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In a meeting on 3 August, Axis Bank's management restated its focus on ROA- and ROEaccretive business growth. It also guided to a larger share of retail assets in its loan book in the
long term. With recent quarterly earnings indicating slowing business growth and a focus on
margins, we reiterate our Buy rating.
Infrastructure exposure lower than at peers
According to management, the bank's ‘originate and distribute’ model remains a key component
of its strategy for corporate banking (which accounts for about 53% of its total loan book as of
June 2011). It added that it retained only a small portion of loan originations on its balance sheet
(15-20%). We note that the bank's exposure to the infrastructure sector remains lower than at
peers, at 9.0% as of FY11 vs the industry average of 14-15%. The bank said that, within its
infrastructure loan book, 65-70% of loans relate to projects under implementation on which there
have been no material delays.
Tightened risk management in SME loan book
Axis Bank said it had 32 small and medium enterprise (SME) centres as of June 2011, up from 20
in FY08. Its risk management systems for its SME loan book (Rs198bn as of June 2011; 15% of
total loans) have been strengthened to cater to a larger client base (around 15,000 customers,
see Chart 1). Origination is carried out at branch level, but due diligence for risk management
purposes is centralised. In general, all SME customers have a current account with the bank, and
about 45% of the SME book qualifies for priority sector status.
Retail loans to build upon existing success in retail liabilities
The bank plans to leverage its existing success in retail liabilities (current and savings accounts
comprise 41% of deposits as of June 2011) to grow its retail client base on the asset side
(see Chart 2). It said its long-term aim was to increase retail loans from 20% of total loans
currently to 30%. It will focus on collateral-based lending such as mortgages, auto loans
(including commercial vehicles) and personal loans.
Business guidance; reiterate Buy
In general, management said it expected its business growth and market share gains to slow
relative to historical levels. Axis Bank had about a 3.6% market share in business as of FY11. We
expect 22% loan growth in FY12 and about 20% in each of FY13 and FY14. We maintain our Buy
recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In a meeting on 3 August, Axis Bank's management restated its focus on ROA- and ROEaccretive business growth. It also guided to a larger share of retail assets in its loan book in the
long term. With recent quarterly earnings indicating slowing business growth and a focus on
margins, we reiterate our Buy rating.
Infrastructure exposure lower than at peers
According to management, the bank's ‘originate and distribute’ model remains a key component
of its strategy for corporate banking (which accounts for about 53% of its total loan book as of
June 2011). It added that it retained only a small portion of loan originations on its balance sheet
(15-20%). We note that the bank's exposure to the infrastructure sector remains lower than at
peers, at 9.0% as of FY11 vs the industry average of 14-15%. The bank said that, within its
infrastructure loan book, 65-70% of loans relate to projects under implementation on which there
have been no material delays.
Tightened risk management in SME loan book
Axis Bank said it had 32 small and medium enterprise (SME) centres as of June 2011, up from 20
in FY08. Its risk management systems for its SME loan book (Rs198bn as of June 2011; 15% of
total loans) have been strengthened to cater to a larger client base (around 15,000 customers,
see Chart 1). Origination is carried out at branch level, but due diligence for risk management
purposes is centralised. In general, all SME customers have a current account with the bank, and
about 45% of the SME book qualifies for priority sector status.
Retail loans to build upon existing success in retail liabilities
The bank plans to leverage its existing success in retail liabilities (current and savings accounts
comprise 41% of deposits as of June 2011) to grow its retail client base on the asset side
(see Chart 2). It said its long-term aim was to increase retail loans from 20% of total loans
currently to 30%. It will focus on collateral-based lending such as mortgages, auto loans
(including commercial vehicles) and personal loans.
Business guidance; reiterate Buy
In general, management said it expected its business growth and market share gains to slow
relative to historical levels. Axis Bank had about a 3.6% market share in business as of FY11. We
expect 22% loan growth in FY12 and about 20% in each of FY13 and FY14. We maintain our Buy
recommendation.
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