insurance, venture capital and asset management.

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada,

branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai

International Finance Centre and representative offices in United Arab Emirates, China,

South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Their UK subsidiary has

established branches in Belgium and Germany.

53

SNAPSHOT OF ICICI BANK LTD

Company Details

Industry Bank – Private

Chairman K V Kamath

Managing Director Chanda D Kochhar

Company Secretary Sandeep Batra

ISIN INE090A01013

Bloomberg Code ICICIBC IN

Reuters Code ICBK.BO

Company Address

Registered Office Landmark,Race Course Circle,Vadodara,390007,Gujarat

Phone 91-0265-6617200/3983200

Fax 91-0265-2339926

Website www.icicibank.com

Email investor@icicibank.com

Price Information

Latest Date 11th February,2012

Latest Price (Rs) 1122.55

Previous Close (Rs) 1130.10

1 Day Price Var% -0.67%

1 Year Price Var% 22.02%

52 Week High (Rs) 1231.00

52 Week Low (Rs) 767.00

Face Value (Rs) 10.00

Industry PE 12.71

54

Company Size (Standalone) Market Cap(Rs Crore) 118741.77

EV (Rs Crore) 185491.05

Latest no. of shares 1148873022

Share holding pattern as on 201012

Promoter No of shares 0

Promoter % 0

FII No of Shares 451680100

FII % 39.23

Total No of Shares 1151422189

Free Float % 100

Financial Highlights (Standalone)

(Rs. In Crore) DESCRIPTION 2012 2011 2010 2009 2008

Equity Paid Up

1114.81 1113.21 1112.6 899.27 889.8

Reserve 50503.48 48419.73 45357.53 23413.92 21316.16 Deposits 202016.6 218347.83 244431.05 230510.19 165083.17

Gross Block 7114.12 7443.71 7036 6298.56 5968.57

Interest Earned

25706.93 31092.55 30788.34 21995.59 14306.13

Operating Profit

9732.18 8925.23 7960.68 5874.41 3888.42

PAT 4024.98 3758.13 4157.73 3110.22 2540.08 Dividend % 120 110 110 100 85

Adj. EPS(Rs) 36.1 33.76 37.37 34.59 28.55 Adj. Book Value(Rs)

463.02 444.95 417.67 270.37 249.56

16000

17000

18000

19000

20000

Axi

s Ti

tle

PRICE V/S SENSEX CHART

ICICI bank

Sensex

55

Key Market Ratio (Standalone)

Latest EPS (Rs) 40.95

Latest CEPS (Rs) 45.11

Price/TTM CEPS(x) 22.91

TTM PE (x) 25.24

Price/BV(x) 2.14

EV/TTM EBIDTA(x) 20.29

EV/TTM Sales(x) 7.53

Dividend Yield% 1.16

Mcap/TTM Sales(x) 4.82

Latest Book Value (Rs) 482.44

Quarter on Quarter (Standalone)

(Rs. In Crore) Particulars 2012 2011 Q on Q Var% 2010 Y on Y Var%

Interest Earned 6695.96 6309.1 6.13 6089.57 9.96

Total Expenditure

1717.92 1570.37 9.4 1362.39 26.1

Operating Profit

2342.61 2211.94 5.91 2368.84 -1.11

PAT 1437.02 1236.27 16.24 1101.06 30.51

PBIDTM% 34.99 35.06 -0.2 38.9 -10.05

PATM% 21.46 19.6 9.49 18.08 18.69

Adj. EPS(Rs) 12.48 10.74 16.2 9.88 26.32

0

5000

10000

15000

20000

25000

2008 2009 2010 2011 2012

Dividend

Dividend

56

Interpretation

BETA: A measure of the volatility, or systematic risk, of a security or a portfolio in

comparison to the market as a whole. Beta is used in the capital asset pricing model

(CAPM), a model that calculates the expected return of an asset based on its beta and

expected market returns.

Here beta is more than 1 (1.4927) beta of greater than 1 indicates that the security’s price

will be more volatile than the market. Stock’s beta is 1.4927; it’s theoretically 49.27%

more volatile than the market.

