TOPIC Fundamental Analysis of ICICI Bank Ltd.

Name Ashwin Kulkarni

Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Title EXECUTIVE SUMMARY COMPANY PROFILE OBJECTIVES OF THE STUDY METHODOLOGY OF STUDY ECONOMY ANALYSIS INDUSTRY ANALYSIS PROFILE OF ICICI BANK DATA ANLYSIS LIMITATIONS/CONCLUSIONS BIBLIOGRAPHY

Page No. 6 7 16 17 18 21 30 36 51 53

Acknowledgment

It gives me great pleasure to express my gratitude towards all the individuals who have directly or indirectly helped me in completing this project. First of all, I am extremely grateful to Mr. Mayank Saxsena, Branch Manager, Anand Rathi Securities Limited, Kalyani Nagar Branch, Pune, for providing me summer project in stock market for sixty days. I would also like to express my sincere gratitude to Mr. Vikrant Darak, for his invaluable guidance during the project period which helps me in completing this project. I wish to express my sincere thanks to our Director Dr. Sharad Joshi and my project guide Prof. Mahesh Halale for providing me valuable guidance and inputs which help to complete this project in true sense. I also extend my thanks to all the staff of Anand Rathi Securities Limited, Kalyani Nagar Branch, Pune, for their support, which helped me a lot in completing this project. This project report is a collective effort of all and I sincerely remember and acknowledge all o them for their excellent help and assistance throughout the project.

- Ashwin R. Kulkarni

INTRODUCTION

The stock market is the most volatile market and is difficult to understand as the weather. Though this does not mean that the markets cannot be predicted but it only means that trends may change without warning, as with weather. The stock markets are characterized by almost all factors, again starting right from weather and ending at the political environment. Effects of one market also causes a spillover into the other and an external cause in one market can lead to the reaction in another market. For instance, its been proved that a delayed monsoon in India will create the problems of flooding in the European countries, effecting adversely economies of both the regions. The pulse of the market also depends upon timely exit and entry. For arriving at a correct conclusion reasonable data is required to understand the mechanics of the stock and the industry vis--vis global and local in which the company operates. While a practical long-term view will help reduce risks, marrying the stock on the other hand may totally increase risks. By going through the Industry Reports, Financials the investor can arm himself with reasonable information about the stocks, which are being tracked by the investor. However, for consistent monitoring of stocks, it is imperative that the investor has limited exposure to the stocks, which are being capable of being tracked by him a too big a portfolio will divert attention and ultimately harm investor interests.

In the present project an attempt is made to study the importance of fundamental analysis for investors. SHARES: The companies Act 1956 defines Shares as a share in the capital of a company and includes stock except where distinction between stock and share is expressed or implied. A share is regarded as property, which can be bought and sold like any other property. It also consists of other rights given by Articles of Association of company.

EQUITY OR ORDINARY SHARES: These are those shares, which do not enjoy any special rights in respect of payment of dividend or repayment of capital. The return of capital to equity shareholders is not guaranteed. Also when the company is wound up, capital of equity shareholders is lastly paid, only after all other claims have been paid in full. That is why equity is also called as The Risk Bearing or Venture Capital. There are two sources of return on equity shares: 1. Dividend: -When companies earn sufficient profit, then Board of Directors declares for all shares. 2. Capital Gain: -Which arises from an increase in the market price of shares, which is generally associated with growth in per share earning.

Benefits of Investments in Equity shares: 1. You can earn good rate of dividend or can make better profit on market fluctuation. 2. Bonus issue: - These are given as free gift to existing shareholders either fully or partly paid up out of accumulated profits. 3. Existing shareholders can get Right issue in case of further issue of capital by company. 4. Equity shareholders have Right to vote in annual general meeting and other rights like call meeting, winding up of the company. 5. Shareholders get free copy of Annual Report in which details of all business conducted in last year is mentioned. 6. A share is Transferable Property. It can be transferred or transmitted by shareholder to any other person. 7. Tax Exemption: -As per Income Tax Act, Dividend is not taxable in the hands of shareholders similarly Long Term Capital Gain on shares is exempted up to March 2007. 8. Liquidity: -Because of large market for share investor can convert his investments into liquid money easily.

What is 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 may involve examination of financial data, management, business concept and competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might 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. Fundamental analysis is a method used to determine the value of a stock by analyzing the financial data that is 'fundamental' to the company. That means that fundamental analysis takes into consideration only those variables that are directly related to the company itself, such as its earnings, its dividends, and its sales. Fundamental analysis does not look at the overall state of the market nor does it include behavioral variables in its methodology. It focuses exclusively on the company's business in order to determine whether or not the stock should be bought or sold.

In India many traditional people are very risk averse. They are not aware of the investment opportunities in the stock market. They consider stock market as a game of gambling. But the original scenario is quite different. There is no doubt that there are speculators who try to hike the price of a stock artificially. Investing in equities involves high risk and the return on it totally depends on the companys performance. But investing in the right stock at the right price and holding for a longer time horizon would surely be a better investment. The reason behind choosing this project is that it provides hands on experience with what goes on in the stock market on a day to day basis. The field of equity research is very vast and one has to look into various aspects of the functioning of the company to get to any conclusion about the possible performance of the company in the market. Investors like warren buffet made a fortune out of investments in the stock market, which is quiet impossible without proper research about the companies. The field of equity research is full of challenges. The project is done with Anand Rathi Securities Limited a very well known company in the field of stock broking and capital market services sector. This project gave me a chance to get valuable insights from a hoard of vastly experienced people in this field and to get various approaches each one adopts to evaluate various companies. The duration of the project was two months. These two months were not only limited to learning and devoting time towards equity research but it also provided an insight on what various services such broking houses provide and what efforts are required to manage such organizations.

