axis bank (axsb in) -...

March 20, 2019 1

Rating: ACCUMULATE | CMP: Rs761 | TP: Rs845

Stage set for strong tailwinds

Axis Bank hosted an analyst day to showcase the path ahead to the goal of

higher sustainable ROEs of 18% with key business verticals & subsidiaries

articulating detailed strategy. Some of the key points were (i) scaling up of

certain business segments to move in top tier rank and achieve profitability

(ii) sustainable ROEs of 18% by FY22 can be achieved from improving

profitability (NII growth), cost optimization and credit cost below normalized

levels and (iii) leverage & cross sell from subsidiary platform.

We believe cross sell propensity remains high and improving processes,

structures, origination & underwriting will help improve profitability and help

move to sustainable ROEs of 15-16%. Although, to achieve 18% target ROE

on sustainable basis will require strong risk adjusted margins of +3.5%

coupled with strong loan growth and much higher cost optimization beyond

2.0% of assets which the bank believes levers are in their sight. We retain

Accumulate rating with revised TP to Rs845 (from Rs745) based on rolled

over multiple of 2.6x Mar-21 ABV (from 2.5x Sep-20 ABV).

Focus on growth & profitability: Bank is focusing on increasing scale of

certain businesses substantially to reach in top tier categories which will help

command profitability. Certain verticals like DCM, ECM, digital &

cards/payments already on leadership position and leveraging relationships

has been key area of mindshare. Going ahead, bank would continue to focus

on growing retail assets especially to high yielding segments (moved from 29%

to 37% of retail in last 5 years), move share towards mid-corporate/commercial

banking and do higher working capital to corporates.

Improving processes & philosophy of business: Bank has substantially

changed its processes (centralized operations & customer service) and

functioning structure with underwriting function away from origination function,

while increasing accountability of risk management and compliance functions

towards lending. Also as a philosophy, bank will focus on disciplined execution

and build much higher conservatism in process & policies which should

showcase sustainability in the overall business.

Confident of achieving 18% ROEs by FY22: MD & CEO at helm is confident

of taking ROEs to 18% levels by FY22 with levers from three core areas (i)

improving business mix in segments with continuing high yielding retail,

improve relationships in corporate through relationships across value chain &

focus on Risk Adj. Return on Cap (RAROC) (ii) improve cost to assets to 2.0%

(iii) credit cost below long term average levels of 1.0-1.1%. We believe,

reaching 18% ROE remains high task with multiple ratios to sweat but positive

fallout from changing core functioning of bank can help achieve higher ROEs

of 17-18% in medium to long term.

Axis Bank (AXSB IN)

March 20, 2019

Analyst Meet Update

☑ Change in Estimates | ☑ Target | Reco

Change in Estimates

Current Previous

FY20E FY21E FY20E FY21E

Rating ACCUMULATE ACCUMULATE

Target Price 845 745

NII (Rs. m) 2,56,325 3,07,287 2,56,157 3,03,721

% Chng. 0.1 1.2

Op. Profit (Rs. m) 2,12,265 2,58,238 2,09,570 2,51,237

% Chng. 1.3 2.8

EPS (Rs.) 37.1 50.8 36.4 49.0

% Chng. 1.9 3.7

Key Financials

FY18 FY19E FY20E FY21E

NII (Rs bn) 186 218 256 307

Op. Profit (Rs bn) 156 182 212 258

PAT (Rs bn) 3 47 97 133

EPS (Rs.) 1.1 18.3 37.1 50.8

Gr. (%) (92.8) 1,547.7 102.4 37.1

DPS (Rs.) 4.4 - 5.0 6.4

Yield (%) 0.6 - 0.7 0.8

NIM (%) 3.1 3.2 3.3 3.4

RoAE (%) 0.5 7.1 12.9 15.7

RoAA (%) 0.0 0.6 1.1 1.4

P/BV (x) 3.1 2.8 2.5 2.2

P/ABV (x) 4.0 3.3 2.8 2.4

PE (x) 684.7 41.6 20.5 15.0

CAR (%) 16.6 16.6 15.9 15.6

Key Data AXBK.BO | AXSB IN

52-W High / Low Rs.763 / Rs.478

Sensex / Nifty 38,363 / 11,532

Market Cap Rs.1,956bn/ $ 28,371m

Shares Outstanding 2,571m

3M Avg. Daily Value Rs.15193.13m

Shareholding Pattern (%)

