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					Axis Bank   INR: 1,364



                     BUY
Introduction                                                                                                   Price Target (INR): 1,520
Axis Bank is the third largest private sector bank which was incorporated in 1993. Axis Bank formerly
known as UTI Bank is being promoted by Unit Trust of India, Life Insurance Corporation of India, General       Market Data
Insurance Corporation of India and its four subsidiaries. It has 4,055 ATMs and ~950 branches mostly in        Shares outs (Cr)
metro and urban areas.                                                                                         Equity Cap (Rs. Cr)
                                                                                                               Mkt Cap (Rs. Cr)
                                                                                                               52 Wk H/L (Rs)
Key Investment Rationale
                                                                                                               Avg Vol (1yr avg)
Strong fundamentals                                                                                            Face Value (Rs)
High CASA ratio (40%), excellent margins (3.7), consistent returns on equities (~20%) and strong growth
in core fee income (20%) & net profit (32%) supported by strong growth in loan book (39%) in this quarter
make this stock our favorite. Its margin which has been around ~3.5% for the last eight quarters, shot up to
4.0% against industry average of 3% before moderating to 3.7%. We believe it will settle around 3.5%
which is still a good number.
                                                                                                               Market Info:
Focus on secured mortgage play
The bank's retail business has been growing consistently particularly led by home loan segment which           SENSEX
share has grown to 71%. In previous quarter, large & mid corp loans surged by 55% followed by agri
loans. Going forward we believe secured mortgage loans will be an important growth driver. As the new          NIFTY
capex cycle sets in, we further expect improvement in large and mid-corporate segments which constitute
~55% of the loan portfolio and have been subdued of late. Bank has already a strong pipeline of
sanctioned loans.
                                                                                                               Share Holding pattern (%)
Fee Income: A reliable contributor
Bank has an equally strong and diversified fee income portfolio along with core business, which                 Particulars     Jun-10
contributes to about 35% to the net revenue, which is much higher than its peers. Fee income grew by
                                                                                                                Promoters          38.54
19% in Q1FY11 y-o-y driven by corporate & retail banking and we expect it to grow by about 20% going
forward.                                                                                                        FIIs                 7.08

                                                                                                                Institutions       33.13
Improving asset quality
Bank's asset quality is improving and net addition to gross NPAs is on the decline which helps reduce the       Others             21.25
credit cost. The gross NPA increased marginally to 1.13% against 1.01% a year ago. The quantum of the           Total              100.0
NPA outstanding was Rs. 1,341 Cr compared to Rs. 915 Cr recorded in Q1FY10. Most of the slippage
arises from SME and agri segments which we believe has bottomed out. During the quarter, loans
amounting to Rs 30 crore got restructured while restructured standard assets amounting to Rs 50 crore
turned NPA during the quarter. On cumulative basis Rs 460 crore restructured assets have turned NPA
hitherto. As on June 30, 2010 the total outstanding value of restructured assets was Rs 2151 crore which
is equivalent to 1.81% of gross customer assets.                                                               Analyst :

Going forward, we expect the credit cost to remain at the current level of ~1.2%. The PCR stood at 76.62%      Deepak Tiwari
(incl. technical write offs) and at 89.6% before accumulated write offs.                                       deepak.tiwari@krchoksey.com

Stellar performance in Q1FY11                                                                                   91-22-6696 5518
Quarterly result came in line with our expectations with PAT growing by 32% y-o-y to Rs 742 crore,
however it declined sequentially by 3.0%. Over 50% increase in NPA provisions and 40% decline in
trading profits dented the bottom-line despite an all round fee income growth of 19% y-o-y. NII grew by
45% to Rs 1,514 crore against Rs 1,046 crore a year ago on the back of revival in corporate loans
specially in infrastructure sector, notwithstanding the decline in yield on advances on account of priority
sector lending. Operating income growth was also very strong at 23.3%.

Adequately capitalized to fund growth
The bank is adequately capitalized as its Capital Adequacy Ratio (CAR) is pegged at 14.5% which we
believe is sufficient to fund its growth (18% and 25% for FY10 and FY11 respectively.

Our View -
Considering delinquencies getting stabilized resulting in lower credit cost, strong volume growth of ~25%
expected in the next two years, one of the best margins in the industry on account of sturdy and growing
CASA franchise, robust & consistent earnings growth and comparable returns with peers such as HDFC
Bank (RoA of over 1.5% and RoE of ~20%), we believe the bank deserve a premium like HDFC Bank.
Axis bank is currently trading at 2.4X FY12E Adj BV. We continue to remain positive on the bank with a
one year target price of 1,520, valuing the bank at 2.7X FY12E of ABV.
Q1FY11 Result Update


