A) GENRAL INTRODUCTION

INTRODUCTION TO 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.

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.

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The steps involved in fundamental analysis are:

1. Macroeconomic analysis, which involves considering currencies, commodities

and indices.
2. Industry sector analysis, which involves the analysis of companies that are a
part of the sector.
3. Situational analysis of a company.
4. Financial analysis of the company.
5. Valuation

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

1. Dividends received by investors

2. Earnings or cash flows of a company
3. Debt, which is calculated by using the debt to equity ratio and the current ratio
(current assets/current liabilities)

Benefits of fundamental analysis

Fundamental analysis helps in:

1. Identifying the intrinsic value of a security.

2. Identifying long-term investment opportunities

Since it involves real-time data.

Fundamental Analysis Tools

These are the most popular tools of fundamental analysis.

1. Earnings per Share – EPS

2. Price to Earnings Ratio – P/E
3. Projected Earnings Growth – PEG
4. Price to Sales – P/S
5. Price to Book – P/B
6. Dividend Payout Ratio
7. Dividend Yield
8. Book Value
9. Return on Equity

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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 an apple to apples comparison between firms of differing size in a
financial model.
 Measure key relationships by relating inputs (costs) with outputs (benefits) and
facilitates comparison of these relationships over time and across firms in a
financial model.

In general, there are 4 kinds of financial ratios that a financial analyst will use most
frequently, these are:

 Performance ratios
 Working capital ratios
 Liquidity ratios
 Solvency ratios

These 4 financial ratios allow a good financial analyst to quickly and efficiently address
the following questions or concerns:

Performance ratios

 What return is the company making 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

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  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?

Technical analysis is the practice of anticipating price changes of a financial instrument

by analyzing prior price changes and looking for patterns and relationships in price
history.

Since all the investors in the stock market want to make the maximum profits possible,
they just cannot afford to ignore either fundamental or technical analysis.

The price of a security represents a consensus. It is the price at which one person agrees
to buy and another agrees to sell. The price at which an investor is willing to buy or sell
depends primarily on his expectations. If he expects the security's price to rise, he will
buy it; if the investor expects the price to fall, he will sell it. These simple statements are
the cause of a major challenge in forecasting security prices, because they refer to human
expectations. As we all know firsthand, humans expectations are neither easily
quantifiable nor predictable.

If prices are based on investor expectations, then knowing what a security should sell for
(i.e., fundamental analysis) becomes less important than knowing what other investors
expect it to sell for. That's not to say that knowing what a security should sell for isn't
important--it is. But there is usually a fairly strong consensus of a stock's future earnings
that the average investor cannot disprove.

STAEMENY OF THE PROBLEM

There is no significant relationship between return on equity, dividend payout
ratio, book value, dividend yield, earning per share, and market price.

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OBJECTIVE & SCOPE OF THE STUDY
 To assess the performance of selected banking companies listed in NSE and BSE
 To evaluate the financial strength of the selected banking companies listed in BSE
and NSE
 To evaluate intrinsic value of shares & compare it with present market price to
decide whether a share is overvalued or undervalued
 To evaluate managements efficiency & internal decisions taken by them to run the
business
 To calculate credit risk

METHODOLOGY

Date and sources of data

The study is purely based on secondary data. The required data are obtained from
the official directory of the Bombay stock exchange, Center for Monitoring Indian
Economy private Ltd. (CMIE) reports and also from Moneycontrol.com. Additionally,
text books are also referred extensively to collect information relating to this study.

Limitation of the study

 The study is restricted to five years only.
 The sample is limited to two Public and Private sector banks for analysis.
 This study uses only nine fundamental financial tools for analysis.
 Only BSE listed (Group A) public and private limited banking companies were
taken for the study

B) Indian Economy Overview

The Centre for Monitoring Indian Economy (CMIE) has estimated India’s gross

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domestic product (GDP) to expand at 9.2 per cent in 2010-11 as compared to the growth
of 7.4 per cent in 2009-10. Overall growth in industrial output was 10.8 per cent year-on-
year (y-o-y) in October 2010. The growth in the industrial sector is expected to increase
at 9.4 per cent in 2010-11, as compared to 9.2 per cent in 2009-10. According to a survey
by the Confederation of Indian Industry (CII) and ASCON, around 50 segments (out of
127) in the manufacturing sector grew by 39 per cent, entering the 'excellent growth'
category, during April-December 2010-11 compared to 29 sectors (22.9 per cent) in
April-December 2009 which shows a marked improvement. Also, services sector is
projected to expand by 10 per cent as compared to 8.6 per cent last year, led by the trade
and transport segment. The major turnaround is expected from the agriculture and allied
sector, which is being projected to grow by 5.7 per cent in 2010-11.
As per Use-based classification, the Sectoral growth rates in October 2010 over
October 2009 are 7.7 per cent in Basic goods, 22 per cent in Capital goods and 9.5 per
cent in Intermediate goods. The Consumer durables and Consumer non-durables have
expanded by 31 per cent and 0.1 per cent respectively in the reported month.
The industrial output registered a robust growth of 10.8 per cent year-on-year (y-
o-y) in October 2010. Among the three major constituents of the IIP, manufacturing and
electricity recorded higher growth rates of 11.3 per cent and 8.8 per cent in October as
against their corresponding levels of 10.8 per cent and 4 per cent for the corresponding
month in 2009. The third constituent mining index registered 6.5 per cent in October
2010.

The Economic scenario

Foreign injections amounted to US$ 6.4 billion in October 2010, which was
almost 25 per cent of the total inflows in the stock market registered so far in 2010. The
net foreign fund investment crossed the US$ 100 billion mark on November 8 2010,
since the liberalization policy was implemented in 1992. As per the data given by SEBI,
the total figure stood at US$100.9 billion, wherein US$ 4.78 billion were infused in
November itself. The humungous increase in investment mirrors the foreign investors’
faith in the Indian markets. FIIs have made investments worth US$ 4.11 billion in
equities and poured US$ 667.71 million into the debt market.

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 Data sourced from SEBI shows that the number of registered FIIs stood at 1,738
and number of registered sub-accounts rose to 5,592 as of November 10, 2010.
As on December 17, 2010, India's foreign exchange reserves totaled US$ 294.60
billion, an increase of US$ 11.13 billion over the same period last year, according to the
Reserve Bank of India's (RBI) Weekly Statistical Supplement.
Moreover, India received foreign direct investment (FDI) equity worth US$ 12.39
billion during April-October, 2010-11, taking the cumulative amount of FDI inflows
during April 2000 - October 2010 to US$ 179.45 billion, according to the Department of
Industrial Policy and Promotion (DIPP).
The services sector comprising financial and non-financial services attracted 21
per cent of the total FDI equity inflow into India, with FDI worth US$ 2,163 million
during April-October 2010, while telecommunications including radio paging, cellular
mobile and basic telephone services attracted second largest amount of FDI worth US$
1,062 million during the same period. Metallurgical industries were the third highest
sector attracting FDI worth US$ 920 million followed by power sector which garnered
US$ 729 million during the financial year April-October 2010.
 Exports from India have increased by 26.8 per cent year-on-year (y-o-y) to touch
US$ 18.9 billion in November 2010, urging the Government to exude confidence
that overall shipments in 2010-11 may touch US$ 215 billion. For the April-
November 2010 period, exports have grown by 26.7 per cent to US$ 140.3
billion, while imports totaled up to US$ 222 billion, expanding 24 per cent.
 India's logistics sector is witnessing increased activity. According to the Indian
Shipping ministry, the country's major ports handled 44.4 million tons of cargo
during September 2010, 4.5 per cent higher as compared to 5.9 per cent growth in
September 2009. Leading consultants Frost Sullivan, as cited by The Economic
Times, are expecting traffic to boost at Indian ports from 814.1 million tons (MT)
to 1,373.1 MT from 2010 to 2015 at a CAGR of 11 per cent. The study group has
underlined three key trends in the sector, namely, increase in containerized cargo,
increased private sector participation and traffic diversion toward minor ports.
 Foreign Tourist Arrivals (FTA) in India during the period of January- November
2010 was 4.93 million as compared to the FTAs of 4.46 million during the same

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 period of 2009, showing a growth of 10.4 per cent. The Foreign Exchange
Earnings (FEE) during the period of January-November 2010 were US$ 12.88
billion as compared to US$ 10.67 billion during the same period of 2009,
registering a growth rate of 20.7 per cent, according to data released by the
Ministry of Tourism.
 The total telephone subscriber base in the country reached 742.12 million as on
October 31, 2010, taking the overall tale-density to 62.51, according to the figures
released by the Telecom Regulatory Authority of India (TRAI). Also the wireless
subscriber base increased to 706.69 million.
 The average assets under management of the mutual fund industry stood at US$
160.44 billion for the month of September 2010, according to the data released by
Association of Mutual Funds in India (AMFI).
 As per NASSCOM’s Strategic Review 2010, the Indian IT-BPO sector continues
to be the fastest growing segment of the industry and is estimated to aggregate
revenues of USD 73.1 billion in FY2010, with the IT software and services
industry accounting for USD 63.7 billion of revenues.
 The cumulative production of vehicles in India grew by 32.4 per cent upto August
2010 as compared to the same period in 2009, Mr. B S Meena, Secretary, Ministry
of Heavy Industry, reported. Passenger vehicles, commercial vehicles and two-
wheeler segments had all recorded impressive growth rates of 32 per cent, 49 per
cent and 31 per cent, respectively during the period upto August 2010.
 According to the Gem and Jewellery Export Promotion Council, jewellery
shipments were worth US$ 23.57 billion in April-November 2010, registering a
rise of 38.25 per cent as compared to US$ 17.05 billion in the corresponding
period of 2009.
 According to the Ministry of Civil Aviation, passengers carried by domestic
airlines from January-November, 2010 were 46.81 million as against 39.35
million in the corresponding period of year 2009, thereby registering a growth of
18.9 per cent.
 According to Ernst & Young (E&Y), a global consultancy firm, India is expected
to receive more than US$ 7 billion in private equity (PE) investments in 2010, on

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 the back of robust economic growth. According to research firm VCCEdge,
mergers and acquisition (M&A) deals worth US$ 54.6 billion have been signed
till December 15, 2010, significantly more than the previous high of US$ 42
billion achieved in 2007.
 The HSBC Markit Business Activity Index, which measures business activity
among Indian services companies, based on a survey of 400 firms, rose to 60.1 in
November 2010 from 56.2 in October 2010.

