Axis Bank (AXBK.BO;:: Takeaways from Citi India Investor Conference – Day 2

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Axis Bank (AXBK.BO; Rs1,246.05; 1L)
 Takeaways from Mumbai — Axis Bank management presented at our India
conference today. Key takeaways are below:
 Loan growth environment to moderate slightly - Axis expects loan growth for the
industry to moderate to around 18% levels for the industry (from 23% in FY11);
growth for Axis is expected around 25%. Key drivers being more retail focus and
SME sectors. It is seeing some slowdown in infrastructure segments, with fresh
sanctions being almost negligible.
 Net Interest Margins to stabilize between 3.25-3.5% - Management expects
higher cost of savings balances to impact NIMs (10bps, higher if full savings
deregulation happens) as full pass-through of costs could be challenging. It expects
NIMs to stabilize at their longer-term sustainable levels of 3.25-3.5%; some
seasonal pressure likely in 1Q12 (around 15-20bps).
 Infrastructure exposure relatively high, but asset quality holding up - Axis'
exposure to infrastructure segment is relatively high at 15% of loans (1/3rd of this in
power). While demand has slowed and there are near-term execution
challenges, so far asset quality is holding up well. Current slippage levels remain
in-line with 2H12 levels, management expects first signs of asset
quality deterioration to show up in SMEs, with large corporate slippage being more
modest. Restructured assets currently low, could see some in MFI segments
(infrastructure not likely in FY12).
 Distribution build-out to support funding franchise - Management remains on
course with its distribution build-out with likely branch additions close to 250. Also
40% of its branch network is less than 2yrs old and expects these to contribute
more significantly to its deposit franchise, pushing up average CASA levels to over
40% (from 38.5% in 4Q11).
 Capital issuance likely in next 12 months - Current Tier1 ratio for Axis is 9.4%; it
will start looking to raise more as it reaches closer to 8.5%; expect in next 12
months