Axis Bank AXBK.NS
AXSB IN
EQUITY: BANKS
Solid performance on PPOP
Global Markets Research
Asset quality guidance buffering for known stressed
exposures
18 October 2014
Rating
Remains
Action: In-line 2QFY15; TP increase to INR490, maintain Buy
2QFY15 PAT was in-line with the PPOP beat offset by higher provisions.
Liability franchise improvement continues to aid margins further and the pickup in corporate fee/loan growth was encouraging. On asset quality,
management is buffering up for some of the known problem accounts (gas
power/Abhijit) in its unchanged guidance of INR65bn delinquency excluding
which guidance looks conservative. We maintain Axis Bank as our top pick.
• Balance sheet granularity improving: Axis’ granularity on both assets and
liabilities continue to increase with bulk deposits now just 20% of deposits and
retail assets (including Agri) contributing ~40% of its loan book. We see this as a
big long-term positive and reason for re-rating.
• PPOP growth drivers– How sustainable? (1) NIMs: Directionally NIMs may
come off in 2HFY15 given the ~10bps base rate cut but NIMs as the FY15 is still
likely to be higher than FY14. (2) While the pick-up in core fees was led by a
spike in the large corporate book, we do not see Axis adding exposure to risky
sectors and 12% y-y growth in corporate book looks reasonable.
• No downward revision in delinquency guidance? Management maintained
its guidance of INR65bn of delinquency, implying ~INR35-40bn of delinquency
in 2HFY15 vs INR25bn in 1HFY15. We believe management is buffering for
some known stressed cases like gas power/ Abhijit power exposure which when
recognised would reduce asset quality uncertainty. Excluding these,
management guidance is conservative, in our view.
Catalysts: Lower delinquency in 2HFY15+ improving PPOP growth
Valuations: Still seems reasonable, more re-rating likely; Top Pick
We lift our TP to INR490/ largely due to a rollover. Axis continues to deliver on
diversifying its asset mix and making its liability more granular. As some credit
concerns ease over the next 12-18 months and corporate growth picks up we
expect further re-rating. In our view, the current valuation at 1.75x Sep-16
book of INR235 is reasonable in that context.
Year-end 31 Mar
Currency (INR)
PPOP (mn)
FY14
Actual
FY15F
Old
New
FY16F
Old
New
Closing price
17 October 2014
INR 402
Potential upside
+22%
Anchor themes
Granularity in balance sheet and
revenue lines have increased
significantly and further re-rating
is likely as asset quality concerns
ebb.
Nomura vs consensus
Our FY15/16F PAT is marginally
below consensus. Axis Bank
could surprise positively if the
asset quality turnaround is faster.
Research analysts
India Banks
Amit Nanavati - NSFSPL
[email protected]
+91 22 4037 4361
New
114,561 130,086 129,206 152,041 154,258 177,850 181,374
62,177
69,664
69,525
83,078
84,267 100,039 102,066
Normalised net profit (mn)
62,177
69,664
69,525
83,078
84,267 100,039 102,066
26.47
29.65
29.59
35.36
35.87
42.58
43.45
FD norm. EPS growth (%)
19.6
12.0
11.8
19.3
21.2
20.4
21.1
FD normalised P/E (x)
15.2
N/A
13.6
N/A
11.2
N/A
9.2
Price/adj. book (x)
2.5
N/A
2.1
N/A
1.9
N/A
1.6
Price/book (x)
2.5
N/A
2.1
N/A
1.9
N/A
1.6
Dividend yield (%)
INR 490
Adarsh Parasrampuria - NFASL
[email protected]
+91 22 4037 4034
Reported net profit (mn)
FD normalised EPS
Target price
Increased from 460
FY17F
Old
Buy
1.0
N/A
1.1
N/A
1.3
N/A
1.5
ROE (%)
17.4
17.0
16.9
17.5
17.8
18.2
18.5
ROA (%)
1.7
1.7
1.7
1.7
1.7
1.7
1.7
Source: Company data, Nomura estimates
Key company data: See page 2 for company data and detailed price/index chart
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Axis Bank
18 October 2014
Key data on Axis Bank
Relative performance chart
Balance sheet (INRmn)
Source: Thomson Reuters, Nomura research
Notes:
Performance
(%)
Absolute (INR)
Absolute (USD)
Rel to MSCI India
1M
0.9
0.0
2.3
3M
2.8
0.4
-0.1
12M
83.2
82.7
58.1
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
15,404.0
36.0
27.3
Profit and loss (INRmn)
Year-end 31 Mar
Interest income
