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  1. 1. 15 March 2013 Update | Sector: Financials Axis Bank BSE SENSEX S&P CNX 19,428 5,873 CMP: INR1,342 TP: INR1,800 Buy Timely capitalization to help tide over challenging times Dilution increases Tier I by 200bp; Expect earnings CAGR of 20% Bloomberg AXSB IN Equity Shares (m)  465.1 M.Cap. (INR b)/(USD b) 630/11.6 52-Week Range (INR) 1,519/922 1,6,12 Rel.Perf.(%) -8/28/-2 Valuation summary (INR b) Y/E March 2013E 2014E 2015E NII 96.9 120.1 OP 92.5 114.7 NP 52.0 63.5 NIM (%) 3.4 3.6 EPS (INR) 111.8 136.5 EPS Gr. (%) 8.9 22.1 BV/Sh. (INR) 700.1 815.4 ROE (%) 18.7 17.9 ROA (%) 1.7 1.7 Payout (%) 18.1 18.1 Valuations P/E(X) 12.0 9.8 P/BV (X) 1.9 1.6 P/ABV (X) 1.9 1.7 Div. Yield (%) 1.3 1.6 142.7 134.9 74.8 3.6 160.8 17.8 951.3 18.1 1.7 18.1    Capital infusion of INR55.4b has increased Axis Bank’s (AXSB) net worth by ~20% and added INR60/share to the book value. Post this, RoEs will remain healthy at 17-18%. Underlying shift in portfolio towards secured retail loans would help contain delinquency and credit cost; will also aid to bring granularity to fees and growth. Well-placed for margin expansion as interest rate eases and benefit of capital infusion accrues. Upgrade earnings estimate by ~5% for FY14E/15E. Poised to deliver strong growth in an up-cycle with expanded capitalization and branch network. While macro-economic environment led to higher stress, AXSB has managed well and kept return ratio healthy. Attractive valuations, maintain Buy. Well equipped for next growth phase; strong capitalization AXSB is well placed for next growth cycle with recent capital infusion (Tier I to increase by 200bp; will take care of 3 years of growth) and strong branch expansion (60% existing branches opened in last 3 years). Focus on retail has led to diversification of loans and would provide more structural opportunity in terms of loan growth and fees. We factor loan CAGR of 20% over FY13/15E. Asset quality managed well; diversified loan book increases comfort 8.3 1.4 1.4 1.9 Shareholding pattern % As on Feb-13 Dec-12 Sep-12 Promoter 33.0 35.5 37.3 Dom. Inst 10.0 11.1 13.1 Foreign 40.0 43.9 42.0 Others 17.0 9.5 7.7 Stock performance (1 year) While risk related to relatively higher exposure to stressed infrastructure and mid corporate/SME segment remains, AXSB has been able to manage asset quality well till now with credit cost of less than 0.8%. GNPAs and restructured loan portfolio were contained at 1.1% (1.1% in FY11) and 2.1% (1.2% in FY11) respectively. Loan portfolio has become more broad-based and the share of retail loans (especially mortgages) has improved sharply from 20% of overall loans in 9MFY11 to 27% in 9MFY13 i.e. 40%+ of the incremental loans over last two years which is relatively less risky and increases comfort . Margins on an upswing - decline in cost of funds could surprise positively AXSB is one of the best-placed to deliver a strong margin performance led by recent capital infusion (benefit of 10bp), and higher proportion of bulk deposits in balance sheet which would re-price at lower rates. Further, SA growth keeping track with loan growth would aid margin expansion. Strong core operations; cyclical improvement - a key to asset quality Investors are advised to refer through disclosures made at the end of the Research Report. Stable/improving NIMs, healthy fee income growth and strong control over cost would enable AXSB to maintain healthy core PPP of 2.7-2.8% of average assets, compared to 2.6% over FY09-12. While asset quality hiccups emerged, the bank effectively used higher share of non-core revenues to maintain profitability and high PCR of 80%+. While we would be closely monitoring the threats arising out of the macro-economic environment on AXSB’s exposure, we are upgrading to estimates by ~5% to factor in better margins. We expect earnings CAGR of 20% over FY13E/15E. AXSB is trading at a discount to LPA; with the expected cyclical improvement, we believe valuations will evolve. Buy. Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) +91 22 3982 5415 Sohail Halai (Sohail.Halai@motilaloswal.com) +91 22 3982 5430
  2. 2. Axis Bank Well-equipped for next growth phase Adequately capitalized for next phase of growth AXSB’s capital adequacy ratio (including 9M PAT) at end-9MFY13 was at 15.2%, with Tier I at 10.3%. AXSB is well placed for next growth cycle with recent capital infusion (Tier I to increase by 200bp; will take care of 3 years of growth; the deal adds INR60/ share to book value.) and strong branch expansion (60% existing branches opened in last 3 years). We factor loan CAGR of 20% over FY13E/15E. With lower leverage, near term RoEs would moderate by ~200bp but remain healthy at ~18%. Well-capitalized - no need for dilution for at least the next three years (%) Raised INR55.4b of capital, implying a post dilution P/BV of 2x; deal adds INR60 to BV. Tier I ratio would be 11%+ even at end-FY15E, post assumption of 20% loan CAGR Return ratios to remain healthy (%) RoAs to be at historical highs led by improvement in core operations; however, reduction in leverage would lead to a moderation in RoEs to 18% Shifting loan mix in favor of secured retail loans - relatively better in terms of asset quality outlook 40% of incremental loans in the last two years has come from the retail segment 15 March 2013 Notwithstanding relatively high exposure to power segment, loan portfolio has become more broad-based and the share of retail loans (especially mortgages) has improved sharply from 20% of overall loans in 9MFY11 to 27% in 9MFY13 i.e. ~40% of the incremental loans over last two years. Further, in SME segment, bank has been very conservative and not only reduced the exposure (now 14% v/s 20% in FY09) but mix has also shifted in favor of high rated borrowers (SME-4 and below at 18% v/s 26% in 3QFY10). This would help AXSB contain slippages and credit cost, going forward. 2
  3. 3. Axis Bank Mix shifting in favor of retail loans (%)…  Retail loan CAGR at 38%+ in last two years and its contribution to incremental loans stood at 40% Conservative lending in SME segment (%)... …led by growth in secured products (%)  Key driver for growth in the retail loan was housing loan, lower spreads but incremental risk would lower as well ... and mix has shifted to high rated borrowers (%)  Moderation in SME loan growth coupled with improving customer profile reduces the risk on balance sheet Asset quality managed well; loan book becomes granular Despite the challenging macro-environment, AXSB has been able to manage assert quality fairly well and well within the guidance. GNPAs and restructured loan portfolio were contained at 1.1% (1.1% in FY11) and 2.1% (1.2% in FY11) respectively. While risk related to relatively higher exposure to stressed infrastructure and mid corporate/SME segment remains, AXSB has been able to contain credit cost to less than 0.8%.Further, the bank effectively used higher share of non-core revenues to maintain high PCR of 80%+. While the structural change in asset profile is positive, we have built in conservative assumptions of 1.4% slippage ratio and 0.8% credit cost. In our view, asset quality risks are embedded in valuations and improvement in economic growth may lead to positive surprise. 15 March 2013 3