ANAND RATHI
Group Profile

Group Overview
Set up in 1994,2000 people

Anand Rathi Securities Limited

Wealth Management Investment Banking Member BSE Depository Participant CDSL

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Navratan Capital & Securities Member- NSE Depository Participant-NSDL Navratan Commodities Member- NCDEX, MCX & NMCE

Rathi Global Finance NBFC

Anand Rathi Securities Limited

AR Venture Funds Management Real Estate Private Equity Fund

AR Insurance Brokers Insurance Broking

AR Middle East DMCC Member- Dubai Gold & Commodities Exchange Anand Rathi International International Operations

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Business Overview

Wealth Management

Investment Banking & Corporate Finance Mumbai, Delhi, Chennai, Kolkata, Bangalore, Hyderabad

Brokerage & Distribution Present at 300 + locations across India

Mumbai, Delhi, Kolkata, Bangalore, Chennai, Hyderabad, Dubai, Bangkok and Singapore Institutions Private Clients Priority Clients

M&A IPOs Buybacks, Offers, Placements Debt Raising, Syndication and Restructuring

Equities Derivatives Bonds Mutual Funds Commodities Insurance

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Wealth Management
Value Adds Comprehensive Product Range Strong alternative investment expertise Risk Management Skills Sophisticated asset allocation & risk modeling Proprietary global economic & investment strategy research Focusing on long term dynamics & trends Client Centric Model Ranked amongst South Asias top 5 private banks by Asia Money 2006 polls Clients with more than Us $ 20 million in assets Products Equities Stocks, PMS, Derivatives, Mutual Funds Fixed Income Bonds, Mutual Fund

Commodities & Precious Metals

Life & General Insurance Real Estate Private Equity Fund

Currencies Structured Products & Capital Guaranteed Notes Alternative & Non-correlated Investments

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Investment Banking & Corporate Finance

Value Adds Comprehensive Services Products Equity Capital market IPO/Rights/Secondary issues Delisting & Open Offers Block Deals & Private Equity Management Buy-outs Advisory Business Sale/Disposal M&A/ JVs/ Strategic Alliances Valuations Debt Advisory Rupee & Foreign Currency Debt Raising/ Negotiation Debt Restructuring Creditor Settlement/ OTS

Deep Industry & Sector Knowledge

Local Strength Underpinned by network of national offices

Truly Independent Advice Not tied to any product, market or bank Strong Distribution Capability Resources to draw together a seasoned team of professionals

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Brokerage & Distribution

Reaching out nationwide

Specialist teams providing best-of-breed research, execution and settlement through branches nationwide

Licenses Member, BSE+NSE [Cash & Derivatives] Depository Participant [CDSL & NSDL] Member, NCDEX, MCX, NMCE [Commodities Exchanges] Insurance Brokerage [IRDA] Member, Dubai Gold & Commodities Exchange [DGCX] MF Distribution [AMFI]

Cutting-edge technology support providing real-time access to clients through a private broadband satellite network, leased links and the internet.

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Brokerage & Distribution

Products Equities Derivatives Commodities IPOs Mutual Funds Life & Non-Life Insurance Depository Services Bonds Value-add Services backed by independent research team real-time support to clients Individuals, Families & Corporates across India Non-Resident Indians Clients Institutional clients most leading Mutual Funds, Banks and Insurance Companies Size Daily turnover in excess of Rs 4 bn 1,00,000+ clients nationwide Leading distributor of IPOs

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Key Locations
Mumbai Corporate Office JK Somani Bldg, British Hotel Lane, Bombay Samachar Marg, Mumbai-400023 Web Address: www.rathi.com Brokerage & Retail Head Office B-2, Shubham Centre, 5th Floor, Cardinal Gracious road, Chakala, Andheri [E], Mumbai-400099 New Delhi Ahmedabad Banglore 911/912 Ansal Bhavan, 16 2nd Floor, Parth, Swastik, 307, Prestige Central Point, Kasturba Gandhi Marg, Char Rastha, Near Pizza Cunningham Road, New Delhi-110001 Hut, Off C.G. Road, Banglore-560051 Navrangpura-380009 Chennai Kolkata Hyderabad 8A, Ega Trade Centre, 8th 202, Central Plaza, 6-3-346/1, Scotia Bank Floor, New No. 318, Old 2/6 Sarat Bose Road, Bldg., Road No. 1, Banjara No. 809, Poonamalee High Kolkata-700020 Hills, Road, Kilpauk, Hyderabad-500034 Chennai- 600010 Dubai Bangkok A R Middle East DMCC Anand Rathi Advisors M-14, AI Attar Grand [Thailand] Co. Ltd. Khalid 24, Prime Office Building, Bin Waleed St., P.O. Box Sukhumvit Soi 21, Asoke 120830 Road, Klong Toey Nur, Dubai, U.A.E. Wattana, Bangkok, Thailand

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OBJECTIVE OF STUDY

TO

STUDY

THE

CONCEPTS

AND

TECHNIQUES

OF

FUNDAMENTAL ANALYSIS.

TO STUDY THE GROWTH TREND IN BANKING SECTOR AND IN PARTICULARLY OF ICICI BANK.

TO EVALUATE THE PERFORMANCE OF ICICI BANK IN INDIAN STOCK MARKET WITH RESPECT TO ITS FINANCIAL

PERFORMANCE.

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In order to fulfill the above objectives, the project was undertaken in Anand Rathi Securities Limited, Kalyani Nagar Branch, Pune from 1st June 2007 to 31st July, 2007 and the information is collected through:

Primary Sources: The primary data was collected specifically on project hand. One can obtain information from dealers, salesmen, branch managers etc. The entire study was conducted in Anand Rathi Kalyani Nagar branch, Pune, which consisted of information on understanding the level of awareness regarding the concepts and techniques of fundamental analysis. Data was also collected through observation during the training period of two months from 1st June to 31st July, 2007.

