Axis Bank : TP: INR1,250 Buy :: Motilal Oswal

Share of retail business to rise; balance sheet to diversify
Asset quality manageable - credit cost guidance of 85bp
We recently met the management of Axis Bank (AXSB) for its perspective on growth,
profitability and asset quality. Key takeaways:
 AXSB will continue to focus on retail assets as a key growth driver, by leveraging its
retail liability customer base. It targets to increase the proportion of retail loan portfolio
to 30% of overall loans by FY15/16 (22% in FY12) led by auto and CV loans.
 In the near term, asset quality trends on a gross level are likely to be similar to that of
2HFY12. AXSB has guided for FY13 credit cost of 85bp.
 Loan growth is expected to be marginally higher than industry and will be calibrated
to CASA growth.
 We believe AXSB's strong liability franchise and fee income growth should help it
maintain healthy return ratios. Buy for 25% upside.

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Retail business: Building on the franchise and improving product mix
AXSB is planning to scale up its retail loan portfolio to 30% by FY15/16 (from 22%
as on FY12) by capitalizing on its liability franchise expansion (1,622 branches,
24% CAGR over FY07-12) and savings account customer base (11.9m, 20% CAGR
over 4.7m in FY07). The key focus in retail segment would be auto and CV loans;
mortgages are expected to be 60% of overall retail loans (75% in FY12). It plans
to increase its branch network by 250-300 every year.
Credit cost guidance of 85bp for FY13
Policy logjam, high interest rates, etc have delayed some infrastructure projects.
However, AXSB emphasized that its niche expertise and understanding of sector
will enable to it to scrape through, albeit with some restructuring if need be. In
the near term, asset quality trends on a gross level are likely to that of 2HFY12.
Factoring in asset quality deterioration and expected restructuring, AXSB has
guided for credit cost of 85bp in FY13.
Loan growth to be calibrated to CASA growth
AXSB expects industry loans to grow 15-16% in FY13, and plans to grow its loans
marginally higher than industry. CASA growth remains a key determinant for
loan growth. While pressure on fees has increased on the back of slowdown in
industrial activities, it remains confident of fee growth in line with loan growth.
AXSB is targeting to maintain its Cost to Income in the range of 45-46%.
Core operations to remain strong; higher credit cost factored in; Buy
Over FY12-14, we expect AXSB to sustain its growth in CASA deposits (20% CAGR)
and fee income (23% CAGR), given its strong and rapidly growing liability
franchise. Even after modeling in NIM compression of 20bp and higher credit
cost over FY12-14, RoE remains healthy at ~19%. Our target price of INR1,250
(1.7x FY14E BV) offers 25% upside. Maintain Buy.