Hdfc Report
Transcript of Hdfc Report
Financial Analysis of HDFC Bank
ACKNOWLEDGEMENT
It is our duty to acknowledge with gratitude the generous help that I have received from Mr .
D. Gopala Krishna Branch manager, HDFC BANK LTD.We have had the advantages of
his critical advice from his profound knowledge in Finance Sector. He has indeed taken
personal interest in preparing an innovative Report on “Financial analysis &
Comparative Analysis” He has helped us a lot in preparing the questionnaire.
I also want to thank Mr. E.Dheeraj who is the Relationship Manager-Corporate Salary of
this branch, my company guide for his enduring patience, valuable guidance and constant
encouragement during the course of project work.
My sincere thanks are due to all the officers of HDFC Bank for their worthy help and
cooperation.
Finally, it’s my pleasure to acknowledge the kind help and cooperation of all the respondents
of NOIDA with whom I met throughout the duration of this project.
Head Of The Organization Mr. Gopala Krishna Branch manager, HDFC BANK
LTD.
K-Block,
Sector 18,
Noida - 201301
Uttar Pradesh
Tel 0120-4664301 / 328 / 335 /336
Fax 0120 - 2514534
Company Guide - Mr. E.Dheeraj-Relationship Manager-Corporate Salary
Faculty Guide – Dr. Sunita Bishnoi
(ISHA ARORA) PGDM III
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Financial Analysis of HDFC Bank
Contents
Introduction.......................................................................................3
Financial Sector of India – An Overview..........................................5
HDFC Bank.......................................................................................9
Financial Statement analysis of HDFC Bank..................................15
Comparative Statement Analysis.....................................................15
Ratio Analysis of HDFC Bank........................................................23
Common Size Analysis of HDFC Bank..........................................38
Trend Analysis of HDFC Bank.......................................................40
Managers Perspective……………………………………………………………47
Introduction
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Financial Analysis of HDFC Bank
Financial statement analysis is very helpful in spanning
bank’s internal operations and its relations with the
outside world. Therefore, the financial information must
be organized into an understandable, coherent and
sufficiently limited set of data. Data from the financial
statement analysis can be used to quickly calculate and
examine financial ratios. An attempt has been made
here to analyse the financial statements of HDFC Bank.
The investors rely on the financial statement to judge
the performance of the bank and ensure that these
statements are correct, complete, consistent and
comparable. The accuracy of the financial statement
can be identified from the report of the auditors. The
financial statement analysis can be used by investors
for deciding about their investments. The financial
institutions also use these statements while granting
loans to the banks. The debenture holders, creditors,
employees and government can also use the financial
statements for different purposes.
The bank itself and outside providers of capital –
creditors and investors – all undertake financial
statement analysis. The type of analysis varies
according to the specific interests of the party involved.
Creditors are primary interested in the liquidity of a
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Financial Analysis of HDFC Bank
bank. The claims of bond holders, on the other hand,
are long term. Accordingly, bond holders are more
interested in the cash – flows ability of the bank to
service debt over a long period of time.
Inflation Rate
Inflation rate in double-digit and resulted in hike in
policy rates by 150 bps, which put the liquidity
situation under high stress. Although, further rate hike
is not imminent, but inflation would drive the monetary
policy further and interest rate expected to remain
high.
Headline inflation is always considered as a major
vexation for the India’s central bank. Since, inflation
was reading in a double-digit figure, it was a challenge
for the Reserve Bank of India to fix the inflation
problem under the condition of fragile global economic
recovery without denting the recovery process. In
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Financial Analysis of HDFC Bank
response to that, RBI revised its policy rates by over
100 bps and now it does seem that the policy action is
working but the money supply is still at 20.34 per
cent. Both trend lines are now acting inversely, and
inflation is falling down to 8 per cent. According to VMW
Research, inflation is projected at 7.48 per cent for the
month of Nov, 2010. It is also evident that in the past
three months, schedule commercial banks and non-
banking financial companies have started
borrowing from the RBI’s window of Liquidity
Adjustment Facility (LAF) at the rate of 6.25 per cent.
Since, banks are now left with the limited amount of
liquidity; they’re again focusing on deposits from
customers. Several banks have revised their deposit
rates between 50 bps and 150 bps to attract funds,
however, going forward, banks will see a
narrow interest rate spread, resulted in lower earnings.
Discomfort levels of inflation and money supply will
keep interest rates higher for the next few months.
Moreover, to reduce the impact of tight liquidity, RBI
has already started the Open Market Operation
(OMO) to infuse liquidity by way of purchasing
government bonds in exchange of money.
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Financial Analysis of HDFC Bank
Financial Sector of India – An Overview
Financial Sector of India is intrinsically strong,
operationally sundry and exhibits competence and
flexibility besides being sensitive to India’s economic
aims of developing a market oriented, industrious and
viable economy. An established financial sector assists
greater standards of endowments and endorses
expansion in the economy with its intensity and
exposure. The fiscal sector in India entails banks,
financial organization, markets and services.
Fiscal transactions in an organized industry are
executed by a number of financial organizations which
are commercial in nature and offer monetary services
to the society. Further classification includes banking
and non-banking enterprises, often recognized as
activities that are client specific. The chief controller of
the finance in India is the Reserve Bank of India (RBI)
and is regarded as the supreme organization in the
fiscal structure. Other significant fiscal organizations
are business banks, domestic rural banks, cooperative
banks and development banks. Non-banking fiscal
organizations entail credit and charter firms and other
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Financial Analysis of HDFC Bank
organizations like Unit Trust of India, Provident Funds,
Life Insurance Corporation, Mutual funds, GIC, etc.
