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Capstone Project 2013 - 15

VALUATION OF KOTAK MAHINDRA BANK

Submitted by:

Faculty Guide: MS. Uma Ghosh Name of the Student: Pratim Roy

Designation: Lecturer Finance Roll No.: PGDM 1838

& Quality Assurance Program: PGDM 13-15

Batch: Finance 1

Institute for Technology and Management Plot No. 25 / 26, Institutional Area,

Sector – 4, Kharghar, Navi Mumbai

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CERTIFICATE FROM THE GUIDE

This is to certify that the Project Work titled______________________________

(title) is a bonafide work carried out by _______________________________

(name of the student), a student of PGDM program 2012 – 2014 of the Institute for

Technology & Management, Kharghar, Navi Mumbai under my guidance and

direction.

Signature of Guide:

Name: Ms. Uma Ghosh

Designation: Lecturer – Finance & Quality Assurance

Date: 19/03/2015

Place: ITM B-School

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Abstract

Capstone Project is a very crucial aspect of MBA/PGDM course. It opens up a whole new door of

opportunities for a management graduate which enhance their research and analytical skills. It

helps us to bring our theoretical knowledge into practical knowledge. In the upcoming days this

practical knowledge will help us to move forward and reach us in a new level of thinking.

As a student of finance specialization valuation is a very crucial aspect of financial. Valuation is

a technique which help us to value a company. Most of the market investment is depend on this

valuation. Its help us to know that a company is undervalued or overvalued. Most of the investment

banker’s do work on this it is a part of investment banking. Without proper valuation it is quite

difficult to invest in the market.

There are few methods which help us to value a company. This methods are different for different

industry. Followings are the methods for valuation-

Relative Valuation Approach

Cash flow-based Approach (DCF & DDM)

Asset Based Valuation

Earnings Multiplier Approach

My capstone project main objective is by using appropriate valuation method from the above find the value

of “Kotak Mahindra Bank”.

Most of the investment banker’s used cash flow base approach because it’s the most reliable approach to

value a company. A discounted cash flow (DCF) is the most fundamentally correct way of valuing an

investment. Most other methods of valuation can, to a large extent, be seen as simplified approximations of

a DCF. A DCF is investment banker’s own estimate of the valuation of a company. The judgment of an

investment banker on deciding the assumptions which go into the DCF is what the investment banker is

paid for.

I have done the same thing but in case of bank’s valuation we need to use DDM (Dividend discount model)

because. For calculating, DCF (Discounted cash flow method) we need the WACC which is tough to find

in case of a bank. Banks primarily borrow money from government through repo, public through savings

account and fixed deposit and other banks through call money. The cost of debt for a bank cannot be

estimated as the breakup of rates at which money was borrowed cannot be estimated and CASA providers

cannot be termed as capital providers.

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ACKNOWLEDGEMENT

I would like to thank Institute for Technology & Management for helping me to get this

opportunity otherwise I would never have had a taste of research and analysis before actually

jumping into the corporate bandwagon.

And I would like to thank my faculty guide Mrs. Uma Ghosh to guide me throughout the journey

in a systematic way and help me to reach my prime objective and give me the proper visionary to

do the assigned job properly.

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CONTENTS PAGE NUMBER

1.Introduction 6-9

1.1 Problem In Hand 6

1.2 Importance Of The Problem 6

1.3 Historical Perspective 6

1.4 Scope Of The Project 6

1.5 Details Of The Organization 7

1.6 Products & Services 7

1.7 Organizational Structure 8

1.8 Organization Business profile 9

2. Literature Review 10-15

2.1 Different views 10-15

2.2 Gap Identification & Objectives 15

3.Research Methodology 16

3.1 Methods Of Data Collections 16

3.2 Data Analysis Techniques 16

3.3 Sample Size 16

4. Data Collection, Analysis, & Interpretation 17-23

4.1 The Type of Data Needed & Sources 17

4.2 Details of Data Collection & Analysis 18-20

4.3 Key Ratio Analysis 21-23

5.Conclusions 24

6. Recommendations 24-26

5.1 Brief description of recommendations 24

5.2 Details of the recommendation, discussion of its technical suitability,

Economic justification and feasibility of implementation

24-25

5.3 Overall benefits of the Project 25

5.4 Learning from the Project 25

5.5 Limitations 25-26

5.6 Scope for future study 26

6 References 27

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1. Introduction

This project is entirely based on valuation- an integral part of finance, which enhances our knowledge to

understand the company’s balance sheet, profit and loss a/c, cash flow, ratio analysis and financial

forecasting. Without financial forecasting, we cannot estimate future cash flow. Future cash flow help us

to find the free cash flow from the fund and we can calculate terminal value form this FCFF.

1.1 Problem in hand

We need to calculate enterprise value of the firm and true value of the firm for an investor’s perspectives.

Find the exact price of the share of kotak Mahindra bank where an investor should enter and earn profit

from the market and exit from it.

1.2 Importance of the problem

The role of research is to provide information to the market. A lack of information creates inefficiencies

that result in stocks being misrepresented (over- or under-valued). Analysts use their expertise and spend a

lot of time analyzing a stock, its industry and its peer group to provide earnings and valuation estimates.

Research is valuable because it fills information gaps so that each individual investor does not need to

analyze every stock. This division of labor makes the market more efficient. The ironic thing is that while

research has proven to be valuable, individual investors do not seem to want to pay for it. This may be

because, under the traditional system, brokerage houses provide research in order to gain and keep clients.

Investors just had to ask their brokers for a report and retain it at no charge. What seems to have gone

unrealized is that the commissions pay for the research.

A good indicator of the value of research is the amount which institutional investors are willing to pay for

it. Institutional investors hire their own analysts to gain a competitive edge over other investors. They also

pay (often handsomely) independent research firms for additional research. Institutions also pay for the

sell-side research they receive (either with dollars or by giving the supplying brokerage firm trades to

execute). All these amounts to big money, but the institutions realize that research is integral for making

successful investment decisions.

1.3 Historical perspective

In this environment, we focus more on growth rates, with slightly less emphasis on valuation. It is worth

nothing, as we did at the close of 2013, the unusual level of valuation parity across the Indian equity

markets. That is, most stocks are trading at a similar price-earnings ratio. Investors are essentially paying

the same price for companies with varying degrees of growth potential.

1.4 Scope of the project

This project will enable us to understand

a) The financial position of the Kotak Mahindra bank.

b) Financial modeling

c) How to forecast the financial of a particular company.

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d) Valuation techniques.

e) Exact value of a share and help us to judge a stock weather it is undervalued or overvalued.

1.5 Details of the organization

Kotak Mahindra Bank is the fourth largest Indian private sector bank by market capitalization,

headquartered in Mumbai, Maharashtra. The Bank’s registered office (headquarter) is located at 27BKC,

Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra, India.

