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DOLAT CAPITAL
April 30, 2012
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Axis Bank
CMP: ` `` `` 1,121 TP: ` `` `` 1,577 Buy
High Points
Core interest income &
operating profit lesser than
our expectations
NIM decline on account of
drift in yield on advances
and drop in investment
book yield
Muted fee income;
whereas higher treasury
gains aided operating
income
Contained NPLs, reduction
in gross slippage ratio;
improvement in asset
quality aids profitability
View: Reiterate our BUY
rating with a revised target
price of ` `` `` ,577 (previous
TP: ` `` `` 1,482)
Financials
Year NII PPP NP NIM (%) BV (Rs) ABV (` `` ``) RoAA (%) RoAE (%) P/B (x) P/ABV (x) P/E (x)
FY11 65630 64157 33885 3.2 463 456 1.6 19.3 2.4 2.5 13.5
FY12E 80178 74309 42410 3.1 571 563 1.6 19.9 2.0 2.0 10.9
FY13E 97947 87974 48828 3.2 665 656 1.6 19.1 1.7 1.7 9.5
FY14E 121215 106438 58954 3.3 784 769 1.6 19.7 1.4 1.5 7.8
Figures in ` mn
Q4FY12 Result (` mn)
Particulars Q4FY12 Q3FY12 Q4FY11 QoQ(%) YoY (%) FY12 FY11 YoY (%)
Interest Income 60,603 57,770 43,667 4.9 39 219,947 151,548 45.1
Interest Expenditure 39,142 36,367 26,657 7.6 47 139,769 85,918 62.7
NII 21,461 21,403 17,010 0.3 26 80,178 65,630 22.2
Other Income 15,876 14,298 14,504 11 9 54,202 46,321 17
Total Net Income 37,337 35,701 31,514 4.6 18 134,380 111,951 20
Operating Expenses 16,962 15,109 13,306 12.3 27 60,071 47,794 25.7
Provisions for employees 5,296 5,420 3,960 -2.3 34 20,802 16,139 28.9
Other operating expenses 11,666 9,689 9,346 20.4 25 39,269 31,655 24.1
Operating Profit 20,376 20,592 18,208 -1.1 12 74,309 64,157 15.8
Tax 6,210 5,346 5,463 16.2 14 20,456 17,472 17.1
Other Provisions 1,393 4,223 2,544 -67 -45 11,430 12,800 -10.7
PAT 12,773 11,023 10,201 15.9 25 42,422 33,885 25.2
Equity 4,132 4,126 4,106 0.2 1 4,106 4,106 -
Basic EPS (Unit INR) 30.9 26.7 24.8 15.7 24 83 83 -
GNPA 18,063 19,145 15,994 -5.7 13
NNPA 4,726 6,289 4,104 -24.9 15
GNPA (in %) 0.94 1.1 1.01
NNPA (in %) 0.25 0.39 0.26
RoA (Annualised) 1.81 1.68 1.81 1.68 1.68
Scrip Details
Equity ` 4,132mn
Face Value ` 10/-
Market Cap ` 463bn
USD 9.3bn
52 week High / Low ` 1367 / 785
Avg. Volume (no) 2,351,504
BSE Sensex 17,187
NSE Nifty 5,209
Bloomberg Code AXSB IN
Reuters Code AXBK.BO
Core interest income; operating profit lesser than our expectations; asset
quality improvement lessened NPL provisions and aided bottom-line
Priority sector credit growth and re-balancing of corporate investment
portfolio led to drift in asset yield and strain on margin; moderation on
deposit mobilization aided core profitability
In Q4 FY12, Axis Banks NII grew by 26% YoY to ` 21.5bn - 4.7% lesser than
our estimates of ` 22.5bn. The bank reported operating profit of Rs 20.4bn
compared to our estimates of ` 25.6bn; the deviation at the operating profit
level was mainly due to higher than expected operating expenses and much
lesser traction in core fee income. However, sequential reduction in GNPA aided
banks bottom-line. The bank reported bottom-line growth of 25% YoY to `
12.8bn against our expectation of ` 12.6bn.