Indian Banking Sector
After a difficult FY09 Indian banks managed to
grow their balance sheets in FY10 albeit at a lower
average rate than that projected by the RBI. The
monetary stimuli (reduction in repo rate, cash reserve
ratio (CRR) and statutory liquidity ratio (SLR) offered to
the banks by the RBI early in the fiscal made it easier to
sustain margins But what really helped was the
accretion of low cost deposits (CASA). Indian banks
grew their advances and deposits by 16.9% YoY and
17.2% YoY respectively in FY10. The growth was mainly
driven by a expansion in low cost deposits and growth
in agricultural and large corporate credit.
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Financial Analysis of HDFC Bank
With lesser avenues of credit disbursal, banks had
to park most of the liquidity available with them with
the RBI. In the retail portfolio, while home loans grew
by 11% YoY, personal loans enjoyed a much smaller
growth of 6% YoY due to bank's reluctance towards
uncollateralized credit. Credit card outstanding in fact
dropped by 27% YoY.
Indian banks, however, enjoyed higher levels of
money supply, credit and deposits as a percentage of
GDP in FY10 as compared to that in FY09 showing
improved maturity in the financial sector.
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Financial Analysis of HDFC Bank
Despite poor pricing power lower cost of funds
helped Indian banks grow their net interest margins in
FY10. While few like ICICI Bank chose to reduce their
balance sheet size, most entities chose to reasonably
grow their franchise as well as assets. Public sector
banks outdid their private sector counterparts in terms
of growth and franchise expansion in the last fiscal.
Improved capital adequacy also helped banks to
comfortably comply with Basel II. The higher efficiency
levels were the hallmarks of better performance of
Indian banks last year.
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Financial Analysis of HDFC Bank
HDFC Bank
In August, 1994 the Housing Development Finance
Corporation Limited (HDFC) was incorporated in the
name of HDFC Bank Limited. The Reserve Bank of India
has approved in principle to set up private banks. HDFC
was one of the first organizations to receive in principle
approval from RBI. The HDFC
Bank has its registered office in Mumbai. In January
1995, the operations of HDFC Bank as a commercial
bank has commenced. IN India and in international
markets HDFC has an impeccable track record. HDFC
has maintained a healthy growth and a consistency in
its operations and remained as a leader in market of
mortgages. The portfolio of HDFC’s outstanding loan
has a million dwelling units. HDFC has a large corporate
client base for housing related credit facilities. HDFC
was ideally positioned to promote a bank in the Indian
market with its experience and strong reputation in
market of finance.HDFC Bank has 1,725 branches in
India.
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Financial Analysis of HDFC Bank
Objective:
HDFC Bank is a young and dynamic bank, with a youthful and
enthusiastic team determined to accomplish the vision of becoming
a world-class Indian bank.
Bank’s business philosophy is based on four core values- Customer
Focus, Operational Excellence, Product Leadership and People.
Bank believes that the ultimate identity and success of bank will
reside in the exceptional quality of our people and their
extraordinary efforts. For this reason, bank is committed to hiring,
developing, motivating and retaining the best people in the
industry.
Mission:
The Bank’s mission is to be “a World Class Indian
Bank”, benchmarking bank against international
standards and best practices in terms of product
offerings, technology, service levels, risk management
and audit & compliance. The objective is to build sound
customer franchises across distinct businesses so as to
be preferred provider of banking services for target
retail and wholesale customer segments, and to
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Financial Analysis of HDFC Bank
achieve a healthy growth in profitability, consistent
with the Bank’s risk appetite. Bank is committed to do
this while ensuring the highest levels of ethical
standards, professional integrity, corporate governance
and regulatory compliance.HDFC Bank has been
recognized as 'Best Bank in India' in the magazine
rankings as well as surveys year on year. HDFC
Bank is the most preferred employer in banking
industry in India. Bank business strategy emphasizes
the following:
Increase bank’s market share in India’s expanding banking and financial services industry by following a disciplined growth strategy focusing on quality and not on quantity and delivering high quality customer service.
Leverage technology platform and open scalable systems to deliver more products to more customers and to control operating costs.
Maintain current high standards for asset quality through disciplined credit risk management.
Develop innovative products and services that attract targeted customers and address inefficiencies in the Indian financial sector.
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Financial Analysis of HDFC Bank
Continue to develop products and services that reduce cost of funds.
Focus on high earnings growth with low volatility.
Capital Structure:
At present, HDFC Bank boasts of an authorized capital
of Rs.550 cores (Rs5.5 billion), of this the paid-up
amount is Rs 424.6 crore (Rs.4.2 billion). In terms of
equity share, the HDFC Group holds 19.4%. Foreign
Institutional Investors (FIIs) have around 28% of the
equity and about 17.6% is held by the ADS Depository
(in respect of the bank's American Depository Shares
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Financial Analysis of HDFC Bank
(ADS) Issue). The bank has about 570,000
shareholders. Its shares find a listing on the Stock
Exchange, Mumbai and National Stock Exchange, while
its American Depository Shares are listed on the New
York Stock Exchange (NYSE), under the symbol 'HDB'
.
Capital Adequacy Ratio:
Bank’s total Capital Adequacy Ratio (CAR) calculated in
line with the Basel II framework stood at 17.4%, well
above the regulatory minimum of 9.0%. Of this, Tier I
CAR was 13.3%.