In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company was given the license to

carry on banking business by the Reserve Bank of India (RBI). Kotak Mahindra Finance Ltd. is the first

company in the Indian banking history to convert to a bank.

As on Sept 30, 2014, Kotak Mahindra Bank has over 641 branches and over 1,159 ATMs spread across

363 locations in the country.

Kotak Mahindra group, established in 1985 by Uday Kotak, is one of India’s leading financial services

conglomerates. In February 2003, Kotak Mahindra Finance Ltd. (KMFL), the Group’s flagship company,

received a banking license from the Reserve Bank of India (RBI). With this, KMFL became the first non-

banking finance company in India to be converted into a bank – Kotak Mahindra Bank Limited (KMBL).

In a study by Brand Finance Banking 500, published in February 2014 by the Banker magazine (from The

Financial Times Stable), KMBL was ranked 245th among the world’s top 500 banks with brand valuation

of around half a billion dollars ($481 million) and brand rating of AA+.KMBL is also ranked among the

top 5 Best Ranked Companies for Corporate Governance in IR Global Ranking.

1.6 Products & Services of Kotak Mahindra Bank

a) Accounting & deposits- savings account, current account, fixed deposits

b) Loan- car loan, home loan, SME loan, personal loan etc.

c) Cards- Debit card, travel card, credit card etc.

d) Investment advice & Insurance

e) Mutual fund

f) Agri business

g) Convenience banking- net banking, phone banking, ATM

h) Financial inclusion-BSBDA branches small branches

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1.7 Organization structure of Kotak Mahindra Bank

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1.8 Kotak Mahindra Bank business profile

Kotak Mahindra Bank Limited offers transaction banking, operates lending verticals, manages initial

public offerings (IPOs) and provides working capital loans. The Bank operates in four segments:

Treasury and BMU, Corporate / Wholesale Banking, Retail Banking and Other Banking business.

Treasury and BMU segment includes money market, forex market, derivatives, investments and

primary dealership of government securities and balance sheet management unit (BMU) responsible

for asset liability management. Corporate / Wholesale Banking segment includes wholesale borrowings

and lending and other related services to the corporate sector, which are not included under retail

banking. Retail Banking includes lending, branch banking and credit cards. Lending includes

commercial vehicle finance, personal loans, home loans, agriculture finance, other loans / services and

exposures. Other Banking business segment includes any other business.

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2. LITERATURE REVIEW

(Edelweiss, 2015)- Kotak Mahindra Bank’s Q2FY14 headline earnings (consolidated excluding life

insurance) were in line with expectation at INR5.4bn (up 19% YoY). Moderation in advance growth,

investment depreciation of INR2.64bn (one-third recognized in this quarter and it chose not transfer

securities from AFS to HTM under RBI’s special dispensation) and lower non-interest income led to

lower than anticipated banking business earnings. NIMs surprised positively improving 15bps QoQ (to

4.9%) and asset quality was stable. Earnings in auto financing, securities and asset management

businesses were also higher than expectation. With lower growth, RoE profile will be capped below

15% and valuation of banking business (adjusting for subsidiaries) at 3x FY15E P/ABV appears

expensive. Maintain ‘REDUCE’ with TP of INR667.

• Banking business earnings were up 26% YoY to INR3.25bn riding on NIM expansion (full benefit of

capital raising in Q1FY14 and improvement in asset yield due to investment run-down). As guided,

advances growth moderated to 11% YoY– CV/CE portfolio declined 16% YoY and corporate lending

growth was modest at 6%. It has upped its guidance on branch expansion to 600 branches by FY14.

• Kotak Prime maintained earnings momentum - up 10% YoY to INR1.25bn (versus our expectation of a

decline). Advances growth moderated to 12%.

• Profitability of securities business was higher as daily trading volume improved 15% QoQ to INR42.5bn

and market share improved to 2.4% (2.2% in Q1FY14).

• Earnings of asset management business improved QoQ despite AUMs coming off sequentially – mainly

due to mix in favour of long term debt.

• In life insurance business, PAT was lower at INR440mn (compared to INR710mn in Q1FY14 and

INR470mn in Q2FY13) – due to lower investment income

(ICICI Securities, 2014) The results of Kotak Mahindra Bank (KMB) were in line with estimates. NIM

uptick of 30 bps YoY, 10 bps QoQ to 4.9% was surprising in the current tight liquidity scenario. NIM

improvement was supported by i) recovery of NPA adding to interest income and ii) full impact of | 1296

crore capital raised in Q1FY14. About | 9500 crore of KMB’s investment book is exposed to MTM risk

due to rise in yields. In Q2, it made a loss of | 264 crore and provided | 88 crore as per RBI concession to

spread the loss over three quarters. Of the balance | 176 crore loss, management indicated the loss has

reduced to | 90 crore with yields coming off highs. The subsidiary performance was steady in Q2FY14 and

no major surprise was seen. The consolidated PAT grew 16% YoY to 583 crore. Rich valuations are

factoring majority of positives. We recommend SELL. Credit growth moderates, asset quality to remain

stable… Credit growth has moderated from 24% in FY13 to 11.4% (flat QoQ at 50609 crore) in Q2FY14.

The management is focusing on select sectors like consumer related and agri where it is growing at ~25%.

It is cautious on CE, CV lending as it de-grew by | 727 crore QoQ to | 6781 crore (13.4% of credit).

Management has guided for 15% credit growth in FY14. Asset quality continues to remain stable with

GNPA rising marginally from | 995.4 crore in Q1 to | 1006 crore in Q2FY14 while NNPA declined by |

8.9 crore QoQ to | 486.9 crore. The bank does not have any major participation in CDR cell and its

restructured book is almost negligible at | 45 crore. No major negative surprise in asset quality expected.

Healthy performance to continue… KMB earns the best NIM in industry at 4.9% and has one of the most

stable asset quality with NNPA ratio of 1% and negligible restructured assets. This depicts the strong

operational business model of the bank. KMB is well capitalize with tier I ratio of 18.1% and is in a strong

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position to grow when the economic cycle turns positive. Valuations rich… KMB trades at rich valuations

as it earns superior return ratios with 1.8% RoA, 15.6% RoE for FY13. The bank is exposed to a high

interest rate scenario wherein it takes MTM hit on investment book and CoF rises. The moderate credit

growth may cap RoE improvement. We are incorporating the capital raised (|1296 crore) by bank in May

2013 at | 648/share, which led to increase in ABV thereby revising TP to 636. Recommend SELL.

(KRCHOKSEY institutions, 2015) KMB’s consolidated PAT for Q2FY15 grew 23.2% Y-o-Y to Rs 718

crs aided by better banking business (up 26.1% Y-o-Y) mainly on account of a slow base in Q2FY14.

