Q.1:What is the intrinsic value of Federal Bank using the comparable?

For the exclusive use of K. Usovich, 2019. Page 3 9B17N005 disbursed in the category.9 In fiscal year (FY) 2013/14, the Federal Bank's overall loan book showed a decline of 2.3 per cent over the previous year, but the SMEs and retail segments registered positive growth of 6 per cent and 36 per cent respectively. To improve its deposit mix, the bank had been striving to increase its current and savings account (CASA) balances to bring down the cost of funds and improve profitability. During FY 2013/14, CASA balances for the bank increased to R155.19 billion, representing an increase of 19 per cent over the previous year Within the CASA balances, savings deposits constituted 83 per cent of the total balances and increased by 20 per cent in FY 2013/14; current deposits accounted for 17 per cent of the total balances and grew 16 per cent during the same period The bank was also performing well with asset quality, decreasing its non-performing assets. The bank's net non-performing assets as a percentage of net advances declined from 0.98 per cent in FY 2012/13 to 0.74 per cent in FY 2013/14 (see Exhibit 5) FINANCIAL PERFORMANCE AND MANAGEMENT OUTLOOK To understand the current state of financial affairs and the management outlook for the future, Malhotra looked at the director's report and the management discussion and analysis section of the Federal Bank's annual report for FY 2013/14. The bank recorded a net profit of 28,380 million in FY 2013/14, a growth of almost 25 per cent over the previous year, driven mainly by improvement in net interest income and reduced credit cost. The bank had also kept its focus on strengthening the fee-based income streams, resulting in robust growth in non-interest income by 4.3 per cent in FY 2013/14. Overall, the bank's return on assets and return on equity that year stood at 1.2 per cent and 12.8 per cent respectively. The bank's provision coverage against non-performing advances, expressed as a percentage of gross non-performing assets, amounted to 84.16 per cent in FY 2013/14, well above the RBI mandated minimum of 70 per cent. Lastly, the bank operated with a comfortable equity capital position; the bank's capital adequacy ratio, computed according to Basel III guidelines, was 15.14 per cent as of March 2014.12 Going forward, management identified the bank's key challenges as improving operational efficiencies and implementing prudent risk management practices. Over the previous two years, the Indian banking sector had witnessed high price inflation, rupee depreciation, global industrial slowdown, and rising asset delinquencies. Nonetheless, Federal Bank's management believed that the future outlook was stable due to the bank's strong financial position, visible improvement in the macroeconomic environment, and easier external financing conditions. 13 Page 2 9B17N005 money from the RBI at bank rate. Non-scheduled banks, also known as local area banks, were not listed under the Second Schedule. Non-scheduled banks could borrow from the RBI only in case of emergency Scheduled banks were further divided into five categories on the basis of ownership or nature of operation: (1) the State Bank of India and its subsidiaries, (2) nationalized banks, (3) regional rural banks, (4) foreign banks, and (5) Indian scheduled commercial banks in the private sector (see Exhibit 2). Finally, the private sector commercial banks were then divided into two categories: old generation and new generation. The old generation private banks existed before the banks were nationalized in 1969 but were too small or specialized for nationalization. New generation private banks emerged after the government banking policy was liberalized in the 1990s. The aggregate deposits in the Indian banking system were 267 trillion at the end of March 2013 and had grown at a compound annual growth rate (CAGR) of nearly 16 per cent over the previous five years Likewise, the total bank