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We observe that the cost of term deposits and borrowings at Axis Bank has gone up 100bp
qoq in 4QFY11. HDFC Bank, of almost similar size, saw its costs rising by 50bp qoq. The
one-year wholesale borrowing cost remains high and will keep Axis Bank's NIMs under
pressure. Sell; revised TP of Rs1,200.
Cost of term deposits and borrowings rises by about 100bp qoq
Based on our analysis, Axis Bank’s cost of term deposits and borrowings increased by about
100bp qoq to 7.3% in 4QFY11 (see Table 2). HDFC Bank’s cost rose 50bp qoq over the
same period. Further, on a blended basis, the cost of interest-bearing liabilities went up by
70bp qoq to 5.4% for Axis Bank in 4QFY11, while the same increased by a mere 20bp to
4.9% in HDFC Bank’s case. Note that as of March 2011, both HDFC Bank (Rs2,229bn) and
Axis Bank (Rs2,155bn) were almost similar in terms of the size of total interest-bearing
liabilities (deposits and borrowings).
ROA analysis for FY11
Net interest margins (NIMs) to average assets improved by 10bp yoy, while other income fell
by 20bp yoy. Operating costs to assets was largely stable at 2.3%. However, provision to
average assets fell by 20bp. Thus, calculated ROAs improved by about 10bp yoy to about
1.6% in FY11.
High CASA, but also high proportion of bulk deposits
The daily average proportion of CASA ratio came down 100bp yoy to 39.4% as of March 2011
(-160bp qoq). Further, wholesale deposits (term deposits> Rs50mn) constituted about 41% of
total deposits (see Chart 2). One-year certificate of deposit rates continue to remain high at about
9.7-9.8% (see Chart 3) and we believe that the 50bp base rate hike by Axis Bank in April 2011 to
9.0% will partly offset the rise in cost of funds.
Management guides for moderation in growth; maintain Sell
The management guides for 25% yoy loan growth in FY12 (+37% yoy in FY11) and also does not
foresee capital raising in FY12 (tier-I capital at 9.4% as of March 2011). It expects NIMs to be in
the range of 3.25-3.5% in FY12 (3.65% in FY11). We increase our net profit forecast for FY12 by
about 8% and for FY13 by 4% and arrive at our target price of Rs1,200. At our TP, the stock will
trade at 2.3x FY12F adjusted BV and 12.6x FY12F earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We observe that the cost of term deposits and borrowings at Axis Bank has gone up 100bp
qoq in 4QFY11. HDFC Bank, of almost similar size, saw its costs rising by 50bp qoq. The
one-year wholesale borrowing cost remains high and will keep Axis Bank's NIMs under
pressure. Sell; revised TP of Rs1,200.
Cost of term deposits and borrowings rises by about 100bp qoq
Based on our analysis, Axis Bank’s cost of term deposits and borrowings increased by about
100bp qoq to 7.3% in 4QFY11 (see Table 2). HDFC Bank’s cost rose 50bp qoq over the
same period. Further, on a blended basis, the cost of interest-bearing liabilities went up by
70bp qoq to 5.4% for Axis Bank in 4QFY11, while the same increased by a mere 20bp to
4.9% in HDFC Bank’s case. Note that as of March 2011, both HDFC Bank (Rs2,229bn) and
Axis Bank (Rs2,155bn) were almost similar in terms of the size of total interest-bearing
liabilities (deposits and borrowings).
ROA analysis for FY11
Net interest margins (NIMs) to average assets improved by 10bp yoy, while other income fell
by 20bp yoy. Operating costs to assets was largely stable at 2.3%. However, provision to
average assets fell by 20bp. Thus, calculated ROAs improved by about 10bp yoy to about
1.6% in FY11.
High CASA, but also high proportion of bulk deposits
The daily average proportion of CASA ratio came down 100bp yoy to 39.4% as of March 2011
(-160bp qoq). Further, wholesale deposits (term deposits> Rs50mn) constituted about 41% of
total deposits (see Chart 2). One-year certificate of deposit rates continue to remain high at about
9.7-9.8% (see Chart 3) and we believe that the 50bp base rate hike by Axis Bank in April 2011 to
9.0% will partly offset the rise in cost of funds.
Management guides for moderation in growth; maintain Sell
The management guides for 25% yoy loan growth in FY12 (+37% yoy in FY11) and also does not
foresee capital raising in FY12 (tier-I capital at 9.4% as of March 2011). It expects NIMs to be in
the range of 3.25-3.5% in FY12 (3.65% in FY11). We increase our net profit forecast for FY12 by
about 8% and for FY13 by 4% and arrive at our target price of Rs1,200. At our TP, the stock will
trade at 2.3x FY12F adjusted BV and 12.6x FY12F earnings.
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