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Axis Bank: BUY Target Price (INR) 1,813 Sharp Fall in NIM Disappoints Asset Quality Remains Stable
Axis Bank: BUY Target Price (INR) 1,813 Sharp Fall in NIM Disappoints Asset Quality Remains Stable
Financials
April25,2011
AxisBank
BUY
TargetPrice(INR)
1,813
SharpfallinNIMdisappoints;assetqualityremainsstable
Rating
LastPrice(INR)
1,448
AXSBIN
Bloombergcode
AXBK.BO
Reuterscode
Avg.Vol.(3m)(mn)
1.69
Avg.Val.(3m)(INRmn)
2.21
1,609/1,147
52wkH/L(INR)
19,602
Sensex
MCAP(INRbn/USDbn)
594.29/13.39
Shareholding(%)
12/10
03/11
Promoters
37.4
37.2
MFs,FIs,Banks
5.3
5.1
FIIs
36.6
37.7
Public
Others
4.8
16.0
4.8
15.2
StockChart(RelativetoSensex)
1,600
1,500
1,400
1,300
1,200
1,100
Aug10
Dec10
Axis Bank
StockPerfm.(%)
6m
Rel.toSensex
(2.9) 1.6
1yr
(1.2) 17.1
03/11
5.6
03/12f
03/13f
Loangrowthexceedspeers,largelydrivenbycorporateloans
Loangrowthwasstrong,at36.5%yoy,aheadofthatofpeers;sequentialloan
growthwasstrongestinthepast12quarters,at15%.Thekeydriverswerethe
large and mid corporate segments (up 44.6% yoy) and agriculture loans (up
35.8%). However, management maintains their loan growth guidance of 25%
for FY12f. We forecast a CAGR of 25% in loan growth till Mar14. While total
depositsmaygrowinline,weestimateaCAGRof21%insavingsdeposits.
Assetqualityremainedstable;loweradditiontogrossNPL
A.PAT
34 42 52
Sho/s(diluted)
A.EPS(INR)
YoY(%)
35 23 25
AdditiontogrossNPLduringtheMar11quarter,atINR2.48bn,waslowerthan
thatduringthepreviousthreequarters.Also,grossandnetNPLratiodeclined
furtherto1.01%and0.26%,respectively.Loansrestructuredduringthequarter
wereINR1.08bn(INR1.63bnrestructuredintheDec10quarter)andwere1.2%
oftotalloansatendMar11.WelowerourassumptionforincrementalNPLin
FY12fto0.35%and,thus,reduceourestimatesforloanlossprovisions.
Equity/Assets(%)
MaintainBuyratingwithMar12targetpriceofINR1,813
P/E(x)
P/B(Adj)(x)
RoA(%)
RoE(%)
We value AXSB using a combination of the DCF, P/E and P/B methods. Our
threestage DCF uses explicit forecasts until FY14, followed by 10 years of
semiexplicit forecasts. We raise our blended target price to INR1,813,
followingtherollovertoMar12.WemaintainBuy.Thetargetpricevaluesthe
stockat2.7xoneyearforwardbookvalue.
NII
66 82 103
YoY(%)
31 26 25
Operatingprofit
64 80 100
QuarterlyTrends
1m
6.1
Financials(INRbn)
Apr11
Sensex Rebased
Absolute
SharpcontractioninNIMdrivenby650bpfallinCASAratio
NIM contracted by 37bp qoq and 65bp yoy to 3.44%. Savings deposits
growthatendMar11,at20.6%yoy,wasthelowestinthepastthreeyears.
This resulted in the 352bp sequential decline in the proportion of savings
deposits to 21.6%. Current account deposits remained flat sequentially and
declined by 16% yoy. This resulted in the CASA ratio declining by 650bp
sequentially to 35.8%. However, the daily average CASA ratio in the Mar11
171.161.56.16 on 2011-04-25 02:53:14 EDT. DownloadPDF.
quarter was 39%; it declined by 400bp sequentially. High accretion of term
deposits to fund the 15% qoq loan growth during the quarter (highest
sequentialgrowthinthepast12quarters)impactedthecostoffunds.Costof
fundsincreasedby77bpsequentiallyto4.79%.