The banks margin declined to 3.55% (compared to 3.75% in Q3 FY12). Re-
balancing of liability and asset mix impacted margin negatively. The bank
recorded strong savings deposit growth on the back of rapid branch and ATM
network expansion. Axis Banks CASA share remained stagnant at 41.5%.
On asset quality front, there was 13% YoY increase in gross NPA to ` 18bn;
gross slippage ratio declined to 1.31% from 1.56% on sequential basis.
Reduction in gross slippage ratio and much higher recoveries improve asset
quality. Restructured loan book increased to ` 30.6bn (1.8% of gross credit
book) with incremental addition of ` 3.6bn in Q4FY12.
Considering stable asset quality and future growth prospects, we revise our
earnings estimates by 9% for FY13 and introduce FY14 earnings estimates
and rollover our target price on FY14s estimates. We reiterate Buy rating on
the stock with an increased price target of ` 1,577. At current price, it quotes at
1.7x and 1.5x ABV FY13 and FY14 respectively.
Sr. Analyst: Rakesh Kumar Associate: Hetal Shah
Tel : +9122 4096 9750 Tel : +9122 4096 9725
E-mail: rakesh@dolatcapital.com E-mail: hetals@dolatcapital.com
2
DOLAT CAPITAL
India Research
Axis Bank April 30, 2012
Credit book expansion led by corporate & retail segments: The banks credit
book grew by 19.2% YoY to Rs 1.7tn, primarily led by Retail, Corporate and SME
sectors, growing 35%, 20% and 11% YoY respectively. The loan book is well
diversified across sectors with maximum exposure of 11.2% to Financial companies
(mainly housing finance). We expect the loan book to grow at 21% CAGR over
FY12-14E. The banks management expects its loan book to grow higher than the
industry, driven by Retail (mainly secured loan book), SME & Agriculture segments.
Volatility in deposit mobilization momentum: The banks deposit grew by 16.3%
YoY to ` 2.2tn as against 34% YoY growth in Q3 FY12; higher growth of 26% YoY
in savings deposits led CASA share to marginally increase to 41.5% from 41.1% in
Q4 FY11. The bank moderated its term deposit expansion considering strain on
CASA share. Further, on the back of rapid branch expansion, we expect deposits
to grow at 20.6% CAGR over FY12-14E and, maintain CASA ratio around 41%
level.
Stress on margin: The banks margin declined to 3.55% (3.75% in Q3 FY12).
Pressure on advances yield was mainly due increased PSL lending. Yield on
investment drifted due to re-balancing of corporate investment portfolio. Overall,
subdued yield on assets impacted margin adversely. Decrease in yield of advances
(calculated) by 73bps QOQ to 10.91% and yield on investments (calculated) by
106bps QoQ to 8.42% as against 11bps QoQ rise in cost of funds to 6.45% impacted
margin. In FY13, the banks management expects its NIM to be in the range of
3.25%-3.5%; we factor in 7bps rise in margin to 3.2% (on yearly average basis).
The banks management indicated in the concall that banks margin would rebound
to the range in Q1FY13.
Moderati on i n core fee i ncome growth and hi gher expenses curtai l ed
operating profit growth: The banks core fee income increased by 7.8% YoY to
` 13.3bn. The main contributors to fee income growth were retail and business
banking segments. However, stable corporate fee income and decline in growth of
treasury and capital market segment led to muted fee income. Rapid branch and
ATM network expansion led to much higher increase in operating expenses (27% YoY
to ` 17bn); cost-income ratio rose to 45.4% compared to 42.2% in Q4 FY11. Hence,
higher operating expenses and moderation in core fee income led to muted operating
profit growth (12% YoY to ` 20.4bn). In FY13, as per the banks management
guidance, C-I ratio is expected to be around 45%.
Improvement in asset quality: The banks asset quality largely improved, with
gross NPAs at Rs 18bn (0.94% of gross credit) and net NPAs at Rs 4.7bn (0.25%
of net credit). On the restructured loan book front, the bank added Rs 3.6bn and the
cumulative restructured loan book stood at Rs 30.6bn (1.58% of gross customer
assets). Around 36.6% of the restructured loan book was around two year old,
reflecting reasonable asset quality on restructured book. Most of the restructured
loan book was in the textile, edible oil, petroleum and shipping sectors. Provision
coverage ratio (including prudential write-offs) improved to 81% as against 75% in
Q3 FY12. Further, the bank gross slippages ratio came down to 1.3% as against
1.56% in Q3 FY12. We expect gross and net NPA ratios will be in the range of
1.06-1.1% and 0.25-0.28% respectively.