Promoter’s 23.71

Foreign 49.28

Domestic Institution 15.58

Public & Others 11.43

Promoter Pledge (Rs bn) -

Stock Performance (%)

1M 6M 12M

Absolute 9.8 25.0 46.5

Relative 1.2 20.9 25.7

Pritesh Bumb

[email protected] | 91-22-66322232

Prabal Gandhi

[email protected] | 91-22-66322258

Axis Bank

March 20, 2019 2

Key highlights from MD & CEO strategy

Axis franchise has been strong leveraging will be key element: Bank as a

franchise has been on strong footing with deposits/advances/branches/CASA

increasing 4-5x from FY09. Growth for bank will be on deposits and will try

utmost to get back the lost opportunities in CASA-TDs. Also scale up certain

business on scale and be in the top 4-5 of market place and hence growth

become important which will also lead to profitability.

Much significant focus on improving processes & operations: Strategy

ahead to focus on Growth – Profitability- Sustainability(GPS) but will be

achieved through substantially improve systems & processes. Bank will have

much higher focus on disciplined execution and build higher conservatism in

process & policies, which will be much seen going ahead at Axis. Will continue

to focus on retail and corporate relationship will help corporate growth but will

be highly based on RAROC. Underwriting will be completely separate from

April’19 from product and coverage function

Cut down key unprofitable business with high risks: Move share higher to

working capital from greenfield, low equity and non-recourse project loans and

Infra lending. Corporate relationships will be nurtured with value & solution

based approach. Non fund based also will be transaction based and lower

substantially reliance on guarantees business.

Core areas of moving to ROEs of 18% by FY22: Profitable growth, lower

cost/assets and bringing down credit cost to normalized levels will help achieve

ROE towards 18%

Strong capital footing but higher growth will require additional capital:

CET-1 currently stands at 11.8% and will add 40bps from warrants conversion

and hence shall not require capital for next 12 months but factoring in the

growth requirement could raise capital ahead and but timing remains essential.

Bank has consumed 47bps of CET-I every year for funding 18% CAGR growth.

Keeping internal threshold of 10.5% CET-1 to raise capital.

Bridge to sustainable ROEs of 18% by FY2022

Past cycle tailwinds have been lost in last few years – Bank has seen

50bps of loss in NII/assets from peak in FY14-FY16, lost another 40-50bps

from fees/assets due to regulatory changes and credit cost has remained at

much higher levels which has been tapering off. Bank has seen small gains

on cost/assets profile relatively but can see much more low hanging fruits.

High levers from NIMs - Improving business mix optimization to retail within

which high yielding segments, move to mid corporate, focused SME will lead

to increase in yields

Fees levers - Corporate credit fees used to be one-third a few years back and

now 10-12% but has been offset by strong cards fees from 9% share to 21%

currently. Corporate fees should be stabilizing and will grow slowly but still

better as other engines now have scaled up.

Opex levers - Retail & card business has much more cost saving opportunities

and even operational side. Bank targets 15bps of savings from cost/assets.

Axis Bank

March 20, 2019 3

Key highlights from Wholesale Risk & Credit Underwriting

Improving underwriting standard - Initial credit filters has to be raised

significantly on lending. Early warning system has been sharpened.

