Fundamental Analysis Of

ICICI Bank

Submitted To
Submitted By
Dr. G.S. Batra
Mandeep Singh
MBA II (C)
5879

School Of Management Studies

Punjabi University
Patiala
 FUNDAMENTAL ANALYSIS

Fundamental analysis is the examination of the underlying forces that affect the well being of the
economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast
and profit from future price movements.
• At the company level, fundamental analysis involves examination of financial data,
management, business concept and competition.

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

• For the national economy, fundamental analysis focus on economic data to assess the
present and future growth of the economy.

To forecast future stock prices, fundamental analysis combines economic, industry, and company
analysis to derive a stock's current fair value and forecast future value. If fair value is not equal
to the current stock price, fundamental analysts believe that the stock is either over or under
valued and the market price will ultimately gravitate towards fair value. Fundamentalists do not
heed the advice of the random walkers and believe that markets are weak-form efficient. By
believing that prices do not accurately reflect all available information, fundamental analysts
look to capitalize on perceived price discrepancies.

Economic analysis with favorable GDP with savings, investment, stable prices, balance of
payments,and infrastructure facilities which provides a best environment for common stock
investment.

Industrial analysis growth follows a pattern. This replicates the banking industry monitory
policy, CPR, SLR, and the flow of the industry.
Company analysis explains of the profile of the companies and then deals with financial
statement analysis of the companies.

ECONOMIC ANALYSIS

The level of economy has an impact on investment in many ways. If the economic growth
rapidly, the industry can also be expected to show rapid growth and vice versa. When the level of
economic activity is low, stock price are low, and when the level of economic activity is high the
stock price are high reflecting the prosperous outlook for sales and profit of the firms vigorous
growth with strong macroeconomic fundamentals has characterized developments in stock
market.

The economy is like the tide and the various industry groups and individual companies are like
boats. When economy expands most industry groups and companies benefits and grows. When
the economy declines, most sectors and companies usually suffer. The stock market does not
operate in a vacuum it is an integral part of the whole economy of a country.

To gain an insight into the complexities of stock market one needs to develop a sound economic
understanding and be able to interpret the impact of important economic indicators on stock
markets.

The following are some important factors which should be taken into account while doing
fundamental analysis:
• Economic growth
• Per capita income
• Industrial production
• Inflation
• Interest rates
• Foreign exchange reserves
• Budgetary deficit
• Domestic savings and investment
 • Tax rates
• Infrastructure
• Political situation

Key Economic Indicators of Indian economy

1 Indian GDP Growth rate

The Gross Domestic Product (GDP) in India expanded at an annual rate of 8.90 percent in the
last quarter. India Gross Domestic Product is worth 1217 billion dollars or 1.96% of the world
economy, according to the World Bank. India's diverse economy encompasses traditional village
farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of
services. Services are the major source of economic growth, accounting for more than half of
India's output with less than one third of its labor force. The economy has posted an average
growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage
points.
 2 India Interest Rate

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2011 5.50
2010 3.25 3.25 3.38 3.63 3.75 3.75 4.08 4.50 5.00 5.25 5.25
2009 4.50 4.00 3.75 3.38 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25
2008 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 5.50
* The table above displays the monthly average.
 3 Inflation Rate

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2010 16.22 14.86 14.86 13.33 13.91 13.73 11.25 9.88 9.82 9.70 8.33
2009 10.45 9.63 8.03 8.70 8.63 9.29 11.89 11.72 11.64 11.49 13.51 14.97
2008 5.51 5.47 7.87 7.81 7.75 7.69 8.33 9.02 9.77 10.45 10.45 9.70
* The table above displays the monthly average.

The inflation rate in India was 8.33 percent in November of 2010. Inflation rate refers to a
general rise in prices measured against a standard level of purchasing power. The most well
known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator,
which measures inflation in the whole of the domestic economy.
 4 FDI in India

Foreign direct investment (FDI) is probably one of the most significant factors leading to the
globalization of the international economy. FDI inflows to the developing countries increased
remarkably in the 1990s and now accounts for about 40 per cent of global FDI.

Improved global sentiment and strong industrial output numbers in India are increasingly
attracting foreign investors in the country. Other factors being attributed to the revival in foreign
direct investment (FDI) in recent times include increasing consumer confidence.

