Event Update | Banking

November 18, 2010

Axis Bank
Acquires ENAMs IB and broking business

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Banking 61,732 1.1 1,608/919 244,541 10 19,931 5,999 AXBK.BO AXSB@IN

`1,427 `1,679
12 Months

Axis Bank has entered into an all-share deal worth `2,067cr with Enam Securities, following which the investment banking and equity broking business of the latter will be merged with the banks wholly-owned subsidiary. Enam will however, retain its AMC and PMS business. Shareholders of Enam Securities will own 3.3% equity stake in Axis Bank post the deal. Good strategic fit for the bank: Axis Bank is a dominant player in placement and syndication of debt issues and was ranked first in the Bloomberg Underwriters league table for Debt Arrangers for the period Jan-Sep 2010. With this deal it takes over one of the top-three domestic firms in the primary equity issuance space. Enam bagged the third place with a market share of 9.3% in the Indian domestic equity and rights issuances as per the Bloomberg league table for FY2010. In our view, the acquisition is a good strategic fit for Axis Bank enabling it to fill the gap in its portfolio and provide a more complete offering to its clients. The deal will also help the bank in further bolstering its already strong fee income. Valuations expensive but justified: For FY2010, total income of the businesses being acquired from Enam Securities stood at `242cr, with PBT of `92cr. Similarly, for FY2011 till October 20, 2010, total income stood at `182cr, with PBT of `77cr. On an annualised basis, FY2011 PBT works out to ~`132cr and PAT at ~`88cr, implying valuations of 23.4x FY2011E earnings, which is at ~39% premium to the listed brokerages, on 1HFY2011 annualised PAT basis. However, this should be seen in the context that such deals are usually executed at a large premium on account of the synergies involved. In any case the acquisition size is just ~3.3% of the market capitalization of Axis Bank and is unlikely to materially impact the valuations either way. Outlook and Valuation: We remain positive on the bank and believe that it deserves premium valuations owing to its attractive CASA franchise, multiple sources of sustainable fee income, strong growth outlook and A-list management. At the CMP, the stock is trading at 2.7x FY2012E ABV of `524.7. We recommend a Buy on the stock, with a revised Target Price of `1,679(`1,705), after conservatively adjusting for the estimated goodwill arising from the acquisition.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 37.5 11.9 46.0 4.6

Abs. (%) Sensex Axis Bank

3m 9.2 5.6

1yr 17.2 43.0

3yr 1.2 46.4

Key Financials
Y/E March (` cr) NII % chg Net Profit % chg NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%)
Source: Company, Angel Research

FY2009 3,686 42.6 1,815 69.5 3.0 50.6 28.2 5.1 1.4 19.1

FY2010 5,004 35.8 2,515 38.5 3.1 62.1 23.0 3.6 1.5 19.2

FY2011E 6,491 29.7 3,158 25.6 3.3 77.9 18.3 3.1 1.5 18.3

FY2012E 8,174 25.9 4,327 37.0 3.3 103.3 13.8 2.7 1.7 21.4 Vaibhav Agrawal
022 4040 3800 Ext: 333 vaibhav.agrawal@angelbroking.com

Shrinivas Bhutda
022 4040 3800 Ext: 316 shrinivas.bhutda@angelbroking.com

Vasant Lohiya
022 4040 3800 Ext: 315 vasant.lohiya@angelbroking.com

Please refer to important disclosures at the end of this report

Axis Bank | Event Update

Highlights of the deal

Enams promoter, Vallabh Bhansali will get a position on the board of the bank, while Manish Chokani will become the CEO of the new subsidiary. The deal involves a non-compete agreement in the businesses, which are transferred for a period of five years and the right to use the Enam brand name to the bank for a period of two years. The AMC, general insurance, PMS and life insurance distribution will remain with Enam, where it will be free to compete with Axis Bank. The deal will need approval of the shareholders, regulators and the High Courts of Gujarat and Mumbai and is expected to be completed in 4-6 months.

Exhibit 1: Peer comparison - 1HFY2011 annualised

Company (` cr) Edelweiss Capital India Infoline Motilal Oswal Fin. Enam Premium (%)
Source: Company, Angel Research; Note: Annualised PAT assuming tax rate of 33%

Ann. PAT 269 198 145 612 88*

Market cap 4,382 3,308 2,632 10,322 2,067

P/E (x) 16.3 16.7 18.1 16.9 23.4 38.5

Exhibit 2: Limited impact of merger

Particulars (`) EPS ABV
goodwill against the reserves

Pre-deal FY2011E FY2012E 77.9 453.5 104.2 532.8

Post-deal FY2011E FY2012E 77.9 453.5 103.3 524.7

Source: Angel Research; Note: While calculating ABV we have conservatively adjusted the estimated