Financial Analysis:
Financial analysis is a study of relationship among the
various financial factors in a business. The process of
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Financial Analysis of HDFC Bank
financial statement analysis can be described in various
ways depending on the objective to be obtained.
Financial analysis can be used as a preliminary
screening tool in the selection of the stock in the
primary and secondary market. It can be used as a
forecasting tool of future financial condition and result.
It may be used as a process of evolution and
diagnosis’s of managerial, operating or other problem
area. Financial analysis is an integral part of the
interpretation of result disclosed by financial
statements. It supplies to decision makers, crucial
financial information and points out the problem areas,
which can be investigated. Financial analysis reduce
reliance on institution guesses and thus narrows the
areas of uncertainty that is present in all decision
making process.
Tools of Financial Analysis:
Common Size Statement:
The statement is prepared to bring out the ratio of each
asset or liability to the total of balance sheet and the
ratio of each item of expense or revenue to interest
earned. These common size statements are often
called common measurement or component
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Financial Analysis of HDFC Bank
percentage statement, since each statement is reduced
to the total of 100 and each individual component of
the statement is represented as a percentage of the
total of 100, which invariably serves as the base.
Comparative Financial Statement:
Comparative financial statements are statement of
financial position of a business so designed as to
facilitate comparison of different accounting variables
from drawing useful inferences.
Preparation of Comparative Financial Statement
These statements are prepared by placing the various
items in rows and years in the columns. This is done to
facilitate easy identification of their significant
differences. Columns may be drawn to accommodate
absolute changes as well as percentage changes side
by side. In order to calculate the percentage change,
the absolute change in the various account figures are
divided by their respective base year figures and
multiplied by 100.
Comparative Income Statement:
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Financial Analysis of HDFC Bank
A comparative income statement shows the absolute
figures for two or more periods, and the absolute
change from one period to another since the figure are
shown side by side the user can quickly understand the
operation.
Comparative Balance Sheet:
Balance sheet as on two or more different dates is used
to compare the assets, liabilities and net worth of the
bank. Comparative balance sheet is useful to study the
trends in the financial position of a bank.
Ratio Analysis:
Ratio analysis is the method or process by which the
relationship or item or group of item in the financial
statement are computed determine and presented to
determine a particular aspect of organization or
company. Ratio analysis is an attempt to drive
quantities measure or guide concerning the financial
health and profitability of a business enterprise. Ratio
analysis can be used both in trends and static analysis.
There are several ratios at the disposal of an analysis
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Financial Analysis of HDFC Bank
but the group of the ratio would prefer depends on the
purpose and the objective of analysis.
Types of Financial Ratios:
1. Liquidity Ratios:2. Profitability Ratios:3. Solvency Ratios:4. Capital Market Ratio
Financial Statement analysis of HDFC Bank
Comparative Statement Analysis
Here we analyse the comparative financial
statements of HDFC Bank as at 31st March 2008, 2009,
2010. Analysis with respect to its competitors namely
ICICI Bank, Axis Bank and the public sector giant State
Bank of India all of which fall among the top banks in
India is also done.
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Financial Analysis of HDFC Bank
Comparative Balance Sheet of HDFC Ltd as at 31st March 2008, 2009 and 2010 (in Rs Cr.)
Capital & Liabilities
Mar'08 Inc./Dec
% Mar'09 Inc./Dec % Mar'10
Total Share Capital
354.43 70.95 20.02 425.38 32.36 7.61 457.74
Equity Share Capital
354.43 70.95 20.02 425.38 32.36 7.61 457.74
Share Application Money
0 400.92 0 400.92 -400.92 -100 0
Preference Share Capital
0 0 0 0 0 0 0
Reserves 11,142.80 3083.63 27.67 14,226.43 6838.32 48.07 21,064.75
Revaluation Reserves 0 0 0 0 0 0 0
Net Worth 11,497.23 3555.5 30.9 15,052.73 6469.76 42.98 21,522.49
Deposits 1,00,768.60 42042.98 41.7 1,42,811.58 24592.86 17.22 1,67,404.44
Borrowings 4,478.86 -1793.02 -40.03 2,685.84 10229.85 380.88 12,915.69
Total Debt 1,05,247.46 40249.96 38.24 1,45,497.42 34822.71 23.93 1,80,320.13
Other Liabilities & Provisions
16,431.91 6288.71 38.27 22,720.62 -2104.68 -9.26 20,615.94
Total Liabilities
1,33,176.60 50094.17 37.61 1,83,270.77 39187.79 21.38 2,22,458.56
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Financial Analysis of HDFC Bank
Assets Mar'08 Inc./Dec % Mar'09 Inc./Dec % Mar’10
Cash &
Balances
with RBI
12,553.18 974.03 7.76 13,527.21 1,956.07 14.46 15,483.28
Balance
with Banks,
Money at
Call
