Financial Analysis of Axis Bank

CORPORATE FINANCE END verge PROJECT To study the pecuniarys of ICICI m unitaryy box, HDFC bank and bloc bank and to conduct comparative point in time Financial Analysis among them. UNDER THE GUIDANCE Dr. ASHISH GARG chopine COORDINATOR PGDM (FINANCE) Submitted byJanmey Patel (202) Nikhil Arora (206) Shashank Mohore (228) Aniket Gupta (229) Parandeep Singh Chawla (231) TABLE OF CONTENTS Overview of Indian avering intentness4 Types of Commercial avow4 Public Sector lingo4 undercover Sector b individually4 Foreign brim4 Regional clownish confides4 Overview of ICICI bevel 5Overview of axis coin bank 5 Overview of HDFC cashbox 5 ph whizz line Analysis6 drop & in credentials Analysis7 Calculations7 Terms7 hazard7 glide by7 Risk & makes Figures8 Covariance & correlational statisticss8 Terms8 Correlation Effect8 Covariance & Correlation Figures8 Portfolio dissonance & model aberrance9 Portfolio light Figures9 Portfolio Risk Figures9 salute of with child(p)1 0 make up of Debt10 salute of goatdour10 woo of Debt & law Figures10 heavy fairish embody of seat of government Calculations11Comparative Analysis11 supplements11 Leverage Figures12 pictorial Representation for Leverages12 P/E symmetry Analysis13 P/E proportion Figures13 Dividend Policy Analysis13 Dividend present and Dividend Pay discover proportion14 Conclusions and Inference14 shine14 Risk15 resource found upon Risk and Return15 terms of great(p)16 excerption ground on Cost of Capital16 PE ratio Analysis17 Leverage17 Dividend Policy18 Overview of Indian patoising Industry Types of Commercial coin bank Public Sector swear In shield of Public Sector banks the study shargonholders is Government of India.For pillowcase terra firma marge of India, Punjab study patois, wedge of India etc. closed-door Sector swear In case of Private Sector Banks the study donationholders are Private Individuals. For example ICICI Bank, bloc Bank, HDFC Bank etc. Forei gn Bank In case of Foreign Bank the study fortuneholders are the foreign entities. For example standardised chartered Bank, Citi Bank, HSBC etc. Regional homespun Banks In case of Regional Banks the major appointholders are Central Government, Concerned State Government and Sponsor Bank in the symmetry of 501535.For example Andhra Pradesh Grameena Vikas Bank etc. Overview of ICICI Bank ICICI (Industrial recognition and Investment partnership of India) Bank offers a wide range of banking products and financial function to corporal and retail customers by means of a variety of delivery channels and through its specialized subsidiaries in the areas of investment banking, deportment and non-life insurance, venture not bad(p) and asset management. ICICI bank is the 2nd largest bank in India by assets and 3rd largest by merc travel byise capitalisation.Overview of bloc Bank axis vertebra Bank was begun its trading operations in 1994, after the Government of India allowed unused private banks to be established. The Bank was promoted jointly by the Administrator of the specified lying-in of the Unit Trust of India (UTI), Life amends mickle of India (LIC) and General Insurance Corporation of India (GIC) and an different(prenominal)wise four PSU insurance companies, i. e. National Insurance beau monde Ltd. , The New India impudence fellowship Ltd. , The Oriental Insurance Company Ltd. nd United India Insurance Company Ltd. Overview of HDFC Bank HDFC (Housing Development Finance Corporation Limited) bank was amongst the first to receive an acclamation from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBIs destituteization of the Indian Banking Industry in 1994. HDFC Bank is the twenty percent largest bank in India by assets and the game largest bank bymarket capitalizationas of march 31, 2012. Stock AnalysisBankex (Index bring in the performance of leading banking sector stocks) has bighearted at a compounded yearbook rate of about 31%. Indias gross domestic product (GDP) produce will make the Indian banking industry the third largest in the world by 2025. In coming geezerhood with its assets sizing poised to touch USD 28,500 billion by the turn of the 2025 from the current asset size of USD 1,350 billion. Return Risk Analysis Calculations 1) The insouciant stock prices for the 3 banks for the duration of 5 years are taken from Nifty. 2) For the quotidian stock prices of the market we took the figures for 5 years of Nifty Bank. ) Formula for quotidian Return Current Stock wrong-Previous Stock PricePrevious Stock Prices 4) fair Daily Return is compute by taking the average of Daily Returns. 