  4. 4. Axis Bank Asset quality maintained well despite a challenging environment AXSB's GNPAs and NNPAs have been contained in a narrow range through different phases of economic cycles Restructured portfolio increased over last few quarters  Though restructuring has increased in last two to three quarters, overall restructured loan portfolio remains under check Barring couple of years, bank has been able to maintain the asset quality fairly well. Building slippages and credit cost of 1.4% and 0.8% respectively through FY13E-15E; this is despite the economic environment expected to improve in 2HFY14E Stress additions within management guidance  Management guidance for stress additions of INR10-11b per quarter; however, performance better than guided Asset quality remains manageable (%) Demonstrating value of its liability franchise; CASA growth remains strong AXSB’s strength has been its ability to grow CASA deposits (CAGR of 34% over FY0612). SA deposit CAGR has been the fastest among peers and further in terms of branch productivity, SA/branch is highest for AXSB, demonstrating the strength of branch network.CA deposits, strong corporate relationship and transaction banking capabilities offering wide range of products for various business segments helped the bank to post 19% CAGR in CA deposits over FY08-12. We expect the traction in CASA to continue led by reversal of interest rate, continued branch expansion and deepening of customer relationship. Expect CASA ratio to remain stable at ~39%. 15 March 2013 4
  5. 5. Axis Bank Strong expansion and coverage over last 5 years CASA ratio remains strong despite a challenging environment (%)  AXSB's branches, centers covered and SA client base have posted a CAGR of 24%, 26%, 20% in last five years CASA CAGR highest among peers (%)  Strong expansion and increasing customer base have helped AXSB to maintain the CASA ratio at 40%+ CA and SA market share over FY05-12 (%)  Strong CASA growth over past 6 years; demonstrates strength of liability franchise built over the years; AXSB continues to gain market share CA and SA per branch compared to peers (INR m) CASA/branch declined in FY11-12 due to branch additions (INR m)  CASA per branch is highest among peers even though CASA per branch moderated over past two years; expect improvement as new branches mature and systemic interest rate declines 15 March 2013 5
  6. 6. Axis Bank Margins on an upswing - decline in cost of funds could surprise positively Benefit of capital raising (10bp) and favorable ALM in the falling interest rate scenario to help margins AXSB consistently delivered margins of 3.5%+, despite liquidity condition being tight, thus reflecting its strong ALM management and benefit of liability franchise that it has built over the years. In the current environment, AXSB is one of the best-placed banks to deliver a strong margin performance led by recent capital infusion (benefit of 10bp), and higher proportion of bulk deposits in balance sheet which would reprice at lower rates. While the proportion of bulk deposits declined from 41% in FY11, it still remains high at 36%. With a decline in deposit rates (at a faster pace for bulk deposits) and further expected fall in bulk deposit rates, cost of