You are on page 1of 6

Results inline; slippages/recoveries surprise positively

April 27, 2012

Reco Accumulate CMP Rs1,103

Previous Reco Accumulate Target Price Rs1,380


4.7/ NA 5,191 17,134

Axis Bank (AXSB) Q4FY12 NII at Rs21.5bn inline with

consensus. However led by sharply lower provisions, net profit at Rs12.8bn was ahead of expectations CASA at 41.5% restricted NIMs compression to 20bps to 3.6%, inline with our estimates

Sharp increase in LDR to 77% (71% in Q3FY12) and stable

EPS change FY13E/14E (%) Target Price change (%) Nifty Sensex

Stable slippages at Rs5.1bn and higher recoveries/upgrades

Price Performance
(%) Absolute Rel. to Nifty
Source: Bloomberg

at Rs5.9bn (30% of op GNPAs) drive asset quality even as rest. assets at Rs5.9bn was slightly on the higher side

1M (1) (1)

3M 4 3

6M 12M (4) (1) (17) (8)

Continues to surprise on asset quality but rating profile of

corporates witnesses major shift towards lower side (AA to BBB). Maintain ACCUMULATE with TP of Rs1,380

Relative Price Chart


1375 Rs % 10 1250 2

Strong performance; Recoveries surprises positively


Axis Banks Q4FY12 NII grew by 26.2%yoy to Rs21.5bn, inline with consensus expectations. However driven by lower provisions, net profit at Rs12.8bn was ahead of consensus/our expectations. While advances grew by a strong 19.2% yoy (14.1%qoq), deposit growth was relatively lower at 16.3% yoy (5.5% qoq). Resultantly CD ratio increased significantly from 71.3% in Q3FY12 to 77.1% in Q4FY12helping the contraction in NIMs remain limited to 20bps qoq to 3.1%, inline with our expectations. The bank surprised positively on the balance sheet front as GNPA declined by 5.7%qoq. Stable slippages at Rs5.1bn and substantially higher recoveries at Rs5.9bn (Rs1.3bn avg rec/upgradation in earlier two quarters) led to the improvement in asset quality. Resultantly the provision cover also improved to 80.2% from 75.3% (incl tech write off) in previous quarter. However the restructuring during the quarter was slightly on the higher side at Rs5.9bn, as against the run rate of Rs3bn in last two quarters. Yield analysis
% Yield on advances* Yield on investments* Yield on assets* Cost of funds* NIM* Cost of funds # NIM #
Source: Company, Emkay Research

1125

-6

1000

-14

875

-22

750 Apr-11

Jun-11

Aug-11
Axis Bank (LHS)

Oct-11

Dec-11

Feb-12

-30 Apr-12

Rel to Nifty (RHS)

Source: Bloomberg

Stock Details
Sector Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn)

Banks AXSB@IN 4132 10 413 1,370/785 456/8,671 2494053 55.3

Q4FY11 9.2 7.4 7.8 4.7 3.0 5.6 3.4

Q1FY12 10.1 7.2 8.2 5.3 2.9 6.1 3.3

Q2FY12 10.8 7.7 8.7 5.4 3.3 6.2 3.8

Q3FY12 11.0 8.1 8.9 5.6 3.3 6.3 3.8

Q4FY12 10.7 7.6 8.7 5.6 3.1 6.5 3.6

YoY (bps) 148 20 96 90 7 89 11

QoQ (bps) -28 -53 -15 5 -20 11 -20

Shareholding Pattern (%)


Mar-12 Dec-11 Sep-11 Promoters FII/NRI Institutions Private Corp Public
Source: Capitaline

37.4 41.7 13.4 1.3 6.2

37.6 40.6 6.7 8.7 6.4

37.2 42.9 7.0 7.0 6.0

Note:* Calculated on basis of average quarterly balances # Reported

Kashyap Jhaveri kashyap.jhaveri@emkayglobal.com +91 22 6612 1249 Pradeep Agrawal pradeep.agrawal@emkayglobal.com +91 22 6612 1340 Aalok Shah aalok.shah@emkayglobal.com +91 22 6612 1336 FY2011 FY2012A FY2013E FY2014E

