Axis Bank - Q4FY11 Results Update (Keynote Capitals)

8/7/2019 Axis Bank - Q4FY11 Results Update (Keynote Capitals)

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Axis Bank Ltd. Q4FY11 Result Update

Keynote Capitals Institutional Research Page 2

Advances and Deposits y-o-y

growth more than the industry

average

Robust fee income growthboosted non-interest income andthe profitability.

As per the management guidance, loan book growth is expected to be modera

at ~25% in FY12E driven by Retail and SMEs. We expect the loan book to gro

at ~24% CAGR over FY11-13E and thereby supporting NII growth.

Deposits grew 33.9% y-o-y and 21.5% q-o-q, above industry average depo

growth. Stable CASA deposit growth and acceleration in term deposit grow

(48% y-o-y) led to decline in CASA ratio by 121bps q-o-q to 41.1% mainly due

hike in deposit rate across deposit maturities during the quarter. Going forwa

balance sheet growth is likely to moderate from current growth trend resulti

into lower fund requirement and improvement in CASA ratio from current leve

We expect the deposit to grow at ~23% CAGR over FY11-13E.

Strong non-interest income growth

Non-interest income accelerated 55.4% y-o-y and 26.4% q-o-q to `1450.40

mainly due to healthy growth in core fee income (39.3% y-o-y and 27.2% q-o-

The main drivers for fee income were syndication fees on large & mid-corpora

loans, fees from SME and retail banking. Growth in non-interest income w

partly aided by the 215.7% y-o-y spurt in miscellaneous income (primar

recoveries from written-off accounts of `155cr during 4QFY11 and `325cr duri

FY11). Trading gains reported a decline to `58cr in Q4FY11 from `103cr

Q3FY11. Hence, branch network expansion, better debt structuring & syndicati

capabilities, and wide range of products & service delivery will continue to dri

fee income going forward. We expect the non-interest income to grow at 23.2

CAGR for FY11-FY13E.

Break up of Non-Interest Income (`cr

ParticularsQ4-

FY11Q3-

FY11Q4-

FY10% change

y-o-y% chang

q-o-

Fee income* 1231 968 780 57.8% 27.2%

Corporate Banking 438 352 260 68.5% 24.4%

Treasury 255 162 143 78.3% 57.4%

Agri & SME Banking 100 58 69 44.9% 72.4%

Business Banking 107 95 89 20.2% 12.6%

Capital markets 19 15 3 533.3% 26.7%

Retail Banking 312 286 216 44.4% 9.1%

Trading gains 58 135 103 -43.7% -57.0%

Misc. income 161 45 51 215.7% 257.8%

Non Interest Income 1450 1148 934 55.4% 26.4%(* Fee income adjusted for change in accounting policy for BG commissions for Q4FY11grew 39.3% y-o-y.)

NIM contraction due to spike in cost of funds

NII growth moderated to 16.5% y-o-y in 4QFY11 from 28.5% y-o-y in Q3FY

due to sharp margin contraction (37 bps) q-o-q. NIM declined to 3.4% from 3.8

in Q3FY11, mainly on account of ~400bp decline in CASA ratio on a da

average basis coupled with rising term deposit rates by 121 bps, moderation

CD ratio (400bps q-o-q) and cyclical acceleration in priority sector loan book.


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The decline in NIM led to the first sequential decline in NII (1.9%) in the last ni

quarters. The bank has hiked base rate and BPLR by 75bps each during t

quarter to counter the increase in cost of funds but was unable to offset the co

of-funds pressures due to lag in repricing. Going forward, management expec

NIM to stabilize at 3.33.5%. We expect NII to grow at 22.8% CAGR over FY1

FY13E driven by healthy loan growth.