credit of the Indian banking system had grown at a CAGR of 17 per cent since 2009 and, as of 2016, stood at 252 trillon (see Exhibit 3). Public sector banks held the largest market share controlling almost 73 per cent of the total banking assets. Private banks controlled 20 per cent and foreigrn banks controlled 7 per cent.5 However, private banks surpassed public banks in financial performance, with better profitability and asset quality. While profit per employee for public sector banks had grown between 2010 and 2013 at a CAGR of 10.2, growth in the private banks had been much higher, at 20 per cent. Private banks were also performing better with credit: nct non-performing loans as a percentagc of total assets for public banks was double that of private banks, suggesting a deteriorating financial position in the public banks (see Exhibit 4). Bccause of these differences in financial performance, thc valuation gap between public and privatoc banks had been widening. The faster pace of growth was increasing the stock price for private banks, while valuations for most of the public banks werc low.6 FEDERAL BANK Federal Bank, an old generation private sector bank based in the state of Kerala, was incorporated in 1931 in central Travancore with an authorized capital of R5,000. The bank operated with a large network of 1,103 branches and 1,172 automated teller machines (ATMs), making it the largest bank in Kerala and the fourth largest among private banks in India. The Federal Bank's business mix consisted of a diversified loan book, well distributed between retail (32 per cent), small and medium enterprises (25 per cent), agriculture (11.6 per cent), and corporate (31.4 per cent). To grow its loan book, the bank had been focusing on its traditional lending to the retail sector and to small and medium enterprises (SME) by introducing innovative products and services. The bank had also opened branches in regions both within and outside Kerala. Within the retail portfolio, the bank had primarily focused on housing and mortgage segments, which constituted almost 53 per cent of the total loans Duvvuri Subbarao, "Banking Structure in India: Looking Ahead by Looking Back," speaking notes for FICCI-IBA Annual Global Banking Conference Mumbai, August 13, 2013, accessed May 20, 2016 https:J/rbidocs.rbi.org.i 6 Saket Dhanorkar, "Is It Time to Buy Stocks of Public Sector Banks?, June 3, 2013, accessed May 20, 2016 http:/larticles.economictimes.indiat S/PDFs/FIBACS130813.pdf quality-psbs. Federal Bank Ltd., Annual www.federalbank.co.in/documents lbid., 29 Pag2 13,2acresso May 20. 2016, al+ +2012-2013 18-426c-b12a-36bcf43fe6fb For the exclusive use of K. Usovich, 2019. Page 4 9B17N005 VALUING FEDERAL BANK: DIVIDEND DISCOUNT VALUATION METHOD The dividend discount valuation approach involved finding the present value of all of the bank's future dividends during the forecasted period, and then discounting that value at the computed cost of equity. The result was the intrinsic value of the stock Forecasting Future Data for Dividend Discount Valuation To forecast the future dividends for the valuation exercise, Malhotra needed to forecast the Federal Bank's financial statements (see Exhibits 6 and 7 and the student spreadsheet, Ivey product no. 7B17N005). Given management's future outlook and the bank's strong financial position, Malhotra was confident that the Federal Bank would be able to grow its years, until 2019. To forecast the deposits, Malhotra assumed a constant advances-deposit ratio in line with FY 2013/14. Fee growth and provisions were assumed to increase in line with the loan growth in the future Malhotra further assumed that net interest margins, cost-income ratio, cash and bank balances, and CASAs would be stable and in line with the FY 2013/14 levels. A tax rate of 30 per cent was a reasonable assumption to work with. The notable change Malhotra expected was a growth in the dividend payout ratio to about 30 per cent-the higher figure reflecting the