funds is likely to come down at a faster pace. Further, SA growth keeping track with loan growth would aid margin expansion. In FY14E, we expect NII growth of 24% v/s loan growth of 20%, as margins are likely to improve due to the benefit of capital raising (10bp) and favorable ALM in the falling interest rate scenario. Proportion of bulk deposits decline but still high at 36% Consistently delivers NIMs of 3.3-3.5%+  Bulk deposit rates have cooled off by ~120bp YTD and 50bp  Fall in CD rates and equity infusion to benefit margins; on an average YTD period compared to last year. With further easing on the monetary front, cost of deposits to decline however, growth in low yielding housing segment and pressure on overall yield would act as a constraint AXSB would be a key beneficiary of falling interest rate; but we built in a margin improvement of 20bp as we expect pressure on yield and AXSB's focus to grow secured retail products will lead to a decline in yields as well 15 March 2013 Margins are expected to improve (%) 6
  7. 7. Axis Bank Diversified fee income streams - Building strength via retail fees Retail fees as a proportion of overall fees have increased to 31% at end-9MFY13 v/s 26 % in FY11 AXSB’s key strength and one of the driving force for its strong RoA has been superior performance of fee income over the years. Notably, fee income CAGR of 40% and fee income to average assets of 1.8% is one of the highest among peers. While fees from corporate and capital market have slowed down, buoyancy in retail banking fees is keeping overall fee income growth healthy at 15%. With the falling share of lumpy corporate fees and increasing share of granular retail fees, confidence on contribution of fees to average assets has increased. With expected improvement in macro-economic environment and capital market, fee income growth could surprise positively in FY14E and lead to an improvement in core operating profitability. Diversified fee income streams… (%) …helped AXSB to maintain overall fee income growth (%) CM: Capital market, LMC: Large and Mid-corporate, BB: Business Banking, TF: Treasury fees, S&A: SME and Agri Banking  Retail fees growth was impressive in the last two years and helped AXSB maintain a overall fee income growth of 15%, even as fees from corporate and capital market slowed down considerably Strong growth in wealth management and card fees (INR b)  Fees from wealth management and card business reported a CAGR of 40% each over FY10-12, thus driving retail fees 15 March 2013 Fee income to average assets best among peers (%)  AXSB's fee income CAGR over FY07-12 was at 40% - best among peers; fee income growth expected to be in line with balance sheet growth, going forward 7
  8. 8. Axis Bank Core operations to remain healthy; valuations below LPA... Stable/improving NIMs, healthy fee income growth and strong control over cost would enable AXSB to maintain healthy core PPP 2.7-2.8% of average assets, compared to 2.6% over FY09-12. Further, while asset quality hiccups emerged, the bank effectively used higher share of non-core revenues to maintain profitability and high PCR of ~80%. While we would be closely monitoring the threats arising out of the macroeconomic environment on AXSB’s exposure, we are upgrading to estimates by ~5% to factor in better margins (largely on back of capital infusion). …improving macros and strong capitalization, thus re-rating on the cards We expect earnings CAGR of 20% over FY13E/15E. RoAs are likely to remain healthy at ~1.6% and ~18% over FY14E/15E. With the expected cyclical improvement, we believe valuations will evolve. Maintain Buy with a target price of INR1,800. We upgrade earnings estimates by ~5% to factor benefit of capital raising (INR b) Old Estimates Net Interest Income Other Income Total Income Operating Expenses Operating Profits Provisions PBT Tax PAT Margins (%) Credit Cost (%) RoA (%) RoE (%) FY13 96.0 65.0 161.0 69.4 91.6 15.5 76.1 24.7 51.4 3.34 0.80 1.7 20.5 FY14 115.9 76.8 192.6 82.2 110.4 20.6 89.8 29.2 60.6 3.42 0.80 1.7 20.4 FY15 137.9 89.7 227.6 97.4 130.1 24.1 106.1 34.5 71.6 3.44 0.80 1.7 20.3 Revised Estimates FY13 96.9 65.0 162.0 69.4 92.5 15.5 77.0 25.0 52.0 3.37 0.80 1.7 18.7 FY14 120.1 76.8 196.9 82.2 114.7 20.6 94.0 30.6 63.5 3.55 0.80 1.7 17.9 FY15 142.7 89.7 232.3 97.4 134.9 24.1 110.8 36.0 74.8 3.56 0.80 1.7 18.1 Change (%) FY13 1.0 0.0 0.6 0.0 1.0 0.0 1.2 1.2 1.2 FY14 3.7 0.0 2.2 0.0 3.8 0.0 4.7 4.7 4.7 FY15 3.5 0.0 2.1 0.0 3.7 0.0 4.5 4.5 4.5 Source: Company/MOSL Axis Bank one-year forward P/E Axis Bank one-year forward P/BV 2.1 15 March 2013 8
  9. 9. Axis Bank Dupont: RoAs to improve led by an improvement in core operations; however, RoEs would moderate led by lower leverage (%) Y/E March FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Net Interest Income Fee income Fee to core Income (%) Core Income Operating Expenses Cost to Core Income Employee cost Other operating expenses Core Operating Profit Trading and others Operating Profit Provisions NPA provisions Other Provisions PBT Tax Tax Rate RoA Leverage (x) RoE 2.2 1.2 34.8 3.4 1.9 55.3 0.6 1.3 1.5 0.2 1.7 0.1 0.0 0.0 1.6 0.5 33.7 1.1 17.5 18.8 2.3 1.3 36.0 3.5 1.9 52.6 0.5 1.3 1.7 0.4 2.1 0.4 0.3 0.1 1.7 0.6 33.7 1.1 16.6 18.4 2.4 1.4 37.7 3.8 2.0 51.5 0.6 1.4 1.9 0.2 2.1 0.4 0.1 0.3 1.6 0.5 33.9 1.1 19.6 21.0 2.8 1.6 36.6 4.5 2.4 52.8 0.7 1.6 2.1 0.3 2.4 0.6 0.4 0.3 1.8 0.6 34.9 1.2 15.0 17.6 2.9 1.9 39.9 4.8 2.2 46.6 0.8 1.4 2.5 0.3 2.9 0.7 0.6 0.1 2.2 0.8 34.8 1.4 13.6 19.1 3.0 1.8 36.9 4.8 2.3 46.8 0.8 1.5 2.6 0.6 3.2 0.8 0.9 0.0 2.3 0.8 34.7 1.5 12.5 19.2 3.1 1.8 36.6 4.9 2.3 46.2 0.8 1.5 2.6 0.4 3.0 0.6 0.5 0.1 2.4 0.8 34.0 1.6 12.1 19.3 3.0 1.8 37.1 4.8 2.3 47.1 0.8 1.5 2.6 0.3 2.8 0.4 0.4 0.1 2.4 0.8 32.5 1.6 12.6 20.3 15 March 2013 FY13E 3.1 1.8 36.2 4.9 2.2 45.7 0.8 1.4 2.7 0.3 3.0 0.5 0.5 0.0 2.5 0.8 32.5 1.7 11.2 18.7 Source: FY14E FY15E 3.3 3.3 1.8 1.8 35.2 35.1 5.1 5.1 2.2 2.3 44.3 44.3 0.8 0.8 1.4 1.4 2.8 2.8 0.3 0.3 3.1 3.1 0.6 0.6 0.5 0.5 0.1 0.1 2.6 2.6 0.8 0.8 32.5 32.5 1.7 1.7 10.3 10.5 17.9 18.1 Company/MOSL 9
  10. 10. Axis Bank Key exhibits from QIP document Share of working capital finance has increased (%) Growth moderates both in terms of loans and W.C. loans (%) YTD slowdown seen in loans towards term loans led by  Sharp slowdown seen in loans towards term loans led by economic slowdown and bank's have moved in favor of share of share of non-retail loans cautious stance. Hence, working economic slowdown and bank's cautious stance. Hence, non-retail loans has moved in favor of working capital financecapital finance Proportion of credit substitutes in customer assets increased (INR b) Corporate bond portfolio - largely top rated (%) Credit Substitutes Maturity profile of loans and deposits (%) (1HFY13)  Higher share of term loans leading to higher maturities for more than five years 15 March 2013 Proportion of assets and liabilities maturing in each bucket (%) (1HFY13)  Less than one year bucket shows higher maturity mismatches 10
