Company Update | Banking
October 6, 2016
Axis Bank
BUY
CMP
`536
Axis to continue business growth
Target Price
`630
Despite slow down in the industry, Axis Bank continues to deliver strong business
Investment Period
12 Months
growth: Axis Bank has been able to outpace the industry growth delivering 19%
CAGR in loan book over FY12-16. The key driving force has been the retail
Stock Info
business (39% CAGR), whose share has gone up to 41% from 21% during the
Sector
Banking
same period. The management has been reiterating its stand on pick up in retail
loans, which is visible from the 24.3% growth during Q1FY17. Corporate loans
Market Cap (` cr)
1,28,019
also witnessed strong growth during Q1FY17 by 21%. Hence, we believe the
Beta
1.4
bank has potential to deliver 20% CAGR in loan for next 2-3 years & sharp
52 Week High / Low
638 /367
moderation in growth is unlikely.
Avg. Daily Volume
879,954
Asset quality woes restricted to the watch list: Axis bank came out with a watch
Face Value (`)
2
list of `22,628cr worth of loans at the end of Q4FY16, estimating 60% of that
could fall into NPA over the next 2 years with a bias towards higher slippages in
BSE Sensex
28,221
FY17. Accordingly, the bank saw slippages of `3,638cr in Q1FY17, reducing the
Nifty
8,744
watch list amount by 10.3%. Almost 74% of the slippages (`2,680cr) came from
Reuters Code
AXBK.BO
the watch list, while slippages from non watch list corporate book accounted for
Bloomberg Code
[email protected]
6% of the gross slippages.
Balance 20% slippages came from Non Corporate book. As expected, large part
of the slippages came from the corporate loans within the watch list. While, it is a
Shareholding Pattern (%)
known fact that in absolute terms there would be a rise in NPA and their ratio
will go up. However, there is low probability of negative surprise from the non
Promoters
29.7
watch list accounts turning into large scale NPAs.
MF / Banks / Indian Fls
14.2
We expect RoE to bounce back in FY18: Axis Bank has maintained RoE of 16-
FII / NRIs / OCBs
48.1
17% over the last 3 years. Their ability to contain credit cost and higher traction
in fee income were the driving forces behind the strong RoE. However, the
Indian Public / Others
8.0
management has already come out with a watch list and has given a higher
credit cost guidance of 125-150 bps for FY17 vs 92 bps/ 83 bps/110 bps in
FY14/FY15/16, respectively. This indicates that bottom-line will be under
Abs. (%)
3m
1yr
3yr
pressure. While, FY17 will see RoE falling to 13.6% vs 16.8% in FY16, we expect
Sensex
3.9
8.1
42.3
the same to bounce back to 16.5% by FY18. Ability to grow retail loans would be
Axis Bank
0.2
4.6
150.5
one of the keys for maintaining strong RoE & we believe the bank will be able to
sustain RoE of 16-17% in the medium term.
Outlook and valuation: Declaring the watch list gave the much required clarity
3-year price chart
on the book for the Bank. While credit cost will remain high and in turn RoE will
700
be under pressure for FY17; once the cleaning up process is over, we can expect
600
RoE rebounding and Axis Bank can be a re-rating candidate. At the current
500
levels, the stock trades at 2x its FY18E Adj BV of `268. Thus, we believe the
400
current corrections in the stock gives long term investors an opportunity to enter
300
the stock. We upgrade the stock to a BUY with a target price of `630.
200
100
Key financials (Standalone)
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
-
NII
14,224
16,833
19,077
22,035
% chg
19.0
18.3
13.3
15.5
Net profit
7,358
8,224
7,723
10,669
Source: Company, Angel Research
% chg
18.3
11.8
-6.1
38.2
NIM (%)
3.5
3.6
3.5
3.4
EPS (`)
31.0
34.5
32.3
44.6
P/E (x)
17.7
15.9
17.0
12.3
P/ABV (x)
2.6
2.4
2.1
1.9
Siddharth Purohit
RoA (%)
1.7
1.7
1.3
1.6
022 - 3935 7800 Ext: 6828
RoE (%)
17.9
16.8
13.6
16.5
[email protected]
Source: Company, Angel Research; Note: CMP as of October 5, 2016
Please refer to important disclosures at the end of this report
1
Axis Bank | Company Update
Should we expect moderation in growth?
Axis Bank has been able to outpace the industry growth and has delivered 19%
CAGR in loan book over FY12-16. The key driving force behind the growth has
been the retail business, which had delivered a staggering 39% CAGR over the
same period. Axis has been able to increase the share of retail loans from 22% to
41% during the same period. It seems there is further scope for the bank to
increase its share of retail loans.