Interest expense
Net interest income
Net fees and commissions
Trading related profits
Other operating revenue
Non-interest income
Operating income
Depreciation
Amortisation
Operating expenses
Employee share expense
Pre-provision op profit
Provisions for bad debt
Other provision charges
Operating profit
Other non-op income
Associates & JCEs
Pre-tax profit
Income tax
Net profit after tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
FY13
271,826
-175,163
96,663
50,266
5,863
9,382
65,511
162,174
-3,517
FY14
306,412
-186,895
119,516
53,956
3,276
16,820
74,052
193,569
-3,639
FY15F
354,901
-216,145
138,756
60,431
5,500
15,900
81,831
220,587
-4,003
FY16F
414,016
-250,064
163,952
71,309
5,000
19,002
95,310
259,262
-4,404
FY17F
485,778
-294,199
191,580
84,144
5,000
22,488
111,633
303,213
-4,844
-41,855 -49,355 -56,758 -66,407 -77,696
-23,770 -26,013 -30,620 -34,194 -39,298
93,031 114,561 129,206 154,258 181,374
-14,799 -17,810 -25,437 -28,486 -29,035
-2,702
-3,261
0
0
0
75,531
93,490 103,769 125,772 152,339
75,531
-23,736
51,794
93,490 103,769 125,772 152,339
-31,313 -34,244 -41,505 -50,272
62,177
69,525
84,267 102,066
51,794
0
51,794
-9,855
41,939
62,177
0
62,177
-11,011
51,166
69,525
0
69,525
-12,644
56,882
20.6
20.9
16.8
25.2
22.1
7.8
7.8
16.0
16.0
16.7
19.2
14.8
23.6
13.0
17.9
23.1
20.0
19.6
19.6
16.8
16.5
11.7
12.5
11.2
16.1
10.5
15.0
12.8
11.8
11.8
11.8
19.0
19.0
15.5
15.6
15.5
84,267 102,066
0
0
84,267 102,066
-14,540 -16,721
69,727
85,345
Growth (%)
Net interest income
Non-interest income
Non-interest expenses
Pre-provision earnings
Net profit
Normalised EPS
Normalised FDEPS
Loan growth
Interest earning assets
Interest bearing liabilities
Asset growth
Deposit growth
Source: Company data, Nomura estimates
18.2
16.5
17.0
19.4
21.2
21.2
21.2
20.0
20.0
20.3
19.9
21.2
16.9
17.1
17.0
17.6
21.1
21.1
21.1
20.0
20.0
20.1
19.8
21.2
As at 31 Mar
Cash and equivalents
Inter-bank lending
Deposits with central bank
Total securities
Other int earning assets
Gross loans
Less provisions
Net loans
Long-term investments
Fixed assets
Goodwill
Other intangible assets
Other non IEAs
Total assets
Customer deposits
Bank deposits, CDs,
Other int bearing liabilities
Total int bearing liabilities
Non-int bearing liabilities
Total liabilities
Minority interest
Common stock
Preferred stock
Retained earnings
Reserves for credit losses
Proposed dividends
Other equity
Shareholders' equity
Total liabilities and equity
Non-perf assets
FY13
FY14
FY15F
FY16F
FY17F
163,811 240,741 219,477 265,729 321,156
40,539
41,647
50,649
61,322
74,113
1,986,552 2,321,881 2,769,644 3,328,677 3,998,169
-16,893 -21,214 -31,849 -43,323 -55,745
1,969,660 2,300,668 2,737,794 3,285,353 3,942,424
1,137,375 1,135,484 1,289,266 1,541,725 1,842,609
23,556
24,102
24,648
25,193
25,739
70,666
89,808 109,220 132,237 159,819
3,405,607 3,832,449 4,431,053 5,311,559 6,365,860
2,526,136 2,809,446 3,244,714 3,933,133 4,766,242
403,855 452,639 509,288 576,310 649,806
35,656
50,270
70,270
90,270 110,270
2,965,647 3,312,355 3,824,273 4,599,713 5,526,319
108,881 137,889 167,694 203,033 245,383
3,074,528 3,450,244 3,991,967 4,802,746 5,771,701
4,680
4,698
4,698
4,698
4,698
326,399 377,506 434,388 504,115 589,460
331,079 382,205 439,086 508,814 594,159
3,405,607 3,832,449 4,431,053 5,311,559 6,365,860
23,934
35,051
45,499
59,347
74,326
Balance sheet ratios (%)
Loans to deposits
Equity to assets
78.6
9.7
82.6
10.0
85.4
9.9
84.6
9.6
83.9
9.3
1.2
0.74
0.50
70.6
12.2
17.0
1.5
0.77
0.55
60.5
12.8
17.0
1.6
0.92
0.72
70.0
12.4
16.5
1.8
0.86
0.82
73.0
12.0
15.9
1.9
0.73
0.88
75.0
11.7
15.4
22.14
22.14
22.14
3.60
39.76
141.50
141.50
141.50
26.47
26.47
26.47
4.00
48.77
162.69
162.62
162.69
29.59
29.59
29.59
4.60
55.00
186.91
186.89
186.91
35.87
35.87
35.87
5.29
65.66
216.59
216.59
216.59
43.45
43.45
43.45
6.08
77.21
252.92
252.92
252.92
18.1
18.1
18.1
0.9
2.8
2.8
5.16
14.52
6.36
8.16
40.4
42.6
31.4
19.0
18.5
1.65
27.0
2.41
15.2
15.2
15.2
1.0
2.5
2.5
5.49
14.08
5.95
8.13
38.3
40.8
33.5
17.7
17.4
1.72
26.2
2.58
13.6
13.6
13.6
1.1
2.1
2.1
5.41
13.83
6.06
7.78
37.1
41.4
33.0
