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Strong CAR and branch expansion to support faster market
share gains: We believe the bank's strong capital adequacy
positions it for credit market share gains, with at least 500bp
higher growth than industry over FY2010-12E. The bank has
expanded its network at a 35% CAGR since FY2003, driving a
fourfold increase in CASA market share to 4.0% by FY2010 (20bp
yoy increase in FY2010). Going forward, we believe such CASA
market share gains (30-50bp every year) will also continue,
especially as network expansion (200+ additions, about 20-
25% yoy) remains strong.
Fee income continues to drive higher profitability: Fee income
contribution across a spectrum of services has been a meaningful
1.9% of assets (almost twice the level in PSBs) over FY2008-10.
With corporate loan growth picking up and capital markets
reviving, fee income growth is also expected to gain traction
(30% CAGR over FY2010-12E), taking the contribution to 2.1%
of assets by FY2012E. Further, the recent deal with Enam will
help in bolstering its already strong fee income.
NPA concerns receding: With improving economic outlook and
reducing corporate leverage, NPA concerns are receding.
Sequentially, the slippage rate has broadly been declining (down
from 2.2% in FY2010 to 1.3% in 3QFY2011). We expect NPA
provisions/average assets to decline to 0.4% by FY2012 from
0.8% in FY2010.
Valuations attractive: Keeping in mind the rising interest rate
environment, Axis Bank’s high CASA ratios and CASA market
share gains are expected to underpin relatively stronger earnings
growth momentum. At the CMP, the stock is trading at attractive
valuations of 2.3x FY2012E ABV - almost 28% discount to HDFC
Bank, despite similar earnings quality, profitability and growth
expectations over FY2010-12E. We value the stock at 3.2x
FY2012E ABV (at the higher end of its five-year range and 20%
discount to our target multiple for HDFC Bank) to arrive at a
Target Price of `1,688 with a Buy recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong CAR and branch expansion to support faster market
share gains: We believe the bank's strong capital adequacy
positions it for credit market share gains, with at least 500bp
higher growth than industry over FY2010-12E. The bank has
expanded its network at a 35% CAGR since FY2003, driving a
fourfold increase in CASA market share to 4.0% by FY2010 (20bp
yoy increase in FY2010). Going forward, we believe such CASA
market share gains (30-50bp every year) will also continue,
especially as network expansion (200+ additions, about 20-
25% yoy) remains strong.
Fee income continues to drive higher profitability: Fee income
contribution across a spectrum of services has been a meaningful
1.9% of assets (almost twice the level in PSBs) over FY2008-10.
With corporate loan growth picking up and capital markets
reviving, fee income growth is also expected to gain traction
(30% CAGR over FY2010-12E), taking the contribution to 2.1%
of assets by FY2012E. Further, the recent deal with Enam will
help in bolstering its already strong fee income.
NPA concerns receding: With improving economic outlook and
reducing corporate leverage, NPA concerns are receding.
Sequentially, the slippage rate has broadly been declining (down
from 2.2% in FY2010 to 1.3% in 3QFY2011). We expect NPA
provisions/average assets to decline to 0.4% by FY2012 from
0.8% in FY2010.
Valuations attractive: Keeping in mind the rising interest rate
environment, Axis Bank’s high CASA ratios and CASA market
share gains are expected to underpin relatively stronger earnings
growth momentum. At the CMP, the stock is trading at attractive
valuations of 2.3x FY2012E ABV - almost 28% discount to HDFC
Bank, despite similar earnings quality, profitability and growth
expectations over FY2010-12E. We value the stock at 3.2x
FY2012E ABV (at the higher end of its five-year range and 20%
discount to our target multiple for HDFC Bank) to arrive at a
Target Price of `1,688 with a Buy recommendation.
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