Branch network expansion: The bank added 129 branches and 1600 ATMs in
Q4 FY12, taking the total branch network to 1613 branches & 9 extension counters
and 9924 ATMs. The management has indicated that the growth trend on branch
expansion is likely to be 200-250 branch addition in FY13.
3
DOLAT CAPITAL
India Research
Axis Bank April 30, 2012
Update on Axis-Enam Deal: The bank got the approval from the Board for the
reassessment of valuation of financial services business proposed to be acquired
from Enam Securities Private Limited. The revised proposal states that in
consideration for the proposed demerger, Enam shareholders would receive banks
shares in the ratio of 5:1, resulting into ~2.9% stake in Axis Bank.
Val uati on
Considering stable asset quality and future growth prospects, we revise our earnings
estimates by 9% for FY13 and introduce FY14 earnings estimates and rollover our
target price on FY14s estimates. We reiterate Buy rating on the stock with an
increased price target of ` 1,577. At current price, it quotes at 1.7x and 1.5x ABV
FY13 and FY14 respectively.
4
DOLAT CAPITAL
India Research
Axis Bank April 30, 2012
Axis Bank's Business Mix
Source: Banks, Dolat Research
Axis Bank's Advances Profile
Source: Banks, Dolat Research
Axis Bank's P/ABV Chart
Source: Capital Line
5
DOLAT CAPITAL
India Research
Axis Bank April 30, 2012
Axis Bank's NII & NIM (%)
Source: Banks, Dolat Research
Axis Bank's Operating Cost Structure (%)
Source: Banks, Dolat Research
Axis Bank's Deposit Profile
Source: Banks, Dolat Research
6
DOLAT CAPITAL
India Research
Axis Bank April 30, 2012
Axis Bank's Asset Quality
Source: Banks, Dolat Research
Axis Bank's Return Ratios (%)
Source: Banks, Dolat Research
Axis Bank's Capital Adequacy (%)
Source: Banks, Dolat Research
7
DOLAT CAPITAL
India Research
Axis Bank April 30, 2012
Shareholding Pattern as on Mar'12 (%)
INCOME STATEMENT ` `` `` mn
Particulars Mar11 Mar12E Mar13E Mar14E
Net Interest Income 65,630 80,178 97,947 121,215
CXB 33,574 40,722 49,160 59,975
Profits on sale of investments 3,663 3,613 2,500 1,800
Profits on foreign exchange 5,636 6,550 7,228 7,653
Other operating income 3,448 3,317 3,855 4,322
Total other income 46,321 54,202 62,743 73,750
Total Income 111,951 134,380 160,690 194,965
Salaries 16,139 20,802 25,516 30,960
Other operating costs 31,655 39,269 47,200 57,567
Total Overheads 47,794 60,071 72,716 88,527
Profit before provisions 64,157 74,309 87,974 106,438
Bad Debt Provisions 9,702 8,455 11,562 14,155
Stnd. Asset Provision 1,662 1,320 1,670 2,069
Investment Provisions 993 820 1,360 1,675
Other provision 437 847 0 0
Total provisions 12,793 11,442 14,592 17,899
Profit before tax 51,364 62,866 73,383 88,539
Tax 17,479 20,456 24,555 29,585
Reported Net profit 33,885 42,410 48,828 58,954
BALANCE SHEET
Particulars Mar11 Mar12E Mar13E Mar14E
Cash with RBI 138,862 137,029 151,887 184,170
Cash at call 75,225 2,310 28,775 20,580
Total Cash 214,087 139,339 180,662 204,750
Govt. securities 441,550 585,330 686,640 833,176
Other investments 278,367 346,591 438,999 532,686
