Axis Bank (AXIBAN) | 539content.icicidirect.com/mailimages/IDirect_AxisBank_Q4FY18.pdfAxis Bank is the third largest private bank in terms of loans & profitability. The loan book as

April 27, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Bulk of NPA pain recognised….

Axis Bank’s asset quality parameters deeply worsened in Q4FY18.

Slippages increased by 3.7x QoQ to | 16536 crore. Around 84%

came from the corporate book. Most corporate slippages (~90%) in

Q4 came from the BB & below book, particularly the power sector

Consequently, the absolute GNPA increased from | 25000 crore in

Q3FY18 to | 34249 crore in Q4FY18. The GNPA ratio was at 6.77%

New guidelines for resolution of stressed assets drove recognition in

the restructured book. Bulk of stress has now been recognised

Credit growth was healthy at 18% YoY to | 439650 crore. Retail &

SME loan book grew 23% YoY & 19% YoY, respectively, while

corporate loans increased 12% YoY. Deposits increased 9% YoY to

| 453623 crore. CASA ratio was at ~54%

The bank reported losses of | 2189 crore due to operating earnings

declining 16% YoY to | 3672 crore and ~2.6x rise in provisions. The

losses occurred despite tax write-back of | 1319 crore

Full year FY18 PAT was at | 276 crore vs. | 3679 crore in FY17

Loan growth ahead of industry in past; retail to remain in focus ahead

Axis Bank is the third largest private bank in terms of loans & profitability.

The loan book as on FY18 was at | 439650 crore. Due to its growing

network and strong corporate relationships, the loan book grew at 30%

CAGR earlier, higher than 19% CAGR in industry. It has largely been a

corporate lender though the trend is now changing. Until FY12, the

corporate segment accounted for 54% of total loans. However, owing to

higher risk in the corporate portfolio and reduced demand as a fallout,

retail focus (47% of loans) is high. We expect loan traction of 18.4%

CAGR in FY18-20E to | 616072 crore, with the major driver being retail.

Healthy liability franchise; margins to remain at >3.0% in FY18-20E

One of the biggest strengths of Axis Bank is its strong liability franchise.

CASA deposits at | 243852 crore account for ~54% of deposits as on

FY18. The CASA ratio has been ~45% levels for almost a decade. This

has been due to constant investment in branches & ATMs, strong brand

recognition & quality services. The savings account has increased more

than 18x since FY05 to | 131219 crore in FY18. This has enabled it to

maintain healthy NIM of >3% since FY08. With NPA pressure subsiding,

we expect NIM to stay at healthy levels of >3.0%.

Bulk of NPA stress recognised in Q4FY18; expect trend to improve

In the past seven years, GNPA ratio has been in the range of 1-1.3% until

Q3FY16 wherein it rose to 1.7%. It further rose to 5.9% by Q2FY18, led by

incremental slippages from corporate book. The bank had ~| 22000 crore

exposure under watch list in FY16, which has now fallen to | 428 crore. In

Q4, it had slippages of | 16536 crore, thus recognising large NPA pain

though some exposure to corporates remains vulnerable. We expect

GNPA at | 43847 crore and GNPA ratio at 6.3% by FY20E.

With bulk stress noted, focus to be on growth & quality; retain BUY

Dismal asset quality in the past has been a show spoiler for the bank.

However, with bulk of the pain now recognised and adequately provided,

the outlook on asset quality is expected to improve ahead. Retail has put

up a good show. Now, the corporate segment is expected to witness

healthy traction & quality ahead. We remain watchful about management

changes over next two quarters & asset quality. Thus, we revise our target

price lower to | 600 (earlier | 690) valuing the stock at 2.6x FY20E ABV.

PAT trajectory in FY18-20E would be higher on improving operating

earnings & lower base in FY18E. We retain our BUY rating on the stock.

Rating matrix

Rating : Buy

Target : | 600

Target Period : 12 months

Potential Upside : 11%

What’s Changed?