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."

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 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.

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 53,000 branches and 17,000
ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 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

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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 of 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

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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 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 IDBI, 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. There number was 38 as on 31.03.2009.
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

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

Cooperative Banks
Besides the commercial banks, there exists in India another set of banking
institutions called cooperative credit institutions. These have been made in existence in
India since long. They undertake the business of banking both in urban and rural areas on
the principle of cooperation. They have served a useful role in spreading the banking
habit throughout the country. Yet, there financial position is not sound and a majority of
cooperative banks has yet to achieve financial viability on a sustainable basis.
The cooperative banks have been set up under various Cooperative Societies Acts enacted
by State Governments. Hence the State Governments regulate these banks. In 1966, need
was felt to regulate their activities to ensure their soundness and to protect the interests of
depositors

COMPANY ANALYSIS

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FUNDAMENTAL ANALYSIS OF
 HDFC (Housing Development Finance Corporation Bank) BANK
 ICICI (Industrial Credit and Investment Corporation of India) BANK
 SBI (State Bank of India)
 PNB (Punjab National Bank)

HDFC (Housing Development Finance

Corporation Bank) BANK

COMPANY PROFILE
Housing Development Finance Corporation Limited, more popularly known as HDFC
Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian
Banking Industry by Reserve Bank of India (RBI). It was one of the first banks to receive
an 'in principle' approval from RBI, for setting up a bank in the private sector.

The bank was incorporated with the name 'HDFC Bank Limited', with its registered
office in Mumbai. The following year, it started its operations as a Scheduled
Commercial Bank. Today, the bank boasts of as many as 1725 branches and over 5016
ATMs across India.

Description Details
Industry Bank - Private  
House Private  
BSE Code 500180  
NSE Code HDFCBANK  
Incorporation Year -08 1994  
HDFC Bank House, Senapati Bapat Marg, Kamala Mills
Registered Office
Compound Lower Parel (West) Mumbai, Maharashtra-400013 .
ISINNO INE040A01018  
Phone 91-022-66521000  
E-mail [email protected]

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 URL www.hdfcbank.com
Industry Bank - Private  
Chairman  Mr. Chander Mohan Vasudev
Managing Director Aditya Puri  
Company Secretary Sanjay Dongre  
Listing BSE, NSE, Luxembourg, New York  

AMALGAMATIONS
In 2002, HDFC Bank witnessed its merger with Times Bank Limited (a private sector
bank promoted by Bennett, Coleman & Co. / Times Group). With this, HDFC and Times
became the first two private banks in the New Generation Private Sector Banks to have
gone through a merger. In 2008, RBI approved the amalgamation of Centurion Bank of
Punjab with HDFC Bank. With this, the Deposits of the merged entity became Rs.
1, 22,000 crores, while the Advances were Rs. 89,000 crores and Balance Sheet size was
Rs. 1,63,000 crores.
SHAREHOLDING PATTERN (%)

SHARE HOLDING PATTERN

21% 1% 0% 0% Indian promoters
NBFC
FII's
Private corporate bodies
NRI's
16% Others
62% General Public

PROFIT AND LAOSS A/c (Amount Rs. In Cr)

Profit & Loss A/c of HDFC Bank
Particulars Mar 2010 Mar 2009 Mar 2008 Mar 2007 Mar 2006
Income
Interest Earned 16,172.90 16,332.26 10,115.00 6,889.02 4,475.34
Other Income 3,810.62 3,470.63 2,205.38 1,510.24 1,213.64
Total Income 19,983.52 19,802.89 12,320.38 8,399.26 5,688.98

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Interest expended 7,786.30 8,911.10 4,887.12 3,179.45 1,929.50
Employee Cost 2,289.18 2,238.20 1,301.35 776.86 486.82
S and A Expenses 3,395.83 2,851.26 974.79 727.53 943.03
Depreciation 394.39 359.91 271.72 219.60 178.59
Miscellaneous Expenses 3,169.12 3,197.49 3,295.22 2,113.28 1,035.10
Preoperative Exp Cap. 0.00 0.00 0.00 0.00 0.00
Operating Expenses 7,703.41 7,290.66 3,935.28 2,590.66 2,170.85
Provisions & Contingencies 1,545.11 1,356.20 1,907.80 1,246.61 472.69
Total Expenses 17,034.82 17,557.96 10,730.20 7,016.72 4,573.04
Net Profit for the Year 2,948.70 2,244.94 1,590.18 1,382.54 1,115.94
Extra ordinary Items -0.93 -0.59 -0.06 -0.35 0.00
Profit brought forward 3,455.57 2,574.63 1,932.03 1,455.02 602.34
Total 6,403.34 4,818.98 3,522.15 2,837.21 1,718.28
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 549.29 425.38 301.27 223.57 172.23
Corporate Dividend Tax 91.23 72.29 51.20 38.00 24.16
Per share data (annualized)
Earnings Per Share (Rs) 64.42 52.77 44.87 43.29 35.64
Equity Dividend (%) 120.00 100.00 85.00 70.00 55.00
Book Value (Rs) 470.19 344.44 324.38 201.42 169.24
Appropriations
Transfer to Statutory Reserves 935.15 641.25 436.05 288.38 -265.37
Transfer to Other Reserves 294.87 224.50 159.02 114.14 87.08
Proposed Dvd./Trans. to Govt 640.52 497.67 352.47 261.57 196.39
Balance c/f to Balance Sheet 4,532.79 3,455.57 2,574.61 1,932.03 1,455.02
Total 6,403.33 4,818.99 3,522.15 2,596.12 1,473.12

BALANCE SHEET OF HDFC LTD (Amount Rs. In Cr)

BALANCE SHEET OF HDFC
----------------------------------------------Rs. In Cr----------------------------------------------
Bank
Particulars Mar '10 Mar '09 Mar '08 Mar '07 Mar '06
Capital and Liabilities
Total Share Capital 457.74 425.38 354.43 319.39 313.14

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Equity Share Capital 457.74 425.38 354.43 319.39 313.14
Share Application Money 0.00 400.92 0.00 0.00 0.07
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 21,064.75 14,226.43 11,142.80 6,113.76 4,986.39
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Net Worth 21,522.49 15,052.73 11,497.23 6,433.15 5,299.60
Deposits 167,404.44 142,811.58 100,768.60 68,297.94 55,796.82
Borrowings 12,915.69 2,685.84 4,478.86 2,815.39 4,560.48
Total Debt 180,320.13 145,497.42 105,247.46 71,113.33 60,357.30
Other Liabilities & Provisions 20,615.94 22,720.62 16,431.91 13,689.13 7,849.49
Total Liabilities 222,458.56 183,270.77 133,176.60 91,235.61 73,506.39
Assets
Cash & Balances with RBI 15,483.28 13,527.21 12,553.18 5,182.48 3,306.61
Balance with Bank, M@C 14,459.11 3,979.41 2,225.16 3,971.40 3,612.39
Advances 125,830.59 98,883.05 63,426.90 46,944.78 35,061.26
Investments 58,607.62 58,817.55 49,393.54 30,564.80 28,393.96
Gross Block 4,707.97 3,956.63 2,386.99 1,917.56 1,589.47
Accumulated Depreciation 2,585.16 2,249.90 1,211.86 950.89 734.39
Net Block 2,122.81 1,706.73 1,175.13 966.67 855.08
Capital Work In Progress 0.00 0.00 0.00 0.00 0.00
Other Assets 5,955.15 6,356.83 4,402.69 3,605.48 2,277.09
Total Assets 222,458.56 183,270.78 133,176.60 91,235.61 73,506.39
Contingent Liabilities 466,236.24 396,594.31 582,835.94 202,126.7 138,898.60
Bills for collection 20,940.13 17,939.62 17,092.85 7,211.88 5,239.26
Book Value (Rs) 470.19 344.44 324.38 201.42 169.24

RATIO ANALYSIS
Particulars Mar’ 10 Mar’09 Mar’ 08 Mar’07 Mar’ 07
Investment Valuation Ratios
Dividend Per Share 10.00 8.50 7.00 5.50 4.50
Operating Profit Per Share (Rs) 92.36 107.32 86.19 52.56 41.65
Net Operating Profit Per Share (Rs) 464.77 348.57 259.98 177.80 120.17
Free Reserves Per Share (Rs) 252.37 269.89 155.69 132.01 99.78
Bonus in Equity Capital -- -- -- -- --

