Axis Bank BUY PAT in line, operational metrics strong – BUY

Results Review
INDIA
FINANCIALS
17 October 2014
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
PAT in line, operational metrics strong – BUY
AXSB reported a largely in-line PAT of Rs 16.1bn (+18.2% YoY) driven by an
unexpected 9bps margin expansion and improved traction in fee/treasury
income, but partly offset by higher provisions. Robust traction in retail
along with some pick-up in the corporate portfolio shored up loan growth.
Impaired asset formation was higher but within the guided lines of
management. Valuations at 1.9x FY16E ABV appear reasonable in the
backdrop of higher RoEs (+17%) and better capitalisation levels. BUY.
REPORT AUTHORS
Vikash Mundhra
+91 22 6766 3474
vikash.mundhra@religare.com
 Retail momentum continues; corporate book too picks up: AXSB reported robust
advances growth primarily driven by its retail and corporate portfolios. Though
growth in the retail portfolio was slightly hurt due to a slowdown in the economy,
the bank managed to sustain the momentum. The SME book remained flattish
QoQ. For FY15, management has guided to 20% YoY growth in the loan book.
 NIMs surprise again; average CASA stable at 40%: NIMs improved 9bps QoQ to
3.97% against our expectations of a 5bps-7bps correction, led by higher blended
yields and flat cost of funds. While NIMs would remain under pressure in H2FY15 on
account of a recent 10bps cut in the base rate, stringent control over cost of funds
aided by a strong liability franchisee (CASA ratio: 44.5%) would keep margins
resilient at +3.5% in FY15.
 Higher impaired assets formation, but within guided lines: Total impaired asset
formation was higher at Rs 14.8bn (as against Rs 11.1bn in Q1FY15), which included
Rs 9.1bn of slippages and Rs 5.7bn of restructured loans. However, net addition to
GNPLs was lower QoQ on account of higher write-offs.
 Fee income to grow in low two-digits in FY15: Fee income growth saw little
traction during the quarter, driven by traction in retail fees and some increase in
corporate fees. Fees from third-party products however were up 21% YoY.
Management expects corporate fee income to pick up in H2FY15 led by increasing
demand for corporate loans, and has guided for FY15 fee income growth of 10-12%.
Financial Highlights
FY13A
FY14A
FY15E
FY16E
FY17E
Net interest income (INR mln)
96,663
119,516
140,640
160,365
185,156
162,174
193,569
220,229
250,736
290,149
Pre-provision profits (INR mln)
93,031
114,561
128,068
146,729
171,329
Adj. PAT (INR mln)
51,794
62,177
71,557
84,458
101,012
Adj. EPS (INR)
22.1
26.5
30.5
36.0
43.0
ROE (%)
18.5
17.4
17.4
17.7
18.2
ROA (%)
1.7
1.7
1.7
1.8
1.8
Gross NPA (%)
1.2
1.4
1.4
1.4
1.3
Tier I ratio (%)
12.2
12.6
12.1
11.5
10.9
2.8
2.5
2.1
1.8
1.6
18.1
15.2
13.2
11.2
9.3
P/BV (x)
P/E (x)
INR 401.95
MARKET CAP
INR 948.5 bln
USD 15.3 bln
SHARES O/S
2.35 bln
FREE FLOAT
62.7%
3M AVG DAILY VOLUME/VALUE
4.2 mln / USD 27.5 mln
52 WK HIGH
52 WK LOW
INR 423.70
INR 202.33
(%)
Y/E 31 Mar
Net revenues (INR mln)
PRICE CLOSE (17 Oct 14)
Stock Price
Index Price
200
150
100
50
0
Source: Company, Factset, RCML Research
This report has been prepared by Religare Capital Markets Limited or one of its affiliates. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the end of
this report. Analysts employed by non-US affiliates are not registered with FINRA regulation and may not be subject to FINRA/NYSE restrictions on communications with covered companies, public appearances, and
trading securities held by a research analyst account.