bank's strong financial position. s loan book at approximately 15 per cent per year for the next five The final consideration for Malhotra was determining the cost of equity that would be used as the discounting factor. To sort out the cost of cquity, Malhotra estimated that the onc-ycar beta for Federal Bank would be 1.1 and the average equity risk premium for India was 5 per cent. She visited the RBI's wcbsite to get information aboul the risk-free rate. She lcarned that the yicld on India's 10-ycar government treasury securities was 8.84 per cent on March 31,2014.14 Before proceeding to the dividend discount valuation, Malhotra also collected data on the price to earnings (P/E) ratios and price to book (P/B) ratios for comparablc banks, so she could assess the Federal Bank's relative valuation (see Exhibit 8). The P/E ratio tended to indicate how much investors were willing to pay for each Indian rupee earned. The P/B ratio, on the other hand, compared the bank's stock price to the reported book value for shares. Both ratios were widely used to compare the metrics of a particular company to its peer set or industry competitors With all this information in hand, Malhotra set out to value Federal Bank using the dividend discount model. She wondered whether her calculated fair value would be higher or lower than the market price, and whether Federal Bank would, in fact, be the stock she was looking for Debasish Maitra is a faculty member at the Indian Institute of Management, Indore and Varun Dawar is a faculty member at the Institute of Management Technology, Ghaziabad For the exclusive use of K. Usovich, 2019. Page 5 9B17N005 EXHIBIT 1: FEDERAL BANK STOCK PRICE (2010-2014) 50 45 40 35 2 30 E 25 9 20 15 10 2010 2011 2012 2013 2014 Source: "Federal Bank Ltd." Yahoo Finance, accessed May 20, 2016, http:llin.finance.yahoo.com. 9B17N005 EXHIBIT 3: COMMERCIAL BANKS STATISTICS BILLIONS) FY Aggregate deposits of scheduled commercial banks in India Bank credit of scheduled commercial banks in India 2008/09 2009/10 2010/11 2011/12 2012/13 38,341 44,928 52,080 59,09167,505 27,755 32,448 39,421 46,119 52,605 Note: FY-fiscal year, ending March 31st annually Source: Reserve Bank of India, Statistical Tables Relating to Banks in India 2012-13, accessed May 20, 2016 https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/OSTR191113FL.pdf, XI EXHIBIT 4: KEY FINANCIAL PARAMETERS OF PUBLIC AND PRIVATE BANKS IN INDIA Public Sector Banks Private Sector Banks Profit perReturCapitaNetProfit per ReturCapital Net FY Employee onAdequacy NPAEmployee n Adequacy NPA Ratio (million)Assets Ratio Ratio 13.49 0.94 13.271.10 13.08 1.09 13.23 millionAssets 0.62 0.72 Ratio 15.23 2008/09 2009/10 2010/11 2011/12 2012/13 1.29 0.53 0.97 1.28 0.59 16.46 0.88 0.78 0.56 0.46 0.52 0.92 0.63 2.02 16.84 Note: FY-fiscal year, ending March 31st annually, NPA non-performing asset Source: "Database on Indian Economy," Reserve Bank of India, accessed June 8, 2014 http://dbie.rbi.org.in/DBIE/dbie.rbi?site-publications. EXHIBIT 5: FINANCIAL PARAMETERS OF FEDERAL BANK 2009/10 2010/11 2011/12 2012/13 2013/14 269,500 360,580 319,530 430,150 17,470 27 377,560 489,370 19,530 27 451,950 576,150 19,750 441,570 597,310 22,290 Advances (million) Deposits ( million) Net Interest Income( million) Current Account, Savings Account (%) Return on Assets (%) Return on Equity (%) Net Non-Performing Assets (%) Number of Automated Teller Machines Number of Branches 26 10.30 11.98 0.60 803 743 14.37 14.03 0.98 1,172 1,103 12.80 0.74 1,359 1,174 732 1,005 950 672 Note: FY-fiscal year, ending March 31st annually Source: "Financial Results," Federal Bank Limited, accessed May 20, 2016, www.federalbank.co.in/financial-result. 