Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AXIS Bank
Still growing fast, still good quality; initiate with OUTPERFORM
We initiate coverage with an OUTPERFORM rating and
price target of Rs1,675.
Sustained, strong earnings growth of 29% over FY11-
13E, improving asset quality and a high proportion of
CASA relative to the sector are likely to be the key
drivers for the stock, in our view.
Axis Bank ranks among the top banks in terms of
deposit mix and RoA.
Our price target is based on a target P/BV multiple of 3x.
We expect the stock to re-rate given its strong earnings
outlook and decelerating new NPL formation.
Strong growth on a high base – We expect earnings to
grow 25% in FY12E after likely growth of 34% over FY08-
FY11E. A high CASA ratio and timely lending rate hikes are
likely to limit the margin decline to 12bps in FY12E.
More profitable than peers – Current RoA of 1.6% is
higher than the sector average of 1.1%. CASA at 43% in
Dec ’10 is also higher than the sector average of 32%. Net
NPLs of 0.3% are amongst the lowest in the industry. Fee
income at 1.8% of assets is the highest among large banks.
Asset quality issues behind us – Axis Bank’s asset
quality has been a key concern for investors because of
higher-than-sector exposure to infrastructure and lowerrated
corporates. After peaking in 2Q FY10 at 4.1%,
slippages have reduced to 1.6% in 3Q FY11, with the
seasoning of the restructured book. We expect slippages to
fall even further to 1.3% by FY13E as we believe that the
restructured book has seasoned and the bank over the past
year has tightened its internal NPL classification norms,
which was partly responsible for higher slippages and
aggressive write offs in FY10. In addition, aggressive writeoffs
over the past few years could provide upside to
earnings from recoveries in written off loans.
Valuation – Our target multiple of 3x is at a premium to the
mean multiple of 2.3x and the current multiple of 2.6x
FY12E. We believe the stock should re-rate on the back of
its strong growth prospects.
Risks – Higher-than-sector exposure to infrastructure,
increase in the proportion of loans rated BBB and below,
rapid growth in the SME segment over the last few years
and a high proportion of bulk deposits.
Investment argument and valuation
Valuation
Our price target of Rs1,675 is based on our target P/BV of 3x. We have used sustainable RoE of
22.5%, cost of equity of 12.8% and sustainable growth rate of 7.75%. The stock currently trades
at 14x FY12E P/E and 2.6x FY12E P/BV. Our target multiple is lower than the five-year high of
4.6x in Jan ’08, but higher than the average multiple of 2.3x and higher than the current multiple.
We believe Axis Bank deserves to trade at a premium to its five-year average and to its current
valuation as the bank has executed its growth strategy well over the past five years with
considerable improvement in brand franchise, RoA and market share of loans.
RoA has improved from 0.9% in FY07 to 1.5% in FY10 and we expect RoA to improve further to
1.7% in FY11-12E. The proportion of savings deposits, which is an indicator of the strength of the
bank’s retail franchise, has improved from 20.6% in FY07 to 25% in 9M FY11.
Company profile
Axis Bank was the first of the new private banks to have begun operations in 1994, after the
government of India allowed new private banks to be established. The bank was originally known
as UTI Bank. Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI) is the
principal shareholder, holding 23.7% of the total equity capital. SUUTI, which was carved out of
the erstwhile Unit Trust of India in 2003, was scheduled to wind up in Jan ’08. However, the
government has been extending the time line of liquidation of SUUTI. The current time line is till
Jul ’14 by which time SUUTI will have to liquidate its state liabilities. The SUUTI stake is an
overhang for Axis Bank as SUUTI will have to liquidate within the next five years but there is no
immediate talk of SUUTI selling its stake in Axis Bank. The bank has a distribution network of
1,120 branches and 5,303 ATMs. It has overseas branches in Singapore, Hong Kong and Dubai.
Management team
Managing Director & CEO: Shikha Sharma
Appointed in Apr ’09, Shikha Sharma joined Axis Bank from ICICI Prudential Life Insurance,
which she headed. She began her career in 1980 with ICICI and helped set up their investment
banking business. She is a graduate from the University of Delhi and completed her postgraduation
in management from the Indian Institute of Management, Ahmedabad.
Executive Director and Chief Financial Officer: Somnath Sengupta
Appointed as CFO in Oct ’09, he was previously the bank’s President, Finance and Accounts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AXIS Bank
Still growing fast, still good quality; initiate with OUTPERFORM
We initiate coverage with an OUTPERFORM rating and
price target of Rs1,675.
