Upload
ngodang
View
216
Download
1
Embed Size (px)
Citation preview
Axis Bank
Gradual strengthening of balance sheet continues
January 23, 2018
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Q3FY18 Result Update
R Sreesankar [email protected] / +91‐22‐66322214
Pritesh Bumb [email protected] / +91‐22‐66322232
Vidhi Shah [email protected] / +91‐22‐66322258
Rating BUY
Price Rs611
Target Price Rs651
Implied Upside 6.5%
Sensex 35,798
Nifty 10,966
(Prices as on January 22, 2018)
Trading data
Market Cap. (Rs bn) 1,570.5
Shares o/s (m) 2,570.2
3M Avg. Daily value (Rs m) 4800.1
Major shareholders
Promoters 28.04%
Foreign 48.06%
Domestic Inst. 14.33%
Public & Other 9.57%
Stock Performance
(%) 1M 6M 12M
Absolute 10.4 13.1 35.6
Relative 4.9 1.3 3.2
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2019 31.4 32.8 ‐4.3
2020 44.7 47.1 ‐5.0
Price Performance (RIC: AXBK.BO, BB: AXSB IN)
Source: Bloomberg
0
100
200
300
400
500
600
700
Jan‐17
Mar‐17
May‐17
Jul‐17
Sep‐17
Nov‐17
(Rs)
Axis Bank earnings were slightly below estimates on the back of higher provisions, though higher provisions helped improve PCR (calc) by 490bps to 58%. Asset quality improved despite relatively higher slippages of Rs44.3bn on large upgrade/recoveries of Rs40.1bn from the divergence related NPAs in Q2FY18 and also partly due to high write‐offs. Key positives for the bank continues to be strong CASA, improving retail/SME/better rated corporate and control on opex. We believe NIM pressure should bottom out and stabilize going ahead with tailwinds if MCLR increase from here on, while we see slippages & provisions gradually trending downwards in FY19 & FY20 helping improvement in return ratios, which makes us retain our positive stance intact directionally since our upgrade last month. The stock has run up sharply and hence leaves limited upside in the near term with PT of Rs651 based on 2.3x Sep‐19 ABV.
Ex‐treasury PPOP better: Core PPOP growth of ~17% YoY was better with decent NII growth of 9% YoY and strong fee income of 25% YoY (partly on lower base). Margins were lower by 7bps at 3.3% as pressure on yields continued but bank expect margin to have bottomed out and retained guidance of 20bps decline from FY17 exit of 3.67% which currently has declined by 19bps for 9MFY18. We believe NIM pressure to subside in near term and should improve slightly in next few quarters.
Slippages high but stronger recovery/upgrades: Bank continued to report relatively higher slippages of Rs44.3bn mainly from corporate book and within that from the “BB & below” rated pool. But asset quality improved as bank witnessed Rs40.1bn of recovery/upgrade on large upgrade in one steel a/c, recovery in one IT a/c related from the RBI divergent NPAs in Q2FY18 and one NPA a/c part of NCLT was sold to non‐ARC on cash basis with 40% haircut. “BB & Below” rated exposure which remains key a monitorable for asset quality increased QoQ to Rs161.2bn (3.8% of loans) from Rs158.2bn with overlap of restructuring dispensations & watchlist. Bank maintained its credit cost guidance of 220‐260bps with suitable PCR of 60‐65%.
Loan book growth strong; slippages to subside gradually: Loan book growth was strong at 21% YoY mainly contributed by strong SME/Retail (+27% each) growth and working capital loans in corporate book (49% growth). Bank continues to focus on retail/SME/Working capital and better rated corporate exposures helping improve overall asset quality of bank and in‐turn would help reduce slippages going ahead.
.