Stable Asset Quality

The asset quality of the bank is comfortable with gross and net NPA ratios

1.0% and 0.3% respectively in Q4FY11. Provision coverage stands at 80.9

including technical write-offs well above RBIs mandate of 70%. We expect t

same to continue and the gross and net NPA ratio may be maintained arou

1.1% & 0.3% respectively, in another couple of years. The restructured loa

stood at `1930cr as on 31st March-2011 constituting 1.2% of gross custom

assets. The bank saw increase in pace of up-gradation and recovery during t

quarter. Gross slippages during the quarter came down to `248cr compared

`334cr in 3QFY11 and `446cr in 2QFY11, resulting in an annualized slippa

ratio of 1.0% which is lower than the 9MFY11 ratio of 1.5% and FY10 of 2.2%.

Adequately capitalized to support earnings quality

The bank has a healthy capital adequacy ratio of 12.7%, with tier-I capital

9.4% at the end of FY11. The bank is not looking at any immediate tier-I capit

raising plans, as it has got significant headroom for raising tier-II capital. T

bank reported 1.7% ROA and 20.1% ROE in FY11. We expect the bank

sustain return ratios at ~ 1.7% ROA and ~21.5% ROE over FY11-FY13E.

Branch Network Expansion

The bank has opened 270 branches and 967 ATMs in Q4FY11, taking the to

branch network to 1390 branches and 6270 ATMs. Branch expansion w

substantial with growth of 41.4% in FY2011. The management has indicated th

the growth trend on branch expansion is likely to moderate to 200-250 bran

addition in FY12E.

Valuations

The bank's total business, multiple sources of sustainable fee-income, distributio

network and vast customer base in CASA-franchise enable it to leverage significan

business opportunities in the current rising interest rate scenario. This along with

balanced loan portfolio and high proportion of low-cost funds will help the bank t

earn better margins compared to its peers. We recommended the stock `21227.55 on 18

thJan-2011 and achieved the target price of `1415 (an upside o

15.3%) within three months. Considering the above factors, we increase our targe

price to `1575 per share by assigning a multiple of 3.05x FY13E price to adjuste

book for the period of one year, with a Buy recommendation. At CMP of `1355.2

the stock is trading 2.63xFY12E and 2.22xFY13E price to adjusted book.


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P/ABV Bands

(Source: Keynote Capitals Institutional Research)

Key Quarterly Updates (`c

Particulars Q4-FY11 Q3-FY11 Q4-FY10

%change

y-o-y

%change

q-o-q FY11 FY10chan

y-

Interest Earned 4366.66 3838.31 2988.45 46.1% 13.8% 15154.81 11638.02 30.

Interest on advances 3062.64 2600.55 2074.97 47.6% 17.8% 10403.11 7986.60 30.

Income from Investment 1213.06 1166.83 856.01 41.7% 4.0% 4438.69 3428.31 29.

Interest on RBI balance 63.59 48.18 27.20 133.8% 32.0% 182.62 120.00 52.

Others 27.37 22.75 30.27 -9.6% 20.3% 130.39 103.11 26.

Interest expended 2665.66 2105.19 1528.38 74.4% 26.6% 8591.82 6633.53 29.

Net Interest Income 1701.00 1733.12 1460.07 16.5% -1.9% 6562.99 5004.49 31.

Non-Interest Income 1450.40 1147.71 933.54 55.4% 26.4% 4632.13 3945.78 17.

Net Total Income 3151.40 2880.83 2393.61 31.7% 9.4% 11195.12 8950.27 25.

Operating Expenses 1330.59 1222.35 1009.80 31.8% 8.9% 4779.43 3709.72 28.

Staff costs 396.02 396.16 333.75 18.7% 0.0% 1613.90 1255.82 28.

Other expenses 934.57 826.19 676.05 38.2% 13.1% 3165.53 2453.90 29.

Pre-provisioning profit 1820.81 1658.48 1383.81 31.6% 9.8% 6415.69 5240.55 22.

Provisions 254.39 313.88 201.87 26.0% -19.0% 1280.03 1389.19 -7.

PBT 1566.42 1344.60 1181.94 32.5% 16.5% 5135.66 3851.36 33.

Tax 546.31 453.24 417.07 31.0% 20.5% 1747.17 1336.83 30.

