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    Institute for Integrated Learning in Management

    IILM Graduate School of Management

    GREATER NOIDA

    PROJECT ON RATIO ANALYSIS OF AXIS AND HDFC BANK

    SUBMITTED TO: SUBMITTED BY:

    PROF.FEROZ KHAN HONEY GAUTAM

    FT-FS-11-771

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    CONTENTS

    Introduction

    Key players

    Current scenario of axis and hdfc bank

    Ratio analysis

    Graphs

    Interpretations

    Conclusion

    Bibliography

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    INTRODUCTION

    The banking industry in India has always been one of the most preferred avenues of employment. In the

    current decade, this has emerged as a resurgent sector in the Indian economy. As per the McKinney

    report Indian banking 2010, the banking sector index has grown at a compounded annual rate of over

    51% since the year 2001, as compared to a 27% growth in the market index during the same period. It is

    projected that the sector has the potential to account for over 7.7% of GDP with over Rs.7, 500 billion in

    market cap, and to provide over 1.5 million jobs.

    Today, banks have diversified their activities and are getting into new products and services that include

    opportunities in credit cards, consumer finance, wealth management, life and general insurance,

    investment banking, mutual funds, pension fund regulation, stock broking services, custodian services,

    private equity. Etc. further; most of the leading Indian banks are going global, setting up offices in

    foreign countries, by themselves o through their subsidiaries.

    The RBI took a few important steps to make the Indian banking industry more robust and healthy. This

    includes de-regulation of savings rate, guidelines for new banking licenses and implementation of Basel

    norm III. Since March 2002, banked (index tracking the performance of leading banking sector stocks)

    has grown at a compounded annual rate of 31%. After a very successful decade a new era seems to have

    started for the Indian banking industry. According to a McKinney report, the Indian banking sector is

    heading towards being a high-performing sector.

    According to an IBA-FICCI-BGG report titled Being five start in productivity road map for excellence

    in Indian banking. Indias gross domestic product (GDP) growth will make the Indian banking industry

    the third largest in the world by 2025. According to the report, the domestic banking industry is set for

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    an exponential growth in coming years with its assets size poised poised to touch USD 28,500 billion by

    the turn of the 2025 from the current asset size of UD 1,350 billion (2010).

    Review of the Indian banking industry

    If we look at 5 years historical performance of different types of players in the banking industry, public

    sector bank has grown its deposits, advances and business per employee by the higest rate 21.7%, 23%

    and 21.1% respectively. As far as net interest income is concerned private bank ahead in the race of

    reporting 24.2% growth followed by public bank (21.4%) and then by foreign banks (14.4%).

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    KEY PLAYERS

    Company Name Last Price Change % Change Net Profit(Rs. cr)

    ICICI Bank 1,065.85 -44.90 -4.04 6,465.26

    HDFC Bank 640.75 -8.85 -1.36 5,167.09

    Axis Bank 1,336.65 -17.60 -1.30 4,242.21

    Kotak Mahindra 661.70 3.85 0.59 1,085.05

    Yes Bank 486.45 1.50 0.31 977.00

    CURRENT SCENARIO OF HDFC AND AXIS BANK

    Axis bank was the first of the new private banks to have begun operations in 1994. Axis is the third

    largest private sector bank in terms of revenue and provides whole host of services in the banking and

    financial sector. It offers its diversified services through wide network of more than 1281 branches

    (including 169 services branches/CPCs) and has 6270 ATMs. Axis Bank Ltd has ranked No.1 Debt

    Arranger by Bloomberg for 9 month period Sept 2012. CASA ratio as on 30th September 2012 stood at

    41% of total deposits compared to 39% in the previous quarter ended 30th June 2012. The banks

    advances grew by 29.8% YoY, while deposits grew by 21.3% YoY. Banks Capital Adequacy Ratio

    registered at 13.92% as on 30.09.12. The growth in loan book was led by higher retail lending, with

    68.2% and 77.5% YoY growth witnessed by housing and auto loans segment.

    Banking inter firm comparison

    Latest Quart

    er

    Endin

    g

    Trailing

    12

    mth se

    ending

    Company

    name

    52 week

    high

    52

    week

    low

    Price

    NSC

    No. of

    equity

    shares

    FV MKT.

