SFM Final Assignment

SVKMs NMIMS University
School of Business Management

MBA (Second Year) Trimester IV, Session 2014-2015
Assignment for the Course Strategic Financial Management
Report on
Identify Four Acquisition

Targets in Banking Sector
Report submitted by:

Yogeshkumar Mundada A031
Gareema Saboo
A043
Aditya Marphatia
A057
Ayush Bagla
B004
Contents
Introduction ............................................................................................................................................. 3
History of Banking Sector in India ........................................................................................................ 3
Potential Acquirers ................................................................................................................................. 3
Most Likely Targets ................................................................................................................................ 4
Exhibits .................................................................................................................................................... 7
Teaching Note ........................................................................................................................................ 25
References:............................................................................................................................................. 29
Introduction
On the morning of 16th August, 2014, Mr. Ram sat in his office reflecting on a meeting he had
had with an investment banker earlier in the week. He was appointed as the Chairman of a
Special Committee to look at the possible acquisitions and consolidations that could take place in
the banking industry in India. He had listed down various probable acquirers and targets, and
was pondering about the final decision that he should take.
History of Banking Sector in India

Established in 1935, the Reserve Bank of India is the Central Banking Authority of India. By the
time India achieved independence, there were around 1200 small banks. The Banking
Companies Act (1949) was the first step towards streamlining the activities of commercial bank.
Many steps were taken to reform the Indian Banking Sector. In 1955, the Imperial Bank of India
was nationalized and named the State Bank of India to act as the principal agent of RBI and
handle banking transactions all over the country. Major process of nationalizing the banks was
carried out, and by 1980 nearly 80% of the banking segment in India was under governments
ownership.
During the period of liberalization, the Banking Regulation Act was amended in 1993, giving
licences to new private sector banks. These new banks included Global Trust Bank, UTI, ICICI
and HDFC bank. Coupled with the rapid growth in Indian economy, the banking sector was then
revolutionized and it grew rapidly, with strong contribution from all sectors government,
private and foreign banks.
Banks in India are turning their focus to servicing clients and improving their technology
infrastructure, which can help them provide a better customer experience and give them a
competitive edge. Geographical outreach, especially in tier 2 and tier 3 cities, is a focus area.
Degrading asset quality is another problem, and thus maintaining an acceptable NPA level is also
a major goal to focus on.
Potential Acquirers
Kotak Mahindra Bank Limited
Kotak Mahindra Bank Ltd is a bank and financial services company established in India in 1985.
It is the only Non-Banking Financial Corporation (NBFC) to have converted to a bank when the
Reserve Bank Of India granted new licences at the start of the millennium. As of 2014 it has
over 605 branches, 1,103 ATMs and a consolidated balance sheet of US$ 3 billion. It is one of
the most profitable banks in India with a cost to income ratio of 49.7%. Its Net Interest Margin
(NIM) is 4.9%, a Gross NPA Ratio of 2% and boasts of a customer base of over 300,000. See
Exhibit 2 for a financial overview of Kotak Mahindra Bank Ltd.
Despite its strong performance and high profitability Kotak is not able to make an impact on the
banking business in the sector. It is seeing high returns but is unable to expand as quickly as
compared to some of its bigger rivals such as the State Bank Of India, ICICI Bank and HDFC
Bank. It is able to eke out tremendous margins from the sector by deploying high performance
technology but lacks the scale, reach and presence to address a much wider consumer base. At a
time when most Indian banks are looking to expand in the rural market due to high growth and
financial inclusion schemes by the government, Kotak is faced with stiff competition from the
above trio that dominate the market.
Yes Bank Limited
Yes Bank Ltd is an Indian bank founded in 2004. Through rapid expansion and aided by growth
in the economy it has a market capitalisation of Rs. 23,000 crore, 560 branches and 1,139 ATMs.
It has a Gross NPA ratio of 0.31%, Net Interest Margin of 2.9% and balance sheet size of US$
1.8 billion. Its operating profit grew by 25.5% in the financial year ending 31, March 2014. It has
a strong retail-banking arm and is looking to expand into the rural areas in search of higher
growth.
Like Kotak Mahindra Bank, it too faces tremendous competition from the big trio of State Bank
Of India, ICICI Bank and HDFC Bank. Being similar in size and performance to KMBL, it is
unable to match the scale and reach achieved by the above trio. Yet it is able to match them in
profitability and commands a much lower Gross NPA ratio. This is a massive advantage for them
as they have been able to maintain their NPA through the economic downturn of 2008-2012.
Offering a higher interest rate and flexible banking services has enabled them to garner a loyal
customer base in urban India. Their goal is to be able to transfer this might to the rural market
and has expressed interest in making an acquisition in this space in order to enter the market. See
Exhibit 1 for a financial overview of Yes Bank Ltd.
Most Likely Targets

