IndiaEquityResearch

Financials

April25,2011

AxisBank

BUY
TargetPrice(INR)

1,813

SharpfallinNIMdisappoints;assetqualityremainsstable

Rating
LastPrice(INR)

1,448
AXSBIN

Bloombergcode

AXBK.BO

Reuterscode
Avg.Vol.(3m)(mn)

1.69

Avg.Val.(3m)(INRmn)

2.21
1,609/1,147

52wkH/L(INR)

19,602

Sensex
MCAP(INRbn/USDbn)

594.29/13.39

Shareholding(%)

12/10

03/11

Promoters

37.4

37.2

MFs,FIs,Banks

5.3

5.1

FIIs

36.6

37.7

Public
Others

4.8
16.0

4.8
15.2

StockChart(RelativetoSensex)
1,600
1,500
1,400

ISIEmergingMarketsPDF in-boa01 from

1,300
1,200
1,100

Aug10

Dec10

Axis Bank

StockPerfm.(%)

6m

Rel.toSensex

(2.9) 1.6

1yr

(1.2) 17.1

03/11

5.6

03/12f

03/13f

Loangrowthexceedspeers,largelydrivenbycorporateloans
Loangrowthwasstrong,at36.5%yoy,aheadofthatofpeers;sequentialloan
growthwasstrongestinthepast12quarters,at15%.Thekeydriverswerethe
large and mid corporate segments (up 44.6% yoy) and agriculture loans (up
35.8%). However, management maintains their loan growth guidance of 25%
for FY12f. We forecast a CAGR of 25% in loan growth till Mar14. While total
depositsmaygrowinline,weestimateaCAGRof21%insavingsdeposits.

Assetqualityremainedstable;loweradditiontogrossNPL

A.PAT

34 42 52

Sho/s(diluted)

411 411 411

A.EPS(INR)

80.9 99.6 125.0

YoY(%)

35 23 25

AdditiontogrossNPLduringtheMar11quarter,atINR2.48bn,waslowerthan
thatduringthepreviousthreequarters.Also,grossandnetNPLratiodeclined
furtherto1.01%and0.26%,respectively.Loansrestructuredduringthequarter
wereINR1.08bn(INR1.63bnrestructuredintheDec10quarter)andwere1.2%
oftotalloansatendMar11.WelowerourassumptionforincrementalNPLin
FY12fto0.35%and,thus,reduceourestimatesforloanlossprovisions.

Equity/Assets(%)

8.1 7.5 7.1

MaintainBuyratingwithMar12targetpriceofINR1,813

P/E(x)

17.9 14.6 11.6

P/B(Adj)(x)

3.0 2.6 2.2

RoA(%)
RoE(%)

1.6 1.5 1.5

19.0 19.5 20.8

We value AXSB using a combination of the DCF, P/E and P/B methods. Our
threestage DCF uses explicit forecasts until FY14, followed by 10 years of
semiexplicit forecasts. We raise our blended target price to INR1,813,
followingtherollovertoMar12.WemaintainBuy.Thetargetpricevaluesthe
stockat2.7xoneyearforwardbookvalue.

NII

66 82 103

YoY(%)

31 26 25

Operatingprofit

64 80 100

QuarterlyTrends

1m
6.1

Financials(INRbn)

Apr11

Sensex Rebased

Absolute

SharpcontractioninNIMdrivenby650bpfallinCASAratio

NIM contracted by 37bp qoq and 65bp yoy to 3.44%. Savings deposits
growthatendMar11,at20.6%yoy,wasthelowestinthepastthreeyears.
This resulted in the 352bp sequential decline in the proportion of savings
deposits to 21.6%. Current account deposits remained flat sequentially and
declined by 16% yoy. This resulted in the CASA ratio declining by 650bp
sequentially to 35.8%. However, the daily average CASA ratio in the Mar11
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quarter was 39%; it declined by 400bp sequentially. High accretion of term
deposits to fund the 15% qoq loan growth during the quarter (highest
sequentialgrowthinthepast12quarters)impactedthecostoffunds.Costof
fundsincreasedby77bpsequentiallyto4.79%.