Key financials ( Y/e March) 2017 2018E 2019E 2020E
Net interest income 180,931 190,274 232,272 275,556
Growth (%) 7.5 5.2 22.1 18.6
Operating profit 175,845 165,333 202,785 242,812
PAT 36,793 36,577 81,412 117,040
EPS (Rs) 15.4 14.7 31.4 44.7
Growth (%) (55.5) (4.3) 113.1 42.5
Net DPS (Rs) 4.7 5.3 6.4 8.0
Profitability & Valuation 2017 2018E 2019E 2020E
NIM (%) 3.17 2.97 3.21 3.37
RoAE (%) 6.8 6.0 11.4 14.6
RoAA (%) 0.64 0.57 1.12 1.43
P / BV (x) 2.6 2.4 2.1 1.9
P / ABV (x) 3.0 2.7 2.4 2.0
PE (x) 39.7 41.5 19.5 13.7
Net dividend yield (%) 0.8 0.9 1.1 1.3
Source: Company Data; PL Research
January 23, 2018 2
Axis Bank
Exhibit 1: Q3FY18 Financials –Core performance was better; asset quality improves
(Rs m) Q3FY18 Q3FY17 YoY gr. (%) Q2FY18 QoQ gr. (%)
Interest Income 1,17,216 1,11,010 5.6 1,12,351 4.3
Interest Expenses 69,900 67,673 3.3 66,955 4.4
Net interest income (NII) 47,315 43,337 9.2 45,396 4.2
Other income 25,931 34,002 (23.7) 25,855 0.3
Total income 73,246 77,339 (5.3) 71,252 2.8
Operating expenses 34,708 30,937 12.2 33,478 3.7
‐Staff expenses 10,629 9,919 7.2 10,828 (1.8)
‐Other expenses 24,079 21,018 14.6 22,650 6.3
Operating profit 38,538 46,402 (16.9) 37,773 2.0
Core operating profit 36,538 31,148 17.3 34,003 7.5
Total provisions 28,110 37,958 (25.9) 31,404 (10.5)
Profit before tax 10,428 8,444 23.5 6,369 63.7
Tax 3,163 2,649 19.4 2,045 54.7
Profit after tax 7,264 5,796 25.3 4,324 68.0
Balance sheet (Rs m)
Deposits 40,89,667 37,07,901 10.3 41,64,306 (1.8)
Advances 42,09,227 34,71,747 21.2 41,01,708 2.6
Ratios (%)
Profitability ratios
RoaA 0.4 0.4 5 0.3 17
NIM 3.4 3.4 (5) 3.5 (7)
Cost of Funds 5.1 5.5 (43) 5.2 (10)
Asset Quality
Gross NPL 2,50,005 2,04,668 22.2 2,74,023 (8.8)
Net NPL 1,17,695 82,948 41.9 1,40,523 (16.2)
Restructured Assets (Rs m)
Gross NPL ratio 5.28 5.2 6 5.9 (62)
Net NPL ratio 2.56 2.2 38 3.1 (56)
Coverage ratio (Calc) 52.9 59.5 (655) 48.7 420
Rest. assets/ Total adv.
Business & Other Ratios
Low‐cost deposit mix 49.0 47.6 141 50.0 (100)
Cost‐income ratio 47.4 40.0 738 47.0 40
Non int. inc / total income 35.4 44.0 (856) 36.3 (89)
Credit deposit ratio 102.9 93.6 929 98.5 443
CAR 18.0 16.6 141 16.3 168
Tier‐I 14.1 13.0 114 12.4 177
Source: Company Data, PL Research
NII was decent at 9% YoY growth led by
strong growth in advances; however, yields
declined as more portion of book is linked
to MCLR (43%)
Core fee income was better at 24.5% YoY
growth mainly led by retail and transaction
fees. Within retail, card fees grew strong
Provisions were higher than our
expectations as bank strengthens the
balance sheet and improves PCR by 420bps
QoQ
Advances saw better growth at 21% YoY
led by retail and SME book
NIMs came off further on continued
pressure on yields side and slightly
increased cost of funds (calc).
Asset quality improved as bank saw huge
recoveries/upgrades including 2 A/cs which
fell in Q2FY18 due to RBS; however
slippages were slightly higher than our
expectations
CRAR improved significantly due to raising
of equity capital and AT1 Bonds
January 23, 2018 3
Axis Bank
Key Q3FY18 conference call highlights:
Balance sheet growth & outlook:
Loan book – Advances grew by 21% YoY as SME and retail book grew strong
while corporate loan growth was mainly working capital led.
Retail loan book – Book has become more diversified growing at 29% YoY led
by auto (33% YoY) and personal loans (36% YoY). Bank continues to see strong
traction in growth (smaller base) in credit cards, small business banking and
education loans segments. Retail book has become more granulized and
mainly growth is coming from existing customers.
