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Axis Bank
A few positive points
As per FY11 annual report data, the bank's asset/liability maturity profile appears
to have improved yoy. This will likely ease the pressure on NIMs in a rising
interest rate cycle. Also, the lower quantum of restructured loans is positive. Post
the stock price correction, the risk reward appears favourable. Buy.
Asset/liability maturity profile got better in FY11; but deposit concentration is high
As of March 2010, about 50% of assets (loans + investments) were due for maturity after
three years compared to about 30% of liabilities (deposits + borrowings) falling due after
three years (see Charts 1 and 2). However, the asset/liability maturity profile improved in
FY11. As of March 2011, about 42% of assets will be due for maturity after three years
compared to 34% of liabilities. However, the concentration of deposits remains high, with the
top-20 accounting for about 18.3% of total deposits (see Charts 3 and 4).
Declining quantum of restructured loans is positive
The bank restructured about Rs4.3bn of standard loans (including all facilities) in FY11 (0.4%
of opening loans) compared to about Rs20bn in FY10 (2.5% of opening loans). The reported
cumulative standard restructured loans as of March 2011 had fallen to Rs19.3bn (1.4% of
loan book) compared to Rs23bn as of March 2010 (2.2%), which gives us comfort on the
underlying asset-quality trend (see Chart 5).
The combination of the above two factors augurs well in the current environment
A more balanced asset/liability maturity profile provides comfort on net interest margins in a
rising interest rate environment. Further, with uncertainty about asset quality in general
across the sector, the lower proportion of restructured loans is positive, in our view.
No material changes in earnings; we upgrade to Buy post the recent stock correction
We keep our FY12-14 earnings estimates largely unchanged. We upgrade Axis Bank to Buy
(from Sell), partly driven by the improved asset/liability maturity profile and lower restructured
loans. The main reason for the change in our EVA™-based target price is that we no longer
provide a valuation discount for restructured loans. According to management, the ENAM
deal is awaiting the requisite approvals. Note that our FY12 estimates factor in equity dilution
of 13.8m shares (about 4.3% of existing shares) pursuant to the proposed deal. At our target
price, the stock would trade at 2.7x FY12F adjusted book value and 14.4x FY12F earnings.
Other FY11 annual report highlights
Treasury gains were about Rs3.7bn in FY11 (7.1% of PBT in FY11 vs 18.4% in FY10).
The bank earned about Rs2.3bn as fees (6.8% of total fees) from the banc assurance
business in FY11 (7.2% in FY10).
In FY11, on a daily average basis, savings bank deposits grew 36% yoy and current account
deposits by about 28% yoy. The low-cost (CASA) deposits proportion, on a daily average
basis, came down 100bp yoy to 39.4% as of March 2011.
Commercial real estate exposure was 6.3% of the loan book as of March 2011 (vs 6.5% at the
same time last year). However, according to Basel II disclosures, commercial real estate is
2.3% of total fund-based exposure.
Unsecured loans were 18% of the loan book as of March 2011 (15% as of March 2010).
Overseas assets grew 61% yoy to about US$5bn as of 31 March 2011. Advances at overseas
branches accounted for 14% of the bank’s total advances.
The total business carried out by the bank on behalf of the government was Rs854bn in FY11
(up 20% yoy).
The bank said it retains its leadership position in the project finance and corporate finance
debt market, and syndicated an aggregate amount of Rs570bn by way of rupee and foreigncurrency loans in FY11.
The bank also said it maintained its leadership in the debt capital markets business and
successfully syndicated debt of around Rs830bn through the private placement of bonds and
debentures in rupees.
The bank can grant about 40.5m shares under its employee stock option plan (ESOP). As of
March 2011, 36.6m options had been granted. Of this amount, about 21.7m have been
exercised, 3.8m have lapsed/been cancelled and the remaining 11.1m remain in force.