Secondary Sources: Secondary data is already collected by someone else. This data is not collected for solving present problem. This information is relevant and can be used for our purpose. The information was drawn from published journals by Reserve Bank of India, in house magazines of the bank, capital market magazine. Information was also gathered from news papers and related magazines. Besides data was also collected from the internet.

Limitations: The study was restricted only to ICICI Bank and hence may not be applicable to other banks. The information available on the internet, journals, magazines, brochures was limited. The employees in the branch had a busy schedule therefore there was delay in getting concepts clear.

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During 2006-07, the Indian economy exhibited acceleration in growth, led by manufacturing and services sector activities. The sustained high growth since 2003-04 has been supported by increased in domestic savings and investment. Robust growth during 2006-07, however, was accompanied by inflationary pressures on account of rising capacity utilization, strong growth in monetary and credit aggregates, demandsupply gaps in domestic production of food grains and oil seeds, and firm global commodity prices.

Real GDP growth accelerated from 9.0% during 2005-06 to 9.4% during 2006-07. The growth, thus, averaged 8.6% p.a. during the four period ended 2006-07. Real GDP growth during the Tenth Five Year Plan period averaged 7.6% p.a., the highest in any plan period. Acceleration in the growth rate during 2006-07 was attributable to buoyancy in the industrial and service sector which exhibited doubledigit growth (11.0% each). Higher growth in the industry and services sector more than offset the deceleration in the agriculture sector. Growth in the agricultural sector decelerated from 6.0% in 2005-06 to 2.7% in 2006-07, partly on account of uneven rainfall during the south-west monsoon and partly due to the base effect.

GDP Growth %

10 8
Growth Rate

9 7.5

9.4

6 4 2 0 2004-05 2005-06 2006-07

Year

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Macro Perspective
Monetary Developments Money supply increased by 21.3% (Rs. 5, 80,733 crore) as compared with 17.0% (Rs. 3, 96,878 crore) during 2005-06. Amongst the major components, time deposits exhibited growth of 23.2% (Rs. 4,41,913) during 2006-07 as compared with 15.3% (Rs. 2,53,056 crore) during 2005-06. Higher growth in time deposits could be attributed to factors such as higher interest rates on bank deposits and availability of tax benefits under section 80C for bank deposits. On the sources side, growth of bank credit remains high, although there was some moderation. Demand for bank credit was largely broad based with agriculture, industry and personal loans absorbing 14%, 36% and 24% respectively, offering incremental expansion in overall non-food credit during 2006-07. 7 Inflation Headline inflation firmed up from 4.0%, year on year, April 1st, 2006 to 5.9% on March 31st, 2007 with an intra-year high of 6.7% on January 27th, 2007 and a low of 3.7% on April 15th, 2006. Both demand and supply side factors added to inflationary in pressure during 2006-07. Demand pressures emanated from, high investments and consumption demand, strong growth in credit and monetary aggregates, and elevated assets price. Supply side pressures emerged from demandsupply gaps in domestic production of major food grains has exhibited stagnation over the past few years.

Inflation Trend
8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 6.75%

6.00% 5.00% 4.50%

6.25%

6.00% 6.25% 6.25% 6.05%

Inflation (%)

29 /0 4/ 05 9/ 6/ 20 06 26 /1 0/ 06 6/ 1/ 20 07 31 /0 1/ 07 17 /0 2/ 07 3/ 3/ 20 07 30 /0 3/ 07

Year

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14 /0 4/ 07

Balance of Payments Indias balance of payments in 2006-07 reflected a number of positive features, merchandise trade continue to exhibit robust growth during 2006-07, although there was some loss of pace from a strong growth of 2005-06. The higher growth of imports vis--vis experts lead to a persistent rise in trade deficit, on the balance of payments basis. Nonetheless the current account deficits as per cent of GDP remain unchanged (1.1% of GDP) from the previous year since the widening of the merchandise trade deficit was offset to a large extent by the continuing buoyancy in net invisibles surplus. Net capital inflows to India remained buoyant (4.9% of GDP), fart exceeding the current account deficit. Higher capital flows could be attributed to the strengthening of micro economic fundamentals, greater investor confidence and ample global liquidity. Net FDI inflows from abroad US$ 19.4 billion exceeded FII inflows (net) during 2006-07 aggregating US$ 3.2 billion the debt flows (net) at US$ 25.0 billion were led by external commercial borrowings reflecting strong investment demand. Net capital flows, after financing the current account deficit, led to accretion of US$ 36.6 billion, excluding valuation changes, to foreign exchange reserves during 2006-07.

Financial Market Financial markets remained orderly during 2006-07, barring some episodes of volatility, especially during the second half of March, 2007. Capital inflows and movements in Government cash balances continued to be the key drivers of liquidity conditions and overnight interest rates. Interest rates in the various market segments hardened during the year, broadly in tandem with the pre-emptive monetary tightening measures taken by the Reserve Bank of India. By and large, the exchange rate of the Indian rupee exhibited two-way movement with respect to the main reserve currencies during 2006-07. The stock market remained buoyant with the benchmark indices reaching record highs during 2006-07 amidst intermittent corrections. The primary segment of capital market exhibited buoyant conditions.

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Currently (2007), overall, banking in India is considered as fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. Even in terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets-as compared to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility-without any stated exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector, the demand for banking services-especially retail banking, mortgages and investment services are expected to be strong. M&As, takeovers, asset sales and much more action (as it is unraveling in China) will happen on this front in India. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.

