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AXIS BANK
PRICE: RS.854 RECOMMENDATION: BUY
TARGET PRICE: RS.1230 FY13E P/E: 7.5x, P/ABV: 1.4X
Key takeaways: Modeling lower loan growth but NIM for FY12 is
likely to come near upper band of the management guidance.
Concerns on asset quality might impact the stock performance in
near-term, but it is currently available at a significant discount to
its historical average. Hence, we advise our clients to look at this
opportunity with medium to long term horizon.
q Modeling lower loan growth (19-20% during FY12/13 on slowing
economy and increase in the risk of asset quality deterioration as against
the management guidance of 22-23%); NIM for FY12 is likely to come
near upper band of the management guidance (3.25-3.5%). We are modeling NIM at 3.39% and 3.28% during FY12 & FY13, respectively, as compared to 3.65% witnessed during FY11.
q Although asset quality remained healthy till Q2FY12, perceived risk has
amplified with high exposure to infrastructure and other stressed sectors; key things to watch would be restructuring of infra book or MFI exposure.
q Axis bank has inflated contingent liability (187% of assets) at the end of
FY11, another area of concern, in our view. For FY11, after applying CCF
at 75% (average of 50% CCF applied on "Transaction and Performance
Guarantee" and 100% CCF applied on "Direct Credit Substitute Guarantees"), CEA comes at Rs.405.5 bn (16.7% of assets at the end of FY11), a
higher number by any standard.
q Lower net profit growth during FY12/13E along with higher risk on asset
quality might warrant some kind of de-rating; hence, we are cutting the
P/ABV multiple from 2.5x to 2.0x. We maintain BUY rating on the stock
with revised TP of Rs.1230 (Rs.1500 earlier) based on P/ABV of 2.0x its
FY13E adjusted book value.
We recently met with the management to understand the business outlook and their
strategic intent during current uncertain macro-economic environment. We believe
concerns of high exposure to infrastructure and other stressed sectors might come in
the way of stock performance in near-term, stock is currently available at a significant discount to its historical average. Hence, we advise our clients to look at this
opportunity with medium to long term horizon.
Modeling lower loan growth but NIM for FY12 is likely to come
near upper band of the management guidance.
We are further cutting the loan growth assumption to 19-20% during FY12/13 on
slowing economy and increase in the risk of asset quality deterioration as against the
management guidance of 22-23%. We have seen the moderation in the loan
growth during last two quarters when loan book grew 21.4% (Q1FY12) and 26.7%
(Q2FY12), respectively
Strong liability franchise has aided in achieving healthy NIM; Fee
income is likely to grow at the slower pace, in our view
Axis bank has strong liability franchise visible from one of the best CASA mix in the
industry. CASA share saw improvement from 40.5% at the end of Q1FY12 to
42.2% at the end of Q2FY12. The bank has been focusing on increasing the retail
deposit base; CASA deposits grew at a CAGR of 38.4% during FY04-11 while total
deposits grew at 36.9% CAGR, during the same period. Out of this CASA deposits,
SA (saving deposits) grew even at the faster rate (48.3% CAGR) during FY04-11.
Management has guided that Fee-based income which was growing at the faster
pace than the B/S growth will now grow in line with the latter. We are modeling
fee-based income to grow at a CAGR of 18.0% during FY11-13 as against 51.9%
CAGR achieved during FY04-11.
Valuations & recommendation
At the current market price of Rs.854, the stock is trading at 7.5x its FY13E earnings
and 1.4x its FY13E ABV. Although there are concerns like high exposure to infrastructure and other stressed sectors which might come in the way of stock performance in near-term, stock is currently available at a significant discount to its historical average. Hence, we advise our clients to look at this opportunity with medium to
long term horizon.
We are modeling healthy earnings which is likely to grow at 17.5% CAGR during
FY11-13E and strong return ratios (RoE: ~20%, RoA: ~1.5%) during FY12/13E after
taking into account higher slippage, going forward.
Lower net profit growth during FY12/13E along with higher risk on asset quality
might warrant some kind of de-rating; hence, we are cutting the P/ABV multiple
from 2.5x to 2.0x. We maintain BUY rating on the stock with revised TP of Rs.1230
(Rs.1500 earlier) based on P/ABV of 2.0x its FY13E adjusted book value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AXIS BANK
PRICE: RS.854 RECOMMENDATION: BUY
TARGET PRICE: RS.1230 FY13E P/E: 7.5x, P/ABV: 1.4X
Key takeaways: Modeling lower loan growth but NIM for FY12 is
likely to come near upper band of the management guidance.