1,000
Apr10
NIMdeclinedby37bpqoqto3.44%,drivenbythe650bpsequential
fallinCASAratio.SavingsdepositsgrowthinMar11,at20%yoy,was
thelowestinthepastthreeyears,whichledtoitsproportionfallingby
352bpto21.6%.Highaccretionoftermdepositstofundthe15%qoq
loangrowthduringthequarter(highestsequentialgrowthinthepast
12quarters)impactedthecostoffunds.ThisresultedinNIIgrowth,at
16.5%yoy,beinglowerthanexpected.AdditiontogrossNPLduring
the Mar11 quarter was lower than that during the preceding three
quarters. Gross and net NPL ratio declined for the third consecutive
quarterto1.01%and0.26%,respectively.Weraiseourtargetpriceto
INR1,813,followingtherollovertoMar12.Thetargetpricevaluesthe
stockat2.7xoneyearforwardbookvalue.WemaintainBuy.
12/10
03/11
Op.income(INRbn)
06/10
09/10
31.5
PAT(INRbn)
7.4
7.4
8.9
10.2
ChandanaJha,+9102266842854
chandana.jha@avendus.com
Pleaserefertothedisclaimertowardstheendofthedocument.
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Exhibit1: ResultssnapshotfortheMar11quarter
(INRbn)
Mar10
Dec10
qoq(%)
Mar11
Interestincome
29.9
38.4
13.8
43.7
46.1
Interestexpense
15.3
21.1
26.6
26.7
74.4
Netinterestincome
14.6
17.3
1.8
17.0
16.5
9.3
11.5
26.4
14.5
55.4
Operatingincome
23.9
28.8
9.4
31.5
31.7
Operatingexpense
10.1
12.2
8.8
13.3
31.7
Operatingprofit
13.8
16.6
9.8
18.2
31.6
Provisions&contingencies
2.0
3.1
18.9
2.5
26.0
Provisionfortax
4.2
4.5
20.5
5.5
30.9
Netprofit
7.6
8.9
14.6
10.2
33.5
Loangrowth
27.94
45.74
9.26
36.48
8.54
Depositgrowth
20.38
36.85
2.93
33.93
13.54
SBdepositgrowth
Otherincome
yoy(%)
Keyratios(%)
31.13
32.08
11.43
20.64
10.48
NIM
4.09
3.81
0.37
3.44
0.65
GrossNPL
1.13
1.09
0.08
1.01
0.12
NetNPL
0.36
0.29
0.03
0.26
0.10
Source:Company,AvendusResearch
Sharpdeclineof37bpqoqinNIMduringMar11quarter
Exhibit2: ReportedNIMforthequarter
Exhibit3: EstimatedNIMfortheyear
4.1%
3.3%
3.9%
3.1%
3.7%
2.9%
3.5%
2.7%
3.3%
Mar09
Sep09
Mar10
Source:Company,AvendusResearch
Sep10
Mar11
2.5%
Mar06
Mar08
Mar10
Mar12f
Mar14f
Source:Company,AvendusResearch
wasdrivenby650bpsequentialdeclineinCASAratio
Savings deposits growth at end Mar11, at 20.6% yoy, was the lowest in the past three years. This
resulted in the 352bp sequential decline in the proportion of savings deposits to 21.6%. Current
accountdepositsremainedflatsequentiallyanddeclinedby16%yoy.ThisresultedintheCASAratio
decliningby650bpsequentiallyto35.8%.However,ondailyaveragebasis,theCASAratiowas39%at
endMar11,down400bpsequentially.
Highaccretionoftermdepositsinthequartertofund15%qoqloangrowth
High accretion of term deposits to fund the 15% qoq loan growth during the quarter (highest
sequentialgrowthinthepast12quarters)impactedthecostoffunds.Costoffundsincreasedby77bp
sequentiallyto4.79%.ManagementhasguidedtoNIMstayingintherangeof3.25%3.50%overthe
nextfewquarters.
Financials
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AxisBank
50%
40%
45%
35%
40%
30%
35%
25%
20%
Mar09
Sep09
Mar10
Sep10
30%
Mar09
Mar11
Source:Company,AvendusResearch
Sep09
Mar10
Sep10
Mar11
Source:Company,AvendusResearch
However,lowadditiontobadloans;NPLratiosdeclinefurther
AdditiontogrossNPLduringtheMar11quarter,atINR2.48bn,waslowerthanthatduringtheprevious
threequarters.Also,grossandnetNPLratiodeclinedfurtherto1.01%and0.26%,respectively.