The bank’s total number of employees grew to 26,435 as of 31 March 2011 (21,640 as of
March 2010).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Axis Bank
A few positive points
As per FY11 annual report data, the bank's asset/liability maturity profile appears
to have improved yoy. This will likely ease the pressure on NIMs in a rising
interest rate cycle. Also, the lower quantum of restructured loans is positive. Post
the stock price correction, the risk reward appears favourable. Buy.
Asset/liability maturity profile got better in FY11; but deposit concentration is high
As of March 2010, about 50% of assets (loans + investments) were due for maturity after
three years compared to about 30% of liabilities (deposits + borrowings) falling due after
three years (see Charts 1 and 2). However, the asset/liability maturity profile improved in
FY11. As of March 2011, about 42% of assets will be due for maturity after three years
compared to 34% of liabilities. However, the concentration of deposits remains high, with the
top-20 accounting for about 18.3% of total deposits (see Charts 3 and 4).
Declining quantum of restructured loans is positive
The bank restructured about Rs4.3bn of standard loans (including all facilities) in FY11 (0.4%
of opening loans) compared to about Rs20bn in FY10 (2.5% of opening loans). The reported
cumulative standard restructured loans as of March 2011 had fallen to Rs19.3bn (1.4% of
loan book) compared to Rs23bn as of March 2010 (2.2%), which gives us comfort on the
underlying asset-quality trend (see Chart 5).
The combination of the above two factors augurs well in the current environment
A more balanced asset/liability maturity profile provides comfort on net interest margins in a
rising interest rate environment. Further, with uncertainty about asset quality in general
across the sector, the lower proportion of restructured loans is positive, in our view.
No material changes in earnings; we upgrade to Buy post the recent stock correction
We keep our FY12-14 earnings estimates largely unchanged. We upgrade Axis Bank to Buy
(from Sell), partly driven by the improved asset/liability maturity profile and lower restructured
loans. The main reason for the change in our EVA™-based target price is that we no longer
provide a valuation discount for restructured loans. According to management, the ENAM
deal is awaiting the requisite approvals. Note that our FY12 estimates factor in equity dilution
of 13.8m shares (about 4.3% of existing shares) pursuant to the proposed deal. At our target
price, the stock would trade at 2.7x FY12F adjusted book value and 14.4x FY12F earnings.
Other FY11 annual report highlights
Treasury gains were about Rs3.7bn in FY11 (7.1% of PBT in FY11 vs 18.4% in FY10).
The bank earned about Rs2.3bn as fees (6.8% of total fees) from the banc assurance
business in FY11 (7.2% in FY10).
In FY11, on a daily average basis, savings bank deposits grew 36% yoy and current account
deposits by about 28% yoy. The low-cost (CASA) deposits proportion, on a daily average
basis, came down 100bp yoy to 39.4% as of March 2011.
Commercial real estate exposure was 6.3% of the loan book as of March 2011 (vs 6.5% at the
same time last year). However, according to Basel II disclosures, commercial real estate is
2.3% of total fund-based exposure.
Unsecured loans were 18% of the loan book as of March 2011 (15% as of March 2010).
Overseas assets grew 61% yoy to about US$5bn as of 31 March 2011. Advances at overseas
branches accounted for 14% of the bank’s total advances.
The total business carried out by the bank on behalf of the government was Rs854bn in FY11
(up 20% yoy).
The bank said it retains its leadership position in the project finance and corporate finance
debt market, and syndicated an aggregate amount of Rs570bn by way of rupee and foreigncurrency loans in FY11.
The bank also said it maintained its leadership in the debt capital markets business and
successfully syndicated debt of around Rs830bn through the private placement of bonds and
debentures in rupees.
The bank can grant about 40.5m shares under its employee stock option plan (ESOP). As of
March 2011, 36.6m options had been granted. Of this amount, about 21.7m have been
exercised, 3.8m have lapsed/been cancelled and the remaining 11.1m remain in force.
The bank’s total number of employees grew to 26,435 as of 31 March 2011 (21,640 as of
March 2010).
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