Target Changed from | 690 to | 600

EPS FY19E Changed from | 33 to | 21.4

EPS FY20E Changed from | 39.5 to | 38

Rating Unchanged

Quarterly Performance

Q4FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%)

NII 4,730 4,729 0.0 4,732 0.0

Other income 2,789 3,013 -7.5 2,593 7.5

PPP 3,672 4,375 -16.1 3,854 -4.7

PAT -2,189 1,225 -278.7 726 -401.3

Key Financials

| crore FY17 FY18E FY19E FY20E

NII 18,093 18,619 21,191 24,469

PPP 17,585 15,595 17,599 21,001

PAT 3,679 276 5,598 9,918

Valuation summary

FY17 FY18E FY19E FY20E

P/E 35.1 502.8 25.2 14.2

Target P/E 39.1 558.8 28.0 15.8

P/ABV 2.7 3.0 2.7 2.3

Target P/ABV 3.0 3.3 3.0 2.6

RoE 6.8 0.5 8.3 13.2

RoA 0.6 0.0 0.7 1.1

Stock data

Market Capitalisation | 138340 crore

GNPA (Q4FY18) |34249 crore

NNPA (Q4FY18) | 16592 crore

NIM (Q4FY18) 3.33

52 week H/L 628 /448

Net worth | 63445 Crore

Face value | 2

DII Holding (%) 12.3

FII Holding (%) 49.9

Price performance (%)

1M 3M 6M 12M

HDFC Bank 1.9 -2.3 7.5 24.5

Axis Bank -2.7 -19.9 2.0 -4.5

KMB 14.1 8.5 16.4 31.7

Indusind 6.9 8.8 16.3 28.5

Axis Bank (AXIBAN) | 539

Research Analyst

Kajal Gandhi

[email protected]

Vasant Lohiya

[email protected]

Vishal Narnolia

[email protected]

mailto:[email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Q4FY18 Q4FY18E Q4FY17 YoY (%) Q3FY18 QoQ (%) Comments

NII 4,730 4,992 4,729 0.0 4,732 0.0 Margin pressure, led by NPA accumulation, kept NII flat on YoY and QoQ basis

NIM (%) 3.33 3.50 3.83 -50 bps 3.38 -5 bps Higher slippages kept margins under pressure, despite increase in MCLR

Other Income 2,789 2,684 3,013 -7.5 2,593 7.5

Core fee income growth remained muted at 1% YoY. Retail segment growth

moderated at 5% YoY, led by regulation change in MF distribution and higher base.

Treasury came in lower at | 215 crore as expected

Net Total Income 7,519 7,676 7,742 -2.9 7,325 2.7

Staff cost 1,079 1,074 948 13.8 1,063 1.5

Other Operating Expenses 2,768 2,432 2,419 14.4 2,408 15.0

PPP 3,672 4,171 4,375 -16.1 3,854 -4.7 Muted topline impacted operational performance

Provision 7,180 2,817 2,581 178.1 2,811 155.4 Credit cost came in highest at 7.2% of loans, led by surge in corporate slippage

PBT -3,507 1,354 1,793 -295.6 1,043 -436.3

Tax Outgo -1,319 406 568 -332.0 316 -516.9

PAT -2,189 947 1,225 -278.7 726 -401.3 Moderate operational performance and higher provision led to quarterly loss

Key Metrics

GNPA 34,249 26,251 21,280 60.9 25,001 37.0

Slippages increased by 3.7x QoQ to | 16536 crore with | 13938 crore from corporate

book. Also, ~90% of corporate slippages came from BB & below book, particularly

the power sector. Net slippage in retail and SME were at | 491 crore and | 67 crore,

respectively

NNPA 16,592 12,358 8,627 92.3 11,769 41.0 Provision coverage ratio retained at 65%, down 100 bps QoQ