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Banks Working In India

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The Indian Banking sector comprises of 88 scheduled commercial banks of which 28 are public sector banks, 18 old private sector banks, 11 new private sector banks and 31 foreign banks as on March 31, 2007. In addition, there are 102 regional rural banks and 1,864 urban Co-operative 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% of assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

Private Sector Banks: At December 31, 2006, private sector banks accounted for approximately 19.9% of aggregate deposits and 20.2% of gross bank credit outstanding of the scheduled commercial banks. Their network of 6,567 branches accounted for 9.4% of the total branch network of scheduled commercial banks in the country. At December 31, 2006, ICICI Bank accounted for approximately 8.3% of aggregate deposits and 8.8% of non-food credit outstanding of the scheduled commercial banks.

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Banking on strong fundamentals Pvt.S.Bs Particulars 200706(3) 200606(3)

P.S.Bs

Total

Var. Var. Var. 200706(3) 200606(3) 200706(3) 200606(3) (%) (%) (%) 46527.47 37 28324.74 52 18202.73 15 5698.86 42

Interest 16055.83 10776.04 49 47819.67 35751.43 34 63875.50 Earned Interest 11327.53 6940.99 63 31596.31 21383.75 48 42923.84 expended Net Interest 4728.30 3835.05 23 16223.36 14367.68 13 20951.66 Income Other 3323.12 1975.45 68 4748.95 3723.41 28 8072.07 Income Net total 8051.42 5810.50 39 20972.31 18091.09 16 29023.73 income Operating 4308.93 3265.91 32 11087.41 9976.99 11 15396.34 expenses Operating 3742.49 2544.59 47 9884.90 8114.10 22 13627.39 profit Provisions 1197.88 759.14 58 1791.35 2605.11 -31 2989.23 Profit 2544.61 1785.45 43 8093.55 5508.99 47 10638.16 before Tax Tax 673.74 396.86 70 2355.15 1565.03 50 3028.89 provisions Net Profit 1870.87 1388.59 35 5738.40 3943.96 45 7609.27 Figures are in Rs. crore For aggregates 26 P.S.U. Banks & Pvt. S. Bs are taken into consideration.

23901.59 21 13242.90 16 10658.69 28 3364.25 7294.44 1961.89 5332.55 -11 46 54 43

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CRR: CRR stands for the cash reserve ratio. These are the specified proportion of deposits that a bank has to maintain with the RBI. Last week, RBI announced a 50 basis points hike in CRR in two phases of 25 basis points each in February and early march.

Impact of CRR change: When there is a change in the CRR, the first impact is seen in the banks. For banks, the rise in CRR would mean that a larger proportion of funds will be with RBI, while a fall in rate will mean a lower proportion will be with the apex bank.

How is the impact on banks evaluated? There are specific angles that one has to consider while evaluating the impact of CRR on banks. In time of boom, like is the currently, lending will give a higher rate of return to banks. Hence, if they have to keep a large proportion of their funds away from lending and in the form of deposits, it is a loss of opportunity for them. This will bring down their earnings. An increase in CRR would also mean that money is sucked out of the system. This would mean that funds are hard to come by and hence banks will have to pay more to depositors in order to induce them to keep their funds banks. This will push up the cost of funds for banks. Due to this banks will also have to raise lending rates in order to meet the increased cost while maintaining their margins.

The market will analyze banks on the basis of their margins, and whether they will be able to maintain this going forward. A CRR rise in it self means tougher condition for banks but what is important is that they should also be able to keep pace with this entire situation. That is the key to the way in which the bank stocks will perform in the market.

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Movement in key policy rates in India

Effective Rate March 31,2004 September 19,2004 October 02,2004 October 27,2004 April 29,2005 October 26,2005 January 24,2006 June 9,2006 July 25,2006 October 31,2006 December 23,2006 January 6,2007 January 31,2007 February 17,2007 March 03,2007 March 30,2007 April 14,2007 April 28,2007 Reverse Repo Rate 4.50% 4.50% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% Repo Rate 6.00% 6.00% 6.00% 6.00% 6.00% 6.25% 6.50% 6.75% 7.00% 7.25% 7.25% 7.25% 7.50% 7.50% 7.50% 7.75% 7.75% 7.75% Cash Reserve Ratio 4.50% 4.75% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.25% 5.50% 5.50% 5.75% 6.00% 6.00% 6.25% 6.50%

Note: With effect from 29.10.2004, the nomenclature of repo & reverse repo was changed in keeping with international usage. Now reverse repo indicates absorption of liquidity & repo signifies injection of liquidity. Prior to 29.10.2004, repo indicated absorption of liquidity while reverse repo meant injection of liquidity.

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Deposit and Lending Rates

Deposit Rate Public Sector Banks Upto 1 year More than 1 year & upto 3 yrs. More than 3 yrs Private Sector Banks Upto 1 year More than 1 year & upto 3 yrs More than 3 yrs Foreign Banks Upto 1 year More than 1 year & upto 3 yrs More than 3 yrs Benchmark Prime Lending Rates Public Sector Banks Private Sector Banks Foreign Banks Actual Lending Rate Public Sector Banks Private Sector Banks Foreign Banks 2.75-16.00 3.15-22.00 3.55-23.50 4.00-16.50 3.15-20.50 4.75-26.00 4.00-17.00 3.15-25.50 5.00-26.50 10.25-11.25 11.00-13.50 10.00-14.50 10.25-11.25 11.00-14.00 10.00-14.50 12.25-12.75 12.00-16.50 10.00-15.50 3.00-6.25 3.50-6.50 3.50-7.00 3.00-6.15 4.00-6.50 5.50-6.50 3.00-9.50 3.50-9.50 4.05-9.50 3.00-6.25 5.25-7.25 5.75-7.00 3.50-7.25 5.50-7.75 6.00-7.75 3.00-9.00 6.75-9.75 7.75-9.60 March,05 2.75-6.00 4.75-6.50 5.25-7.00 March,06 2.25-6.50 5.75-6.75 6.00-7.25 March,07 2.75-8.75 7.25-9.50 7.50-9.50