Valuation table
Y/E March 31 Net income 111,951 134,379 154,333 181,699 Net profit 33,885 42,682 48,777 58,840 EPS (Rs) 82.5 103.3 113.7 136.1 ABV (Rs) 440.8 528.7 633.1 736.8 RoA (%) 1.6 1.6 1.6 1.7 RoE (%) 19.3 20.4 19.1 19.2 PE (x) 14.0 11.1 9.7 8.0 P/ABV (x) 2.5 2.1 1.7 1.5

Source: Company, Emkay Research

Emkay Global Financial Services Ltd

Result Update

Axis Bank

Axis Bank Key financials Quarterly


Rs mn Net Interest Income Other Income Fee Income Net Income Total Operating Expenses As % Of Net Income Employee Expenses As % Of Net Income Other Expenses As % Of Net Income Operating Profit As % Of Net Income Provisions Prov for NPA PBT Total Tax Adjusted PAT Extra Ordinary Items Reported PAT Reported EPS
Source: Company, Emkay Research

Result Update

Q4FY11 17,010 14,504 12,311 31,514 13,306 42.2 3,960 12.6 9,346 29.7 18,208 57.8 2,544 1,760 15,664 5,463 10,201 0 10,201 24.8

Q1FY12 17,241 11,679 10,570 28,920 13,335 46.1 5,100 17.6 8,235 28.5 15,585 53.9 1,758 1,530 13,827 4,403 9,424 0 9,424 22.9

Q2FY12 20,073 12,349 11,207 32,422 14,665 45.2 4,986 15.4 9,679 29.9 17,756 54.8 4,056 2,470 13,701 4,497 9,203 0 9,203 22.3

Q3FY12 21,403 14,298 12,210 35,701 15,109 42.3 5,420 15.2 9,689 27.1 20,592 57.7 4,223 3,340 16,369 5,346 11,023 0 11,023 26.7

Q4FY12 21,461 15,876 13,270 37,337 16,962 45.4 5,296 14.2 11,666 31.2 20,376 54.6 1,393 1,393 18,983 6,210 12,773 0 12,773 30.9

YoY (%) 26.2 9.5 7.8 18.5 27.5 33.7 24.8 11.9 -45.2 -20.9 21.2 13.7 25.2 25.2 24.4

QoQ (%) 0.3 11.0 8.7 4.6 12.3 -2.3 20.4 -1.1 -67.0 -58.3 16.0 16.2 15.9 15.9 15.7

YTD' 12 80,178 54,202 47,256 134,380 60,071 44.7 20,802 15.5 39,269 29.2 74,309 55.3 11,430 8,733 62,879 20,456 42,422 0 42,422 102.8

YTD' 11 65,630 46,321 37,904 111,951 47,794 42.7 16,139 14.4 31,655 28.3 64,157 57.3 11,497 9,021 52,660 17,472 35,188 0 35,188 86.0

YoY (%) 22.2 17.0 24.7 20.0 25.7 28.9 24.1 15.8 -0.6 -3.2 19.4 17.1 20.6 20.6 19.6

Large corp/ Retail drive advances growth; PSL targets may still be way off
The banks advances grew by a strong 19.2%yoy to Rs1.7tn led by strong growth in Retail and large corporate book. While retail book grew by a stellar 35.3%yoy to Rs376bn, large corporate book grew by a healthy 19.9%yoy to Rs911bn. The growth in retail book was driven by strong growth in all the segments (ex personal loans); mortgages which constitute 75% of the total retail book grew by 49.3%yoy to Rs282bn. The large spike in the agriculture loans was more seasonal in nature for meeting year end PSL targets. However, since as % of last years loan book the agricultural loans stood at 12.2% vs 16% last year, we believe that PSL targets are still way off the norm and may continue to put pressure on NIMs next year. Advances mix
Rs bn Large corporates Mid-corporate/SME Agriculture Retail Personal loans Mortgages Car Loans Credit cards Others Total
Source: Company, Emkay Research

