Update|Bank
Jan 02, 2019
Axis Bank
BUY
CMP
`620
Earnings to normalize with stabilizing credit costs
Target Price
`750
Axis is the third-largest private sector bank in India in terms of asset size, with a
Investment Period
12 Months
balance sheet of ~7.1 lakh cr and advances of 4.48 lakh cr (of which retail
contributes 48.6%). It has a network of over 3,882 branches with CASA of 47.7%.
Stock Info
The appointment of Amitabh Chaoudhary as MD & CEO for three years beginning
Sector
Banking
from January 01, 2019, shrinking stressed asset and incremental lending to high
Market Cap (` cr)
1,59,051
rated corporates would aid Axis Bank to restore investor confidence.
Beta
1.4
52 Week High / Low
676/477
Nearing end of NPA recognition and incremental lending to high rated
Avg. Daily Volume
7,72,545
corporates: Axis Bank’s GNPA was lower at 1.67% in FY2016, however it peaked
Face Value (`)
2
at
6.77% in FY2018, largely owing to legacy corporate loans (Watchlist).
BSE Sensex
35,891
Consequently, slippages jumped from
2.6% in FY2016 to
8% in FY2018.
Nifty
10,792
However, slippages for Q2FY2019 were lowest in past nine quarters. As on
Reuters Code
AXBK.NS
Q2FY2019, 60% of the bank’s stressed asset pool has been recognised as NPAs,
Bloomberg Code
AXSB.NATL
hence we expect the pace of incremental slippages to decline. Shift towards high
rated corporates (FY2016 - 62% to Q2FY2019 - 79%), reduction in slippages and
Shareholding Pattern (%)
healthy coverage of 58% (if we include technical write-off, 73%) on NPLs would
keep credit cost under control.
Promoters
25.0
MF / Banks / Indian Fls
11.4
Improvement in NIM and return ratio: Axis Bank’s NIM has been under pressure
FII / NRIs / OCBs
55.3
owing to higher slippages. However, we expect NIM to improve 30bps to 3.4% by
FY2020 led by (1) lower interest reversal, (2) bank has increased MCLR by 50bps
Indian Public / Others
8.3
in last three quarters and 54% advances are linked to MCLR, (3) opened 578
branches, which would help them to strengthen retail asset book but at the same it
would also help them to garner CASA and retail deposits.
Abs. (%)
3m 1yr
3yr
Return ratio to improve: Asset quality issue has adversely impacted ROE/ROA . We
Sensex
(0.7)
7.3
37.9
expect decline in credit cost and improvement in net interest margin along with
LTFH
5.8
11.9
38.9
growth in advances to normalize the return ratios.
3-year price chart
Outlook & Valuation: Axis Bank currently trades at 2.1x its FY2020E price to book
value (after adjusting value of subsidiaries). We expect the stock to get re-rated
700
owing to (1) new leadership, (2) limited stressed loan pool, (3) improvement in
600
return ratios (ROA/ROE - 1.1%/12.2% by FY2020E). We recommend Buy on the
500
stock, with a target price of `750.
400
300
Key Financials
Y/E March (` cr)
FY16
FY17
FY18
FY19E
FY20E
NII
16,833
18,093
18,618
21,771
26,195
Source: Company, Angel Research
% chg
18
7
3
17
20
Net profit
8,224
3,679
276
4,331
8,769
% chg
12
-55
(93)
1,471
102
NIM (%)
3.6
3.4
3.1
3.2
3.4
EPS (`)
32
14
1
17
34
P/E (x)
20
44
585
37
18
Jaikishan Parmar
P/ABV (x)
3.1
3.0
2.8
2.5
2.2
022 - 39357600 Ext: 6810
RoA (%)
1.6
0.6
0.0
0.6
1.1
Research Analyst
RoE (%)
17
7
0
7
12
[email protected]
Source: Company, Angel Research; Note: CMP as of 1/1/19
Please refer to important disclosures at the end of this report
1
AXIS BANK | Update
Exhibit 1: SOTP valuation summary
Stake in
Valuation
Sum of the parts
Value/Share `
Company %
Methodology
Core Business
100.0
2.5x FY20E ABV
721.8
Axis Capital Ltd
100
15x FY20E PAT
9.3
Axis MF
75
20x FY20E PAT
3.3
Axis Fin
100
2x FY20E Book Value
11.9
Axis Sec
100
15x FY20E PAT
4.6
Sum of Parts
751.0
Exhibit 2: One Year Forward P/BV
3.5
P/BV
Avg. P/BV
+1TSD
-1STD
3.1
3.0
2.5
2.5
2.1
2.0
1.5
1.5
1.0
1.0
0.5
Source: Company
Exhibit 3: Decline in slippages
Particular (` cr)
2QFY17
3QFY17
4QFY17
1QFY18
2QFY18
3QFY18
4QFY18
1QFY19
2QFY19
GNPA Opening
9,553
16,379
20,467
21,280
22,031
27,402
25,001
34,249
32,662
Fresh Slippage
8,772
4,560
4,811
3,519
8,936
4,428
16,536
4,337
2,777
Slippage
2.5%
1.3%
1.3%
0.9%
2.2%
1.1%
3.8%
1.0%
0.6%
Slippage Annual
9.9%
5.3%
5.2%
3.7%
8.7%
4.2%
15.0%
3.9%
2.4%
Upgrade & Rec
1,073
350
2,804
306
1,048
4,008
3,401
2,917
2,186
Write off
873
122
1,194
2,462
2,517
2,821
3,887
3,007
2,315
Closing GNPA
16,379
20,467
21,280
22,031
27,402
25,001
34,249
32,662
30,938
Prov
8,618
12,172
12,654
12,265
13,350
13,232
17,657
17,760
18,222
NPA
7,761
8,295
8,626
9,766
14,052
11,769
16,592
14,902
12,716
Prov
3,623
3,796
2,581
2,342
3,140
2,811
7,180
3,338
2,927
CC
1.0%
1.1%
0.7%
0.6%
0.8%
0.7%
1.6%
0.8%
0.6%
CC Ann
4.1%
4.4%
2.8%
2.4%
3.1%
2.7%
6.5%
3.0%
2.6%
Source: Company
Jan 02, 2019
2
AXIS BANK | Update
Income Statement
Y/E March (` cr)
FY16
FY17
FY18
FY19E
FY20E
Net Interest Income
16,833
18,093
18,618
21,771
26,195
- YoY Growth (%)
18
7
3
17
20
Other Income
9,371
11,691
10,967
11,466
13,137
- YoY Growth (%)
12
25
(6)
5
15
Operating Income
26,204
29,784
29,585
33,237
39,332
- YoY Growth (%)
16
14
(1)
12
18
Operating Expenses
10,101
12,200
13,990
15,704
17,878
- YoY Growth (%)
10
21
15
12
14
Pre - Provision Profit
16,104
17,585
15,594
17,533
21,454
- YoY Growth (%)
20
9
(11)
12
22
Prov. & Cont.