  11. 11. Axis Bank Weighted average duration moves up (%) Higher proportion of variable rate loan in balance sheet (%) Interest rate by maturity Loans Variable Rates Fixed Rates Credit Subsitutes Variable Rates Fixed Rates Loans and Credit subsitutes Variable Rates Fixed Rates  Weighted average duration for loans continues to be higher than deposits 1 year 1-5 year 5 year+ Overall 80.7 19.3 91.1 8.9 98.4 1.6 92.3 7.7 4.8 95.2 1.9 98.1 1.9 98.1 2.5 97.5 72.3 27.7 78.9 89.1 82.0 21.1 10.9 18.0 Source: Company/MOSL  Of the overall customer assets, 82% loans are variable rate assets; however, those maturing within a year have 28% of loans that are fixed in nature Average term deposits up 170bp since FY11 (%) Yield on loans up 210bp since FY11 (%) Deposits  Overall cost of funds increased led by higher term deposit rates and increase in SA deposit rates Strong traction in fees from life insurance business (INR m)  While yield on loan increased significantly, yield on investments was up 70bp since FY11, thus restricting overall improvement in yield on funds Debt syndication volumes slow down (INR b) (USD b)  Contribution of fees from third party sales increase significantly and it formed 27%+ of retail fees in FY12, compared to 20% in FY11 15 March 2013  In line with the moderation in economic activity, debt syndication business slows down 11
  12. 12. Axis Bank Break-up of customer assets: Retail loans increasing at a faster pace (INR b) Sep 2012 Retail Loans 445.6 Infrastructure 166.3 Agriculture 126.6 Financial Institution other than HFCs 123.9 Metal & Metal products 117.2 Power 108.6 Engineering 79.4 Real Estate 78.9 Food Processing 74.3 HFCs 63.7 Auto ancillaries 55.5 Trading 51.9 Textiles 47.4 Transportation & Logistics 46.5 IT & ITES 27.9 Chemical & chemical products 27.7 Telecom 26.8 Gems & Jewellery 25.8 Drugs & Pharma 22.0 Cement 20.4 Petro and Petro Products 18.4 Entertainment & Media 15.1 Sugar 11.8 Paper & paper prods 9.3 Others 171.9 Gross loans & credit substitues 1,963.0 GNPAs in corporate segment have risen by ~50% since FY11, whereas retail NPAs have declined in line with industry trend Growth (%) FY11 FY12 FY10 % of funded exposure FY11 FY12 33.2 34.9 42.1 35.5 54.7 25.2 66.3 31.1 -10.1 104.2 51.0 -3.3 25.1 12.7 2.7 57.0 150.5 127.7 32.0 0.0 -4.5 24.9 50.7 -42.8 31.0 34.5 18.1 5.9 10.0 7.9 4.6 5.1 2.1 4.5 4.4 2.9 2.0 4.4 3.1 2.7 1.6 2.0 1.9 1.4 1.3 1.8 2.3 1.0 0.6 1.4 6.9 100.0 17.9 5.9 10.6 8.0 5.3 4.8 2.7 4.3 2.9 4.4 2.3 3.2 2.9 2.3 1.3 2.3 3.5 2.4 1.3 1.3 1.6 0.9 0.6 0.6 6.7 100.0 34.6 49.8 6.8 51.2 2.7 34.4 43.1 18.8 55.2 23.4 50.2 11.2 3.6 30.2 31.2 -15.3 -45.7 -33.7 11.4 1.6 -14.9 15.1 54.6 12.4 2.1 20.9 1HFY13 20.0 22.7 7.3 8.5 9.4 6.5 10.0 6.3 4.5 6.0 5.3 5.5 3.1 4.0 4.3 4.0 3.7 3.8 4.5 3.2 2.8 2.8 2.9 2.6 2.5 2.4 2.5 2.4 1.4 1.4 1.6 1.4 1.6 1.4 1.3 1.3 1.2 1.1 1.1 1.0 1.2 0.9 0.9 0.8 0.8 0.6 0.6 0.5 5.7 8.8 100.0 100.0 Source: Company/MOSL Slippages in corporate segment increase, while delinquency in retail segment remains low (INR m) Break-up of NPA FY10 FY11 Corporate GNPA Corporate NNPA Retail GNPA Retail NNPA 9,027 2,932 3,927 1,194 11,691 3,380 4,179 747 FY12 1HFY13 13,992 4,011 3,210 642 17,545 5,575 3,609 920 % of Segmental Loans FY10 FY11 FY12 1HFY13 1.1 0.3 1.9 0.6 1.0 0.3 1.5 0.3 1.0 0.3 0.8 0.2 1.4 0.4 0.8 0.2 Top 10 corporate accounts form 41% of overall GNPAs and 50%+ of corporate GNPAs (INR m) Adequate provisions and security cover held by AXSB on top corporate GNPAs 15 March 2013 1HFY13 Entertainment & Media Transportaion Financial Institutions - Other than HFC Pharma Hotels Engineering Texti les Gems & Jewelry Drugs & Pharma Paper & Paper Products 0/S Loans Multiple Multiple Multiple Consortium Consortium Consortium Multiple Consortium Consortium Consortium 4,093 1,941 657 513 431 413 350 291 237 217 Provisions Security 4,093 6,215 291 913 562 127 77 818 65 1,256 62 520 350 430 291 49 237 424 188 140 Source: Company, MOSL 12