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
Results Review
INDIA
FINANCIALS
Fig 1 - Actual vs. estimated performance
(Rs mn)
Actual
Estimate
% Variance
NII
35,249
33,073
6.6
Net revenues
54,725
51,239
6.8
PPP
31,623
28,850
9.6
PAT
16,107
16,337
(1.4)
NII/operating profit much higher than
our estimate; PAT largely in line due to
higher provisions
Source: RCML Research
Fig 2 - Quarterly performance
(Rs mn)
Interest income
Q2FY15
Q2FY14
% Chg YoY
Q1FY14
% Chg QoQ
86,024
76,090
13.1
82,894
3.8
Interest expenses
50,775
46,723
8.7
49,789
2.0
Net interest income
35,249
29,367
20.0
33,105
6.5
Other income
19,476
17,661
10.3
16,911
15.2
2,708
50
5315.0
2,600
4
105,500
93,751
12.5
99,805
5.7
23,102
19,530
18.3
21,059
9.7
7,860
6,439
22.1
7,518
4.6
31,623
27,498
15.0
28,957
9.2
7,250
6,875
5.5
3,866
87.5
24,373
20,623
18.2
25,091
(2.9)
8,266
7,000
18.1
8,423
(1.9)
16,107
13,623
18.2
16,668
(3.4)
Cost to Income ratio (%)
42.2
41.5
42.1
Tax rate (%)
33.9
33.9
33.6
NIMs (%)
3.97
3.79
3.88
CAR (%)
15.9
15.9
16.1
- Trading profit
Total Income
Operating expenses
- Staff expenses
PPP
Provisions and W/off
PBT
Taxes
PAT
- Tier I (%)
NIMs up 9bps QoQ to 3.97% led by an
improvement in blended yields and
flat cost of funds
12.6
11.7
Advances (Rs bn)
2,422
2,013
20.3
2,305
12.6
5.1
Deposits (Rs bn)
11.1
2,720
4.3
2,837
2,554
CASA ratio (%)
44.5
42.9
42.4
C/D ratio (%)
85.4
78.8
84.8
Investments (Rs bn)
Gross NPA (Rs mn)
Gross NPA (%)
Net NPA (Rs mn)
Net NPA (%)
PCR (%)
1,143
1,184
(3.5)
1,079
5.9
36,131
27,345
32.1
34,633
4.3
40.7
11,135
1.3
1.2
11,798
8,383
Staff costs rise due to an increase in
headcount and an unfavourable base
Average CASA stable at 40%
Despite higher slippages, headline
GNPLs stable due to higher write-offs
1.3
0.4
0.4
0.4
67.3
69.3
67.8
6.0
Source: Company, RCML Research
17 October 2014
Page 2 of 7
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
Results Review
INDIA
FINANCIALS
Key highlights
Fig 3 - Break- up of fund-based industry advances (Sept’14)
Others
63%
Infrastructure
7%
Power
5%
Engineering &
Electronics
3%
Real Estate
3%
Shipping
2%
Food Processing
4%
Petroleum
1%
Financials
4%
Trade
4%
Metals
4%
Source: Company, RCML Research
Fig 4 - Break-up of loan book
Retail
39%
Corporate
45%
SME
16%
Source: Company, RCML Research
Fig 5 - NIMs improve 9bps QoQ
(%)
CASA
NIMs (R)
(%)
CoF (R)
46
7
45
6
44
5
43
42
4
41
3
40
2
39
1
38
37
0
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Source: RCML Research, Company
17 October 2014
Page 3 of 7
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
Results Review
INDIA
FINANCIALS
Fig 6 - Break-up of other income
(Rs mn)
Fee income
Q2FY15
Q2FY14
% Chg YoY
Q1FY15
% Chg QoQ
15.4
15,906
14,320
11.1
13,780