Lakshmi Vilas Bank
Lakshmi Vilas Bank was founded in 1926 in Karur with Shri V.S.N. Ramalinga Chettiar as the
leader. The bank was incorporated on November 3, 1926 and obtained its banking license from
RBI on 19,June 1958; and on 11 August, 1958 it became a scheduled commercial bank
signifying capability to operate as a full-fledged commercial bank.
Lakshmi Vilas Bank saw considerable expansion of its branch network during the period 196165, when the bank acquired nine other banks. From 1974, the bank started expanding the branch
network beyond Tamil Nadu to benefit from opportunities in the pan-Indian market. Thus,
branches were established in the neighbouring states of Andhra Pradesh, Karnataka and Kerala,
important financial centres such as Mumbai, New Delhi and Kolkata as well as in other
significant business centres in Maharashtra, Gujarat and Madhya Pradesh. Meanwhile, the bank
attained the status of Authorized Dealer in foreign exchange in 1976 enabling it to provide full
range of services to customers engaged in international trade and to overseas travellers.
Implementation of Core Banking Solution (CBS) was started in October 2006, and all of the
banks branches were migrated to CBS by March 2008.
Currently, its operations are spread over a network of 362 branches (with 8 extension counters)
in 15 states and the Union Territory of Puducherry, supervised by 8 Regional Offices. It has 20
B Category Branches and 635+ ATMs. It is active across the entire spectrum of customer
segments - retail, mid-market and corporate. Through its branches, it offers a host of para-
banking products in association with Life and General Insurance companies, mutual funds, stock
broking houses, money remittance companies, etc.
The banks asset size as on March 31, 2014 was to the tune of Rs.20,000 crores, with gross
income of Rs.2,202 crores for the year ended March 31, 2014. It maintained deposits of over
Rs.18,500 crores as on March 31, 2014. The operating profit for the same year was to the extent
of Rs.309 crores; its growth rate at 23% during the year being one of the highest among peer
banks. See Exhibit 3 for a financial overview of Lakshmi Vilas Bank Ltd.
Karnataka Bank Limited
Karnataka Bank Ltd was founded in 1924 by leading members of the South Kanara Region. It is
one of the oldest regional banks and is now owned by various institutional funds and trusts. It is
headquartered at Mangalore, Karnataka, India and has a strong presence in the states of
Karnataka, Tamil Nadu, Maharashtra, Telengana and Seemandhra in addition to the metropolitan
regions of Mumbai, New Delhi, Chennai and Kolkata. It has the strongest presence in South
India with 467 branches, 44% of which are in rural & semi-urban areas. In addition to which it
has 60 specialised financial inclusion centres and its IT systems are ISO 27001:2005 secured and
certified. It has consistently displayed a strong performance with a Net Interest Margin of 2.4%,
Gross NPA Ratio of 2.92% in the financial year ending 31 March 2014. See Exhibit 4 for a
financial overview of Karnataka Bank Ltd.
The bank is currently in the midst of a massive Business Process Re-engineering plan that would
enable much higher growth and superior quality of assets & liabilities, which would result in
them being able to provide better quality services and products. Its strategy has been to open
branches in rural areas and get these consumers to higher services as their incomes grow. In light
of the union governments financial inclusion schemes, it has opened up more branches in these
areas. It offers products such as interest & collateral free loans of up to Rs. 10 lakhs and credit
cards with a limit of Rs. 25,000 to rural consumers. It is a member of the Karnataka Farmers
Council and its customer base mainly consists of farmers. In order to simplify banking
procedures it introduced a missed call banking solution for balance enquiry and a mini account
statement. In addition to the above it has a strong balance sheet, strong performance history and
has won numerous awards in the segment it competes in and has a strong outlook for the coming
years as the rural banking market grows.
City Union Bank Limited
City Union Bank Ltd was incorporated as a limited company in 1904 with the name of
Kumbakonam Bank Ltd. In 1965, two other local banks, namely The City Forward Bank Ltd and
The Union Bank Ltd were amalgamated with Kumbakonam Bank under a scheme of
amalgamation. Consequently, the name of the Bank was changed to The Kumbakonam City
Union Bank Ltd.
City Union Bank Ltd is one of the scheduled Indian commercial banks in private sector with
major presence in urban, semi-urban and rural centres in South India. The Bank operates in four
segments, namely Treasury, Retail banking, Corporate Banking and Other banking operations.
Their major offerings include CUB Smart deposits and tax saver gold deposit account among
others.
In tune with the national image attached to the Bank, its name was changed to City Union Bank
Ltd in 1987. Looking at the bank's financial strength, managerial competence and consistent
progress in all spheres of business, the RBI in 1990 granted it an Authorised Dealers License to
deal in Foreign Exchange business.
At the beginning of the millennium, the Bank set up an integrated Treasury Department to ensure
better fund management. They also set up a Credit Risk Management Department and Loan
Review Department to evaluate and mitigate risks associated with operations of the bank. They
further strengthened credit rating systems by introducing entry level rating, pricing of loans
based on rating of the borrowers.
The bank signed an MoU in 2003 with Life Insurance Corporation of India and National
Insurance Co Ltd for selling insurance products. They also obtained licence from Insurance
Regulatory Authority of India (IRDA) to act as Corporate Agents in the composite insurance
business. They also entered into a franchise agreement for Money Transfer Service Scheme of
Western Union Financial Services Inc, USA. See Exhibit 5 for a financial overview of City
Union Bank Ltd.
South Indian Bank
South Indian Bank came into being during the Swadeshi Movement in India. It is a private sector
bank headquartered at Thrissur city in Kerela, India. It has 805 branches/offices spread across
more than 26 states and union territories in India. It has 1013 ATMs and 3 bulk note acceptors/
cash deposit machines all over India. On the Financial Inclusion front, Bank has opened 3 Ultra
Small Branches and operates 57 KIOSKs in the state of Kerala and Tamil Nadu for the benefit of
common people. Pullu village in Thrissur District was adopted by the Bank and several steps
have been taken to transform the village as a "Model Village" in India. It was the first private
sector bank to open a NRI branch in November 1992 and an Industrial Finance branch in March
1993. It was also the first bank in Kerela to develop in-house, fully integrated branch automation
software and implement core banking solution.
The bank has been able to put up a very good performance in the financial year 2013-14. The
total business grew at 10.05 % from Rs. 76,077.83 Crore to Rs. 83,270.95 Crore. Total deposits
grew from Rs. 44,262.30 Crore to Rs. 47,491.09 Crore and total Advances grew from Rs.
31,815.53 Crore to Rs. 36,229.85 Crore. It registered a Gross Profit of Rs. 884.34 Crore as
against Rs. 848.59 Crore last year and the bank recorded its highest ever net profit of Rs. 507.50
Crore. Its gross NPA has come down to 1.19% and net NPA to 0.78%, which is lower than many
of our competitors. See Exhibit _ for a financial overview of South Indian Bank Ltd.
Mr. Ram has to give a decision by this week. He is still confused. Which deal should he
propose?
Exhibits
Exhibit 1 : Yes Bank
Exhibit 1a : Balance Sheet
(Rs in Crs)
Year
Mar 14
Mar 13
Mar 12
Mar 11
Mar 10
SOURCES OF FUNDS :
Capital
360.63
358.62
352.99
347.15
339.67
Reserves Total
6,761.11 5,449.05 4,323.65 3,446.93 2,749.88
Equity Share Warrants
0
0
0
0
0
Equity Application Money
0
0
0
0
0
Deposits
74,192.02 66,955.59 49,151.70 45,938.93 26,798.56
Borrowings
21,314.29 20,922.15 14,156.49 6,690.91 4,749.08
Other Liabilities & Provisions
6,387.75 5,418.72 5,640.85 2,583.07 1,745.32
Others
0
0
0
0
0
TOTAL LIABILITIES
109,015.80 99,104.13 73,625.68 59,006.99 36,382.51
APPLICATION OF FUNDS :
Cash & Balances with RBI
4,541.57 3,338.76 2,332.54 3,076.01 1,995.31
Balances with Banks & money at Call
1,350.10
727 1,253.00
419.96
677.94
Investments
40,950.36 42,976.04 27,757.35 18,828.84 10,209.94
Advances
55,632.96 46,999.57 37,988.64 34,363.64 22,193.12
Fixed Assets
293.47
229.55
177.1
132.43
115.47
Other Assets
6,247.33 4,833.21 4,117.05 2,186.11 1,190.73
Miscellaneous Expenditure not written off
0
0
0
0
0
Others
0
0
0
0
0
TOTAL ASSETS
109,015.79 99,104.13 73,625.68 59,006.99 36,382.51
Contingent Liability
200,992.98 247,778.79 164,125.51 136,207.72 105,778.93
Bills for collection
997.06
677.4
402.05
170.14
153.43
Exhibit 1b : Profit & Loss Statement