Capital market linked businesses securities broking saw net earnings growth of 65.0% Y-o-Y on the back

of 55.9% Y-o-Y & 9.4% Q-o-Q rise in average daily turnover. In last quarter’s trends, Investment banking

and asset management continued to be weak and reported negative net earnings. Total MF AUM increased

5.3% Q-o-Q aided by 33.3% Q-o-Q rise in equity AUM (Rs 5,200 crs). Consolidated asset quality (banking

book and consumer finance book) remained fairly stable with net NPAs at 0.84% (3bps increase Q-o-Q).

Business picked up for Kotak Life as FYP grew by 18.2% Y-o-Y, after declining two consecutive quarters

which translated to a similar growth in net earnings.

Strong standalone performance - Strengthen corporate book, good fee income growth and stable margins:

Kotak has delivered a superior set of results with stable calculated NIM at 4.7%, strong CA accretion (+ Rs

1,448 crs Vs Rs – Rs 717 crs in Q1FY15) and stale asset quality. OPEX grew 25.5% Y-o-Y & 4.8% Q-o-

Q due to a 34.0% Yo-Y steep rise in employee costs. Provisions declined by 25.8% Y-o-Y on the back of

an investment depreciation write back vs. high investment depreciation in Q2FY14. CV book depicted

another slow quarter and declined by 25.4% Y-o-Y which was slightly offset by a 14.0% Y-o-Y growth in

home loans and 29.3% Y-o-Y growth in personal loans, which resulted in fairly flat retail book. Corporate

loans grew robustly by 40.2% Y-o-Y & 9.2% Qo-Q during the quarter as the bank focuses on potential

‘mid-market space’. Deposit growth was healthy at 29.4% Y-o-Y aided by strong growth in CASA (CA

+35.2% y/y & SA +39.5% y/y) and retail term deposits. Kotak Mahindra Bank’s market positioning remains

strong to push the pedal on growth if the operating environment improves. Management maintains loan

book guidance for FY15 at 20% supported by a strong wholesale book and a steady recovery in retail and

commercial financing. We expect the bank to deliver 20.4% CAGR in net earnings over FY14-FY17 driven

by pick up in loan growth, steady NIMs, improving cost to income ratio and pull back in MTM line.

Strong asset quality Q-o-Q with positive management commentary: Asset quality remained stable with Net

NPAs at 1% and a coverage ratio of 48%. The bank holds strong on its marked down stressed assets pool

expects recoveries of Rs 1,800-2,000 crs in the next two years, big booster to earnings (10% of consolidated

net worth). The management believes stressed asset addition run rate would be lower in FY15 compared to

FY14 due to CV cycle bottoming out and gradual improvement in the macro. We model in ~ 40bps credit

costs in FY15.

Other highlights: (1) Stable consolidated NIM Q-o-Q at 5.0%. (2) Kotak securities’ market share improved

30bps Y-o-Y & declined 20 bps Q-o-Q to 2.7%. (3) Kotak MF reported 5.3% rise in average AUM with

33.3% increase in equity AUM. (4) The bank has added 27 branches taking total network to 641 branches

with 1150 ATMs. The bank maintains its target to reach 1,000 branches by March 2016.

Valuation & Recommendation: Kotak Mahindra Bank has delivered strong core operating performance

both standalone and consolidated level during the quarter. We believe 20% loan growth outlook, margin

preservation, lower credit costs, cash recoveries from marked down acquired stressed assets pull, operating

leverage on newly open branches and pull back in MTM line will support earnings growth over FY14-

FY17. At Rs 1,088 the stock is trading 3.3x FY16 consolidated book value and 23.3x FY16 consolidated

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EPS, closer to its intrinsic value leaving limited upside. Hence, we recommend “HOLD” the stock target

price of Rs 1,111, potential upside 2.1%.

(ICICI Direct, 2014) Rising scale in business, still strong…

• Revival in credit growth at 20% YoY to| 60948 crore vs. 12.6% YoY in Q1FY15 remained a key highlight.

Ex CV/CE, the growth was 24% YoY. Deposits grew a strong 29% YoY

• Earnings came in higher than estimates at | 444 crore rising 26% YoY vs. our estimate of | 404 crore. NII

grew 12.4% YoY to | 1038 crore as estimated with stable margin at 5%

• Higher other income at | 466 crore, up 57% YoY, supported strong profit growth

• GNPA saw a marginal rise, not worrying yet – Q2FY15 GNPA at | 1165 crore (1.89%) vs. | 1079 crore

(1.88%) and NNPA at | 611 crore (1%) vs. | 559 crore. RA rose to | 160 crore vs. 145 crore in Q1FY15

• Consolidated profit for Q2FY15 grew sharply at 23% YoY to | 718 crore. Share of subsidiaries in PAT

was stable around 38% New bank in 2002, making material mark in industry- retail heavy Kotak Bank,

promoted by Uday Kotak, post receiving a license in 2002 has grown to a loan-book size of | 60948 crore

and built a branch network of 641 branches managing CASA ratio of 31%. The bank’s retail loans form

41% of total loans while corporate and agriculture comprise the rest. In 2003, it had 72% retail loans while

CV loans dominated the book, which has slightly moderated now at | 5062 crore. However, home loan (|

1284 crore) and other personal loans are also growing fast in retail. Hence, KMB earns the best NIM in

industry at 4.5-4.9% led by high yielding retail loans. Also, auto loans by Kotak Prime are strong. We

expect credit CAGR of 20% to | 76240 crore, hence, maintaining margins at 4.5%. Savings rate deregulation

and raising same to 6% prove beneficial. The savings rate was hiked to 6% by KMB post deregulation by

the RBI in September 2010. The bank almost tripled its savings deposits from | 3331 crore in March 2011

to | 9200 crore by March 2014. It garnered | 600-800 crore on a quarterly basis vs. | 900 crore in full year

FY11. CASA ratio averaged around 28-29% in the past and is seen averaging around 3132% consistently

by FY16E to | 27094 crore. Total deposits grew at 23% CAGR over FY10-13. We expect the same to grow

at 19% CAGR over FY14-16E to | 83664 crore. Strong management, business model and controlled asset

quality KMB has one of the most stable asset quality with NNPA ratio of 1% and negligible restructured

assets. KMB is well capitalised with tier I ratio of 18.1% (maintained 15-18% since start). It has grown

credit by 15x in FY02-08 to | 15520 crore and post that at 25% CAGR to | 48468 crore by FY13 with profit

surging to | 1360 crore from | 54 crore in FY02. FY14 growth was sluggish on a conscious slowdown. We

expect PAT growth at 15% CAGR over FY14-16E to | 1982 crore. Subsidiaries add value and provide beta

as cycle turns Kotak Prime, Kotak Securities and capital market subsidiaries remain strong in their domain

and are expected to receive better valuations on economic recovery. AMC and life insurance are still small.