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Key Points:
Supply Demand Liquidity is controlled by THE Reserve Bank of India. India is a growing economy and demand for credit is high though it could be cyclical. Licensing requirement, investment in technology and branch network. High during periods of tight liquidity. Trade unions in public sector banks can be anti reforms. Depositors may invest elsewhere if interest rate falls. For good creditworthy borrowers bargaining power is high due to the availability of large number of banks. High- There is public sector banks, private sector and foreign banks along with non banking finance.

Barriers to Entry

Bargaining power of suppliers

Bargaining power of customers Competition

Financial Year07:
Incremental credit/deposit ratio on a steady decline: With most banks having run out of excess statutory liquidity ratio (SLR) holdings, the gap in credit and deposit growth is slowly going to close as banks are witnessing currently. The incremental credit/deposit ratio has steadily declined from 120% to 75% at present.

72% 70% 68% 66% 64% 62% 60% 58% 5-Apr 5-Jun 5-Aug 5-Oct 5-Dec 6-Feb 6-Apr 6-Jun 6-Aug

140% 120% 100% 80% 60% 40% 20% 0%

CD Ratio

Incremental CD Ratio

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 Retail Credit- Spiraling Ahead: FY07 witnessed banks shedding their surplus investment portfolio and trading the same for a larger proportion of advance portfolio. At the same time, pick up in incremental capex lending led to a record growth of 31% (yoy) and increased the average credit deposit ratio to 65%.

Retail Credit
30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 Year Growth [LHS] % of total credit [RHS] 80 60 40 20 0 (%)

Mortgage Loans- The Growth Driver Mortgage loans comprised nearly 53% of total retail credit in FY07. Despite the rise in lending rates, the fiscal benefits accorded to them kept mortgage loans relatively attractive. Bank also leveraged on the home loan portfolio to comply with their priority sector norms.

(%) Y-O-Y

Mortgage Loans 14 12 10 (%) 8 6 4 2 0 60 50 40 (%) 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 Year % of total credit [LHS] % of total loans [RHS]

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Overview: ICICI Bank is Indias second-largest bank with total assets of Rs. 3,4456.58 billion (US$ 79 billion) at March 31, 2007 and profit after tax of Rs. 31.10 billion for fiscal 2007. ICICI Bank is the most valuable bank in India in terms of market capitalization and is ranked among top five companies in terms of free float market capitalization. The bank has a network of about 950 branches and 3,300 ATMs in India and presence in 17 countries. ICICI Bank offers 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 Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai International Finance Centre and representative offices in the United States, United Arab Emirates, China, South Africa and Bangladesh, Thailand, Malaysia and Indonesia. Its UK subsidiary has established a branch in Belgium.

ICICI Banks equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Shares (ADRs) are listed on New York Stock Exchange (NYSE).

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History: ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly owned subsidiary. ICICIs 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 NYSE IN FISCAL 2000, ICICI Banks acquisition OF Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and se4condary market sales by ICICI to institutional investors in fiscal 2201 and 2002. ICICI was formed in 1955 at the initiative of World Bank, the Government of India an Indian industry. The principal objective was to create a development financial institution for providing medium-term and long term project financing to Indian businesses.

After consideration of various corporate structuring alternatives in the context of emerging competitive scenario in the Indian banking industry and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI groups universal and banking strategy.

In October 2001, the Board of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly owned retail finance subsidiaries, ICICI Personal Financial Services and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002.

Sangli Bank has merged with ICICI Bank effective April 19, 2007 as per the order of Reserve Bank of India dated April 18, 2007. Pursuant to the merger of Sangli Bank with ICICI Bank Limited, the shareholders of Sangli Bank were allotted 34,55,008 equity shares of Rs. 10 each on May 28, 2007.

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SUBSIDIARIES/JOINT VENTURE/ ASSOCIATES

ICICI Venture Company Ltd. Funds Management Manages funds that provide venture capital to start-up companies and undertake private equity investments. Engaged in equity underwriting, brokerage and primary dealership in government securities. Leading Investment Organization. Leading third provider. party BPO Banking

ICICI Primary Dealership Ltd.

ICICI Securities Ltd.

First Source Solutions Ltd.

service

ICICI Prudential Company Ltd.

Life

Insurance Retail market share of about 28% in new business by private sector life insurance companies during FY 2007. Insurance Market share of about 34% in gross written premium among the private sector general insurance companies during FY2007.

ICICI Lombard Company Ltd.

General

ICICI Prudential Asset Management Among the top two mutual funds in India in terms of total funds under management Company in the Indian Mutual Fund Industry for FY07 with a market share of over 11%. (Source: AMFI)

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Domestic Subsidiaries ICICI Brokerage Services Limited. ICICI Distribution Finance Private Limited. ICICI Home Finance Company Limited. ICICI Investment Management Company Limited. ICICI Trusteeship Services Limited. Prudential ICICI Trust Limited.

International Subsidiaries ICICI Bank Canada. ICICI Bank Eurasia Limited Liability Company. ICICI International Limited. ICICI Securities Holding Inc*. ICICI Securities Inc*. ICICI Bank UK Limited.

