Security Analysis and Portfolio Management

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Fundamental and Technical analysis

of

AXIS BANK

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COMPANY PROFILE:
Axis Bank was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd. The Bank today is capitalized to the extent of Rs. 407.44 crores with the public holding (other than promoters and GDRs) at 54.51%. The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai. The Bank has a very wide network of more than 1042 branches (including 56 Service Branches/CPCs as on 30th June 2010). The Bank has a network of over 4474 ATMs (as on 30th June 2010) providing 24 hrs a day banking convenience to its customers. This is one of the largest ATM networks in the country. The Bank has strengths in both retail and corporate banking and is committed to adopting the best industry practices internationally in order to achieve excellence.

FUNDAMENTAL ANALYSIS
Fundamental analysis can be done on the basis of following areas.

ECONOMICAL

COMPANY INDUSTRIAL SPECIFIC

ECONOMICAL ANALYSIS:
 Leading indicators - Growth, monsoon, stock market.  Lagging indicators GDP

Economic features of banking industry:

    Supply- Liquidity is controlled by the Reserve Bank of India (RBI). Demand- India is a growing economy and demand for credit is high though it could be cylical Barriers to entry- Licensing requirement, investment in technology and branch network. Bargaining power of suppliers- High during periods of tight liquidity. Trade unions in public sector banks can be anti reforms. Depositors may invest elsewhere if interest rates fall.

The liquidity crisis that swept the heavyweights of global financial sector off their feet in FY09 did affect the entities in Indian banking sector as well, albeit marginally. Other than the temporary crunch after bankruptcy of Lehman Brothers, the global financial meltdown was weathered by banks in India with relative ease. The monetary stimuli (reduction in repo rate, cash reserve ratio (CRR) and statutory liquidity ratio (SLR)) offered to the banks by the RBI made things easier. Despite the severe liquidity pressure and poor credit appetite at the retail and corporate levels, Indian banks managed to grow their advances and deposits by 24% YoY and 22% YoY respectively in FY09. The growth was mainly driven by a sharp expansion in term deposits and growth in agricultural and large corporate credit. Having said that, higher delinquency levels in retail credit and debt restructuring took its toll on the sector. Repo rate 4.75%, RRR 3.25%, CRR 5.5% recently.

Financial Performance Net Profit EPS Diluted (Rs.) Net Interest Income Other Income - Fee Income - Trading Income - Miscellaneous Income Operating Revenue Core Operating Revenue* Operating Expenses (incl. depreciation) Operating Profit Core Operating Profit**

Q1FY11 741.88 17.95 1,513.77 1,000.78 743.07 195.74 61.97 2,514.55 2,318.81 1,064.50 1,450.05 1,254.31

Q1FY10 562.04 15.50 1,045.63 958.57 626.63 326.07 5.87 2,004.20 1,678.13 827.84 1,176.36 850.29

%Growth 32.00% 15.81% 44.77% 4.40% 18.58% (39.97%) 955.71% 25.46% 38.18% 28.59% 23.27% 47.52%

Business Performance Total Deposits Demand Deposits - Savings Bank Deposits - Current Account Deposits Demand Deposits as % of Total Deposits Term Deposits Demand Deposits on a Cumulative Daily Average Basis for the quarter Demand Deposits as % Total Deposits (CDAB basis) for the quarter

As on 30

th

As on 30

th

Jun10 1,47,479 59,249 34,703 24,546 40.17% 88,230 55,043 39.94%

Jun09 1,10,256 44,176 25,199 18,977 40.07% 66,080 39,739 37.30%

% Growth 33.76% 34.12% 37.72% 29.35%

33.52% 38.51%

Net Advances Large & Mid-Corporate SME Agriculture/Micro Finance Retail Advances* Investments Balance Sheet Size Net NPA as % of Net Customer Assets Gross NPA as % of Gross Customer Assets Equity Capital Shareholders Funds Capital Adequacy Ratio - Tier I - Tier II

1,08,609 60,131 16,818 10,587 21,073 57,540 1,89,459 0.35% 1.13% 407.44 16,889 14.54% 10.32% 4.22%

78,105 38,875 14,232 8,218 16,780 46,328 1,41,142 0.41% 1.01% 359.76 10,784 15.28% 9.39% 5.89%

39.06% 54.68% 18.17% 28.83% 25.58% 24.20% 34.23%

56.61%

INDUSTRY ANALYSIS:
However, even as the opportunities increase, there are some issues and challenges that Indian banks will have to contend with if they are to emerge successful in the medium to long term. This analysis discusses these issues and challenges -- both intrinsic and external, such as Risk management Consolidation Overseas expansion Technology Government reforms Non Performing Assets (NPAs) Skilled manpower Consumer protection