MBA@GIT Belgaum Page 17

 Profitability Ratios
Interest Spread 6.98 7.08 5.47 5.25 5.39
Net Profit Margin 11.35 12.82 13.57 15.55 17.77
Return on Long Term Fund(%) 83.31 62.34 74.91 60.06 50.77
Return on Net Worth (%) 15.32 13.83 23.57 22.73 23.67
Management Efficiency Ratios
Interest Income / Total Funds 12.50 11.01 10.08 8.91 7.95
Operating Expense / Total Funds 4.38 3.27 2.88 3.19 2.38
Net Profit / Total Funds 1.42 1.42 1.68 1.79 1.82
Loans Turnover 0.24 0.22 0.20 0.18 0.17
Total Income / Capital Employed (%) 12.50 11.05 10.21 8.96 7.99
Total Assets Turnover Ratios 0.13 0.11 0.10 0.09 0.08
Asset Turnover Ratio 5.00 5.18 4.33 3.50 2.89
Profit And Loss Account Ratios
Interest Expended / Interest Earned 54.56 48.32 46.15 43.11 42.53
Other Income / Total Income -- 0.35 1.22 0.56 0.55
Operating Expense / Total Income 35.06 29.55 28.21 35.58 29.84
SellingDistribution Cost Composition 0.54 0.92 0.90 1.45 1.47
Balance Sheet Ratios
Capital Adequacy Ratio 15.69 13.60 13.08 11.41 12.16
Advances/ Loans Funds (%) 78.87 71.93 71.41 68.75 68.21
Debt Coverage Ratios
Credit Deposit Ratio 66.64 65.28 66.08 65.79 64.87
Investment Deposit Ratio 44.43 47.29 47.51 51.81 57.83
Cash Deposit Ratio 10.71 10.49 6.84 6.46 7.78
Total Debt to Owners Fund 9.75 8.76 10.62 10.53 8.04
Leverage Ratios
Current Ratio 0.04 0.04 0.04 0.04 0.03
Quick Ratio 5.23 4.89 4.07 5.18 5.61
Cash Flow Indicator Ratios
Dividend Payout Ratio Net Profit 22.16 22.16 22.91 22.55 23.99
Dividend Payout Ratio Cash Profit 19.10 18.93 16.32 15.17 16.00
Earning Retention Ratio 77.79 77.83 77.11 77.44 76.00
Cash Earning Retention Ratio 80.87 81.07 83.69 84.83 83.99

PERFORMANCE HIGHLIGHTS
 Net profit has grown 31.35% to 2,948.70cr in 2010 from 2244.97 in 2009 largely due
to treasury gains.
 ROE is 13.7% in 2010 as compared to 17.2% in 2009.
 ROA is 1.3% in 2010 as compared to 1.2 in 2009.
 Net interest spread is 10.39 in 2009 as compared to 11.30 in 2008.

MBA@GIT Belgaum Page 18

 NIM is 4.2% in 2010 as compared to 4.9 in 2009.
 P/E IS 32.58% in 2010 as compared to 28.38% in 2009.
 The bank’s CAR stood at comfortable 19.41% as at 31st March 2010, with tier I at
10.6%. Warrant conversion by HDFC Ltd will further boost the tier I capital
adequacy.
 CASA ratio is maintained at 39.61% this year.
 The NPA in 2010 was 903.64crores.

OUTLOOK AND VALUATION

I believe that HDFC Bank is among the most competitive banks in the Banking Sector
and is poised to maintain its profitable growth over the long term. I believe that the
Bank’s competitive advantages, driving gains in CASA market share and traction in
multiple Fee Revenue streams, can support up to 5% higher core sustainable RoEs vis-à-
vis sectoral averages over the long term, creating a material margin of safety in our Target
valuation multiples.
We should maintain our view that the substantial inorganic and organic network
expansion since 3QFY2010 will enable the Bank regain strong traction in CASA
Deposits and Fee Income market share gains over the next 1-2 years, especially once the
macro-environment starts improving, progressively restoring financial parameters like
CASA ratio and RoE back to pre-merger levels. While HR and IT integration of the
eCBoP branches has been completed, it is likely to take the Bank 12-18 months for
productivity improvements to scale up closer to levels of its own branches, so that merger
benefits start accruing to its Bottom-line.

FUNDAMENTAL
ANALYSIS OF ICICI
BANK LTD

MBA@GIT Belgaum Page 19

COMPANY PROFILE
ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is India's
largest private sector bank in market capitalization and second largest overall in terms of
assets. ICICI Bank has total assets of about Rs. 363399.71cr (end-Mar 2010), a network
of 2,528 branches & extension counters, about 5808 ATMs and 25 million customers at
March 31, 2010. 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. ICICI Bank's equity shares
are listed in India on stock exchanges at Kolkata and Vadodara, the Stock Exchange,
Mumbai and the National Stock Exchange of India Limited and its ADRs are listed on the
New York Stock Exchange (NYSE).
Description Details
Industry Bank - Private  
House Private  
BSE Code 532174  
NSE Code ICICIBANK  
Incorporation Year 1994  
Landmark,Race Course Circle,Alkapuri Vadodara,
Registered Office
Gujarat-390007 .
ISINNO INE090A01013  
Industry Bank - Private  
Chairman K V Kamath  
Managing Director Chanda D Kochhar  
Company Secretary Jyotin Mehta
Listing BSE,NSE,Luxembourg, New York  

SHAREHOLDING PATTERN (%)

MBA@GIT Belgaum Page 20

 SHARE HOLDING PATTERN (%)
4% 27%
0% 9%
1% Banks Fin. Inst. & Insurance
FII's
Pvt. Corporate Bodies
NRI's
Directors/Employee
General Public

59%

PROFIT AND LOSS A/c (Amount Rs. In Cr.)

Mar '10 Mar '09 Mar '08 Mar '07 Mar '06
Income
30,788.3
Interest Earned 25,706.93 31,092.55 22,994.29 13,784.50
4
Other Income 7,292.43 8,117.76 8,878.85 6,962.95 5,036.62
39,667.1
Total Income 32,999.36 39,210.31 29,957.24 18,821.12
9
Expenditure
23,484.2
Interest expended 17,592.57 22,725.93 16,358.50 9,597.45
4
Employee Cost 1,925.79 1,971.70 2,078.90 1,616.75 1,082.29
Selling and Admin Expenses 6,056.48 5,977.72 5,834.95 4,900.67 2,360.72
Depreciation 619.50 678.60 578.35 544.78 623.79
Miscellaneous Expenses 2,780.03 4,098.22 3,533.03 3,426.32 2,616.78
Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00
10,855.1
Operating Expenses 10,221.99 10,795.14 8,849.86 5,274.23
8
Provisions & Contingencies 1,159.81 1,931.10 1,170.05 1,638.66 1,409.35
35,509.4
Total Expenses 28,974.37 35,452.17 26,847.02 16,281.03
7
Net Profit for the Year 4,024.98 3,758.13 4,157.73 3,110.22 2,540.07
Extraordinary Items 0.00 -0.58 0.00 0.00 0.00
Profit brought forward 2,809.65 2,436.32 998.27 293.44 188.22
Total 6,834.63 6,193.87 5,156.00 3,403.66 2,728.29
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 1,337.95 1,224.58 1,227.70 901.17 759.33

MBA@GIT Belgaum Page 21

Corporate Dividend Tax 164.04 151.21 149.67 153.10 106.50
Per share data (annualized)
Earnings Per Share (Rs) 36.10 33.76 37.37 34.59 28.55
Equity Dividend (%) 120.00 110.00 110.00 100.00 85.00
Book Value (Rs) 463.01 444.94 417.64 270.37 249.55
Appropriations
Transfer to Statutory Reserves 1,867.22 2,008.42 1,342.31 1,351.12 248.69
Transfer to Other Reserves 1.04 0.01 0.01 0.00 1,320.34
Proposed Dvd./Transfer to Govt 1,501.99 1,375.79 1,377.37 1,054.27 865.83
Balance c/f to Balance Sheet 3,464.38 2,809.65 2,436.32 998.27 293.44
Total 6,834.63 6,193.87 5,156.01 3,403.66 2,728.30

BALANCE SHEET (Amount Rs. In Cr.)