Q4FY11 759 214 173 278 39 189 31 6 14 1,424

Q1FY12 703 198 147 270 11 203 35 5 16 1,319

Q2FY12 794 208 106 293 12 223 38 6 15 1,401

Q3FY12 841 207 107 333 20 249 43 3 17 1,487

Q4FY12 911 238 173 376 23 282 49 8 15 1,698

YoY (%) 19.9 11.2 0.1 35.3 -42.0 49.3 60.0 35.3 8.3 19.2

QoQ (%) 8.3 15.0 62.1 12.9 12.9 12.9 12.9 125.9 -9.6 14.1

% of total 53.6 14.0 10.2 22.1 1.3 16.6 2.9 0.4 0.9 100.0

Emkay Research

27 April 2012

Axis Bank

Result Update

CASA mix stable despite strong advance growth


The banks CASA mix remain stable at 41.5% despite strong growth in advances, as CASA deposit grew by a strong 5.4%qoq, inline with growth in term deposits. The entire growth in CASA deposit was driven by saving deposit which grew by 9.2%qoq. CASA Mix
Rs bn Current Deposits Savings Deposits CASA Term deposits Total Deposits CASA
Source: Company, Emkay Research

Q4FY11 369 409 778 1,115 1,892 41.1

Q1FY12 315 429 744 1,092 1,836 40.5

Q2FY12 354 468 821 1,123 1,945 42.2

Q3FY12 395 473 868 1,219 2,087 41.6

Q4FY12 398 517 914 1,287 2,201 41.5

YoY (%) 7.7 26.5 17.6 15.4 16.3 44

QoQ (%) 0.7 9.2 5.4 5.5 5.5 -4

Strong fee income/ trading gains drive other income


The bank continued to report strong traction in fee income, as it grew by 8.6%qoq to Rs13.3bn, helped by business/ retail banking. Higher third party product business and government business drove retail and business banking Moreover with robust trading gains at Rs1.5bn, total non interest income grew by even higher 11%qoq to Rs15.9bn. Fee income
Rs mn Corporate banking Business banking Capital markets Retail banking Treasury Total fee income Trading gains/(losses) Others Total
Source: Company, Emkay Research

Q4FY11 5,381 1,070 190 3,120 2,550 12,311 581 1,612 14,504

Q1FY12 4,560 990 160 2,760 2,100 10,570 702 407 11,679

Q2FY12 4,430 970 150 2,910 2,740 11,200 277 866 12,349

Q3FY12 5,390 1,090 130 3,280 2,320 12,210 1,180 908 14,298

Q4FY12 5,590 1,280 130 3,770 2,490 13,260 1,460 1,146 15,876

YoY (%) 3.9 19.6 -31.6 20.8 -2.4 7.7 151.2 -28.9 9.5

QoQ (%) 3.7 17.4 0.0 14.9 7.3 8.6 23.7 26.2 11.0

YTD' 12 19,970 4,330 570 12,720 9,650 47,240 3,619 3,327 54,202

YTD' 11 15,591 3,880 700 10,010 7,710 37,891 4,970 3,448 46,321

YoY (%) 28.1 11.6 -18.6 27.1 25.2 24.7 -27.2 -3.5 17.0

Note: The growth in fee income on yoy basis adjusted for change in accounting policy at 39%