Sustained, strong earnings growth of 29% over FY11-
13E, improving asset quality and a high proportion of
CASA relative to the sector are likely to be the key
drivers for the stock, in our view.
Axis Bank ranks among the top banks in terms of
deposit mix and RoA.
Our price target is based on a target P/BV multiple of 3x.
We expect the stock to re-rate given its strong earnings
outlook and decelerating new NPL formation.
Strong growth on a high base – We expect earnings to
grow 25% in FY12E after likely growth of 34% over FY08-
FY11E. A high CASA ratio and timely lending rate hikes are
likely to limit the margin decline to 12bps in FY12E.
More profitable than peers – Current RoA of 1.6% is
higher than the sector average of 1.1%. CASA at 43% in
Dec ’10 is also higher than the sector average of 32%. Net
NPLs of 0.3% are amongst the lowest in the industry. Fee
income at 1.8% of assets is the highest among large banks.
Asset quality issues behind us – Axis Bank’s asset
quality has been a key concern for investors because of
higher-than-sector exposure to infrastructure and lowerrated
corporates. After peaking in 2Q FY10 at 4.1%,
slippages have reduced to 1.6% in 3Q FY11, with the
seasoning of the restructured book. We expect slippages to
fall even further to 1.3% by FY13E as we believe that the
restructured book has seasoned and the bank over the past
year has tightened its internal NPL classification norms,
which was partly responsible for higher slippages and
aggressive write offs in FY10. In addition, aggressive writeoffs
over the past few years could provide upside to
earnings from recoveries in written off loans.
Valuation – Our target multiple of 3x is at a premium to the
mean multiple of 2.3x and the current multiple of 2.6x
FY12E. We believe the stock should re-rate on the back of
its strong growth prospects.
Risks – Higher-than-sector exposure to infrastructure,
increase in the proportion of loans rated BBB and below,
rapid growth in the SME segment over the last few years
and a high proportion of bulk deposits.
Investment argument and valuation
Valuation
Our price target of Rs1,675 is based on our target P/BV of 3x. We have used sustainable RoE of
22.5%, cost of equity of 12.8% and sustainable growth rate of 7.75%. The stock currently trades
at 14x FY12E P/E and 2.6x FY12E P/BV. Our target multiple is lower than the five-year high of
4.6x in Jan ’08, but higher than the average multiple of 2.3x and higher than the current multiple.
We believe Axis Bank deserves to trade at a premium to its five-year average and to its current
valuation as the bank has executed its growth strategy well over the past five years with
considerable improvement in brand franchise, RoA and market share of loans.
RoA has improved from 0.9% in FY07 to 1.5% in FY10 and we expect RoA to improve further to
1.7% in FY11-12E. The proportion of savings deposits, which is an indicator of the strength of the
bank’s retail franchise, has improved from 20.6% in FY07 to 25% in 9M FY11.
Company profile
Axis Bank was the first of the new private banks to have begun operations in 1994, after the
government of India allowed new private banks to be established. The bank was originally known
as UTI Bank. Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI) is the
principal shareholder, holding 23.7% of the total equity capital. SUUTI, which was carved out of
the erstwhile Unit Trust of India in 2003, was scheduled to wind up in Jan ’08. However, the
government has been extending the time line of liquidation of SUUTI. The current time line is till
Jul ’14 by which time SUUTI will have to liquidate its state liabilities. The SUUTI stake is an
overhang for Axis Bank as SUUTI will have to liquidate within the next five years but there is no
immediate talk of SUUTI selling its stake in Axis Bank. The bank has a distribution network of
1,120 branches and 5,303 ATMs. It has overseas branches in Singapore, Hong Kong and Dubai.
Management team
Managing Director & CEO: Shikha Sharma
Appointed in Apr ’09, Shikha Sharma joined Axis Bank from ICICI Prudential Life Insurance,
which she headed. She began her career in 1980 with ICICI and helped set up their investment
banking business. She is a graduate from the University of Delhi and completed her postgraduation
in management from the Indian Institute of Management, Ahmedabad.
Executive Director and Chief Financial Officer: Somnath Sengupta
Appointed as CFO in Oct ’09, he was previously the bank’s President, Finance and Accounts.
No comments:
Post a Comment