India has been ranked at the third place in global foreign direct investments this year, following
the economic meltdown, and will continue to remain among the top five attractive destinations
for international investors during the next two years,

India attracted FDI inflows of US$ 1.74 billion during November 2009, a 60 per cent increase
over the US$ 1.08 billion achieved in same month last year. The cumulative amount of FDI
inflows from August 1991 to December 2009 stood at US$ 127.46 billion, according to the latest
data released by the Department of Industrial Policy and Promotion (DIPP). India attracted FDI
equity inflows of US$ 1.54 billion during December 2009. On a cumulative basis, FDI equity
inflows of US$ 20.92 billion were recorded during April-December 2009. India's FDI inflows
touched US$ 26.5 billion in the April-December period last fiscal. The country has attracted FDI
worth US$ 23.82 billion in the January-October 2009 period and October 2009 alone witnessed a
56 per cent year-on-year jump in FDI with inflows of US$ 2.33 billion, according to the
DIPP.The services sector comprising financial and non-financial services attracted FDI worth
US$ 3.54 billion during April-December 2009-10, while computer software and hardware sector
garnered about US$ 595 million during the said period.
 5 Foreign exchange reserves

Foreign exchange reserves are very important for any economy as it is the main indicator of an
economy when it comes to comparison with other economies in global front.

Foreign exchange reserves increased by US$ 11 billion as against a decline of US$ 20 billion
during the corresponding period a year ago. Foreign exchange reserves stood at US$ 279 billion
as on March 31, 2010. The six-currency trade-based real effective exchange rate (REER) (1993-
94=100) appreciated by 15.5 per cent during 2009-10 up to February as against 10.4 per cent
depreciation in the corresponding period of the previous year.

According to the latest data released by the reserve bank of India, the value of gold in reserves
rose $551 million to touch $18,537 million. Foreign currency assets comprising dollars, pounds
and euro, among others, on the other hand dipped $354 m during the week. Special Drawing
Rights (SDR) — reserve currency with the International Monetary Fund — and the reserve
capital with the IMF dipped by $6m and $34m, respectively, during the week.

In the banking sector, banks have again started parking funds in mutual funds in the absence of
lending opportunities during this time of the year. They parked an additional Rs 766 crore during
the fortnight ended April 23 to take their total MF exposure to Rs 1,06,285 crore.
 INDUSTRY ANALYSIS

The purpose of industry analysis is to review prevailing conditions within specific industry and
its segments. The company's industry obviously influences the outlook for the company. Even
the best stocks can post mediocre returns if they are in an industry that is struggling.

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

To assess the industry group potential, an investor would want to consider the overall growth
rate, market size, and its importance to economy. While the individual company is still
important, its industry group is likely to exert as much as, or more, influence on the stock price.
When stock move the usually move as groups; there are very few lone guns out there. An
understanding of the industry sector involved, including the maturity of the sector and any
cyclical effects that the overall economies have on it, is also necessary.

The followings are some important factors which should be considered in

Fundamental Analysis

• Growth: A growing industry gives room for profitability.

• Profitability: Average profitability of the industry should be attractive.

• Competition and market share:

• Technology trends

• Government policy
 Monetary Policy in India

CRR Rates

RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from
time to time. Increase in CRR means that banks have fewer funds available and money is sucked
out of circulation. Thus we can say that this serves duel purposes i.e. it not only ensures that a
portion of bank deposits is totally risk-free, but also enables RBI to control liquidity in the
system, and thereby, inflation by tying the hands of the banks in lending money.

RBI decreased CRR for the banks when the global slowdown was taking toll of all the
economies and specially banking and finance institutions. RBI in first in its moves reduced CRR
from its August 2008 9% to 5% in January 2009. But recently RBI has started its normalization
policy and hiked CRR to 6% in its annual monetary policy.

Reverse Repo Rates

The rates at which the Reserve Bank of India takes money from the commercial banks are known
as reverse repo rates. The private or public sector banks always prefer to provide loans to the
Central Bank as they know that their money would be in safe hands if given to it. The
commercial banks always prefer to lend during when the reverse repo rates are higher as it
provides generation of more revenues. So in other words we can define Reverse repo rate as the
rate at which the RBI absorbs liquidity from the commercial banks.

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

Repo Rates

Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks. When
the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say
that in case, RBI wants to make it more expensive for the banks to borrow money, it increases
the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the
repo rate.
The following table shows the trends of Repo and Reverse repo rates in India.