Corporate loan book – Continue to grow robust at 49% YoY in working capital loans, whereas term loans were flat YoY. Focus is on moving to deeper
corporate bond market, better rated corporate, reduce risk by concentration
and improve transaction banking.
SME loan book – Book has grown at 27% YoY led by both working capital and
term loans and the growth momentum continues to be the same from hereon.
Liabilities: CASA Ratio stands at 49% for Q3FY18 mainly led by SA deposits. Daily
avg CASA continues show strong growth.
NIMs:
Margins came off further by 7bps QoQ to 3.38% mainly on increase in cost of
funds and yields on advances were flat sequentially. Outlook – Continue to
maintain compression of ~20bps in range of 3.4‐3.5% (19bps in 9MFY18) over
the FY from exit at 3.67% in FY17.
Fees:
Fee – Fees growth was driven by retail which constitutes 49% of fees and grew
by 35% YoY and transaction fees which now constitute 28% of fees grew by 23%
YoY. Within retail, card fees continue to show strong traction.
Asset Quality:
Stressed asset accretion – Bank witnessed Rs44.3bn of slippages of which 67%
came from corporate book of Rs29.3bn of which ~68% of slippages belonged to
watchlist & 93% from the BB & below pool. Retail slippages were slightly higher
on some seasonality. Bank witnessed cash recovery from IT/ITES A/c and one
steel A/c got upgraded during the quarter which was recognized as NPA as per
RBI divergence in Q2FY18. Bank also sold one NPA a/c from the NCLT list to non‐
ARC on cash basis with 40% haircut.
Watch list Details – Watch list has reduced from 1.5% to 1.3% of loan book
(2.5% as on FY17). Rs20bn slippages were seen from the watch list and the
funded watch list currently stands at Rs53bn. Power sector continues to
dominates the watch list with 67% share. Non Fund watch list stands at Rs8.1bn.
January 23, 2018 4
Axis Bank
BB & Below book – Exposure slightly increased to Rs161.2bn from Rs158.2bn in
Q2FY18 which is funded exposure and ~Rs50.0bn of non‐funded exposure. This
includes 100% of watch list and ~35% of Restructured Dispensations (incl SDR,
5:25 & S4A). Top 3 sectors that constitute 60% of this stressed asset book are
Power (35%), Infra Construction (30‐35%), and Iron and Steel. Bank has been
seeing as a trend of Rs20‐30bn down‐gradation to BB & Below since past 5
quarters
Power exposure has reduced to Rs160bn of which 36% is in BB & below category
and 30% is in BBB Category.
Credit Cost – Bank has done incremental provisioning of Rs2.4bn on the IBC
accounts taking PCR on IBC accounts to 68%. Bank continues to expect LGD to
remain elevated in this cycle and could be around 65%. Bank has no contingent
provisions. Outlook & guidance – Bank maintains the credit cost guidance at
220‐260bps for FY18 and expect it to improve in the latter half of FY19.
Others:
Bank has raised Rs86.8bn equity capital and Rs35bn AT1 bonds thus improving
Tier 1 Ratio to 14.13% from 12.36% in Q2FY18.
The warrants issued at Rs565 in Q3FY18 have validity of 18 months and the
same will expire on June, 2019.
The management expects the credit costs to start moving towards the
normalised levels by the second half of FY19.