1,000
Apr10

NIMdeclinedby37bpqoqto3.44%,drivenbythe650bpsequential
fallinCASAratio.SavingsdepositsgrowthinMar11,at20%yoy,was
thelowestinthepastthreeyears,whichledtoitsproportionfallingby
352bpto21.6%.Highaccretionoftermdepositstofundthe15%qoq
loangrowthduringthequarter(highestsequentialgrowthinthepast
12quarters)impactedthecostoffunds.ThisresultedinNIIgrowth,at
16.5%yoy,beinglowerthanexpected.AdditiontogrossNPLduring
the Mar11 quarter was lower than that during the preceding three
quarters. Gross and net NPL ratio declined for the third consecutive
quarterto1.01%and0.26%,respectively.Weraiseourtargetpriceto
INR1,813,followingtherollovertoMar12.Thetargetpricevaluesthe
stockat2.7xoneyearforwardbookvalue.WemaintainBuy.

12/10

03/11

Op.income(INRbn)

25.1 26.5 28.8

06/10

09/10

31.5

PAT(INRbn)

7.4

7.4

8.9

10.2

ChandanaJha,+9102266842854
chandana.jha@avendus.com

Pleaserefertothedisclaimertowardstheendofthedocument.
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India Equity Research

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Exhibit1: ResultssnapshotfortheMar11quarter
(INRbn)

Mar10

Dec10

qoq(%)

Mar11

Interestincome

29.9

38.4

13.8

43.7

46.1

Interestexpense

15.3

21.1

26.6

26.7

74.4

Netinterestincome

14.6

17.3

1.8

17.0

16.5

9.3

11.5

26.4

14.5

55.4

Operatingincome

23.9

28.8

9.4

31.5

31.7

Operatingexpense

10.1

12.2

8.8

13.3

31.7

Operatingprofit

13.8

16.6

9.8

18.2

31.6

Provisions&contingencies

2.0

3.1

18.9

2.5

26.0

Provisionfortax

4.2

4.5

20.5

5.5

30.9

Netprofit

7.6

8.9

14.6

10.2

33.5

Loangrowth

27.94

45.74

9.26

36.48

8.54

Depositgrowth

20.38

36.85

2.93

33.93

13.54

SBdepositgrowth

Otherincome

yoy(%)

Keyratios(%)

31.13

32.08

11.43

20.64

10.48

NIM

4.09

3.81

0.37

3.44

0.65

GrossNPL

1.13

1.09

0.08

1.01

0.12

NetNPL

0.36

0.29

0.03

0.26

0.10

Source:Company,AvendusResearch

Sharpdeclineof37bpqoqinNIMduringMar11quarter
Exhibit2: ReportedNIMforthequarter

Exhibit3: EstimatedNIMfortheyear

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4.3%
3.5%

4.1%

3.3%

3.9%

3.1%

3.7%

2.9%

3.5%

2.7%

3.3%
Mar09

Sep09

Mar10

Source:Company,AvendusResearch

Sep10

Mar11

2.5%
Mar06

Mar08

Mar10

Mar12f

Mar14f

Source:Company,AvendusResearch

wasdrivenby650bpsequentialdeclineinCASAratio
Savings deposits growth at end Mar11, at 20.6% yoy, was the lowest in the past three years. This
resulted in the 352bp sequential decline in the proportion of savings deposits to 21.6%. Current
accountdepositsremainedflatsequentiallyanddeclinedby16%yoy.ThisresultedintheCASAratio
decliningby650bpsequentiallyto35.8%.However,ondailyaveragebasis,theCASAratiowas39%at
endMar11,down400bpsequentially.

Highaccretionoftermdepositsinthequartertofund15%qoqloangrowth
High accretion of term deposits to fund the 15% qoq loan growth during the quarter (highest
sequentialgrowthinthepast12quarters)impactedthecostoffunds.Costoffundsincreasedby77bp
sequentiallyto4.79%.ManagementhasguidedtoNIMstayingintherangeof3.25%3.50%overthe
nextfewquarters.