Exhibit 3: India - Domestic Debt Book Runner League Table FY2010

Rank 1 2 3 4 5 6 7 8 9 10 Underwriter/Adviser SBI IDBI Bank Axis Bank ICICI Mitsubishi UFJ Fin PNB Standard Chartered BNP Paribas Credit Agricole Sumitomo Mitsui Fin Market share (%) 39.8 19.7 11.6 8 1.7 1.5 1.5 1.5 1.4 1.4

Source: Bloomberg, Angel Research

November 18, 2010

Axis Bank | Event Update

Exhibit 4: India Equity and Rights Issue League Table FY2010

Rank 1 2 3 4 5 6 7 8 9 10 Underwriter/Adviser Citi Kotak Mahindra Enam Morgan Stanley UBS Bank of America ML ICICI IDFC Capital JP Morgan SBI Capital Markets Market share (%) 17.1 11.9 9.3 6.9 6.8 5.7 5.2 4.3 3.9 3.4

Source: Bloomberg, Angel Research

November 18, 2010

Axis Bank | Event Update

Income statement
Y/E March (` cr) Net Interest Income - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Prov. and Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Prov. for Taxation - as a % of PBT PAT - YoY Growth (%) FY06 1,078 47.5 730 75.5 1,808 57.6 814 40.0 994 75.7 263 324.0 731 45.2 246 33.7 485 45.0 FY07 1,567 45.3 1,010 38.4 2,577 42.6 1,215 49.2 1,363 37.1 366 39.6 996 36.2 337 33.8 659 35.9 FY08 2,585 65.0 1,795 77.7 4,381 70.0 2,155 77.4 2,226 63.4 579 58.2 1,646 65.3 575 35.0 1,071 62.5 FY09 3,686 42.6 2,834 57.8 6,520 48.8 2,858 32.6 3,662 64.5 877 51.3 2,785 69.2 970 34.8 1,815 69.5 FY10 5,004 35.8 3,771 33.1 8,776 34.6 3,710 29.8 5,066 38.3 1,215 38.6 3,851 38.3 1,337 34.7 2,515 38.5 FY11E 6,491 29.7 4,240 12.4 10,732 22.3 4,561 22.9 6,171 21.8 1,386 14.1 4,785 24.2 1,627 34.0 3,158 25.6 FY12E 8,174 25.9 5,786 36.4 13,960 30.1 6,107 33.9 7,853 27.3 1,297 (6.4) 6,556 37.0 2,229 34.0 4,327 37.0

Balance sheet
Y/E March (` cr) Share Capital Reserves & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab. & Prov. Total Liabilities Cash balances Bank balances Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%) FY06 279 2,593 26.5 2,681 1,789 2,276 FY07 282 3,112 46.5 5,196 3,501 2,381 FY08 358 8,411 49.1 5,624 3,429 4,130 FY09 359 9,855 33.9 10,185 7,774 2,175 FY10 405 15,639 20.4 11,162 8,883 3,258 FY11E 405 18,041 28.0 14,151 11,192 4,379 FY12E 419 21,628 26.0 17,719 14,214 4,898

40,114 58,786

87,626 117,374 141,300 180,864 227,889

49,731 73,257 109,578 147,722 180,648 229,033 286,766 2,429 1,212 4,661 2,257 7,306 5,199 33,705 59,661 61.8 923 2,785 9,419 5,598 46,330 36.7 1,073 3,745 9,474 5,733 55,975 27.9 1,222 3,901 12,660 7,268 71,183 26.0 1,503 4,946 17,092 9,100 85,586 27.0 1,826 6,193

21,527 26,897 22,314 36,876 43.0 568 1,680 65.3 673 1,892

81,557 104,343 131,472 166,970

49,731 73,257 109,578 147,722 180,648 229,033 286,766 31.8 47.3 49.6 34.8 22.3 26.8 25.2

