Axis Bank -Attention to retail ::Business Line

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With a retail focus, the company's loan book will continue to grow above industry average.

Investors with a long-term perspective can buy the stock of Axis Bank, the country’s third largest private bank after ICICI and HDFC Bank. Axis Bank has been consistently delivering better-than-industry growth, backed by its strong pan-India distribution network, and a strong retail focus. The strong growth looks set to continue.

The recent infusion of funds into the bank provides adequate growth capital for future expansion.

Through a recent qualified institutional placement (QIP) of equity shares, Axis Bank has raised Rs 4,726 crore.

At the current price of Rs 1,430 the stock trades at 1.7 times its one-year book value — below its historic average of 2.1 times, and at a wide discount of 56 per cent to HDFC Bank.

This even as Axis Bank compares well with its peers on performance matrices such as loan, deposit and earnings growth (Table).

While retail will continue to drive growth, recovery in the capital expenditure cycle should augur well for Axis Bank’s corporate loan book as well. We expect the bank to deliver a loan growth of 21 per cent over the next two years.

RETAIL LOAN FOCUS

At 28 per cent annually between FY 2009 and 2012, the loan growth for Axis Bank has been well above industry growth of 19 per cent. This has been led by its renewed focus on the retail segment over the last two years.

This offset the slack in the corporate segment. From around 20 per cent in 2009, the retail loan book now contributes about 27 per cent of the loans.

The strong momentum in the retail segment continued in the recent December quarter too (growth of 45 per cent). A high retail focus also translates into stable fee income.

Axis Bank’s high exposure to corporate lending has, however, been a drag. With the slowdown in corporate segment, the growth within this space has lagged the overall growth of the company for the last two years.

In the December quarter, the corporate loan growth was just 12 per cent as against the overall loan growth of 21 per cent.

While the rating profile of its large and mid-corporate loan book deteriorated, in the December quarter, there is improvement in the rating profile of small and medium entities (SME) loans. Also, the proportion SME loans have reduced to 14 per cent in December quarter (from 18 per cent in 2009).

THRUST ON RETAIL DEPOSITS

Axis Bank has built a stable deposit base by focussing on the current, savings and retail term deposits.

Leveraging its network expansion (doubling to 1,787 branches in the last two years), particularly in the metros, the bank has been able to mobilise more savings deposits.

The growth of 26 per cent annually from FY 2009-12 in Axis Bank’s savings deposits has been faster than the average 23 per cent for its private sector players.

With current account deposits growing in line with industry at 17 per cent during the same period, the current account savings account ratio (CASA) to the total deposits has remained stable at 40 per cent. In the December quarter, the savings deposit grew by 22 per cent over the previous year.

Also, to broaden its term deposit base, Axis Bank continued to focus on retail term deposits.

From 36 per cent in FY 2009, the share of retail term deposits increased to 39 per cent as of December quarter. Thus, CASA and retail term deposits together contribute a healthy 64 per cent of the overall deposits as of December quarter.

The bank’s strong retail deposit base will aid in lowering Axis Bank’s cost of funds, and help net interest margins (NIMs) remain stable at 3.5 per cent over the next two years.

ASSET QUALITY

The bank’s asset quality has remained stable with gross non-performing assets (NPA) at 1.1 per cent of loans as of December quarter, at the same level as last year. The net NPA has declined from 0.39 per cent last year to 0.33 per cent as of December.

But there are some risks to asset quality. As of December quarter, the restructured loans stood at Rs 4,257 crore, around 2.4 per cent of overall loans.

While restructuring has broadly been in line with the management’s guidance, it remains the highest among peers (ICICI Bank at 1.5 per cent and HDFC Bank at 0.3 per cent).

Also, any adverse impact from the recent anti-money laundering allegations remains a concern.