Independent credit function implemented with accountability of quality of

portfolio. Origination team has fee income generation targets and hence were

inclined to take risks which has now been separated/non focused. Rejection

rate in corporate/wholesale loans will not increase significantly as already built-

in origination where new sanctions to higher rated corporates.

Diversifying risks with corporates - Will diversify portfolio and reduce

exposure to project loans & infra (especially Power) and cap total exposure at

6% of total for single sector. Currently, incremental Sanctions are to “A &

Above” rate which has moved from 79% mix in FY16 to 98% in 9MFY19 and

enabled overall portfolio of corporate exposure of “A- & Above” to 82%.

Projects exposure moved from 460bn to 220bn in last 4-5 years

Not seeing metrics deteriorate further - BB & below could have volatility in

a quarter on short term basis but on long term BB & below should be coming

down. Telecom sector has some flexibility built in on profitability and hence not

seeing any risk or invocation of guarantees. In real estate exposure is 160bn

of which 100bn is towards commercial side and remaining is towards

residential. Out of residential exposure, 30% or less is for residential

construction.

A &above rated book proportion is moving higher

61%

60

%

62

%

60

%

61%

62

%

62

%

64

%

63

%

63

%

66

%

68%

70

%

74

%

77

%

78

%

79%

82

%

30

%

31

%

29%

29

%

28%

27

%

26%

20

%

22

%

23

%

22

%

22

%

19

%

17

%

18%

16%

16

%

14

%9% 9% 9% 11%11%11%12%16%15%14%12%10%11% 9% 5% 6% 5% 4%

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

3Q

19

AAA/AA/A BBB <BB or unrated

Source: Company, PL

SME 1-3 moving higher

80%

82%

84%

83%

85%

84%

84%

83%

84%

85%

84%

85%

86%

87%

88%

88%

89%

86%

12%11% 9% 9% 8% 8% 8% 8% 8% 8% 9% 9% 8% 8% 6% 6% 6% 8%8% 7% 7% 8% 7% 8% 8% 9% 8% 7% 7% 6% 5% 5% 6% 6% 5% 6%

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

3Q

19

SME 1-3 SME 4 SME 5-8

Source: Company, PL

Overall asset quality helped by lower rate of slippages and w.offs

0%

10%

20%

30%

40%

50%

60%

70%

80%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

3Q

19

Gross NPA (%) Net NPA (%) Coverage Ratio (%) - RHS

Source: Company, PL

Axis Bank

March 20, 2019 4

Key highlights from Wholesale Banking

Reorientation across segments & verticals - Reoriented coverage group

into large, mid, commercial banking and focused segmental coverage. Bank

focuses on relationship from key subsidiaries like Axis capital for relationship

building with large corporates. International book will come down to 15% from

17-18% currently.

Govt business remains one of key areas of relationship – Govt CASA mix

at 12% of CASA deposits. Key offering towards SMART City, municipalities

and Central & Govt business.

Deposit remains key strategy – CA remains important piece which has grown

by 20% CAGR in last three years with merchant acquiring business and digital

partnerships.

Leveraging technology across board - Corporate payments have been

gaining traction with specialized CMS & customize solutions, superior

payments channels with higher transactions share. Bank launched Invoice

mart service, a third party trade receivable platform with having on boarded

145 SME corporates and do factoring business.

Commercial banking key piece of puzzle - Net slippage in SME has been

coming down from 2.2% in FY17 to 1.4% in FY18 and is at 1.6% in Q3FY19.

Focus is on building higher rated SME pool to mitigate risks and RAROC is

higher by 1.2x from corporate RAROC and hence help profitability.

Outlook - Mid-corporates and commercial business continues to remain high

focus area.