(Rs in Crs)
Year
Mar 14(12) Mar 13(12) Mar 12(12) Mar 11(12) Mar 10(12)
INCOME :
Interest Earned
9,981.35
8,294.00
6,307.36
4,041.75
2,369.71
Other Income
1,721.58
1,257.43
857.12
623.27
575.53
Total
11,702.93
9,551.43
7,164.48
4,665.02
2,945.24
II. Expenditure
Interest expended
7,265.09
6,075.21
4,691.72
2,794.82
1,581.76
Payments to/Provisions for Employees
784.4
655.54
475.15
362.33
256.89
Operating Expenses & Administrative Expenses
393.57
297.78
204.29
155.19
115.99
Depreciation
63.17
51.71
40.82
34.84
30.26
Other Expenses, Provisions & Contingencies 870.42
545.47
302.48
225.66
233.85
Provision for Tax
778.41
667.76
503.63
411.29
267.74
Fringe Benefit tax
0
0
0
0
0
Deferred Tax
-69.91
-42.71
-30.61
-46.25
-18.99
Total
10,085.15
8,250.75
6,187.48
3,937.88
2,467.50
III. Profit & Loss
Reported Net Profit
1,617.78
1,300.68
977
727.14
477.74
Extraordinary Items
-0.09
-0.51
-0.93
-0.27
-0.37
Adjusted Net Profit
1,617.87
1,301.19
977.93
727.41
478.11
Prior Year Adjustments
0
0
0
0
0
Profit brought forward
2,338.37
1,658.39
1,115.06
672.95
405.78
IV. Appropriations
Transfer to Statutory Reserve
404.45
325.17
244.25
181.78
119.44
Transfer to Other Reserves
4.58
44.58
25.35
2.01
31.52
Trans. to Government /Proposed Dividend 339.67
250.96
164.07
101.24
59.61
Balance carried forward to Balance Sheet 3,207.46
2,338.37
1,658.39
1,115.06
672.95
Equity Dividend %
80
60
40
25
15
Earnings Per Share-Unit Curr
43.45
35.29
27.03
20.53
13.81
Earnings Per Share(Adj)-Unit Curr
Book Value-Unit Curr
197.48
161.94
132.49
109.29
90.96
Exhibit 1c : Key Financial Ratios
Mar-14 Mar-13 Mar-12 Mar-11 Mar-10

72.71
73.2 76.09 77.75 80.52
59.46 60.92 48.99 39.92 40.33
5.58
4.88
5.69
6.97
7.62
Credit-Deposit(%)
Investment / Deposit (%)
Cash / Deposit (%)
Interest Expended / Interest Earned (%)
Other Income / Total Income (%)
Operating Expenses / Total Income (%)
Interest Income / Total Funds (%)
Interest Expended / Total Funds (%)
Net Interest Income / Total Funds (%)
Non Interest Income / Total Funds (%)
Operating Expenses / Total Funds (%)
Profit before Provisions / Total Funds
(%)
Net Profit / Total funds (%)
RONW (%)
72.79
14.71
14.95
9.59
6.98
2.61
1.65
1.68
73.25
13.16
13.97
9.6
7.03
2.57
1.46
1.55
74.38
11.96
13.02
9.51
7.07
2.44
1.29
1.41
69.15
13.36
14.57
8.47
5.86
2.61
1.31
1.43
66.75
19.54
16.98
7.99
5.34
2.66
1.94
1.69
2.58
1.55
25.02
2.48
1.51
24.81
2.32
1.47
23.07
2.5
1.52
21.13
2.91
1.61
20.27
Exhibit 1d : Banking Ratios

Gross Non-Performing Assets (Rs. Cr)
Net Non Performing Assets (Rs. Cr)
% of Net Non-Performing Assets to Net
Advance
Capital Adequacy Ratio (%)
Tier I Capital (%)
Tier II Capital (%)
Interest Income % Average Working
Fund
Non Interest Income % Average Working
Fund
Operating Profit % Average Working
Fund
Return on Assets (%)
Business Per Employee (Rs. Cr)
Profit Per Employee (Rs. Cr)

174.93 94.32 83.86 80.52
60.2
26.07
6.99 17.46
9.15 12.99
0.05
0
0
0
0.01
0
0
0
0.05
0
0
0
0.03
16.5
9.65
6.85
0.06
20.6
12.9
7.7
9.92
10.04
10.14
8.76
8.89
1.71
1.52
1.38
1.35
2.16
2.67
1.61
15.58
0.2
2.59
1.57
17.74
0.21
2.48
1.57
17.48
0.2
2.58
1.58
22.2
0.21
3.24
1.79
16.24
0.17
Exhibit 1e : Valuation Ratios (TTM)