PAT 1020.11 891.36 764.87 33.4% 14.4% 3388.49 2514.53 34.

EPS (`) 24.85 21.75 18.88 31.6% 14.3% 82.54 62.06 33.

(Source: Company & Keynote Capitals Institutional Research)

1.75x

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Keynote Capitals Institutional Research Pag

Financials:

Profit & Loss (`cParticulars FY09 FY10 FY11 FY12E FY1

Interest Earned 10835.48 11638.02 15154.81 20769.19 25860

Interest on advances 7465.86 7986.60 10403.11 14889.64 19048

Income from Investment 3051.50 3428.31 4438.69 5539.84 6458

Interest on RBI balances 210.19 120.00 182.62 208.94 166

Others 107.93 103.11 130.39 130.76 186

Interest expended 7149.27 6633.53 8591.82 12827.32 15958

Net Interest Income 3686.21 5004.49 6562.99 7941.87 9901

Non-Interest Income 2896.88 3945.78 4632.13 5750.97 7027

Net Total Income 6583.09 8950.27 11195.12 13692.84 16929

Operating Expenses 2858.21 3709.72 4779.43 5813.76 7310

Staff costs 997.66 1255.82 1613.90 1873.89 2349

Other expenses 1860.55 2453.90 3165.53 3939.87 4961

Pre-provisioning profit 3724.88 5240.55 6415.69 7879.08 9619

Provisions 939.68 1389.19 1280.03 1331.72 1593

PBT 2785.20 3851.36 5135.66 6547.36 8025

Tax 969.84 1336.83 1747.17 2224.15 2731PAT 1815.36 2514.53 3388.49 4323.21 5294

EPS (`) 50.57 62.06 82.54 101.94 124

Book Value (`) 284.53 396.00 462.77 527.81 625

Adjusted Book Value (`) 275.41 385.66 452.77 516.19 610

(E: Keynote Capitals Institutional Research Estimates)

Balance Sheet (`cParticulars FY09 FY10 FY11 FY12E FY1

Sources of Funds

Share Capital 359.01 405.17 410.55 424.10 424

Reserves 9855.79 15639.44 18588.28 21960.38 26089

Net Worth 10214.80 16044.61 18998.83 22384.48 26513

Deposits 117374.11 141300.22 189237.80 234654.87 286278

Borrowings 15519.87 17169.55 26267.88 28612.76 35814

Other Liab. & Prov. 4650.07 6166.15 8208.86 7245.94 6082

Total Liabilities 147758.85 180680.53 242713.37 292898.05 354689

Applications of Funds

Cash Balances 9419.21 9473.88 13886.16 14730.27 17581

Bank Balances 5597.69 5732.56 7522.49 7947.99 9116

Investments 46330.35 55974.81 71991.62 85649.03 103060

Advances 81556.76 104343.12 142407.83 178006.73 218951

Fixed Assets 1072.89 1222.42 2273.15 2699.81 3209

Other Assets 3781.95 3933.74 4632.12 3864.22 2769

Total Assets 147758.85 180680.53 242713.37 292898.05 354689



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Return Ratios (%)

Particulars FY09 FY10 FY11 FY12E FY13

Net Interest Margin (NIM) 3.3% 3.8% 3.7% 3.2% 3.1

Yield on Advances 9.7% 8.7% 8.7% 9.5% 9.8

Yield on Investments 7.6% 6.7% 6.9% 7.0% 6.8

Cost of Deposits 6.4% 5.1% 4.7% 5.4% 5.4

Return on Average Assets 1.4% 1.5% 1.6% 1.6% 1.6ROAE 19.1% 19.2% 19.3% 20.9% 21.7

Dividend Yield (%) 0.7% 0.9% 1.2% 1.4% 1.7

Effective tax rate 34.8% 34.7% 34.0% 34.0% 34.0


Efficiency Ratios (%)


Net Interest Income/ Net total Income 56.0% 55.9% 58.6% 58.0% 58.