Exhibit6: GNPLaddedduringthequarter(INRmn) Exhibit7: GrossandnetNPLratios
5,000
1.2%
4,000
0.40%
GrossNPL
NetNPL(RHS)
1.1%
0.36%
3,000
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1.1%
2,000
0.32%
0.28%
1.0%
1,000
0
Mar10
Jun10
Sep10
Dec10
1.0%
Mar10
Mar11
Source:Company,AvendusResearch
Jun10
Sep10
Dec10
0.24%
Mar11
Source:Company,AvendusResearch
Restructuredloansdecline;however,staysabovemostpeers
AXSBsrestructuredloanportfoliodeclinedduringthequartertoINR19.3bn.Loansrestructuredduring
the quarter were INR1.08bn as against INR1.63bn in the preceding quarter. However, despite the
decline,restructuredloansstayedabovethatformostpeers.
Exhibit8: Restructuredloans
Mar09
Jun09
Sep09
Dec09
Mar10
Sep10
Dec10
Mar11
Totalrestructuredassets(INRmn)
As%ofnetloans
As%ofgrosscustomerassets
16,259
1.99
1.74
25,201
3.23
2.82
23,632
2.92
2.55
23,090
2.72
2.47
Jun10
21,170
1.71
1.56
19,300
1.36
1.22
Source:Company,AvendusResearch
Exhibit9: Restructuredloansasa%ofloansofAXSBandpeers
Restructuredloans(%)
AXBSB
HDFCB
ICICIBC
IIB
SBIN
PNB
BOB
BOI
1.2
0.4
1.2
0.16
4.5
6.5
3.0
5.4
Source:Company,AvendusResearch
MarginallyraiseourestimatesforFY12fandFY13f
Whilenetinterestincomewas4.9%lowerthanourestimates,loanlossprovisionsweremuchlower
and resulted in FY11 net profit staying 3.6% ahead of our estimates. We raise our estimates for net
Financials
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AxisBank
profitinFY12fandFY13fbyupto1.4%.However,welowerourestimatesfornetinterestincomeand
factorindecliningandstableNIMinFY12fandFY13f,respectively.
Exhibit10: Earningsrevisionsummary
(INRbn)
Netinterestincome
Operatingincome
Operatingexpense
Operatingprofit
Loanlossprovisions
Netprofit
69.0
112.5
46.4
66.1
14.9
32.7
65.6
112.0
47.8
64.2
11.2
33.9
4.9
0.5
3.0
3.0
24.9
3.6
86.9
140.6
57.9
82.8
18.6
41.0
82.4
139.6
59.9
79.8
14.9
41.6
5.2
0.7
3.5
3.7
20.3
1.4
106.3
173.3
72.4
100.9
20.5
51.4
102.9
175.3
74.8
100.5
19.4
51.9
3.2
1.1
3.4
0.4
5.8
1.0
Source:Company,AvendusResearch
ExtendourexplicitforecastperiodfortheDCFmethodtillFY14f
We value AXSB using a combination of the DCF, P/E and P/B methods. Our threestage DCF uses
explicitforecastsuntilFY14,followedby10yearsofsemiexplicitforecasts,whereweassumeaCAGR
of26%inloansanddividendpayoutof22%.WealsoassumetheRoAtoconvergeto1.2%attheendof
thesemiexplicitperiod.Thefinalstageof12yearsassumesconvergenceofRoEandCoE(assumedat
14%).ThisresultsinafairvalueofINR1,984.WeestimatethemeanoneyearforwardP/EandP/Bfor
the12monthperiodended31Mar11at14.5xand2.6x,respectively.Weapplythesetoourforecast
EPSandbookvalueforMar12toarriveatfairvaluesofINR1,825andINR1,673,respectively.
Exhibit11: AverageP/EandP/B(x)
6months
12months
P/E
13.28
13.17
14.35
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2.34
2.54
1month
3months
14.50
2.55
Source:Company,Bloomberg,AvendusResearch
OurtargetpriceofINR1,813isaweightedaverage,whereweassignaweightof30%toourDCFbased
fairvalueand35%eachtoourP/EandP/Bbasedfairvalues.WemaintainBuy.
Exhibit12: P/E,P/B,DCF/SOTPbasedfairvaluesandweightedaveragetargetprice
Weights
Targetprice(INR)
P/E
P/B
DCF/SOTP
35%
1,813
35%
1,667
30%
1,984
1,813
Source:Company,AvendusResearch
Exhibit13: SensitivityofsemiexplicitperiodgrowthtotheDCFvalueandTargetprice
Wts.