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India Equity Research

AxisBank

Exhibit4: IncrementalNPLandloanlossprovisions Exhibit5: CASAratio

Savingsdepositsgrowth
Savingsdepositsproportion

50%

40%
45%
35%
40%
30%
35%

25%
20%
Mar09

Sep09

Mar10

Sep10

30%
Mar09

Mar11

Source:Company,AvendusResearch

Sep09

Mar10

Sep10

Mar11

Source:Company,AvendusResearch

However,lowadditiontobadloans;NPLratiosdeclinefurther
AdditiontogrossNPLduringtheMar11quarter,atINR2.48bn,waslowerthanthatduringtheprevious
threequarters.Also,grossandnetNPLratiodeclinedfurtherto1.01%and0.26%,respectively.
Exhibit6: GNPLaddedduringthequarter(INRmn) Exhibit7: GrossandnetNPLratios
5,000

1.2%

4,000

0.40%

GrossNPL
NetNPL(RHS)

1.1%

0.36%

3,000
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1.1%
2,000

0.32%

0.28%

1.0%

1,000
0
Mar10

Jun10

Sep10

Dec10

1.0%
Mar10

Mar11

Source:Company,AvendusResearch

Jun10

Sep10

Dec10

0.24%
Mar11

Source:Company,AvendusResearch

Restructuredloansdecline;however,staysabovemostpeers
AXSBsrestructuredloanportfoliodeclinedduringthequartertoINR19.3bn.Loansrestructuredduring
the quarter were INR1.08bn as against INR1.63bn in the preceding quarter. However, despite the
decline,restructuredloansstayedabovethatformostpeers.
Exhibit8: Restructuredloans

Mar09

Jun09

Sep09

Dec09

Mar10

Sep10

Dec10

Mar11

Totalrestructuredassets(INRmn)
As%ofnetloans
As%ofgrosscustomerassets

16,259
1.99
1.74

25,201
3.23
2.82

23,632
2.92
2.55

23,090
2.72
2.47

22,861 21,510 20,610

2.19
1.98
1.86
1.96
1.82
1.69

Jun10

21,170
1.71
1.56

19,300
1.36
1.22

Source:Company,AvendusResearch

Exhibit9: Restructuredloansasa%ofloansofAXSBandpeers

Restructuredloans(%)

AXBSB

HDFCB

ICICIBC

IIB

SBIN

PNB

BOB

BOI

1.2

0.4

1.2

0.16

4.5

6.5

3.0

5.4

Source:Company,AvendusResearch

MarginallyraiseourestimatesforFY12fandFY13f
Whilenetinterestincomewas4.9%lowerthanourestimates,loanlossprovisionsweremuchlower
and resulted in FY11 net profit staying 3.6% ahead of our estimates. We raise our estimates for net

Financials
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India Equity Research

AxisBank

profitinFY12fandFY13fbyupto1.4%.However,welowerourestimatesfornetinterestincomeand
factorindecliningandstableNIMinFY12fandFY13f,respectively.
Exhibit10: Earningsrevisionsummary
(INRbn)

FY11 FY12f FY13f

Old
New Var(%)
Old
New Var(%)
Old
New Var(%)

Netinterestincome
Operatingincome
Operatingexpense
Operatingprofit
Loanlossprovisions
Netprofit

69.0
112.5
46.4
66.1
14.9
32.7

65.6
112.0
47.8
64.2
11.2
33.9

4.9
0.5
3.0
3.0
24.9
3.6

86.9
140.6
57.9
82.8
18.6
41.0

82.4
139.6
59.9
79.8
14.9
41.6

5.2
0.7
3.5
3.7
20.3
1.4

106.3
173.3
72.4
100.9
20.5
51.4

102.9
175.3
74.8
100.5
19.4
51.9

3.2
1.1
3.4
0.4
5.8
1.0

Source:Company,AvendusResearch

ExtendourexplicitforecastperiodfortheDCFmethodtillFY14f
We value AXSB using a combination of the DCF, P/E and P/B methods. Our threestage DCF uses
explicitforecastsuntilFY14,followedby10yearsofsemiexplicitforecasts,whereweassumeaCAGR
of26%inloansanddividendpayoutof22%.WealsoassumetheRoAtoconvergeto1.2%attheendof
thesemiexplicitperiod.Thefinalstageof12yearsassumesconvergenceofRoEandCoE(assumedat
14%).ThisresultsinafairvalueofINR1,984.WeestimatethemeanoneyearforwardP/EandP/Bfor
the12monthperiodended31Mar11at14.5xand2.6x,respectively.Weapplythesetoourforecast
EPSandbookvalueforMar12toarriveatfairvaluesofINR1,825andINR1,673,respectively.
Exhibit11: AverageP/EandP/B(x)

6months

12months

P/E
13.28
13.17
14.35
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2.34
2.54

1month

3months

14.50
2.55

Source:Company,Bloomberg,AvendusResearch

OurtargetpriceofINR1,813isaweightedaverage,whereweassignaweightof30%toourDCFbased
fairvalueand35%eachtoourP/EandP/Bbasedfairvalues.WemaintainBuy.
Exhibit12: P/E,P/B,DCF/SOTPbasedfairvaluesandweightedaveragetargetprice
Weights
Targetprice(INR)

P/E

P/B

DCF/SOTP

35%
1,813

35%
1,667

30%
1,984

1,813

Source:Company,AvendusResearch

Exhibit13: SensitivityofsemiexplicitperiodgrowthtotheDCFvalueandTargetprice
Wts.