Ex-bank, subsidiaries’ contribution has declined from highs of 60% to around 40%. Maintain HOLD due

to rich valuations but strong return ratios… KMB trades at rich valuations consistently due to its superior

return ratios and NIM (RoA of 1.8% and NIM at 5%). RBI’s mandate to bring down promoter stake from

40% to 20% by FY18 will maintain investor interest in the stock. We maintain HOLD with our SOTP target

price of | 1117 (4.5x FY16E standalone ABV for bank).

(MOTILAL OSWAL, 2015)

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KMB’s 3QFY15 consolidated PAT missed our estimate by 6%. While banking business’ profits

were in line, aided by strong loan (+22% YoY) and fees (+45% YoY in 3Q/9M) growth, continued

competitive pressure on other businesses (INR2.5b, flat YoY) impacted overall profitability (est.

of INR3b.

Merger with VYSB places KMB in a sweet spot, with strong presence across geographies,

products and continued healthy capitalization (CET 1 of 16.5%). The merged entity will be the

fourth-largest private sector bank with a loan book of INR1.2t and market share of 1.8% of loans.

KMB’s premium multiples are likely to sustain considering the strong growth and operating

leverage available across businesses. While we are positive on the business, valuations at 3.3x/23x

consolidated BV/EPS limit the upside. Maintain Neutral with an SOTP-based target price of

INR1,325 (pro -forma merged VYSB).

On saving accounts, KMB has not paid anything above 6% interest rate; Weighted average cost

build capacity and has added 4k employees on

existing customers, acquisition of new customers and use of analytics is helping to grow deposits

healthily. Retail term deposits (up to INR10m) up 33% YoY

(MOTILAL OSWAL, 2014).

The boards of Kotak Mahindra Bank (KMB) and ING Vysya Bank (VYSB) have approved merger

with swap ratio of 0.725:1 (KMB: VYSB). We believe these two banks complement each other

well in terms of branch presence, product offerings and places KMB as a serious competition for

the large private banks. Post-merger, we expect FY16E cons BV to increase by INR40 (up ~12%).

RoE of the merged entity would decline by ~100bp; however, after factoring in post-merger

synergies, decline in RoE would not be significant.

Pro-forma ROAs to moderate; significant scope for improvement: KMB makes healthy ROA of

~1.9% whereas, VYSB makes ~1.1%. On a pro-forma merged basis ROA would come down to

~1.6% however, merger synergies (low hanging fruits for generating retail business from VYSB

franchise) can be significant in terms of improvement. KMB has INR1.85b and INR24.8m

business and profits per branch whereas, for VYSB it is INR1.38b and INR11.8m resp.

Key risks: (a) Integration of workforce of VYSB with KMB especially old employees linked to

IBA payroll (~3K) (b) Overlapping of branches in some of the key centers (c) Improving the VYSB

branch productivity levels.

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(Annual Reort, 2014)

DIVIDEND

Your Directors are pleased to recommend a dividend of ` 0.80 per equity share (previous year `

0.70 per equity share), entailing a payout of ` 71.77 crore including dividend distribution tax

(previous year ` 59.67 crore).

OPERATIONS

Consumer Banking

Your Bank continued to expand its footprint across India and as at 31st March 2014 had 605

branches and 1103 ATMs, covering 354 locations. Of the 168 new branches commissioned this

year, 94 were in rural and semi-urban locations. Your Bank added over six hundred twenty

thousand new customers this year across core banking products of savings and checking accounts,

term deposits, overdrafts and non-resident accounts.

Wholesale Banking

Bank consolidated its franchise across customer segments by focusing towards serving customized

requirements through an array of financial products and services driven through best-in-class

technology platforms. Bank also continued to work towards ensuring a healthy portfolio through

a volatile economic as well as a tough credit scenario in the last financial year. The financial year

saw a stable demand on credit growth. Over the past year, the Transaction Banking Group has

focused on reinforcing your Bank as the Best Domestic Bank in this area. Driven by innovation,

leveraged on robust technology and specialized product solutions, your Bank has been able to

consistently add value to transaction banking clients across Cash Management & Trade Services.

This has helped clients achieve optimized working capital & liquidity management benchmarks.

Conscious competition benchmarking, highly evolved process and product parameters, continuous

client feedback & customized solutions have enabled your Bank to cater to the needs of ever-

changing industry landscape. Your Bank has introduced the following key initiatives to serve

customers better:

Commercial Banking

Commercial Vehicles & Construction Equipment

The Commercial Vehicles (CV) and Construction Equipment (CE) sectors have witnessed

continued slow down since 2011-12 which persisted this year. This is the longest period of cyclical

slow down ever witnessed in the CV sector. CV sales, across segments dropped on a reduced base.

The CE sector witnessed lower off take, elongated payment cycles and the drop in the investment

rate hit the sector hard. In the light of these factors, your Bank’s strategy was to sharply focus on

receivables management during the year. Indications are that the CV sector may have bottomed

out as indicated by the slight improvement in freight rates in Q4 and operator confidence

improving. On a macro level, the GDP growth in 2014-15 is expected to be better than the previous

year. Given this, the CV sector is expected to grow (with a lag) towards the latter half of 2014-15.

Emphasis on infrastructure growth and project clearances should pave the way for a revival in the

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CE sector as well. Your Bank is positioned to accelerate growth in these segments should a

sustainable turnaround be seen.

Asset Reconstruction

The retail recoveries of credit card, business loans, personal and mortgage loans have been robust

with respect to the portfolios purchased from other banks and NBFCs. The recoveries were further

enhanced due to CIBIL reporting and scoring of borrower rating by the retail credit rating

agencies. The corporate recoveries continue to be challenging with the economy being sluggish

and the exit from few large accounts expected to happen through the sale of assets. Bank is

expecting several special situation opportunities in the coming financial year and it will be in a

position to invest in such opportunities, in the coming years.

2.2 Gap Identification

In this above report it’s cleared that no one is fully bullish on this share. But I have found that it’s in a

bullish trend, the main reason behind this bullishness is growth in private sector bank and their service up

gradations. I have made an assumption about the growth rate of banking sector that is 12.3% which is

inflation adjusted growth rate, and new technology implementation may extend this current growth rate

into a another level which may higher than this. With the few assumption I have found a target price which

is Rs 1389 that is nearly current market price. It implies that there is significant gap in their research. All

above mentioned report set a target price near about Rs 1100 but its raise more than that.

