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Axis Bank Ltd.
Positives priced in; Neutral
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ According to Axis Bank, it is likely to moderate its loan growth to 1.3 - 1.5x
(vs 2x historically) of sector average given the higher base and macro
headwinds.
„ Key focus growth areas to be infrastructure, SME and retail. Main drivers of
lending are working capital loans. Key area of risk in rising rates could be
capex related loans.
„ Axis Bank highlighted that margins could see some compression in coming
quarters owing to the rise in deposit rates that have outpaced lending rates.
Moreover, it is also owing to the very high margin expansion seen by the
bank in past few quarters that is unsustainable. As per Axis Bank, normalized
margins may trend towards the upper end of the +3.3-3.5% range.
„ On expansion plans, management intends to increase branches by 25% yoy
per annum over the next few years while exploring possibilities of opening
smaller branches to keep cost under check.
„ The bank also added that it would take an additional 3-4 months to get all
regulatory approvals to do the Enam - Axis bank merger transaction
Price objective basis & risk
Axis Bank (XAXSF / XBKSF)
We set our PO on Axis Bank to Rs1370. We maintain Neutral to factor in the
higher hurdle rate (14%) owing to rising macro headwinds and believe most of the
positives appear priced in. Further, we are also uncomfortable with its heady loan
growth (45%) in the current environment. We are, however, still assigning a +60%
premium over Gordon multiples owing to its good franchise, +21% RoE (FY12E),
earnings growth of 30% and manageable NPLs, pegging PO at +2.6x FY12E BV.
Risks to our PO are a sharp rise in NPLs leading to higher credit costs or the
MTM hits arising from the corporate investment book or inability to grow in sync
with expectations owing to moderation in the growth cycle.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Axis Bank Ltd.
Positives priced in; Neutral
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ According to Axis Bank, it is likely to moderate its loan growth to 1.3 - 1.5x
(vs 2x historically) of sector average given the higher base and macro
headwinds.
„ Key focus growth areas to be infrastructure, SME and retail. Main drivers of
lending are working capital loans. Key area of risk in rising rates could be
capex related loans.
„ Axis Bank highlighted that margins could see some compression in coming
quarters owing to the rise in deposit rates that have outpaced lending rates.
Moreover, it is also owing to the very high margin expansion seen by the
bank in past few quarters that is unsustainable. As per Axis Bank, normalized
margins may trend towards the upper end of the +3.3-3.5% range.
„ On expansion plans, management intends to increase branches by 25% yoy
per annum over the next few years while exploring possibilities of opening
smaller branches to keep cost under check.
„ The bank also added that it would take an additional 3-4 months to get all
regulatory approvals to do the Enam - Axis bank merger transaction
Price objective basis & risk
Axis Bank (XAXSF / XBKSF)
We set our PO on Axis Bank to Rs1370. We maintain Neutral to factor in the
higher hurdle rate (14%) owing to rising macro headwinds and believe most of the
positives appear priced in. Further, we are also uncomfortable with its heady loan
growth (45%) in the current environment. We are, however, still assigning a +60%
premium over Gordon multiples owing to its good franchise, +21% RoE (FY12E),
earnings growth of 30% and manageable NPLs, pegging PO at +2.6x FY12E BV.
Risks to our PO are a sharp rise in NPLs leading to higher credit costs or the
MTM hits arising from the corporate investment book or inability to grow in sync
with expectations owing to moderation in the growth cycle.
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