Date: September 22 nd 2014 Company Details : CMP(`) 407 NSE Symbol AXISBANK BSE Code 532215 Face Value (`) 2.00 Dividend Yield (%) 1.00 Book Value 170 Market Cap (Cr) 94,800 EPS - TTM (`): 27.6 P/E Ratio (x): 14.7 Industry P/E : 17 52w High/Low 423.7/199.15 Share Holding Pattern (%) Category June-14 Mar-14 Dec-13 Promoter 29.17 29.54 33.88 FII 48.38 48.74 43.18 DII 11.15 10.07 9.74 Others 11.30 11.65 13.20 Total 100 100 100 Snapshot as on 30th June 2014: Total Assets `379,361 cr Net Advances `230,535 cr Total Deposits `272,004 cr Net Profit (Q1FY15) `1,667 cr Shareholders' Funds `40,049 cr ROA (Q1FY15) 1.78% ROE (Q1FY15) 17.89% Net NPA Ratio 0.44% Basel III Tier I CAR2 12.64% Basel III Total CAR2 16.09% Saving Bank Accounts (No.) 136 lacs Branches 2421 International Presence 8 ATMs 12930 Company Profile: Axis Bank Limited is the third largest private sector bank in India. The bank operates in four segments: Treasury segment, which includes investments in sovereign & corporate debt, trading operations & foreign exchange operations; Retail Banking, which includes liability products, card services, Internet banking, ATM services, depository & financial advisory services; Corporate/Wholesale Banking, which includes corporate relationships, corporate advisory services, placements and syndication, management of public issue, project appraisals, capital market related services & cash management services, and Other Banking Business, which include para banking activities like third party product distribution. Investment Rationale: Sustained Traction in Retail Business: Increased share of retail loans and strong SME business with integrated strategy for tapping into consumer lending opportunity in rural markets would help reduce revenue volatility. Focus on countrywide expansion through growing network of branches & ATMs: The aggressive investment in creating physical infrastructure is expected to contribute more meaningfully in FY2015 and FY2016 and aid in driving business and profitability growth for the bank. Among Private sector banks, Axis Bank has the largest ATM network. Stable Asset Quality with Improved Outlook: On the asset quality front, there has been a marginal rise on the slippages but overall the bank has managed it well, with GNPAs at 1.34% and Provision coverage at 77%. Asset quality concerns are likely to remain in the short term given the bank's exposure to SME and Infra sector but with improved economic outlook, the bank's diversified loan book is likely to see improvement. Capital Adequacy: Well Positioned for Growth: Axis Banks' capitalization is one of the highest in the industry with Tier I of 12.65 %. Stable CASA franchise supports margin stability: Axis Bank s aggressive branch expansion strategy is expected to lead to further CASA market share gains for the bank. This will further help the bank to diversify its asset book by increasing the share of retail business. SME Business augments total assets with a Healthy Loan Book: This segment is one of the key growth areas for the Bank. The Bank has also adopted a granular approach in growing the SME portfolio by focussing primarily on better rated SME accounts. This business continues to perform well and the portfolio behaviour remained healthy.
A strong franchise demonstrating consistent value creation over time The Bank continued to deliver a steady growth in both business and earnings, in the midst of a moderation in economic growth and intensifying competitive financial landscape. The healthy growth in earnings was a result of robust business growth across banking segments, indicative of a clear strategic focus. Rs in crores 7000 35% 6000 5000 4000 3000 2000 1000 20% 20.1% 21.2% 20.5% 18.2% 30% 25% 20% 15% 10% 0 FY10 FY11 FY12 FY12 FY14 Net Profit ROE 5% Stable Asset Quality with Improved Outlook On the asset quality front, there has been a marginal rise on the slippages but overall the bank has managed it well, with GNPAs at 1.34% and Provision coverage at 77%. Large part of the increase in GNPA is from mid-corporate segment. Going ahead, the management expects a similar run rate in slippages and restructuring to continue for the next few quarters. Asset quality concerns are likely to remain in the short term given the bank's exposure to SME and Infra sector. But with improved economic outlook, the bank's diversified loan book is likely to see improvement. Loan Mix (As on June 30 2014) SME 16% Corporate 44% Retail 40% 1.01% 0.26% Five Year NPA Trend 0.94% 0.25% 1.06% 1.22% 0.32% 0.40% 1.34% 0.44% FY11 FY12 FY13 FY14 Jun-14 Gross NPA ratio Net NPA ratio Source: Company, GSL Research
Domestic Branch Network Well distributed, countrywide network of Branches & ATMs Focus on countrywide expansion through growing network of branches & ATMs: During the year, the Bank continued to expand its network, with increased focus on the semiurban and rural areas. Both the Retail and SME segments continued to benefit from this network expansion and have justifiably remained the key growth drivers for the Bank during the year. Remarkably, it has largest ATM network in the private sector. Expanding footprint across centres Largest ATM network in the private sector 1622 2402 2421 1947 10% 14% 32% 31% 24% 24% 28% 28% 30% 28% 24% 24% 28% 27% 24% 24% FY12 FY13 FY14 Jun-14 Metro Urban Semi-urban Rural Sustained Traction in Retail Business Management's focus on secured lending with greater emphasis on mining existing liability customer base has started yielding results for the bank. Domestic Retail Advances constitute 45% of Bank's Net Domestic Advances in Jun 2014 against 41% in Jun 2013. Secured Loans make up 88% of total Retail Loans. Increased share of retail loans and strong SME business with integrated strategy for tapping into consumer lending opportunity in rural markets would help reduce revenue volatility. Healthy retail asset growth provides momentum to asset linked fees. Focus on cross-selling to existing customers will be the key driver for growth. Compositon of Domestic retial advances Non-schemetic Loans Loan against Property Personal & Credit Cards Loans Auto Loans Retail Agricultural Loans Housing Loan 5% 8% 9% 10% 15% 53%