Credit 439,650 440,222 373,069 17.8 420,923 4.4

Retail and SME loan book grew 23% YoY and 19% YoY, respectively while corporate

loan growth improved to 12% YoY led by working capital loans

Deposit 453,623 451,783 414,379 9.5 408,967 10.9 CASA remained robust at ~54%

Source: Company, ICICI Direct Research

Change in estimates

(| Crore) Old New % Change Old New % Change

Net Interest Income 23,833 21,191 -11.1 28,585 24,469 -14.4 NPA accretion to impact growth in NII

Pre Provision Profit 20,189 17,599 -12.8 23,662 21,001 -11.2

NIM(%) (calculated) 3.7 3.2 -44 bps 3.7 3.2 -54 bps Interest reversals due to NPA accretion led to downward revision on margins

PAT 8,591 5,598 -34.8 10,277 9,918 -3.5

ABV per share (|) 241.1 197.6 -18.1 269.8 231.3 -14.3 Surge in slippages led to downward revision in estimates

FY19E FY20E


Assumptions

FY17 FY18 FY19E FY20E FY19E FY20E

Credit growth (%) 10.1 17.8 18.2 18.6 19.4 20.4

Deposit Growth (%) 15.8 9.5 18.2 17.4 16.2 16.3

CASA ratio (%) 51.4 53.8 52.8 52.3 49.3 48.8

NIM Calculated (%) 3.7 3.3 3.2 3.2 3.7 3.7 Interest reversals due to NPA accretion led to downward revision on margins

Cost to income ratio (%) 41.0 47.3 47.1 45.4 43.7 43.3

GNPA (| crore) 21,280 34,248 40,042 43,847 31,398 35,363

NNPA (| crore) 8,627 16,591 19,056 19,256 14,987 16,844

Slippage ratio (%) 6.4 7.8 3.0 2.4 2.4 2.4

Credit cost (%) 3.2 3.5 1.8 1.0 1.4 1.3 Credit cost estimate revised upwards factoring in higher slippages in FY19E

Current Earlier



Company Analysis

Expect loan growth to be better than industry ahead….

Axis Bank’s advances growth in the past decade has consistently been

ahead of the industry. In the past eight years, the increase has been at

30% CAGR compared to 19% CAGR for the industry. This was due to a

sustained increase in branch network (>25% CAGR increase in branches

in the past decade) and the bank’s strong corporate relationships. One

must note that in the last few years, the difference between the bank and

industry’s growth has reduced.

Until FY12, the bank’s loan book was largely skewed towards the

corporate segment. However, later it shifted its focus towards the retail &

SME segments owing to a lack of quality growth opportunities in the

corporate segment. Since then, the retail loan proportion has increased

sharply to 47% as on FY18 from 22% in FY12.

Credit traction on a YoY basis remained healthy in Q4FY18 at 17.8% YoY

to | 439650 crore, led by improvement across segments. Retail segment

growth continued to remain healthy at 23% YoY while corporate and SME

book growth picked up at 12% and 19% YoY, respectively. We expect

18.4% CAGR in advances in FY18-20E to | 616072 crore. We believe

adequate capital adequacy ratio of ~16.6% and a strong branch network

will aid in higher growth of the retail segment in the overall pie.

Exhibit 1: Advances expected to grow at 18.4% CAGR in FY18-20E led by retail loans

338,7

74

344925.2

353169.9

347174.7

373,0

69

385480.5

410170.8

420922.7

439,6

50

519,4

79

616,0

72

20.521.2

18.5

10.1 10.1

11.8

16.1

21.2

17.8 18.2 18.6

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

FY16

Q1FY17

Q2FY17

Q3FY17

FY17E

Q1FY18

Q2FY18

Q3FY18

FY18E

FY19E

FY20E

(|

crore)

0

5

10

15

20

25

(%

)

Advances Growth (RHS)


We expect 18.4% CAGR in advances over FY18-20E to

| 616072 crore


Exhibit 2: Proportion of retail segment on the rise to ~47% as on FY18

45.5 46.5 47.1 45.9 45.9 44.7 44.5 41.8 42.1 42.2 41.0 39.7

14.0 13.4 13.1 13.2 12.6 13.0 12.413.2 12.4 12.9 13.0 13.4

40.5 40.1 39.9 40.9 41.5 42.3 43.1 45.0 45.5 44.9 45.9 47.0

0

20

40

60

80

100

120

Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18

(%

)Corporate SME Retail


Outstanding retail advances, including retail agriculture, were at | 206464

crore as on FY18 against | 167993 crore as on FY17 growing at 23% YoY.