Policy Announcement Reverse Repo Rate Repo Rate

November 2008 6.00% 7.50%

December 2008 5.00% 6.50%

January 2009 5.50% 5.50%

March 2009 3.50% 5.00%

April 2009 3.25% 4.75%

March 2010 3.50% 5.00%

April 2010 3.75% 5.25%

September 2010 5.00% 6.00%

January 2011 5.50% 6.50%

This table shows how RBI has timely increased and decreased the rates according to the state of
the economy and specially for the good health of the Banking and Finance Industry in the times
of Economic slowdown.

SLR

Every bank is required to maintain at the close of business every day, a minimum proportion of
their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-
encumbered approved securities. The ratio of liquid assets to demand and time liabilities is
known as Statutory Liquidity Ratio (SLR).

Present SLR is 24%. (decreased 1% from earlier 25%). RBI is empowered to increase this ratio
up to 40%. An increase in SLR also restricts the bank’s leverage position to pump more money
into the economy.
 Bank Rate

Bank Rate is the rate at which central bank of the country (in India it is RBI) allows finance to
commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any
upward revision in Bank Rate by central bank is an indication that banks should also increase
deposit rates as well as Prime Lending Rate. This any revision in the Bank rate indicates could
mean more or less interest on your deposits and also an increase or decrease in your EMI. Bank
rate in India is 6% currently and there has been no change in the Bank rate from 2003.

Performance of Indian Banking Industry

The Indian banking system is financially stable and resilient to the shocks that may arise due to
higher non-performing assets (NPAs) and the global economic crisis, according to a stress test
done by the Reserve Bank of India (RBI).

Significantly, the RBI has the tenth largest gold reserves in the world after spending US$ 6.7
billion towards the purchase of 200 metric tones of gold from the International Monetary Fund
(IMF) in November 2009. The purchase has increased the country's share of gold holdings in its
foreign exchange reserves from approximately 4 per cent to about 6 per cent.

Following the financial crisis, new deposits have gravitated towards public sector banks.
According to RBI's 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial
Banks: September 2009', nationalized banks, as a group, accounted for 50.5 per cent of the
aggregate deposits, while State Bank of India (SBI) and its associates accounted for 23.8 per
cent. The share of other scheduled commercial banks, foreign banks and regional rural banks in
aggregate deposits were 17.8 per cent, 5.6 per cent and 3.0 per cent, respectively.

With respect to gross bank credit also, nationalized banks hold the highest share of 50.5 per cent
in the total bank credit, with SBI and its associates at 23.7 per cent and other scheduled
commercial banks at 17.8 per cent. Foreign banks and regional rural banks had a share of 5.5 per
cent and 2.5 per cent respectively in the total bank credit.

The report also found that scheduled commercial banks served 34,709 banked centers. Of these
centers, 28,095 were single office centers and 64 centers had 100 or more bank offices.
The confidence of non-resident Indians (NRIs) in the Indian economy is reviving again. NRI
fund inflows increased since April 2009 and touched US$ 45.5 billion on July 2009, as per the
RBI's February bulletin. Most of this has come through Foreign Currency Non-resident (FCNR)
accounts and Non-resident External Rupee Accounts. India's foreign exchange reserves rose to
US$ 284.26 billion as on January 8, 2010, according to the RBI's February bulletin.

Growth of Indian Banking Industry

The growth in the Indian Banking Industry has been more qualitative than quantitative and it is
expected to remain the same in the coming years. Based on the projections made in the "India
Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts
that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets
of all scheduled commercial banks by end-March 2010 are estimated at Rs 40, 90,000 crores.
That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent
in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during
the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95
and 2002-03. It is expected that there will be large additions to the capital base and reserves on
the liability side.

Challenges to Banking industry in India

The banking industry in India is undergoing a major transformation due to changes in economic
conditions and continuous deregulation. These multiple changes happening one after other has a
ripple effect on a bank trying to graduate from completely regulated seller market to completed
deregulated customers market.

Deregulation: This continuous deregulation has made the Banking market extremely
competitive with greater autonomy, operational flexibility and decontrolled interest rate and
liberalized norms for foreign exchange. The deregulation of the industry coupled with decontrol
in interest rates has led to entry of a number of players in the banking industry. At the same time
reduced corporate credit off take thanks to sluggish economy has resulted in large number of
competitors batting for the same pie.

New rules: As a result, the market place has been redefined with new rules of the game. Banks
are transforming to universal banking, adding new channels with lucrative pricing and freebees
to offer. Natural fall out of this has led to a series of innovative product offerings catering to
various customer segments, specifically retail credit.

