LilladherPrabhudas Axis Bank

CMP: Rs395 TP: Rs440 Rating: BUY MCap: Rs927.2bn

Axis bank’s Q1FY15 performance has been in line with expectations barring for sluggish other income which has de-grown by 5% YoY. Asset quality showed a slight blip but was well within guidance. FY15 PPOP growth challenges remain on fees and margins sustainability, but we believe Axis bank’s valuations at 1.7x Mar-16 book are still favourable considering well diversified asset book now, best-in-class liability franchise and better underwriting standards.

Fees will be a challenge but opex growth to be only gradual: Axis bank’s PPOP performance was almost flat on sluggish fees driven down by slowdown in large corporate loan book resulting in lower fee growth. NII growth of 15% YoY has been up to expectations as NIMs held up well at ~3.9% in Q1FY15. Margins sustainability now looks questionable but management has guided NIMs to remain above 3.5%, going ahead and expected fees recovery to only come at the end of FY15 which creates challenge for higher PPOP growth in FY15. We expect PPOP growth of 16% in FY15.

Asset quality – Some blips but well within guidance: Bank’s Gross slippages and restructuring at ~Rs11bn was well within guidance (~Rs16bn per quarter guidance which remains unchanged) leading to ~70bps of specific credit losses. Mid corporate still remains under stress but have been factored in the guidance. It has provided about Rs470m for un-hedged forex exposures and SMA accounts, while it has ~Rs8.0bn of specific provisions buffer on its books (not included in credit costs) which provides comfort on credit losses. As highlighted from our previous updates, we have been buoyant on Axis Bank’s asset quality and continue to do so on better underwriting and now tilt towards secured assets..

Axis has been able to successfully diverse its business mix from ~25% to 38% retail (after reclassification of agri book) in the last two years which has offset the corporate book slowdown. Upbeat liability franchise, better underwriting and stable asset quality makes it our preferred sector pick with PT of Rs2200.

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Key Financials (Rs m)

Y/e March FY12 FY13 FY14 FY15E FY16E

Net interest income 80,177 96,663 119,516 136,138 157,739

Growth (%) 22.2 20.6 23.6 13.9 15.9

Operating profit 74,309 93,031 114,561 132,904 153,935

PAT 42,422 51,794 62,177 70,688 85,002

EPS (Rs) 20.5 22.1 26.5 30.1 36.2

Growth (%) 24.4 7.8 19.6 13.7 20.2

Net DPS (Rs) 3.2 3.6 4.0 4.6 5.3

Source: Company Data, PL Research

Profitability & valuation

Y/e March FY12 FY13 FY14 FY15E FY16E

NIM (%) 92.7 96.2 95.9 97.6 97.6

RoAE (%) 20.3 18.5 17.4 17.2 17.9

RoAA (%) 1.6 1.7 1.7 1.7 1.7

P / BV (x) 3.6 2.8 2.4 2.1 1.8

P / ABV (x) 3.6 2.8 2.4 2.1 1.8

PE (x) 19.2 17.8 14.9 13.1 10.9

Net dividend yield (%) 0.8 0.9 1.0 1.2 1.3

Source: Company Data, PL Research

Stock Performance

(%) 1M 6M 12M

Absolute (1.1) 69.3 88.1

Relative to Sensex (5.7) 39.8 51.9

LilladherPrabhudas Financials

Axis Bank

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Income Statement (Rs m)

Y/e March FY12 FY13 FY14 FY15E FY16E

Int. Earned from Adv. 153,794 191,662 219,504 257,039 295,076

Int. Earned from Invt. 63,943 77,470 83,431 89,228 103,291

Others - - - - -

Total Interest Income 219,946 271,826 306,412 350,105 402,638

Interest expense 139,769 175,163 186,895 213,967 244,900

NII 80,177 96,663 119,516 136,138 157,739

Growth (%) 22.2 20.6 23.6 13.9 15.9

Treasury Income 931 5,818 3,133 6,000 6,000

NTNII 53,271 59,693 70,919 80,890 93,520

Non Interest Income 54,202 65,511 74,052 86,890 99,520

Total Income 274,149 337,337 380,464 436,995 502,159

Growth (%) 38.6 23.0 12.8 14.9 14.9

Operating Expense 60,071 69,142 79,008 90,125 103,323

Operating Profit 74,309 93,031 114,561 132,904 153,935

Growth (%) 15.8 25.2 23.1 16.0 15.8

NPA Provisions 10,996 14,799 17,810 27,398 27,066

Investment Provisions 581 (1,039) (1,003) - -

Total Provisions 11,430 17,501 21,070 27,398 27,066

PBT 62,878 75,531 93,490 105,505 126,869

Tax Provisions 20,456 23,736 31,313 34,817 41,867

Effective Tax Rate (%) 32.5 31.4 33.5 33.0 33.0

PAT 42,422 51,794 62,177 70,688 85,002

Growth (%) 25.2 22.1 20.0 13.7 20.2

Source: Company Data, PL Research

Balance Sheet (Rs m)

Y/e March FY12 FY13 FY14 FY15E FY16E

Par Value 2 2 2 2 2

No. of equity shares 2,066 2,340 2,349 2,349 2,349

Equity 4,132 4,680 4,698 4,698 4,698

Networth 228,085 331,079 382,205 440,250 510,712

Adj. Networth 223,359 324,037 371,959 424,297 489,878

Deposits 2,201,043 2,526,136 2,809,446 3,278,077 3,951,677

Growth (%) 16.3 14.8 11.2 16.7 20.5

Low Cost deposits 914,220 1,120,998 1,264,623 1,490,321 1,814,344

% of total deposits 41.5 44.4 45.0 45.5 45.9

Total Liabilities 2,856,278 3,405,607 3,832,449 4,582,717 5,456,212

Net Advances 1,697,595 1,969,660 2,300,668 2,691,781 3,230,137

Growth (%) 19.2 16.0 16.8 17.0 20.0

Investments 931,921 1,137,375 1,135,484 1,290,492 1,508,690

Total Assets 2,856,278 3,405,607 3,832,449 4,582,717 5,456,212

Source: Company Data, PL Research

LilladherPrabhudas Disclaimer

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BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months

Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months

Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month

Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly

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PL’s Recommendation Nomenclature

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