It accounted for 47% of net advances of the bank. SME advances

(including non-retail agriculture) growth was also healthy at 19% YoY and

were at | 58740 crore. It accounted for 13.4% of net advances. After the

sluggishness witnessed in recent quarters, corporate traction picked up in

Q3FY18 & Q4FY18 at 12% YoY led by working capital loans.

Deposit franchise to remain healthy

Axis Bank’s major strength is its healthy deposit franchise. CASA deposits

at | 243852 crore account for ~54% of total deposits of | 453623 crore as

on FY18, which is one of the best in the class. This has been due to

constant investment in branches and ATMs, strong brand recognition and

quality services.

Currently, CASA + retail term deposits constitute ~83% of total deposits.

Savings account (SA) balances have increased more than18x since FY05

to | 148202 crore as on FY18. Axis Bank has the best SA/branch in the

industry of ~| 40 crore.

Going ahead, we expect the CASA ratio to sustain at current levels

though the pace of SA accretion may slow down. We expect total

deposits to increase at 17.8% CAGR over FY18-20E.

Exhibit 3: Deposit traction to be higher than industry

322442

307784

324101

338343

357968

357858

380187

370790

414379

393741

416431

408967

453623

536230

629541

14.8

13.2

14.2

16.2

11.0

16.317.3

9.6

15.8

10.09.5

10.39.5

18.217.4

0

100000

200000

300000

400000

500000

600000

700000

FY15

Q1FY16

Q2FY16

Q3FY16

FY16

Q1FY17

Q2FY17

Q3FY17

FY17

Q1FY18

Q2FY18

Q3FY18

FY18E

FY19E

FY20E

(|

crore)

0

2

4

6

8

10

12

14

16

18

20

Deposits Growth (RHS)


We expect deposit CAGR of 17.8% in FY18-20E to

| 629540 crore


Exhibit 4: SA proportion to remain steady, going ahead

14.9 16.4 15.7 17.4 15.2 16.6 15.8 17.8 15.4 16.3 15.721.0 18.2 19.2 17.2 21.1 21.0 21.2

27.4 28.2 27.5 27.4 27.5 27.7 27.429.6

28.0 28.4 31.830.4

31.0 31.3 32.132.7 31.8 31.1

57.6 55.5 56.9 55.2 57.2 55.8 56.8 52.7 56.6 55.3 52.4 48.6 50.8 49.6 50.7 46.2 47.2 47.7

0

20

40

60

80

100

120

Q1FY15

Q2FY15

Q3FY15

FY15

Q1FY16

Q2FY16

Q3FY16

FY16

Q1FY17

Q2FY17

Q3FY17

FY17

Q1FY18

Q2FY18

Q3FY18

FY18E

FY19E

FY20E

(%

)

CA SA Term deposit


A strong deposit franchise has enabled the bank to maintain healthy

margins of >3% since FY08 despite a challenging environment. In the

past two years, owing to increased focus on the retail & SME segment,

yields have improved. This has further given a boost to margins, which

increased to ~3.7% as on FY17 from 3.3% in FY12. However, owing to

higher slippages in FY18E, NIM witnessed pressure and was ~3.44%.

Exhibit 5: Margins to stay at healthy level of >3.0% in next two years

3.2

3.4

3.5

3.3

3.4

3.6

3.8

3.8

3.7

3.3

3.23.2

2.8

2.9

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

(%

)

NIM (calculated)



Large NPA stress considered; future outlook on quality improves

Concerns on Axis Bank’s asset quality frequently come up owing to its

exposure to certain troubled corporates and certain stressed sectors like

power, iron & steel, infrastructure, etc.