Strong Corporate Banking Capabilities Current Account `40,659 `37,798 Q1 FY14 Q1 FY15 The sustained slowdown in economic growth especially deceleration in the momentum of investments has reflected in the corporate sector loan growth. Despite the macroeconomic slowdown, the Bank actively managed its corporate credit portfolio, maintained asset quality and also pursued new lending opportunities in a judicious manner. Corporate advances (comprising large, infrastructure and midcorporate accounts) increased by 4.07% to `102,238 crores in FY14. The Bank witnessed growth in its infrastructure loans mainly due to disbursements from earlier sanctions. The entire corporate credit portfolio of the Bank has been internally rated. Presently, 61% of outstanding loans and more than 80% of incremental sanctions were rated A and above in respect of total corporate loans. The share of loans rated AAA was 11% as on 31st March 2014. SME business continues to perform well and the portfolio behaviour remained healthy SME Advances `37,461 `30,709 Q1 FY14 Q1 FY15 22% change YoY This segment is one of the key growth areas for the Bank. Keeping in mind the changing economic environment, the Bank has enhanced its risk management capabilities by developing an early warning system model based on holistic customer information. The Bank has also adopted a granular approach in growing the SME portfolio by focussing primarily on better rated SME accounts. Incremental loan growth in SME is mainly driven by higher rated SME 1 to 3 categories which correspond to a single A rating. The loan book remained well diversified and better rated customers account for 75% of SME loans. SME loans increased by 18.65% in FY14 as against FY13. The SME business continues to perform well and the portfolio behaviour remained healthy.
Capital Adequacy: Well Positioned for Growth Capital Adequacy Ratio 4.15% 4.17% 4.01% 3.45% 3.45% 12.25% 12.72% 13.11% 12.62% 12.64% Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Tier 1 CAR Tier 2 CAR The Bank is well capitalised with an overall Capital Adequacy Ratio (CAR) computed under Basel III norms as on 30 th June 2014 of 16.09%, well above the benchmark requirement of 9% stipulated by Reserve Bank of India (RBI). Axis Banks' capitalization is one of the highest in the industry with Tier I of 12.65 %. Stable CASA franchise supports margin stability During the FY14 the growth in NII was attributable to an expansion in the balance sheet size, healthy growth in low-cost Current Account and Savings Bank (CASA) deposits and continued focus on increasing retail term deposits. Domestic CASA and Retail Term Deposits constituted 78% of Total Domestic Deposits. Savings Bank Deposits registered strong growth, rose 18% YoY to `74,583 crores as on June 30, 2014, and 20% YoY to `70,365 crores on Daily Average Basis. Retail Term Deposits grew 44% YoY, constituted 60% of Term Deposits. Axis Bank s aggressive branch expansion strategy is expected to lead to further CASA market share gains for the bank. This will further help the bank to diversify its asset book by increasing the share of retail business. The aggressive investment in creating physical infrastructure is expected to contribute more meaningfully in FY2015 and FY2016 and aid in driving business and profitability growth for the bank. 101,096 63,298 CA Deposits CASA Deposits 109,459 111,699 66,494 69,627 SB Deposits 126,462 77,776 115,242 74,583 42% CASA Ratio 43% 43% 45% 42% 37,798 42,965 42,072 48,686 40,659 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15
Peer Group Analysis Well positioned for future growth with Tier I CAR of 12.64% & Total CAR of 16.09% under Basel III Capital Adequacy Ratio Best in the industry CAR Tier I AXIS BANK, 12.64% YES BANK, 12.60% ICICI BANK, 12.23% INDUSIND BANK, 12.06% HDFC BANK, 11.10% Price/BookValue P/BV Trading at discount to peers HDFC BANK, 4.75 YES BANK, 3.45 INDUSIND BANK, 3.67 AXIS BANK, 2.35 ICICI BANK, 2.48 Price - Earnings Comparision P/E HDFC Bank, 22.50 Indusind Bank, 22.20 ICICI Bank, 17.73 Axis Bank, 14.75 YES Bank, 12.85 Source: GSL Research
Financials and Valuations Income Statement (INR Million) Balance Sheet (INR Million)
Financials and Valuations Axis Bank is trading at 2.18x FY2015E Book Value a significant discount to its peers like HDFC Bank. With a Positive Outlook owing to its aggressive branch expansion strategy is expected to lead to further CASA market share gains. Further, Govt. is also looking to launch another ETF with L&T, ITC and Axis Bank and some blue chip public sector companies, thus allowing the government to disinvest stocks without disrupting the market. We maintain Buy recommendation with a target price of `493. Historical P/B Valuations P/BV Median Peak 3.43 4.07 3.28 1.53 3.01 2.97 2.08 4.07 2.66 2.35 1.84 1.79 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 *Stock Split from Rs. 10 to Rs. 2 on July 28 th 2014 / GSL Research
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