Particulars                   Q1FY11    Q4FY10   Q1FY10    (Q-o-Q)%   (Y-o-Y)%   Comments
                                                                                 Lower income on account of low
Interest earned                 3,326    2,988     2,906     11.3%      14.5%
                                                                                 yielding priority sector lending
-Interest on advances/bills     2,311    2,075     1,974     11.4%      17.1%
-Income on investments           935       856      867       9.3%       7.8%
-Interest on bal. with RBI        32        27       35      19.4%      -8.2%
-Others                           47        30       29      55.1%      60.3%
                                                                                 Higher sequential interest outgo
Interest expenses               1,812    1,528     1,860     18.5%      -2.6%    savings accounts and due increa
                                                                                 CRR
Net Interest Income (NII)       1,514    1,460     1,046      3.7%      44.8%
                                                                                 Strong 19% fee income growth b
Other Income                    1,001      934      959       7.2%       4.4%    lower trading profits dented
                                                                                 profitability
Total income                    2,515    2,394     2,004      5.1%      25.5%
Operating expenses              1,065    1,010      828       5.4%      28.6%
-Employee cost                   416       334      309      24.8%      34.6%
-Other operating expenses        648       676      519       -4.1%     25.0%
Operating profit                1,450    1,384     1,177      4.8%      23.3%
                                                                                 NPA provisions shot up by 50%
Provision for contingencies      333       202      315      65.0%       5.6%    304 cr from Rs 202 cr a year ag
                                                                                 pricking the profitability
PBT                             1,117    1,182      861       -5.5%     29.7%
Provision for taxes              375       417      299      -10.0%     25.5%
Net profit                       742       765      562       -3.0%     32.0%
Equity                           407       405      360
EPS                              18.2     18.9      15.6      -3.5%     16.5%
Ratios (%)
Int. exp/Int earned (%)          54.5     51.1      64.0          -          -
Cost/Income ratio (%)            42.3     42.2      41.3
Emp. cost/Int. Income (%)        12.5     11.2      10.6          -          -
GPM (%)                          43.6     46.3      40.5          -          -
Prov & Cont/Int Income (%)       10.0      6.8      10.9          -          -
Tax/PBT (%)                      33.6     35.3      34.7          -          -
NPM (%)                          22.3     25.6      19.3          -          -
                                                                                 Asset quality concerns appears
Gross NPAs (Rs)                1340.9     1318    915.31      1.7%      46.5%
                                                                                 have subsided
Net NPAs (Rs)                  413.41      419    367.12      -1.3%     12.6%
Gross NPAs (%)                  1.1%      1.1%     1.0%
Net NPAs (%)                   0.35%     0.36%    0.41%
ROA (%)                        1.63%     1.85%    1.63%
CAR (%)                       14.54%    15.80%   15.28%
Income Statement
Particulars                                      FY09                 FY10                  FY11E            FY12E
Interest earned                                  10,835               11,638                16,034           20,455

  -Interest on advances/bills                    7,466                7,987                 11,034           14,002

  -Income on investments                         210                  120                   396              564

  -Interest on bal. with RBI                     3,052                3,428                 4,495            5,776

  -Others                                        108                  103                   108              114

Interest expenses                                7,149                6,634                 9,241            11,928

Net Interest Income (NII)                        3,686                5,004                 6,793            8,527

Other Income                                     2,978                3,974                 4,247            5,218

Total income                                     6,664                8,979                 11,041           13,745

Operating expenses                               2,858                3,710                 4,498            5,518

  -Employee cost                                 998                  1,256                 1,511            1,909

  -Other operating expenses                      1,861                2,454                 2,987            3,609

Operating profit                                 3,806                5,269                 6,543            8,227

Provision for contingencies                      1,020                1,418                 1,764            2,111

PBT                                              2,785                3,851                 4,779            6,116

Provision for taxes                              970                  1336                  1625             2079

Net profit                                       1,815                2,515                 3,154            4,036

Equity                                           359                  405                   407              407

EPS                                              51                   62                    77               99


Key Risks:

Key concern: Lower than expected credit demand and negative surprises on asset quality would be key
risk to our recommendation.

Valuations:

Considering delinquencies getting stabilized resulting in lower credit cost, strong volume growth of ~25%
expected in the next two years, one of the best margins in the industry on account of sturdy and growing
CASA franchise, robust & consistent earnings growth and comparable returns with peers such as HDFC
Bank (RoA of over 1.5% and RoE of ~20%), we believe the bank deserve a premium like HDFC Bank. Axis
bank is currently trading at 2.4X FY12E Adj BV. We continue to remain positive on the bank with a one year
target price of 1,520, valuing the bank at 2.7X FY12E of ABV.




Technicals
 Last Price                     1355

 14 day EMA                     1312

 50 day EMA                     1258

 C 200 day EMA                  1114


The stock is moving sideways. The support for the stock exists at around 1300 levels. The MACD indicator for the stock is moving upwards in
positive zone. Investors can buy the stock at declines.

				
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posted:7/29/2012
language:English
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