Quality of sanctions is improving to better rated

79%85% 86%

94%

FY16 FY17 FY18 9M19

% of sanctions rated A- & above

Source: Company, PL

Conscious reduction in project exposure

432

349316

230

FY16 FY17 FY18 9M19

Exposure to projects (bn)

Source: Company, PL

Axis Bank

March 20, 2019 5

Higher share of loans towards MCLR

57%50%

42%34% 29% 24% 18% 15% 13% 12%

18% 29%36% 40%

43% 49% 50% 54% 56%

17% 16% 15% 16% 17% 19% 20% 21% 21% 21%

15% 16% 14% 14% 14% 14% 13% 14% 12% 11%

2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19

Base Rate MCLR Fixed LIBOR

Source: Company, PL

Retail has been key contributor to fee growth

31% 32% 33% 33% 34% 35% 34% 35%22% 23%

20% 20% 20% 21% 21% 22% 20%26%

34% 36%

22% 22% 22% 20% 19% 20% 20%20% 18% 20%

5% 5%5% 4% 4%

5% 6%4% 4% 4%1% 1% 1% 4% 1%

1% 2%2% 2% 3%

20% 20% 20% 18% 21% 17% 18% 13% 11% 14%

2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19

Retail (non card) Retail (card) Transc. BnkingSME Treasury & DCM Corp Fees

Source: Company, PL

Key highlights from Retail Deposits & Branch Banking

Branch remains important presence point - Bank expects branch count to

move to 5,000 on gradual basis from currently +3,950 branches. 54% mix of

branches are in urban centers and in terms of maturity for last 3 years, 58% of

branch count is above +5 years and below 1 year is 10% of branch count.

Importantly, format of branches reduced significantly on back of customer

behavior with size down to 39% of FY13 branch size and 40% from

FY16+FY17 branch size and and 55% of FY14+FY15 branch size. High value

deposits in retail sourced through branches and also depends on branch

service levels as well hence branch proposition is very important.

Cross sell of products - Cross sell and digital remains crore strategy in

CASA+RTD delivery. Products per customer (PPC) 2.5x from FY13 with

Product penetration with SA base is at 4.2% in Mutual Funds and 4.1% in Life

insurance and Broking 9.7%. 50% of SA a/c originated through tab banking

and hence scope of scale up digital SA.

It is shift from SA to agonistic focused liabilities. Offering for customer in

different avenues other than deposits and give proposition earlier which

improves customer engagement as well.

Axis Bank

March 20, 2019 6

CA & SA average balances are growing robust

180 230 270 290 310 350 400490

600 630

270360

430520

620730

830

1030

1200

1370

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 9M19

CA Avg balances (Rs bn) SA Avg balances (Rs bn)

Source: Company, PL

TDs have recently seen improvement

200 230

410560

710

980

11601290 1360

1580

0

200

400

600

800

1000

1200

1400

1600

1800

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY189M19

RTD Avg Balances(bn)

Source: Company, PL

CASA+TD has been above 80%consistently

81% 81% 84%80%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

FY16 FY17 FY18 9M19

CASA + TD

Source: Company, PL

Higher maturity of branches will help

profitability

<1 yr, 10%

1-2 yr, 10%

2-3 yr, 10%

3-4 yr, 6%

4-5 yr, 6%

>5 yr, 58%

Mix of branches by maturity

Source: Company, PL

Product per customer has improved +2x

100%

216%

263%

FY13 FY18 9M19

Product per customer from Base of FY13

Source: Company, PL

…but penetration lower within SA base

4.2% 4.1%

9.7%

Mutual Fund Life Insurance Broking

Product Penetration within SA base

Source: Company, PL

Axis Bank

March 20, 2019 7

Key Highlights from Retail Lending

Retail sourcing has been multi approach – Branch sourcing has increased

from 36% in FY13 to 48% in FY19 and sourcing from existing deposit

customers has improved from 65% to 81%. Digital sourcing contribution at 46%

in personal loans v/s 25% seen in FY18, while for business loans increased to

58% from 5% in 9MFY18.