The report concludes with thrust areas for future growth. FOREIGN BANKS Assets Cash Funds and Balances with other 2008-09:Q3 2008-09:Q2 2008-09:Q1 2007-08:Q4 2007-08:Q3

42,666.97

41,250.84

42,232.47

41,932.70

38,094.49

Banks Fixed Assets 4,126.99 4,042.45 3,994.92 3,966.91 3,620.94

Investments Loans and Advances (net) Other Assets Total Assets

109,902.77

105,189.78

96,094.21

100,218.41

101,250.25

172,047.82 121,382.63 450,127.18

185,623.89 123,415.83 459,522.79

171,658.90 114,889.68 428,870.18

161,132.63 57,915.22 365,165.87

145,543.46 59,418.88 347,928.02

Liabilities Capital and Reserves

2008-09:Q3

2008-09:Q2

2008-09:Q1

2007-08:Q4

2007-08:Q3

57,188.84

55,051.38

52,496.38

49,157.97

41,415.87

Other Liabilities and provisions 128,094.37 Total Borrowings Total Deposits

132,955.96

122,077.30

66,733.69

68,535.95

47,988.53

60,084.09

55,353.87

58,079.07

47,993.81

216,855.44

211,431.36

198,942.63

191,195.14

189,982.39

Total Liabilities and Capital 450,127.18

459,522.79

428,870.18

365,165.87

347,928.02

Nationalised Banks:

Assets Cash Funds and Balances with other Banks Fixed Assets Investments

2008-09:Q3

2008-09:Q2

2008-09:Q1

2007-08:Q4

2007-08:Q3

153,026.19 27,128.87 593,165.38

204,765.11 24,662.59 530,940.57

185,217.19 23,645.44 557,114.25

187,343.00 23,704.32 528,891.92

164,772.22 18,977.14 516,638.19

Loans and Advances (net) 1,316,599.00 Other Assets Total Assets 76,436.39 2,166,355.83

1,246,985.84 62,358.15 2,069,712.26

1,145,719.41 67,268.39 1,978,964.68

1,137,078.52 56,126.36 1,933,144.12

1,004,564.86 53,994.25 1,758,946.66

Liabilities Capital and Reserves Other Liabilities and provisions Total Borrowings

2008-09:Q3

2008-09:Q2

2008-09:Q1

2007-08:Q4

2007-08:Q3

135,820.45

126,167.64

119,315.94

116,405.02

113,002.15

152,741.99

146,374.95

143,489.32

141,669.61

128,564.46

70,185.57

69,568.82 1,727,600.85

76,091.57 1,640,067.85

69,440.09 1,605,629.40

58,304.49 1,459,075.56

Total Deposits 1,807,607.82 Total Liabilities and Capital

2,166,355.83

2,069,712.26

1,978,964.68

1,933,144.12

1,758,946.66

Private Sector Banks Assets 2008-09:Q3 Cash Funds and Balances with other Banks Fixed Assets Investments Loans and Advances (net) Other Assets Total Assets 2008-09:Q2 2008-09:Q1 2007-08:Q4 2007-08:Q3

20,490.80 2,132.66 61,875.62 123,389.56 5,535.17 13,42300.81

23,388.97 2,086.76 54,884.71 121,703.21 5,155.39 1207,219.04

21,990.84 2,040.72 56,588.04 114,073.25 4,942.31 1199,635.16

23,071.55 2,016.82 54,124.09 111,222.69 4,319.42 1194,754.57

20,904.68 1,943.07 49,469.39 100,798.78 3,985.33 1177,101.25

Liabilities 2008-09:Q3 Capital and Reserves Other Liabilities and provisions Total Borrowings Total Deposits Total Liabilities and Capital 17,404.77 11,542.15 3,655.75 180,821.14 13,42300.81 2008-09:Q2 16,583.13 11,556.23 4,691.24 174,388.44 1207,219.04 2008-09:Q1 15,936.97 11,134.56 4,384.69 168,178.94 199,635.16 2007-08:Q4 15,363.12 10,284.00 3,477.19 165,630.26 1194,754.57 2007-08:Q3 13,293.57 9,872.94 3,544.88 150,389.86 1177,101.25