Semiexplicitperiodgrowth
23%
24%
25%
26%
27%
28%
29%
30%
DCFbasedvalue
1,640
1,747
1,861
1,984
2,114
2,252
2,400
35%
P/Ebasedvalue
1,813
1,813
1,813
1,813
1,813
1,813
1,813
35%
P/Bbasedvalue
1,667
1,667
1,667
1,667
1,667
1,667
1,667
Targetprice
1,710
1,742
1,776
1,813
1,852
1,893
1,938
Source:Company,AvendusResearch
Keyriskstoourestimates
f NPL ratios may rise with the higherthanestimated incremental NPL. Thus, loanloss provisions
arelikelytobehigher,leadingtoadownwardrisktoearnings.
f Higherthanassumedloangrowthduringtheexplicitperiodmayresultintheupwardrevisionin
earnings.
Financials
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Exhibit14: 1yearforwardP/EandtargetP/E
1yearforwardP/E(x)
Exhibit15: OneyearforwardP/BandtargetP/B
Average1yearforwardP/E(x)
1yearforwardP/B(x)
30
25
20
15
10
5
Mar06
Mar07
Mar08
Mar09
Source:AvendusResearch
Mar10
Mar11
Mar12
0
Mar06
Mar07
Mar08
Average1yearforwardP/B(x)
Mar09
Mar10
Mar11
Mar12
Source:AvendusResearch
Financials
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AxisBank
Financialsandvaluations
Incomestatement(INRbn)
Fiscalyearending
Netinterestincome
Feeincome
Tradingprofit
Otherincome
Totaloperatingincome
Totaloperatingexpense
Operatingprofit
Provisionforbaddebt
Otherprovision
PBT(reported)
Totaltaxes
PAT(reported)
(+)Shareinassoc.earnings
Less:Minorityinterest
Priorperioditems
Netincome(reported)
Avendusnetincome
Sharesoutstanding(mn)
Avendusdil.shares(mn)
AvendusEPS(INR)
DecompositionofRoA(%)
03/11
65.6
40.9
4.1
1.3
112.0
47.8
64.2
11.2
1.6
51.4
17.5
33.9
0.0
0.0
0.0
33.9
33.9
411
411
80.9
03/12f
82.4
50.7
4.1
2.4
139.6
59.9
79.8
14.9
2.8
62.1
20.5
41.6
0.0
0.0
0.0
41.6
41.6
411
411
99.6
03/13f
102.9
64.2
5.1
3.1
175.3
74.8
100.5
19.4
3.7
77.5
25.6
51.9
0.0
0.0
0.0
51.9
51.9
411
411
125.0
03/14f
127.8
80.0
5.6
3.8
217.2
93.6
123.7
24.1
4.3
95.2
31.4
63.8
0.0
0.0
0.0
63.8
63.8
411
411
154.3
36.5
31.1
34.7
17.3
34.8
33.0
21.7
25.6
24.1
32.4
22.7
22.7
26.9
24.8
26.7
30.3
24.8
24.8
25.6
24.2
24.6
24.5
23.0
23.0
Fiscalyearending
Netinterestincome
Feeincome
Otherincome
Operatingincome
Operatingexpenses
Operatingprofit
Loanlossprovisions
Provisionforinvestments
Otherprovisions
Tax
Netprofit
03/11
3.10
1.93
0.26
5.29
2.26
3.03
0.53
0.03
0.05
0.83
1.60
03/12f
3.02
1.86
0.24
5.11
2.19
2.92
0.54
0.02
0.08
0.75
1.52
03/13f
3.02
1.88
0.24
5.14
2.19
2.95
0.57
0.01
0.09
0.75
1.52
03/14f
3.01
1.89
0.22
5.12
2.21
2.92
0.57
0.01
0.09
0.74
1.50
RoA
Assets/Equity
RoE
1.60
11.86
18.98
1.52 1.52
12.83 13.68
19.54 20.82
1.50
14.40
21.67
KeyRatios
Growthratios(%)
Loans
Netinterestincome
Feeincome
Provisionforbaddebt
Avendusnetincome
AvendusEPS
Fiscalyearending
Valuationratios(x)
P/E(onAvendusEPS)
P/BV
P/AdjustedBV
Dividendyield(%)
03/11
03/12f
17.9
3.0
3.0
1.1
58.6
36.5
57.3
30.3
34.0
59.0
36.3
57.1
29.8
33.0
58.7
36.6
57.3
29.6
33.0