Underwriting has been much cautious – Two third of loans in housing are to

ready and re-sale properties, while two third of incremental loans are to 30lacs

& below loans. In personal loans, 100% is to salaried loans and incrementally

92% from existing customer. As a result, delinquency in products are much

lower compared to peer banks with LAP being lowest. Risk on personal loans,

home loans and LAP at much below Long term average (LTA), while for auto

loans risk at LTA and farm loans is much above LTA.

Opex has come down for sourcing - Cost of acquisition has come down over

time for bank which has been mainly on channel mix to source the customer.

Digital has helped immensely to acquire customer on lower cost.

Retail share moved to higher yielding - Within retail, portion of high yield

portfolio has increased from 29% in FY13 to 37% in 9MFY19 mainly in personal

loans, credit cards, Small biz banking while come off in mortgage. Although

average LTVs on mortgage business has been on quite lower side of 42% and

housing loans at 62%.

Axis bank has moved its mixed towards Retail lending

50% 50% 53% 54% 50% 44% 45% 46% 42% 40% 38%

20% 20% 19% 22% 27% 38% 40% 41% 45% 47% 49%

20% 19% 15% 14% 15%17% 15% 13% 13% 13% 13%

FY

09

FY

10

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

FY

17

FY

18

9M

19

Corporate Retail+Agri SME

Source: PL, Company

Axis Bank

March 20, 2019 8

Sourcing through branch is increasing

36%41%

45% 47%50% 50% 48%

FY13 FY14 FY15 FY16 FY17 FY18 9M19

Sourcing through branches Retail lending

Source: Company, PL

Cross sell of retail products to deposit customers

65%70% 68% 69% 72% 75%

81%

FY13 FY14 FY15 FY16 FY17 FY18 9M19

Cross sell % existing deposit customers

Source: Company, PL

Higher yielding products in retail increased

71% 69% 63%

29% 31% 37%

FY13 FY16 9M19

Regular Yield Products High Yield Products

Source: Company, PL

Underwriting has been much better

0.43 0.46

0.66 0.68

0.830.89

LAP CreditCard Loan

PersonalLoan

CV HomeLoan

New CarLoan

Delinquency benchmarking v/s Peer Private banks at 1x

Source: Company, PL

Key highlights from Cards, payments and business analytics

Average customer transacts 4-6 times at least a month through credit-debit

cards and hence high spender has generally higher balances into bank. Track

engagement index to see cards usage by a customer. 81% of 22.5mn SA

customer base of bank do not have credit cards and hence huge penetration

potential.

Partnerships play very important role in payments and cards business.

Credit fees largely towards interchange, annual fees, while Penal fees are

lower component in bank. Cards fees have significantly improved from 7-8% of

retail fees to 24% of fees currently.

34% savings customers are atleast one lending offer available helped by

analytics which was 24% in April 2017. Risk based models have been pushing

decision making in the lending side like cards, personal loans for pre-approved

basis. But analytics plays key important in non-lending segments which for

instance has been used in forex business pricing.

Axis Bank

March 20, 2019 9

Stark improvement in sourcing business loans

digitally

5%

58%

Jan-17 Jan-18

% Contribution of digital lending in Business Loan

Source: Company, PL

Personal loan digitally sourced has good

underwriting

25%

46%

Jan-17 Jan-18

% Contribution of digital lending in Personal Loan

Source: Company, PL

Key highlights from Subsidiaries

Axis Finance – Currently have AUM of Rs80bn with wholesale mix at 83% and

retail at 17%. Going ahead focusing higher on retail propositions like HNI LAS,

ESOP funding, LAP. Growth in AUM has been at 55% CAGR over FY14-18.

Key strength has been lowest Cost/income delivering 18-19% ROE and at 18%

Capital adequacy. In Real state, 80% asset finance is OC received completed

projects operating in 5-6 markets like MMR, Bangalore, Hyderabad & Pune and

no large presence in NCR.

