COMPANY REPORT

Axis Bank - BUY

A mixed bag

Robust core PPOP performance; NIMs come-off, fee traction CMP (Rs) 707 12‐mts Target (Rs) 830 Upside 17%
improves and opex/assets ratio declines Stock data (As on July 30, 2019) Sector: Financials
Axis Bank’s core PPOP grew by strong 31% yoy driven by sustained Sensex: 37,397 Stock performance
expansion in core PPOP margin. Key drivers were a) robust growth in 52 Week h/l (Rs) 827/534 Axis Bank SENSEX
160
domestic advances (19% yoy) and overall deposits (21% yoy), b) Market cap (Rs bn) 1,851 140
Enterprise value (Rs bn) - 120
acceleration in core fee growth and c) sharp moderation in opex growth.
6m Avg t/o (Rs mn): 7,136 100
Retail portfolio growth momentum remained strong at 22% yoy with 80
FV (Rs): 2
sustained diversification and granularization. The growth was Jul-18 Nov-18 Mar-19 Jul-19
Div yield (%): 0.1
pervasive with products like business banking, personal loans, credit
Bloomberg code: AXSB IN Shareholding pattern (As of Jun ’19 end)
cards and auto loans leading the charge. The pursued strategy of cross-
BSE code: 532215 Promoter 18.1%
sell and self-sourcing was reflected in 83% originations from existing
FII+DII 66.3%
customers and 47% sourcing from the branches. In the domestic loan NSE code: AXISBANK
Others 15.6%
portfolio of the bank, retail contribution rose to 56%. Domestic
corporate book growth was healthy at 16% yoy, with 95%
disbursements to companies rated A- & Above and growth largely Result table
coming from working capital lending. Y/e 31 Mar (Rs mn) Q1 FY20 Q4 FY19 % qoq Q1 FY19 % yoy
Interest Income 152,550 147,980 3.1 127,770 19.4
As seen for other large banks, the CASA ratio slipped by 3ppt qoq to Interest expended (94,113) (90,924) 3.5 (76,102) 23.7
41%. Based on quarterly average balance, the CASA deposits and Retail Net Interest Income 58,437 57,056 2.4 51,668 13.1
TDs combined grew by 24% yoy. This was largely driven by retail TD Other income 38,688 35,263 9.7 29,250 32.3
which on period-end basis grew by staggering 39% yoy, while CASA Total Income 97,124 92,319 5.2 80,918 20.0
Operating expenses (38,197) (42,175) (9.4) (37,198) 2.7
grew only by 7% yoy. With deposits mix shifting away from CASA and
Provisions (38,146) (27,114) 40.7 (33,377) 14.3
competitive pricing offered on retail TDs, Axis Bank’s cost of deposit
PBT 20,782 23,030 (9.8) 10,343 100.9
increased significantly by 27bps qoq. As the yield on loan portfolio Tax (7,081) (7,979) (11.3) (3,333) 112.5
continued to improve (driven by favourable mix changes), the impact PAT 13,701 15,051 (9.0) 7,011 95.4
of the increase in deposit cost on NIM was mitigated. Core fee growth Source: Company, YES Sec – Research
acceleration to 26% yoy was underpinned by robust momentum in
retail fees whose contribution has risen to 62%. With opex growing by
just 3% yoy, the ratio of opex/assets declined to 2.1%.
July 30, 2019
Research Analyst: Rajiv Mehta  rajiv.mehta@ysil.in | Sachit Damani  sachit.damani@ysil.in
Head of Research: Amar Ambani  amar.ambani@ysil.in (For important information about YES SECURITIES (INDIA) LTD. and other disclosures, refer to the end of this material.)
Axis Bank