Semiexplicitperiodgrowth

23%

24%

25%

26%

27%

28%

29%

30%

DCFbasedvalue

1,640

1,747

1,861

1,984

2,114

2,252

2,400

35%

P/Ebasedvalue

1,813

1,813

1,813

1,813

1,813

1,813

1,813

35%

P/Bbasedvalue

1,667

1,667

1,667

1,667

1,667

1,667

1,667

Targetprice

1,710

1,742

1,776

1,813

1,852

1,893

1,938

Source:Company,AvendusResearch

Keyriskstoourestimates
f NPL ratios may rise with the higherthanestimated incremental NPL. Thus, loanloss provisions
arelikelytobehigher,leadingtoadownwardrisktoearnings.
f Higherthanassumedloangrowthduringtheexplicitperiodmayresultintheupwardrevisionin
earnings.

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Exhibit14: 1yearforwardP/EandtargetP/E
1yearforwardP/E(x)

Exhibit15: OneyearforwardP/BandtargetP/B

Average1yearforwardP/E(x)

1yearforwardP/B(x)

30

25

20

15

10

5
Mar06

Mar07

Mar08

Mar09

Source:AvendusResearch

Mar10

Mar11

Mar12

0
Mar06

Mar07

Mar08

Average1yearforwardP/B(x)

Mar09

Mar10

Mar11

Mar12

Source:AvendusResearch

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India Equity Research

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Financialsandvaluations
Incomestatement(INRbn)
Fiscalyearending
Netinterestincome
Feeincome
Tradingprofit
Otherincome
Totaloperatingincome
Totaloperatingexpense
Operatingprofit
Provisionforbaddebt
Otherprovision
PBT(reported)
Totaltaxes
PAT(reported)
(+)Shareinassoc.earnings
Less:Minorityinterest
Priorperioditems
Netincome(reported)
Avendusnetincome
Sharesoutstanding(mn)
Avendusdil.shares(mn)
AvendusEPS(INR)

DecompositionofRoA(%)
03/11
65.6
40.9
4.1
1.3
112.0
47.8
64.2
11.2
1.6
51.4
17.5
33.9
0.0
0.0
0.0
33.9
33.9
411
411
80.9

03/12f
82.4
50.7
4.1
2.4
139.6
59.9
79.8
14.9
2.8
62.1
20.5
41.6
0.0
0.0
0.0
41.6
41.6
411
411
99.6

03/13f
102.9
64.2
5.1
3.1
175.3
74.8
100.5
19.4
3.7
77.5
25.6
51.9
0.0
0.0
0.0
51.9
51.9
411
411
125.0

03/14f
127.8
80.0
5.6
3.8
217.2
93.6
123.7
24.1
4.3
95.2
31.4
63.8
0.0
0.0
0.0
63.8
63.8
411
411
154.3

36.5
31.1
34.7
17.3
34.8
33.0

21.7
25.6
24.1
32.4
22.7
22.7

26.9
24.8
26.7
30.3
24.8
24.8

25.6
24.2
24.6
24.5
23.0
23.0

Fiscalyearending
Netinterestincome
Feeincome
Otherincome
Operatingincome
Operatingexpenses
Operatingprofit
Loanlossprovisions
Provisionforinvestments
Otherprovisions
Tax
Netprofit

03/11
3.10
1.93
0.26
5.29
2.26
3.03
0.53
0.03
0.05
0.83
1.60

03/12f
3.02
1.86
0.24
5.11
2.19
2.92
0.54
0.02
0.08
0.75
1.52

03/13f
3.02
1.88
0.24
5.14
2.19
2.95
0.57
0.01
0.09
0.75
1.52

03/14f
3.01
1.89
0.22
5.12
2.21
2.92
0.57
0.01
0.09
0.74
1.50

RoA
Assets/Equity
RoE

1.60
11.86
18.98

1.52 1.52
12.83 13.68
19.54 20.82

1.50
14.40
21.67

KeyRatios

Growthratios(%)
Loans
Netinterestincome
Feeincome
Provisionforbaddebt
Avendusnetincome
AvendusEPS