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Background of ICICI Bank

As on June 30, 2007 CMP: - 955.45

FY08 Target Price: - 1,710

Incorporation Year Managing Director

1994 K. V. Kamath Landmark, Race Course Circle, Alakapuri, Vadodra-390007, Gujrat 91-265-2339923/25/27/28 91-265-2339926 www.icicibank.com 10 532174 A ICICIBANK ICICIBC IN ICBK.BO INE090A01013 1 BSE, NSE, NYSE 03 Jun/Jul Jul

Registered Office Telephone Fax Website Face Value [Rs] BSE Code BSE Group NSE Code Bloomberg Reuters ISIN Demat Market Lot Listing Financial Year End Book Closure Month AGM Month

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SHARE HOLDING PATTERN

Share holding pattern as on: Face Value 31/03/2006 31/03/2007 10.00 10.00 No. of Shares % Holding No. of Shares % Holding Promoters Holding Non Promoters Holding Institutional Investors 109664301 17.27 107789571 16.5 399746652 44.71 554119342 61.98 Other Investors 45010772 5.03 48971 1250 238530478 283591471 56292130 894002943 0.01 26.68 31.72 6.30 100.00 405033806 552358029 46685349 48971 1250 238530478 285266048 61642595 899266672 45.04 61.42 5.19 0.01 26.68 31.88 6.85 100.00

Sub Total

Banks, Fin. Inst., Insurance FIIs Sub Total Private Corporate Bodies NRIs/OCBS/Foreign Government Others Sub Total General Public Grand Total

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Performance with major indices: The performance of ICICI Bank Price in stock market with three major indices is given below. Performance with Sensex - Sensitive Index for 30 Major Stocks replicates the movement of market. NIFTY - National Index for 50 major stocks. Bank nifty - Replicates the movement in price of stock of various banks.
Bank and Sensex

16000 14000 12000 10000 Sensex 8000 6000 4000 2000 0 2007/06 2007/04 2007/02 2006/12 2006/10 2006/08 2007/05 2007/03 2007/01 2006/11 2006/09 2006/07 Period

1200 1000 800 ICICI Bank Price 600 400 200 0 Sensex ICICI Bank Price

NIFTY & ICICI Bank Price

5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0
07 20 / 06 07 20 / 05 07 20 / 04 07 20 / 03 07 20 / 02 07 20 / 01 06 20 / 12 06 20 / 11 06 20 / 10 06 20 / 09 06 20 / 08 06 /0 7

1200 ICICI Bank P rice 1000 800 600 400 200 0

NIFTY

NIFTY ICICI Bank Price

20

Peroid

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Bank Nifty & ICICI Bank Price

8000 7000 6000 5000 4000 3000 2000 1000 0
07 2 0 / 06 07 2 0 / 05 07 2 0 / 04 07 2 0 / 03 07 2 0 / 02 07 2 0 / 01 06 2 0 / 12 06 2 0 / 11 06 2 0 / 10 06 2 0 / 09 06 2 0 / 08 06 /0 7

1200 ICICI Bank P rice 1000 800 600 400 200 0

Bank Nifty

Bank Nifty ICICI Bank Price

20

Period

ICICI Bank Price Movement over a period of one year:

Price Movement for One Year

1200 1000 800 Price 600 400 200 0 Period

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STRATEGY

Business Composition ICICIs loan book is predominantly composed of retail assets as it feels retail finance offers significant risk diversification benefits with the credit risk being spread over a large number of relatively small individual loans. The growth of its retrial finance portfolio has been the principal driver of its portfolio diversification strategy. Retail loans constituted 65.2% total loans for FY07 compared to 62.9% for FY06 and 60.9% for FY05.

Movement of Advances
70.00% 60.00% 50.00% Percentage 40.00% 30.00% 20.00% 10.00% 0.00% 2005 2006 2007 Financial Year

Retail Corporate

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Total Outstanding Retail Finance Portfolio Home

60 50
Percentage
Automobile Businesses Two-Wheeler Personal Credit Cards

40 30 20 10 0 March,2005 March,2006
Year

March,2007

Against Securities and others

Compared to its peers ICICI Banks CASA ratio (current account/saving account) is relatively lower. As of FY07 ICICI bank had a CASA ratio of 21.8% compared to SBI 48.5%, UTI 39.9% and HDFC bank 57.7%.

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Outstanding Deposits
80.00% 70.00% 60.00% Percentage 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2005 2006 Year 2007

Current Account

Savings

Time

Cost of Deposits
8% 6% Percentage 4% 2% 0% 2005 2006 Financial Year 2007 Savings Time

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Enhancing its strong corporate franchise ICICI is seeking to build a global corporate and investment banking franchise focused on Indian companies, covering advisory, origination, structuring, execution and syndication. Their corporate lending activities will focus corporate finance and working capital lending to highly rated corporation emerging global competitiveness of the Indian industry offer growth opportunities in the area of project financing.

Growing its International Presence ICICI intends to grow its international business based on leveraging home country links for international expansion by capturing market share in select international markets. The focus areas are supporting Indian companies in rising corporate and project finance overseas for their investment in India and abroad. Personal financial services (including remittance and deposit products) for nonresident Indians are another area of focus.

Penetrating Rural India ICICI offers a comprehensive suite of products for all customer segments operating in the rural areas-corporate, small and medium enterprises and finally the individual traders and farmers. Future growth of India is depended on rural India. There is tremendous opportunity for the banking sector in rural India and ICICI to win big share of the same.

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Insurance and Asset Management Business ICICI has a joint venture partnership both in Life as well as non life Insurance business it holds 74% interest in both the JV the balance being held by foreign partners. It is the largest private sector life as well as non-life insurance company in India, with a retail market share of approximately 28% and 34% for respectively in the private sector and an overall market share of approximately 10% and 12% based on new business premiums during FY07. ICICI 51% interest in its joint venture partnership with Prudential Plc of the United Kingdom for the asset management business. It is among the two largest mutual funds in India, with total assets under management approximately Rs. 379 billion and a market share of approximately 11.6% for FY07.

