A Presentation on

Value Drivers with special

Reference to
ICICI Bank

Presented to Presented by
Prof. Sandhya Harkavat Pankaj Bheda (07)
Uday Chothani (15)
Anuj Desai (21)
Jayesh Patadiya (60)
Hardik Shah (95)
Flow Of Presentation

Value drivers an another prospective

Sustainable Growth
Value Creation model
Components of value creation
Model helps to creates Share holder value
Reconciling the metrics
Sales oriented model
Key value Drivers for Icici Bank
VALUE DRIVERS: ANOTHER
PROSPECTIVE
What is Value Driver?

Sales growth rate,

Operating profit margin
Tax rate
Fixed capital Investment
Working capital Investment
Duration of the project etc.
 Value Creation Formula:

Value Created by strategy:-

=PV of incremental cash flow due to new

investment
- PV of investment in fixed assets & working

capital
+ PV of residual value
 Count's
 The value of strategy enhance by:-

 Acceleration of cash flows ( higher NPV)

 Reduction in risk associated with cash flow &
Indirectly Cost of capital
 Increase the residual value of the business
 Count’s
Characteristics of NPV for value creation:-

 Whenever loss making project is terminated,

value of the firm goes up
 Whenever firm accept a positive NPV Project,
the value of project goes up
 Value of the firm Drops, if the firm acquire
another firm for a price grater than Expected
Present value of cash flows.
 Sustainable Growth
 For those companies which have target payout
ratio and capital structure as the annual %
increase in sales
 Increase in sales =Addition to retained
earnings + Increase in Debt
 Sustainable Growth (g’)=
Change in equity during period
Beginning equity
 g’ = retention rate * ROE
Value Creation model

Expected ROE

Equity Cash flows

Equity Growth Value of equity

Cost of Equity
 Components of value
Profitability
I.
creation
ROE > Ke M/B > 1
ROE < Ke M/B < 1
ROE = Ke M/B = 1
II. Advantage Horizon:-
Period for which a firm can maintain a
positive (ROE-Ke).
 Greater the abnormal returns, higher the
M/B ratio.
III. Re-Investment
 Competitive advantage period:-
 The time period for which the company
earns returns in excess of the cost of capital.

 Company with high P/E multiple tend to

long CAP & with low P/E multiple tend to
have low CAP.
 Reconciling the metrics

 Invested capital

 Net working capital

 ROI

 Plowback rate
 Sales oriented model

Sales growth rate

Operating margin
Incremental Investment rates
NWC
Capex
 Key Value Driver for ICICI BANK
Merger & Acquisition.
Non Performing Loan (NPA).
Non Performing Investment (NPI).
Number of Branch in India.
Capital Expenditure.
Capital deficiencies.
EPS.
Sustainable Growth.
Customer Satisfaction.
Price/earning ratio.
 Merger & Acquisition

1997: Takeover of ITC Classic Finance

1998: Takeover of Anagram Finance
2000: Merger with Bank of Madura
2002: ICICI and ICICI Bank merged
2005: Acquires Russia’s
IvestitsionnoKreditny Bank
2007: Amalgamation of Sangli Bank 
2010: Merged with The Bank Of Rajasthan.

About merger with The Bank Of Rajasthan

Swap ratio of 25:118 (25 shares of ICICI for 118 shares of
Bank of Rajasthan) i.e. one ICICI Bank share for 4.72
BoR shares. Which increased the value of share of BOR’s
shareholder
Key Value Driver Cont’

Non Performing Loan (NPL)

In 2009 the proportion of NPL was 1.75% of total advances i.e.
Rs.46.69 Billion . While in 2010 the proportion of NPL is 2.04
of total advances which is Rs.46.14 Billion.

Non Performing Investment (NPI)

In 2009 the proportion of NPI was Rs. 3.04 Billion . While in
2010 the proportion of NPI is Rs.2.25 billion .
 Key Value Driver for ICICI BANK
Number of Bank Branches all over India

ICICI BANK branch network has increased from 755 branches

in March 31, 2007 to 1,262 branches in March 31, 2008 and
1,419 branches in March 31, 2009.Icici Bank has 2000 bank
branches all over India till May 2010 .They expect that their
branches to become key points of customer acquisition and
service. And after joining hands with Bank of Rajasthan its
branch network became 2463 bank branches.
 Key Value Driver for ICICI BANK

Capital Expenditure

In 2009 banks capital expenditure Rs.5528.6 million which is

0.71 % of its total revenue. While in 2010 capital expenditure
was 2377.3 million which is 0.38% of its total revenue.
 Key Value Driver for ICICI BANK

Capital Deficiencies

There is no deficiency in capital in any of the subsidiaries of the

Bank at March 31, 2010. ICICI Bank maintains an active
oversight on its subsidiaries through its representation on their
respective Boards. On a periodic basis the capital
adequacy/solvency position of subsidiaries (banking, non-
banking and insurance subsidiaries), as per the applicable
regulations, is reported to their respective Boards as well as to
the Board of the Bank.
 Key Value Driver for ICICI BANK

EPS

Year 2006 2007 2008 2009 2010 2011

Earnings
Per
Share in
Rs. 32.49 34.84 39.39 33.76 36.14 35.324
 Key Value Driver for ICICI BANK
Sustainable Growth
The company is growing sustainably at a
constant rate. As the paid up share capital is constant.

Customer Satisfaction
Whether customers are satisfied with the services provided by
bank.
Price/Earning Ratio

Year 2006 2007 2008 2009 2010

Price as
on 31
March 589.05 853.35 769.00 333.80 955.00
Earnings
Per
Share in
Rs. 32.49 34.84 39.39 33.76 36.14

Price
/earning
ratio 18.13 24.49 19.52 9.88 26.43
Thank you