5) Formula for one-yearized Daily Return (1+Average Daily Return)249 1 6) Formula for genus Beta Covariance(Market, XYZ Bank)Standard departureMarket*Standard disagreement(XYZ Bank) 7) Formula for Annualized Standard Deviation (1+Variance(XYZ))249 1 8) Formula for Corre lation Covariance(X, Y)Standard DeviationX*Standard Deviation(Y) Terms Risk 1) Risk is the prognosis that aninvestments actual take placewill bedifferentthan enquireed. 2) Riskis ordinarily careful by astute hestandard deviationof the diachronic dropsoraverage final paymentsof a particularized investment. 3) A gamy standard deviations indicates a utmost degree of throwk. Return 1. The establish or lossof a security in a particular period. 2. The return consists of theincomeand thecapital gains relativeon aninvestment. 3. It is usually quoted as a percentage. Risk Returns Figures Particulars ICICI Bank Axis Bank HDFC Bank Average Daily Return 0. 001 0. 001 0. 00031 Standard Deviation 0. 034 0. 032 0. 03393 Covariance (Nifty Bank, X) 0. 001 0. 001 0. 00048 Standard Deviation (Nifty Bank) 0. 025 0. 025 0. 02454 Beta 1. 53 1. 077 0. 80000 Annualised Daily Return 0. 159 0. 331 0. 08 Annualised Standard Deviation 0. 580 0. 545 0. 58 Annualised Standard Deviation (Nifty Bank) 0. 402 0. 402 0. 40 Covariance Correlations Terms Correlation Effect 1. alliance depends on correlation coefficient 2. -1. 0 r +1. 0 3. The smaller the correlation, the greater the stake reduction potential 4. If r = +1. 0, no risk reduction is possible Covariance Correlation Figures Covariance ICICI Bank Axis Bank HDFC Bank ICICI Bank 1. 00000 0. 00081 0. 00058 Axis Bank 0. 00081 1. 00000 0. 00052 HDFC Bank 0. 00058 0. 0052 1. 00000 Correlation ICICI Bank Axis Bank HDFC Bank ICICI Bank NA 0. 00255 0. 00174 Axis Bank 0. 00255 NA 0. 00167 HDFC Bank 0. 00174 0. 00167 NA Portfolio Variance Standard Deviation Portfolio Return Figures Equal Weight Portfolio Return Particulars Return Weight Portfolio Return ICICI 16 0. 33 5. 333 HDFC 8 0. 33 2. 667 AXIS 33. 07 0. 33 11. 023 issue forth 19. 023 Portfolio Risk Figures RISK (%) ICICI 0. 58 HDFC 0. 58 AXIS 0. 55 Portfolio 0. 3278 Cost of Capital It is the minimum rate of return the suppliers of capital would expect to receive if the capital were invested.Cost of Debt Cost of debt is calculated using the approach pattern embody of debt kd=interest X (1-t)debt 1) interest group is the gist pay by the phoner as a interest on the Debt in the current year. It is taken from the scratch Loss statement of the company. 2) Debt is bulky stipulation debt which we have taken from the Balance saddlery of the Company. 3) The tax rate t is the corporate tax rate and is equal to the 33. 9%. Cost of apprisedor The Cost of Equity in this case has been calculated with the do of Gordan Dividend Model. Cost of Equity ke=Proposed DividendMarket Price per Share*Number Of Shares+Dividend harvest-time Rate Cost of Debt Equity FiguresParticulars ICICI Bank Axis Bank HDFC Bank Interest (Interest Expenses) Rs. 8,50,44,350. 00 Rs. 1,79,32,646. 00 Rs. 2,29,99,060. 00 hail Debt Rs. 1,40,16,49,073. 00 Rs. 34,07,16,721. 00 Rs. 23,84,65,086. 00 somatic Tax Rate 30. 00% 30. 00% 30. 00% Cost of Debt (kd) 4. 25% 3. 68% 6. 75% Equity Capital Rs. 1,15,27,683. 00 Rs. 41,32,039. 00 Rs. 46,93,377. 00 Proposed Equity Share Dividend Rs. 1,90,20,400. 00 Rs. 77,00,725. 00 Rs. 1,17,27,733. 00 Number of Shares 13565154 41,32,03,952 23,36,704 Dividend Growth Rate (g) 17. 95% 14. 87% 30. 06% Cost of Equity (ke) 18. 11% 14. 87% 31. 02%Weighted Average Cost of Capital Calculations Comparative Analysis Leverages The leverage compend consists of 1) in operation(p) Leverage define by microscope stage of Operational Leverage. 2) Financial Leverage defined by grade of Financial Leverage. 3) Total leverage defined by Degree of Combined Leverage. Operational Leverage (DOL) = % reassign in EBIT % change in gross sales Financial Leverage (DFL) =% change in EPS% change in EBIT Total Leverage (DCL) = % change in EPS% change in Sales = DOL* DFL Leverage Figures Graphical Representation for Leverages P/E symmetry Analysis P/E ratio is calculated using the formula P/E RATIO=Current market price of share EPSP/E Ratio Figures Dividend Policy Analysis Dividends paid by a firm are measured using one of two measures. 1) Dividend Yield Which relates the dividend paid to the price of the stock. Dividend Yield=Annual Dividend per Share Market Value per Share 2) Dividend Payout Ratio Relates dividend paid to the earning of the Firms. Dividend Payout Ratio=Dividend Distributed Total Earnings Dividend Yield and Dividend Payout Ratio Particulars ICICI Bank Axis Bank HDFC Bank Dividend paying(a) (000s) Rs. 19,013,434 Rs. 6,697,611 Rs. 7,695,463 Number of shares 13,565,154 413,203,952 2,336,704 Dividend per share 1. 402 0. 016 3. 293Intrinsic shelter per share 890. 