Asset quality improves further; recovery surprises positively


The banks asset quality improved during the quarter as GNPA/ NNPA declined by 5.7%qoq/ 30.8%qoq. While slippages remain stable at 5.2bn, significantly higher recoveries/ upgradation at Rs5.9bn surprised positively. Moreover provision cover also improved to 74% in Q4FY12 from 64% in Q3FY12. However restructured assets during the quarter were slightly higher at Rs5.9bn as against Rs3bn run rate for previous two quarters. Cumulative restructured book stood at Rs30.6bn, which is 1.8% of the overall advances. NPA profile
Rs mn Gross NPAs Net NPAs Gross NPAs (%) Net NPAs (%) Net NPAs/Net worth (%) Provision cover (%)
Source: Company, Emkay Research

Q4FY11 15,994 4,104 1.0 0.3 2.2 74.3

Q1FY12 15,731 4,625 1.1 0.3 2.3 70.6

Q2FY12 17,438 5,488 1.1 0.3 2.6 68.5

Q3FY12 19,145 6,829 1.1 0.4 3.1 64.3

Q4FY12 18,063 4,726 0.9 0.3 2.1 73.8

YoY (%) 12.9 15.2

QoQ (%) -5.7 -30.8

Emkay Research

27 April 2012

Axis Bank

Result Update

However there is a sharp change in the rating profile


Even as the asset quality continued to surprise, there was a sharp shift in the rating profiles of the large/mid corporate book. There was ~4% shift of in the distribution of ratings from AA category in favor of lower category of BBB. We believe that this could be due to lowering of rating of some of the existing loans of the bank. In fact over past five quarters, there has been 700bps migration from A/AA rated to BBB rated portfolio.

Axis bank approves the valuation; Merger likely in three months


Axis Bank board approved the valuation of financial services business proposed to be acquired from Enam Securities Private Limited (ESPL). Pursuant to the Revised Scheme, Enam Shareholders would receive Axis Bank shares in the ratio of 5:1, translating into approximately 2.9% shareholding in Axis Bank, which is valued at Rs13.4bn at CMP of Rs1,103. The proposed transaction is subject to requisite regulatory approvals including High Courts of Gujarat and Maharashtra and from the shareholders and creditors of the respective companies. We believe it will take around three months for taking the required approvals, post which both the entities will merge.

Valuation and view


While Axis Banks performance for Q4FY12 was robust and also positively surprised on NPLs, we are still factoring in lower 13.4% growth in earnings next year for few reasons (1) NIMs may continue to remain under pressure due to shortfall on PSL requirements which may be substituted with RIDF bonds and (2) the downgrading in the loan rating profiles may spike up restructuring and consequently provisions. We believe that these two can pose further risks to our earnings estimates. But still valuations at 1.7x/1.4x FY13E/FY14E are not unreasonable. Maintain accumulate with TP of Rs1,380.

Emkay Research

27 April 2012

Axis Bank

Result Update

Key Financials
Profit and loss (Rs mn)
(Year Ending Mar 31) Net interest income Other income Net income Operating expenses Pre provision profit PPP excl treasury Provisions Profit before tax Tax Tax rate Profit after tax FY11 65,630 46,321 111,951 47,794 64,157 67,820 12,793 51,364 17,479 34% 33,885 FY12A 80,178 54,202 134,379 59,811 74,568 78,187 11,430 63,138 20,456 32% 42,682 FY13E 91,592 62,741 154,333 68,917 85,417 89,036 13,262 72,154 23,377 32% 48,777 FY14E 108,463 73,236 181,699 80,571 101,128 105,108 14,087 87,041 28,201 32% 58,840

Balance sheet (Rs mn)


(Year Ending Mar 31) Liabilities Equity Reserves Net worth Deposits Borrowings Total liabilities Assets Cash and bank Investments Customer assets Others Total assets 214,087 539,211 1,604,783 68,999 2,427,134 139,339 658,928 1,970,589 87,422 2,856,278 186,588 744,720 2,259,180 86,179 3,276,667 223,729 870,742 2,667,688 84,695 3,846,854 4,106 185,883 189,988 1,892,378 344,767 2,427,134 4,132 223,953 228,085 2,201,043 427,150 2,856,278 4,288 278,025 282,314 2,553,941 440,412 3,276,667 4,324 325,714 330,037 3,062,319 454,499 3,846,854 FY11 FY12A FY13E FY14E