Other Income-Fee based avenues ICICI earns fee income from their commercial banking services to retail customers, including retail loan processing fees, credit card and debit card fees, transaction banking fees and fees from distribution of third party products. Its focus is on meeting the working capital requirements, deposit accounts and other banking products and services of small and medium enterprises.

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FINANCIALS

Profit & Loss Statement: [Rs. in billion] Mar-07 Mar-08 66.36 88.06 59.44 77.27 50.12 67 9.02 1029 125.49 164.77 49.79 62.5 15.24 18.27 1.88 1.61 58.59 80.67 10.14 11.41 68.73 92.08 14.95 15.17 53.78 76.91 5.38 5.43 48.40 71.48

NII Non-Interest Income - Fee Income - Others Core Operating Income Operating Expenses Other DMA1 Expenses Lease Depreciation Core Operating Profit Treasury Income Operating Profit Provisions Profit Before Tax Tax PAT

Mar-05 28.39 27.05 20.98 6.07 55.44 25.17 8.85 2.97 22.45 7.11 29.56 14.29 25.27 5.22 20.05

Mar-06 41.87 40.55 32.59 7.96 82.42 35.47 11.77 2.77 37.63 9.28 46.91 15.94 30.17 5.57 25.60

Note: The projected Profit & Loss statement for the period Mar-08 is prepared with the help of Compounded Annual Growth Rate formulae. [Base year is Mar-05].

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Balance Sheet: Assets

Mar-05 474.12 129.30 344.82 914.05 160.05 128.37 1,676.59 Mar-06 618.14 170.40 510.74 1,461.63 204.73 166.39 2,513.89 [Rs. In billion] Mar-07 Mar-08 1044.89 1359.72 371.21 673.68 1,958.66 238.90 204.13 3,446.58 527.60 842.17 2510.89 273.01 238.26 4381.88

Cash balances with banks & SLR - Cash & bank balances - SLR Investments Advances Other Investments Fixed & Other Assets Total Assets

Balance Sheet: Liabilities

[Rs. in billion] Mar-07 Mar-08 243.13 303.13 8.99 9.03 234.14 294.10 3.50 3.50 2,305.10 3,046.18 598.24 727.78 108.37 89.33 188.24 3,446.58 211.96 4381.88

Net Worth - Equity Capital - Reserves Preference Deposits Borrowings eICICI Borrowings Other Liabilities Total Liabilities

Mar-05 125.50 7.37 118.13 3.50 998.91 224.05 193.48 131.87 1,676.59

Mar-06 222.06 8.90 213.16 3.50 1,650.83 354.77 131.90 150.83 2,513.89

Note: The projected Balance Sheet for the year Mar-08 is prepared with the help of Compounded Annual Growth Rate formulae. [Base year is Mar-05].

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Dividend:
Dividend is that portion of total profit earned by the company which is distributed among shareholders of the company and is declared by the Board of directors.

Year 2007 2006 2005 2004 2003 2002 2002 2001

Month April April May April April May January April

Dividend [%] 100 85 85 75 75 20 20

Dividend 120 100 Percentage 80 60 40 20 0 2001 2002 2002 2003 2004 Year 2005 2006 2007 Dividend

Interpretation: In case of ICICI Bank, the bank has given good dividends to its shareholders over a period of 7 years. It indicates that the bank is earning handsome profit over the years which it passes on to its shareholders.

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Capital Adequacy Ratio:

A banks capital ratio is the ratio of qualifying capital to risk adjusted [or weighted] assets. The RBI has set the minimum capital adequacy ratio at 10% as on March, 2002 for all banks. A ratio below the minimum indicates that the bank is not adequately capitalized to expand its operations. The ratio ensures that the bank do not expand their business without having adequate capital. March 31, 2006 Rs. bn % 278.43 13.35 191.82 9.20 86.61 4.15 2,058.94 March 31, 2007 Rs. bn % 338.96 11.69 215.03 7.42 123.93 4.27 2,899.93

Total Capital - Tier - Tier Risk Weighted Assets Interpretation:

The above statistics indicates that ICICI Bank is aggressively expanding their business to increase its operations year-on-year basis. The bank has less capital adequacy ratio in 2007 in spite of increase capital as compared to 2006 due to the pressure of cash reserve ratio and repo rate.

Non-Performing Asset ratio:

The net non-performing asset to loans (advances) ratio is used as a major of the overall quality of the banks loan book. Net NPAs are calculated by reducing cumulative valance of provisions outstanding at a period end form gross NPAs.. Asset Quality and Provisioning: Mar-31,2006 29.63 18.88 10.75 0.71% [Rs. in billion] Mar-31,2007 48.50 28.31 20.19 0.98%

Gross NPAs Less: Cumulative w/offs & provisions Net NPAs Net NPA Ratio Interpretation:

NPAs of ICICI Bank has increased from 0.71% in 2006 to 0.98% in 2007 which is a serious concern for the bank. The higher ratio reflects rising bad quality of loans.

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Earning Per Share:

It is widely used ratio to measure the profit available to the equity shareholders on a per share basis. EPS is calculated on the basis of current profit and not on the basis of retained profits.

Earning Per Share

70 60 50 EPS 40 30 20 10 0 2003 2004 2005 Year 2006 2007 2008 13.49 18.31 22.43 28.41 53.82 64.29

Interpretation: The EPS of bank is increasing year-on-year basis and the projected EPS is calculated on the basis of projected profit after tax for year Mar-08. The increasing EPS indicates the increasing trend of profits per share.