9B17N005 EXHIBIT 6: FEDERAL BANK INCOME STATEMENT MILLION, EXCEPT SHARE DATA) 2009/10 2010/112011/12 2012/13 20 2013/14 INCOME Interest Earned 40,520 55,584 69,461 61.676 46,357 28,497 Interest/discount on advances/bills Interest on balances with RBI and other interbank funds Income on investments Others 3.157 14,646 17,768 102 5,309 1,053 1,077 46 Other Income 5,323 6,644 Commission, exchange and brokera Profit/(loss) on sale of investments (net) Profit on sale of fixed assets Foreign exchan Dividend received Provisions written back Service fee Miscellaneous income 2,502 3,338 ains 572 1,461 0 137 1,277 528 42,041 233 60,907 TOTAL INCOME 68,320 76,399 EXPENDITURE 41,929 38,375 47,175 42,095 Interest Expended 22,624 21,683 23,054 36,050 33.313 Interest on Interest on RBl/interbank Other interest sits 3,959 14,421 7.715 Operating Expenses and Administrative 9,793 11,845 5,439 nts to and provisions for empl Rent, taxes, and lighti Printing and stati Advertisement and sales 126 105 206 937 otion ciation on bank's 787 Director's fees, allowances, and expenses Auditor's fees and ex Legal fees Communication expenses Repairs and maintenance Insurance 48 54 435 413 579 2,255 2,684 1.116 193 373 435 439 nses ex Provisions and Contin 4,053 3,370 2,608 Provision for investments Others 3,021 11,695 3,927 7,768 2,976 11,938 Profit Before Tax Taxes Profit After Tax 8,595 4,645 855 9,018 5,871 855 12,120 3,731 Number of outstanding shares Adjusted earnings per share Dividend per share ( 855 855 855 For the exclusive use of K. Usovich, 2019. Page 10 9B17N005 EXHIBIT 8: RELATIVE VALUATION METRICS FOR COMPARABLE FIRMS, AS OF MARCH 31, 2014 PIE Ratio 4.9x Bank Name PIB Ratio Federal Bank (Private Sector Banks) ICICI Bank Axis Banlk HDFC Bank Kotak Bank (Public Sector Banks) State Bank of India Punjab National Bank Canara Bank 0.6x 14.8x 11.1x 21.3x 33.3x 2.0x 1.8x 4.1x 4.1x 13.2x 8.3x 5.1x 1.2x 0.8x 0.5x Note: P/E -price to earnings; P/B-price to book Source: Created by the author with information from "Banks Private Sector Standalone," CNBC TV 18 moneycontrol, accessed May 20, 2016, www.moneycontrol.com/stocks/data-bank/standalone/banks-private-sector/1/annualame; Banks-Public Sector- Annua, CNBC TV 18 moneycontrol, accessed May 20, 2016, www.moneycontrol.com/stocks/data- bank/standalone/banks-public-sector/1/annualame For the exclusive use of K. Usovich, 2019. Page 3 9B17N005 disbursed in the category.9 In fiscal year (FY) 2013/14, the Federal Bank's overall loan book showed a decline of 2.3 per cent over the previous year, but the SMEs and retail segments registered positive growth of 6 per cent and 36 per cent respectively. To improve its deposit mix, the bank had been striving to increase its current and savings account (CASA) balances to bring down the cost of funds and improve profitability. During FY 2013/14, CASA balances for the bank increased to R155.19 billion, representing an increase of 19 per cent over the previous year Within the CASA balances, savings deposits constituted 83 per cent of the total balances and increased by 20 per cent in FY 2013/14; current deposits accounted for 17 per cent of the total balances and grew 16 per cent during the same period The bank was also performing well with asset quality, decreasing its non-performing assets. The bank's net non-performing assets as a percentage of net advances declined from 0.98 per cent in FY 2012/13 to 0.74 per cent in FY 2013/14 (see Exhibit 5) FINANCIAL PERFORMANCE AND MANAGEMENT OUTLOOK To understand the current state of financial affairs and the management outlook for the future, Malhotra looked at the director's report and the management discussion and analysis section of the Federal Bank's annual report for FY 2013/14. The bank recorded a net profit of 28,380 million in FY 2013/14, a growth of almost 25 per cent over the previous year, driven mainly by improvement in net interest income and reduced credit cost. The bank had also kept its focus on strengthening the fee-based income streams, resulting in robust growth in non-interest income by 4.3 per cent in FY 2013/14. Overall, the bank's return on assets and return on equity that year stood at 1.2 per cent and 12.8 per cent respectively. The bank's provision coverage against non-performing advances, expressed as a percentage of