Mar '10 Mar '09 Mar '08 Mar '07 Mar '06
Capital and Liabilities:
Total Share Capital 1,114.89 1,463.29 1,462.68 1,249.34 1,239.83
Equity Share Capital 1,114.89 1,113.29 1,112.68 899.34 889.83
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 350.00 350.00 350.00 350.00
Reserves 50,503.48 48,419.73 45,357.53 23,413.92 21,316.16
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Net Worth 51,618.37 49,883.02 46,820.21 24,663.26 22,555.99
Deposits 202,016.60 218,347.82 244,431.05 230,510.19 165,083.17
Borrowings 94,263.57 67,323.69 65,648.43 51,256.03 38,521.91
Total Debt 296,280.17 285,671.51 310,079.48 281,766.22 203,605.08
Other Liabilities & Prov. 15,501.18 43,746.43 42,895.39 38,228.64 25,227.88
Total Liabilities 363,399.72 379,300.96 399,795.08 344,658.12 251,388.95
Assets
Cash & Balances with RBI 27,514.29 17,536.33 29,377.53 18,706.88 8,934.37
Balance with Banks, M@C 11,359.40 12,430.23 8,663.60 18,414.45 8,105.85
Advances 181,205.60 218,310.85 225,616.08 195,865.60 146,163.11
Investments 120,892.80 103,058.31 111,454.34 91,257.84 71,547.39
Gross Block 7,114.12 7,443.71 7,036.00 6,298.56 5,968.57
Accumulated Depreciation 3,901.43 3,642.09 2,927.11 2,375.14 1,987.85
Net Block 3,212.69 3,801.62 4,108.89 3,923.42 3,980.72
Capital Work In Progress 0.00 0.00 0.00 189.66 147.94
Other Assets 19,214.93 24,163.62 20,574.63 16,300.26 12,509.57
Total Assets 363,399.71 379,300.96 399,795.07 344,658.11 251,388.95
Contingent Liabilities 694,948.84 803,991.92 371,737.36 177,054.18 119,895.78
Bills for collection 38,597.36 36,678.71 29,377.55 22,717.23 15,025.21

MBA@GIT Belgaum Page 22

RATIO ANALYSIS
Mar '10 Mar '09 Mar '08 Mar '07 Mar '06
Investment Valuation Ratios
Dividend Per Share 12.00 11.00 11.00 10.00 8.50
Operating Profit Per Share (Rs) 49.80 48.58 51.29 42.19 36.75
Net Operating Profit Per Share (Rs) 293.74 343.59 354.71 316.45 196.87
Free Reserves Per Share (Rs) 356.94 351.04 346.21 199.52 193.24
Bonus in Equity Capital -- -- -- -- --
Profitability Ratios
Interest Spread 5.66 3.66 3.51 3.43 2.67
Net Profit Margin 12.17 9.74 10.51 10.81 14.12
Return on Long Term Fund (%) 44.72 56.72 62.34 82.46 56.24
Return on Net Worth (%) 7.79 7.58 8.94 13.17 14.33
Management Efficiency Ratios
Interest Income / Total Funds 8.82 9.82 10.60 9.55 8.36
Operating Expense / Total Funds 2.59 2.60 2.76 2.79 2.22
Net Profit / Total Funds 1.08 0.96 1.12 1.04 1.21
Loans Turnover 0.17 0.18 0.20 0.17 0.15
Total Income / Capital Employed (%) 8.90 9.90 10.62 9.65 8.58
Total Assets Turnover Ratios 0.09 0.10 0.11 0.10 0.08
Asset Turnover Ratio 4.60 5.14 5.61 4.52 2.94
Profit And Loss Account Ratios
Interest Expended / Interest Earned 68.44 73.09 76.28 71.14 69.62
Other Income / Total Income 0.92 0.86 0.17 1.07 2.59
Operating Expense / Total Income 29.05 26.22 26.00 28.87 25.86
Selling Distribution Cost Composition 0.72 1.74 4.43 6.12 4.80
Balance Sheet Ratios
Capital Adequacy Ratio 19.41 15.53 13.97 11.69 13.35
Advances / Loans Funds(%) 58.57 69.86 72.67 77.72 84.89
Debt Coverage Ratios
Credit Deposit Ratio 90.04 91.44 84.99 83.83 87.59
Investment Deposit Ratio 53.28 46.35 42.68 41.15 46.07
Cash Deposit Ratio 10.72 10.14 10.12 6.99 5.77
Total Debt to Owners Fund 3.91 4.42 5.27 9.50 7.45
Leverage Ratios
Current Ratio 0.14 0.13 0.11 0.09 0.08
Quick Ratio 14.70 5.94 6.42 6.04 6.64
Cash Flow Indicator Ratios
Dividend Payout Ratio Net Profit 37.31 36.60 33.12 33.89 34.08
Dividend Payout Ratio Cash Profit 32.33 31.00 29.08 28.84 27.36
Earning Retention Ratio 61.40 63.23 66.35 64.80 65.82
Cash Earning Retention Ratio 66.70 68.87 70.51 70.22 72.58

MBA@GIT Belgaum Page 23

PERFORMANCE HIGHLIGHTS
 NII has decreased 17.32% to 25706.93 from 31092.55 in 2010.
 Net profit has increased 7.10% to 4024.98 from 3758.13 in 2010.
 P/E ratio is 29.52 in 2010 compared to 22.5 in 2009.
 ROE is 7.79% in 2010 as compared to 7.53% in 2009.
 Banks balance sheet contraction continued with advances decline by 4.19% and
deposit by 7.48%.
 Interest spread has decreased to 5.66% in 2010 from 6.29% in 2009.
 Net interest margin has decreased to 2.60% in 2010 from 3.83% in 2009.
 The bank is comfortably placed with Capital adequacy at 19.41%
 The net NPA increased to 4554 in 2010 from 3490 in 2009 an increase of 30.5%.
 In this chart we can see that company’s CASA ratio has been improved to 39.61%
OUTLOOK AND VALUATION
I have a positive view on ICICI Bank, given its market-leading businesses across the
financial services spectrum. Moreover, I believe that the Bank is decisively executing a
credible strategy of consolidation that should result in an improved deposit and loan mix
and consequently in improved operating metrics over the medium term.
The strategy involves maintaining strong capital adequacy in the current environment,
while building the necessary base for strong CASA mobilization, going forward. This is
to be achieved through a substantial branch expansion, without diluting the current focus
on stringent cost-control measures. The management has indicated that cost
rationalizations still in process to further bring down the operating expenses. The Bank’s
Capital Adequacy is also amongst the highest at 19.41%.
I believe that the Bank’s substantial branch expansion and large Capital Adequacy,
especially on Tier 1, are a precursor to market share gains that will contribute to a
substantial Core business growth, though with a lag effect until the macro-environment
starts improving again (hence, potentially in 12-18 months). It is focusing again on
replacing wholesale funds with retail deposits in the international subsidiaries as well. In
the short term, while the Asset-quality deterioration is likely to start plotting only after a
few quarters, the increased focus on Treasury as a profit-centre, as well as the continued
focus on cost controls should provide some support to the Bank’s P/L account.

MBA@GIT Belgaum Page 24

FUNDAMENTAL ANALYSIS OF SBI

COMPANY PROFILE:
The State Bank of India, the country’s oldest Bank and a premier in terms of balance
sheet size, number of branches, market capitalization and profits is today going through a
momentous phase of Change and Transformation – the two hundred year old Public
sector behemoth is today stirring out of its Public Sector legacy and moving with an
ability to give the Private and Foreign Banks a run for their money. The bank is entering
into many new businesses with strategic tie ups – Pension Funds, General Insurance,
Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant Acquisition,
Advisory Services, structured products etc – each one of these initiatives having a huge
potential for growth.

The Bank is changing outdated front and back end processes to modern customer friendly
processes to help improve the total customer experience. With about 13858 of its own
branches and another 12642 branches of its Associate Banks already networked, today it
offers the largest banking network to the Indian customer. The Bank is also in the process
of providing complete payment solution to its clientele with its over 2100 ATMs, and
other electronic channels such as Internet banking, debit cards, mobile banking, etc. The
bank is also looking at opportunities to grow in size in India as well as internationally. It
presently has 131 foreign offices in 32 countries across the globe. It has also 7
Subsidiaries in India – SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors,
SBI Life and SBI Cards - forming a formidable group in the Indian Banking scenario. It
is in the process of raising capital for its growth and also consolidating its various
holdings

MBA@GIT Belgaum Page 25

Description Details
Industry Bank - Public  
House Government  
BSE Code 500112  
NSE Code SBIN  
Incorporation Year 02-06 1806  
State Bank Bhavan, Madame Cama Marg, Nariman Point
Registered Office
Mumbai,Maharashtra-400021 .
ISINNO INE062A01012  
Phone 91-022-22883888/22022678/22830535  
E-mail [email protected]
URL www.sbi.co.in
Industry Bank - Public  
Chairman O P Bhatt  
Managing Director  Mr. R Sridharan
Listing BSE, NSE, Ahmedabad, Chennai, Delhi, Kolkata, London  
SHARE HOLDING PATTERN (%)

SHARE HOLDING PATTERN (%)

3%
6%
0% 4%
11% Indian Promoters
NBFC'S
FII's
Pvt. Corporate Bodies
NRI/OCB
;
;
14% 62%

PROFIT AND LOSS A/c (Amount Rs. In Cr.)