In Q2FY18, as part of risk based review, RBI has pointed to divergence in

GNPA to the extent of | 5632.8 crore as of FY17. Factoring in the

divergence, slippages surged to | 8936 crore in Q2FY18 compared to

| 3519 crore in Q1FY18. However, in Q3FY18, asset quality stabilised with

slippages at | 4428 crore. The GNPA ratio improved to 5.28% vs. 5.9%

QoQ and provision coverage ratio increased to 66% vs. 60% QoQ.

In Q4FY18, the bank reported a 3.7x QoQ surge in slippages at | 16536

crore, led by new guidelines for resolution of stressed assets.

Approximately 85% of slippages came from the corporate segment. As

per the bank, ~90% of corporate slippages came from BB and below

portfolio. Power sector contributed ~41% of slippages, while 14% was

from infrastructure sector. Consequently, the absolute GNPA increased

from | 25000 crore in Q3FY18 to | 34249 crore in Q4FY18. The GNPA

ratio increased to 6.77% vs. 5.3% QoQ.

Accelerated recognition of stressed assets has led to a decline in various

buckets of stressed assets. As of Q4FY18, the watchlist has declined 92%

QoQ to | 428 crore compared to | 5309 crore in the previous quarter.

Restructured asset (including restructured accounts, SDR, S4A and 5:25)

declined QoQ to | 2170 crore vs. | 8813 crore in Q3FY18. In addition, low

rated corporate (with rating BB and below) came down from | 16120

crore in Q3FY18 to | 8994 crore in Q4FY18. Overall, non NPA stress

exposure has been pared down from | 15100 crore in Q3FY18 to | 8861

crore in Q4FY18. Exposure classified as SMA 2 has been at lowest since

2014 at ~0.5% of customer assets.

The bank’s total loan amount outstanding against IBC accounts has

declined 14% QoQ to | 6074 crores. It has provision coverage of 68% on

these select accounts. As on Q3FY18, loans outstanding on the bank’s

watchlist declined 12% over the previous quarter and was at | 5309 crore.

The bank continues to retain its credit cost guidance for FY18 in the range

of 220-260 basis points. Overall restructured asset (including restructured

accounts, SDR, S4A and 5:25) declined QoQ to | 6985 crore vs. | 10087

crore in Q2FY18. In addition, low rated corporate (with rating BB and

below) was at ~| 16100 crore.

The bank has indicated recognition of bulk of the pain with marginal

accretion anticipated in H1FY19E. Credit cost is guided to align to long

term average of 100-110 bps in H2FY19E. Though the bulk of the stress

has now been recognised, we remain watchful with regard to the near

term asset quality pressure especially over H1FY19E. Over the longer

term, however, the asset quality pressure is estimated to ease. We expect

GNPA ratio at 6.3% by FY20E.

Watchlist is now down to | 428 crore as on FY18


Exhibit 6: Asset quality outlook improving for long term

6087

9553.1

7

16378.6

5

20466.8

2

21280

22030.8

7

27402.3

2

25000.5

1

34248

40042

43847

2522

4010.2

3

7761.1

5

8294.7

8

8627

9765.9

8

14052.3

4

11769.4

9

16591

19056

19256

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

FY16

Q1FY17

Q2FY17

Q3FY17

FY17

Q1FY18

Q2FY18

Q3FY18

FY18E

FY19E

FY20E

(|

crore)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

(%

)

GNPA NNPA GNPA ratio NNPA ratio


Exhibit 7: Bank network increases consistently at healthy pace

835 10351390 1613

19472402 2589

29043304 3385 3485 3589 37033595

4293

6270

9924

11245

1292212355

12743

14163 14311 1433213977 13814

0

2000

4000

6000

8000

10000

12000

14000

16000

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Q1FY18Q2FY18Q3FY18 FY18E

Branches ATM


Despite a strong increase in the network, Axis Bank has managed its cost

well. The cost to income ratio (CIR) has fallen below 40% in FY16 from

49% in FY08. However, owing to weak operating earnings in FY17, the

ratio increased to 41% and was at 47% in FY18.