2,225.16 1,754.25 78.84 3,979.4110,479.7
0263.35 14,459.11
Advances 63,426.90 35,456.15 55.9 98,883.0526,947.5
427.25
1,25,830.5
9
Investments 49,393.54 9,424.01 19.08 58,817.55 -209.93 -0.35 58,607.62
Gross Block 2,386.99 1,569.64 65.76 3,956.63 751.34 18.99 4,707.97
Accumulate
d
Depreciatio
n
1,211.86 1,038.04 85.66 2,249.90 335.26 14.9 2,585.16
Net Block 1,175.13 531.6 45.24 1,706.73 416.08 24.37 2,122.81
Capital
Work In
Progress
0 0 0 0 0 0 0
Other
Assets4,402.69 1,954.14 44.39 6,356.83 -401.68 -6.32 5,955.15
Total Assets1,33,176.6
050,094.18 37.61
1,83,270.7
8
39,187.7
821.38
2,22,458.5
6
Contingent
Liabilities
5,82,835.9
4
-
1,86,241.6
3
-31.953,96,594.3
1
69,641.9
317.56
4,66,236.2
4
Bills for
collection17,092.85 846.77 4.95 17,939.62 3,000.51 16.73 20,940.13
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Financial Analysis of HDFC Bank
Book Value
(Rs)324.38 20.06 6.18 344.44 125.75 36.51 470.19
Comparative Income Statement of HDFC Ltd for the periods 31st March 2008, 2009 and 2010 (in Rs. Cr)
Income Mar '08 % Mar '09 % Mar '10
Interest Earned10,115.0
061.47 16,332.26 -0.98 16,172.90
Other Income 2,205.38 57.37 3,470.63 9.8 3,810.62
Total Income12,320.3
860.73 19,802.89 0.91 19,983.52
Expenditure
Interest expended 4,887.12 82.34 8,911.10 -12.62 7,786.30
Employee Cost 1,301.35 71.99 2,238.20 2.28 2,289.18
Selling and Admin
Expenses974.79 192.5 2,851.26 19.1 3,395.83
Depreciation 271.72 32.46 359.91 9.58 394.39
Miscellaneous
Expenses3,295.22 -2.97 3,197.49 -0.89 3,169.12
Preoperative Exp.
Capitalized0 0 0
Operating Expenses 3,935.28 85.26 7,290.66 5.66 7,703.41
Provisions &
Contingencies1,907.80 -28.91 1,356.20 13.93 1,545.11
Net Profit 1,590.18 41.18 2,244.94 31.35 2,948.70
Total Expenses10,730.2
063.63 17,557.96 -2.98 17,034.82
Extraordinary Items -0.06 883.33 -0.59 57.63 -0.93
Profit brought 1,932.03 33.26 2,574.63 34.22 3,455.57
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Financial Analysis of HDFC Bank
forward
Total 3,522.15 36.82 4,818.98 32.88 6,403.34
Preference Dividend 0 0 0
Equity Dividend 301.27 41.2 425.38 29.13 549.29
Corporate Dividend
Tax51.2 41.19 72.29 26.2 91.23
Per share data
(annualized)
Earnings Per Share
(Rs.)44.87 17.61 52.77 22.08 64.42
Equity Dividend (%) 85 17.65 100 20 120
Book Value (Rs.) 324.38 6.18 344.44 36.51 470.19
Appropriations
Transfer to Statutory
Reserves436.05 47.06 641.25 45.83 935.15
Transfer to Other
Reserves159.02 41.18 224.5 31.35 294.87
Proposed
Dividend/Transfer to
Govt.
352.47 41.19 497.67 28.7 640.52
Balance c/f to
Balance Sheet2,574.61 34.22 3,455.57 31.17 4,532.79
Total 3,522.15 36.82 4,818.99 32.88 6,403.33
Interpretation of Comparative Statements
Comparative Balance Sheet:
The total assets and liabilities have increased by
21.38% compared to 2008-2009 to reach Rs.
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Financial Analysis of HDFC Bank
2,22,458.56 crore but this rise is less when compared
to the previous period’s rise of 37.6%. The increase in
total assets can be attributed mainly by the rise in
Advances and Balances with Banks and Money at Call
and Short notice. This could be an indication of the
healthy position the bank is in. Cash and Balance with
RBI has also increased over the period by 14.46%
further contributing to the rise in total assets.
Investments have reduced by 0.36% over the period.
According to the schedules to the accounts, there
has been addition of fixed assets, mainly to premises
including land worth Rs.2, 735,762,000 further adding
to rise in value of fixed assets. This increase in assets is
met by a 7.61% rise in Capital, increase in deposits by
17.22% and a large increase in borrowingswhich shows
the company has raised money through
borrowings.This is an indication of the bank planning for
expansion to cover more areas and increase its
operations. But the large part of this expansion is
funded by deposits and borrowings which may not be
good sign as far as the bank and its shareholders are
concerned.
There is a 14.46% increase in cash balances with
the RBI which could be explained by the various
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Financial Analysis of HDFC Bank
policies adopted by the central bank, 263.35% increase
in balance with banks and money at call and short
notice, 27.25% in advances and 24.38% in fixed assets.
Contingent liabilities have increased by 17.56% and
Bills for collection by 16.73%. Book value has increased
by 36.5% to 470.19.
Capital has increased by 7.61%. It consists of
55,00,00,000 Equity Shares of Rs. 10/- each of
Authorised Capital and 45,77,43,272 Equity Shares of
Rs. 10/- each of Issued, Subscribed and Paid-up Capital.
Reserves have increased by 48.06% compared to the
previous period where there was only 27.67% rise. This
rise can be attributed to the rise in profits. The deposits
have grown by 17.22% which is a good indication of the
bank’s healthy position and the confidence it enjoys
with the public.
Comparative Income Statement:
We notice that the interest earned has decreased
by 0.98% over the period ending March 2010 whereas
there was in increase by 61.47% over the previous
period. This change is not favourable to the bank as far
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Financial Analysis of HDFC Bank
as shareholders and the management are concerned.