Exhibit 2: Growth is led by retail mainly from Auto and unsecured segments and SME; while corporate book growth also picked up with demand in working capital
(Rs m) Q3FY18 Q3FY17 YoY gr. (%) Q2FY18 QoQ gr. (%)
Large & mid‐corporate 17,27,430 15,44,290 11.9 17,31,970 (0.3)
SME Advances 5,48,840 4,32,080 27.0 5,27,180 4.1
Retail 19,32,960 14,95,380 29.3 18,42,560 4.9
‐ Housing Loans & LAP 8,11,843 7,02,829 15.5 7,92,301 2.5
‐ Personal loans 1,93,296 1,79,446 7.7 1,65,830 16.6
‐ Auto loans 1,93,296 1,49,538 29.3 1,84,256 4.9
Source: Company Data, PL Research
January 23, 2018 5
Axis Bank
Exhibit 1: Margins saw pressure on continued decline in yields
3.3%
3.4%
3.5%
3.6%
3.7%
3.8%
3.9%
4.0%
4.1%
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
NIM (%)
Source: Company Data, PL Research
ibit 2: CASA ratio was stable influenced by demonetisation effect
40%
42%
44%
46%
48%
50%
52%
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
Low Cost deposits(%)
Source: Company Data, PL Research
Exhibit 3: MCLR linked loans has made big shift from base rate partly impacting yields
69% 65%57% 50%
42%34% 29% 24%
4%11% 18% 29%
36% 40% 43%
17% 17% 17% 16% 15% 16% 17% 19%
14% 14% 15% 16% 14% 14% 14% 14%
4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
Base Rate MCLR Fixed LIBOR
Source: Company Data, PL Research
Exhibit 4: Retail fees dominate and continues to see strong growth mainly led by TPP and card related fees; transaction fees also grew better
26% 29% 26% 28% 28% 30% 29% 30% 30%
14% 13% 16% 15% 17% 16% 19% 18% 19%
20% 16%27% 26% 29% 22%
26% 26% 28%5% 6%4% 5%
5% 6%4% 4% 5%
10% 10%2% 1%
1%2%
4% 1%1%
25% 26% 25% 25% 20% 24% 18% 21% 17%
3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
Retail (non card) Retail (card) Transc. BnkingSME Treasry & DCM Corp Fees
Source: Company Data, PL Research
January 23, 2018 6
Axis Bank
Exhibit 5: C/I ratio slightly spiked up on lower total income led by lower treasury gains whereas opex has improved to 12% YoY
34%
36%
38%
40%
42%
44%
46%
48%
50%
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
cost‐income
Source: Company Data, PL Research
Exhibit 6: Asset quality improved on higher recoveries/upgrades in spite of high slippages
0%
10%
20%
30%
40%
50%
60%
70%
80%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
Gross NPA (%) Net NPA (%) Coverage Ratio (%) ‐ RHS
Source: Company Data, PL Research
Exhibit 7: Incremental loans going towards better rated corporate
62% 62% 61% 61% 61% 60% 62% 60% 61% 62% 62% 64% 63% 63% 66% 68% 70% 74%
32% 31% 30% 31% 30% 31% 29% 29% 28% 27% 26% 20% 22% 23% 22% 22% 19% 17%
7% 7% 9% 8% 9% 9% 9% 11% 11% 11% 12% 16% 15% 14% 12% 10% 11% 9%
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
AAA/AA/A BBB <BB or unrated
Source: Company Data, PL Research
January 23, 2018 7
Axis Bank
Exhibit 8: SME profile dominated towards better rated
81% 80% 78% 80% 82% 84% 83% 85% 84% 84% 83% 84% 85% 84% 85% 86% 87%
12% 13% 14% 12% 11% 9% 9% 8% 8% 8% 8% 8% 8% 9% 9% 8% 8%7% 7% 8% 8% 7% 7% 8% 7% 8% 8% 9% 8% 7% 7% 6% 5% 5%
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
SME 1‐3 SME 4 SME 5‐8
Source: Company Data, PL Research
Exhibit 9: High impairment of assets from BB and Below book makes asset quality outlook still look grim
(Rs Mn) 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18