Non interest income of Axis Bank accounts for 37-40% of its operating

income. It mainly comprises fee income, which was | 2448 crore of the

total other income of | 2789 crore during Q4FY18. Fee income relates to

corporate banking, business banking, retail and SME banking.


Outlook and valuation

Dismal asset quality in the past has been a show spoiler for the bank.

However, with bulk of the pain now recognised & adequately provided,

the outlook on asset quality is expected to improve ahead. Retail has put

up a good show. Now, the corporate segment is expected to witness

healthy traction a quality ahead. We remain watchful about management

changes over next two quarters & asset quality. Thus, we revise our target

price lower to | 600 (earlier | 690) valuing the stock at 2.6x FY20E ABV.

PAT trajectory in FY18-20E would be higher on improving operating

earnings & lower base in FY18E. We retain our BUY rating on the stock.

Exhibit 8: Valuation

NII Growth PAT Growth P/E ABV P/ABV RoA RoE

(| cr) (%) (| cr) (%) (x) (|) (x) (%) (%)

FY16 16,833 18.3 8,223.7 11.8 14.2 212.5 2.3 1.6 16.8

FY17 18,093 7.5 3,679.2 (55.3) 31.9 196.8 2.5 0.6 6.8

FY18E 18,619 2.9 275.7 (92.5) 457.1 182.5 2.7 0.0 0.5

FY19E 21,191 13.8 5,598.1 1,930.4 22.5 191.2 2.6 0.7 8.5

FY20E 24,469 15.5 9,917.6 77.2 12.7 225.5 2.2 1.1 13.7



Recommendation history vs. Consensus

200

300

400

500

600

700

Apr-18Feb-18Nov-17Sep-17Jul-17Apr-17Feb-17Nov-16Sep-16Jul-16Apr-16Feb-16Nov-15Sep-15Jun-15Apr-15

(|

)

0.0

20.0

40.0

60.0

80.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICI Direct Research

Key events

Date Event

FY99 Axis comes out with a public issue of | 73.5 crore at | 21 per share

Dec-05 Bank sets up Axis Securities with sales to market credit cards and retail asset products

FY06 The bank raises $239.3 million through GDR

FY08 Bank again raises $218.7 million through GDR

Jan-08 Sharp stock price appreciation as Axis benefits from strong economic growth. During FY04-08, its credit, PAT grew at 59%, 40% CAGR, respectively

Jan-09 The bank sets up Axis asset management company to carry on the activities of managing a mutual fund business

Apr-09 Shikha Sharma (51 years age), the chief of ICICI group's life insurance business, appointed CEO of Axis Bank

Nov-10 Axis Bank merges Enam Securities, one of the major players in investment banking segment. All stock deal of | 2067 crore with Enam holding 3.3% of Axis

Jun-12 ADDL, accelerates bookbuild, secondary share offering to raise | 1900 crore.

Jun-12 HSBC sells its 4.75% stake in Axis Bank at | 955.9 per share in order to raise funds

FY13 Axis inducts Schroders as a 25% partner in Axis AMC. Also, joins hand with Axis Capital and Baird to offer investment banking services

Jan-13 Begins a share sale to raise as much as | 5550 crore at the price of | 1390

Mar-13 Indian private banks stuck in money laundering case by agencies, post which PSU banks also get embroiled

Jul-13 RBI tightens liquidity by raising MSF rate by 3% and various other measures. Axis impacted due to high AFS book of ~35%, reliance on bulk deposit

Sep-13 Arrival of new RBI Governor changes sentiment, eases few of the tight liquidity measures

Nov-13 Government seeks to raise funds by selling SUUTI stake in Axis Bank

Mar-14 The stake sale overhang goes as the government sells 9% stake in the bank

Mar-15 In the Union Budget the distinction between different types of foreign investments, especially between FPI and FDI was done away with to be replaced with

composite caps. Earlier, the maximum foreign investment in private banks was capped at 74% of which FII holding was capped at 49%


Top 10 shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Change (m)