But the interest expense has also gone down by -
12.62% whereas there was a rise by 82.34% over the
previous period. The decrease in interest expense is
mainly due to the reduction in interest on deposits and
interest on RBI/Inter-Bank Borrowings. The decrease in
interest earned has gone down mainly due to
decreases in Interest / discount on advances / bill,
income from investments, Interest on balance with RBI
and other inter-bank funds. From the balance sheet we
have noticed that investments had gone down. There is
decrease in investments from 32.09% to 26.35%, which
shows that bank has sold some of its investments Since
there has been a much greater descent in interest
expense, the profit had increased over the period.
There has been a decrease in the rate of depreciation
from 32.46% to 9.58%. Employee cost and selling and
Administrative expenses has increased down by 2.28%
and 19.10% respective whereas in the previous year it
was 71.99% and 192.50% respectively.
Net profit for the period was Rs.2948.70 crore
which represents an increase by 31.35% compared to a
rise of 41.18% over the previous period. The decrease
in interest income could have contributed to the decline
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Financial Analysis of HDFC Bank
in the rate. Profit brought forward from the previous
year was Rs.3,455.57 crore. Equity dividend rose by
29.13% to 549.29 crore compared to 41.20% over the
previous period and corporate dividend tax rose by
26.2% to Rs. 91.23 crore.
Equity dividend percentage rose by 20% to 120%
from the previous 100%. The book value has increased
by 36.51% to 470.19 which is good news for the
investors. Transfers to statutory and other reserves
rose by 45.83 and 31,83% respectively. Proposed
Dividend rose by 28.7% to 640.52 which indicate the
healthy position of the bank.
Comparative Balance Sheet of HDFC Bank with respect to ICICI as of 31 st March 2010.
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Financial Analysis of HDFC Bank
HDFC Bank ICICIMar. 2010 % Mar.2010 %
Total share capital 457.74 14.46 1,114.89 -23.81Equity share capital 457.74 263.38 1,114.89 0.14Share Application money
0 27.251 0
Preference share capital
0 -0.256 0 -100
Reserves 21064.8 14.901 50,503.48 4.3Revaluation reserves 0 24.2787 0Net worth 21522.5 0 51,618.37 3.48Deposits 167404.5 -6.3188 2,02,016.60 -7.48Borrowings 12915.7 21.382 94,263.57 40.02Total debt 180320.1 21.382 2,96,280.17 3.71Other liabilities and 20615.94 17.56 15,501.18 -64.57Provisions
Total liabilities 222458.6 21.38 3,63,399.72 -4.19
Cash & balances with RBI
15483.28 23.35 27,514.29 56.9
Balances with banksMoney at call 1459.11 27.25 11,359.40 -8.61
Advances 125830.6 18.989 1,81,205.60
-17
Investments 58607.62 24.39 1,20,892.80 17.31Gross block 4707.97 -6.31 7,114.12 -4.43
Accumulated depreciation
2585.16 21.383 3,901.43 7.12
Net block 2122.81 17.599 3,212.69 -15.49Capital work in progress
0 16.7 0
Other assets 5955.15 36.5 19,214.93 -20.48Total assets 222458.6 21.39 3,63,399.71 -4.19
Here we, observe that share capital has increased
by a greater extent for HDFC bank than ICICI but still
ICICI is shown to be having a much larger share capital
29
Financial Analysis of HDFC Bank
than HDFC. Reserves rose about 14.9% as of March
2010 when compared to ICICI where it is only 4.3%.
ICICI has a much larger amount in investment where
they seek to increase their wealth but the growth is
larger for HDFC bank for the period. Advances grew at
19% for HDFC bank whereas in the case of ICICI bank,
there is decrease by 17%. HDFC is a smaller bank than
ICICI but when comparing profitability, efficiency etc it
is not behind ICICI in any manner. ICICI bank gets funds
by borrowings and the rate of increase is more than
that of HDFC. Total assets rose by 21.39% for HDFC
bank whereas it went down by 4.19% for ICICI bank.
Ratio Analysis of HDFC Bank
Here a ratio analysis of HDFC Bank for three
periods with respect to its competitors namely ICICI
Bank, Axis Bank is performed (FY ending March of that
year).
Profitability Ratios
1. Profit Margin
30
Financial Analysis of HDFC Bank
Profit Margin = (Profit after Tax / Net Revenue) * 100
HDFC Bank:Year 2008 2009 2010Profit Margin 12.82 11.35 14.76
2. Return on Assets
Return on Assets = (Profit After Tax / Average Total Assets) * 100
HDFC Bank:Year 2008 2009 2010Return on Assets 1.20 1.20 1.3
3. Asset Turnover
Assets Turnover = (Net Revenue / Average Operating Assets) * 100
HDFC Bank:Year 2008 2009 2010Assets Turnover 5.18 5.0 4.24
4. Return on Equity
Return on Equity = (Profit After Tax / Average Shareholders’ Equity) * 100
HDFC Bank:Year 2008 2009 2010Return on Equity 13.83 15.32 13.7
5. Earnings Per Share
31
Financial Analysis of HDFC Bank
Earnings Per Share (EPS) = (Profit After Tax / Weighted Average No. of Equity Shares) * 100
HDFC Bank:Year 2008 2009 2010EPS 44.87 52.77 64.42
Interpretation of Profitability Ratios
The Profit Margin has increased by over 30% to 14.76
as of March 2010 over the period where as there was a
slight fall as of March 2009 over the period. The net
profit had gone up by 31% for the period 2009-10
although for the period 2008-09, the rise in profits was
41%. Though there was a fall by 0.98% in interest
income, other income rose by 9.8% over the period due
to increase in fees and commissions earned and
income from foreign exchange and derivatives offset in
part by lower bond gains than those in the previous
financial year as per the annual report of the bank.