58.8
36.8
56.9
29.4
33.0
Fiscalyearending
Equitycapital
Preferencecapital
Reservesandsurplus
Networth
Deposits
Totalborrowings
Otherliabilitiesandprovisions
Totalliabilities
Cashandbankbalances
Investments
Loans
Fixedassets
Otherassets
Totalassets
03/11
4.1
0.0
192.6
196.7
1,892.4
163.7
174.7
2,427.4
213.7
719.9
1,424.1
23.3
46.3
2,427.4
03/12f
4.1
0.0
224.8
228.9
2,383.8
216.0
204.7
3,033.4
242.7
969.9
1,733.6
31.9
55.4
3,033.4
03/13f
4.1
0.0
265.4
269.5
2,979.8
285.8
250.3
3,785.5
277.2
1,199.0
2,200.0
43.2
66.1
3,785.5
03/14f
4.1
0.0
315.2
319.3
3,724.8
348.6
303.0
4,695.6
340.8
1,445.9
2,762.7
55.9
90.4
4,695.6
BusinessRatios(%)
Loan/Deposit
Investment/Deposit
SLRInvestment/Deposit
SLRInvestment/NDTL
Debenture/Investment
75.3
38.0
22.6
20.8
26.5
72.7
40.7
22.2
20.4
30.1
73.8
40.2
22.0
20.1
31.8
74.2
38.8
21.8
20.0
31.3
Balancesheet(INRbn)
BasicReportedEPS(INR)
DilutedReportedEPS(INR)
ReportedBookValue(BV)
AdjustedBookValue(ABV)
Dividendpershare(INR)
Return/ProfitabilityRatios(%)
Yieldonadvances
Yieldoninvestments
Costofdeposits
Netinterestmargin
Feeincome/Oprevenue
Tradingprofit/Oprevenue
Opexpense/Oprevenue
CapitalizationRatios(%)
Equity/Assets
Loans/Assets
Investments/Assets
Dividendpayout
Internalcapitalgrowth
Capitaladequacy
AssetQuality
GrossNPLratio
NetNPLratio
NetNPL/networth
Loanlossreserve/GrossNPL
Loanprovisions/NII
Loanprovisions/Totalloans
Productivity/Efficiencyratios
Businessperbranch(INRmn)
Netprofitperemployee(INRmn)
83.1
83.1
479.0
478.8
16.5
03/13f
03/14f
14.6
2.6
2.6
1.4
11.6
2.2
2.2
1.7
9.4
1.9
1.9
2.1
101.3
101.3
557.5
556.4
20.0
126.4
126.4
656.5
653.5
24.0
155.4
155.4
777.8
772.3
30.0
8.6
6.7
4.4
3.2
28.7
3.7
42.7
8.4
6.9
4.6
3.3
32.0
2.9
42.9
8.8
5.6
4.5
3.3
32.3
2.9
42.7
9.1
5.2
4.6
3.3
33.1
2.6
43.1
8.1
65.3
29.7
22.8
16.3
12.7
7.5
63.0
32.0
22.5
16.4
12.1
7.1
63.2
31.7
21.6
17.8
11.2
6.8
63.2
30.8
22.0
18.5
10.5
1.0
0.3
2.1
74.4
17.1
0.8
1.1
0.3
2.6
72.9
18.0
0.8
1.2
0.4
3.2
70.8
18.8
0.9
1.3
0.4
3.7
69.3
18.9
0.9
Financials
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AxisBank
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subject company/companies and its or their securities. We further certify that no part of our compensation was, is or will be, directly or indirectly related to specific
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AxisBank
OUROFFICES
Corporateoffice
InstitutionalBroking
Bangalore
IL&FSFinancialCentre,
IL&FSFinancialCentre,
TheMillenia,TowerA,
BQuadrant,5thFloor,
BQuadrant,6thFloor,
#1&2,10thFloor,MurphyRoad,
BandraKurlaComplex
BandraKurlaComplex
Ulsoor,Bangalore8.India.
Bandra(E),Mumbai400051
Bandra(E),Mumbai400051
T:+918066483600
T:+912266480050
T:+912266480950
F:+918066483636
F:+912266480040
AvendusSecuritiesPrivateLimited SEBIRegistrationNo:
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