In the last 4 years, the management has aggressively expanded the retail credit
book and that too without compromising in the asset quality. During Q1FY17,
slippages ratio in the retail loan book stood at 0.7% compared to 4.2% overall
slippages and 7.5% corporate slippages. The management has been reiterating
that retail will continue to grow stronger and retail loans grew by 24.3% during
Q1FY17. On the other hand, even the corporate loan book has witnessed strong
growth during Q1FY17 by 21%. Hence, we believe the bank has enough potential
to deliver 20% CAGR for next 2-3 years and sharp moderation in the business
growth is very unlikely.
Exhibit 1: Loan Book growth %
Exhibit 2: Retail Loan Book %
600,000
24.0
(%)
22.2
45.0
500,000
22.0
44.0
20.5
20.0
44.0
43.0
400,000
20.0
43.0
20.0
42.0
41.0
300,000
16.8
18.0
41.0
39.8
40.0
200,000
16.0
39.0
38.3
38.0
100,000
14.0
37.0
-
12.0
36.0
FY14
FY15
FY16
FY17E
FY18E
35.0
Advances (` cr)
% Growth
FY14
FY15
FY16
FY17E
FY18E
Source: Company, Angel Research
Source: Company, Angel Research
Exhibit 3: CASA %
Exhibit 4: CASA Growth remains strong
(%)
(%)
49.0
25.0
21.7
48.0
48.0
20.0
48.0
47.3
20.0
17.3
47.0
14.2
15.0
12.8
46.0
45.0
10.0
44.8
45.0
5.0
44.0
43.0
0.0
FY14
FY15
FY16
FY17E
FY18E
FY14
FY15
FY16
FY17E
FY18E
Source: Company, Angel Research
Source: Company, Angel Research
October 6, 2016
2
Axis Bank | Company Update
Can asset quality further deteriorate for Axis Bank?
The bank came out with strong disclosure at the end of Q4FY16 in which, the
management outlined that ~`22,628cr worth of loans were under stress and
estimated ~60% could fall into NPA over the next eight quarters. Further, large
part of the incremental NPA from this account are likely to come up in FY17 itself.
Accordingly, the bank saw slippages of `3,638cr during Q1FY17. The watch list
amount was reduced by 10.3% post slippages from that account.
A close watch into the slippages shows that `2,680cr i.e 74% of the total slippages
came from the watch list itself, while slippages from non watch list corporate book
accounted for 6% of the gross slippages. The balance 20% slippages came from
Non Corporate book. This indicates that, as expected, large part of the slippages
is in fact coming in from the corporate segment within the watch list. While, it is a
known fact that in absolute terms there would be a rise in NPA and the NPA ratios
will go up. However, there is low probability of negative surprises from the non
watch list accounts turning into large scale NPAs.
Exhibit 5: GNPAs & NNPAs Ratio Quarterly trend
Exhibit 6: GNPAs & NNPAs Ratio yearly trend
3.50
3.0
2.54
2.87
3.00
2.75
2.5
2.50
2.0
1.68
1.67
2.00
1.38
1.38
1.67
1.5
1.08
1.34
1.50
1.22
1.08
1.03
1.0
0.75
0.70
1.00
0.70
0.48
0.48
0.40
0.44
0.5
0.50
0.0
-
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
FY14
FY15
FY16
FY17E
FY18E
GNPAs (%)
NNPAs (%)
GNPAs (%)
NNPAs (%)
Source: Company, Angel Research;
Source: Company, Angel Research
Exhibit 7: Credit Cost %
Exhibit 8: PCR %
(%)
(%)
1.80
1.64
70
68
1.60
68
67
1.40
66
65
1.20
1.10
64
1.03
62
0.92
1.00
0.83
62
0.80
60
59
0.60
58
0.40
56
0.20
54
0.00
52
FY14
FY15
FY16
FY17E
FY18E
FY14
FY15
FY16
FY17E
FY18E
Source: Company, Angel Research
Source: Company, Angel Research
October 6, 2016
3
Axis Bank | Company Update
How sustainable is the RoE?
Axis Bank has maintained RoE of 16-17% over the last three years. Their ability to
contain credit cost and higher traction in fee income were the driving forces behind
the strong RoE. However, the management has already come out with a watch list
and has given a higher credit cost guidance of 125-150 bps for FY17 vs 92 bps/
83 bps/110 bps in FY14/FY15/16, respectively. This indicates that bottom-line will
be under pressure. However, we have factored in a credit cost of 164 bps for FY17
and 103 bps for FY18. While, FY17 will see RoE falling to 13.6% vs 16.8% in
FY16, we expect the same to bounce back to 16.5% by FY18 end. Ability to sustain
the retail loans would be one of the keys for maintaining strong RoE and we
believe the bank will be able to sustain RoE of 16-17% in the medium term.