EPS: EPS indicates the profitability of a company. Earnings per Share are the single

most popular variable in dictating a share’s price. Earnings per share are the Net

Income (profit) of a company divided by the number of outstanding shares. And here

EPS of the company increasing. This shows that company is earning profit.

P/E: price-to-earnings ratio (P/E) is probably the most widely used – and thus misused

investing metric. It’s easy to calculate, which explains its popularity. The most common

way to calculate:

P/E = share price divided by earnings per share

DPS: The sum of declared dividends for every ordinary share issued. Dividend per

share (DPS) is the total dividends paid out over an entire year (including interim

dividends but not including special dividends) divided by the number of outstanding

ordinary shares issued. Dividends are a form of profit distribution to the shareholder.

Having a growing dividend per share can be a sign that the company’s management

believes that the growth can be sustained. Here dividend is highest in last 5 years; it

indicates that company is growing YOY.

ICICI is having highest market capital, net profit and assets value as compared to

competitors this indicates that ICICI is most favorable company for investors.

57

ICICI BANK LTD BALANCE SHEET

DESCRIPTION March-2012

March-2011

March-2010

March-2009 March-2008

SOURCES OF FUNDS: Share Capital 1114.89 1113.29 1462.68 1249.34 1239.83 Share Warrants & Outstanding

0.00 0.00 0.00 0.00 0.00

Total Reserves 50503.48 48419.73 45357.53 23413.92 21316.16 Deposits 202016.60 218347.82 244431.05 230510.19 165083.17 Borrowings 94263.57 93155.45 65648.43 51256.03 38521.91 Other Liabilities & Provisions

15501.18 18264.66 42895.38 38228.64 25227.88

Total Liabilities 363399.72 379300.96 399795.08 344658.11 251388.95 APPLICATION OF FUNDS :

27514.29

17536.33

29377.53

18706.88

8934.37

Cash and balance with Reserve Bank of India

Balances with banks and money at call

11359.40 12430.23 8663.60 18414.45 8105.85

Investments 120892.80 103058.31 111454.34 91257.84 71547.39 Advances 181205.60 218310.85 225616.08 195865.60 146163.11 Gross block 7114.12 7443.71 7036.00 6298.56 5968.57 Less: Accumulated Depreciation

3901.43 3642.09 2927.11 2375.14 1987.85

Less: Impairment of Assets

3212.69

3801.62

4108.90

3923.42

3980.71

Net Block

Lease Adjustment Capital Work in Progress

Other Assets 19214.93 24163.62 20574.63 16489.92 12657.51 Total Assets 363399.72 379300.96 399795.08 344658.11 251388.95 Contingent Liabilities 727084.06 834683.00 1211082.33 562959.91 395033.67 Bills for collection 6474.95 6000.44 4278.28 4046.56 4338.46 Book Value 463.02 444.95 417.67 270.37 249.56 Adjusted Book Value 463.02 444.95 417.67 270.37 249.56