Objectives of this project

1. Find the value of the Kotak Mahindra Bank.

2. Justify that is it overvalued or undervalued.

3. Upcoming FY performance.

4. Find the share target price of the bank.

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3. Research Methodology

3.1 Methods of data collection

It’s a financial research so secondary data is more relevant for this research. Data is collected from

moneycontrol.com, Reuters, and Rediffmoney.com

It’s is quite impossible to collect primary data for this research we need last five years balance sheet,

p&l statement, which is available in the above mentioned site. After collecting the data drop the entire

data set into the excel sheet.

3.2 Data Analysis Techniques

Data analysis mainly depend on historical performance of the company. We need to cheek the each and

every parameter of the balance sheet and p&l to forecast the future balance sheet and p&l on the basis

of past records and economic condition of the country. Mainly we need to calculate CAGR. Firstly we

need to forecast the future cash flow of sales. All data mainly depend on sales of the company because

it’s the main source of the revenue we need to forecast the future data on the basis of sales percentage.

All research report is depend on the past record of the company. We need to do two types of analysis

one is sensitivity analysis and another is scenario analysis. We need to analyze sensitivity of the

different factor of the company according to the industry.

And in case of scenario analysis we need to think how a company will perform under different scenario

like inflation, GDP changes, global economic turmoil those are uncertain event.

3.3 Sample size

We need to collect last five years data FY10-FY14.

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4. Data Collections, Analysis & Interpretation

4.1 The Type of Data Needed & Sources

Mainly in this kind of equity research we need secondary data which is available in the company

website, Moneycontrol website, Reuters etc.

4.2 Details of Data Collection & Analysis

Balance Sheet Of Kotak Mahindra bank In last Five Years

Sources Moneycontrol.com

Particulars Mar '10 Mar '11 Mar '12 Mar '13 Mar '14

Capital and Liabilities:

Total Share Capital 348.14 368.44 370.34 373.3 385.16

Equity Share Capital 348.14 368.44 370.34 373.3 385.16

Share Application Money 0 0 0 0 0

Preference Share Capital 0 0 0 0 0

Init. Contribution Settler 0 0 0 0 0

Preference Share Application Money 0 0 0 0 0

Employee Stock Opiton 0 36.92 34.82 17.53 8.53

Reserves 7,617.60 10,594.51 12,530.70 14,876.49 18,690.85

Net Worth 7,965.74 10,999.87 12,935.86 15,267.32 19,084.54

Deposits 21,819.18 27,312.98 36,460.73 49,389.14 56,929.75

Borrowings 13,885.70 22,073.32 29,194.69 36,171.96 29,007.14

Total Debt 35,704.88 49,386.30 65,655.42 85,561.10 85,936.89

Minority Interest 80.86 107.21 160.06 208.72 270.89

Policy Holders Funds 6,371.07 8,145.20 9,011.53 10,077.27 11,014.56

Group Share in Joint Venture 0 0 0 0 0

Other Liabilities & Provisions 4,992.25 5,042.56 4,586.52 4,720.24 5,929.76

Total Liabilities 55,114.80 73,681.14 92,349.39 115,834.65 122,236.64

Assets

Cash & Balances with RBI 2,094.08 2,114.86 2,030.63 2,220.76 2,960.51

Balance with Banks, Money at Call 412.73 879.4 1,545.20 2,297.49 3,682.60

Advances 29,724.29 41,241.95 53,143.61 66,257.65 71,692.52

Investments 19,484.78 26,048.99 31,658.43 40,907.24 38,791.05

Gross Block 1,166.42 600.42 615.29 619.9 1,264.09

Revaluation Reserves 0 0 0 0 0

Accumulated Depreciation 552.59 0 0 0 0

Net Block 613.83 600.42 615.29 619.9 1,264.09

Capital Work In Progress 0 0 0 0 0

Other Assets 2,785.10 2,795.51 3,356.22 3,531.63 3,845.87

Minority Interest 0 0 0 0 0

Group Share in Joint Venture 0 0 0 0 0

Total Assets 55,114.81 73,681.13 92,349.38 115,834.67 122,236.64

Contingent Liabilities 35,690.18 37,693.49 42,221.94 43,980.45 48,822.33

Bills for collection 3,063.64 0 0 0 0

Book Value (Rs) 228.81 148.78 174.18 204.25 247.64

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Profit & Loss Statement of Kotak Mahindra bank in last Five Years

Particulars Mar ' 10 Mar ' 11 Mar ' 12 Mar ' 13 Mar ' 14 2015E 2016E 2017E 2018E 2019E

Income

Operating income 3,655.79 4,189.75 6,180.24 8,042.49 8,767.12 9844.899 11055.17 12414.23 13940.37 15654.11

Expenses

Material consumed - - - - -

Manufacturing expenses - - - - -

Personnel expenses 583.48 783.83 902.36 1,075.14 1,172.16 1496.575 1663.776 1777.475 1988.106 2260.478

Selling expenses 53.81 - - - -

Adminstrative expenses 720.13 671.22 815.72 1,002.06 1,205.27 1479.194 1557.708 1701.279 1924.516 2203.239

Expenses capitalised - - - - -

Cost of sales 1,357.41 1,455.06 1,718.08 2,077.20 2,377.43 3004.75 3227.998 3487.526 3924.442 4479.645

Operating profit 900.9 642.52 794.41 1,128.47 1,342.62 2268.505 2813.63 3495.653 3913.447 4211.703

Other recurring income 26.14 780.53 977.35 1,160.66 1,399.71 1595.875 1792.062 1952.299 2189.855 2499.048

Adjusted PBDIT 927.05 1,423.06 1,771.75 2,289.14 2,742.33 3864.38 4605.692 5447.953 6103.302 6710.752

Financial expenses 1,397.48 2,092.18 3,667.75 4,836.82 5,047.07 5222.08 6191.662 7103.568 7917.587 8786.212

Depreciation 90 98.27 116.76 132.53 165.18 201.3979 216.9555 234.1173 262.8045 302.5426

Other write offs - - - - -

Adjusted PBT 837.05 -767.39 -2,012.75 -2,680.21 -2,469.91 3662.982 4388.737 5213.835 5840.498 6408.209

Tax charges 250 369.52 514.87 611.34 769.93 1282.044 1536.058 1824.842 2044.174 2242.873

Adjusted PAT 564.05 818.18 1,085.05 1,360.72 1,502.52 2380.938 2852.679 3388.993 3796.323 4165.336

EPS 7.554916 10.95875 14.53322 18.22556 20.12483 31.89041 38.20893 45.39235 50.84816 55.79073

Reported net profit 563.11 818.18 1,085.05 1,360.72 1,502.52 2380.938 2852.679 3388.993 3796.323 4165.336