Efficiency: This in turn has made it necessary to look for efficiencies in the business. Banks
need to access low cost funds and simultaneously improve the efficiency. The banks are facing
pricing pressure, squeeze on spread and have to give thrust on retail assets.

Diffused Customer loyalty: This will definitely impact Customer preferences, as they are bound
to react to the value added offerings. Customers have become demanding and the loyalties are
diffused. There are multiple choices; the wallet share is reduced per bank with demand on
flexibility and customization. Given the relatively low switching costs; customer retention calls
for customized service and hassle free, flawless service delivery.

Misaligned mindset: These changes are creating challenges, as employees are made to adapt to
changing conditions. There is resistance to change from employees and the Seller market
mindset is yet to be changed coupled with Fear of uncertainty and Control orientation.
Acceptance of technology is slowly creeping in but the utilization is not maximized.

Competency Gap: Placing the right skill at the right place will determine success. The
competency gap needs to be addressed simultaneously otherwise there will be missed
opportunities. The focus of people will be on doing work but not providing solutions, on
escalating problems rather than solving them and on disposing customers instead of using the
opportunity to cross sell.

COMPANY ANALYSIS-ICICI Bank

Profile
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution,
and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46%
through a public offering of shares in India in fiscal 1998, an equity offering in the form of
ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in
an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional
investors in fiscal 2001 and fiscal 2002.

ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$ 81
billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year
ended March 31, 2010. The Bank has a network of 2,000 branches and about 5,219 ATMs in
India and presence in 18 countries. ICICI Bank offers a wide range of banking products and
financial services to corporate and retail customers through a variety of delivery channels and
through its specialized subsidiaries and affiliates in the areas of investment banking, life and
non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in
the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong
Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in
United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock
Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New
York Stock Exchange (NYSE).
 Share holding Pattern
Share holding pattern as on : 31/03/2010 31/12/2009 30/09/2009
Face value 10.00 10.00 10.00
No. Of % No. Of % No. Of %
Shares Holding Shares Holding Shares Holding
Promoter's holding
Sub total - - - - - -
Non promoter's holding
Institutional investors
Banks Fin. Inst. and
195985072 17.58 196772204 17.66 193684224 17.39
Insurance
FII's 414589473 37.19 405186131 36.37 393903476 35.37
Sub total 693669873 62.22 681285777 61.15 666311911 59.84
Other investors
Private Corporate
29101511 2.61 30683910 2.75 32640436 2.93
Bodies
NRI's/OCB's/Foreign
6312510 0.57 8344069 0.75 8661306 0.78
Others
Directors/Employees 4001763 0.36 915614 0.08 933488 0.08
Govt. 2830 - 6760 - 7380 -
Others 317823760 28.51 324764614 29.15 335589655 30.14
Sub total 357238265 32.04 364710768 32.73 377828066 33.93
General public 63933067 5.73 68131224 6.12 69419969 6.23
Grand total 1114841205 100.00 1114127769 100.00 1113559946 100.00

Performance of Share

It was trading on near 325 Rs. in Feb 2009 but now its trading on in the range of Rs. 950-1050.
The share has performed continuously well on the stock exchange. The script is on the upward
trend on from the last 1 year its price is getting better as time progressing.

Annual Financial Results

 2006 2007 2008 2009 2010

Sales Turnover
14,306.13 22,994.29 30,788.34 31,092.55 25,706
Other Income 4,983.14 5,929.17 8,810.77 7,603.72 7,477.6
Total Income 19,289.27 28,923.46 39,599.11 38,696.27 33,184.
Total Expenses 6,595.22 8,916.92 11,058.77 10,853.37 10,246
Operating Profit 7,710.91 14,077.37 19,729.57 20,239.18 15,460
Gross Profit 12,694.05 20,006.54 28,540.34 27,842.90 22,937
Interest 9,597.45 16,358.50 23,484.24 22,725.93 17,592
PBDT 3,096.60 3,648.04 5,056.10 5,116.97 5,345
PBT 3,096.60 3,648.04 5,056.10 5,116.97 5,345
Tax 556.53 537.82 898.37 1,358.84 1,320
Net Profit 2,540.07 3,110.22 4,157.73 3,758.13 4,024
Earnings Per Share 28.55 34.58 37.37 33.76 36.10
Book Value -- -- -- -- --

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

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

Face Value 10.00 10.00 10.00 10.00 10.00

Analysis of Key Components

Sales

ICICI Bank’s sales have increased more then 2 times from its 2006 figures in 2009. But this year
figures show a deep in the sales of the Banks. As the 2009 figure was 31092.55 Crs. which is for
2010 is 25706 Crs. This is shows a decline around 20 % in its Sales.