Exhibit 9: Cost Funds have declined
Exhibit 10: NIM Trend
(%)
(%)
3.6
6.3
3.6
5.8
3.6
6.0
5.8
3.5
5.3
5.6
5.5
3.5
4.8
5.2
3.5
3.5
4.3
3.4
3.4
3.8
3.4
3.4
3.3
3.3
2.8
3.3
FY14
FY15
FY16
FY17E
FY18E
FY14
FY15
FY16
FY17E
FY18E
Source: Company, Angel Research;
Source: Company, Angel Research
Exhibit 11: Cost/ Income Ratio
Exhibit 12: ROE & ROA%
(%)
20.0
17.4
17.8
41.0
40.8
40.7
18.0
16.8
16.5
16.0
40.5
13.6
40.0
14.0
40.0
39.8
12.0
39.5
10.0
39.0
8.0
38.5
38.5
6.0
4.0
38.0
1.7
1.7
1.7
1.3
1.6
2.0
37.5
0.0
37.0
FY14
FY15
FY16
FY17E
FY18E
FY14
FY15
FY16
FY17E
FY18E
RoE (%) RoA (%)
Source: Company, Angel Research;
Source: Company, Angel Research
October 6, 2016
4
Axis Bank | Company Update
Is re-rating possible in the near term and how valuations look as
compared to peers?
Both Axis Bank and ICICI Bank came out with strong disclosures during Q4FY16
results. In absolute terms, both the banks have declared assets, which are sticky
and have potential to slip into NPA. However, the management of Axis Bank
estimated 60% of the `22,628 cr worth of loans, which are under watch list, could
fall into NPA category over the next eight quarters. While, the watch list was 13%
of the corporate assets, which seems high; it gave the much required clarity on the
book. Credit cost will remain high and in turn RoE will be under pressure for FY17;
but once the cleaning up process is over, we can expect RoE rebounding and Axis
Bank can be a re-rating candidate.
At the CMP, the stock trades at 2x its FY18E Adj BV of ` 268. We believe that the
current corrections in the stock give long term investors an opportunity to enter the
stock. We upgrade the stock to a BUY with a target price of `630.
Company Background
Axis Bank is India's third largest private sector bank, after ICICI and HDFC. The
bank is promoted by government institutions led by UTI (SUUTI currently holds 12%
stake in the bank). It has an extensive network of 3006 branches and 12,871
ATMs spread across 1,882 centers. The bank's strong growth has been backed by
robust retail branch expansion, strong corporate relationships and a wide range of
fee income products.
October 6, 2016
5
Axis Bank | Company Update
Income statement (Standalone)
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
Net Interest Income
8,018
9,666
11,952
14,224
16,833
19,077
22,035
- YoY Growth (%)
22.2
20.6
23.6
19.0
18.3
13.3
15.5
Other Income
5,420
6,551
7,405
8,365
9,371
11,149
12,884
- YoY Growth (%)
17.0
20.9
13.0
13.0
12.0
19.0
15.6
Operating Income
13,438
16,217
19,357
22,589
26,204
30,226
34,919
- YoY Growth (%)
20.0
20.7
19.4
16.7
16.0
15.3
15.5
Operating Expenses
6,007
6,914
7,901
9,204
10,101
12,018
13,963
- YoY Growth (%)
25.7
15.1
14.3
16.5
9.7
19.0
16.2
Pre - Provision Profit
7,431
9,303
11,456
13,385
16,104
18,209
20,956
- YoY Growth (%)
15.8
25.2
23.1
16.8
20.3
13.1
15.1
Prov. & Cont.
1,143
1,750
2,107
2,329
3,710
6,652
5,031
- YoY Growth (%)
(10.7)
53.1
20.4
10.5
59.3
79.3
(24.4)
Profit Before Tax
6,288
7,553
9,349
11,057
12,394
11,557
15,924
- YoY Growth (%)
22.4
20.1
23.8
18.3
12.1
(6.8)
37.8
Prov. for Taxation
2,046
2,373
3,131
3,699
4,170
3,834
5,255
- as a % of PBT
32.5
31.4
33.5
33.5
33.6%
33.2%
33.0%
PAT
4,242
5,179
6,218
7,358
8,224
7,723
10,669
- YoY Growth (%)
25.2
22.1
20.0
18.3
11.8
(6.1)
38.2
Balance sheet (Standalone)
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
Share Capital
413
468
470
474
477
477
478
Reserve & Surplus
22,395
32,640
37,751
43,463
52,688
59,635
68,704
Deposits
2,20,104
2,52,614
2,80,945
3,22,442
357,968
429,561
515,473
- Growth (%)
16.3
14.8
11.2
14.8
11.0
20.0
20.0
Borrowings
23,498
31,412
37,886
64,872
99,226
118,129
141,755
Other Liab. & Prov.