Price Earning (P/E)
Price to Book Value ( P/BV)
Price/Cash EPS (P/CEPS)
EV/EBIDTA
Market Cap/Sales
Jun-14
13.57
2.24
13.57
11.41
2.19
Exhibit 2 : Kotak Mahindra Bank

(Rs in Crs)
Year
Mar 14 Mar 13 Mar 12 Mar 11 Mar 10
SOURCES OF FUNDS :
Capital
385.16
373.3
370.34
368.44
348.14
Reserves Total
11,889.93 9,073.65 7,575.60 6,428.04 4,136.97
0
0
0
0
0
8.53
17.53
34.82
36.91
54.8
Deposits
59,072.33 51,028.77 38,536.52 29,260.97 23,886.47
Borrowings
12,895.58 20,410.62 16,595.52 11,723.95 6,140.51
3,333.82 2,789.81 2,553.99 3,032.36 2,869.42
Others
0
0
0
0
0
TOTAL LIABILITIES
87,585.35 83,693.68 65,666.79 50,850.67 37,436.31
2,948.23 2,207.90 2,016.49 2,107.72 2,085.67
3,031.66 1,481.26
618.06
363.26
214.59
Investments
25,484.55 28,873.43 21,566.81 17,121.44 12,512.66
Advances
53,027.63 48,468.98 39,079.23 29,329.31 20,775.05
Fixed Assets
1,106.94
464.42
449.97
425.61
427.65
Other Assets
1,986.33 2,197.69 1,936.23 1,503.33 1,420.69
0
0
0
0
0
Others
0
0
0
0
0
TOTAL ASSETS
87,585.34 83,693.68 65,666.79 50,850.67 37,436.31
43,887.94 40,203.99 38,475.86 34,369.24 36,966.02
3,015.60 1,913.48 1,576.66 1,053.47
649.32
10

(Rs in Crs)
Year
INCOME :
Interest Earned
8,767.12
8,042.49
6,180.24
4,189.75
3,255.62
Other Income
1,399.71
1,160.66
977.35
780.53
628.24
Total
10,166.83
9,203.15
7,157.59
4,970.28
3,883.86
II. Expenditure
Interest expended
5,047.07
4,836.82
3,667.75
2,092.18
1,397.48
1,172.16
1,075.14
902.36
783.83
583.48
1,027.73
872.69
715.58
599.27
465.63
Depreciation
165.18
132.53
116.76
98.27
90
313.95
155.25
209.05
536.18
Provision for Tax
741.78
632.89
493.15
360.91
281.39
Fringe Benefit tax
0
0
0
0
0
Deferred Tax
28.11
-21.58
21.69
8.59
-31.41
Total
8,664.31
7,842.44
6,072.54
4,152.10
3,322.75
III. Profit & Loss
Reported Net Profit
1,502.52
1,360.72
1,085.05
818.18
561.11
Extraordinary Items
0.77
0.77
0.38
0.01
-1.92
Adjusted Net Profit
1,501.75
1,359.95
1,084.67
818.17
563.03
0
0
0
0
0
3,016.60
2,162.79
1,494.52
965.91
648.94
IV. Appropriations
375.63
340.18
271.27
204.55
140.28
66.43
107.06
93.8
43.77
76.21
Trans. to Government /Proposed Dividend
71.77
59.67
51.71
41.25
27.65
Balance carried forward to Balance Sheet 4,005.29
3,016.60
2,162.79
1,494.52
965.91
Equity Dividend %
16
14
12
10
8.5
19.39
18.13
14.55
11.04
16.18
159.35
126.53
107.28
92.23
128.83
11

92.18 97.75 100.9 94.27 94.61
49.37 56.32 57.06 55.76
54.7
4.68
4.72
6.08
7.89
7.79
Credit-Deposit(%)
Cash / Deposit (%)
(%)
RONW (%)
57.57
13.77
25.01
10.24
5.89
4.34
1.63
2.97
60.14
12.61
24.01
10.77
6.48
4.29
1.55
2.96
59.35
13.65
25.64
10.61
6.3
4.31
1.68
3.15
49.94
15.7
31.25
9.49
4.74
4.75
1.77
3.52
42.93
16.18
30.62
9.84
4.23
5.62
1.9
3.6
3.01
1.75
13.82
2.89
1.82
15.6
2.84
1.86
14.65
3
1.85
14.39
3.92
1.7
13.29

1,059.44 758.11 614.19 603.49 767.34
573.56 311.41 237.38 211.16 360.25
Advance
1.08
0.64
0.61
0.72
1.73
0
0 16.51 18.73 18.05
Tier I Capital (%)
0
0 14.84 16.91 15.17
Tier II Capital (%)
0
0
1.67
1.82
2.88
Fund
10.51 10.69 10.41
9.31
9.96
Fund
1.68
1.54
1.65
1.37
1.92
Fund
3.09
2.87
2.79
2.86
3.97
1.8
1.81
1.83
1.77
1.72
6.78
6.86
6.13
5.35
4.87
0.1
0.1
0.09
0.08
0.07

Price Earning (P/E)
EV/EBIDTA
Market Cap/Sales
Jun-14
44.59
5.56
44.59
18.2
7.69
12
Exhibit 3 : Lakshmi Vilas Bank

(Rs in Crs)
Year
SOURCES OF FUNDS :
Capital
97.54
97.53
97.53
97.51
48.78
Reserves Total
916.8
860.84
794.91
641.49 404.94
0
0
0
0
0
0
0
0
0
0
Deposits
15,618.98 14,114.14 11,149.51 9,075.38 7,360.90
Borrowings
480
580
725.11
333.93
142.6
553.36
510.36
534.13
350.63 350.42
Others
0
0
0
0
0
TOTAL LIABILITIES
17,666.68 16,162.87 13,301.19 10,498.94 8,307.64
728.15
810.02
943.6
750.83 591.96
143.8
36.72
82.96
82.96 289.45
Investments
4,324.55 4,395.12 3,518.85 2,983.22 1,863.06
Advances
11,702.80 10,188.68 8,094.42 6,277.50 5,236.21
Fixed Assets
189.82
189.21
179.13
65.67
53.98
Other Assets
577.56
543.12
482.23
338.76 272.98
0
0
0
0
0
Others
0
0
0
0
0
TOTAL ASSETS
17,666.68 16,162.87 13,301.19 10,498.94 8,307.64
2,846.76 3,762.98 3,838.81 2,360.26 1,682.19
376.6
331.7
267.81
190.9 231.95
13