Gross slippages 7,080 6,650 11,850 5,830 20,820 14,740 36,380 87,720 45,600 48,110 35,190 89,360 44,280
Recoveries+ Up gradations 2,250 1,880 1,200 1,800 1,560 7,800 1,400 10,730 3,500 28,040 3,060 10,480 40,080
Write‐offs 1,940 2,140 9,250 2,574 6,530 3,300 320 8,730 1,220 11,940 24,620 25,170 28,220
Slippages (%) 1.13% 0.98% 1.68% 0.80% 2.72% 1.80% 4.26% 10.05% 5.21% 5.34% 3.71% 8.98% 4.26%
BB & Below Book 158,150 161,200
% of loans 3.9% 3.8%
Of which
Total Restructured Dispensation 104,220 101,200 96,450 73,900 69,850
% of loans 3.0% 2.7% 2.5% 1.8% 1.7%
Corp watch list for potential stress 226,280 202,950 137,890 110,910 94,360 79,410 60,520 53,090
% of loans 6.7% 5.9% 3.9% 3.2% 2.5% 2.1% 1.5% 1.3%
IBC Exposure 78,530 68,890 70,410 60,740
Provision Coverage (%) 43% 49% 55% 68%
Source: Company Data, PL Research
January 23, 2018 8
Axis Bank
Exhibit 10: Watch list contribution was higher this quarter in accretion of stressed assets
Watch list sectors (Rs mn) Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18
Power 54,307 54,797 56,535 54,346 56,616 54,793 38,733 35,570
Iron & Steel 52,044 52,767 16,547 16,637 6,605 6,353 6,657 6,371
Textiles 15,840 14,207 ‐ ‐ ‐ ‐ ‐ ‐
Infra Construction 11,314 12,177 11,031 8,873 4,718 3,971 3,631 3,716
Oil and Gas 13,577 12,177 17,926 6,655 6,605 ‐ ‐ ‐
CRE 9,051 8,118 ‐ ‐ ‐ ‐ ‐ ‐
Cement 9,051 6,089 6,895 6,655 5,662 1,588 ‐ ‐
Shipping 6,788 6,089 ‐ 2,218 1,887 ‐ ‐ ‐
Mining 11,314 6,089 ‐ ‐ ‐ ‐ ‐ ‐
Industrials ‐ 6,089 5,516 1,109 944 794 ‐ ‐
Engineering 4,137 4,436 3,774 3,971 4,236 1,593
Infrastructure Roads 4,137 4,436 3,774 3,176 3,026 3,185
Construction other than Infra 2,758 3,327 3,774 2,382 605 531
Telecom 2,758 ‐ ‐ ‐ 2,421 2,124
Services 13,577 ‐ ‐ ‐ ‐ ‐ ‐ ‐
Trade Retail & Wholesale 794 1,210 ‐
TOTAL 226,280 202,950 137,890 110,910 94,360 79,410 60,520 53,090
% of loans 6.7% 5.9% 3.9% 3.2% 2.5% 2.1% 1.5% 1.3%
Slippages from watch list 25,790 72,880 25,790 35,660 7,970 24,300 20,124
Slippages from outside watch list 3,340 9,050 11,070 7,540 15,200 56,800 9,676
Watch list slippages to total 71% 83% 57% 74% 34% 30% 68%
Outside watch list corporate slippages to total 9% 10% 24% 16% 66% 70% 32%
Source: Company Data, PL Research
Exhibit 11: ~54% of watchlist has overlap with restructured dispensations (incl. SDR, 5:25, S4A)
Various stressed assets overlapping with watchlist
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18
Normal Watch list 52.0% 49.8% 42.7% 44.6% 45.7%
Overlapped watch list 48.0% 50.2% 57.3% 55.4% 54.3%
SDR & Restructured Overlap 2.4% 1.9% 2.2%
5/25 & Restructured Overlap 1.2% 4.5%
SDR 5.3% 12.6% 15.3%
5/25 Refinancing 9.0% 2.8% 3.0%
Restructured 31.3% 31.8% 34.6%
Source: Company Data, PL Research
January 23, 2018 9
Axis Bank
Exhibit 12: Slippages have mainly come from watchlist for this quarter
Sectoral Distribution of Corporate Slippages (Rs mn) Q2FY18 Q3FY18 % Mix
Total Corporate Slippages 81,100 29,800 100%
Power Gen & Distribution 23,519 7,450 25%
Iron & Steel 15,409 5,960 20%
IT & ITES 11,354 ‐
Engineering & Electronics 5,677 4,470 15%
Infrastructure Cons. & Roads 4,055 3,874 13%
Chemicals & Chemical Products 4,055 ‐
Cement & Cement Products 4,055 ‐
Sugar 3,244 596 2%
Shipping Transportation ‐ 1,192 4%
Trade ‐ 1,192 4%
Real Estate 2,433 1,192 4%