1 Life Insurance Corporation of India 31-03-2018 13.61% 349.45M -3.48M

2 UTI Asset Management Co. Ltd. 31-12-2017 9.87% 253.27M 0

3 Harris Associates L.P. [Activist] 31-03-2018 3.27% 84.03M +7.61M

4 Dodge & Cox 31-03-2018 3.10% 79.45M +43.66M

5 Capital Research Global Investors 31-03-2018 2.56% 65.59M +1.32M

6 Capital World Investors 31-03-2018 2.50% 64.27M 0

7 The Vanguard Group, Inc. 31-03-2018 2.36% 60.49M +1.02M

8 Bain Capital Private Equity, LP 31-03-2018 2.17% 55.60M 0

9 BlackRock Institutional Trust Company, N.A. 31-03-2018 2.11% 54.09M +0.35M

10 ICICI Prudential Asset Management Co. Ltd. 31-03-2018 1.76% 45.09M -6.33M

(in %) Mar-17 Jun-17 Sep-17 Dec-17 Mar-18

Promoter 30.1 30.1 30.4 28.0 27.6

FII 52.8 52.4 52.1 50.7 49.9

DII 8.3 8.5 10.5 11.3 12.3

Others 8.8 9.0 7.1 10.0 10.2

Source: Reuters, ICICI Direct Research

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Fullerton Fund Management Company Ltd. +225.72M +25.55M Norges Bank Investment Management (NBIM) -114.86M -13.00M

Harris Associates L.P. +59.62M +7.61M Harding Loevner LP -57.96M -6.56M

Franklin Templeton Asset Management (India) Pvt. Ltd. +26.47M +3.00M ICICI Prudential Asset Management Co. Ltd. -49.57M -6.33M

SBI Funds Management Pvt. Ltd. +20.13M +2.57M Aditya Birla Sun Life AMC Limited -40.12M -5.12M

Buys Sells

Source: Reuters, ICICI Direct Research


.

Financial summary

Profit and loss statement | crore

(Year-end March) FY17 FY18 FY19E FY20E

Interest Earned 44,542 45,781 52,926 61,825

Interest Expended 26,449 27,162 31,735 37,356

Net Interest Income 18,093 18,619 21,191 24,469

growth (%) 7.5 2.9 13.8 15.5

Non Interest Income 11,691 10,967 12,058 13,962

Fees and advisory 7,028 7,787 9,111 10,660

Treasury Income 3,174 1,617 1,294 1,552

Other income 1,489 1,562 1,653 1,750

Net Income 29,784 29,586 33,249 38,431

Staff cost 3,892 4,313 4,753 5,294

Other operating Expense 8,308 9,678 10,897 12,137

Operating Profit 17,585 15,595 17,599 21,001

Provisions 12,117 15,473 9,244 6,198

PBT 5,467 122 8,355 14,802

Taxes 1,788 (154) 2,757 4,885

Net Profit 3,679 276 5,598 9,918

growth (%) -55.3 -92.5 1930.4 77.2

EPS (|) 15.4 1.1 21.8 38.6


Key ratios


Valuation

No. of Equity Shares 239.5 256.8 256.8 256.8

EPS (Rs.) 15.4 1.1 21.8 38.6

BV (Rs.) 232.8 247.1 265.4 300.5

ABV (Rs.) 196.8 182.5 191.2 225.5

P/E 31.9 457.1 22.5 12.7

P/BV 2.1 2.0 1.8 1.6

P/ABV 2.5 2.7 2.6 2.2

Yields & Margins (%)

