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Highly leveraged to peaking interest rates
Strong return ratios; Discount to HDFCB close to highest ever
Axis Bank (AXSB) will be a key beneficiary of stable/declining interest rates due to a high proportion
of wholesale deposits (40%). GDP growth of ~7.5% is unlikely to significantly impact SME exposure
(15% of loans). Infrastructure exposure is a concern but the percentage of loans (9%) is lower than
peers. Return ratios are expected to be strong with RoA of 1.5%+ and RoE of 19-20% over FY11-13
led by strong core operating performance. Risk-reward equation is favorable. AXSB is one of our
top picks.
Superior franchise; CASA and fees are key strengths: AXSB's key strengths have been its ability to
grow CASA deposits (CAGR of 35%+ over FY05-11) and diversified fee income (CAGR of 50% over FY05-
11). Unlike the past (2x of the industry growth), the bank is expected to grow 1.3x the industry rate, which
will help CASA growth maintain pace with overall deposit growth.
RoA to remain strong at 1.5%+ despite NIM moderation: AXSB margins moderated sharply by 50bp
over the last two quarters, and we believe they are at a sustainable level of 3.25-3.5%. While we do not
expect further moderation in NIM, average NIM for FY12 is expected to be 30bp lower YoY. Nevertheless,
core operating profit CAGR is expected to be 22% due to strong fee income CAGR of 25% and controlled
opex. Strong recoveries from written-off accounts can bring positive earnings surprises.
High credit cost is behind us; significant deterioration in asset quality unlikely: AXSB had aggressively
recognized stress assets as NPA over FY09-11 which led to higher credit cost. During last three quarters
slippages have come down sharply, leading to lower credit cost. While cyclical moderation in growth will
lead to higher slippages, AXSB's ability to provide (demonstrated in previous downturn) offers comfort. We
model in 20bp rise in credit cost for FY13 over FY12
Earnings CAGR of 18%; discount to HDFCB close to highest: While margins are likely to moderate,
higher than industry loan growth, strong fee income growth and controlled opex will lead to PAT CAGR of
18%+ over FY11-13. In CY11 (YTD), AXSB corrected ~20%, while HDFCB corrected 3%. AXSB discount
to HDFCB has widened to ~45%, close to all-time high of 55%. We believe risk-reward is attractive and
retain AXSB as one of our top picks, with a target price of INR1,600.
Highest CASA CAGR in industry; asset quality improvement to lower credit cost
From FY03-09, AXSB loan growth was 2x of
the industry. Under the leadership of new
management, growth has consciously been
scaled down to 1.3-1.4x of the industry.
Incrementally AXSB is also focusing on
increasing the share of retail loans in a bid to
diversify its loan book. For FY12, management
guided for 1.3-1.4x of the industry.
AXSB has aggressively invested into branches
(Up from 200 in FY03 to 1400 in FY11) which
has been key driver for its strong growth in
CASA ratio and diversified fee income source.
AXSB's highest CASA CAGR amongst peers,
demonstrates its ability.
Despite higher share of project finance loans in
the balance sheet, strong CASA deposits helped
AXSB to report superior margins. NIMs have
moderated sharply in last two quarters and have
come to a sustainable range of 3.25-3.5%.
AXSB aggressively recognized stressed assets
over FY08-10, which led to higher slippages and
credit cost. Despite higher slippages AXSB's
ability to maintain superior NIMs is
commendable. Incremental trends are positive
for AXSB.
1QFY12: CASA ratio sustainable above 40%; superior fee income contributes to RoA
As of 1QFY12, CASA growth was 26% YoY.
Despite significant increase in interest rate and
strong growth AXSB's ability to maintain CASA
ratio above 40% is commendable. AXSB had
reported daily average CASA mix at 37.5%.
AXSB's diversified fee income source helped
it to maintain superior RoA despite higher credit
cost. In 1QFY12, overall fees grew 40% YoY
led by 80% YoY growth in corporate fees. Retail
fees growth was strong at 35% YoY however,
business banking fees moderated to 5% YoY.
Post significant stress seen from FY09-1HFY11,
incremental trends in asset quality is positive.
In 1QFY12, slippage ratio stood at 0.83% v/s
0.95% a quarter ago and 1.4% in FY11. With
asset quality remaining stable, credit cost was
marginal during the quarter which in turn aided
profitability.