Axis AMC – As of FY19 Axis AMC amongst top 10 rankings. Has been able to

improve on back of different investment strategy, unique products offered and

positioning of strategy and products. Have been growing AUM at 40% CAGR

with mix of 60% in Equity. Going ahead, will enhance PMS/AIF based

capabilities to expand AUM and penetrate top 5 MFs based on incremental

new flows.

Axis Bank

March 20, 2019 10

Estimates change table – We factor in change in deposit mix, loan growth and margins, while increase other

income assumptions

(Rs mn) Old Revised % Change

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Net interest income 2,17,163 2,56,157 3,03,721 2,18,415 2,56,325 3,07,287 0.6 0.1 1.2

Operating profit 1,79,978 2,09,570 2,51,237 1,82,141 2,12,265 2,58,238 1.2 1.3 2.8

Net profit 45,960 94,990 1,28,026 47,409 96,804 1,32,737 3.2 1.9 3.7

EPS (Rs) 17.8 36.4 49.0 18.3 37.1 50.8 3.2 1.9 3.7

ABVPS (Rs) 230.7 270.6 318.5 231.3 271.8 321.5 0.2 0.5 0.9

Price target (Rs) 745 845 13.3

Recommendation ACCUMULATE ACCUMULATE

Source: Company, PL

We revise our TP to Rs845 (from Rs745) based on 2.6x Mar-21 ABV

rolled over from Sep-20 ABV

PT calculation and upside

Terminal growth 5.0%

Market risk premium 6.0%

Risk-free rate 7.5%

Adjusted beta 1.03

Cost of equity 13.7%

Fair price - P/ABV 845

Target P/ABV 2.6

Target P/E 16.6

Current price, Rs 761

Upside (%) 11%

Dividend yield (%) 1%

Total return (%) 12%

Source: Company, PL

AXSB’s historical P/ABV trends

0.8

1.2

1.6

2.0

2.4

2.8

3.2

3.6

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

Jun-1

6

Sep-1

6

Dec-1

6

Mar-

17

Jun-1

7

Sep-1

7

Dec-1

7

Mar-

18

Jun-1

8

Sep-1

8

Dec-1

8

Mar-

19

P/ABV 3 yr avg. avg. + 1 SD avg. - 1 SD

Source: Company, PL

Axis Bank

March 20, 2019 11

Income Statement (Rs. m)

Y/e Mar FY18 FY19E FY20E FY21E

Int. Earned from Adv. 3,41,375 4,09,270 4,81,755 5,72,200

Int. Earned from invt. 99,833 1,13,969 1,30,446 1,47,920

Others 16,595 21,882 22,953 22,031

Total Interest Income 4,57,803 5,45,122 6,35,154 7,42,151

Interest Expenses 2,71,626 3,26,707 3,78,828 4,34,864

Net Interest Income 1,86,177 2,18,415 2,56,325 3,07,287

Growth(%) (0.7) 15.3 15.8 18.2

Non Interest Income 1,09,671 1,22,831 1,38,799 1,59,619

Net Total Income 2,95,848 3,41,246 3,95,125 4,66,906

Growth(%) 0.9 17.7 15.9 16.5

Employee Expenses 43,130 48,305 53,619 59,517

Other Expenses 91,093 1,08,401 1,25,745 1,44,606

Operating Expenses 1,39,903 1,59,105 1,82,860 2,08,668

Operating Profit 1,55,945 1,82,141 2,12,265 2,58,238

Growth(%) (11.3) 16.8 16.5 21.7

NPA Provision 1,65,987 1,08,198 64,956 56,904

Total Provisions 1,54,729 1,11,381 68,425 61,006

PBT 1,216 70,760 1,43,840 1,97,232

Tax Provision (1,541) 23,351 47,036 64,495

Effective tax rate (%) (126.8) 33.0 32.7 32.7

PAT 2,757 47,409 96,804 1,32,737

Growth(%) (92.5) 1,619.7 104.2 37.1

Balance Sheet (Rs. m)