November 18, 2010

Axis Bank | Event Update

Key Ratios
Y/E March Profitability ratios (%) NIMs Cost to Income ratio RoA RoE B/S ratios (%) CASA ratio Credit/Deposit ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan loss prov. /avg. assets Provision coverage Per Share Data (`) EPS ABVPS DPS Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis (%) NII (-) Prov. Exp. Adj NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA Leverage (x) RoE 2.5 0.6 1.9 0.3 2.2 1.4 3.5 1.9 1.7 0.6 1.1 16.6 18.4 2.5 0.6 2.0 0.1 2.1 1.5 3.6 2.0 1.6 0.5 1.1 19.6 21.0 2.8 0.6 2.2 0.2 2.4 1.7 4.2 2.4 1.8 0.6 1.2 15.0 17.6 2.9 0.7 2.2 0.2 2.4 2.0 4.4 2.2 2.2 0.8 1.4 13.6 19.1 3.0 0.7 2.3 0.4 2.7 1.9 4.6 2.3 2.3 0.8 1.5 12.5 19.2 3.2 0.7 2.5 0.1 2.6 2.0 4.6 2.2 2.3 0.8 1.5 11.9 18.3 3.2 0.5 2.7 0.1 2.7 2.2 4.9 2.4 2.5 0.9 1.7 12.7 21.4 82.0 14.5 0.2 61.0 12.4 0.3 47.7 5.9 0.4 28.2 5.1 0.7 23.0 3.6 0.8 18.3 3.1 1.1 13.8 2.7 1.5 17.4 98.6 3.5 23.4 114.7 4.5 29.9 241.6 6.0 50.6 281.6 10.0 62.1 393.8 12.0 77.9 453.5 16.0 103.3 524.7 21.0 1.7 1.0 1.1 0.3 41.8 1.1 0.7 0.8 0.1 36.4 0.8 0.4 1.0 0.4 49.8 1.1 0.4 1.5 0.6 63.6 1.3 0.4 2.2 0.8 68.2 1.2 0.4 1.6 0.6 70.7 1.2 0.3 1.1 0.4 71.8 40.0 55.6 11.1 7.3 39.9 62.7 11.6 6.4 45.7 68.1 13.7 10.2 43.1 69.5 12.8 8.7 46.7 73.8 14.7 10.4 46.4 72.7 14.4 8.9 46.2 73.3 14.0 8.5 2.6 45.0 1.1 18.4 2.7 47.1 1.1 21.0 2.9 49.2 1.2 17.6 3.0 43.8 1.4 19.1 3.1 42.3 1.5 19.2 3.3 42.5 1.5 18.3 3.3 43.7 1.7 21.4 FY06 FY07 FY08 FY09 FY10 FY11E FY12E

November 18, 2010

Axis Bank | Event Update

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Axis Bank No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

November 18, 2010

Axis Bank | Event Update

Address: Acme Plaza, A Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059. Tel: (022) 3952 4568 / 4040 3800
Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Vaishali Jajoo Shailesh Kanani Anand Shah Sushant Dalmia Rupesh Sankhe Param Desai Sageraj Bariya Paresh Jain John Perinchery Srishti Anand Jai Sharda Sharan Lillaney Naitik Mody Amit Vora V Srinivasan Mihir Salot Chitrangda Kapur Pooja Jain Yaresh Kothari Shrinivas Bhutda Sreekanth P.V.S Hemang Thaker Nitin Arora Ankita Somani Technicals: Shardul Kulkarni Mileen Vasudeo Derivatives: Siddarth Bhamre Jaya Agarwal Institutional Sales Team: Mayuresh Joshi Abhimanyu Sofat Nitesh Jalan Pranav Modi Sandeep Jangir Ganesh Iyer Jay Harsora Meenakshi Chavan Gaurang Tisani Production Team: Bharathi Shetty Simran Kaur Bharat Patil Dilip Patel Research Editor Research Editor Production Production bharathi.shetty@angelbroking.com simran.kaur@angelbroking.com bharat.patil@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales AVP - Institutional Sales Sr. Manager Sr. Manager Sr. Manager Sr. Manager Sr. Dealer Dealer Dealer mayuresh.joshi@angelbroking.com abhimanyu.sofat@angelbroking.com niteshk.jalan@angelbroking.com pranavs.modi@angelbroking.com sandeepp.jangir@angelbroking.com ganeshb.Iyer@angelbroking.com jayr.harsora@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com Head - Derivatives Derivative Analyst siddarth.bhamre@angelbroking.com jaya.agarwal@angelbroking.com Sr. Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com vasudeo.kamalakant@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Automobile Infrastructure FMCG, Media Pharmaceutical Cement, Power Real Estate, Logistics, Shipping Fertiliser, Mid-cap Metals & Mining Capital Goods IT, Telecom Mid-cap Mid-cap Mid-cap Research Associate (Oil & Gas) Research Associate (Cement, Power) Research Associate (Logistics, Shipping) Research Associate (FMCG, Media) Research Associate (Metals & Mining) Research Associate (Automobile) Research Associate (Banking) Research Associate (FMCG, Media) Research Associate (Capital Goods) Research Associate (Infra, Real Estate) Research Associate (IT, Telecom) sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com vaishali.jajoo@angelbroking.com shailesh.kanani@angelbroking.com anand.shah@angelbroking.com sushant.dalmia@angelbroking.com rupeshd.sankhe@angelbroking.com paramv.desai@angelbroking.com sageraj.bariya@angelbroking.com pareshn.jain@angelbroking.com john.perinchery@angelbroking.com srishti.anand@angelbroking.com jai.sharda@angelbroking.com sharanb.lillaney@angelbroking.com naitiky.mody@angelbroking.com amit.vora@angelbroking.com v.srinivasan@angelbroking.com mihirr.salot@angelbroking.com chitrangdar.kapur@angelbroking.com pooja.j@angelbroking.com yareshb.kothari@angelbroking.com shrinivas.bhutda@angelbroking.com sreekanth.s@angelbroking.com hemang.thaker@angelbroking.com nitin.arora@angelbroking.com Ankita.somani@angelbroking.com

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November 18, 2010