    CAP

    Rs.Cr

    P/e

    ratio

    Pric

    e vs

    Bv

    Year

    end

    Sales

    Rs cr

    NP

    Rs.cr

    Full

    year

    EPS

    HDFC 645 400 635 236.36 2 150,088.60 25.61 5.02 Sept-12 9,869.80 1,560.00 21.2 25 26

    AXIS 1309 785 121

    5

    42.678 10 51,85

    3.77

    11.14 2.27 Sept-

    12

    8280.

    29

    1123.

    54

    96.5 109 11

    The reported price is the closing price in NSC as on 05/11/2012

    http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/icicibank/ICI02http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/hdfcbank/HDF01http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/axisbank/AB16http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/kotakmahindrabank/KMBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/kotakmahindrabank/KMBhttp://www.moneycontrol.com/india/stockpricequote/banksprivatesector/axisbank/AB16http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/hdfcbank/HDF01http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/icicibank/ICI02
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    As can be seen above data that axis bank quotes at a huge discounts to peers like HDFC bank. This

    valuation gap will narrow over the period of time. Axis Bank reported Rs. 11.2 bn of PAT in Q2FY13 up

    22.1% YoY. Superior asset quality performance led to lower than estimated provisioning and higher

    profitability. Reported earnings per share of the company stood at Rs. 27.10 a share during the quarter,

    registering 21.43% an increase over previous year period.

    RATIO ANALYSIS OF AXIS AND HDFC BANK

    Current ratio

    Year Mar12 Mar11 Mar10 Mar09 Mar08

    Axis bank 0.03 0.02 0.03 0.03 0.03

    Hdfc bank 0.08 0.06 0.03 0.04 0.04

    Interpretation:-

    Current ratio = current assets/current liabilities

    It assesses short term solvency i.e. the ability to meet short term obligation of the company.

    When compared with HDFC bank, the ratio is the least in amount, Axis (avg. of 0.028) and HDFC

    (avg. 0.05)

    The low value can indicate that the company is having difficulty in meeting current obligations.

    On the other hand, it can also be said that the organization has good long-term prospects, so it is able to

    borrow against those prospects to meet current obligation.

    Debt-equity ratio

    Year Mar12

    Axis bank 11.2

    HDFC bank 9.0

    0

    0.02

    0.04

    0.06

    0.080.1

    0.12

    Series4

    Series3

    Series2

    Series1

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    Interpretations:-

    Debt equity ratio = outsiders funds/Insiders funds

    A higher ratio shows a large share of financing is done by the creditors of the firm compared to

    that of the owners. This can indicate that owners do not have faith in their company and thus is

    investing less in the company.

    As compared to HDFC bank axis bank D/E is high it means that large share of financing is done by

    axis bank.

    Asset turnover ratio

    Year Mar12 Mar11 Mar10 Mar09 Mar08

    Axis bank 0.11 0.09 0.10 0.11 6.32

    Hdfc bank 0.12 0.11 0.11 0.14 5.18

    Interpretation

    Fixed assets turnover ratio = net sales/fixed assets.

    This ratio shows the extent to which the investment in fixed asset contributes to sales and howefficiently the fixed assets are utilized.

    Axis bank is having an avg. asset turnover ratio of 1.34 that of Hdfc is 1.13, which indicates that

    the asset turnover ratio of axis is little high as compare to Hdfc bank.

    02

    4

    6

    8

    Mar12 Mar11 Mar10 Mar09 Mar08

    Axis bank

    Hdfc bank

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    Net profit margin

    Year Mar12 Mar11 Mar10 Mar09 Mar08

    Axis bank 15.51 17.20 16.10 13.31 12.22

    HDFC bank 15.93 16.09 14.76 11.35 12.82

    Interpretation

    Net profit ratio = (net profit after tax/net sales) * 100

    Axis bank is having an avg. net profit ratio of 14.87, that of Hdfc bank is 14.19, which indicates

    that hdfc bank is not able to maintain a good profit as compare to axis bank.

    This factor can either indicate that either the net profit is less or the amount of sales is high, but

    the company is not able to maintain a good profit margin which may be due to the pricing of

    products of the company.