Mar '10 Mar '09 Mar '08 Mar '07 Mar '06

MBA@GIT Belgaum Page 26

Income
70,993.9 63,788.4 48,950.3
Interest Earned 39,491.03 35,794.93
2 3 1
14,968.1 12,691.3
Other Income 9,398.43 7,446.76 7,388.69
5 5
85,962.0 76,479.7 58,348.7
Total Income 46,937.79 43,183.62
7 8 4
Expenditure
47,322.4 42,915.2 31,929.0
Interest expended 23,436.82 20,159.29
8 9 8
12,754.6
Employee Cost 9,747.31 7,785.87 7,932.58 8,123.04
5
Selling and Admin Expenses 7,898.23 5,122.06 4,165.94 3,251.14 1,853.32
Depreciation 932.66 763.14 679.98 602.39 729.13
Miscellaneous Expenses 7,888.00 8,810.75 7,058.75 7,173.55 7,912.15
Preoperative Exp Capitalized 0.00 0.00 0.00 0.00 0.00
24,941.0 18,123.6 14,609.5
Operating Expenses 13,251.78 11,872.89
1 6 5
Provisions & Contingencies 4,532.53 6,319.60 5,080.99 5,707.88 6,744.75
76,796.0 67,358.5 51,619.6
Total Expenses 42,396.48 38,776.93
2 5 2
Net Profit for the Year 9,166.05 9,121.23 6,729.12 4,541.31 4,406.67
Extraordinary Items 0.00 0.00 0.00 0.00 0.00
Profit brought forward 0.34 0.34 0.34 0.34 0.34
Total 9,166.39 9,121.57 6,729.46 4,541.65 4,407.01
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 1,904.65 1,841.15 1,357.66 736.82 736.82
Corporate Dividend Tax 236.76 248.03 165.87 125.22 103.34
Per share data (annualised)
Earnings Per Share (Rs) 144.37 143.67 106.56 86.29 83.73
Equity Dividend (%) 300.00 290.00 215.00 140.00 140.00
Book Value (Rs) 1,038.76 912.73 776.48 594.69 525.25
Appropriations
Transfer to Statutory Reserves 6,495.14 6,725.15 5,205.69 3,682.15 3,566.51
Transfer to Other Reserves 529.50 306.90 -0.10 -2.88 0.00
Proposed Dvd./ Transfer to Govt 2,141.41 2,089.18 1,523.53 862.04 840.16
Balance c/f to Balance Sheet 0.34 0.34 0.34 0.34 0.34
Total 9,166.39 9,121.57 6,729.46 4,541.65 4,407.01

MBA@GIT Belgaum Page 27

BALANCE SHEET (Amount Rs. In Cr.)

Mar '10 Mar '09 Mar '08 Mar '07 Mar '06
Capital and Liabilities:
Total Share Capital 634.88 634.88 631.47 526.30 526.30
Equity Share Capital 634.88 634.88 631.47 526.30 526.30
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 65,314.32 57,312.82 48,401.19 30,772.26 27,117.79
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Net Worth 65,949.20 57,947.70 49,032.66 31,298.56 27,644.09
Deposits 804,116.23 742,073.13 537,403.94 435,521.09 380,046.06
Borrowings 103,011.60 53,713.68 51,727.41 39,703.34 30,641.24
Total Debt 907,127.83 795,786.81 589,131.35 475,224.43 410,687.30
Other Liabilities & Provision 80,336.70 110,697.57 83,362.30 60,042.26 55,538.17
Total Liabilities 1,053,413.73 964,432.08 721,526.31 566,565.25 493,869.56
Assets
Cash & Balances with RBI 61,290.87 55,546.17 51,534.62 29,076.43 21,652.70
Balance with Banks, Money
34,892.98 48,857.63 15,931.72 22,892.27 22,907.30
at Call
Advances 631,914.15 542,503.20 416,768.20 337,336.49 261,641.53
Investments 285,790.07 275,953.96 189,501.27 149,148.88 162,534.24
Gross Block 11,831.63 10,403.06 8,988.35 8,061.92 7,424.84
Accumulated Depreciation 7,713.90 6,828.65 5,849.13 5,385.01 4,751.73
Net Block 4,117.73 3,574.41 3,139.22 2,676.91 2,673.11
Capital Work In Progress 295.18 263.44 234.26 141.95 79.82
Other Assets 35,112.76 37,733.27 44,417.03 25,292.31 22,380.84
Total Assets 1,053,413.74 964,432.08 721,526.32 566,565.24 493,869.54
Contingent Liabilities 429,917.37 614,603.47 736,087.59 259,536.57 191,819.34
Bills for collection 166,449.04 152,964.06 93,652.89 70,418.15 57,618.44

RATIO ANALYSIS
Mar '10 Mar '09 Mar '08 Mar '07 Mar '06
Investment Valuation Ratios
Dividend Per Share 30.00 29.00 21.50 14.00 14.00
Operating Profit Per Share (Rs) 229.63 230.04 173.61 147.72 124.77
Net Operating Profit Per Share (Rs) 1,353.15 1,179.45 899.83 833.38 719.54
Free Reserves Per Share (Rs) 412.36 373.99 356.61 184.43 178.33
Bonus in Equity Capital -- -- -- -- --
Profitability Ratios
Interest Spread 3.82 4.34 4.32 4.20 4.31
Net Profit Margin 10.54 12.03 11.65 10.12 11.21
Return on Long Term Fund(%) 95.02 100.35 86.83 99.20 97.89
Return on Net Worth(%) 13.89 15.74 13.72 14.50 15.94

MBA@GIT Belgaum Page 28

 Management Efficiency Ratios
Interest Income / Total Funds 8.52 8.88 8.82 8.27 7.94
Operating Expense / Total Funds 2.38 2.06 2.16 2.39 2.34
Net Profit / Total Funds 0.91 1.08 1.04 0.86 0.92
Loans Turnover 0.15 0.16 0.15 0.15 0.16
Total Income / Capital Employed(%) 8.62 8.99 8.96 8.46 8.24
Total Assets Turnover Ratios 0.09 0.09 0.09 0.08 0.08
Asset Turnover Ratio 7.26 7.20 6.32 5.44 5.10
Profit And Loss Account Ratios
Interest Expended / Interest Earned 66.66 67.28 65.23 59.35 56.32
Other Income / Total Income 1.21 1.18 1.56 2.25 3.60
Operating Expense / Total Income 27.61 22.91 24.13 28.19 28.37
Selling Distribution Cost Composition 0.26 0.33 0.30 0.20 0.28
Balance Sheet Ratios
Capital Adequacy Ratio 13.39 14.25 13.47 12.34 11.88
Advances / Loans Funds(%) 74.22 78.34 78.31 76.16 65.66
Debt Coverage Ratios
Credit Deposit Ratio 75.96 74.97 77.51 73.44 62.11
Investment Deposit Ratio 36.33 36.38 34.81 38.22 48.14
Cash Deposit Ratio 7.56 8.37 8.29 6.22 5.15
Total Debt to Owners Fund 12.19 12.81 10.96 13.92 13.75
Leverage Ratios
Current Ratio 0.04 0.04 0.07 0.05 0.05
Quick Ratio 9.07 5.74 6.15 6.52 5.50
Cash Flow Indicator Ratios
Dividend Payout Ratio Net Profit 23.36 22.90 22.64 18.98 19.06
Dividend Payout Ratio Cash Profit 21.20 21.13 20.56 16.75 16.35
Earning Retention Ratio 76.67 77.11 77.33 80.97 80.93
Cash Earning Retention Ratio 78.82 78.88 79.41 83.21 83.64
RARIO ANALYSIS

PERFORMANCE HIGHLIGHTS
 Net profit has grown marginally 0.49% to 9,166.05cr in 2010 from 9121.23crores in
2009
 ROE is 13.89% in 2010 as compared to 13.74% in 2009.
 ROA is 0.95 in 2010 as compared to 0.93 in 2009.
 Net interest spread is 3.82% in 2009 as compared to 6.37% in 2008.
 NIM is 3.40% in 2009 as compared to 3.85% in 2008.
 P/E IS 17.35 in 2009 as compared to 12.6 in 2008.
 The bank is comfortably placed in terms of capital adequacy as the bank’s total CAR
as on March 2010 was 13.39%.

MBA@GIT Belgaum Page 29

 CASA ratio is 48.2% in 2010 as compared to 38.5% in 2009.
 The NPA in FY 2009 was 12576.08cr

OUTLOOK AND VALUATION

With its surplus liquidity and balance sheet size, we believe SBI will be a major
beneficiary of pickup in credit demand. SBI’s non banking subsidiaries (SBI Capital
Markets, SBI Mutual Fund and SBI Life Insurance) will benefit from up-tick in capital
markets and corporate activity. At current price of Rs 2079 the stock is trading at ~1.8x
FY10E P/BV. We maintain a Buy on SBI with a target of Rs 2251, giving an upside
potential of 8.27% from the current levels, on account of:

 Pickup in credit demand (we estimate SBI’s FY 11 credit growth at 20% and FY 12
at 22%) will allow the bank to redeploy surplus liquidity to advances from
investments;
 Rebound in earnings growth (23 – 25% CAGR from FY 11 – FY12) on back of
higher credit growth and strong fee income performance;
 Sharp pickup in margins in FY11 as high cost deposits are repriced and yields
improve;
 Asset quality headwinds (especially the concerns over the higher proportion of
restructured assets and low loan loss coverage) subsiding as economy returns to
a secular growth path.

Key Risks include:

1) Sharper than expected asset quality deterioration;
2) Slower credit growth;
3) Margin compression.

MBA@GIT Belgaum Page 30

FUNDAMENTAL ANALYSIS OF PUNJAB NATIONAL BANK LTD

COMPANY PROFILE
Since its humble beginning in 1895 with the distinction of being the first Indian bank to
have been started with Indian capital, PNB has achieved significant growth in business
which at the end of March 2010 amounted to Rs 3,64,463 crores. Today, with assets of
more than Rs 2,46,900 crores, PNB is ranked as the 3rd largest bank in the country (after
SBI and ICICI Bank) and has the 2nd largest network of branches (5000 including 238
extension counters and 3 overseas offices).During the FY 2009-10, with 39% share of
low cost deposits, the bank achieved a net profit of Rs 3,905crores, maintaining its
number ONE position amongst nationalized banks.
Description Details
Industry Bank - Public  
House Govt  
BSE Code 532461  
NSE Code PNB  
Incorporation Year 1895  
Registered Office 7 Bhikaiji Cama Place, , New Delhi, New Delhi-110066 .
ISINNO INE160A01014  
Phone 011- 26102303  
E-mail [email protected]
URL www.pnbindia.com
Industry Bank - Public  
Chairman & MD Mr. K R Kamath
Company Secretary Mr. Ramesh Kumar Kochar
Listing BSE,NSE  

SHAREHOLDING PATTERN

MBA@GIT Belgaum Page 31

 Chart Title
15% 6%
Promoters
4%
FIIs
MFs/UTI
58% Banks/Fis
Others
18%

PROFIT AND LOSS A/c (Amount Rs. In Cr.)