Earnigs before appropriation 1,212.06 1,784.09 2,579.57 3,523.51 4,519.12

Equity dividend 29.66 32.52 37.28 52.38 54.39 95.93747 107.8838 126.8593 144.4415 158.1096

Preference dividend - - - - -

Dividend tax - 4.37 7.22 7.29 8.69 14.39062 16.18257 19.0289 21.66623 23.71643

Retained earnings 1,182.40 1,747.20 2,535.08 3,463.84 4,456.04

DPS 0.397268 0.435575 0.49933 0.70158 0.728503 1.284992 1.445002 1.699161 1.934657 2.117728

TOTAL NO OF SHARES O/S 74.66

K 0.164564 0.164581 0.164479 0.16462 0.164378 0.164524 0.164517 0.164504 0.164509 0.164486

SHARE PRICE 412 444 568 688 936 1389.955 1576.595 1880.362 2129.411 2389.399

G 0.1636

P/E 54.53403 40.51558 39.08288 37.74919 46.5097 43.58535 41.26248 41.42465 41.87783 42.82788

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According to my research work it is expected that Kotak Mahindra bank will hit Rs1389 target

within 2015 march.

Earning Power Value Method

One of the ways that it helps investors evaluate the intrinsic value of a position is by removing the

difficulties of other evaluation formulas. However, that can mean that EPV is less accurate than

other, more thorough methods. EPV does give a clear look at a company's present situation though.

Graham’s Value

A figure that measures a stock's fundamental value by taking into account the company's earnings

per share and book value per share. The Graham number is the upper bound of the price range that

a defensive investor should pay for the stock. According to the theory, any stock price below the

Graham number is considered undervalued, and thus worth investing in. The formula is as follows:

√(22.5*EPS*BPS)

According to this valuation this stock is highly overvalued.

P/E Based Valuation

A stock with a high P/E ratio suggests that investors are expecting higher earnings growth in the

future compared to the overall market, as investors are paying more for today's earnings in

anticipation of future earnings growth. Hence, as a generalization, stocks with this characteristic

are considered to be growth stocks. Conversely, a stock with a low P/E ratio suggests that investors

have more modest expectations for its future growth compared to the market as a whole. The

growth investor views high P/E ratio stocks as attractive buys and low P/E stocks as flawed,

unattractive prospects. Value investors are not inclined to buy growth stocks at what they consider

to be overpriced values, preferring instead to buy what they see as underappreciated and

undervalued stocks, at a bargain price, which, over time, will hopefully perform well.

YEAR 2015 2016 2017 2018 2019

ADJUSTED EARNINGS 31.89041 38.20893 45.39235 50.84816 55.79073

R 0.164524 0.164517 0.164504 0.164509 0.164486

EPV 193.8338 232.2498 275.9352 309.0913 339.1816

EARNINGS POWER VALUE

YEAR 2015 2016 2017 2018 2019

EPS 31.89041 38.20893 45.39235 50.84816 55.79073

BVPS 319.1652 388.2974 476.2331 589.334 727.2074

VALUE AS PER GARHAM FORMULA 478.5519 577.7713 697.4167 821.1256 955.4356

GARHAM VALUE

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Valuations

According to my research work present market value of the Kotak Mahindra bank is overvalued.

We assumed here margin of safety is 15% where an investors can buy this share for a long term.

YEAR 2015 2016 2017 2018 2019

LAST 3 YEARS AVERAGE EPS 17.62787 23.4136 30.07473 38.49723 44.81648

LAST 5 YEARS AVERAGE P/E RATIO 43.67828 41.48854 41.63792 42.10628 42.932

AS PER P/ E VALUE 769.9549 971.3961 1252.249 1620.975 1924.061

P/E BASED VALUATION

PRICE WEIGHT WT PRICE PRICE WEIGHT WT PRICE PRICE WEIGHT WT PRICE PRICE WEIGHT WT PRICE PRICE WEIGHT WT PRICE

193.8338 0.167 32.37025 232.2498 0.167 38.78572 275.9352 0.167 46.08119 309.0913 0.167 51.61825 339.1816 0.167 56.64333

478.5519 0.167 79.91818 577.7713 0.167 96.48781 697.4167 0.167 116.4686 821.1256 0.167 137.128 955.4356 0.167 159.5578

769.9549 0.167 128.5825 971.3961 0.167 162.2232 1252.249 0.167 209.1256 1620.975 0.167 270.7028 1924.061 0.167 321.3182

1389.955 0.5 694.9774 1576.595 0.5 788.2977 1880.362 0.5 940.1812 2129.411 0.5 1064.705 2389.399 0.5 1194.699

935.8483 1085.794 1311.857 1524.154 1732.219

2016 2017 2018 2019

Discovered Price

2015VALUATION METHODS

PARTICULARS

EARNING POWER VALUE

GARHAM VALUE

P/E BASED VALUE

DIVIDEND DISCOUNT MODEL

YEAR PRICE MOS

2015 935.8483 15%

2016 1085.794 15%

2017 1311.857 15%

2018 1524.154 15%

2019 1732.219 15% 1472.385828

CORRECT PRICE FOR BUY

795.4710852

922.9252069

1115.078072

1295.531196

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Key Ratio Analysis of Kotak Mahindra

Interest spread:

Net interest spread refers to the difference in borrowing and lending rates of financial institutions

(such as banks) in nominal terms. It is in the rising mode that is good for banking industry.

Return on net worth

The net worth ratio states the return that shareholders could receive on their investment in a company,

if all of the profit earned were to be passed through directly to them. Thus, the ratio is developed from

the perspective of the shareholder, not the company, and is used to analyze investor returns.

Particulars 2010 2011 2012 2013 2014

Income 7458 7890 8256.5 9123.2 9896.6

Net Worth 603.8866 655.8603 604.8718 633.5556 808.5458

Return on NetWorth(%) 12.35 12.03 13.65 14.4 12.24

Return on Equity

The amount of net income returned as a percentage of shareholders equity. Return on equity

measures a corporation's profitability by revealing how much profit a company generates with the

money shareholders have invested.

8.119.18 9.16 9.82 9.52

0

5

10

15

10 11 12 13 14

YOY Interest Spread

10

12

14

16

10 11 12 13 14

12.35 12.0313.65 14.4

12.24

YOY RONW

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Particulars 2010 2011 2012 2013 2014

Income 6123.4 6749 7234 8045 8761.3

Capital employed 550.1707 599.3783 588.6086 653.0032 738.1045

ROE 11.13 11.26 12.29 12.32 11.87

Return on equity of this bank is quite stable so it’s a very good opportunity for investment expected

ROE in the nest year is 13%-14%.

Dividend payout Ratio:

Company is giving sufficient amount of dividend according to the past records.