  13. 13. Axis Bank Sector-wise GNPAs report healthy trend except for few sectors (INR b) 1HFY13 GNPAs in entertainment and media increased significantly led by a large account; however, bank has adequately provided for the same; GNPAs in transportation segment increased in FY12 15 March 2013 FY11 Retail 446 Infrastructure 135 Agri 127 Metals 88 Power 86 Food Processing 74 Other Finan. Intemediaries 71 Real estate 66 Engineering 60 HFC 51 Trading 49 Transportation 46 Texti les 45 Auto ancilliary 44 IT & ITES 28 Chemicals 28 Telecom 27 Gems & Jewelry 25 Pharma 21 Cement 19 Ent. & Media 15 Sugar 11 Paper 9 Petro 8 Other Loans 158 19.6 5.6 11.6 5.6 4.3 3.2 6.3 3.5 2.9 4.8 3.5 2.4 2.9 1.8 1.4 2.5 3.8 2.6 1.3 1.3 0.7 0.7 0.7 1.6 5.6 % of Loans FY12 1HFY13* 22.1 5.8 10.4 4.3 4.7 4.1 8.4 4.0 3.4 4.3 3.2 2.7 2.6 2.6 1.5 1.8 1.7 1.4 1.2 1.1 1.0 0.9 0.6 0.9 5.3 25.6 7.8 7.3 5.1 5.0 4.3 4.1 3.8 3.5 2.9 2.8 2.7 2.6 2.5 1.6 1.6 1.5 1.5 1.2 1.1 0.9 0.6 0.5 0.5 9.1 FY11 1.5 1.2 2.4 0.0 0.0 0.5 0.0 0.0 0.2 0.0 1.0 0.0 2.3 1.3 0.6 0.2 0.0 0.5 2.2 1.7 0.3 0.0 3.0 0.6 3.9 GNPA (%) FY12 1HFY13 0.9 0.1 2.7 0.0 0.0 0.1 0.0 0.0 0.1 0.0 1.2 4.2 1.8 0.0 0.0 0.0 0.0 2.5 1.8 1.0 0.0 0.0 2.6 0.1 4.0 0.8 0.1 4.3 0.0 0.0 0.2 1.4 0.0 0.9 0.0 1.2 4.3 1.8 0.0 0.2 0.0 0.1 1.2 4.3 1.0 27.1 0.0 2.8 0.1 0.7 13
  14. 14. Axis Bank Financials and Valuation Income Statement NII CAGR of 20%+ over FY13-15, led by healthy loan CAGR of 20% and improvement in NIM Fee income growth to largely track balance-sheet growth Factored credit cost of 80bp over FY14/15; strong provision coverage ratio to provide cushion On a high base of 27% CAGR over FY10-12, AXSB is expected to deliver earnings CAGR of 20%+ in next two years (INR Million) Y/E March 2010 Interest Income 116,380 Interest Expense 66,335 Net Interest Income 50,045 Change (%) 35.8 Non Interest Income 39,458 Net Income 89,503 Change (%) 36.0 Operating Expenses 37,097 Pre Provision Profits 52,406 Change (%) 40.7 Provisions (excl tax) 13,892 PBT 38,514 Tax 13,368 Tax Rate (%) 34.7 PAT 25,145 Change (%) 38.5 Equity Dividend (Incl tax) 5,674 Core PPP* 43,299 Change (%) 28.4 *Core PPP is (NII+Fee income-Opex) 2011 151,548 85,918 65,630 31.1 46,321 111,951 25.1 47,794 64,157 22.4 12,800 51,357 17,472 34.0 33,885 34.8 6,704 57,241 32.2 2012 219,946 139,769 80,177 22.2 54,202 134,380 20.0 60,071 74,309 15.8 11,430 62,878 20,456 32.5 42,422 25.2 7,701 70,662 23.4 2013E 273,353 176,420 96,933 20.9 65,026 161,959 20.5 69,414 92,546 24.5 15,531 77,015 25,030 32.5 51,985 22.5 9,427 85,149 20.5 Balance Sheet Strong traction in CASA to continue led by strong CAGR of 22% in SA deposits Impressive traction in retail loans expected to be a key driver of growth in near term; Structurally moving towards making the portfolio granular Y/E March Equity Share Capital Reserves & Surplus Net Worth Deposits Change (%) of which CASA Dep Change (%) Borrowings Other Liabilities & Prov. Total Liabilities Current Assets Investments Change (%) Loans Change (%) Fixed Assets Other Assets Total Assets 2014E 306,552 186,448 120,104 23.9 76,780 196,884 21.6 82,206 114,677 23.9 20,631 94,046 30,565 32.5 63,481 22.1 11,512 