Particulars Mar '10 Mar '09 Mar '08 Mar '07 Mar '06
Income
14,265.0
Interest Earned 21,466.91 19,326.16 11,537.48 9,584.15
2
Other Income 3,565.31 2,919.69 1,997.56 1,343.64 1,478.23
16,262.5
Total Income 25,032.22 22,245.85 12,881.12 11,062.38
8
Expenditure
Interest expended 12,944.02 12,295.30 8,730.86 6,022.91 4,917.39
Employee Cost 3,121.14 2,924.38 2,461.54 2,352.45 2,114.97
Selling and Admin Expenses 1,701.46 1,406.42 884.19 1,032.50 638.79
Depreciation 222.83 191.06 170.23 194.80 186.65
Miscellaneous Expenses 3,137.42 2,337.80 1,966.98 1,738.38 1,765.27
Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00
Operating Expenses 5,761.36 5,026.81 3,902.55 3,926.05 3,263.15
Provisions & Contingencies 2,421.49 1,832.85 1,580.39 1,392.08 1,442.53
14,213.8
Total Expenses 21,126.87 19,154.96 11,341.04 9,623.07
0
Net Profit for the Year 3,905.36 3,090.88 2,048.76 1,540.08 1,439.31
Extraordinary Items 0.00 0.00 0.00 0.00 0.00
Profit brought forward 7.64 0.00 15.52 183.49 0.00
Total 3,913.00 3,090.88 2,064.28 1,723.57 1,439.31
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 693.67 630.61 409.89 409.89 189.18
Corporate Dividend Tax 116.43 107.17 69.66 63.11 26.53
Per share data (annualized)
Earnings Per Share (Rs) 123.86 98.03 64.98 48.84 45.65
Equity Dividend (%) 220.00 200.00 100.00 100.00 60.00
Book Value (Rs) 514.77 416.74 341.98 321.65 287.79
Appropriations

MBA@GIT Belgaum Page 32

Transfer to Statutory Reserves 1,532.46 1,155.46 596.14 435.06 -1,512.23
Transfer to Other Reserves 1,570.44 1,190.00 988.59 800.00 2,552.34
Proposed Dvd/Transfer to Govt 810.10 737.78 479.55 473.00 215.71
Balance c/f to Balance Sheet 0.00 7.64 0.00 15.52 183.49
Total 3,913.00 3,090.88 2,064.28 1,723.58 1,439.31

BALANCE SHEET (Amount Rs. In Cr.)

Particulars Mar '10 Mar '09 Mar '08 Mar '07 Mar '06
Capital and Liabilities:
Total Share Capital 315.30 315.30 315.30 315.30 315.30
Equity Share Capital 315.30 315.30 315.30 315.30 315.30
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 15,915.63 12,824.59 10,467.35 9,826.31 8,758.68
Revaluation Reserves 1,491.99 1,513.74 1,535.70 293.85 302.38
Net Worth 17,722.92 14,653.63 12,318.35 10,435.46 9,376.36
Deposits 249,329.80 209,760.50 166,457.23 139,859.67 119,684.92
Borrowings 19,262.37 4,374.36 5,446.56 1,948.86 6,687.18
Total Debt 268,592.17 214,134.86 171,903.79 141,808.53 126,372.10
Other Liabilities & Provisions 10,317.69 18,130.13 14,798.23 10,178.51 9,518.93
Total Liabilities 296,632.78 246,918.62 199,020.37 162,422.50 145,267.39
Assets
Cash & Balances with RBI 18,327.58 17,058.25 15,258.15 12,372.03 23,394.56
Balance with Banks, Money at Call 5,145.99 4,354.89 3,572.57 3,273.49 1,397.14
Advances 186,601.21 154,702.99 119,501.57 96,596.52 74,627.37
Investments 77,724.47 63,385.18 53,991.71 45,189.84 41,055.31
Gross Block 4,215.21 3,930.36 3,699.64 2,247.74 2,106.92
Accumulated Depreciation 1,701.74 1,533.25 1,384.12 1,237.92 1,076.69
Net Block 2,513.47 2,397.11 2,315.52 1,009.82 1,030.23
Capital Work In Progress 0.00 0.00 0.00 0.00 0.00
Other Assets 6,320.07 5,020.20 4,380.84 3,980.80 3,762.79
Total Assets 296,632.79 246,918.62 199,020.36 162,422.50 145,267.40
Contingent Liabilities 68,124.47 79,270.65 80,606.88 52,884.89 39,860.40
Bills for collection 33,215.78 31,941.43 23,448.99 21,815.59 18,878.91
Book Value (Rs) 514.77 416.74 341.98 321.65 287.79

RATIO ANALYSIS
Particulars Mar '10 Mar '09 Mar '08 Mar '07 Mar '06
Investment Valuation Ratios
Dividend Per Share 22.00 20.00 10.00 10.00 6.00
Operating Profit Per Share (Rs) 191.63 151.48 109.81 74.53 57.00
Net Operating Profit Per Share (Rs) 777.82 694.81 505.09 383.89 310.53
Free Reserves Per Share (Rs) 63.79 64.04 63.79 64.29 69.61
Bonus in Equity Capital -- -- -- -- --

MBA@GIT Belgaum Page 33

 Profitability Ratios
Interest Spread 4.46 4.18 4.18 4.40 3.94
Net Profit Margin 15.64 13.76 12.68 12.53 14.50
Return on Long Term Fund(%) 116.11 129.83 111.52 80.76 74.57
Return on Net Worth(%) 24.06 23.52 19.00 16.03 17.01
Management Efficiency Ratios
Interest Income / Total Funds 9.07 9.89 8.86 7.88 7.23
Operating Expense / Total Funds 2.05 2.18 2.08 2.43 2.27
Net Profit / Total Funds 1.45 1.40 1.14 1.00 1.06
Loans Turnover 0.14 0.16 0.15 0.14 0.15
Total Income / Capital Employed(%) 9.24 10.14 8.99 8.00 7.33
Total Assets Turnover Ratios 0.09 0.10 0.09 0.08 0.07
Asset Turnover Ratio 5.89 5.64 4.35 5.48 4.75
Profit And Loss Account Ratios
Interest Expended / Interest Earned 60.30 63.62 61.20 52.20 51.31
Other Income / Total Income 1.75 2.46 1.43 1.52 1.33
Operating Expense / Total Income 22.19 21.53 23.10 30.36 31.00
Selling Distribution Cost Composition 0.16 0.14 0.14 0.14 0.20
Balance Sheet Ratios
Capital Adequacy Ratio 14.16 14.03 13.46 12.29 11.95
Advances / Loans Funds(%) 77.31 80.15 76.19 72.04 64.26
Debt Coverage Ratios
Credit Deposit Ratio 74.34 72.88 70.55 65.97 60.60
Investment Deposit Ratio 30.74 31.20 32.38 33.23 41.16
Cash Deposit Ratio 7.71 8.59 9.02 13.78 14.74
Total Debt to Owners Fund 15.36 15.96 15.44 13.79 13.19
Leverage Ratios
Current Ratio 0.02 0.02 0.02 0.03 0.03
Quick Ratio 20.47 9.75 9.40 11.10 10.69
Cash Flow Indicator Ratios
Dividend Payout Ratio Net Profit 20.74 23.86 23.40 30.71 14.98
Dividend Payout Ratio Cash Profit 19.62 22.47 21.61 27.26 13.26
Earning Retention Ratio 79.25 76.12 76.59 69.28 84.99
Cash Earning Retention Ratio 80.37 77.51 78.38 72.73 86.72

PERFORMANCE HIGHLIGHT
 Net profit has grown 26.35% to 3,905.36crores in 2010 from 3090.88crores in 2009
largely due to treasury gains.
 ROE is 24.06% in 2010 as compared to 23.52in 2009.
 ROA is 1.25% in 2010 as compared to 1.03% in 2009.
 Net interest spread is 4.46 in 2010 as compared to 4.18% in 2009.

MBA@GIT Belgaum Page 34

 NIM is 4.10% in 2010 as compared to 4.54% in 2009.
 P/E IS 9.06 in 2010 as compared to 7.2 in 2009.
 The bank is comfortably placed in terms of capital adequacy as the bank’s total CAR
as on March 2010 was 14.16%.
 CASA ratio is 38.21% in 2010 as compared to 38% in 2009.
 The NPA in FY 2009 was 3319.30crores.

OUTLOOK AND VALUATION

While we like the robust performance of PNB on both earnings quality (and quantity too)
and asset quality, we believe that the margins in coming quarter may come under
Pressure in future. PNB has taken advantage of liquidity squeeze of H2FY09 and lent too
many of the large corporate at BPLR. But we believe that if the liquidity position of large
corporate improves, the strategy of lending strictly at BPLR may not sustain. However,
asset quality may continue to remain robust. The stock is currently quoting at 1.5x FY11E
ABV and 1.3x FY11E ABV. We do not find valuations compelling at this level for
absolute return. However the stock may continue to outperform other PSU banks because
of earnings and asset quality, rating is to hold with a price target of Rs700.