gross non-performing assets, amounted to 84.16 per cent in FY 2013/14, well above the RBI mandated minimum of 70 per cent. Lastly, the bank operated with a comfortable equity capital position; the bank's capital adequacy ratio, computed according to Basel III guidelines, was 15.14 per cent as of March 2014.12 Going forward, management identified the bank's key challenges as improving operational efficiencies and implementing prudent risk management practices. Over the previous two years, the Indian banking sector had witnessed high price inflation, rupee depreciation, global industrial slowdown, and rising asset delinquencies. Nonetheless, Federal Bank's management believed that the future outlook was stable due to the bank's strong financial position, visible improvement in the macroeconomic environment, and easier external financing conditions. 13 Page 2 9B17N005 money from the RBI at bank rate. Non-scheduled banks, also known as local area banks, were not listed under the Second Schedule. Non-scheduled banks could borrow from the RBI only in case of emergency Scheduled banks were further divided into five categories on the basis of ownership or nature of operation: (1) the State Bank of India and its subsidiaries, (2) nationalized banks, (3) regional rural banks, (4) foreign banks, and (5) Indian scheduled commercial banks in the private sector (see Exhibit 2). Finally, the private sector commercial banks were then divided into two categories: old generation and new generation. The old generation private banks existed before the banks were nationalized in 1969 but were too small or specialized for nationalization. New generation private banks emerged after the government banking policy was liberalized in the 1990s. The aggregate deposits in the Indian banking system were 267 trillion at the end of March 2013 and had grown at a compound annual growth rate (CAGR) of nearly 16 per cent over the previous five years Likewise, the total bank credit of the Indian banking system had grown at a CAGR of 17 per cent since 2009 and, as of 2016, stood at 252 trillon (see Exhibit 3). Public sector banks held the largest market share controlling almost 73 per cent of the total banking assets. Private banks controlled 20 per cent and foreigrn banks controlled 7 per cent.5 However, private banks surpassed public banks in financial performance, with better profitability and asset quality. While profit per employee for public sector banks had grown between 2010 and 2013 at a CAGR of 10.2, growth in the private banks had been much higher, at 20 per cent. Private banks were also performing better with credit: nct non-performing loans as a percentagc of total assets for public banks was double that of private banks, suggesting a deteriorating financial position in the public banks (see Exhibit 4). Bccause of these differences in financial performance, thc valuation gap between public and privatoc banks had been widening. The faster pace of growth was increasing the stock price for private banks, while valuations for most of the public banks werc low.6 FEDERAL BANK Federal Bank, an old generation private sector bank based in the state of Kerala, was incorporated in 1931 in central Travancore with an authorized capital of R5,000. The bank operated with a large network of 1,103 branches and 1,172 automated teller machines (ATMs), making it the largest bank in Kerala and the fourth largest among private banks in India. The Federal Bank's business mix consisted of a diversified loan book, well distributed between retail (32 per cent), small and medium enterprises (25 per cent), agriculture (11.6 per cent), and corporate (31.4 per cent). To grow its loan book, the bank had been focusing on its traditional lending to the retail sector and to small and medium enterprises (SME) by introducing innovative products and services. The bank had also opened branches in regions both within and outside Kerala. Within the retail portfolio, the bank had primarily focused on housing and mortgage segments, which constituted almost 53 per cent of the total loans Duvvuri Subbarao, "Banking Structure in India: Looking Ahead by Looking Back," speaking notes for FICCI-IBA Annual Global Banking Conference Mumbai, August 13, 2013, accessed May 20, 2016 https:J/rbidocs.rbi.org.i 6 Saket Dhanorkar, "Is It Time to Buy Stocks of Public Sector Banks?, June 3, 2013, accessed May 20, 2016 http:/larticles.economictimes.indiat S/PDFs/FIBACS130813.pdf quality-psbs. Federal Bank Ltd., Annual www.federalbank.co.in/documents lbid., 29 Pag2 13,2acresso May 20. 