Total Investments 719,916 931,921 1,125,639 1,365,862
Bills discounted 34,813 57,718 69,594 84,178
Cash credit 349,803 471,932 569,030 688,278
Term loans 1,039,462 1,167,946 1,408,246 1,703,365
Total Credit 1,424,078 1,697,595 2,046,870 2,475,822
Gross Fixed Assets 34,265 41,865 49,654 52,137
Accumulated Depreciation (11,760) (19,272) (14,450) (15,173)
Net Fixed Assets 22,505 22,593 35,204 36,964
Capital work in progress 227 0 0 0
Other Assets 46,321 64,829 37,134 54,979
Total Assets 2,427,134 2,856,278 3,425,508 4,138,377
Demand Deposits 369,171 397,540 477,045 576,470
Savings Deposits 408,503 516,680 609,558 736,600
Term Deposits 1,114,704 1,286,823 1,563,648 1,889,540
Total Deposits 1,892,378 2,201,043 2,650,250 3,202,610
Perpetual Debts (IPDI) 53,313 59,813 66,143 76,858
Upper Tier II Capital 12,428 19,928 30,928 43,282
Subordinate Debt 4,191 7,691 11,691 16,190
Other Borrowings 192,746 253,284 299,688 371,866
Total Borrowings 262,679 340,717 408,450 508,196
Other liabilities 82,089 78,751 91,890 105,250
Equity 4,105 4,132 4,132 4,132
Reserves 185,883 231,635 270,786 318,189
Total Equity 189,988 235,767 274,918 322,321
Total Liab & Equity 2,427,134 2,856,278 3,425,508 4,138,377
E-estimates
IMPORTANT RATIOS
Particulars Mar11 Mar12E Mar13E Mar14E
DPS (Rs) 14.0 16.0 20.0 24.0
Book Value (Rs) 462.8 570.6 665.3 784.2
Adjusted Book Value (Rs) 456.2 562.9 656.2 768.7
EPS (Rs) 83.0 102.6 118.2 143.4
EPS Growth (%) 26.1 23.7 15.1 21.4
Payout (%) 16.9 15.6 16.9 16.7
Net interest margin (%) 3.2 3.1 3.2 3.3
Spread (%) 2.8 2.6 2.7 2.8
Cost-to-income (%) 42.7 44.7 45.3 45.4
ROAA
Net Interest Income 3.1 3.0 3.1 3.2
Other Income 2.2 2.1 2.0 2.0
Less Overheads (2.3) (2.3) (2.3) (2.3)
Less Provisions (0.6) (0.4) (0.5) (0.5)
Less Tax (0.8) (0.8) (0.8) (0.8)
ROAA 1.6 1.6 1.6 1.6
ROAE 19.3 19.9 19.1 19.7
Valuation
Price Earnings (x) 13.5 10.9 9.5 7.8
Price to Book Value (x) 2.4 2.0 1.7 1.4
Price to Adjusted BV (x) 2.5 2.0 1.7 1.5
Dividend Yield (%) 1.2 1.4 1.8 2.1
Asset Quality
Gross NPLs 15,994 18,063 21,902 27,169
Restructured standard Loans 19,300 30,600 40,566 45,682
Gross Impaired Loans 35,294 48,663 62,468 72,851
Net NPLs 4,104 4,726 5,662 7,031
Provision coverage ratio (%) 74.3 73.8 74.1 74.1
Gross NPLs (%) 1.1 0.9 1.1 1.1
Net NPLs (%) 0.3 0.3 0.3 0.3
Assumpt i ons
Yield on Advances (%) 8.43 9.85 9.40 9.40
Yield on Investment (%) 6.94 7.74 7.15 7.15
Cost of Deposits (%) 4.54 5.96 5.71 5.59
Interest Inc. on Cash (%) 1.00 0.56 0.50 0.50
CRAR (%) 12.65 13.66 12.14 12.24
Growth in credit book (%) 36.48 19.21 20.57 20.96
Growth in Deposits (%) 33.93 16.31 20.41 20.84
Growth in Investments (%) 28.61 29.45 20.79 21.34
Gross slippages ratio (%) 1.16 1.17 1.22 1.25
Credit Cost (%) 0.78 0.54 0.61 0.62
E-estimates
37.8
32.9
13.4
16.3
Promoter FIIs DII Public / Others
DOLAT CAPITAL
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all reasonable care has been taken to ensure that the facts stated are accurate and the opinion given are fair and reasonable, we do not take
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