FINDINGS AND CONCLUSION

MBA@GIT Belgaum Page 35

FINDINGS
From the study of banking sector I find out that most of the shares in banking sector are
bullish. The valuations of most banks are good and banks are maintaining the Basel norm
of CAR%. The growth percentages of banks are also good. Now let’s do a comparative
study of the bank taken in these studies.
BANKS HDFCBANK ICICIBANK SBI PNB
P/E 32.58 29.558 18.75 9.06
ROE (%) 13.7 7.79 13.89 24.06
CAR (%)capital adequacy ratio 15.69 19.41 13.39 14.16
RETURN ON NET WORTH 15.32 7.79 13.89 24.06
EPS 64.42 36.10 144.37 123.86
EPS GROWTH (%) 29.32 6.85 9.72 18.77
NET PROFIT GROWTH (%) 31.35 7.10 0.49 26.35
DPS 10.00 12.00 30.00 22.00
NET PROFIT MARGIN (%) 11.35 12.17 10.54 15.64
NET INTREST MARGIN (%) 4.20 2.60 3.40 4.10
NET INTEREST SPREAD (%) 6.98 5.66 3.82 4.67
EARNING RETENTION RATIO 84.48 66.48 79.22 82.23
CASA (%) 49.00 39.61 48.17 38.21
Recommendation BUY HOLD HOLD BUY
Current market price (31/03/2010) 1932.50 952.70 2079.00 1013.45
Target 2489.10 1005.95 2251.08 1181.67
Current market price (26/02/2010) 2087.00 1038.30 2679.25 1136.55
Achieved NO YES YES NO

 As per P/E ratio SBI can be considered at a fair value, PNB is undervalued and
ICICI bank is growth stock with earnings expected to increase substantially in
future and HDFCBANK have high expected future growth in earnings.

 All selected bank has maintained the CAR% as per Basel norm.

 SBI has the highest Book value of 1038.76.

 The net interest spread of HDFC BANK is highest at 6.98% which means there is
large disparity between the rate of lending and deposit.

 Except for SBI and ICICI Bank the recommendation of all selected banks are of
BUY.

MBA@GIT Belgaum Page 36

HIERARCHY FOR CHOOSING BANKING STOCK FOR INVESTMENT
1) HDFC Bank Ltd
HDFC Bank is among the most competitive bank in the Banking Sector and is poised to
maintain its profitable growth over the long term. Network expansion since 3QFY2010-
11 will enable the Bank regains strong traction in CASA Deposits and Fee Income.
Market share gains over the next 1-2 years.
While HR and IT integration of the centurion bank of Punjab branches has been
completed, it is likely to take the Bank 12-18 months for productivity improvements to
scale up closer to levels of its own branches, so that merger benefits start accruing to its
Bottom-line. The bank stock is likely to get highest return comparatively with other bank.

2) ICICI Bank Ltd

The bank’s strategy of strengthening its profitability by expanding branch network,
replacing bulk deposits with retail deposits and improving CASA ratio. These measures
are likely to result in margin improvement and subsequent increase in medium-term
ROEs from the current levels. Looking at the future growth this bank is 2 nd most
preferred stock for investing.

3) SBI LTD
Banks balance sheet is coming to Rs10 trillion. SBI has maintained its leadership position
across financial product and had aggressively expanded its book in recent past and had
gained market share. SBI currently has 1111 branches and plans to add 1000 branches
this fiscal catering to over 50000 villages. It is also aiming at extending banking services
to 100000 un banked villages in FY 10
Key risk to bank is- 1) sharper than expected asset quality deterioration,
2) Slower credit growth,
3) Margin compression.

4) Punjab National Bank Ltd

PNB Ltd has been ranked on 5 th position in preference this is because there is asset
quality concerns could continue to weigh in overseas branches. The bank is growing

MBA@GIT Belgaum Page 37

rapidly on the international front and plans to continue its growth globally. It has already
acquired permission from RBI to open further branches abroad especially one in DIFC,
Dubai. Although it is a positive sign, there is a concern of FOREX losses that could be
reported by the bank in the future quarters due to adverse fluctuation in currency. Further
spreads in countries abroad may not be as healthy as in India and asset quality concerns
could continue to weigh in overseas branches.

CONCLUSION

 Fundamental analysis can be valuable, but it should be approached with caution.

If you are reading research written by a sell-side analyst, it is important to be
familiar with the analyst behind the report.
 We all have personal biases, and every analyst has some sort of bias. There is
nothing wrong with this, and the research can still be of great value.
 Learn what the ratings mean and the track record of an analyst before jumping off
the deep end.
 Corporate statements and press releases offer good information, but they should
be read with a healthy degree of skepticism to separate the facts from the spin.
 Press releases don't happen by accident; they are an important Personal Research
tool for companies.
 Investors should become skilled readers to weed out the important information
and ignore the hype.

MBA@GIT Belgaum Page 38

 BIBLIOGRAPHY
 www.google.com
 www.investopedia.com
 www.moneycontrol.com
 http://www.allbankingsolutions.com/CRR-SLR-BANK-RATE-REPO-
REVERSE.HTM
 http://www.bitpipe.com/tlist/Electronic-Funds-Transfer.html
 http://www.banknetindia.com/banking/chqtruncation.htm
 http://www.bharatbook.com/Market-Research-Reports/Indian-Banking-Sector-
Forecast.html
 http://www.bseindia.com/
 http://business.mapsofindia.com/banks-in-india/
 http://www.business-standard.com/india/index2.php
 http://economictimes.indiatimes.com/
 http://en.wikipedia.org/wiki/Magnetic_ink_character_recognition
 http://finance.indiabizclub.com/info/indian_banking_industry
 http://finance.indiamart.com/investment_in_india/banking_in_india.html
 http://www.moneycontrol.com/
 http://money.rediff.com/companies/hdfc-bank-ltd/14030055/share-holding
 http://mevenky.blogspot.com/2009/11/what-is-electronic-clearing-system-ecs.html
 http://www.nseindia.com/
 http://www.pnbindia.in/english_web/profile.htm
 http://www.pnbindia.in/invst_info.htm
 http://www.sharegyan.com/

MBA@GIT Belgaum Page 39

RATIO ANALYSIS
----------------------------Rs in million----------------------------
Particulars Mar 2009 Mar 2008 Mar 2007 Mar 2006 Mar 2005
Operational & Financial Ratios
   Earnings Per Share (Rs) 52.85  44.87   35.74  27.81  21.48
   DPS(Rs) 10.00  8.50   7.00  5.50  4.50
   Book NAV/Share(Rs) 344.31  324.39   201.42  169.24  145.87
Margin Ratios         
   Yield on Advances 16.52  15.95   14.16  12.76  12.10
   Yield on Investments 7.51  6.15   6.49  5.88  6.37
   Cost of Liabilities 6.12  4.64   4.47  3.29  3.20
   NIM 7.50  8.24   7.39  7.26  6.95
   Interest Spread 10.39  11.30   9.69  9.47  8.90
Performance Ratios         
   ROA(%) 1.22  1.19   1.25  1.18  1.29
   ROE(%) 15.33  13.83   17.74  16.43  14.72
   ROCE(%) 6.66  5.38   5.28  4.33  4.46
Efficiency Ratios         
   Cost Income Ratio 73.61  69.63   68.60  64.66  64.11
   Core Cost Income Ratio 45.41  39.42   38.94  34.46  35.13
   Operating Costs to Assets 11.02  10.27   9.68  8.40  7.70
Capitalisation Ratios         
   Tier 1 ratio 0  0   0  0  0
   Tier 2 ratio 0  0   0  0  0
   CAR 0  0   0  0  0
Valuation Parameters         
   PER(x) 18.31  29.42   26.56  27.81  25.34
   PCE(x) 15.81  25.13   22.28  23.08  20.83
   Price/Book(x) 2.81  4.07   4.71  4.57  3.73
   Yield (%) 1.03  0.64   0.74  0.71  0.83
   EV/Net Sales 2.69  5.07   4.98  6.05  7.00
   EV/Core EBITDA 8.47  13.61   12.92  13.69  16.11
   EV/EBIT 3.59  7.15   6.88  8.51  9.44
   EV/CE 0.24  0.38   0.36  0.37  0.42
   M Cap / Sales 2.52  4.63   4.56  5.41  5.45
Growth Ratio         
   Core Operating Income Growth 41.95  50.73   36.24  43.19  32.89
   Operating Profit Growth -100.95  -21386.61  29.57  47.24  33.33
   Net Profit Growth 41.18  39.31   31.08  30.83  30.63
   BVPS Growth -98.94  61.05   19.01  16.02  54.24
   Advances Growth 55.90  35.11   33.89  37.14  44.08
   EPS Growth (%) 17.78  25.55   28.51  29.47  20.06
Liquidity Ratios         
   Loans/Deposits 0.02  0.04   0.04  0.05  0.13
   Total Debt/Equity 0.09  0.12   0.07  0.06  0.07
   Current Ratio 0.41  0.49   0.45  0.51  0.53
   Quick Ratio 1.88  4.44   4.12  5.12  13.18

MBA@GIT Belgaum Page 40

    Interest Coverage Ratio         
   Total Debt/Mcap 0  0   0  0  0
   Net NPA in Rs. Million 0  0   0  0  0

Fundamental analysis is performed on historical and present data, but with the goal of making
financial forecasts. There are several possible objectives:

 to conduct a company stock valuation and predict its probable price evolution,

 to make a projection on its business performance,
 to evaluate its management and make internal business decisions,
 to calculate its credit risk.

