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Strong branch expansion to support faster market share gains:
The bank has expanded its branch network at a robust 33.4%
CAGR during FY2004-11, well above HDFC Bank's 26.2% CAGR
(after adjusting for CBoP acquisition) and ICICI Bank's 23.8%
CAGR (after adjusting for Sangli Bank and Bank of Rajasthan
acquisition). The bank has also increased its ATM network by
almost eight-fold over the past eight years to 6,270 ATMs. This
has resulted into multi-fold increase in the bank's CASA market
share to 4.2% as of FY2011, with growth in FY2011 on a daily
average basis also at ~35%. Moreover, in FY2011 alone the
bank opened 407 branches (41.4% yoy growth). Accordingly
going forward, we believe the bank will resume gaining CASA
market share (30-50bp every year), especially as further network
expansion (250+ additions p.a.) remains strong.
Book-accretive dilution on the cards in the next 12-18 months:
The bank's tier-I capital adequacy ratio dipped to 9.4% as of
FY2011 from 11.2% in FY2010 due to strong credit growth
witnessed during the year. Going forward also, we expect
management to meet its guidance for healthy growth of ~1.4x
the industry growth. This is likely to result in a need to raise
capital in the next 12-18 months, as per our calculations.
(The bank had last raised capital in 2QFY10 when its tier-I CAR
was 9.4%). Dilution is likely to be book-accretive and will aid in
further enhancing the bank's credit market share going forward.
Fee income continues to drive higher profitability: Fee income
contribution across a spectrum of services has been a meaningful
2.0% of assets (almost twice the level in PSBs) over FY2009-11.
In FY2011 as well, the bank witnessed healthy growth in most
segments, including corporate (68%), treasury (78%) and retail
(45%), and the momentum is expected to continue going forward.
(We have built in a 30.6% CAGR over FY2011-13), taking the
contribution to 2.1% of assets by FY2013.
Valuations attractive: Keeping in mind the higher 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 2.0x FY2013E ABV - almost 38% discount to HDFC
Bank, despite similar earnings quality, profitability and growth
expectations over FY2011-13E. We value the stock at 2.65x
FY2013E ABV (~25% discount to our target multiple for HDFC
Bank, taking into account the bank's less favourable ALM) to
arrive at a target price of `1,652 with a Buy recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong branch expansion to support faster market share gains:
The bank has expanded its branch network at a robust 33.4%
CAGR during FY2004-11, well above HDFC Bank's 26.2% CAGR
(after adjusting for CBoP acquisition) and ICICI Bank's 23.8%
CAGR (after adjusting for Sangli Bank and Bank of Rajasthan
acquisition). The bank has also increased its ATM network by
almost eight-fold over the past eight years to 6,270 ATMs. This
has resulted into multi-fold increase in the bank's CASA market
share to 4.2% as of FY2011, with growth in FY2011 on a daily
average basis also at ~35%. Moreover, in FY2011 alone the
bank opened 407 branches (41.4% yoy growth). Accordingly
going forward, we believe the bank will resume gaining CASA
market share (30-50bp every year), especially as further network
expansion (250+ additions p.a.) remains strong.
Book-accretive dilution on the cards in the next 12-18 months:
The bank's tier-I capital adequacy ratio dipped to 9.4% as of
FY2011 from 11.2% in FY2010 due to strong credit growth
witnessed during the year. Going forward also, we expect
management to meet its guidance for healthy growth of ~1.4x
the industry growth. This is likely to result in a need to raise
capital in the next 12-18 months, as per our calculations.
(The bank had last raised capital in 2QFY10 when its tier-I CAR
was 9.4%). Dilution is likely to be book-accretive and will aid in
further enhancing the bank's credit market share going forward.
Fee income continues to drive higher profitability: Fee income
contribution across a spectrum of services has been a meaningful
2.0% of assets (almost twice the level in PSBs) over FY2009-11.
In FY2011 as well, the bank witnessed healthy growth in most
segments, including corporate (68%), treasury (78%) and retail
(45%), and the momentum is expected to continue going forward.
(We have built in a 30.6% CAGR over FY2011-13), taking the
contribution to 2.1% of assets by FY2013.
Valuations attractive: Keeping in mind the higher 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 2.0x FY2013E ABV - almost 38% discount to HDFC
Bank, despite similar earnings quality, profitability and growth
expectations over FY2011-13E. We value the stock at 2.65x
FY2013E ABV (~25% discount to our target multiple for HDFC
Bank, taking into account the bank's less favourable ALM) to
arrive at a target price of `1,652 with a Buy recommendation.
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