2016, al+ +2012-2013 18-426c-b12a-36bcf43fe6fb For the exclusive use of K. Usovich, 2019. Page 4 9B17N005 VALUING FEDERAL BANK: DIVIDEND DISCOUNT VALUATION METHOD The dividend discount valuation approach involved finding the present value of all of the bank's future dividends during the forecasted period, and then discounting that value at the computed cost of equity. The result was the intrinsic value of the stock Forecasting Future Data for Dividend Discount Valuation To forecast the future dividends for the valuation exercise, Malhotra needed to forecast the Federal Bank's financial statements (see Exhibits 6 and 7 and the student spreadsheet, Ivey product no. 7B17N005). Given management's future outlook and the bank's strong financial position, Malhotra was confident that the Federal Bank would be able to grow its years, until 2019. To forecast the deposits, Malhotra assumed a constant advances-deposit ratio in line with FY 2013/14. Fee growth and provisions were assumed to increase in line with the loan growth in the future Malhotra further assumed that net interest margins, cost-income ratio, cash and bank balances, and CASAs would be stable and in line with the FY 2013/14 levels. A tax rate of 30 per cent was a reasonable assumption to work with. The notable change Malhotra expected was a growth in the dividend payout ratio to about 30 per cent-the higher figure reflecting the bank's strong financial position. s loan book at approximately 15 per cent per year for the next five The final consideration for Malhotra was determining the cost of equity that would be used as the discounting factor. To sort out the cost of cquity, Malhotra estimated that the onc-ycar beta for Federal Bank would be 1.1 and the average equity risk premium for India was 5 per cent. She visited the RBI's wcbsite to get information aboul the risk-free rate. She lcarned that the yicld on India's 10-ycar government treasury securities was 8.84 per cent on March 31,2014.14 Before proceeding to the dividend discount valuation, Malhotra also collected data on the price to earnings (P/E) ratios and price to book (P/B) ratios for comparablc banks, so she could assess the Federal Bank's relative valuation (see Exhibit 8). The P/E ratio tended to indicate how much investors were willing to pay for each Indian rupee earned. The P/B ratio, on the other hand, compared the bank's stock price to the reported book value for shares. Both ratios were widely used to compare the metrics of a particular company to its peer set or industry competitors With all this information in hand, Malhotra set out to value Federal Bank using the dividend discount model. She wondered whether her calculated fair value would be higher or lower than the market price, and whether Federal Bank would, in fact, be the stock she was looking for Debasish Maitra is a faculty member at the Indian Institute of Management, Indore and Varun Dawar is a faculty member at the Institute of Management Technology, Ghaziabad For the exclusive use of K. Usovich, 2019. Page 5 9B17N005 EXHIBIT 1: FEDERAL BANK STOCK PRICE (2010-2014) 50 45 40 35 2 30 E 25 9 20 15 10 2010 2011 2012 2013 2014 Source: "Federal Bank Ltd." Yahoo Finance, accessed May 20, 2016, http:llin.finance.yahoo.com. 9B17N005 EXHIBIT 3: COMMERCIAL BANKS STATISTICS BILLIONS) FY Aggregate deposits of scheduled commercial banks in India Bank credit of scheduled commercial banks in India 2008/09 2009/10 