(Rs in Crs)
Year
INCOME :
Interest Earned
1,760.55
1,519.26
1,064.83
909.32
657.61
Other Income
197.07
157.92
137.02
103.56
109.7
Total
1,957.62
1,677.18
1,201.85
1,012.88
767.31
II. Expenditure
Interest expended
1,368.55
1,148.03
699.84
660.19
504.07
157.62
141.25
116.3
92.47
78.45
Operating Expenses & Administrative Expenses72.73
62.45
47.47
37.32
28.59
Depreciation
25.44
23.57
20.22
17.3
12.72
175.86
193.88
174.38
61.98
Provision for Tax
58.43
30.53
15.5
0
25.11
Fringe Benefit tax
0
0
0
0
0
Deferred Tax
-12.23
-11.53
7.5
0.55
6.09
Total
1,866.05
1,570.16
1,100.71
982.21
717.01
III. Profit & Loss
Reported Net Profit
91.57
107.02
101.14
30.67
50.3
Extraordinary Items
0.01
-0.04
0.07
0.08
1.61
Adjusted Net Profit
91.56
107.06
101.07
30.59
48.69
0
0
0
0
0
0.09
0.25
0.16
0.29
0.3
IV. Appropriations
29
28
26
10
15.25
28.34
39.5
46.53
13.98
20.79
34.23
39.68
28.52
6.82
14.27
Balance carried forward to Balance Sheet
0.09
0.09
0.25
0.16
0.29
Equity Dividend %
30
35
25
6
25
8.88
10.41
9.95
3.05
9.89
96.02
90.14
83.23
75.79
93.01
14

73.63 72.37 71.06 70.05 70.07
29.33 31.33 32.15 29.49
27.4
5.17
6.94
8.38
8.17
7.53
Credit-Deposit(%)
Cash / Deposit (%)
(%)
RONW (%)
77.73
10.07
17.26
10.46
8.13
2.33
1.17
2.01
75.57
9.42
17.51
10.37
7.84
2.53
1.08
2
65.72
11.4
18.98
8.98
5.9
3.08
1.16
1.92
72.6
10.22
18.41
9.67
7.02
2.65
1.1
1.98
76.65
14.3
20.12
8.86
6.79
2.07
1.48
2.08
1.49
0.54
10.09
1.61
0.73
12.66
2.31
0.85
13.04
1.77
0.33
5.14
1.47
0.68
11.54

459.91 307.73 157.79 325.17 144.05
283.81 177.09 72.88 257.78 64.85
Advance
2.43
1.74
0.9
4.11
1.24
10.43 12.08 12.09 14.21 10.09
Tier I Capital (%)
7.75
8.17
9.88 11.52
8.63
Tier II Capital (%)
2.68
3.91
2.21
2.69
1.46
Fund
10.41 10.28
9.63
9.66
9.29
Fund
1.16
1.07
1.24
1.1
1.51
Fund
1.48
1.59
2.48
1.77
1.54
0.54
0.73
0.91
0.33
0.71
8.63
7.87
7.19
5.6
5.1
0.03
0.04
0.04
0.01
0.02

Price Earning (P/E)
EV/EBIDTA
Market Cap/Sales
Jun-14
17.33
1.43
17.33
10.23
0.53
15
Exhibit 4 : Karnataka Bank

(Rs in Crs)
Year
SOURCES OF FUNDS :
Capital
188.42
188.35
188.29
188.2
133.99
Reserves Total
2,863.78 2,668.73 2,409.92 2,240.89 1,698.76
0
0
0
0
0
0
0
0
0
0
Deposits
40,582.83 36,056.22 31,608.33 27,336.45 23,730.65
Borrowings
1,915.19 1,579.76 1,147.07 1,086.33
691.64
1,618.57 1,108.36 1,023.87
879.2
813.17
Others
0
0
0
0
0
TOTAL LIABILITIES
47,168.79 41,601.42 36,377.48 31,731.07 27,068.21
2,152.73 1,717.96 1,704.75 1,939.81 1,743.10
184.67
235.84
160.82
46.25
62.45
Investments
15,226.78 13,432.48 12,841.23 11,506.34 9,992.05
Advances
28,345.49 25,207.68 20,720.70 17,348.07 14,435.68
Fixed Assets
197.48
166.96
152.23
145.53
148.08
Other Assets
1,061.64
840.5
797.75
745.07
686.85
0
0
0
0
0
Others
0
0
0
0
0
TOTAL ASSETS
47,168.79 41,601.42 36,377.48 31,731.07 27,068.21
9,007.93 6,199.41 8,117.45 9,035.80 10,118.94
2,838.63 1,768.04 2,194.84
962.9 1,032.24
16
(Rs in Crs)
Year
INCOME :
Interest Earned
4,188.83
3,764.29
3,101.00
2,370.85
1,975.97
Other Income
505.58
397.64
346.27
291.75
378.71
Total
4,694.41
4,161.93
3,447.27
2,662.60
2,354.68
II. Expenditure
Interest expended
3,132.76
2,860.56
2,368.87
1,758.36
1,707.79
525.4
375.08
324.95
345.08
206.8
162.51
134.93
120.4
122.54
103.85
Depreciation
25.53
24.03
21.91
22.99
22.23
303.15
322.55
178.69
124.25
Provision for Tax
97.62
116.1
42.52
30.33
22.64
Fringe Benefit tax
0
0
0
0
0
Deferred Tax
0
0
0
0
0
Total
4,383.38
3,813.85
3,201.20
2,457.99
2,187.56
III. Profit & Loss
Reported Net Profit
311.03
348.08
246.07
204.61
167.12
Extraordinary Items
1.32
-1.27
2.52
0.63
0.18
Adjusted Net Profit
309.71
349.35
243.55
203.98
166.94
0
0
0
0
0
0.09
0.03
0.03
0.02
0.03
IV. Appropriations
147
160
110
100
88
75.73
99.83
59.48
39.19
16.38
88.23
88.19
76.59
65.41
62.75
0.16
0.09
0.03
0.03
0.02
Equity Dividend %
40
40
35
30
40
15.83
17.8
12.5
10.4
11.79
161.99
151.69
137.99
129.07
136.78
17

