We met the management of Axis Bank. Key takeaways:  PUG

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


We met the management of Axis Bank. Key takeaways:
 Axis Bank currently enjoys market share of 3.5% in business and the management expects to gain further share due to higher than industry growth (about 1.5x of industry). However, share of corporate loans which is at ~53% may decline in the next few years. However at industry levels, fresh disbursements seem constrained since the last 6-9 months as Infrastructure lending has dried up, though demand for working capital loans is still high.
 The bank aims to maintain CASA ratio of 40% and above even though the demand deposits is likely to fall in line with industry trend due to increasing interest rate differential with term deposits. As the depositors are increasingly parking funds at higher yielding term deposits, growth in CASA balances is expected to be a challenge going forward. About 40% of liabilities of the bank are on a fixed rate basis whereas 85% of the loan book is based on floating rates. Bulk deposits comprise of 65% of term deposits; rest is retail term deposits with ticket size of less than INR50mn.
 MFI portfolio is around INR10bn out of which around 45-50% is towards Andhra based MFIs. Restructuring of INR2-4bn expected during current quarter. Securitized portfolio is very small i.e. about INR0.5bn. SME and retail mortgage space may surprise with some asset quality deterioration. Overall, balance sheets of large corporate are fairly resilient.
 Infrastructure sector comprises ~15% of total credit exposure, out of which around 40% is towards the power sector (5.8% overall). The bank does not lend to State Electricity Boards (SEBs) and most of the exposure is towards under-construction power projects.
 Merger with Enam is expected to take time as approvals are required from RBI, SEBI and finally the High Court. Enam has strong relationships with Mid-market clients in the equities business while Axis has wide network with SMEs in the loan/debt capital business. Hence, synergies are expected to accrue from this merger but only in the next 2-3 years.
Catalysts
 Above industry credit growth with maintenance of strong CASA franchise.
 Continued traction in fee income growth due to robust technological platform.
Risk
 Higher than expected slippage or lower NIMs may impact profitability negatively.
Valuations
The stock currently trades at 2.8x FY11 P/ABV and 15x FY11 EPS. Presently we do not have any rating on the stock.

We met the management of ICICI Bank. Key takeaways:  PUG

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


We met the management of ICICI Bank. Key takeaways:
 ICICI Bank expects advance growth to be inline with system growth of 19-20% for FY12. While retail loans growth is expected to be muted at 15-16%, corporate loan growth is likely to compensate with over 20% growth. Foreign loan book should expand at similar levels (i.e. 19-20%).
 Expansion in CASA ratio seems difficult given the current interest rate scenario and wholesale deposits comprise 40% of total deposits part of which would get repriced at much higher rate. Hence the bank is witnessing pressure on cost of deposits due to rising rates, but the management is confident to maintaining NIMs around 2.6% levels.
 MFI portfolio has declined from ~INR25bn in Sep’10 to INR10bn currently. Out of this around INR2.5bn is securitized portfolio. Part of the term loan portfolio may undergoing restructuring (mostly towards Andhra based MFIs). Additional standard asset provision is not expected on restructured book as the bank already holds excess provisions in books.
 Life insurance premium growth is expected to remain under pressure till Sept’11. NBAP margins currently stand at 15-16% which the bank aims to maintain by cutting operating costs by ~30%. No additional capital infusion is expected this year as the company is already making accounting profits.
 Fee income is expected to be in-line with balance sheet growth although some slowdown is likely in equity related businesses. The bank is a big player in the NRI remittance market and has not witnessed any slowdown post the recent political turmoil in Middle East.
 The Bank of Rajasthan (BoR) merger has been completed. Corrective action is being taken to improve the productivity of urban and non-Rajasthan branches of BoR. The performance of the general insurance business has been in line with expectations, barring higher provisioning for third party motor pool in Q4FY11. Though tariffs have been revised by 68%, general insurance companies may still face pressures in this segment.
Catalysts
 Maintenance of strong CASA franchise along with robust growth in domestic and foreign loan book.
 Continued traction in fee income due to robust technological platform along with unlocking of value of subsidiaries.
Risk
 Higher than expected slippage or lower NIMs because of high proportion of wholesale deposits in funding mix.
Valuations
The stock currently trades at 2.3x FY11 consolidated P/ABV and 21x FY11 Consolidated EPS. Presently we do not have a rating on the stock.

We met the management of Bank of India. Key takeaways:  PUG

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


We met the management of Bank of India. Key takeaways:
 Bank of India’s expects advance to grow at 100-150bps higher than the system with SME and mid-corporate to be the main growth drivers. At industry levels, fresh disbursements seem constrained since the last 6-9 months as Infrastructure lending has dried up, though demand for working capital loans is still high.
 Industry wide demand deposits are witnessing contraction. As per the bank, this is a seasonality effect and CASA would again start inching up. Hence, margins are expected to fall in Q1-Q2FY12. Floating rate loans comprise ~60-65% of total loans.
 The bank reported slippages of INR42bn in FY10 & INR29bn in FY11 and targets to reduce slippages at 1.25% of the book. However, management has taken various steps to counter slippages by good recoveries. Outstanding restructured advance portfolio stands at INR106bn so additional provision of INR1.6bn is expected in 1QFY12 due to hike in standard asset provisioning norms by RBI. The bank has already migrated loans above INR1.0mn to CBS based NPA recognition and balance is expected to be migrated in next two quarters. Some slippages are expected due to migration.
 Infrastructure exposure is at around INR204bn out of which credit to the power sector stands at INR120-130bn. The bank has not witnessed any slippages so far and do not expect any major delinquencies in this sector.
 The bank had created two new verticals: Project Finance and Transaction Banking. Till now, both verticals are doing well and hence share of fee income is expected to improve. The bank plans to open 15 dedicated retail service centers and is currently hiring for these service centers. Hence, it expects to see traction in retail lending. In order to avoid any conflict of interest, marketing and operation teams would be separate and the bank would focus would be on low turnaround time while maintaining a tab on asset quality.
 BOI is looking to open 250 branches in FY2012, out of which around 35-40% will be at semi-urban and rural areas. It plans to open branches in New Zealand, Canada, Uganda, Botswana, South Africa etc. However, there is no intention to explore any M&A opportunity in overseas markets. Overall, the bank expects to hire around 5,500 employees this fiscal. However, as ~2,000 people are due to retire; net additions would be around 2,500-3,000 (after considering the normal attrition).
Catalysts Robust credit growth in SME & large corporate segments along with improvement in CASA franchise. Risk Continued high slippages or margin compression because of higher proportion of term deposits under current interest rate scenario. Valuations
The stock trades at a valuation of 1.5x FY12E ABV and 7.7 FY12E EPS, which seems fair given the strong expected NPA recoveries. Continuous high slippage in the next few quarters is a key risk for the bank, as it would dampen its profitability significantly. We believe that strong rebound in earnings in FY11-13E and improvement in ROE is already factored in the price. We expect the stock to trade at 1.5x FY12E, which yields a price target of INR390 (Previous target INR440). Hence, maintain our Hold recommendation on the stock.