Net Profit
As the ICICI bank’s net profit decreased in 2009 from its net profit of 2008 but this time it has
increased again. The figure for 2010 is 4024 Crs. which is approximately 10% more then 3758
Crs. of 2009. Although the sales is less in 2010 but the less expenses, less interest and less tax
payments has increased the figure of profit for ICICI Bank.

Reserves

The reserves of ICICI bank has increased significantly from last 4-5 years in year 2008 its
increased 2 fold from its 2007 figure and the trend continues in 2010 also. As the reserves has
increased in this year also significantly.

Ratio Analysis of ICICI Bank

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

Profitability
Interest Income/Total Income (%) 80.40 77.80 76.00
Non Interest Income/Total Income (%) 19.60 22.20 24.00
Reported Net Profit/Total Income (%) 9.70 10.50 10.80
Net Interest Income/Total Income (%) 21.60 18.40 19.50
Net Interest Margin (%) 3.80 3.20 3.00

Return Related
ROE (%) 7.50 8.90 12.60
ROA (%) 1.00 1.00 0.90
Leverage & Capital Measures
Customer loans/deposits (%) 100.00 92.30 81.80
Investments/Deposits (%) 47.20 45.60 39.60
Total Liabilities/Networth 7.70 8.60 14.20

Growth (%)
Growth in Interest Income 0.99 39.98 53.75
Growth in Interest Expenses -- 43.56 70.45
Growth in Employee cost -- 28.59 49.38
Growth in PAT -- 33.68 22.45
Growth in Deposits -- 6.04 39.63
Growth in Borrowings 2.55 28.08 33.06

Per Share
Book Value Per Share (Rs) 444.90 417.50 269.70
Earnings Per Share (Rs) 33.80 37.40 34.60
Dividend Per Share (Rs) 11.00 11.00 10.00

Analysis of some of the key ratios

EPS

This ratio indicates profitability per equity share basis and is widely used by the prospective
equity shareholders as a guide to investment decision in the firm. As in the case of ICICI bank it
has a very good EPS of 36.10 as recorded latest.

But if we look at the trend of EPS of ICICI bank it’s increasing continuously from the last fiscal
year of 2010. This shows that the performance of ICICI bank and its share is good in current
time.

Price Earning Ratio

This help to establish relationship between market price per share to earning per share, this
indicates how the investors react to the performance of the business. The current P/E ratio of the
bank is 24.68 which is very good for the company.

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

Debt/ Equity Ratio

It indicates the respective claim of outsiders and owners i.e. equity shareholders in the assets of
the firm. It indicates the financial soundness of the organization. Company having a Debt- equity
ration of 4.48 which is more then ideal ratio of 1:1 but this is the trend in all the banks as they get
so much debt in their capital structure.

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

Quick Ratio

It helps to judging immediate solvency position of a firm. Standard ratio is 1:1.Is is widely used
as indicator of the firm’s liquidity. ICICI Bank has a quick ratio of 5.58 which is very good. It
shows the liquidity of the bank, it can pay its liabilities faster and it doesn’t have to face liquidity
crunch.

Net Profit Margin

Net profit margin is the ration which tells how much profit a firm earning on its sales. This
shows the profitability of the firm. In the case of ICICI banks its current net profit margin is 9.74
which is very healthy as it is earning good profit on its sales. Although if we look at the trend of
net profit margin it’s on the decline trend but still its very good.

Return of Average Equity

This ratio shows the return on the equity shares means earnings divided by no. of equity shares.
The current return of average equity is 7.58 for the ICICI bank which is quite healthy. This
shows that the shareholders getting a good share of the profit.
 Recommendation

To Buy

Reasons to Invest in ICICI Bank

• Modest loan growth (we expect 16% CAGR over FY10- 12), improvement in CASA
ratio (expect it to touch 40% by FY12) and reduction in bulk deposits will lead to
improved margins. Expect margins to increase by 10-15bp over FY11-12.

• Reduced exposure to unsecured retail loans (down to 4.8% of loan book from 10% in
FY08) could lead to lower NPAs in future, driving earnings.

• During the year ended March 31, 2010, the Bank has significantly strengthened its
deposit franchise. This is reflected in the strong growth in savings and current account
deposits and increase in the CASA ratio. The Bank continues to invest in expansion
of its branch network to enhance its deposit franchise and create an integrated
distribution network for both asset and liability products.