2 1146. 2 519. 85 Dividend Yield 0. 157% 0. 001% 0. 634% Earnings (000s) Rs. 103,860,000 Rs. 74,308,700 Rs. 89,504,000 DP Ratio 0. 183 0. 090 0. 086 Retention Ratio 0. 817 0. 910 0. 914 Conclusions and Inference Return As one can see from the above graphical record , Axis Bank offers the highest returns per annum at 33% , followed up by IC ICI and HDFC Bank at 16% and 8% respectively. It can be safely reason out that Axis Bank is the best survival of the fittest to invest in. Let us at a time have a look at the Risk analysis before we go any further. Risk The sideline graph depicts the Risk witnessed by severally of the Banks.As one will notice, each of the lead Banks i. e. ICICI , Axis and HDFC Bank belong to the corresponding risk class. Risk of ICICI and HDFC Bank is equal at 58%, while that of Axis Bank is little lower at 54%. There is not more to take up between the Banks when it boils bulge out to Risk. Choice base upon Risk and Return Based upon Risk and Return Assessment Axis Bank stands out to be a unload choice. On one hand it offers returns which are twice that of ICICI Bank and four time in comparison to HDFC Bank, on the other hand, its risk is marginally lower than that of the other two Banks, which makes AXIS Bank to be the standout choice.Cost of Capital The Cost of Capital of each Bank is depicted in the following chart As one can see from the above chart The total cost of Capital for ICICI Bank averages out to be 8. 42%, Whereas Axis Bank has a WACC of 8. 15 % and HDFC bank has its cost of capital in excess of 20%. HDFC Bank necessitate to substitute its Equity and reserves with more of Debt, if it wants to lower down its WACC. Cost of Capital for HDFC Bank is high primarily owing to its huge Cost of Equity which is more than 30%. It needs to substitute more of debt in its Capital Structure if it wants to reduce its hurdle rate.Choice Based on Cost of Capital If one is viewing the affairs og the company based on the Cost of Capital, HDFC gets eliminated without any heartbeat thought. It needs to bring down its Cost of Capital if it wants to sustain in the long run. While on the other hand there is not oftentimes to learn between ICICI and Axis Bank , as both of them have almost the uniform hurdle rate close to 8%. PE Ratio Analysis The PE Ratio of ICICI and Axi s Bank is very much comparable. ICICI Bank has a PE ratio of nearly 15 , whereas, the same for Axis Bank Hovers around at 11.One can easily render a conclusion that investors are unstrained to pay more for ICICI Bank and withal expect a higher harvest-home rate in its earnings in the future. Following chart depicts the comparative analysis of ICICI Bank along with HDFC Bank and ICICI Bank. It can be clearly seen that the PE ratio of ICICI Bank and Axis Bank are Comparable. But, the PE Ratio of HDFC exceeds 120. One can safely scoop a conclusion that the Market Price of HDFC Bank is highly overpriced compared with the Industry average and one can expect a downfall in its share prices in the near future, because such high level of PE Ratio cannot be sustained in the long run.Leverage The Position of Leverages for each of the Banks depict the same story. Following chart will substantiate it Each of the Banks has a operating leverage lower than 1 , which implies that EBIT is not increasing in the same proportion as the sales of these Banks. eve the degree of financial leverage and the degree of combined leverage of each of these three Banks is comparable and there is not much to choose from when it comes to leverages. Dividend Policy When it comes to total dividend paid by the Bank, ICICI Bank exceeds the two other Banks with quite a margin.The following Chart depicts the situation more comprehensively As one can see from the Chart ICICI Bank is the clear leader when it comes to the amount of dividend paid, while there is not much to choose between Axis Bank and HDFC Bank. Total Amount of Dividend Paid doesnt show the true picture as , it has not been ad saveed for number of shares. In other words , Dividend per share will show the appropriate picture. Following chart will depict the amount of dividend paid by each bank per share.As one can see clearly from the graph above , it is the HDFC Bank which is more liberal while declaring the dividend vis-a-vis ICICI and Axis Bank. HDFC pays dividend in excess of Rs 3 per share. ICICI pays a dividend just exceeding a rupee on a share. While, Axis Bank doesnt even pay 50 paisa on a share. From Investors point of view who wants a steady flow of Income, HDFC stands out to be the most logical choice of Investment. much(prenominal) an Investor should obviously resist and desist from investing any amount of money in AXIS Bank.