Return on Equity:
The return on equity measures the profitability of equity funds invested in the firm. It is regarded as a very important measure it reflects the productivity of the ownership (or risk) capital employed in the firm.

Return on Equity 25.00% 20.00% (%) 15.00% 10.00% 5.00% 0.00% 2003 2004 2005 Year 2006 2007 2008 18.30%

21.80% 17.90% 16.40% 13.40% 11.22%

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Price Earnings ratio:

P/E Ratio indicates the price currently being paid in the market for each rupee of EPS. It measures the expectation of the investors. A high P/E Ratio may indicate the possibility of increase in EPS. A low P/E Ratio may indicate that there is no possibility of any increase in EPS and the investors will be reluctant to invest in such shares.

Price Earning Ratio

40 35 30 25 PE 20 15 10 5 0 2004 2005 2006 Year 2007 2008 PE

Interpretation: P/E Ratio of ICICI Bank has a declining trend from 2004 to 2008, a low P/E Ratio is considered as one of the important criteria from the point of view of investors.

Peer Comparison
Company NII NP ROE EPS P/E P/ABV SBI 160,542 45,413 15.4 86.3 11.5 2.0 HDFC 37,098 11,415 19.3 35.74 26.6 4.8 UTI 15,671 6590 21 23.4 20.9 4.4 ICICI 66,358 31,102 13.4 34.5 24.8 3.5

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Key Ratios:
Given below are some of the key ratios for evaluating the banks performance and their performance over a period of 3 years. Key Ratios 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 (%) Mar-07 86.46 41.15 6.99 71.14 23.24 25.78 7.7 5.48 2.22 2.33 2.59 1.97 1.04 13.37 Mar-06 89.68 46.07 5.77 67.09 26.14 30.24 6.8 4.56 2.24 2.41 2.79 1.86 1.21 14.62 Mar-05 91.74 55.52 7 69.83 27.33 25.49 6.39 4.46 1.93 2.4 2.24 2.09 1.36 19.51

Projected Market Price for FY08:

The projected market price can be calculated asMarket Price = P/E Ratio for FY07 * Projected EPS for FY08 = = . Note: It is a projected price which is based on various factors and mostly on EPS and P/E Ratio. Variations may be there to attain this price, no assurance of target price achievement. P/E Ratio has taken as constant of FY07 26.60 Rs. 1710 * 64.29

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Concerns for ICICI Bank

Their banking and trading activities are particularly vulnerable to interest rate risk and volatility in interest rates could adversely affect their net interest margin, the value of their fixed income portfolio, their income from treasury operations, the quality of their loan portfolio and their financial performance. Their rapid retail expansion in India and their rural initiative expose them to increased risk that may adversely affect their business. The failure of their restructured loans to perform as expected or a significant increase in the level of restructured loans in their portfolio could affect their business.

Gross NPAs
80.00% 60.00% Percenatge 40.00% 20.00% 0.00% 2005 2006 2007 Financial Year Retail Corporate

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LIMITATIONS
Fundamental analysis has some limitation involved in it. This limitation can be explained as under:

Time Constrain: Fundamental analysis may offer excellent insights, but it can be extraordinarily time-consuming. Time-consuming models often produce valuations that are contradictory to the current price prevailing on the exchange.

Company Specific: Valuation techniques vary depending on the industry group and specifics of each company. For this reason, a different technique and model is required for different industries and different companies. This can be quite time-consuming process, which can limit the amount of research that can be performed. The sales and inventory ratio may be very important for the cement sector company but these ratios are not very useful for the banking sector.

Inadequacies of Data: While making analysis one has to often wrestle with inadequate data. While deliberate falsification of data may be rare, subtle misrepresentation and concealment are common.

Future Uncertainties: Future changes are largely unpredictable; more so when the economic and business environment is buffeted by frequent winds of change. In an environment characterized by discontinuities, the past record is a poor guide to future performance.

Irrational Market Behaviour: The market itself presents a major obstacle while making analysis on account of neglect or prejudice, undervaluation may persist for extended periods; likewise, overvaluations arising from unsatisfied optimism and misplaced enthusiasm may endure for unreasonable lengths of time.

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CONCLUSION
Fundamental analysis holds that no investment decision should be without processing and analyzing all relevant information. It strength lies in the fact the information analyzed is real as opposed to hunches or assumptions. On the other hand, while fundamental analysis deals with tangible fact, it does not tend to ignore the fact that human beings do not always act rationally. Market prices do sometimes deviate from fundamentals. Prices rise or fall due to insider trading, speculation, rumor, and a host of other factors. This is true to an extent but strength of fundamental analysis is that an investment decision is arrived at after analyzing information and making logical assumptions and deductions. Furthermore, fundamental analysis ensures that one does not recklessly buy or sell shares- especially buy. 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. The analysis carried out at Anand Rathi Securities Limited on the ICICI Bank, their profit and loss account, balance sheet and ratios. I shall suggest the investors to invest in ICICI Bank than the other banks as a value investment. Reasons: Largest private sector bank in India, second largest in entire banking industry. Strong increase in profit year-on-year basis. Increasing EPS indicate good earnings. Increase in sharing profit with shareholders in form of dividend. ICICI Bank is expanding its footholds on international level also; its insurance and asset management business are also performing well. The bank also expanding their business in rural area.

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Bibliography

Books: Investment Analysis & Portfolio Management- Prasanna Chandra.

News Papers: Economic Times Business Standard Magazines: Capital Market Dalal Street Bank Quest Websites: www.intra.rathi.com www.icicibank.com www.rbi.org.in www.moneycontrol.com www.equitymaster.com www.nseindia.com

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