Paper & Paper Products 2,433 ‐
Food Processing 1,622 1,788 6%
Mining and Mining Products ‐ 596 2%
Entertainment & Media ‐ 596 2%
Source: Company Data, PL Research
Exhibit 13: Change in estimates table – We slightly tweak our estimates on yields and treasury gains
(Rs mn) Old Revised % Change
FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
Net interest income 1,98,370 2,31,023 2,75,656 1,90,274 2,32,272 2,75,556 (4.1) 0.5 (0.0)
Operating profit 1,92,589 2,23,703 2,66,632 1,65,333 2,02,785 2,42,812 (14.2) (9.4) (8.9)
Net profit 49,360 92,346 1,29,882 36,577 81,413 1,17,041 (25.9) (11.8) (9.9)
EPS (Rs) 19.9 35.6 49.7 14.7 31.4 44.7 (25.9) (11.8) (9.9)
ABVPS (Rs) 221.8 262.7 306.5 225.0 259.0 298.7 1.5 (1.4) (2.5)
Price target (Rs) 654 651 (0.5)
Recommendation BUY BUY
Source: Company Data, PL Research
January 23, 2018 10
Axis Bank
Exhibit 14: We maintain our BUY stance with TP of Rs651 (fromRs654) based on 2.3x Sep‐19 ABV
PT calculation and upside
Fair price ‐ EVA 643
Fair price ‐ P/ABV 659
Average of the two 651
Target P/ABV 2.3
Target P/E 17.1
Current price, Rs 612
Upside (%) 6%
Dividend yield (%) 1%
Total return (%) 8%
Source: Company Data, PL Research
Exhibit 15: AXSB’s historical P/ABV trends – Trading at mean levels
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan‐12
Apr‐12
Jul‐12
Oct‐12
Jan‐13
Apr‐13
Jul‐13
Oct‐13
Jan‐14
Apr‐14
Jul‐14
Oct‐14
Jan‐15
Apr‐15
Jul‐15
Oct‐15
Jan‐16
Apr‐16
Jul‐16
Oct‐16
Jan‐17
Apr‐17
Jul‐17
Oct‐17
Jan‐18
P/ABV 3 yr avg. avg. + 1 SD avg. ‐ 1 SD
Source: Company Data, PL Research
January 23, 2018 11
Axis Bank
Income Statement (Rs m)
Y/e March 2017 2018E 2019E 2020E
Int. Earned from Adv. 331,250 348,027 428,085 511,696
Int. Earned from Invt. 96,228 100,511 101,453 99,705
Others 17,944 16,347 13,223 15,197
Total Interest Income 445,422 464,885 542,761 626,599
Interest expense 264,490 274,611 310,489 351,043
NII 180,931 190,274 232,272 275,556
Growth (%) 7.5 5.2 22.1 18.6
Treasury Income 31,738 15,000 15,000 15,000
NTNII 85,175 98,406 115,417 136,283
Non Interest Income 116,913 113,406 130,417 151,283
Total Income 562,335 578,291 673,178 777,882
Growth (%) 11.7 2.8 16.4 15.6
Operating Expense 121,999 138,346 159,904 184,027
Operating Profit 175,845 165,333 202,785 242,812
Growth (%) 9.2 (6.0) 22.7 19.7
NPA Provisions 111,571 106,455 77,394 65,383
Investment Provisions 2,387 716 286 115
Total Provisions 121,170 111,145 81,273 69,418
PBT 54,676 54,188 121,511 173,393
Tax Provisions 17,883 17,611 40,100 56,354
Effective Tax Rate (%) 32.7 32.5 33.0 32.5
PAT 36,793 36,577 81,412 117,040
Growth (%) (55.3) (0.6) 122.6 43.8
Balance Sheet (Rs m)
Y/e March 2017 2018E 2019E 2020E
Par Value 2 2 2 2
No. of equity shares 2,395 2,570 2,616 2,616
Equity 4,790 5,140 5,231 5,231
Networth 557,625 668,276 754,872 846,532
Adj. Networth 471,360 564,066 666,328 773,306
Deposits 4,143,788 4,578,886 5,128,352 5,846,321
Growth (%) 15.8 10.5 12.0 14.0
Low Cost deposits 2,130,500 2,275,706 2,559,048 2,929,007
% of total deposits 51.4 49.7 49.9 50.1
Total Liabilities 6,014,677 6,813,748 7,660,626 8,717,048
Net Advances 3,730,693 4,458,179 5,216,069 6,154,962
Growth (%) 10.1 19.5 17.0 18.0
Investments 1,287,934 1,407,212 1,386,146 1,376,604
Total Assets 6,014,677 6,813,748 7,660,626 8,717,048
Source: Company Data, PL Research.