69.88 67.88 64.58 62.24 59.56
37.4 38.83 41.31
42.1 43.01
5.05
5.06
6.18
7.21
7.05
Credit-Deposit(%)
Cash / Deposit (%)
(%)
RONW (%)
74.79
10.77
18.63
9.44
7.06
2.38
1.14
1.97
75.99
9.55
16
9.65
7.34
2.32
1.02
1.71
76.39
10.04
16.48
9.11
6.96
2.15
1.02
1.67
74.17
10.96
20.62
8.06
5.98
2.08
0.99
1.87
86.43
16.08
16.4
7.91
6.84
1.07
1.52
1.55
1.55
0.7
10.53
1.63
0.89
12.76
1.5
0.72
9.79
1.21
0.7
9.6
1.04
0.67
9.83

835.94 638.86 684.72 702.17 549.64
538.04 377.75 435.2 280.34 188.61
Advance
1.91
1.51
2.11
1.62
1.31
0
0 11.95 12.91 11.85
Tier I Capital (%)
0
0
0 10.91
9.56
Tier II Capital (%)
0
0
0
2
2.29
Fund
9.54
9.63
9.29
8.3
8.18
Fund
1.15
1.02
1
1.02
1.25
Fund
1.56
1.63
1.52
1.24
1.04
0.71
0.89
0.73
0.72
0.67
9.59
9.66
8.59
7.71
7.27
0.04
0.05
0.04
0.04
0.03

Price Earning (P/E)
EV/EBIDTA
Market Cap/Sales
Jun-14
8.4
0.86
8.4
11.82
0.61
18
Exhibit 5 : City Union Bank

(Rs in Crs)
Year
SOURCES OF FUNDS :
Capital
54.27
47.44
40.82
40.5
39.96
Reserves Total
1,970.66 1,593.22 1,202.28
966.12
785.68
0
0
0
0
0
0
0
0
0
0
Deposits
22,016.89 20,304.76 16,340.76 12,914.29 10,284.59
Borrowings
304.98
476.74
348.7
186.15
40.06
647.02
554.92
418.1
484.46
409.15
Others
0
0
0
0
0
TOTAL LIABILITIES
24,993.82 22,977.08 18,350.66 14,591.52 11,559.44
1,040.11 1,016.34
814.67 1,052.24
868.53
1,139.50
754.15
321.44
234.08
231.67
Investments
5,953.56 5,266.80 4,586.19 3,616.23 3,210.43
Advances
16,096.84 15,246.06 12,137.46 9,255.46 6,833.46
Fixed Assets
182.95
141.28
97.74
68.53
63.04
Other Assets
580.86
552.46
393.16
364.98
352.31
0
0
0
0
0
Others
0
0
0
0
0
TOTAL ASSETS
24,993.82 22,977.09 18,350.66 14,591.52 11,559.44
5,113.14 6,043.41 9,701.70 4,162.22 2,428.56
214.28
165.8
368.85
289.68
431.09
19
(Rs in Crs)
Year
INCOME :
Interest Earned
2,545.93
2,188.75
1,696.77
1,218.41
956.61
Other Income
301.2
273.64
207.14
157.4
143.5
Total
2,847.13
2,462.39
1,903.91
1,375.81
1,100.11
II. Expenditure
Interest expended
1,786.54
1,564.74
1,197.02
798.38
678.47
185.62
150.87
122.31
101.62
80.12
183.07
138.54
103.53
71.85
51.51
Depreciation
37.72
24.68
13.55
16.83
13.58
180.54
133.25
105.08
81.17
Provision for Tax
55.12
80.16
54
67
42.5
Fringe Benefit tax
0
0
0
0
0
Deferred Tax
11.38
0.84
0
0
0
Total
2,500.06
2,140.37
1,623.66
1,160.76
947.35
III. Profit & Loss
Reported Net Profit
347.07
322.02
280.25
215.05
152.76
Extraordinary Items
0.33
0.21
0.12
0.18
0.41
Adjusted Net Profit
346.74
321.81
280.13
214.87
152.35
0
0
0
0
0
6.87
6.6
5.56
5.55
5.01
IV. Appropriations
88
82
71
56
39
195.58
184.25
160.73
118.9
78.24
63.49
55.5
47.48
40.14
34.98
6.87
6.87
6.6
5.56
5.55
Equity Dividend %
100
100
100
85
75
6.22
6.62
6.7
5.17
3.7
37.31
34.58
30.45
24.85
20.66
20

74.06 74.73 73.13 69.35 67.48
26.51 26.89 28.04 29.43 30.33
4.86
5
6.38
8.28
7.92
Credit-Deposit(%)
Cash / Deposit (%)
(%)
RONW (%)
70.17
10.58
16.85
10.61
7.45
3.17
1.26
2
71.49
11.11
15.2
10.59
7.57
3.02
1.32
1.81
70.55
10.88
14.7
10.3
7.27
3.03
1.26
1.7
65.53
11.44
15.73
9.32
6.11
3.21
1.2
1.66
70.92
13.04
15.08
9.19
6.52
2.67
1.38
1.59
2.42
1.45
18.94
2.53
1.56
22.33
2.59
1.7
24.91
2.76
1.64
23.47
2.46
1.47
20.55