Total income rose by 0.91% over the period. Total
expenses had gone down by 2.98%, thus explaining the
rise in profit margin. Although total income had
increased by 60.73% for the period ending March 2009,
there was a higher increase in total expenses by
63.63%. Hence total expenses rose at a higher
percentage than total income thus causing a reduction
32
Financial Analysis of HDFC Bank
in profit with respect to income thus causing a fall in
Profit margin during the period.
The rise in profit margin over the period 2009-10
shows the good health the bank is in. Investors have
reason to feel satisfied as an increase in profit cause
increase in wealth. Increase in capital value signals a
healthy position for the management too. The
profitability is in good shape and hence potential
investors can take a favourable decision as the profit
margin shows the bank in good health. Operating
efficiency could have increased over the period and it
shows effective cost control. This outcome is favourable
to the management. Creditors too can take comfort in
the fact that the situation is favourable to them also as
there rise in profits and there is less risk of returns.
There is a slight increase in Return On Assets ratio to 1.3 from
1.2 over the period ending March 2010. There has been
an increase in profits over the period though assets
have also increased over the period. An increase in
ROA indicates higher efficiency and here the costs have
shown to be effectively controlled. From the three other
banks, only Axis Bank is shown to have a higher ROA
33
Financial Analysis of HDFC Bank
due to its consistently better performance when
compared to other banks including HDFC.
There was a fall in Assets Turnover ratio to 4.24 from 5.00
during the period. We can see that there was a fall in
this ratio over the previous period also. This could be
due to the lesser rise in Net Revenue when compared
to the rise in assets over the period. A fall in this ratio
indicates lesser efficiency in utilising the assets to
generate revenue. We see that the ratios for the other
three banks too have fallen during the period, but they
are still higher than that of HDFC bank indicating higher
efficiency. The management has to consider this
seriously and take steps to improve the operating
efficiency of the bank.
There was a fall in Return on Equity ratio over the period
ending March 2010 to 13.7 from 15.32 though there
was a rise in the previous period from 13.82. This
indicates that the efficiency to generate profits from
every unit of shareholder’s equity has gone down which
should be of concern to the shareholders as well as the
management. The opportunity cost has to be
considered in the case of Return on Equity.
34
Financial Analysis of HDFC Bank
There has been in increase in Earnings per Share (EPS) over the
period to 64.42 from 52.77. This shows strong
foundation of the bank to achieve this growth rate by
increasing the net income. This is good news for the
shareholders as well as the management because this
results in maximization of wealth which is the objective
of any firm. According to the Annual Report, post-
merger of the erstwhile Centurion Bank of Punjab with
the bank, 26,200,220 warrants convertible into an
equivalent number of equity shares were issued to
HDFC Limited on a preferential basis at a rate of Rs.
1,530.13 each. On November 30, 2009 these said
warrants were converted by HDFC Limited and
consequently the bank issued them 26,200,220 equity
shares. During the year under review, 61.59 lac shares
were allotted to the employees of the bank pursuant to
the exercise of options under the employee stock
option scheme of the bank. These include the shares
allotted under the employee stock option scheme of the
erstwhile Centurion Bank of Punjab. Correspondingly
there was a large rise in net revenue and profit
contributing to the higher EPS. Hence shareholders can
find the situation more favourable.
35
Financial Analysis of HDFC Bank
Liquidity Ratios
1. Current Ratio
Current Ratio = (Current Assets / Current Liabilities)
HDFC Bank:Year 2008 2009 2010Current Ratio 0.26 0.27 0.28
2. Quick Ratio
Quick Ratio = (Quick Assets / Current Liabilities)
HDFC Bank:Year 2008 2009 2010Quick Ratio 4.89 5.23 7.14
Interpretation of Liquidity Ratios
36
Financial Analysis of HDFC Bank
The Current Ratiois mainly used to give an idea of the
company's ability to payback its short-term liabilities
with its short-term assets. The higher the current ratio,
the more capable the company is of paying its
obligations. Hence creditors are most concerned about
these liquidity ratios. A lesser current ratio leads to
higher creditor concern. A ratio under 1 suggests that
the company would be unable to pay off its obligations
if they came due at that point. Due to a rise in current
assets the ratio shows a rise, but is very low as current
assets are only 28% of current assets.
The Quick Ratio is an indicator of a company's short-
term liquidity. It measures a company's ability to meet
its short-term obligations with its most liquid assets.
The higher the quick ratio, the better the position of the
company. Hence creditors are most concerned about
the quick ratios. A lesser quick ratio leads to higher
creditor concern. The quick ratio is more conservative
than the current ratio. When short-term obligations
need to be paid off immediately, there are situations in
which the current ratio would overestimate a
company's short-term financial strength. The quick
ratio has been 7.14 in the year 09-10 which indicates
37
Financial Analysis of HDFC Bank
the bank’s robustness and financial soundness in
paying off its short term obligations. The figures
indicate that there is excess liquidity in the bank except
in 2009-10. But the other three banks show a higher
liquidity when compared to HDFC. But the banks are
under the guidance of RBI and they have to follow the
liquidity norms laid down by RBI.
