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Axis Bank
Margin defence the key
Event
Axis Bank is the third largest private bank in India. The bank has one of the
best corporate lending franchises in the country. Its CASA franchise is also
one of the strongest.
Impact
Pressure on margins. The bank has done well to defend margins, which are
key to profitability. However headwinds remain. Management is seeing
wholesale deposits reprice upwards by ~200bp, a quantum which we believe
may not be compensated by higher loan rates in a moderate growth
environment. Around 40% of deposits for Axis are wholesale and 55% of total
deposits get repriced within one year compared to only 30% of assets
amplifying the impact of higher deposit rates.
NPL accretion is slowing down, which is encouraging; however
restructuring continues: After several quarters of high levels of NPL
accretion, the slippage ratio (addition to gross NPLs) has slowed from 1.60%
in 2Q11 to 1.20% in 3Q, which we find encouraging. The coverage ratio
including write-offs at 91% is one of the best in the sector. However, we do
remain concerned about the spurt in assets restructured this quarter, which
has gone up 170% QoQ to Rs1.63bn. The spurt was mainly on account of
certain assets restructured under a CDR (corporate debt restructuring) to the
tune of Rs1.1bn. Total restructured assets now stand at 1.7% of the overall
loan book. Axis doesn't have any major worries on the microfinance
portfolio, which stands at less than 1% of loan book now. The exposure is
close to Rs12bn.
Strong balance sheet growth driven by agri and retail advances,
CASA ratio healthy at 40%+: Loan growth has been strong at the bank.
Growth in 3Q11 was driven mainly by strong growth in agri advances (in
the run-up to meet priority sector lending requirements) and retail
advances. Retail advances saw a spurt in personal loans due to one-off
short-term credit of Rs25bn, which were basically loans given to
individuals for their application money for flats at the housing development
agency. The bank continues to maintain the CASA ratio at 41% levels on
an average daily basis.
Action and recommendation
Axis is currently trading at 2.3x FY12E BVPS. Due to research
restrictions, Macquarie cannot advise its valuation on AXSB IN at present.
Axis Bank Aide Memoire
1. What are the incremental spreads you are making on loans?
2. How has the wholesale funding cost moved in the last six months?
3. Savings deposit growth has been very healthy leading to an increase in the CASA ratio in the last two quarters. How do
you position yourself now that the term deposit rates have again become fairly attractive? Where do you see CASA
stabilizing for you in the next 12 months?
4. What is your outlook on the liquidity tightness? Do you think it will ease in the next 2-3 months? What deposit growth do
you see for the system at large?
5. What is the loan growth you are expecting for 4Q11 and FY12?
6. What are the key drivers for loans? How broad based is the loan growth? Are you seeing long-term project financing
picking up? If so what are those segments?
7. How long do you think it will be before banks go aggressive on unsecured retail lending again? How has your credit
screening/monitoring evolved in the segment?
8. Restructurings picked up in 3Q even as delinquencies were down. What are the key stress points you still see in asset
quality and what delinquency levels would you be comfortable with on a sustainable basis?
9. With regard to international business, what are the incremental spreads you are making there? What is the amount of
borrowings you need to refinance in next 12 months?
10. What is the status of the Enam acquisition? When do you think the approvals to the deal will come? What are the synergy
benefits you expect to accrue from the deal and when do you think they will start to flow through?
11. How is your insurance distribution tie up with Max coming along given that distribution fees have been under stress due to
revised regulations? How big is the fee source as a proportion of your total fee base?
12. Do you see a need to acquire a smaller bank to gain size? If so, what could be the possible acquisition criteria / targets?
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Axis Bank
Margin defence the key
Event
Axis Bank is the third largest private bank in India. The bank has one of the
best corporate lending franchises in the country. Its CASA franchise is also
one of the strongest.
Impact
Pressure on margins. The bank has done well to defend margins, which are
key to profitability. However headwinds remain. Management is seeing
wholesale deposits reprice upwards by ~200bp, a quantum which we believe
may not be compensated by higher loan rates in a moderate growth
environment. Around 40% of deposits for Axis are wholesale and 55% of total
deposits get repriced within one year compared to only 30% of assets
amplifying the impact of higher deposit rates.
NPL accretion is slowing down, which is encouraging; however
restructuring continues: After several quarters of high levels of NPL
accretion, the slippage ratio (addition to gross NPLs) has slowed from 1.60%
in 2Q11 to 1.20% in 3Q, which we find encouraging. The coverage ratio
including write-offs at 91% is one of the best in the sector. However, we do
remain concerned about the spurt in assets restructured this quarter, which
has gone up 170% QoQ to Rs1.63bn. The spurt was mainly on account of
certain assets restructured under a CDR (corporate debt restructuring) to the
tune of Rs1.1bn. Total restructured assets now stand at 1.7% of the overall
loan book. Axis doesn't have any major worries on the microfinance
portfolio, which stands at less than 1% of loan book now. The exposure is
close to Rs12bn.
Strong balance sheet growth driven by agri and retail advances,
CASA ratio healthy at 40%+: Loan growth has been strong at the bank.
Growth in 3Q11 was driven mainly by strong growth in agri advances (in
the run-up to meet priority sector lending requirements) and retail
advances. Retail advances saw a spurt in personal loans due to one-off
short-term credit of Rs25bn, which were basically loans given to
individuals for their application money for flats at the housing development
agency. The bank continues to maintain the CASA ratio at 41% levels on
an average daily basis.
Action and recommendation
Axis is currently trading at 2.3x FY12E BVPS. Due to research
restrictions, Macquarie cannot advise its valuation on AXSB IN at present.
Axis Bank Aide Memoire
1. What are the incremental spreads you are making on loans?
2. How has the wholesale funding cost moved in the last six months?
3. Savings deposit growth has been very healthy leading to an increase in the CASA ratio in the last two quarters. How do
you position yourself now that the term deposit rates have again become fairly attractive? Where do you see CASA
stabilizing for you in the next 12 months?
4. What is your outlook on the liquidity tightness? Do you think it will ease in the next 2-3 months? What deposit growth do
you see for the system at large?
5. What is the loan growth you are expecting for 4Q11 and FY12?
6. What are the key drivers for loans? How broad based is the loan growth? Are you seeing long-term project financing
picking up? If so what are those segments?
7. How long do you think it will be before banks go aggressive on unsecured retail lending again? How has your credit
screening/monitoring evolved in the segment?
8. Restructurings picked up in 3Q even as delinquencies were down. What are the key stress points you still see in asset
quality and what delinquency levels would you be comfortable with on a sustainable basis?
9. With regard to international business, what are the incremental spreads you are making there? What is the amount of
borrowings you need to refinance in next 12 months?
10. What is the status of the Enam acquisition? When do you think the approvals to the deal will come? What are the synergy
benefits you expect to accrue from the deal and when do you think they will start to flow through?
11. How is your insurance distribution tie up with Max coming along given that distribution fees have been under stress due to
revised regulations? How big is the fee source as a proportion of your total fee base?
12. Do you see a need to acquire a smaller bank to gain size? If so, what could be the possible acquisition criteria / targets?
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