2010/11 2011/12 2012/13 38,341 44,928 52,080 59,09167,505 27,755 32,448 39,421 46,119 52,605 Note: FY-fiscal year, ending March 31st annually Source: Reserve Bank of India, Statistical Tables Relating to Banks in India 2012-13, accessed May 20, 2016 https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/OSTR191113FL.pdf, XI EXHIBIT 4: KEY FINANCIAL PARAMETERS OF PUBLIC AND PRIVATE BANKS IN INDIA Public Sector Banks Private Sector Banks Profit perReturCapitaNetProfit per ReturCapital Net FY Employee onAdequacy NPAEmployee n Adequacy NPA Ratio (million)Assets Ratio Ratio 13.49 0.94 13.271.10 13.08 1.09 13.23 millionAssets 0.62 0.72 Ratio 15.23 2008/09 2009/10 2010/11 2011/12 2012/13 1.29 0.53 0.97 1.28 0.59 16.46 0.88 0.78 0.56 0.46 0.52 0.92 0.63 2.02 16.84 Note: FY-fiscal year, ending March 31st annually, NPA non-performing asset Source: "Database on Indian Economy," Reserve Bank of India, accessed June 8, 2014 http://dbie.rbi.org.in/DBIE/dbie.rbi?site-publications. EXHIBIT 5: FINANCIAL PARAMETERS OF FEDERAL BANK 2009/10 2010/11 2011/12 2012/13 2013/14 269,500 360,580 319,530 430,150 17,470 27 377,560 489,370 19,530 27 451,950 576,150 19,750 441,570 597,310 22,290 Advances (million) Deposits ( million) Net Interest Income( million) Current Account, Savings Account (%) Return on Assets (%) Return on Equity (%) Net Non-Performing Assets (%) Number of Automated Teller Machines Number of Branches 26 10.30 11.98 0.60 803 743 14.37 14.03 0.98 1,172 1,103 12.80 0.74 1,359 1,174 732 1,005 950 672 Note: FY-fiscal year, ending March 31st annually Source: "Financial Results," Federal Bank Limited, accessed May 20, 2016, www.federalbank.co.in/financial-result. 9B17N005 EXHIBIT 6: FEDERAL BANK INCOME STATEMENT MILLION, EXCEPT SHARE DATA) 2009/10 2010/112011/12 2012/13 20 2013/14 INCOME Interest Earned 40,520 55,584 69,461 61.676 46,357 28,497 Interest/discount on advances/bills Interest on balances with RBI and other interbank funds Income on investments Others 3.157 14,646 17,768 102 5,309 1,053 1,077 46 Other Income 5,323 6,644 Commission, exchange and brokera Profit/(loss) on sale of investments (net) Profit on sale of fixed assets Foreign exchan Dividend received Provisions written back Service fee Miscellaneous income 2,502 3,338 ains 572 1,461 0 137 1,277 528 42,041 233 60,907 TOTAL INCOME 68,320 76,399 EXPENDITURE 41,929 38,375 47,175 42,095 Interest Expended 22,624 21,683 23,054 36,050 33.313 Interest on Interest on RBl/interbank Other interest sits 3,959 14,421 7.715 Operating Expenses and Administrative 9,793 11,845 5,439 nts to and provisions for empl Rent, taxes, and lighti Printing and stati Advertisement and sales 126 105 206 937 otion ciation on bank's 787 Director's fees, allowances, and expenses Auditor's fees and ex Legal fees Communication expenses Repairs and maintenance Insurance 48 54 435 413 579 2,255 2,684 1.116 193 373 435 439 nses ex Provisions and Contin 4,053 3,370 2,608 Provision for investments Others 3,021 11,695 3,927 7,768 2,976 11,938 Profit Before Tax Taxes Profit After Tax 8,595 4,645 855 9,018 5,871 855 12,120 3,731 Number of outstanding shares Adjusted earnings per share Dividend per share ( 855 855 855 For the exclusive use of K. Usovich, 2019. Page 10 9B17N005 EXHIBIT 8: RELATIVE VALUATION METRICS FOR COMPARABLE FIRMS, AS OF MARCH 31, 2014 PIE Ratio 4.9x Bank Name PIB Ratio Federal Bank (Private Sector Banks) ICICI Bank Axis Banlk HDFC Bank Kotak Bank (Public Sector Banks) State Bank of India Punjab National Bank Canara Bank 0.6x 14.8x 11.1x 21.3x 33.3x 2.0x 1.8x 4.1x 4.1x 13.2x 8.3x 5.1x 1.2x 0.8x 0.5x Note: P/E -price to earnings; P/B-price to book Source: Created by the author with information from "Banks Private Sector Standalone," CNBC TV 18 moneycontrol, accessed May 20, 2016, www.moneycontrol.com/stocks/data-bank/standalone/banks-private-sector/1/annualame; Banks-Public Sector- Annua, CNBC TV 18 moneycontrol, accessed May 20, 2016, www.moneycontrol.com/stocks/data- bank/standalone/banks-public-sector/1/annualame