Particulars 2010 2011 2012 2013 2014

EPS 7.55 10.95 14.53 18.22 20.12

DPS 1.429924 2.433333 3.543902 4.744792 4.801909

DPO 5.28 4.5 4.1 3.84 4.19

10.5

11

11.5

12

12.5

10 11 12 13 14

11.1311.26

12.29 12.32

11.87

Axis

Title

Year

ROE

0

1

2

3

4

5

6

10 11 12 13 14

5.28

4.54.1

3.844.19

Dividend payout ratio

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Dividend is key factor of a company and they are paying good amount of dividend, by which we

can say that it’s a good company to invest.

Quick Ratio:

An indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to

meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes

inventories from current assets, and is calculated as follows:

Quick ratio = (current assets – inventories) / current liabilities,

Particulars 2010 2011 2012 2013 2014

quick assets 66 78.5 85 103 110

quick liability 7.951807 7.228361 5.04451 5.435356 6.325474

Quick Ratio 8.3 10.86 16.85 18.95 17.39

Quick ratio is quite stable means that Kotak Mahindra Bank has enough liquidity.

Analysis

After doing this ratio analysis we may came to know that Kotak Mahindra bank liquidity is very

high because quick ratio is good enough according to the industry standard that is 16% that indicate

that they have ability to repay their debt , their return on equity is growing steadily that is nearly

12%, their dividend payout ratio is increasing by last three years that is nearly 4.2, the return on

net worth is good enough that 12.35% that means investors, shareholders are getting good amount

of return form this company from the last few years, the main and for most thing for a bank that is

interest spreads which is the key resource of their revenue that is quite sound enough that is 9.5%

which is showing strong growth prospect in the coming years.

0

5

10

15

20

10 11 12 13 14

8.310.86

16.8518.95

17.39

Quick ratio

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This analysis showing that this company have a enough potentiality to grow up side in near future.

So as an investor we can invest in this stock for a longer horizon.

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5. Conclusions In this project my key conclusion is Kotak Mahindra bank has a good prospect to grow.

There is a high chance of revenue growth in the upcoming fiscal, Kotak Mahindra bank

have different product line which has competitive advantage among the other private sector

bank. Which will impact on their PAT and that will increase their EPS. This will impact

directly on their share price in near future. There share price may hit Rs1389 in March, and

after 3 year it will touch Rs 2130. Now the share price is overvalued but still there is buying

opportunities for a long term. Value of the company according to our research 107071 cr.

6. Recommendation

6.1 Brief description of recommendations

According to this research work we can see a strong potential of upside movement of this stock

because this bank growth rate is significantly good that is 12.29% and in the upcoming economic

cycle it will perform in a very potential way. My recommendation for this stock is buy at this level

and hold for a long term may be that is 1-3 years and it will give a return of 13.5%-53%.

6.2 Details of the recommendation, discussion of its technical suitability, Economic

justification and feasibility of implementation

Kotak Mahindra Bank operating income going at a rate of 12% yoy which is a very good sign of

their business, and present inflation like CPI & WPI are under control so that may increase their

revenue in a new level. There is chance of rate cut by RBI that may control the present deflation

which is much more dangerous than inflation which increase the banking business significantly.

The banking sector in India is on a growing trend. It has vastly benefitted from the surge in

disposable income of individuals in the country. There has also been a noticeable upsurge in

transactions through ATMs, and also internet and mobile banking. Consequently, the different

banks, viz public, private and foreign banks have invested considerably to increase their banking

network and thus, their customer reach.

The banking industry in India has the potential to become the fifth largest banking industry in the

world by 2020 and third largest by 2025 according to a KPMG-CII report. Over the next decade,

the banking sector is projected to create up to two million new jobs, driven by the efforts of the

RBI and the Government of India to integrate financial services into rural areas. Also, the

traditional way of operations will slowly give way to modern technology. The Indian banking

sector is fragmented, with 46 commercial banks jostling for business with dozens of foreign banks

as well as rural and co-operative lenders. State banks control 80 percent of the market, leaving

relatively small shares for private rivals.

Banks have opened 7.73 crore accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY) till

November 19, according to Ms. Snehlata Shrivastava, Additional Secretary, Department of

Financial Services, Ministry of Finance, Government of India. Of the 77.3 million accounts, public

sector banks have opened 62.1 million accounts with a total balance of Rs 4,946.03 crore (US$

802.64 million), and have distributed RuPay debit cards to around 43 million accounts.

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Total banking sector credit is anticipated to grow at a CAGR of 18.1 per cent to reach US$ 2.4

trillion by 2017. The total banking assets in India touched US$ 1.8 trillion in FY13 and anticipated

to cross US$ 28.5 trillion in FY25.

Kotak Mahindra Bank became the first bank to get the permission from Reserve Bank of India

(RBI) to set up a wholly-owned non-life insurance company.

Kotak Mahindra Bank plans to acquire ING Vysya Bank in an all-stock deal. The deal will make

Kotak the fourth-largest private bank in the country in terms of total business. ING shareholders

will now get 725 Kotak Bank shares for every 1,000 shares they hold.

With the advancements in technology, mobile and internet banking services have come to the fore.

Banks in India are focusing more and more to provide better services to their clients and have also

started upgrading their technology infrastructure, which can help improve customer experience as

well as give banks a competitive edge.

6.3 Overall benefits of the Project

This project will help an investor to learn the market condition and get the overall idea of the

banking industry present economic condition. This data will help them to invest in the Kotak

Mahindra bank and they can earn a safe profit from this investment, because their balance sheet

has strong potentiality to grow and their business model is so attractive which helps them to

increase revenue. This project help me to implement my knowledge about financial market in a

practical way.

6.4 Learning from the Project

1. This project help me to understand the basic of finance and implement those knowledge into

this project enhance my knowledge.

2. This project thought me how to value a company with different valuation methods.

3. It help me to understand the importance of corporate finance.

4. With the help of this project I got an idea about the banking industry and their business which

help me in my upcoming working field.

5. This project make me understand which valuation method suitable for which industry like for

banking industry best method is DDM.

6.5 Limitations

This project is mainly based on forecasting and assumptions so there is an uncertainty about the

market and macroeconomic factor which lead a downside movement of the stock. This project is

depend on historical data and present market conditions which may change in near future. The

growth rate that we assume over here which may go up and down also that will effects the bank

PAT. The expenses that we assume here which may go up and at the same time the income may

not go up significantly with the expenses that create pressure on the bank profit. RBI interest rate

changes is a major factor for banking business. Forex market up and down also create a huge

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impact on banking forex income so it’s also uncertain. Federal bank interest rate changes also

effects banking business. This all are the limitation of this projects.