Business Data NPLs stable; sub-investment grade pool had new stress addition
Business (Rs mn) Q1 FY20 Q4 FY19 % qoq Q1 FY19 % yoy and the bank created additional provisioning
Advances 4,972,760 4,947,980 0.5 4,410,745 12.7 Though gross slippages in Q1 FY20 at Rs48bn were significantly higher
Large/Mid-corporate 1,774,550 1,834,020 (3.2) 1,724,430 2.9 qoq, the closing Gross NPLs remained flat due to some technical
SME 616,160 655,840 (6.1) 569,830 8.1 slippages (also reflected in upgrade) and elevated write-off. Of the net
Retail 2,582,050 2,458,120 5.0 2,116,480 22.0
slippage of Rs13bn in the corporate portfolio, Rs12bn came from BB &
Home Loans 981,179 934,086 5.0 846,592 15.9
Below pool. The bank downgraded Rs22.4bn worth loans into the BB &
Rural Lending 335,667 344,137 (2.5) 296,307 13.3
Auto Loans 309,846 270,393 14.6 232,813 33.1
Below pool, which were largely pertaining to the groups that have shown
PL + CC 438,949 417,880 5.0 296,307 48.1 signs of stress in recent months. Thus, despite sizable slippages into
Others 516,410 491,624 5.0 444,461 16.2 NPLs and upgradations/repayments of ~Rs10bn, the overall sub-
Total Deposits 5,406,780 5,484,710 (1.4) 4,470,793 20.9 investment grade pool remained at Rs75bn (representing 1.3% of gross
CA 712,110 892,650 (20.2) 682,780 4.3 customer assets). Axis Bank has a non-fund based exposure of Rs25bn to
SA 1,522,630 1,541,290 (1.2) 1,413,590 7.7 the above pool and Rs28bn to NPL accounts.
Others 3,172,040 3,050,770 4.0 2,374,423 33.6
Investments 1,757,915 1,749,693 0.5 1,546,136 13.7 During the quarter, the bank introduced a process of making systematic
Borrowings 1,301,214 1,527,758 (14.8) 1,522,271 (14.5) provisions towards non-fund based facilities in NPA and in stressed
Source: Company, YES Sec – Research accounts outside NPA. This change created a one-time provisioning
impact of Rs4.6bn. As of Q1 FY20, Axis Bank held additional provisions
Key Ratios of Rs23.6bn towards various risk contingencies, over and above the
Particulars Q1 FY20 Q4 FY19 Chg. Q1 FY19 Chg. regular NPA provisions (thus not counted in calculation of PCR).
NIM (%) 3.4 3.4 (0.0) 3.5 (0.1)
Yield on advances (%)* 9.2 9.2 0.1 8.7 0.5 Planned equity raise and recent price correction make risk-
Yield on inv. (%)* 7.1 7.1 0.0 7.0 0.2 reward attractive
Cost of Funds (%)* 5.5 5.3 0.1 5.1 0.4
CASA (%) 41.3 44.4 (3.0) 46.9 (5.6)
Even after factoring the planned equity raise of Rs180bn, we marginally
C/D (x) 92.0 90.2 1.8 98.7 (6.7) cut earnings estimates for FY20 and FY21 due to a slower traction in NII
Cost to Income (%) 39.3 45.7 (6.4) 46.0 (6.6) growth and prevailing uncertainty around credit cost. We believe capital
RoE (%) 9.2 10.3 (1.1) 4.9 4.3 raise, if successful around the current price, will be a positive trigger for
RoA (%) 0.7 0.8 (0.1) 0.4 0.3 the stock as it would significantly strengthen the balance sheet. We
CAR (%) 15.8 15.8 (0.0) 16.6 (0.8) expect loan growth to accelerate and the cost ratio and credit cost to fall
Gross NPA (%) 5.3 5.3 (0.0) 6.5 (1.3) over FY19-21, thus driving RoA/RoE to 1.4%/14%. Stripping-off the
Net NPA (%) 2.0 2.1 (0.0) 3.1 (1.1) valuation of subsidiaries, the bank trades at 13x P/E and 2x P/ABV on
Source: Company, YES Sec – Research FY21 estimates.
*Calculated

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Axis Bank

Stable loan and deposit growth Encouraging trends in core fee and opex growth
Loans Growth Depsoit Growth Core Fee Growth* Opex Growth
30 30
(%) 25.7 (%)
24.4
25 25
21.2 20.9 20.9 25.8
20 17.8 20 17.5 23.4
16.1
14.4 15.2 14.3 14.0
13.4
15 13.5 15 12.2 11.9
12.9 12.5 12.7 16.4
11.2 9.6
10.2 9.5
9.5
10 10 12.1
9.5
5 2.7
5
1.0 5.7