    Earnings per share

    Year Mar12 Mar11 Mar10 Mar09 Mar08

    Axis bank 102.1 81.4 61.2 50.5 29.6

    HDFC bank 22.4 85.8 65.6 52.9 45.0

    0

    10

    20

    30

    40

    Mar12 Mar11 Mar10 Mar09 Mar08

    HDFC bank

    Axis bank

    0

    50

    100

    150

    200

    Mar12Mar11Mar10Mar09Mar08

    HDFC bankAxis bank

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    Interpretations

    Earning per share = net profit available to equity shareholders/number of equity shares.

    Axis bank is having an avg. EPS of 64.96, that of Hdfc bank is 54.34.

    The sharp decrease in the EPS indicates that the profit which theoretically belongs to the owners

    is very, which can give a negative impression about the company.

    This negative impact can lead to a decrease in the overall demand of the shares, which leads to

    a decrease in the share price.

    Dividend per share

    Year Mar12 Mar11 Mar10 Mar09 Mar08

    Axis bank 16.00 14.00 12.00 10.00 6.00

    HDFC bank 4.30 16.50 12.00 10.00 8.50

    Interpretation

    DPS = net distributed profit to equity shareholders/number of equity shares.

    Axis bank is having an avg. DPS of 11.6, that of Hdfc is 10.26.

    This will decrease the demand of the shares of the company

    Dividend payout ratio

    Year Mar12

    Axis bank 15.7

    HDFC bank 19.2

    010

    20

    30

    40

    HDFC bank

    Axis bank

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    Interpretation

    Axis bank is having an avg. DPR of 15.7, that of Hdfc bank is 19.2.

    This ratio tries to establish the relationship between the profit belonging to equity shareholders

    and amount paid to them. Since, the EPS amount is very small in the case of Axis bank.

    Dividend payout ratio in % when subtracted from 100, that shows the % of profit retained by the

    business like. The amount of profit retained by the company is negative.

    Return on equity

    Year Mar12 Mar11 Mar10 Mar09 Mar08

    Axis bank 18.6 17.7 15.5 17.8 12.1

    HDFC bank 17.4 15.6 13.9 14.9 13.8

    0

    5

    10

    15

    20

    25

    Axis bank HDFC bank

    Mar12

    Mar12

    0

    10

    20

    30

    40

    HDFC bank

    Axis bank

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    Interpretations

    Return on equity measures the rate of return on the ownership interest (shareholders equity)

    of the common stock owners.

    It measures a firms efficiency at generating profits from unit of shareholders equity.

    It shows how well a company uses investment funds to generate earnings growth ROE = net income/shareholders equity.

    Conclusion

    Ratios have very little meaning when used on their own. For a ratio to be interpreted, it should be

    compared with other results. This allows the business to make judgments in relative terms. Ratio

    analysis can be used to compare businesses, make comparisons within a single business, compare a

    business to an industry standard or make comparisons over time. There are five main categories ofratios that can be used in ratio analysis for comparison purposes. These include profitability ratios,

    gearing ratios, liquidity ratios, financial efficiency ratios and shareholders ratios. Profitability ratios are

    used to compare profits with the size of the business. These ratios are often called performance ratios

    because the primary aim of most businesses is to make a profit. Gearing ratios focus on the long term

    liquidity of a business. It allows a business to determine whether a business will be able to keep up

    with interest payments on borrowed capital and whether it will be able to pay any long term borrowing.

    Liquidity ratios are a measure of whether a business would be able to meet any short term liabilities it

    may have. Businesses need to ensure they have enough liquidity to avoid any problems with paying

    debts financial efficiency ratios look at how a business manages its working capital. They are used to

    measure and evaluate how efficiently a firm manages its assets and short term liabilities Shareholders

    ratios are used to determine whether shareholders would be likely to financially benefit from owning

    shares within the business. Ratio analysis can be a very effective way of evaluating and comparing the

    performance of a business providing it is used correctly and is well planned. Ratios can be used to

    evaluate different aspects of a business which makes them a comprehensive and valuable tool.

    Bibliography

    www.investopedia.com

    www.time4education.com

    www.moneycontrol.com

    www.m-tej.com

    http://truetobusiness.com/economics/inflation-and-the-interest-ratehttp://www.investopedia.com/http://www.investopedia.com/http://www.time4education.com/http://www.time4education.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.m-tej.com/http://www.m-tej.com/http://www.m-tej.com/http://www.moneycontrol.com/http://www.time4education.com/http://www.investopedia.com/http://truetobusiness.com/economics/inflation-and-the-interest-rate
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