293.06 173.1 123.54 112.48
93.5
197.29 96.39 54.04 48.42 39.67
Advance
1.23
0.63
0.44
0.52
0.58
0 11.46 10.81 11.09 12.09
Tier I Capital (%)
0 10.88 10.06
10.3 11.15
Tier II Capital (%)
0
0.58
0.75
0.79
0.94
Fund
10.55 10.71 10.34
9.43
9.49
Fund
1.25
1.34
1.26
1.22
1.42
Fund
2.41
2.56
2.6
2.8
2.54
1.44
1.58
1.71
1.67
1.52
9.06
9.38
8.47
7.81
6.51
0.08
0.09
0.08
0.08
0.06

Price Earning (P/E)
EV/EBIDTA
Market Cap/Sales
Jun-14
11.47
1.87
11.47
10.97
1.59
21
Exhibit 6 : South Indian Bank

(Rs in Crs)
Year
SOURCES OF FUNDS :
Capital
134.39
133.85
113.37
113.01
113.01
Reserves Total
3,233.65 2,869.76 2,054.11 1,732.15 1,371.71
0
0
0
0
0
2.3
2.61
2.92
2.12
0.57
Deposits
47,491.09 44,262.30 36,500.53 29,721.07 23,011.52
Borrowings
2,730.78 1,284.55
588.19
290.35
330.96
1,414.24 1,241.96 1,120.75
961.52
706.27
Others
0
0
0
0
0
TOTAL LIABILITIES
55,006.45 49,795.03 40,379.87 32,820.22 25,534.04
2,200.81 1,696.70 1,571.84 1,828.19 1,390.94
1,017.12 2,639.20 1,068.70
637.94
596.73
Investments
14,351.78 12,523.47 9,399.87 8,923.77 7,155.61
Advances
36,229.86 31,815.54 27,280.74 20,488.73 15,822.92
Fixed Assets
412.2
396.12
377.5
356.84
152.54
Other Assets
794.7
724.01
681.22
584.75
415.3
0
0
0
0
0
Others
0
0
0
0
0
TOTAL ASSETS
55,006.47 49,795.04 40,379.87 32,820.22 25,534.04
19,134.96 10,583.37 5,458.06 2,431.98 2,729.74
696.25
479.14
425.89
268.13
257.46
22
(Rs in Crs)
Year
INCOME :
Interest Earned
5,015.06
4,434.29
3,583.43
2,446.02
1,935.72
Other Income
368.46
334.93
247.07
196.69
208.46
Total
5,383.52
4,769.22
3,830.50
2,642.71
2,144.18
II. Expenditure
Interest expended
3,616.29
3,153.46
2,561.69
1,654.92
1,367.43
528.96
472.51
374.11
289.82
226.32
205.61
165.74
137.8
98.36
85.19
Depreciation
44.61
39.89
31.2
22.81
16.76
281.77
153.37
131.31
81.2
Provision for Tax
242.38
182.95
197.26
146.49
142.92
Fringe Benefit tax
0
0
0
0
0
Deferred Tax
-20.97
-29.38
-26.59
6.44
-9.4
Total
4,876.03
4,266.94
3,428.84
2,350.15
1,910.42
III. Profit & Loss
Reported Net Profit
507.5
502.27
401.66
292.56
233.76
Extraordinary Items
0.56
0.35
0.54
-0.63
-0.03
Adjusted Net Profit
506.94
501.92
401.12
293.19
233.79
0
0
0
0
0
36.96
23.18
18.47
17.03
14.67
IV. Appropriations
126.88
125.57
100.42
73.15
58.45
251.93
253.52
217.38
152.3
120.24
Trans. to Government /Proposed Dividend 125.79
109.4
79.15
65.67
52.71
39.86
36.96
23.18
18.47
17.03
Equity Dividend %
80
70
60
50
40
3.64
3.64
3.45
2.51
20.02
24.08
21.41
17.84
14.99
129.78
23

74.16 73.17 72.14 68.86 67.32
29.29 27.15 27.67 30.49 32.19
4.25
4.05
5.13
6.1
5.81
Credit-Deposit(%)
Cash / Deposit (%)
(%)
RONW (%)
72.11
6.84
16.4
9.6
6.92
2.68
0.7
1.69
71.12
7.02
16.09
9.87
7.02
2.85
0.75
1.71
71.49
6.45
16.12
9.83
7.03
2.8
0.68
1.69
67.66
7.44
17.5
8.41
5.69
2.72
0.68
1.59
70.64
9.72
17.08
8.44
5.96
2.48
0.91
1.6
1.69
0.97
16.62
1.89
1.12
20.53
1.79
1.1
21.59
1.81
1.01
18.5
1.79
1.02
16.98

Advance
Tier I Capital (%)
Tier II Capital (%)
Fund
Fund
Fund

432.62 433.87 267.16 230.34
211
281.67 249.53 76.51 60.02 61.57
0.78
0
0
0
0.78
11.46
9.94
1.52
0.28
11.64
9.6
2.04
0.29
13.17
10.6
2.57
0.39
14.73
11.89
2.84
9.9
10.36
9.99
8.76
8.82
0.73
0.78
0.69
0.7
0.95
1.75
1
11.99
0.07
1.98
1.17
12.01
0.08
1.82
1.12
10.79
0.07
1.88
1.05
9.18
0.05
1.87
1.07
7.71
0.05

Price Earning (P/E)
EV/EBIDTA
Market Cap/Sales
Jun-14
8.75
1.32
8.75
11.46
0.83
24
Teaching Note
Identifying Acquirer
With Plethora of banks operating in India, Primarily classified as :
Nationalised / Public Sector Banks / SBI and Associates

Regional Rural Banks
Private Sector Banks
Foreign Banks operating in India
Foreign banks with business in India
Foreign banks with representative offices in India
The first and foremost task is to identify right acquirer. The following filters were applied in order to
simplify the search:
Publicly listed on BSE/NSE ---> 43
Market capitalisation of greater than INR 200bn ----> 9
Based on thorough qualitative and strategic analysis, Four out of these Nine companies were
shortlisted
These companies were then compared in the following manner
Parameters
ICICI
Kotak
Yes
BoB
Size ( For Acquiring)
10
II
Promoter willingness
III
Scope for Product Synergy
IV
Cash for Acquistion
Profitability
VI
Revenue Growth
10
VII
Need for Inorganic Growth
IX
Total
48
54
56
44
Based on these Parameters, Yes Bank is more likely to look for acquisition
25
How we arrived at our top four targets