106,281 24.8 (INR Million) 2010 4,052 156,393 160,444 1,413,002 20.4 660,295 30.4 171,696 61,336 1,806,479 152,064 559,748 20.8 1,043,431 27.9 12,225 39,011 1,806,479 2011 4,105 185,883 189,988 1,892,378 33.9 777,674 17.8 262,679 82,089 2,427,134 214,087 719,916 28.6 1,424,078 36.5 22,731 46,321 2,427,134 2012 2013E 4,132 4,651 223,953 322,857 228,085 327,508 2,201,043 2,575,220 16.3 17.0 914,220 1,011,599 17.6 10.7 340,717 366,804 86,433 93,892 2,856,278 3,363,425 139,339 212,488 931,921 1,043,751 29.4 12.0 1,697,595 2,003,163 19.2 18.0 22,593 22,986 64,829 81,037 2,856,278 3,363,425 2014E 4,651 376,499 381,150 3,064,512 19.0 1,204,932 19.1 403,448 110,780 3,959,890 230,974 1,200,314 15.0 2,403,795 20.0 23,511 101,296 3,959,890 Asset Quality Factored slippage ratio of 1.4%; Asset quality to remain manageable; PCR to remain strong 15 March 2013 GNPA (INR m) NNPA (INR m) GNPA Ratio NNPA Ratio PCR (Excl Tech. write off) PCR (Incl Tech. Write off) E: MOSL Estimates 2015E 363,514 220,840 142,674 18.8 89,662 232,336 18.0 97,449 134,888 17.6 24,057 110,830 36,020 32.5 74,810 17.8 13,567 125,491 18.1 2015E 4,651 439,714 444,365 3,677,415 20.0 1,436,415 19.2 445,063 129,426 4,696,269 280,103 1,380,361 15.0 2,884,554 20.0 24,631 126,620 4,696,269 (%) 13,180 4,190 1.25 0.40 68.2 72.4 15,994 4,104 1.11 0.29 74.3 80.9 18,063 4,726 1.06 0.28 73.8 80.9 25,800 7,819 1.28 0.39 69.7 81.7 33,406 9,206 1.38 0.38 72.4 85.1 42,708 10,013 1.46 0.35 76.6 88.0 14
  15. 15. Axis Bank Financials and Valuation Ratios Expect margin to improve led by benefit of recent capital infusion and re-pricing of wholesale deposit at lower rates Decadal high RoA's led by strong core income and healthy asset quality performance Y/E March Spreads Analysis (%) Avg. Yield-Earning Assets Avg. Yield on loans Avg. Yield on Investments Avg. Cost-Int. Bear. Liab. Avg. Cost of Deposits Interest Spread Net Interest Margin Profitability Ratios (%) RoE RoA Int. Expense/Int.Income Fee Income/Net Income Non Int. Inc./Net Income 2010 2011 2012 2013E 2014E 2015E 7.8 8.6 6.7 4.6 4.4 3.2 3.3 7.8 8.4 6.9 4.6 4.5 3.2 3.4 9.0 9.9 7.7 6.0 6.0 3.1 3.3 9.5 10.5 7.9 6.4 6.5 3.1 3.4 9.1 9.9 7.6 5.8 5.7 3.2 3.6 9.1 9.9 7.6 5.8 5.6 3.2 3.6 19.2 1.5 57.0 27.3 44.1 19.3 1.6 56.7 26.1 41.4 20.3 1.6 63.5 28.2 40.3 18.7 1.7 64.5 29.2 40.1 17.9 1.7 60.8 28.0 39.0 18.1 1.7 60.8 28.1 38.6 45.5 45.9 33.8 34.6 120.1 124.0 1.4 1.5 off accounts 44.9 35.4 124.5 1.5 43.6 35.8 128.5 1.6 41.9 36.3 133.8 1.7 Efficiency Ratios (%) Cost/Income* 46.1 Empl. Cost/Op. Exps. 33.9 Busi. per Empl. (INR m) 105.2 NP per Empl. (INR lac) 1.2 * ex treasury and Recoveries from written Strong capitalization to ensure dilution free growth for next three years Asset-Liability Profile (%) Loans/Deposit Ratio CASA Ratio Investment/Deposit Ratio G-Sec/Investment Ratio CAR Tier 1 Valuation Book Value (INR) Change (%) Price-BV (x) Adjusted BV (INR) Price-ABV (x) EPS (INR) Change (%) Price-Earnings (x) Dividend Per Share (INR) Dividend Yield (%) E: MOSL Estimates 15 March 2013 73.8 46.7 39.6 61.1 15.8 11.2 75.3 41.1 38.0 61.3 12.7 9.4 77.1 41.5 42.3 62.7 13.7 9.5 77.8 39.3 40.5 61.7 15.3 11.6 78.4 39.3 39.2 63.8 14.6 11.4 78.4 39.1 37.5 66.6 13.8 11.1 396.2 39.3 463.1 16.9 389.5 62.1 22.7 456.6 2.9 82.5 33.0 12.0 0.9 14.0 1.0 547.4 18.2 2.5 540.0 2.5 102.7 24.4 13.1 16.0 1.2 700.1 27.9 1.9 689.2 1.9 111.8 8.9 12.0 17.3 1.3 815.4 16.5 1.6 802.5 1.7 136.5 22.1 9.8 21.2 1.6 951.3 16.7 1.4 937.3 1.4 160.8 17.8 8.3 24.9 1.9 15
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