Non Interest Income/ Net total Income 44.0% 44.1% 41.4% 42.0% 41.

Interest expended/ Interest earned 66.0% 57.0% 56.7% 61.8% 61.

Cost to income 43.4% 41.4% 42.7% 42.5% 43.

Opex/ Avg. assets 2.2% 2.3% 2.3% 2.2% 2.

Credit Deposit ratio (C-D ratio) 69.5% 73.8% 75.3% 75.9% 76.

Incremental C-D ratio 73.6% 95.2% 79.4% 78.4% 79.

Investment Deposit ratio (I-D ratio) 39.5% 39.6% 38.0% 36.5% 36.

Incremental I-D ratio 42.4% 40.3% 33.4% 30.1% 33.

Credit/ Assets 55.2% 57.8% 58.7% 60.8% 61.

Loan growth 36.7% 27.9% 36.5% 25.0% 23.

Deposits/Assets 79.4% 78.2% 78.0% 80.1% 80.

Deposit growth 33.9% 20.4% 33.9% 24.0% 22.


Per share Data


EPS (`) 50.57 62.06 82.54 101.94 124.

Book Value (`) 284.53 396.00 462.77 527.81 625.

Adjusted Book value (`) 275.41 385.66 452.77 516.19 610.


Valuation ratios


P/e (x) 26.80 21.84 16.42 13.29 10

P/BV (x) 4.76 3.42 2.93 2.57 2

P/ABV (x) 4.92 3.51 2.99 2.63 2



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Growth ratios (%)


Adjusted Book value 15.6% 40.0% 17.4% 14.0% 18.3

Advances 36.7% 27.9% 36.5% 25.0% 23.0

Deposits 33.9% 20.4% 33.9% 24.0% 22.0

Investments 37.5% 20.8% 28.6% 19.0% 20.3Net interest income 42.6% 35.8% 31.1% 21.0% 24.7

Non-interest Income 61.3% 36.2% 17.4% 24.2% 22.2

Net total Income 50.3% 36.0% 25.1% 22.3% 23.6

Pre-provisioning profit 67.3% 40.7% 22.4% 22.8% 22.1

Net profit 69.5% 38.5% 34.8% 27.6% 22.5

EPS 68.9% 22.7% 33.0% 23.5% 22.5


Productivity ratios (%)


No. of branches 792 983 1390 1590 17

% growth 23.0% 24.1% 41.4% 14.4% 9.4No. of ATMs 3595 4293 6270 6770 72

% growth 30.1% 19.4% 46.1% 8.0% 7.4

Total Business (`cr) 198931 245643 331646 412662 5052

% growth 35.1% 23.5% 35.0% 24.4% 22.4

Business per employee (`cr) 10.98 11.36 13.34 14.82 16.

Business per branch (`cr) 251.18 249.89 238.59 259.54 290.

Cost per employee (`cr) 0.16 0.17 0.19 0.21 0.

Cost per branch (`cr) 3.61 3.77 3.44 3.66 4.

Net Profit per employee (`cr) 0.10 0.12 0.14 0.16 0.

Net Profit per branch (`cr) 2.29 2.56 2.44 2.72 3.


Asset quality


Gross NPA (`cr) 897.77 1318.00 1599.42 1914.86 1962

Net NPA (`cr) 327.13 419.00 410.35 493.08 510

Gross NPA ratio 1.1% 1.3% 1.1% 1.1% 1.

Net NPA ratio 0.4% 0.4% 0.3% 0.3% 0.

Provision Coverage 85.3% 88.6% 80.9% 81.3% 82.


Asset Liability

Particulars FY09 FY10 FY11 FY12E FY1Credit-Deposit ratio 69.5% 73.8% 75.3% 75.9% 76.5

Investment/Deposit 39.5% 39.6% 38.0% 36.5% 36.0

Proportion of CASA deposits 43.1% 46.7% 41.1% 41.2% 41.8



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Documents

Axis Bank - Q4FY11 Results Update (Keynote Capitals)