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● Management of Axis Bank in an analyst meet expressed
confidence in the bank’s ability to stem NIM decline it has been
witnessing over the past two quarters. It expects the share of retail
deposits to rise in FY12 as asset growth rates are likely to
moderate while deposit growth to remain strong on the back of
360 branch (34% YoY growth) additions over the past year.
● Fee revenue outlook is robust with rising retail fees (retail
customer base growing at 20%) coupled with rising corporate fees
on the back of loan syndication and debt capital market activities.
● Management appeared more focused on potential asset slippages
in its SME (15% of total loans) division that has grown at a 25%
CAGR in the past three years, although it expects the slippages to
be contained within ‘manageable levels’. It stated that it does not
expect any near-term stress on its infra/power exposure. Power
exposure for the bank is significant at 87% of net worth (5.8% of
the total exposure).
● Even as we expect credit costs at Axis to rise, given its relatively
stronger top-line growth, we expect its profitability to still be better
than peers, and at 2.4x FY12E book, we maintain our
OUTPERFORM rating.
Key focus areas going forward
(1) Continue to build deposit franchise—to maintain the share of retail
deposits at 60%-plus levels (added 360 branches over the past year).
(2) Management expects its dominance in infrastructure-linked
financial services to continue (infra growth is unlikely to be driven by
on-balance sheet lending but the key objective is to gain entry for the
bank’s other businesses from the company).
(3) Relationship-based SME lending (the number of SME clients has
grown at a 23% CAGR to 14,812 over the past three years vs a 25%
CAGR in loan growth).
Deposit franchise continues to be robust
The bank has added over 360 branches over the past year (Axis
currently has a network of 1,411 branches) and its savings deposit
customer base has grown to 9.9 mn (from 8.2 mn in Jun-10—20%
YoY growth). While the share of retail deposits has dropped to 59% in
Mar-11 (from 66% in Mar-10; 61% in Jun-11), driven by a strong 36%
loan growth in FY11, the bank expects the share of retail deposits to
revert to 60%-plus levels in FY12 and be stable going forward.
Steady state margins of 3.25-3.5%; growth to outpace
industry
While the bank's margins have dropped by a sharp 59 bp over the
past two quarters to 3.28% (with rising funding costs), the bank has
stated that steady state NIMs are between 3.25% and 3.5%. We
believe NIMs are currently close to the trough levels. However, the
bank expects margins to be volatile, given the higher share of
wholesale deposits (40% of total deposits) and the volatility in
quarterly loan growth. Management believes the bank has generated
strong profitability consistently despite the volatility in margins (due to
opportunistic lending, higher wholesale deposits, etc) and it is not very
concerned about it. It also expects its asset growth rates to continue
to outpace that of the overall system (1.3x system growth).
Continues to be a dominant player in syndication, debt
capital markets
The bank's market share in loan syndication has increased to 27%
during YTD CY11 (from 7% in CY09 and 16% in CY10), while the
market share for players such as SBI has declined to 38% (from 64%
in CY09). Axis continues to be a dominant player in loan syndication
and debt capital markets, and after the Enam acquisition, the bank
expects the missing equity piece (so far) to also start contributing. It
expects the overall fee income growth to be in line with asset growth
going forward.
Asset quality trends to remain stable
Total power sector loans are at 3.9% of the outstanding loans and
power exposure (funded + non-funded) is at 5.8% of the total
exposure (87% of net worth). The portfolio continues to be robust and
the bank does not see any near-term pressure. The bank has stated
that it has not lent to any import coal-based projects and the share of
operating power projects is at 33% (of outstanding power loans).
While the SME sector is likely to witness stress going forward (current
SME book yields are at 12.5%), management believes that it will be
within manageable limits.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Management of Axis Bank in an analyst meet expressed
confidence in the bank’s ability to stem NIM decline it has been
witnessing over the past two quarters. It expects the share of retail
deposits to rise in FY12 as asset growth rates are likely to
moderate while deposit growth to remain strong on the back of
360 branch (34% YoY growth) additions over the past year.
● Fee revenue outlook is robust with rising retail fees (retail
customer base growing at 20%) coupled with rising corporate fees
on the back of loan syndication and debt capital market activities.
● Management appeared more focused on potential asset slippages
in its SME (15% of total loans) division that has grown at a 25%
CAGR in the past three years, although it expects the slippages to
be contained within ‘manageable levels’. It stated that it does not
expect any near-term stress on its infra/power exposure. Power
exposure for the bank is significant at 87% of net worth (5.8% of
the total exposure).
● Even as we expect credit costs at Axis to rise, given its relatively
stronger top-line growth, we expect its profitability to still be better
than peers, and at 2.4x FY12E book, we maintain our
OUTPERFORM rating.
Key focus areas going forward
(1) Continue to build deposit franchise—to maintain the share of retail
deposits at 60%-plus levels (added 360 branches over the past year).
(2) Management expects its dominance in infrastructure-linked
financial services to continue (infra growth is unlikely to be driven by
on-balance sheet lending but the key objective is to gain entry for the
bank’s other businesses from the company).
(3) Relationship-based SME lending (the number of SME clients has
grown at a 23% CAGR to 14,812 over the past three years vs a 25%
CAGR in loan growth).
Deposit franchise continues to be robust
The bank has added over 360 branches over the past year (Axis
currently has a network of 1,411 branches) and its savings deposit
customer base has grown to 9.9 mn (from 8.2 mn in Jun-10—20%
YoY growth). While the share of retail deposits has dropped to 59% in
Mar-11 (from 66% in Mar-10; 61% in Jun-11), driven by a strong 36%
loan growth in FY11, the bank expects the share of retail deposits to
revert to 60%-plus levels in FY12 and be stable going forward.
Steady state margins of 3.25-3.5%; growth to outpace
industry
While the bank's margins have dropped by a sharp 59 bp over the
past two quarters to 3.28% (with rising funding costs), the bank has
stated that steady state NIMs are between 3.25% and 3.5%. We
believe NIMs are currently close to the trough levels. However, the
bank expects margins to be volatile, given the higher share of
wholesale deposits (40% of total deposits) and the volatility in
quarterly loan growth. Management believes the bank has generated
strong profitability consistently despite the volatility in margins (due to
opportunistic lending, higher wholesale deposits, etc) and it is not very
concerned about it. It also expects its asset growth rates to continue
to outpace that of the overall system (1.3x system growth).
Continues to be a dominant player in syndication, debt
capital markets
The bank's market share in loan syndication has increased to 27%
during YTD CY11 (from 7% in CY09 and 16% in CY10), while the
market share for players such as SBI has declined to 38% (from 64%
in CY09). Axis continues to be a dominant player in loan syndication
and debt capital markets, and after the Enam acquisition, the bank
expects the missing equity piece (so far) to also start contributing. It
expects the overall fee income growth to be in line with asset growth
going forward.
Asset quality trends to remain stable
Total power sector loans are at 3.9% of the outstanding loans and
power exposure (funded + non-funded) is at 5.8% of the total
exposure (87% of net worth). The portfolio continues to be robust and
the bank does not see any near-term pressure. The bank has stated
that it has not lent to any import coal-based projects and the share of
operating power projects is at 33% (of outstanding power loans).
While the SME sector is likely to witness stress going forward (current
SME book yields are at 12.5%), management believes that it will be
within manageable limits.
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