Fiscalyearending
Valuationratios(x)
P/E(onAvendusEPS)
P/BV
P/AdjustedBV
Dividendyield(%)

03/11

03/12f

17.9
3.0
3.0
1.1

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NII/operatingincome
Feeincome/operatingincome
Operatingprofitmargin
Netprofitmargin
EffectiveTaxrate

58.6
36.5
57.3
30.3
34.0

59.0
36.3
57.1
29.8
33.0

58.7
36.6
57.3
29.6
33.0

58.8
36.8
56.9
29.4
33.0

Fiscalyearending
Equitycapital
Preferencecapital
Reservesandsurplus
Networth
Deposits
Totalborrowings
Otherliabilitiesandprovisions
Totalliabilities
Cashandbankbalances
Investments
Loans
Fixedassets
Otherassets
Totalassets

03/11
4.1
0.0
192.6
196.7
1,892.4
163.7
174.7
2,427.4
213.7
719.9
1,424.1
23.3
46.3
2,427.4

03/12f
4.1
0.0
224.8
228.9
2,383.8
216.0
204.7
3,033.4
242.7
969.9
1,733.6
31.9
55.4
3,033.4

03/13f
4.1
0.0
265.4
269.5
2,979.8
285.8
250.3
3,785.5
277.2
1,199.0
2,200.0
43.2
66.1
3,785.5

03/14f
4.1
0.0
315.2
319.3
3,724.8
348.6
303.0
4,695.6
340.8
1,445.9
2,762.7
55.9
90.4
4,695.6

BusinessRatios(%)
Loan/Deposit
Investment/Deposit
SLRInvestment/Deposit
SLRInvestment/NDTL
Debenture/Investment

75.3
38.0
22.6
20.8
26.5

72.7
40.7
22.2
20.4
30.1

73.8
40.2
22.0
20.1
31.8

74.2
38.8
21.8
20.0
31.3

Balancesheet(INRbn)

BasicReportedEPS(INR)
DilutedReportedEPS(INR)
ReportedBookValue(BV)
AdjustedBookValue(ABV)
Dividendpershare(INR)
Return/ProfitabilityRatios(%)
Yieldonadvances
Yieldoninvestments
Costofdeposits
Netinterestmargin
Feeincome/Oprevenue
Tradingprofit/Oprevenue
Opexpense/Oprevenue
CapitalizationRatios(%)
Equity/Assets
Loans/Assets
Investments/Assets
Dividendpayout
Internalcapitalgrowth
Capitaladequacy
AssetQuality
GrossNPLratio
NetNPLratio
NetNPL/networth
Loanlossreserve/GrossNPL
Loanprovisions/NII
Loanprovisions/Totalloans
Productivity/Efficiencyratios
Businessperbranch(INRmn)
Netprofitperemployee(INRmn)

83.1
83.1
479.0
478.8
16.5

03/13f

03/14f

14.6
2.6
2.6
1.4

11.6
2.2
2.2
1.7

9.4
1.9
1.9
2.1

101.3
101.3
557.5
556.4
20.0

126.4
126.4
656.5
653.5
24.0

155.4
155.4
777.8
772.3
30.0

8.6
6.7
4.4
3.2
28.7
3.7
42.7

8.4
6.9
4.6
3.3
32.0
2.9
42.9

8.8
5.6
4.5
3.3
32.3
2.9
42.7

9.1
5.2
4.6
3.3
33.1
2.6
43.1

8.1
65.3
29.7
22.8
16.3
12.7

7.5
63.0
32.0
22.5
16.4
12.1

7.1
63.2
31.7
21.6
17.8
11.2

6.8
63.2
30.8
22.0
18.5
10.5

1.0
0.3
2.1
74.4
17.1
0.8

1.1
0.3
2.6
72.9
18.0
0.8

1.2
0.4
3.2
70.8
18.8
0.9

1.3
0.4
3.7
69.3
18.9
0.9

2,399.8 2,602.7 2,906.7 3,273.2

1.3 1.4 1.5 1.5

Financials
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