Higher share of PSL in incremental loans and
rising cost of funds led to NIMs contracting by
~50bp in last two quarter to 3.28%. Margins
are expected to be stable/improving as costs of
funds are unlikely to increase significantly from
current levels. Excess in NIMs have been
corrected and come to a sustainable range of
3.25-3.5%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Highly leveraged to peaking interest rates
Strong return ratios; Discount to HDFCB close to highest ever
Axis Bank (AXSB) will be a key beneficiary of stable/declining interest rates due to a high proportion
of wholesale deposits (40%). GDP growth of ~7.5% is unlikely to significantly impact SME exposure
(15% of loans). Infrastructure exposure is a concern but the percentage of loans (9%) is lower than
peers. Return ratios are expected to be strong with RoA of 1.5%+ and RoE of 19-20% over FY11-13
led by strong core operating performance. Risk-reward equation is favorable. AXSB is one of our
top picks.
Superior franchise; CASA and fees are key strengths: AXSB's key strengths have been its ability to
grow CASA deposits (CAGR of 35%+ over FY05-11) and diversified fee income (CAGR of 50% over FY05-
11). Unlike the past (2x of the industry growth), the bank is expected to grow 1.3x the industry rate, which
will help CASA growth maintain pace with overall deposit growth.
RoA to remain strong at 1.5%+ despite NIM moderation: AXSB margins moderated sharply by 50bp
over the last two quarters, and we believe they are at a sustainable level of 3.25-3.5%. While we do not
expect further moderation in NIM, average NIM for FY12 is expected to be 30bp lower YoY. Nevertheless,
core operating profit CAGR is expected to be 22% due to strong fee income CAGR of 25% and controlled
opex. Strong recoveries from written-off accounts can bring positive earnings surprises.
High credit cost is behind us; significant deterioration in asset quality unlikely: AXSB had aggressively
recognized stress assets as NPA over FY09-11 which led to higher credit cost. During last three quarters
slippages have come down sharply, leading to lower credit cost. While cyclical moderation in growth will
lead to higher slippages, AXSB's ability to provide (demonstrated in previous downturn) offers comfort. We
model in 20bp rise in credit cost for FY13 over FY12
Earnings CAGR of 18%; discount to HDFCB close to highest: While margins are likely to moderate,
higher than industry loan growth, strong fee income growth and controlled opex will lead to PAT CAGR of
18%+ over FY11-13. In CY11 (YTD), AXSB corrected ~20%, while HDFCB corrected 3%. AXSB discount
to HDFCB has widened to ~45%, close to all-time high of 55%. We believe risk-reward is attractive and
retain AXSB as one of our top picks, with a target price of INR1,600.
Highest CASA CAGR in industry; asset quality improvement to lower credit cost
From FY03-09, AXSB loan growth was 2x of
the industry. Under the leadership of new
management, growth has consciously been
scaled down to 1.3-1.4x of the industry.
Incrementally AXSB is also focusing on
increasing the share of retail loans in a bid to
diversify its loan book. For FY12, management
guided for 1.3-1.4x of the industry.
AXSB has aggressively invested into branches
(Up from 200 in FY03 to 1400 in FY11) which
has been key driver for its strong growth in
CASA ratio and diversified fee income source.
AXSB's highest CASA CAGR amongst peers,
demonstrates its ability.
Despite higher share of project finance loans in
the balance sheet, strong CASA deposits helped
AXSB to report superior margins. NIMs have
moderated sharply in last two quarters and have
come to a sustainable range of 3.25-3.5%.
AXSB aggressively recognized stressed assets
over FY08-10, which led to higher slippages and
credit cost. Despite higher slippages AXSB's
ability to maintain superior NIMs is
commendable. Incremental trends are positive
for AXSB.
1QFY12: CASA ratio sustainable above 40%; superior fee income contributes to RoA
As of 1QFY12, CASA growth was 26% YoY.
Despite significant increase in interest rate and
strong growth AXSB's ability to maintain CASA
ratio above 40% is commendable. AXSB had
reported daily average CASA mix at 37.5%.
AXSB's diversified fee income source helped
it to maintain superior RoA despite higher credit
cost. In 1QFY12, overall fees grew 40% YoY
led by 80% YoY growth in corporate fees. Retail
fees growth was strong at 35% YoY however,
business banking fees moderated to 5% YoY.
Post significant stress seen from FY09-1HFY11,
incremental trends in asset quality is positive.
In 1QFY12, slippage ratio stood at 0.83% v/s
0.95% a quarter ago and 1.4% in FY11. With
asset quality remaining stable, credit cost was
marginal during the quarter which in turn aided
profitability.
Higher share of PSL in incremental loans and
rising cost of funds led to NIMs contracting by
~50bp in last two quarter to 3.28%. Margins
are expected to be stable/improving as costs of
funds are unlikely to increase significantly from
current levels. Excess in NIMs have been
corrected and come to a sustainable range of
3.25-3.5%.
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