3,710
12,117
15,473
11,028
8,168
- YoY Growth (%)
59
227
28
-29
-26
Profit Before Tax
12,394
5,468
122
6,505
13,286
- YoY Growth (%)
12
(56)
(98)
5,251
104
Prov. for Taxation
4,170
1,788
-154
2,174
4,517
- as a % of PBT
34
33
(127)
33
34
PAT
8,224
3,679
276
4,331
8,769
- YoY Growth (%)
12
(55)
(93)
1,471
102
Balance Sheet
Y/E March (` cr)
FY16
FY17
FY18
FY19E
FY20E
Equity
477
479
513
513
513
Reserve & Surplus
52,688
55,284
62,932
67,047
75,377
Net worth
53,165
55,763
63,445
67,561
75,891
Deposits
3,57,968
4,14,379
4,53,623
5,17,130
5,99,871
- Growth (%)
11
16
9
14
16
Borrowings
1,08,580
1,05,031
1,48,016
1,68,738
1,94,049
Other Liab. & Prov.
20,283
26,387
26,373
24,896
20,967
Total Liabilities
5,39,996
6,01,559
6,91,458
7,78,325
8,90,778
Cash Balances
22,361
30,858
35,481
42,269
43,033
Bank Balances
10,964
19,398
7,974
10,751
12,389
Investments
1,31,524
1,28,793
1,53,876
1,67,840
1,88,696
Advances
3,38,774
3,73,069
4,39,650
5,01,201
5,81,393
- Growth (%)
21
10
18
14
16
Fixed Assets
3,523
3,747
3,972
4,551
5,279
Other Assets
32,850
45,693
50,505
51,713
59,987
Total Assets
5,39,996
6,01,559
6,91,458
7,78,325
8,90,778
- Growth (%)
17
11
15
13
14
Source: Company
Jan 02, 2019
3
AXIS BANK | Update
Key Ratio
Y/E March
FY16
FY17
FY18
FY19E
FY20E
Profitability ratios (%)
NIMs
3.6
3.4
3.1
3.2
3.4
Cost to Income Ratio
39
41
47
47
45
RoA
1.6
0.6
0.0
0.6
1.1
RoE
17
7
0
7
12
B/S ratios (%)
CASA Ratio
47.3
51.4
53.8
53.8
53.8
Credit/Deposit Ratio
95
90
97
97
97
Asset Quality (%)
Gross NPAs
1.67
5.04
6.77
5.0
4.0
Net NPAs
0.70
2.11
3.40
2.3
1.7
Credit Cost
1.1
3.2
3.5
2.2
1.4
Provision Coverage
0.58
0.58
0.50
0.54
0.58
Per Share Data (`)
EPS
32
14
1
17
34
ABVPS (70% cover.)
204
208
222
247
284
DPS
5
5
5
5
5
Valuation Ratios
PER (x)
20
44
585
37
18
P/ABVPS (x)
3.1
3.0
2.8
2.5
2.2
Dividend Yield (%)
0.8
0.9
0.9
0.8
0.8
DuPont Analysis
Interest Income
8.2
7.8
7.1
7.4
7.7
Interest Expenses
4.8
4.6
4.2
4.4
4.6
NII
3.4
3.2
2.9
3.0
3.1
- Prov
0.7
2.1
2.4
1.5
1.0
Adj NII
2.6
1.0
0.5
1.5
2.2
Other Income
1.9
2.0
1.7
1.6
1.6
Total Income
4.5
3.1
2.2
3.0
3.7
Opex
2.0
2.1
2.2
2.1
2.1
PBT
2.5
1.0
0.0
0.9
1.6
TAX
0.8
0.3
-0.0
0.3
0.5
RoA
1.6
0.6
0.0
0.6
1.1
Leverage
10.2
10.5
10.8
11.2
11.6
RoE
16.8
6.8
0.5
6.6
12.2
Source: Note - Valuation done on closing price of 01/01/2019
Jan 02, 2019
4
AXIS BANK | Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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managed public offering of securities of the company covered by Analyst during the past twelve months.
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Disclosure of Interest Statement
Axis Bank
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
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)
Jan 02, 2019
5