58

59

ICICI BANK LTD PROFIT AND LOSS A/C

DESCRIPTION March-2012

March-2011

March-2010 March-2009

March-2008

I. INCOME Interest Earned 25706.93 31092.55 30788.34 21995.59 14306.13

Other Income 7477.65 7603.73 8810.76 6927.87 4180.89

Total Income 33184.58 38696.28 39599.11 28923.46 18487.02

II. EXPENDITURE

Interest Expended 17592.57 22725.93 23484.24 16358.50 9597.45

Operating Expenses 5859.83 7045.11 8154.18 6690.56 5001.15

Provisions and Contingencies 4386.86 3808.26 2904.58 2226.37 791.81

Profit Before Tax 5345.32 5116.97 5056.10 3648.04 3096.61

Taxes 1320.34 1358.84 898.37 537.82 556.53

Total 29159.60 34938.14 35441.38 25813.24 15946.94

III. PROFIT AND LOSS

Profit After Tax Extra items 4024.98 3758.13 4157.73 3110.22 2540.07

Profit brought forward Adjustments to PAT

2809.65 2436.32 998.27 293.44 188.22

Total Profit & Loss 6834.63 6194.45 5156.00 3403.66 2728.30

IV. APPROPRIATIONS 6834.63 6194.45 5156.00 3403.66 2728.30

Equity Dividend % 120.00 110.00 110.00 100.00 85.00

Earnings Per Share 36.10 33.76 37.37 34.59 28.55

Adjusted EPS 36.10 33.76 37.37 34.59 28.55

60

61

ICICI BANK LTD FINANCIAL RATIOS

Ratios 2012 2011 2010 2009 2008

Per Share Ratios

EPS 36.10 33.76 37.37 34.59 28.55

DPS 12 11 11 10 8.50

Profitability ratios

GP Ratio 15.06 12.36 12.99 11.41 15.10

NP Ratio 12.17 9.74 10.51 10.81 14.12

ROE 7.96 7.83 11.75 13.37 14.62

ROA 1.08 0.96 1.12 1.04 1.21

Liquidity Ratios

Current Ratio 1.94 0.78 0.72 0.61 0.62

Quick Ratio 14.70 5.94 6.42 6.04 6.64

62

Interpretation

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

0

5

10

15

20

25

30

35

40

2008 2009 2010 2011 2012

EPS

EPS

0

2

4

6

8

10

12

14

2008 2009 2010 2011 2012

DPS

DPS

63

Dividend per share (DPS): Sometimes the equity shareholders may not be interested in the EPS but in the return which they are actually receiving from the firm in the form of dividends. The amount of profits distributed to shareholders per share is known as DPS and it is calculated by dividing total profits distributed by number of equity share.

Dividend per share over the years has increased which indicates that the amount of

dividend distributed towards the shareholder has increased.

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

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011 2012

GP ratio

GP ratio

64

Net profit ratio: The NP ratio establishes the relationship between the net profit (after tax) of the firm and the net sales. Its measures the efficiency of the management in generating additional revenue over and above the total cost of operations. Net profit ratio has decreased over the years which mean that the overall profitability of the firm has fallen down.

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011 2012

NP

NP

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011 2012

ROE

ROE

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ROE: ROE examines profitably from the perspective of equity investors by relating profits available for the equity share holders with the book value of equity investments. The return from the point of view of equity shareholders may be calculated by comparing the net profit less preference dividend with their total contribution to the firm. Over the years ROE of the firm have declined which indicates that the funds of the owner have not been used properly by the firm, and the firm has not been able to earn satisfactory return for the owner.

ROA: ROA measures a profitability of the firm in terms of assets employed in the firm. ROE is calculated by establishing the relationship between the profits and the assists employed to earn that profit. ROA shows as to how much is the profit earn by the firm per rupee of assets used. ROA of the firm over the year is almost stable.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2008 2009 2010 2011 2012

ROA

ROA

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Current Ratio: Current ratio shows the firm’s ability to pay its current liability out of its current assets. Generally a current ratio of 2:1 is considered to be satisfactory but sometimes it varies from industry to industry therefore the firms current ratio should be compared with the standard for the specific industry only. Current ratio of the firm has increased over the year which indicates that the firm has enough current assets to pay off its current liability.

Quick ratio: This ratio establishes the relationship between quick current assets and current liabilities. Quick current assets excludes inventory and prepaid expenses from current assets as they are potentially illiquid. This calculated by dividing quick assets by total current liabilities. Generally a quick ratio of 1:1 is considered to be satisfactory. Quick ratio of the firm is much higher than the ideal and its increasing over the years which means that the firm has enough quick assets to pay off its current liability.

0

0.5

1

1.5

2

2.5

2008 2009 2010 2011 2012

Current Ratio

Current Ratio

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011 2012

Quick ratio

Quick ratio

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ICICI BANK LTD VALUATION RATIO

DESCRIPTION March-2012

March-2011

March-2010

March-2009

March-2008

Adjusted PE (x) 26.39 9.85 20.61 24.67 20.64

PCE(x) 25.59 8.76 18.81 22.13 18.16

Price / Book Value(x)