Concerns on asset quality might impact the stock performance in
near-term, but it is currently available at a significant discount to
its historical average. Hence, we advise our clients to look at this
opportunity with medium to long term horizon.
q Modeling lower loan growth (19-20% during FY12/13 on slowing
economy and increase in the risk of asset quality deterioration as against
the management guidance of 22-23%); NIM for FY12 is likely to come
near upper band of the management guidance (3.25-3.5%). We are modeling NIM at 3.39% and 3.28% during FY12 & FY13, respectively, as compared to 3.65% witnessed during FY11.
q Although asset quality remained healthy till Q2FY12, perceived risk has
amplified with high exposure to infrastructure and other stressed sectors; key things to watch would be restructuring of infra book or MFI exposure.
q Axis bank has inflated contingent liability (187% of assets) at the end of
FY11, another area of concern, in our view. For FY11, after applying CCF
at 75% (average of 50% CCF applied on "Transaction and Performance
Guarantee" and 100% CCF applied on "Direct Credit Substitute Guarantees"), CEA comes at Rs.405.5 bn (16.7% of assets at the end of FY11), a
higher number by any standard.
q Lower net profit growth during FY12/13E along with higher risk on asset
quality might warrant some kind of de-rating; hence, we are cutting the
P/ABV multiple from 2.5x to 2.0x. We maintain BUY rating on the stock
with revised TP of Rs.1230 (Rs.1500 earlier) based on P/ABV of 2.0x its
FY13E adjusted book value.
We recently met with the management to understand the business outlook and their
strategic intent during current uncertain macro-economic environment. We believe
concerns of high exposure to infrastructure and other stressed sectors might come in
the way of stock performance in near-term, stock is currently available at a significant discount to its historical average. Hence, we advise our clients to look at this
opportunity with medium to long term horizon.
Modeling lower loan growth but NIM for FY12 is likely to come
near upper band of the management guidance.
We are further cutting the loan growth assumption to 19-20% during FY12/13 on
slowing economy and increase in the risk of asset quality deterioration as against the
management guidance of 22-23%. We have seen the moderation in the loan
growth during last two quarters when loan book grew 21.4% (Q1FY12) and 26.7%
(Q2FY12), respectively
Strong liability franchise has aided in achieving healthy NIM; Fee
income is likely to grow at the slower pace, in our view
Axis bank has strong liability franchise visible from one of the best CASA mix in the
industry. CASA share saw improvement from 40.5% at the end of Q1FY12 to
42.2% at the end of Q2FY12. The bank has been focusing on increasing the retail
deposit base; CASA deposits grew at a CAGR of 38.4% during FY04-11 while total
deposits grew at 36.9% CAGR, during the same period. Out of this CASA deposits,
SA (saving deposits) grew even at the faster rate (48.3% CAGR) during FY04-11.
Management has guided that Fee-based income which was growing at the faster
pace than the B/S growth will now grow in line with the latter. We are modeling
fee-based income to grow at a CAGR of 18.0% during FY11-13 as against 51.9%
CAGR achieved during FY04-11.
Valuations & recommendation
At the current market price of Rs.854, the stock is trading at 7.5x its FY13E earnings
and 1.4x its FY13E ABV. Although there are concerns like high exposure to infrastructure and other stressed sectors which might come in the way of stock performance in near-term, stock is currently available at a significant discount to its historical average. Hence, we advise our clients to look at this opportunity with medium to
long term horizon.
We are modeling healthy earnings which is likely to grow at 17.5% CAGR during
FY11-13E and strong return ratios (RoE: ~20%, RoA: ~1.5%) during FY12/13E after
taking into account higher slippage, going forward.
Lower net profit growth during FY12/13E along with higher risk on asset quality
might warrant some kind of de-rating; hence, we are cutting the P/ABV multiple
from 2.5x to 2.0x. We maintain BUY rating on the stock with revised TP of Rs.1230
(Rs.1500 earlier) based on P/ABV of 2.0x its FY13E adjusted book value.
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