Institute for Integrated Learning in Management IILM Graduate School of Management GREATER NOIDA

PROJECT ON RATIO ANALYSIS OF AXIS AND HDFC BANK

SUBMITTED TO: PROF.FEROZ KHAN

SUBMITTED BY: HONEY GAUTAM FT-FS-11-771

CONTENTS Introduction Key players Current scenario of axis and hdfc bank Ratio analysis Graphs Interpretations Conclusion Bibliography

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

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%).

KEY PLAYERS
Company Name
ICICI Bank HDFC Bank Axis Bank Kotak Mahindra

Last Price
1,065.85 640.75 1,336.65 661.70 486.45

Change
-44.90 -8.85 -17.60 3.85 1.50

% Change
-4.04 -1.36 -1.30 0.59 0.31

Net Profit
(Rs. cr)

6,465.26 5,167.09 4,242.21 1,085.05 977.00

Yes Bank

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 sept ending Full year EPS 21.2 96.5

Company name HDFC AXIS

MKT. P/e CAP ratio Rs.Cr 645 2 150,0 25.61 88.60 1309 785 121 42.678 10 51,85 11.14 5 3.77 The reported price is the closing price in NSC as on 05/11/2012

52 week high

52 week low 400

Price No. of NSC equity shares 635 236.36

FV

Pric e vs Bv 5.02 2.27

Year end Sept12 Sept12

Sales Rs cr 9,869. 80 8280. 29

NP Rs.cr 1,560. 00 1123. 54

25 26 109 11

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 Axis bank Hdfc bank Mar12 0.03 0.08 Mar11 0.02 0.06 Mar10 0.03 0.03 Mar09 0.03 0.04 Mar08 0.03 0.04

0.12 0.1 0.08 0.06 0.04 0.02 0

Series4 Series3

Series2
Series1

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 Axis bank HDFC bank Mar12 11.2 9.0

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 Axis bank Hdfc bank Mar12 0.11 0.12 Mar11 0.09 0.11 Mar10 0.10 0.11 Mar09 0.11 0.14 Mar08 6.32 5.18

8 6 4 2 0 Mar12 Mar11 Mar10 Mar09 Mar08 Axis bank Hdfc bank

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 how efficiently 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.

Net profit margin Year Axis bank HDFC bank Mar12 15.51 15.93 Mar11 17.20 16.09 Mar10 16.10 14.76 Mar09 13.31 11.35 Mar08 12.22 12.82

40

30
20 10 0 Mar12 Mar11 Mar10 Mar09 Mar08

HDFC bank
Axis bank

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 Axis bank HDFC bank Mar12 102.1 22.4 Mar11 81.4 85.8 Mar10 61.2 65.6 Mar09 50.5 52.9 Mar08 29.6 45.0

200 150 100 50 0 Mar12 Mar11 Mar10 Mar09 Mar08 HDFC bank Axis bank

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 Axis bank HDFC bank Mar12 16.00 4.30 Mar11 14.00 16.50 Mar10 12.00 12.00 Mar09 10.00 10.00 Mar08 6.00 8.50

40 30 20 10 0 HDFC bank Axis bank

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 Axis bank HDFC bank Mar12 15.7 19.2

Mar12
25 20 15 10 5 0 Axis bank HDFC bank Mar12

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 Axis bank HDFC bank Mar12 18.6 17.4 Mar11 17.7 15.6 Mar10 15.5 13.9 Mar09 17.8 14.9 Mar08 12.1 13.8

40 30 20 10 0 HDFC bank Axis bank

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 of ratios 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