2.06 0.75 1.84 3.16 2.36

Dividend Yield (%) 1.26 3.31 1.43 1.17 1.44

EV/Net Sales(x) 7.80 4.19 4.93 5.83 6.38

EV/EBITDA(x) 20.60 14.59 19.05 21.84 23.48

EV/EBIT(x) 8.74 4.68 5.31 6.41 7.19

EV/CE(x) 0.55 0.34 0.38 0.37 0.36

M Cap / Sales 4.13 1.19 2.78 3.49 3.66

High PE 28.45 25.19 42.13 29.50 22.76

Low PE 10.35 7.03 20.61 15.96 13.24

ICICI BANK LTD CASH FLOW RATIO

DESCRIPTION March-2012 March-2011 March-2010 March-2009 March-2008 Cash Flow Per share

16.77

-127.46

-104.54

256.45

52.29

Price to Cash Flow Ratio

56.82

-2.61

-7.37

3.33

11.27

Free Cash Flow per Share

102.15

241.13

198.79

-160.91

30.12

Price to Free Cash Flow

9.33

1.38

3.87

-5.30

19.56

Free Cash Flow Yield

0.11

0.72

0.26

-0.19

0.05

Sales to cash flow ratios

13.75

-2.19

-2.65

0.95

3.07

68

Intrinsic value of ICICI Bank

Year EPS P/E

2008 36.10 26.39

2009 33.76 9.85

2010 37.37 20.61

2011 34.59 24.67

2012 28.55 20.64

1) Based on the past 5 year EPS data, estimated growth % can be determine. And the estimated growth rate is 10.1%

2) Now, by using the current EPS we can compound it with the estimated growth i.e. 10.1%

3) Current EPS is 40.95 compounding of the EPS is 40.95+(40.95*.101)=45.085

4) Now, based on the past 5 year P/E take the average of P/E value which is 20.432

5) Now multiply the step 3 & 4 and we will get the estimated share price.

6) Estimated share price is 921.176 and current share price is 1033 which is higher than the estimated its means that share price is overvalued and investor should sell the shares for short term.

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Expected Growth of ICICI in 2011 by Unicon Investment research report

“ICICI Bank registered a good financial performance in Q4FY12 with standalone PAT

up by 48% to INR 18.52 Bn from INR 10.06 Bn in Q4FY11. The growth, being the highest

in last 7 years, was aided by increase in interest and non-interest income. The QoQ

increase in Net Interest Income was better than expected (a rise of 25.3% from INR 22.35

bn in Q4FY11 to INR 25.10 Bn to Q4FY12). Net interest margin increased QoQ & YoY by

10 bps to 2.7% respectively, on account of lower cost of funds, lower delinquencies and

growing CASA deposits.” “CASA ratio increased from 41.7% in Q4FY11 to 45.1% in

Q4FY12. The total deposits increased by 11.7% YoY (INR 668.7 Bn on March 31,2011 as

compared to INR 532.18 Bn in March 31,2011). Non-interest income decreased by 13.2%

QoQ and 11.1% YoY, this was primarily because of MTM loss in treasury income

(Q4FY12 value stood at INR 1.96 Bn) and reduction in other income by 73.6% (QoQ).

However, fee income increased by 17.8% to INR 17.91 Bn on QoQ basis. Advances

increased YoY by only 19% which was lower than the industry level of 21%, advances

to domestic 71orporate increased by 42.6% YoY. The retail advances like vehicle loan

and home loan are expected to grow in the near future. The Net NPA‟ s improved from

1.87% in Q4FY11 to 0.94% of net advances in Q4FY12. Loan loss coverage ratio also

increased to 76% on March 31,2011 from 59.5% in March 31,2011, much above the RBI

regulation of 70%. Operating expenses rose YoY by 14.1% to INR 17.89 Bn in Q4FY12

from INR 14.58 Bn in Q4FY11. Credit to deposit ratio from domestic business stood at

75%, Cost to income ratio was 42% due to healthy operating income growth. This was

on account of expanding network of the bank with 2529 branches and 6104 ATMs.”

“ICICI Bank’s growth in the past has been mainly retail-driven, the bank is now looking

to grow its large corporate and SME segment loan book as well. Progress on the „4C‟

strategy (CASA, capital conservation, cost control and credit charges) has been good. At

the CMP ICICI is trading at 2x of its FY12E P/BV (standalone basis). We have

Accumulate rating on the stock for a target price of INR 1306,” says Unicon Investment

research report.