The first and foremost task is to identify right acquirer. The following filters were applied in order to
simplify the search:
Publicly listed on BSE/NSE ---> 43
Market capitalization of Less than INR 200bn ----> 34
Market capitalization of Greater than INR 15bn ----> 29
There have been rare cases of private - pubic acquisition, only private players were selected --> 8
Based on thorough qualitative and strategic analysis, Four out of these Eight companies were
shortlisted
Reaching the Best target from top 4

After applying above filters, the top four targets were scrutinized thoroughly on the basis of the following
parameters
Parameters
Lakshmi Vilas
Karnataka
City Union
South Indian
Size ( Budget)
II
Promoter willingness
III
Product Mix
IV
Geographic Synergy
10
10
Profitability
10
VI
Revenue Growth
VII
Current Valuation
VIII
Total
55
52
57
53
CUB's outperformance in Revenue Growth

30.0%
27.6%
CUB's : Highest Net Profit Margin

14%
26.5%
25.9%
13.07%
12%
25.0%
20.0%
9.42%
10%
18.8%
8%
15.0%
6.62%
6%
10.0%
4.67%
4%
5.0%
2%
0.0%
0%
CUB
SIB
Kntk
Lksvl
CUB
26
SIB
Kntk
Lksvl
Geographical Synergy :
As we can see in the maps there is huge scope of geographical synergy from the proposed acquisition. As
CUB is present more or less in the region, where Yes Bank do not have significant presence, we can see it
will be of mutual benefit to both.
Yes Bank's Presence
City Union Bank's Presence
Revenue Synergy:
City Union Bank is very well known bank in the southern part of the country. It is well known for its
products like Personal Banking offering wide range of products and services such as saving accounts,
deposit scheme, home loans, education loans, debit card etc. and NRI banking - offering products and
services such as deposits, remittance and other services such as providing PAN assistance and lockers
services
Whereas, Yes Bank is dominant in Northern and western part of the country. It provides plethora of
products such as Corporate and Institutional Banking offering a broad range of financial and risk
management solutions to clients such as large Indian corporates and groups, multinational companies,
central and state governments, government bodies and public sector enterprises etc. Business Banking
offering a range of products, services and resources to small and medium businesses. Corporate Finance
It offers corporate finance solutions to various clients such as local corporates, multinational companies,
financial institutions and public sector undertakings.
27
Retail Banking Under this, Yes bank offers wide range of products and services such as saving account,
current account, fixed deposit, retail loan, depository services and many more. Investment Banking Yes
Bank offers investment banking services in area of mergers and acquisitions, divestitures, private equity
syndication and IPO advisory.
As the product mix is also to some extent different, It also provides huge opportunity from Revenue
Synergies primarily from Cross Selling, entering into new product segment and building strong national
brand.
28
References:
http://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/banks-private-sector.html
http://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/banks-public-sector.html
http://www.dea.univr.it/documenti/Iniziativa/dall/dall421477.pdf
http://www.equitymaster.com/research-it/compare/compare_comp.asp?symbol=YESCTUN&value=YES-BANK-CITY-UNION-BANK
http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/cityunionbank/CUB
http://www.business-standard.com/article/finance/yes-bank-eyes-acquisitions-for-businessexpansion-113013000201_1.html
Company Websites , Annual Reports and Company Fillings
29

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SFM Final Assignment

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SVKMs NMIMS University

School of Business Management

Assignment for the Course Strategic Financial Management

Identify Four Acquisition

Report submitted by:

History of Banking Sector in India

Most Likely Targets

Exhibit 1b : Profit & Loss Statement

Exhibit 1c : Key Financial Ratios

Mar-14 Mar-13 Mar-12 Mar-11 Mar-10

Exhibit 1d : Banking Ratios

Mar-14 Mar-13 Mar-12 Mar-11 Mar-10

Exhibit 1e : Valuation Ratios (TTM)

Exhibit 2 : Kotak Mahindra Bank

Exhibit 2b : Profit & Loss Statement

Exhibit 2c : Key Financial Ratios

Mar-14 Mar-13 Mar-12 Mar-11 Mar-10

Exhibit 2d : Banking Ratios

Exhibit 2e : Valuation Ratios (TTM)

Exhibit 3 : Lakshmi Vilas Bank

Exhibit 2b : Profit & Loss Statement

Exhibit 3c : Key Financial Ratios

Exhibit 3d : Banking Ratios

Exhibit 3e : Valuation Ratios (TTM)

Exhibit 4 : Karnataka Bank

Exhibit 4b : Profit & Loss Statement

Exhibit 4c : Key Financial Ratios

Mar-14 Mar-13 Mar-12 Mar-11 Mar-10

Exhibit 4d : Banking Ratios

Exhibit 4e : Valuation Ratios (TTM)

Exhibit 5 : City Union Bank

Exhibit 5b : Profit & Loss Statement

Exhibit 5c : Key Financial Ratios

Mar-14 Mar-13 Mar-12 Mar-11 Mar-10

Exhibit 5d : Banking Ratios

Exhibit 5e : Valuation Ratios (TTM)

Exhibit 6 : South Indian Bank

Exhibit 6b : Profit & Loss Statement

Exhibit 6c : Key Financial Ratios

Mar-14 Mar-13 Mar-12 Mar-11 Mar-10

Exhibit 6d : Banking Ratios

Mar-14 Mar-13 Mar-12 Mar-11 Mar-10

Exhibit 6e : Valuation Ratios (TTM)

Nationalised / Public Sector Banks / SBI and Associates

Size ( For Acquiring)

Scope for Product Synergy

Cash for Acquistion

Need for Inorganic Growth

How we arrived at our top four targets

Reaching the Best target from top 4

CUB's outperformance in Revenue Growth

CUB's : Highest Net Profit Margin

City Union Bank's Presence

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