Financial Highlights Net Interest Income (NII) and Net Interest Margin (NIM) The Bank continued to extend its presence across the country and at the end of Q1FY11, had a network of 1,050 domestic branches and extension counters, and 4,474 ATMs situated in 651 cities and towns. During the quarter, the Bank added 15 branches and 181 ATMs. The daily average balances of Savings Bank deposits during the quarter grew 39.35% yoy and those of Current Account deposits grew 37.30% yoy. Demand deposits constituted 40% of the aggregate daily average deposits during Q1FY11, higher than the level of 37% in Q1FY10 and lower than 43% in Q4FY10. At the end of the quarter, Current Account and Savings Bank deposits together accounted for 40.17% of the total deposits of the Bank. The Bank posted a NIM of 3.71% during Q1FY11, higher than the NIM of 3.34% during Q1FY10 and lower than the NIM of 4.09% during Q4FY10. The reduction in NIM during Q1FY11 compared to the previous quarter was primarily on account of the increase in cost of Savings Bank deposits and higher reserve requirements as mandated by the Reserve Bank of India. The Banks advances grew by 39% yoy, from Rs. 78,105 crores as on 30th June 2009 to Rs. 1,08,609 crores as on 30th June 2010 while investments rose to Rs. 57,540 crores from Rs. 46,328 crores over the same period, a growth of 24% yoy. The NII rose to Rs. 1,514 crores during Q1FY11 from Rs. 1,046 crores during Q1FY10, a growth of 45% yoy. Fee Income Fee income registered a growth of 19% yoy, rising to Rs. 743 crores during Q1FY11 compared to Rs. 627 crores in Q1FY10, with contributions from all the major businesses in the Bank. Fee income from Large and Mid Corporate Credit (including Infrastructure) grew 42% yoy, followed by that from Treasury and Debt Capital Markets (22% yoy), Capital Markets (10% yoy), Retail business (8% yoy), Business Banking (6% yoy) while fee income from SME and Agri lending businesses declined by 6%. Trading Profits The Bank generated Rs. 196 crores of trading profits during Q1FY11, as compared to Rs. 326 crores during Q1FY10, a decline of 40% yoy. The share of trading profits to operating revenue was 7.78% in Q1FY11, compared to 16.27% in Q1FY10. NPAs and Restructured Loans Net NPAs, as a proportion of net customer assets, were 0.35% as on 30th June 2010 compared to

0.41% as on 30th June 2009 and 0.36% as on 31st March 2010. Gross NPAs as a proportion of gross customer assets stood at 1.13% as on 30th June 2010, compared to 1.13% as on 31st March 2010 and 1.01% as on 30th June 2009. The Bank had a provision coverage of 76.62% as on 30th June 2010 (as a proportion of Gross NPAs) including prudential write-offs. The provision coverage (as a proportion of Gross NPAs) before accumulated write-offs was 89.59%.

During the quarter, the Bank added Rs. 421 crores to Gross NPAs. Recoveries and upgradations of Rs. 121 crores and write-offs of Rs. 277 crores during the quarter resulted in a closing position of Rs. 1,341 crores of Gross NPAs on 30th June 2010, higher than the position at the end of June 2009 by Rs. 426 crores. The Bank restructured loans aggregating Rs. 30 crores during Q1FY11. The cumulative value of assets restructured till 30th June 2010, however, declined to Rs. 2,151 crores (1.81% of gross customer assets). The segment-wise break-up of restructured loans as on 30th June 2010 is as follows: Large and Mid-Corporate Credit 69% SME 20% Agri 7% Capital Markets 4%

The sector-wise breakup of restructured loans as on 30th June 2010 was as follows: Textiles 22% Shipping 22% Sugar 8% Petroleum 8% Real estate 8% Others 32% Investment Portfolio The book value of the Banks investment portfolio as on 30th June 2010 was Rs. 57,540 crores, of which, Rs. 38,819 crores related to government securities while Rs. 18,721 crores was invested in other securities such as corporate bonds, equities, preference shares, mutual funds etc. 82% of the government securities has been classified in the HTM category while 99.56% of the Bonds & Debentures portfolio has been classified in the HFT and AFS categories. The distribution of the investment portfolio in the three categories as well as the modified duration as on 30 th June 2010 in each category was as follows: Category Percentage Duration* HFT 6.42 % 4.55 years AFS 32.74 % 2.76 years HTM 60.84 % 4.80 years * Excluding mutual funds and equity investment

INDUSTRIAL RATIOS:
Profitability ratios Operating margin (%) Gross profit margin (%) Net profit margin (%) Adjusted cash margin (%) Adjusted return on net worth (%) Reported return on net worth (%) 18.44333 16.06333 12.09 14.43 12.57333 12.56667 69.28667

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COMPANY ANALYSIS: