We met the management of Axis Bank. Key takeaways:  PUG

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We met the management of Axis Bank. Key takeaways:
 Axis Bank currently enjoys market share of 3.5% in business and the management expects to gain further share due to higher than industry growth (about 1.5x of industry). However, share of corporate loans which is at ~53% may decline in the next few years. However at industry levels, fresh disbursements seem constrained since the last 6-9 months as Infrastructure lending has dried up, though demand for working capital loans is still high.
 The bank aims to maintain CASA ratio of 40% and above even though the demand deposits is likely to fall in line with industry trend due to increasing interest rate differential with term deposits. As the depositors are increasingly parking funds at higher yielding term deposits, growth in CASA balances is expected to be a challenge going forward. About 40% of liabilities of the bank are on a fixed rate basis whereas 85% of the loan book is based on floating rates. Bulk deposits comprise of 65% of term deposits; rest is retail term deposits with ticket size of less than INR50mn.
 MFI portfolio is around INR10bn out of which around 45-50% is towards Andhra based MFIs. Restructuring of INR2-4bn expected during current quarter. Securitized portfolio is very small i.e. about INR0.5bn. SME and retail mortgage space may surprise with some asset quality deterioration. Overall, balance sheets of large corporate are fairly resilient.
 Infrastructure sector comprises ~15% of total credit exposure, out of which around 40% is towards the power sector (5.8% overall). The bank does not lend to State Electricity Boards (SEBs) and most of the exposure is towards under-construction power projects.
 Merger with Enam is expected to take time as approvals are required from RBI, SEBI and finally the High Court. Enam has strong relationships with Mid-market clients in the equities business while Axis has wide network with SMEs in the loan/debt capital business. Hence, synergies are expected to accrue from this merger but only in the next 2-3 years.
Catalysts
 Above industry credit growth with maintenance of strong CASA franchise.
 Continued traction in fee income growth due to robust technological platform.
Risk
 Higher than expected slippage or lower NIMs may impact profitability negatively.
Valuations
The stock currently trades at 2.8x FY11 P/ABV and 15x FY11 EPS. Presently we do not have any rating on the stock.