A Presentation on
Value Drivers with special
Reference to
ICICI Bank
Presented to Presented by
Prof. Sandhya Harkavat Pankaj Bheda (07)
Uday Chothani (15)
Anuj Desai (21)
Jayesh Patadiya (60)
Hardik Shah (95)
Flow Of Presentation
Value drivers an another prospective
Sustainable Growth
Value Creation model
Components of value creation
Model helps to creates Share holder value
Reconciling the metrics
Sales oriented model
Key value Drivers for Icici Bank
VALUE DRIVERS: ANOTHER
PROSPECTIVE
What is Value Driver?
Sales growth rate,
Operating profit margin
Tax rate
Fixed capital Investment
Working capital Investment
Duration of the project etc.
Value Creation Formula:
Value Created by strategy:-
=PV of incremental cash flow due to new
investment
- PV of investment in fixed assets & working
capital
+ PV of residual value
Count's
The value of strategy enhance by:-
Acceleration of cash flows ( higher NPV)
Reduction in risk associated with cash flow &
Indirectly Cost of capital
Increase the residual value of the business
Count’s
Characteristics of NPV for value creation:-
Whenever loss making project is terminated,
value of the firm goes up
Whenever firm accept a positive NPV Project,
the value of project goes up
Value of the firm Drops, if the firm acquire
another firm for a price grater than Expected
Present value of cash flows.
Sustainable Growth
For those companies which have target payout
ratio and capital structure as the annual %
increase in sales
Increase in sales =Addition to retained
earnings + Increase in Debt
Sustainable Growth (g’)=
Change in equity during period
Beginning equity
g’ = retention rate * ROE
Value Creation model
Expected ROE
Equity Cash flows
Equity Growth Value of equity
Cost of Equity
Components of value
Profitability
I.
creation
ROE > Ke M/B > 1
ROE < Ke M/B < 1
ROE = Ke M/B = 1
II. Advantage Horizon:-
Period for which a firm can maintain a
positive (ROE-Ke).
Greater the abnormal returns, higher the
M/B ratio.
III. Re-Investment
Competitive advantage period:-
The time period for which the company
earns returns in excess of the cost of capital.
Company with high P/E multiple tend to
long CAP & with low P/E multiple tend to
have low CAP.
Reconciling the metrics
Invested capital
Net working capital
ROI
Plowback rate
Sales oriented model
Sales growth rate
Operating margin
Incremental Investment rates
NWC
Capex
Key Value Driver for ICICI BANK
Merger & Acquisition.
Non Performing Loan (NPA).
Non Performing Investment (NPI).
Number of Branch in India.
Capital Expenditure.
Capital deficiencies.
EPS.
Sustainable Growth.
Customer Satisfaction.
Price/earning ratio.
Merger & Acquisition
1997: Takeover of ITC Classic Finance
1998: Takeover of Anagram Finance
2000: Merger with Bank of Madura
2002: ICICI and ICICI Bank merged
2005: Acquires Russia’s
IvestitsionnoKreditny Bank
2007: Amalgamation of Sangli Bank
2010: Merged with The Bank Of Rajasthan.
About merger with The Bank Of Rajasthan
Swap ratio of 25:118 (25 shares of ICICI for 118 shares of
Bank of Rajasthan) i.e. one ICICI Bank share for 4.72
BoR shares. Which increased the value of share of BOR’s
shareholder
Key Value Driver Cont’
Non Performing Loan (NPL)
In 2009 the proportion of NPL was 1.75% of total advances i.e.
Rs.46.69 Billion . While in 2010 the proportion of NPL is 2.04
of total advances which is Rs.46.14 Billion.
Non Performing Investment (NPI)
In 2009 the proportion of NPI was Rs. 3.04 Billion . While in
2010 the proportion of NPI is Rs.2.25 billion .
Key Value Driver for ICICI BANK
Number of Bank Branches all over India
ICICI BANK branch network has increased from 755 branches
in March 31, 2007 to 1,262 branches in March 31, 2008 and
1,419 branches in March 31, [Link] Bank has 2000 bank
branches all over India till May 2010 .They expect that their
branches to become key points of customer acquisition and
service. And after joining hands with Bank of Rajasthan its
branch network became 2463 bank branches.
Key Value Driver for ICICI BANK
Capital Expenditure
In 2009 banks capital expenditure Rs.5528.6 million which is
0.71 % of its total revenue. While in 2010 capital expenditure
was 2377.3 million which is 0.38% of its total revenue.
Key Value Driver for ICICI BANK
Capital Deficiencies
There is no deficiency in capital in any of the subsidiaries of the
Bank at March 31, 2010. ICICI Bank maintains an active
oversight on its subsidiaries through its representation on their
respective Boards. On a periodic basis the capital
adequacy/solvency position of subsidiaries (banking, non-
banking and insurance subsidiaries), as per the applicable
regulations, is reported to their respective Boards as well as to
the Board of the Bank.
Key Value Driver for ICICI BANK
EPS
Year 2006 2007 2008 2009 2010 2011
Earnings
Per
Share in
Rs. 32.49 34.84 39.39 33.76 36.14 35.324
Key Value Driver for ICICI BANK
Sustainable Growth
The company is growing sustainably at a
constant rate. As the paid up share capital is constant.
Customer Satisfaction
Whether customers are satisfied with the services provided by
bank.
Price/Earning Ratio
Year 2006 2007 2008 2009 2010
Price as
on 31
March 589.05 853.35 769.00 333.80 955.00
Earnings
Per
Share in
Rs. 32.49 34.84 39.39 33.76 36.14
Price
/earning
ratio 18.13 24.49 19.52 9.88 26.43
Thank you