0 0
Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 Q1 FY20 Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 Q1 FY20
Source: Company, YES Sec – Research Source: Company, YES Sec – Research

Sluggish NIM pulls down NII growth Persistent improvement in PPOP performance
NII Growth (LHS) NIMs (RHS) Core PPOP Growth* (LHS) Core PPOP Margin* (RHS)
25 3.7 40 2.4
(%) (%) (%) (%)
35.3 31.5
3.5 3.5 3.5 20.6
3.4 3.5 2.3
20 3.4 30 2.3
3.4
18.4 2.2 2.2 2.2
3.4 3.3 2.2
15.3 20 18.0 2.2
15 3.3 13.1 12.8 2.1
11.9 15.2
3.1 10 8.2 2.1
9.2 2.1
10 2.0
2.9 0 2.0

5 (3.8)
2.7 (10) 1.9
0.6 (12.0)
0.0
0 2.5 (20) 1.8
Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 Q1 FY20 Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 Q1 FY20
Source: Company, YES Sec – Research Source: Company, YES Sec – Research
*Calculated

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Axis Bank

Asset quality was stable Valuation summary (Stand-alone Bank)

Y/e 31 Mar (Rs. mn) FY18 FY19 FY20E FY21E
GNPL NNPL
8 Total operating income 295,848 348,385 405,222 479,915
(%) yoy growth (%) (0.7) 17.8 16.3 18.4
6.8
7 6.5
5.9 6.0 Operating profit (pre-provisions) 155,945 190,051 236,597 285,996
5.8
6 5.3 5.3 Net profit 2,757 46,766 98,499 141,279
5.3
5 yoy growth (%) (92.5) 1,596.4 110.6 43.4
4
3.4
3.1 3.1 EPS (Rs) 1.1 18.2 34.8 49.9
3 2.6 2.5 2.4
2.0 Adj.BVPS (Rs) 182.6 215.4 293.6 328.6
2.1
2 P/E (x)* 658.2 38.9 20.3 14.2
1 P/Adj.BV (x)* 3.9 3.3 2.4 2.2
ROE (%) 0.5 7.2 12.3 14.2
0
Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 Q1 FY20 ROA (%) 0.0 0.6 1.1 1.4
Source: Company, YES Sec – Research Tier-1 CAR (%) 13.0 12.5 14.6 14.5
Source: Company, YES Sec – Research
*Not adjusted for value of the holdings in subsidiaries

Slippages and credit cost witness an uptick

Slippages (LHS) Credit Cost (RHS)
180,000 7
(Rs mn) 165,360 6.7 (%)
160,000
6
140,000
5
120,000
100,000 4
89,360
3.2
80,000 2.5 3
2.3
2.1 2.1
60,000 47,980
43,370 2.1 2
44,280 1.3
40,000 37,460
27,770 30,120 1
20,000
0 0
Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 Q1 FY20
Source: Company, YES Sec – Research

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RECOMMENDATION PARAMETERS FOR FUNDAMENTAL REPORTS

Analysts assign ratings to the stocks according to the expected upside/downside relative to the current market price and the estimated target price. Depending on the expected
returns, the recommendations are categorized as mentioned below. The performance horizon is 12 to 18 months unless specified and the target price is defined as the analysts’
valuation for a stock. No benchmark is applicable to the ratings mentioned in this report.

BUY > 15%

ADD 5% to 15%
HOLD -15% to +5%
SELL > - 15%
POSITIVE: Positive is rating given to stocks we like but yet to be formally included in our coverage universe.
NEGATIVE: Negative is rating given to stocks yet to be formally included in our coverage universe, but we find valuations expensive vis-a-vis fundamentals.
NEUTRAL: Neutral rating is given to stocks that are not under our formal coverage yet, but we find current valuation fairly representing fundamentals.

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by SEBI/Stock Exchanges.

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Name of the Research Analyst : Rajiv Mehta, Sachit Damani
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