70

FINDINGS (Chapter-7)

71

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

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

2) In the industry analysis here overall industry PAT is increasing over the years which means banking industry is having much profit but on the other side banking industry Net Profit growth has decreased very much so investor should invest carefully.

3) In the analysis of ICICI Bank we can see that EPS is increasing yoy. And dividend is also increasing so investor can invest in the company but on other side we company‟ s intrinsic value is less than the current price it shows that the share price is overvalued and invester should sell the share. But if investor want to invest in the company for long term than he can have a good profit because company growing rapidly in terms of profit and net sales and its EPS & DPS are increasing over the years.

72

LIMITATIONS

73

Fundamental analysis has some limitation involved in it. This limitation can be

explained as under:

Time Constrain:

Fundamental analysis may offer excellent insights, but it can be extraordinarily time-

consuming. Time-consuming models often produce valuations that are contradictory to

the current price prevailing on the exchange.

Company Specific:

Valuation techniques vary depending on the industry group and specifics of each

company. For this reason, a different technique and model is required for different

industries and different companies. This can be quite time-consuming process, which

can limit the amount of research that can be performed.

The sales and inventory ratio may be very important for the cement sector company but

these ratios are not very useful for the banking sector.

Inadequacies of Data:

While making analysis one has to often wrestle with inadequate data. While deliberate

falsification of data may be rare, subtle misrepresentation and concealment are

common.

Future Uncertainties:

Future changes are largely unpredictable; more so when the economic and business

environment is buffeted by frequent winds of change. In an environment characterized

by discontinuities, the past record is a poor guide to future performance.

Irrational Market Behavior:

The market itself presents a major obstacle while making analysis on account of neglect

or prejudice, undervaluation may persist for extended periods; likewise, overvaluations

arising from unsatisfied optimism and misplaced enthusiasm may endure for

unreasonable lengths of time.

74

CONCLUSION

75

Fundamental analysis holds that no investment decision should be without processing

and analyzing all relevant information. Its strength lies in the fact that the information

analyzed is real as opposed to hunches or assumptions. On the other hand, while

fundamental analysis deals with tangible facts, it does not tend to ignore the fact that

human beings do not always act rationally. Market prices do sometimes deviate from

fundamentals. Prices rise or fall due to insider trading, speculation, rumor, and a host of

other factors. Fundamental analysis is based on the analysis of the economic, industry

as well as the company and in this research we can see that the economic indicators

have an effect on the bank growth and assets. The above report says that our economic

is growing after the recession and it is the good time for the one who want to invest.

And according to the industry analysis investor can invest in the banks but he/she

should be careful for the investment. But according to financial analysis of ICICI bank

its performance in the private industry is good and expected to grow further in the near

future which is a good sign for investment. EPS and dividend both are increasing yoy

and it’s on the top in terms of profit and net interest income if we compared it with the

other banks in the same industry but we can’t ignore the intrinsic value of the company

which is lower than the current value which shows then investor should sell the share

of the company if he/she is investing for short term and for long term it is good for

investor to invest in the company.

76

SUGGESTIONS

77

The analysis carried out at on the ICICI Bank, their profit and loss account, balance sheet and ratios. I shall suggest the investors to invest in ICICI Bank than the other banks as a value investment. Reasons:

Largest private sector bank in India, second largest in entire banking Industry

Strong increase in profit year-on-year basis.

Increasing EPS indicate good earnings.

Increase in sharing profit with shareholders in form of dividend.

ICICI Bank is expanding its footholds on international level also; its Insurance and asset management business are also performing well.

78

BIBLIOGRAPHY

79

Books:

Investment Analysis & Portfolio Management- Prasanna Chandra.

Financial management – R.P Rustagi

Data base Websites:

http://www.business-standard.com/india/index2.php

http://www.equitymaster.com

http://economictimes.indiatimes.com/

http://finance.indiabizclub.com/info/indian_banking_industry

http://finance.indiamart.com/investment_in_india/banking_in_india.html http://www.icicibank.com

http://www.moneycontrol.com

http://www.nseindia.com

http://www.rbi.org.in