- Large and mid-corporate
4,613
4,296
7.4
3,402
35.6
- Treasury
3,022
3,150
(4.1)
3,509
-13.9
- Agri and SME
954
1,002
(4.8)
530
80.1
- Business Banking
1,273
1,146
11.1
1,399
-9.1
- Retail Business
6,044
4,582
31.9
4,940
22.4
Trading income
2,708
50
5315.0
2,600
4.1
862
3,291
(73.8)
531
62.4
19,476
17,661
10.3
16,911
15.2
Misc Income
Total
Source: Company, RCML Research
Fig 7 - Movement of NPAs
(Rs mn)
Opening GNPAs
Additions (Slippages)
Up-gradations & Recoveries
Write-offs
Closing GNPAs
Annualised slippages (%)
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
23,924
24,897
27,345
30,082
31,464
34,633
6,810
6,180
5,890
3,010
6,260
9,110
720
2,660
1,220
1,489
971
1,641
5,117
1,072
1,933
139
2,120
5,971
24,897
27,345
30,082
31,464
34,633
36,131
1.4
1.2
1.1
0.5
1.1
1.6
Source: Company, RCML Research
Fig 8 - Asset quality trend
Gross NPA (Rs mn)
Gross NPA (%)
Net NPA (Rs mn)
Net NPA (%)
Provision coverage ratio (%)
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
21,910
22,753
23,924
24,897
27,345
30,082
31,464
34,633
36,131
1.1
1.1
1.1
1.1
1.2
1.3
1.2
1.3
1.3
6,542
6,787
7,041
7,897
8,383
10,034
10,246
11,135
11,798
0.3
0.3
0.3
0.4
0.4
0.4
0.4
0.4
0.4
70.1
70.2
70.6
68.3
69.3
66.6
67.4
67.8
67.3
Source: Company, RCML Research
17 October 2014
Page 4 of 7
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
Results Review
INDIA
FINANCIALS
Per Share Data
Y/E 31 Mar (INR)
FY13A
FY14A
FY15E
FY16E
FY17E
Reported EPS
22.1
26.5
30.5
36.0
43.0
Adjusted EPS
22.1
26.5
30.5
36.0
43.0
DPS
18.0
20.0
22.0
24.0
26.0
Book value
142
163
188
218
255
Adjusted book value
140
160
185
215
251
FY13A
FY14A
FY15E
FY16E
FY17E
18.1
15.2
13.2
11.2
9.3
P/BV
2.8
2.5
2.1
1.8
1.6
P/ABV
2.9
2.5
2.2
1.9
1.6
FY13A
FY14A
FY15E
FY16E
FY17E
Valuation Ratios
Y/E 31 Mar (x)
P/E
Financial Ratios
Y/E 31 Mar (%)
Spread Analysis
Yield on advances
10.5
10.3
10.3
10.2
10.1
Yield on investments
7.5
7.3
7.3
6.9
6.7
Cost of funds
6.4
6.0
5.8
5.7
5.6
NIMs
3.2
3.4
3.5
3.5
3.4
42.6
40.8
41.8
41.5
41.0
2.2
2.2
2.3
2.2
2.2
Proportion of CASA deposits
44.4
45.0
45.4
43.7
42.3
Non-int inc / Total income
40.4
38.3
36.1
36.0
36.2
Credit / Deposit ratio
78.0
81.9
84.2
85.5
85.8
Investment / Deposit
45.0
40.4
38.8
38.4
38.0
Gross NPA
1.2
1.4
1.4
1.4
1.3
Net NPA
0.4
0.4
0.4
0.4
0.4
Coverage ratio
70.6
67.4
70.0
70.0
70.0
CAR
17.0
16.1
15.3
14.1
13.2
Tier I ratio
12.2
12.6
12.1
11.5
10.9
Net interest income
20.6
23.6
17.7
14.0
15.5
Non-interest income
20.9
13.0
7.5
13.5
16.2
Non-interest income (ex-treasury)
11.5
18.7
7.1
13.5
16.4
Pre-provisioning profit
25.2
23.1
11.8
14.6
16.8
Net profit
22.1
20.0
15.1
18.0
19.6
Assets
19.2
12.5
13.7
16.4
17.9
Advances
16.1
16.8
17.0
18.1
18.2
Deposits
14.8
11.2
13.8
16.3
17.7