 To highlight several objectives of fundamental

analysis items are listed below:
 (1) To evaluate intrinsic value of shares & compare it with present market
price to decide whether a share is overvalued or undervalued
 (2) To evaluate managements efficiency & internal decisions taken by them to
run the business
 (3) To calculate credit risk

Technical Analysis: Opposite to fundamental analysis, technical analysis of shares

does not care about true worth (value) of shares. Instead they give more importance
to trends, investor emotions, and speculations.

Warren buffets approach to quantify the intrinsic value

of a share
Warren Buffett use the top down approach to calculate the intrinsic value of
business. In the following order:

(1)     Evaluating international and national indicators (Gross domestic product GDP
growth, rate of inflation, interest rates on bank deposits, foreign exchange rates,
productivity and energy prices)

(2)     Sector wise analysis of business

(3)     Price level analysis of shares within a sector

(4)     Competitors analysis of a share (both domestic and international)

(5)     Analysis and entry and exit points of a particular share

(6)     And finally he selects the best company to invest in

MBA@GIT Belgaum Page 41

What procedure shall be followed to do fundamental
analysis of a share?
Step (1) Analysis Financial Statements

(a)     Calculate Ratios of past 5 years

(b)    Note Dividend paid in last 5 years

(c)     Evaluate how company is generating its funds for doing business (Balance
Sheet)

(d)    Evaluate how company is spending its funds on business (Balance Sheet)

(e)     Observe Operating cash flow of last five years

(f)      Observe equity/ share issued by company in last five years

(g)    Evaluate net profit and operating profit made by company in last five years

Step (2) Discounted Cash Flow Analysis

(a)     The present value of all future cash flows is calculated.

(b)    Future cash flow in terms of dividends received by investors

(c)     Appreciation of market price of shares

Step (3) Levels of Debts of Company

(a) Companies financial health is also greatly determined by the levels of debts it
carries. Keeping track of debt equity ratio of last five years and also comparing them
with other competing companies is crucial.

Step (4) Comparing Market Price of stocks with its earnings

(a) Fundamentally all share prices are valued on basis of company’s net earnings. If
earnings are high market price will go up and vice versa.

Indian Economy Overview

Last Updated: December 2010

The Centre for Monitoring Indian Economy (CMIE) has estimated India’s gross domestic
product (GDP) to expand at 9.2 per cent in 2010-11 as compared to the growth of 7.4 per

MBA@GIT Belgaum Page 42

cent in 2009-10. Overall growth in industrial output was 10.8 per cent year-on-year (y-o-
y) in October 2010. The growth in the industrial sector is expected to increase at 9.4 per
cent in 2010-11, as compared to 9.2 per cent in 2009-10. According to a survey by the
Confederation of Indian Industry (CII) and ASCON, around 50 segments (out of 127) in
the manufacturing sector grew by 39 per cent, entering the 'excellent growth' category,
during April-December 2010-11 compared to 29 sectors (22.9 per cent) in April-
December 2009 which shows a marked improvement. Also, services sector is projected to
expand by 10 per cent as compared to 8.6 per cent last year, led by the trade and transport
segment. The major turnaround is expected from the agriculture and allied sector, which
is being projected to grow by 5.7 per cent in 2010-11.
As per Use-based classification, the Sectoral growth rates in October 2010 over October
2009 are 7.7 per cent in Basic goods, 22 per cent in Capital goods and 9.5 per cent in
Intermediate goods. The Consumer durables and Consumer non-durables have expanded
by 31 per cent and 0.1 per cent respectively in the reported month.
The industrial output registered a robust growth of 10.8 per cent year-on-year (y-o-y) in
October 2010. Among the three major constituents of the IIP, manufacturing and
electricity recorded higher growth rates of 11.3 per cent and 8.8 per cent in October as
against their corresponding levels of 10.8 per cent and 4 per cent for the corresponding
month in 2009. The third constituent mining index registered 6.5 per cent in October
2010.
The Economic scenario
Foreign injections amounted to US$ 6.4 billion in October 2010, which was almost 25
per cent of the total inflows in the stock market registered so far in 2010. The net foreign
fund investment crossed the US$ 100 billion mark on November 8 2010, since the
liberalization policy was implemented in 1992. As per the data given by SEBI, the total
figure stood at US$100.9 billion, wherein US$ 4.78 billion were infused in November
itself. The humungous increase in investment mirrors the foreign investors’ faith in the
Indian markets. FIIs have made investments worth US$ 4.11 billion in equities and
poured US$ 667.71 million into the debt market.
Data sourced from SEBI shows that the number of registered FIIs stood at 1,738 and
number of registered sub-accounts rose to 5,592 as of November 10, 2010.
As on December 17, 2010, India's foreign exchange reserves totaled US$ 294.60 billion,
an increase of US$ 11.13 billion over the same period last year, according to the Reserve
Bank of India's (RBI) Weekly Statistical Supplement.
Moreover, India received foreign direct investment (FDI) equity worth US$ 12.39 billion
during April-October, 2010-11, taking the cumulative amount of FDI inflows during
April 2000 - October 2010 to US$ 179.45 billion, according to the Department of
Industrial Policy and Promotion (DIPP).
The services sector comprising financial and non-financial services attracted 21 per cent
of the total FDI equity inflow into India, with FDI worth US$ 2,163 million during April-
October 2010, while telecommunications including radio paging, cellular mobile and
basic telephone services attracted second largest amount of FDI worth US$ 1,062 million
during the same period. Metallurgical industries were the third highest sector attracting
FDI worth US$ 920 million followed by power sector which garnered US$ 729 million
during the financial year April-October 2010.
 Exports from India have increased by 26.8 per cent year-on-year (y-o-y) to touch

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 US$ 18.9 billion in November 2010, urging the Government to exude confidence
that overall shipments in 2010-11 may touch US$ 215 billion. For the April-
November 2010 period, exports have grown by 26.7 per cent to US$ 140.3
billion, while imports totaled up to US$ 222 billion, expanding 24 per cent.
 India's logistics sector is witnessing increased activity. According to the Indian
Shipping ministry, the country's major ports handled 44.4 million tones of cargo
during September 2010, 4.5 per cent higher as compared to 5.9 per cent growth in
September 2009. Leading consultants Frost Sullivan, as cited by The Economic
Times, are expecting traffic to boost at Indian ports from 814.1 million tones
(MT) to 1,373.1 MT from 2010 to 2015 at a CAGR of 11 per cent. The study
group has underlined three key trends in the sector, namely, increase in
containerized cargo, increased private sector participation and traffic diversion
toward minor ports.
 Foreign Tourist Arrivals (FTA) in India during the period of January- November
2010 was 4.93 million as compared to the FTAs of 4.46 million during the same
period of 2009, showing a growth of 10.4 per cent. The Foreign Exchange
Earnings (FEE) during the period of January-November 2010 were US$ 12.88
billion as compared to US$ 10.67 billion during the same period of 2009,
registering a growth rate of 20.7 per cent, according to data released by the
Ministry of Tourism.
 The total telephone subscriber base in the country reached 742.12 million as on
October 31, 2010, taking the overall tale-density to 62.51, according to the figures
released by the Telecom Regulatory Authority of India (TRAI). Also the wireless
subscriber base increased to 706.69 million.
 The average assets under management of the mutual fund industry stood at US$
160.44 billion for the month of September 2010, according to the data released by
Association of Mutual Funds in India (AMFI).
 As per NASSCOM’s Strategic Review 2010, the Indian IT-BPO sector continues
to be the fastest growing segment of the industry and is estimated to aggregate
revenues of USD 73.1 billion in FY2010, with the IT software and services
industry accounting for USD 63.7 billion of revenues.
 The cumulative production of vehicles in India grew by 32.4 per cent upto August
2010 as compared to the same period in 2009, Mr B S Meena, Secretary, Ministry
of Heavy Industry, reported. Passenger vehicles, commercial vehicles and two-
wheeler segments had all recorded impressive growth rates of 32 per cent, 49 per
cent and 31 per cent, respectively during the period upto August 2010.
 According to the Gem and Jewellery Export Promotion Council, jewellery
shipments were worth US$ 23.57 billion in April-November 2010, registering a
rise of 38.25 per cent as compared to US$ 17.05 billion in the corresponding
period of 2009.
 According to the Ministry of Civil Aviation, passengers carried by domestic
airlines from January-November, 2010 were 46.81 million as against 39.35
million in the corresponding period of year 2009, thereby registering a growth of
18.9 per cent.
 According to Ernst & Young (E&Y), a global consultancy firm, India is expected
to receive more than US$ 7 billion in private equity (PE) investments in 2010, on

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 the back of robust economic growth. According to research firm VCCEdge,
mergers and acquisition (M&A) deals worth US$ 54.6 billion have been signed
till December 15, 2010, significantly more than the previous high of US$ 42
billion achieved in 2007.
 The HSBC Markit Business Activity Index, which measures business activity
among Indian services companies, based on a survey of 400 firms, rose to 60.1 in
November 2010 from 56.2 in October 2010.

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