Solvency Ratios
1. Total Debt To Equity Ratio
Total Debt to Equity Ratio = (Total Debt /Shareholders’ Equity)
HDFC Bank:Year 2008 2009 2010Total Debt to Equity Ratio
8.76 9.75 7.78
38
Financial Analysis of HDFC Bank
2. Interest Coverage Ratio
Interest Coverage Ratio = (Earnings before Income Tax / Interest Expenses)
HDFC Bank:Year 2008 2009 2010Interest Coverage Ratio
1.79 1.44 1.63
3. Loan to Deposit Ratio
Loan to Deposit Ratio = (Total Loans Lent / Total Deposit)
HDFC Bank:Year 2008 2009 2010Loan to Deposit Ratio
65.28 66.64 76.00
Interpretation of Solvency Ratios
The Total Debt to Equity ratio indicates what proportion of
equity and debt the company is using to finance its
assets. A high total debt/equity ratio generally means
that a company has been aggressive in financing its
growth with debt. This can result in volatile earnings as
39
Financial Analysis of HDFC Bank
a result of the additional interest expense. In the case
of HDFC Bank, this ratio has decreased over the period
ending March 2010. There is growth of the bank and it
is able to manage its funds from the internal sources.
The equity capital has increased its share in the
liabilities in balance sheet in comparison to the outside
debts. This helps the bank to maintain high credit
reputation in market. The other banks were able to
reduce the ratio substantially.
The Interest Coverage ratio is used to determine how
easily a company can pay interest on outstanding debt.
The interest coverage ratio is calculated by dividing a
bank's earnings before interest and taxes (EBIT) of one
period by the bank's interest expenses of the same
period. The lower the ratio, the more the company is
burdened by debt expense. When a company's interest
coverage ratio is 1.5 or lower, its ability to meet
interest expenses may be questionable. An interest
coverage ratio below 1 indicates the company is not
generating sufficient revenues to satisfy interest
expenses. The ratio for the year ending 2010 is 1.63
which is reasonable and not below1.5. This indicates
that the bank is in a sound financial health and is able
40
Financial Analysis of HDFC Bank
to pay the interest on its outstanding debts. The ratio
was best in 2007-08 among the three financial years.
But has reduced in the year 2009 to 1.44 and increased
to 1.63 in 2009-10. The bank has maintained a
somewhat healthy ratio over the years.
The Loan to Deposit ratio is indicative of the percentage
of funds lent by the bank out of the total amount raised
through deposits. Higher ratio reflects ability of the
bank to make optimal use of the available resources.
The point to note here is that loans given by bank
would also include its investments in debentures, bonds
and commercial papers of the companies. This ratio
forms an integral part of analysis as it indicates the
amount of reliability the bank has earned in the minds
of its customers and evidence of its robustness. The
ratio has increased over the period ending March 2010
to 76 which is a healthy sign.
Capital Market Ratios
1. Price - earnings Ratio
Price – earnings Ratio = Average Stock Price / Earnings per Share
HDFC Bank (30/12/10):35.74
41
Financial Analysis of HDFC Bank
2. Dividend Per Share
HDFC Bank:Year 2008 2009 2010Dividend Per Share
8.50 10.00 12.00
3. Book Value Per ShareBook Value per Share = (Equity Share Capital + Reserves &Surplus / No. of Equity Shares)
HDFC Bank:Year 2008 2009 2010Book Value Per Share
324.38 344.44 470.19
Interpretation of Capital Market Ratios
The Price – Earnings ratio (P/E Ratio) is a valuation ratio of a company's current share price compared to its per-share earnings. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. Here we can see that HDFC Bank has a higher P/E ratio of 35.74.
Dividends Per Share (DPS) is 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
42
Financial Analysis of HDFC Bank
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. HDFC Bank has a growing DPS value
which is 12.00 for the period ending March 2010 while
it was 10.00 for the period ending March 2009 thus
representing an increase of 20% which is a very
healthy sign for investors as well as the management
which can be confident that the growth can be
sustained. The increase in the ratios of the other three
banks is also similar with State Bank of India showing
the highest DPS of 30.0.
The Book Value per Share (BV) relates the shareholder's
equity to the number of shares outstanding, giving the
shares a raw value. It is measure used by owners of
common shares in a firm to determine the level of
safety associated with each individual share after all
debts are paid accordingly. Should the company decide
43
Financial Analysis of HDFC Bank
to dissolve, the book value per common indicates the
dollar value remaining for common shareholders after
all assets are liquidated and all debtors are paid. In
simple terms it would be the amount of money that a
holder of a common share would get if a company were
to liquidate. The BV value for HDFC Bank for the year
ending March 2010 has substantially increased to
470.19 from 344.44 from the previous year which can
be interpreted as a healthy sign as far as investors are
concerned and also for the management. The share
price as of 31-12-2010 is 2346.50 and BV value is
464.14. This could be interpreted as a healthy situation.
44
Financial Analysis of HDFC Bank
Common Size Analysis of HDFC Bank
Here a common size financial statement analysis of HDFC Bank for three periods is performed (FY ending March of that year).