Quarterly Financials (Rs m)
Y/e March Q4FY17 Q1FY18 Q2FY18 Q3FY18
Interest Income 111,682 110,525 112,351 117,216
Interest Expense 64,396 64,364 66,955 69,900
Net Interest Income 47,286 46,161 45,396 47,315
Non Interest Income 30,132 29,998 25,855 25,931
CEB 24,229 20,029 21,700 22,460
Treasury 4,280 8,241 3,770 2,000
Net Total Income 77,418 76,160 71,252 73,246
Operating Expenses 33,670 33,248 33,478 34,708
Employee Expenses 9,480 10,883 10,828 10,629
Other Expenses 24,191 22,365 22,650 24,079
Operating Profit 43,747 42,912 37,773 38,538
Core Operating Profit 39,467 34,670 34,003 36,538
Provisions 25,813 23,419 31,404 28,110
Loan loss provisions 22,820 21,770 33,920 28,030
Investment Depreciation 2,620 400 (1,370) (90)
Profit before tax 17,935 19,492 6,369 10,428
Tax 5,684 6,436 2,045 3,163
PAT before EO 12,251 13,056 4,324 7,264
Extraordinary item — — — —
PAT 12,251 13,056 4,324 7,264
Key Ratios
Y/e March 2017 2018E 2019E 2020E
CMP (Rs) 611 611 611 611
Equity Shrs. Os. (m) 2,395 2,570 2,616 2,616
Market Cap (Rs m) 1,463,487 1,570,500 1,598,216 1,598,216
M/Cap to AUM (%) 24.3 23.0 20.9 18.3
EPS (Rs) 15.4 14.7 31.4 44.7
Book Value (Rs) 233 260 289 324
Adj. BV (100%) (Rs) 201 225 259 299
P/E (x) 39.7 41.5 19.5 13.7
P/BV (x) 2.6 2.4 2.1 1.9
P/ABV (x) 3.0 2.7 2.4 2.0
DPS (Rs) 4.7 5.3 6.4 8.0
Dividend Yield (%) 0.8 0.9 1.1 1.3
Profitability (%)
Y/e March 2017 2018E 2019E 2020E
NIM 3.2 3.0 3.2 3.4
RoAA 0.6 0.6 1.1 1.4
RoAE 6.8 6.0 11.4 14.6
Efficiency
Y/e March 2017 2018E 2019E 2020E
Cost‐Income Ratio (%) 41.0 45.6 44.1 43.1
C‐D Ratio (%) 90.0 97.4 101.7 105.3
Business per Emp. (Rs m) 122 122 121 122
Profit per Emp. (Rs lacs) 5.7 4.9 9.5 11.9
Business per Branch (Rs m) 2,156 2,151 2,141 2,160
Profit per Branch (Rs m) 10 9 17 21
Asset Quality
Y/e March 2017 2018E 2019E 2020E
Gross NPAs (Rs m) 212,805 247,283 233,182 213,821
Net NPAs (Rs m) 86,266 104,210 88,544 73,226
Gr. NPAs to Gross Adv. (%) 5.7 5.5 4.5 3.5
Net NPAs to Net Adv. (%) 2.3 2.3 1.7 1.2
NPA Coverage (%) 59.5 57.9 62.0 65.8
Source: Company Data, PL Research.
January 23, 2018 12
Axis Bank
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
43.4% 44.2%
12.4%
0.0%0%
10%
20%
30%
40%
50%
BUY Accumulate Reduce Sell
% of Total Coverage
BUY : Over 15% Outperformance to Sensex over 12‐months
Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months
Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month
Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
DISCLAIMER/DISCLOSURES
ANALYST CERTIFICATION
We/I, Mr. R Sreesankar (B.Sc ), Mr. Pritesh Bumb (MBA, M.com), Ms. Vidhi Shah (CA), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Terms & conditions and other disclosures:
Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com
This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.
Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.
PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.
PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014
PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.
PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.
PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report.
PL or its associates might have received compensation from the subject company in the past twelve months.
PL or its associates might have managed or co‐managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months.
PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months
PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report.
PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report.
It is confirmed that Mr. R Sreesankar (B.Sc ), Mr. Pritesh Bumb (MBA, M.com), Ms. Vidhi Shah (CA), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company
Our sales people, traders, and other professionals or affiliates 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 o the foregoing, among other things, may give rise to real or potential conflicts of interest.
PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
DISCLAIMER/DISCLOSURES (FOR US CLIENTS)
ANALYST CERTIFICATION
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report
Terms & conditions and other disclosures:
This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.
This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.
In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Marco Polo Securities Inc. ("Marco Polo").
Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.