6.6 Scope for future study

We can upgrade this research into the next level according to the economic data and market

condition. We can change the target price and entry level also. The major scope of future study are

post-merger business performance of the Kotak Mahindra bank with ING Vysya bank.

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References

Annual Reort. (2014). Annual Report. Banglore: Kotak mahindra bank.

Edelweiss. (2015). Equity Research. Mumbai.

ICICI Direct. (2014). Equity Research. Mumbai.

ICICI Securities. (2014). Equity Research. Mumbai.

KRCHOKSEY institutions. (2015). Euity Research and Valuation. mumbai.

MOTILAL OSWAL. (2014). Kotak Mahindra Bank: Taking a big leap. Mumbai: MOTILAL

OSWAL.

MOTILAL OSWAL. (2015). Kotak Mahindra Bank Valuation. Mumbai.

Moneycontrol.com, Rediffmoney.com, Reuters, Bloomberg, ICICI Direct, NSE, BSE,

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29 | P a g e

Annexure

Calculation

10 11 12 13 14 15 16 17 18 19

Operating income 3,655.79 4,189.75 6,180.24 8,042.49 8,767.12

Personnel expenses 583.48 783.83 902.36 1,075.14 1,172.16

% of PE on OI 0.159604 0.187083 0.146007 0.133682 0.1337 0.152015 0.150497 0.14318 0.142615 0.144402

Adminstrative expenses 720.13 671.22 815.72 1,002.06 1,205.27

% of AE on OI 0.196983 0.160205 0.131988 0.124596 0.137476 0.15025 0.140903 0.137043 0.138053 0.140745

Cost of sales 1,357.41 1,455.06 1,718.08 2,077.20 2,377.43

% of COS ON OI 0.371304 0.34729 0.277996 0.258278 0.271176 0.305209 0.29199 0.28093 0.281516 0.286164

Other recurring income 26.14 780.53 977.35 1,160.66 1,399.71

0.00715 0.186295 0.158141 0.144316 0.159654 0.162102 0.162102 0.157263 0.157087 0.159642

Financial expenses 1,397.48 2,092.18 3,667.75 4,836.82 5,047.07

0.382265 0.499357 0.593464 0.601408 0.575682 0.530435 0.560069 0.572212 0.567961 0.561272

Depreciation 90 98.27 116.76 132.53 165.18

0.024618 0.023455 0.018892 0.016479 0.018841 0.020457 0.019625 0.018859 0.018852 0.019327

Reported net profit 563.11 818.18 1,085.05 1,360.72 1,502.52

Equity dividend 29.66 32.52 37.28 52.38 54.39

0.052672 0.039747 0.034358 0.038494 0.036199 0.040294 0.037818 0.037433 0.038048 0.037958

Reserves 7,617.60 10,594.51 12,530.70 14,876.49 18,690.85

0.390794 0.182754 0.187203 0.256402 0.254288 0.220162 0.229514 0.240091 0.236014

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Ratio

Particulars Mar '10 Mar '11 Mar '12 Mar '13 Mar '14

Investment Valuation Ratios

Face Value 10 5 5 5 5

Dividend Per Share 0.85 0.5 0.6 0.7 0.8

Operating Profit Per Share (Rs) 25.88 8.72 10.73 15.11 17.43

Net Operating Profit Per Share (Rs) 105.01 56.86 83.44 107.72 113.81

Free Reserves Per Share (Rs) 102.8 -- -- -- --

Bonus in Equity Capital 53.13 50.2 49.94 49.55 48.02

Profitability Ratios

Interest Spread 8.11 9.18 9.16 9.82 9.52

Adjusted Cash Margin(%) 17.76 18.43 16.79 16.22 16.4

Net Profit Margin 15.23 16.46 15.15 14.78 14.77

Return on Long Term Fund(%) 48.71 48.25 66.29 72.07 59.62

Return on Net Worth(%) 12.35 12.03 13.65 14.4 12.24

Adjusted Return on Net Worth(%) 12.42 12.03 13.65 14.4 12.24

Return on Assets Excluding Revaluations 130.4 92.23 107.28 126.53 159.35

Return on Assets Including Revaluations 130.4 92.23 107.28 126.53 159.35

Management Efficiency Ratios

Interest Income / Total Funds 11.05 9.49 10.61 10.77 10.24

Net Interest Income / Total Funds 6.83 4.75 4.31 4.29 --

Non Interest Income / Total Funds 0.08 1.77 1.68 1.55 1.63

Interest Expended / Total Funds 4.23 4.74 6.3 6.48 --

Operating Expense / Total Funds 4.1 3.3 2.95 2.78 --

Profit Before Provisions / Total Funds 2.53 3 2.84 2.89 3.01

Net Profit / Total Funds 1.7 1.85 1.86 1.82 --

Loans Turnover 0.2 0.17 0.18 0.18 0.17

Total Income / Capital Employed(%) 11.13 11.26 12.29 12.32 11.87

Interest Expended / Capital Employed(%) 4.23 4.74 6.3 6.48 --

Total Assets Turnover Ratios 0.11 0.09 0.11 0.11 0.1

Asset Turnover Ratio 0.12 0.1 0.11 0.11 0.11

Profit And Loss Account Ratios

Interest Expended / Interest Earned 42.93 49.94 59.35 60.14 57.57

Other Income / Total Income 0.71 15.7 13.65 12.61 13.77

Operating Expense / Total Income 36.87 29.28 24 22.57 --

Selling Distribution Cost Composition 1.47 -- -- -- --

Balance Sheet Ratios

Capital Adequacy Ratio 18.35 19.92 17.52 16.05 19.01

Advances / Loans Funds(%) 80.56 82.6 81.32 76.59 73.95

Debt Coverage Ratios

Credit Deposit Ratio 94.61 94.27 100.9 97.75 92.18

Investment Deposit Ratio 54.7 55.76 57.06 56.32 49.37

Cash Deposit Ratio 7.79 7.89 6.08 4.72 4.68

Total Debt to Owners Fund 5.26 4.31 4.85 5.4 4.81

Financial Charges Coverage Ratio 1.66 0.68 0.48 0.47 0.54

Financial Charges Coverage Ratio Post Tax 1.47 1.44 1.33 1.31 1.33

Leverage Ratios

Current Ratio 0.05 0.05 0.05 0.04 0.03

Quick Ratio 8.46 10.86 16.85 18.95 17.39

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 5.28 4.5 4.1 3.84 4.19

Dividend Payout Ratio Cash Profit 4.55 4.02 3.7 3.5 3.78

Earning Retention Ratio 94.75 95.5 95.9 96.16 95.81

Cash Earning Retention Ratio 95.47 95.98 96.3 96.5 96.22

AdjustedCash Flow Times 36.52 31.93 32.07 34.17 35.42