Axis Bank - Retagging retail ensures multi-faceted growth; visit note; Buy :: Edelweiss PDF link

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Axis Bank (AXSB IN, INR 1,150, Buy)

We recently met Axis Bank’s Head, Consumer Lending & Payments, to understand its strategies. The bank has renewed its focus on the retail segment, following a stagnant FY09-11. Consequently, proportion of retail advances are up from 19% to 22% over 9mFY12. The market is also abuzz with competition rising from Axis Bank, especially in the home loan segment. We believe, the bank’s retail focus is a step in the right direction given the healthy 42% CASA ratio. Also, it will lend diversity to its portfolio which is currently dominated by corporate lending. Management expects share of retail advances to rise to 30% by FY16 with a reduced home loans proportion from the current 75% to ~65% in favour of CVs, cars and personal loans. Key focus is on risk management, whereby the bank is continuously investing in statistical underwriting models and regular monitoring. We reiterate our ‘BUY’ and top pick call.

Retail lending: Focus on maintaining margins, managing risks

With the retail segment strongly coming back in flavour, focus will be on profitable growth and hence the emphasis on NIMs and fee income along with stringent risk origination and management practices. Manual underwriting is being aided by statistical underwriting models. For risk monitoring purposes, bucket wise delinquency patterns are tracked on a regular basis for early signals. As per the management, improved processes are already yielding results with bucket wise delinquency rates for Axis Bank being lower than the average of private banks across asset classes.

Improved processes: CVs, cars and personal loans likely to grow

Currently, home loans dominate the retail book which we believe is fallout of cautious retail lending after a bad experience with both unsecured lending and a generalist approach to loan sanctions in FY07-09. Incrementally, CVs, cars and personal loans will see share gains as the bank is heavily investing in risk assessment and monitoring systems, indispensable for building scale for these asset classes. On CVs, the bank mentioned that despite impending cyclical slowdown, buyers are optimistic. Also, the absence of intermediaries and higher ticket sizes enhances the product’s lucrativeness.

Axis Bank - Retagging retail ensures multi-faceted growth; visit note; Buy