Face value 2 2 2 2

No. of equity shares 2,567 2,612 2,612 2,612

Equity 5,133 5,224 5,224 5,224

Networth 6,34,453 7,07,489 7,88,451 9,00,912

Growth(%) 13.8 11.5 11.4 14.3

Adj. Networth to NNPAs 1,65,917 1,12,921 77,266 52,911

Deposits 45,36,227 53,07,386 62,09,641 72,65,280

Growth(%) 9.5 17.0 17.0 17.0

CASA Deposits 24,38,516 26,00,619 30,79,982 36,68,967

% of total deposits 53.8 49.0 49.6 50.5

Total Liabilities 69,13,296 78,64,789 90,40,250 1,04,17,055

Net Advances 43,96,503 50,12,013 58,13,936 68,31,374

Growth(%) 17.8 14.0 16.0 17.5

Investments 15,38,761 16,95,818 19,53,538 21,54,288

Total Assets 69,13,296 78,64,789 90,40,250 1,04,17,055

Growth (%) 14.9 13.8 14.9 15.2

Asset Quality


Gross NPAs (Rs m) 3,42,486 2,90,542 2,34,585 1,99,487

Net NPAs (Rs m) 1,65,917 1,12,921 77,266 52,911

Gr. NPAs to Gross Adv.(%) 7.8 5.8 4.0 2.9

Net NPAs to Net Adv. (%) 3.8 2.3 1.3 0.8

NPA Coverage % 51.6 61.1 67.1 73.5

Profitability (%)


NIM 3.1 3.2 3.3 3.4

RoAA 0.0 0.6 1.1 1.4

RoAE 0.5 7.1 12.9 15.7

Tier I 13.0 11.6 11.5 11.6

CRAR 16.6 16.6 15.9 15.6

Source: Company Data, PL Research

Quarterly Financials (Rs. m)