Key Ratios
(Year Ending Mar 31) NIM Non-II/avg assets Fee income/avg assets Opex/avg assets Provisions/avg assets PBT/avg assets Tax/avg assets RoA RoAE GNPA (%) NNPA (%) FY11 3.1 2.2 2.8 2.3 1.0 2.4 0.8 1.6 19.3 1.0 0.3 FY12A 3.0 2.1 2.8 2.3 0.7 2.4 0.8 1.6 20.4 0.9 0.3 FY13E 3.0 2.0 2.9 2.2 0.7 2.4 0.8 1.6 19.1 1.0 0.3 FY14E 3.0 2.1 2.8 2.3 0.7 2.4 0.8 1.7 19.2 1.0 0.3

Valuations
(Year Ending Mar 31) Net profit (Rs mn) Shares in issue (mn) EPS (Rs) PER (x) FDEPS(Rs) FDPER (x) Book value (Rs) P/BV (x) Adj book value (Rs) P/ABV (x) P/PPP (x) Dividend yield (%) FY11 33,885 411 82.5 13.4 79.0 14.0 450.8 2.4 440.8 2.5 7.1 1.3 FY12A 42,682 413 103.3 10.7 99.5 11.1 540.1 2.0 528.7 2.1 6.1 1.5 FY13E 48,777 429 113.7 9.7 113.7 9.7 646.9 1.7 633.1 1.7 5.5 1.6 FY14E 58,840 432 136.1 8.1 137.2 8.0 752.0 1.5 736.8 1.5 4.7 2.1

Emkay Research

27 April 2012

Axis Bank

Result Update

Recommendation History: Axis Bank AXSB IN


Date 20/01/2012 24/10/2011 22/07/2011 25/04/2011 Reports Axis bank Q3FY12 Result Update Axis Bank Q2FY12 Result Update Axis Bank Q1FY12 Result Update Axis Bank Q4FY11 Result Update Reco Hold Accumulate Hold Hold CMP 1,008 1,124 1,297 1,450 Target 1,380 1,380 1,380 1,570

Recent Research Reports


Date 25/04/2012 25/04/2012 23/04/2012 18/04/2012 Reports LIC Housing Finance Q4FY12 Result Update Yes Bank Q4FY12 Result Update M & M Financial Services Q4FY12 Result Update HDFC Bank Q4FY12 Result Update Reco Hold Accumulate Buy Hold CMP 258 366 668 537 Target 285 400 800 580

Emkay Global Financial Services Ltd. 7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com DISCLAIMER:
Emkay Global Financial Services Limited and its affiliates are a full-service, brokerage, investment banking, investment management, and financing group. We along with our affiliates are participants in virtually all securities trading markets in India. Our research professionals provide important input into our investment banking and other business selection processes. Investors may assume that Emkay Global Financial Services Limited and/or its affiliates may seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Emkay Global Financial Limited or its group companies to any registration or licensing requirement within such jurisdiction. Specifically, this document does not constitute an offer to or solicitation to any U.S. person for the purchase or sale of any financial instrument or as an official confirmation of any transaction to any U.S. person unless otherwise stated, this message should not be construed as official confirmation of any transaction. No part of this document may be distributed in Canada or used by private customers in United Kingdom. All material presented in this report, unless specifically indicated otherwise, is under copyright to Emkay. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Emkay. All trademarks, service marks and logos used in this report are trademarks or registered trademarks of Emkay or its Group Companies. The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read Risk Disclosure Document for Capital Market and Derivatives Segments as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. In so far as this report includes current or historic information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

Emkay Research

27 April 2012

www.emkayglobal.com 1