Book value per share
28.2
15.0
15.6
16.1
16.9
7.8
19.6
15.1
18.0
19.6
Operating Ratios
Operating cost to income
Operating expenses / Avg assets
Asset Quality and Capital
Growth Ratios
EPS
DuPont Analysis
Y/E 31 Mar (%)
FY13A
FY14A
FY15E
FY16E
FY17E
Net interest income / Assets
3.1
3.3
3.4
3.4
3.4
Non-interest income / Assets
2.1
2.0
1.9
1.9
1.9
Operating expenses / Assets
2.2
2.2
2.3
2.2
2.2
Provisions / Assets
0.6
0.6
0.6
0.5
0.4
Taxes / Assets
0.8
0.9
0.8
0.9
0.9
ROA
1.7
1.7
1.7
1.8
1.8
Networth / Assets
11.2
10.1
9.9
9.9
9.9
ROAE
18.5
17.4
17.4
17.7
18.2
17 October 2014
Page 5 of 7
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
Results Review
INDIA
FINANCIALS
Profit and Loss Statement
Y/E 31 Mar (INR mln)
Interest income
Interest expense
FY13A
FY14A
FY15E
FY16E
FY17E
271,826
306,412
347,871
394,179
455,692
(175,163)
(186,895)
(207,231)
(233,814)
(270,537)
Net interest income
96,663
119,516
140,640
160,365
185,156
Non-interest income
65,511
74,052
79,589
90,371
104,994
Non-interest income (ex-treasury)
59,648
70,776
75,822
86,039
100,142
Net revenue
162,174
193,569
220,229
250,736
290,149
Operating expenses
(69,142)
(79,008)
(92,162)
(104,007)
(118,820)
Pre-provision profits
93,031
114,561
128,068
146,729
171,329
(17,504)
(21,075)
(23,144)
(21,606)
(21,682)
75,527
93,486
104,923
125,124
149,647
0
0
0
0
0
(23,733)
(31,310)
(33,366)
(40,665)
(48,636)
Reported PAT
51,794
62,177
71,557
84,458
101,012
Adj. net profit
51,794
62,177
71,557
84,458
101,012
Provisions & contingencies
PBT
Extraordinaries
Income tax
Balance Sheet
Y/E 31 Mar (INR mln)
Cash in hand & bal with RBI
Bal with banks, money at call
FY13A
FY14A
FY15E
FY16E
FY17E
147,921
170,413
178,934
223,667
279,584
56,429
111,974
123,131
107,098
133,369
Investments
1,137,375
1,135,484
1,241,525
1,428,410
1,662,129
Advances
1,969,660
2,300,668
2,691,888
3,179,024
3,757,323
Fixed assets (net)
23,556
24,102
33,189
41,134
47,091
Other assets
70,666
89,808
90,603
92,912
98,897
Total Assets
3,405,607
3,832,449
4,359,270
5,072,245
5,978,394
Equity capital
4,680
4,698
4,698
4,698
4,698
Reserves & surplus
326,399
377,506
436,970
508,235
594,954
Net worth (ex-pref capital)
331,079
382,205
441,669
512,934
599,653
0
0
0
0
0
Deposits
2,526,136
2,809,446
3,197,515
3,720,228
4,377,282
- CASA deposits
1,120,998
1,264,623
1,451,866
1,625,449
1,849,423
- Term deposits
1,405,138
1,544,822
1,745,649
2,094,779
2,527,859
Borrowings (+sub-ord bonds)
439,511
502,909
578,294
689,978
849,974
Other liabilities & provisions
108,881
137,889
141,792
149,105
151,485
3,405,607
3,832,449
4,359,270
5,072,245
5,978,394
Preference capital
Total Equity & Liabilities
17 October 2014
Page 6 of 7
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