8,643
10,888
13,789
15,795
15,109
18,042
23,196
Total Liabilities
2,85,628
3,40,561
3,83,245
4,61,932
525,468
625,845
749,607
Cash Balances
10,703
14,792
17,041
19,819
22,361
21,478
25,774
Bank Balances
3,231
5,643
11,197
16,280
10,964
17,182
20,619
Investments
93,192
1,13,738
1,13,548
1,32,343
122,006
146,051
175,261
Advances
1,69,760
1,96,966
2,30,067
2,81,083
338,774
406,528
487,834
- Growth (%)
19.2
16.0
16.8
22.2
20.5
20.0
20.0
Fixed Assets
2,259
2,356
2,410
2,514
3,523
4,162
4,962
Other Assets
6,483
7,067
8,981
9,893
27,839
30,442
35,157
Total Assets
2,85,628
3,40,561
3,83,245
4,61,932
525,468
625,845
749,607
- Growth (%)
17.7
19.2
12.5
20.5
13.8
19.1
19.8
October 6, 2016
6
Axis Bank | Company Update
Ratio analysis (Standalone)
Y/E March
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
Profitability ratios (%)
NIMs
3.1
3.2
3.4
3.5
3.6
3.5
3.4
Cost to Income Ratio
44.7
42.6
40.8
40.7
38.5
39.8
40.0
RoA
1.6
1.7
1.7
1.7
1.7
1.3
1.6
RoE
20.3
18.5
17.4
17.9
16.8
13.6
16.5
B/S ratios (%)
CASA Ratio
41.5
44.4
45.0
44.8
47.3
48.0
48.0
Credit/Deposit Ratio
77.1
78.0
81.9
87.2
94.6
94.6
94.6
CAR
13.7
17.0
16.3
16.0
15.4
14.8
13.9
- Tier I
9.4
12.2
12.8
12.2
12.6
12.2
11.7
Asset Quality (%)
Gross NPAs
1.1
1.2
1.4
1.4
1.7
2.8
2.9
Net NPAs
0.3
0.4
0.4
0.5
0.7
1.1
1.0
Slippages
1.3
1.2
1.3
1.2
2.5
1.6
0.8
Loan Loss Prov. /Avg. Assets
0.3
0.4
0.4
0.5
1.1
1.6
1.0
Provision Coverage
73.8
70.6
77.2
68.0
58.6
62.0
65.0
Per Share Data (`)
EPS
20.5
22.1
26.5
31.0
34.5
32.3
44.6
ABVPS
110.3
141.0
161.7
184.1
212.5
233.5
268.4
DPS
3.2
3.6
4.0
5.9
5.0
6.0
6.5
Valuation Ratios
PER (x)
19.9
18.5
15.4
13.2
15.9
17.0
12.3
P/ABVPS (x)
3.7
2.9
2.5
2.2
2.4
2.1
1.9
Dividend Yield
0.8
0.9
1.0
1.4
0.9
1.1
1.2
DuPont Analysis
NII
3.0
3.1
3.3
3.4
3.4
3.3
3.2
(-) Prov. Exp.
0.4
0.6
0.6
0.6
0.8
1.2
0.7
Adj. NII
2.6
2.5
2.7
2.8
2.7
2.2
2.5
Other Inc.
2.0
1.9
2.0
1.7
1.9
1.9
1.9
Op. Inc.
4.7
4.6
4.8
4.8
4.6
4.1
4.3
Opex
2.3
2.2
2.2
2.2
2.0
2.1
2.0
PBT
2.4
2.4
2.6
2.6
2.5
2.0
2.3
Taxes
0.8
0.8
0.9
0.9
0.8
0.7
0.8
RoA
1.6
1.7
1.7
1.7
1.7
1.3
1.6
Leverage
12.6
11.2
10.1
10.3
10.1
10.2
10.6
RoE
20.3
18.5
17.4
17.9
16.8
13.6
16.5
October 6, 2016
7
Axis Bank | Company Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
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Disclosure of Interest Statement
Axis Bank
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
October 6, 2016
8