Axis Bank :: Angel Broking Diwali Top Picks (Diwali Muharat)

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Axis Bank, the third largest private sector bank in India, has been focusing on retail
business in the past few years. It has increased its branch network at a 24% CAGR
from 1,035 in FY2010 to 2,421 branches as of 1QFY2015, which has aided the
bank to maintain healthy growth in its low cost deposits (CASA ratio at 42% in
1QFY2015). Moreover, the contribution of the retail advances to total advances
has increased from 20% in FY2010 to 34% in 1QFY2015 (excluding retail agriculture
loans), out of which 88% of retail loans are secured. Focusing on secured retail
products has also aided the bank to maintain its relatively better asset quality with a
Net NPA ratio of 0.44% as of 1QFY2015, which is one of the lowest in the industry.
 Axis Bank is well capitalized with a capital adequacy ratio (CAR) of 16.09% and
Tier I CAR of 12.64% as in 1QFY2015. Strong capital adequacy combined with
branch expansion has positioned the bank to benefit from growth opportunities in
the up-cycle and further improve its market share of advances and low cost deposits.
 We expect the bank to grow its earnings at a CAGR of 17.2% over FY2014-16E.
On the valuation front, Axis Bank is trading at 1.8x FY2016 P/ABV, ie at a 47.0%
discount to HDFC Bank, which is trading at FY2016 P/BV of 3.4x. WWWe maintain our
Buy recommendation with a target price of Buy recommendation with a target price of ```501. 501.