Y/e Mar Q4FY18 Q1FY19 Q2FY19 Q3FY19

Interest Income 1,17,712 1,27,770 1,32,810 1,41,297

Interest Expenses 70,407 76,102 80,489 85,261

Net Interest Income 47,305 51,668 52,321 56,037

YoY growth (%) 9.3 18.2 20.2 22.0

CEB 24,480 21,170 23,760 26,150

Treasury - - - -

Non Interest Income 27,887 29,250 26,784 40,007

Total Income 1,45,599 1,57,020 1,59,594 1,81,304

Employee Expenses 10,789 12,278 11,747 12,026

Other expenses 27,680 24,920 26,418 28,771

Operating Expenses 38,469 37,198 38,165 40,797

Operating Profit 36,722 43,720 40,940 55,247

YoY growth (%) (16.1) 1.9 8.4 43.4

Core Operating Profits 34,562 42,690 39,580 51,457

NPA Provision 81,280 30,690 26,860 33,520

Others Provisions 71,795 33,377 29,274 30,545

Total Provisions 71,795 33,377 29,274 30,545

Profit Before Tax (35,073) 10,343 11,666 24,701

Tax (13,186) 3,333 3,770 7,893

PAT (21,887) 7,011 7,896 16,809

YoY growth (%) (278.7) (46.3) 82.6 131.4

Deposits 45,36,227 44,70,793 47,96,796 51,40,921

YoY growth (%) 9.5 13.5 15.2 25.7

Advances 43,96,503 44,10,745 45,61,213 47,51,049

YoY growth (%) 17.8 14.4 11.2 12.9

Key Ratios


CMP (Rs) 761 761 761 761

EPS (Rs) 1.1 18.3 37.1 50.8

Book Value (Rs) 247 271 302 345

Adj. BV (70%)(Rs) 192 231 272 321

P/E (x) 684.7 41.6 20.5 15.0

P/BV (x) 3.1 2.8 2.5 2.2

P/ABV (x) 4.0 3.3 2.8 2.4

DPS (Rs) 4.4 - 5.0 6.4

Dividend Payout Ratio (%) 509.8 - 16.4 15.3

Dividend Yield (%) 0.6 - 0.7 0.8

Efficiency


Cost-Income Ratio (%) 47.3 46.6 46.3 44.7

C-D Ratio (%) 96.9 94.4 93.6 94.0

Business per Emp. (Rs m) 150 155 162 171

Profit per Emp. (Rs lacs) 0 7 13 16

Business per Branch (Rs m) 2,412 2,423 2,455 2,503

Profit per Branch (Rs m) 1 11 20 24

Du-Pont


NII 3.13 3.22 3.31 3.45

Total Income 4.98 5.03 5.11 5.24

Operating Expenses 2.35 2.35 2.36 2.34

PPoP 2.62 2.69 2.74 2.90

Total provisions 2.60 1.64 0.88 0.68

RoAA 0.05 0.70 1.25 1.49

RoAE 0.46 7.07 12.94 15.71

Source: Company Data, PL Research

Axis Bank

March 20, 2019 12

Price Chart Recommendation History

No. Date Rating TP (Rs.) Share Price (Rs.)

1 13-Apr-18 BUY 621 519

2 27-Apr-18 BUY 585 495

3 10-Jul-18 BUY 585 525

4 31-Jul-18 Accumulate 624 570

5 05-Oct-18 Accumulate 624 586

6 02-Nov-18 Accumulate 681 611

7 07-Jan-19 Accumulate 681 637

8 29-Jan-19 Accumulate 745 661

Analyst Coverage Universe

Sr. No. CompanyName Rating TP (Rs) Share Price (Rs)

1 Axis Bank Accumulate 745 661

2 Bank of Baroda BUY 161 114

3 Bank of India Reduce 89 106

4 Federal Bank BUY 102 89

5 HDFC Bank BUY 2,371 2,130

6 HDFC Standard Life Insurance Company BUY 438 385

7 ICICI Bank BUY 427 366

8 ICICI Prudential Life Insurance Company BUY 471 344

9 IDFC First Bank BUY 57 43

10 IndusInd Bank BUY 1,765 1,602

11 Jammu & Kashmir Bank BUY 76 37

12 Kotak Mahindra Bank Hold 1,291 1,268

13 Max Financial Services BUY 629 436

14 Punjab National Bank Hold 83 73

15 SBI Life Insurance Company BUY 779 620

16 South Indian Bank BUY 22 16

17 State Bank of India BUY 361 284

18 Union Bank of India Reduce 79 91

19 YES Bank Accumulate 245 215

PL’s Recommendation Nomenclature (Absolute Performance)

Buy : > 15%

Accumulate : 5% to 15%

Hold : +5% to -5%

Reduce : -5% to -15%

Sell : < -15%

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

422

504

586

668

750

Mar

- 16

Se

p -

16

Mar

- 17

Se

p -

17

Mar

- 18

Se

p -

18

Mar

- 19

(Rs)

Axis Bank

March 20, 2019 13

ANALYST CERTIFICATION

(Indian Clients)

We/I, Ms. Pritesh Bumb- MBA, M.com, Mr. Prabal Gandhi- BTech, CFA Level II Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

(US Clients)

The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report.

DISCLAIMER

Indian Clients

Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com.

This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.

The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.

Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.

PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014

PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.

PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.

PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.

PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report.

PL or its associates might have received compensation from the subject company in the past twelve months.

PL or its associates might have managed or co-managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months.

PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months

PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report.

PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report.

It is confirmed that Ms. Pritesh Bumb- MBA, M.com, Mr. Prabal Gandhi- BTech, CFA Level II Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company

Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest.

PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.

US Clients

This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").

Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.

Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India | Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

www.plindia.com | Bloomberg Research Page: PRLD <GO>

http://www.plindia.com/

axis bank (axsb in) -...

Documents