Net Interest Margins 3.7 3.3 3.2 3.2

Yield on assets 9.0 8.1 8.1 8.1

Avg. cost on funds 5.4 4.8 4.9 4.9

Yield on average advances 9.3 8.5 8.4 8.5

Avg. Cost of Deposits 5.1 4.7 4.8 4.8

Quality and Efficiency

Cost to income ratio 41.0 47.3 47.1 45.4

Credit/Deposit ratio 90.0 96.9 96.9 97.9

GNPA 5.0 6.9 6.8 6.3

NNPA 2.3 3.8 3.7 3.1

ROE 6.8 0.5 8.5 13.7

ROA 0.6 0.0 0.7 1.1


Balance sheet | crore


Sources of Funds

Capital 479 514 514 514

Reserves and Surplus 55288 62931 67628 76644

Networth 55767 63445 68141 77158

Deposits 414379 453623 536230 629541

Borrowings 105031 148016 165732 187179

Other Liabilities & Provisions 26295 26246 32039 39235

Total 601472 691329 802143 933112

Application of Funds

Fixed Assets 3747 3973 4707 5570

Investments 128793 153876 171870 192004

Advances 373069 439650 519479 616072

Other Assets 45606 50373 55282 60012

Cash with RBI & call money 50256 43456 50806 59454

Total 601472 691329 802143 933112


Growth ratios (% growth)

(Year-end March) FY17 FY18E FY19E FY20E

Total assets 11.4 14.9 16.0 16.3

Advances 10.1 17.8 18.2 18.6

Deposit 15.8 9.5 18.2 17.4

Total Income 11.7 0.9 14.5 16.6

Net interest income 7.5 2.9 13.8 15.5

Operating expenses 20.8 14.7 11.9 11.4

Operating profit 9.2 -11.3 12.9 19.3

Net profit -55.3 -92.5 1930.4 77.2

Net worth 4.9 13.8 7.4 13.2

EPS (55.5) (93.0) 1,930.4 77.2



ICICI Direct coverage universe (Banking)

CMP M Cap

(|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E

Bank of Baroda (BANBAR) 167 220 Buy 38,008 6 10 19 27.9 16.4 8.8 1.3 1.1 1.0 0.2 0.3 0.6 3 6 10

Punjab National Bank (PUNBAN) 178 245 Buy 42,730 6 10 18 28.6 17.3 9.9 1.7 1.5 1.2 0.2 0.3 0.5 3 6 9

State Bank of India (STABAN) 311 390 Buy 264,821 11 16 26 29.3 19.1 12.0 2.0 1.9 1.5 0.3 0.4 0.7 4 6 10

Axis Bank (AXIBAN) 620 750 Buy 156,965 15 16 33 40.3 37.9 18.8 3.1 2.9 2.5 0.6 0.7 1.2 7 7 12

City Union Bank (CITUNI) 175 180 Buy 11,592 8 9 11 23.0 19.3 16.6 3.6 3.1 2.6 1.5 1.6 1.6 15 16 16

DCB Bank (DCB) 187 200 Hold 5,789 7 8 10 26.7 23.1 17.9 2.9 2.4 2.1 0.9 1.0 1.0 11 11 12

HDFC Bank (HDFBAN) 1,960 2,300 Buy 509,392 57 67 83 34.5 29.2 23.7 5.7 4.2 3.7 1.9 1.9 2.0 18 17 16

IndusInd Bank (INDBA) 1,708 1,920 Buy 101,074 48 59 74 35.6 29.0 23.1 5.2 4.5 3.9 1.8 1.8 1.9 15 16 18

Jammu & Kashmir Bk(JAMKAS) 76 105 Buy 4,283 -31 8 12 -2.4 9.8 6.4 1.2 1.1 1.0 -2.0 0.5 0.7 -27 7 10

Kotak Mahindra Bank (KOTMAH) 1,080 1,200 Buy 204,806 19 22 29 58.3 48.1 37.4 7.7 6.7 5.9 1.7 1.8 1.9 13 14 16

Yes Bank (YESBAN) 357 375 Hold 81,762 15 18 24 24.0 19.5 14.9 3.8 3.3 2.8 1.8 1.7 1.8 19 17 19

Sector / Company

RoE (%)EPS (|) P/E (x) P/ABV (x) RoA (%)



RATING RATIONALE

ICICI Direct Research endeavours to provide objective opinions and recommendations. ICICI Direct Research

assigns ratings to its stocks according to their notional target price vs. current market price and then

categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and

the notional target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


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