Common Size Balance Sheet of HDFC Bank Ltd as on 31 st March 2008, 09, 10 (Rs. million)
31-Mar-10 %BT 31-Mar-09 %BT 31-Mar-08 %BT
Equity Capital 4577.43 0.21 4253.84 0.23 3544.33 0.27
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Share Capital 4577.43 0.21 8263.00 0.45 3544.33 0.27
Reserves and Surplus 210618.37 9.47 142209.46 7.76 111428.08 8.37
Deposits 1674044.39 75.25 1428115.80 77.92 1007685.91 75.67
Borrowings 129156.93 5.81 91636.37 5.00 45949.24 3.45
Other Provisions and Liabilities
206159.44 9.27 162428.23 8.86 163158.48 12.25
Capital and Liabilities (BT) 2224585.70 100.00 1832707.73 100.00 1331766.03 100.00
Fixed Assets 21228.11 0.95 17067.29 0.93 11750.92 0.88
Investments 586076.16 26.35 588175.49 32.09 493935.38 37.09
Advances 1258305.94 56.56 988830.47 53.95 634268.93 47.63
Cash & Money at Call 299423.99 13.46 175066.17 9.55 147783.39 11.10
Other Current Assets 59551.50 2.68 63568.31 3.47 44027.41 3.31
Properties and Assets (BT) 2224585.70 100.00 1832707.73 100.00 1331766.03 100.00
Common Size Income Statement of HDFC Bank Ltd for the periods
45
Financial Analysis of HDFC Bank
ending 31 st March 2008, 09, 10
31-Mar-10 31-Mar-09 31-Mar-08Profit/Loss A/C Rs. mln %OI Rs. mln %OI Rs. mln %OIInterest Income
Earned161729 80.
9163322.61 83.23 101150 81.58
Commission, Exchange and
Brokerage Income28305.86
14.2 24572.97 12.52 17145 13.83
Lease Income 0 0 0 0 0 0Dividend Income 0 0 0 0 0 0
Miscellaneous Income 9770.25 4.89
8333.07 4.25 5686.5 4.59
Other Income 38076.11 19.1
32906.04 16.77 22831.5 18.42
Total Income (OI) 199805.11 100 196228.65 100 123981.5 100Interest Expenditure 77862.99 39 89111.04 45.41 48871.2 39.42
Employee Expenditure
22891.76 11.5
22381.98 11.41 13013.5 10.5
Depreciation 3943.92 1.97
3599.09 1.83 2717.2 2.19
Other Operating Expenditure
30809.15 15.4
29346.99 14.96 21725.5 17.52
Provision and Contingencies
34810.28 17.4
29340.15 14.95 14843.3 11.97
Total Expenditure 170318.1 85.2
173779.25 88.56 101170.7 81.6
Pretax Income 29487.01 14.8
22449.4 11.44 22810.8 18.4
Tax 0 0 0 0 6909 5.57Extra Ordinary and
Prior Period Items Net0 0 0 0 0 0
Net Profit 29487.01 14.8
22449.39 11.44 15901.8 12.83
Adjusted Net Profit 29487.01 14.8
22449.39 11.44 15901.8 12.83
Dividend - Preference 0 0 0 0 0 0
Dividend - Equity 5492.92 2.75
4253.84 2.17 3012.7 2.4
Interpretation
From the common size balance sheet, we notice
that as on 31st March 2010, equity capital of HDFC bank
46
Financial Analysis of HDFC Bank
forms only 0.21% of its liabilities. This ratio is
decreasing from 2008 when it was 0.27% and 0.23% in
2009. Share capital had become 0.45% of the total
liabilities in 2009 but has decreased to 0.21%. Share
capital ratio falling may not be favorable for the
investors. But reserves and surplus shows a marked
increase to 9.47% of total liabilities in 2010 which
indicates the healthy profitability situation. But the bulk
of the share of liabilities i.e. 75.25% is deposits. Though
the percentage has decreased over the previous
period, deposits have increased signaling the
confidence the public has in the bank. This is a
favorable situation for investors and the management.
Borrowings have also risen to 5.81% of total liabilities
which shows the company has raised money through
borrowings. Fixed assets form just 0.95% of the total
liabilities. Investments and Advances form the bulk i.e.
26.35% and 56.56% of the total liabilities. Investments
have reduced from the previous period where it
accounted for 32.09 of total liabilities.
From the common size income statement we
notice that, interest income has reduced over the
period ending March 2010 and it now constitutes
80.94% of the total income whereas in the previous
47
Financial Analysis of HDFC Bank
period ending March 2009, it was 83.23% of total
income.The decrease in interest earned has gone down
mainly due to decreases in Interest / discount on
advances / bill, income from investments, Interest on
balance with RBI and other inter-bank funds. There is
decrease in investments from 32.09% to 26.35%, which
shows that bank has sold some of its
investments.However there was an increase in
Commission, Exchange and Brokerage Income and
Other Income which constitutes 14.17% and 19.06% of
the total income respectively. This is a rise from
12.52% and 16.77% which these components
constituted in the total income of the period ending
31st March 2009. Operating expenditures is 15.42% of
the total income and provision and contingencies
17.42% of the total income. The total income has
increased over the previous period and the net profit is
14.76% of the total income which is shows the healthy
profitability situation of the bank. This is more favorable
compared to the previous year where it was only
11.44% of the total income.
Managers’ perspective:
The financial performance during the years
remained healthy. An increment in providing loan
48
Financial Analysis of HDFC Bank
shows that the bank is in a sound position, as it is an
asset to the bank. The percentage of deposits has been
increasing but by comparing the percentage change of
loans and deposits, loans have more increase in its
percentage change. Deposits and lending rates spiked
up sharply. Net profit increased by 31.35% from Rs.
2244.95 crores in 2008-09 to Rs. 2498.70 crores in
2009-10.
49