18.2
16.9
1.68
25.3
2.51
11.2
11.2
11.2
1.3
1.9
1.9
5.34
13.50
5.94
7.56
36.8
40.5
33.0
17.3
17.8
1.73
26.5
2.58
9.2
9.2
9.2
1.5
1.6
1.6
5.20
13.19
5.81
7.38
36.8
40.2
33.0
16.4
18.5
1.75
27.6
2.61
Asset quality & capital
NPAs/gross loans (%)
Bad debt charge/gross
Loss reserves/assets (%)
Loss reserves/NPAs (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Per share
Reported EPS (INR)
Norm EPS (INR)
FD norm EPS (INR)
DPS (INR)
PPOP PS (INR)
BVPS (INR)
ABVPS (INR)
NTAPS (INR)
Valuations and ratios
Reported P/E (x)
Normalised P/E (x)
FD normalised P/E (x)
Dividend yield (%)
Price/book (x)
Price/adjusted book (x)
Net interest margin (%)
Yield on assets (%)
Cost of int bearing liab (%)
Net interest spread (%)
Non-interest income (%)
Cost to income (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (%)
Operating ROE (%)
Operating ROA (%)
Source: Company data, Nomura estimates
2
Nomura | Axis Bank
18 October 2014
Axis Bank conference call highlights 2QFY15:
Loan growth – Higher-than-expected loan growth was driven by uptick in large and
mid-corporate growth segment:
• Corporate loan growth of 8% q-q was driven by largely drawdowns from existing project
sanctions and increased working capital needs.
• Seeing some slowdown in the auto book, especially in the car portfolio, as system
growth has come off – Axis’ auto loan book composition is 60% cars and ~40% CVs.
Margins and Liability franchise improves further with ~10bps q/q expansion in
NIMs and CASA ratio improving to 45%:
• Domestic NIM was 4.3% and overseas book NIM was 1.7% during the quarterImprovement in domestic NIM was largely led by ~10bps q-q improvement in yield on
advances.
• Management expects some moderation in NIMs going forward as 80-85% of the
domestic loans which is linked to the base rate becomes repriced on a 10bps base
rate cut that the bank did this month, as yields may contract by 7-8bps.
• Management indicated that the robust growth in retail term deposits of +30% y-y was
largely driven by customer pull rather than the company push.
Core fee growth improves as corporate growth picks up:
• Core fee growth at 11% y-y growth was better than expected primarily due to positive
7% y-y growth in large corporate fees vs contraction in last few quarters and continued
momentum in retail fees.
• Trading profits in 2Q15 of INR2.7bn were largely by bonds’ gains.
Opex growth adjusted for base was 15% y/y:
• Opex growth during 2Q15 was up 18% y-y, however, adjusted for some writebacks in
employee costs in 2Q14 the growth would have been around 15% y-y. Management
guided towards opex growth of ~15% y-y for FY15F.
Asset quality and provisions – Some uptick seen but remains well within
guidance:
• Management maintained credit cost guidance of ~75-85bps and delinquency
expectation of INR65bn (Slippages + Restructuring) for FY15F keeping some buffer for
2H15F.
• Provisioning during the quarter included INR6.4bn of specific provisions, INR0.7bn of
standard and FX exposure linked provisioning.
• Slippages of INR9.1bn included INR1.94bn of delinquency from the restructured book.
Large write-offs of ~INR6bn driven by tax planning purposes.
• Exposure to SC judgement linked names: Exposure to steel names is only to strong
balance sheet companies. In the power sector, Axis does not have any exposure is to
projects which have a fixed tariff PPA – as per MCA (ministry of corporate affairs) data,
Axis has ~INR28bn exposure to names we believe could face debt servicing challenges
but ~50% of this exposure is to Abhijit group (stress known since last 2 years).
• ~45% exposure to power sector is towards operational projects – Similar to Mar-14
levels.
3
Nomura | Axis Bank
18 October 2014
Fig. 1: Strong PPOP growth led by ~10bps q/q improvement in NIMs and uptick in fee growth
INRm n
2Q14
1Q15
2Q15
y/y
q/q
Interest income
76,090
82,894
86,024
13.1%
3.8%
Interest expenses
46,723
49,789
50,775
8.7%
Net interest incom e
29,367
33,105
35,249
20.0%
Non-interest income
17,661
16,911
19,476
10.3%
15.2%
15.5% Fee income growth trends improve with
Fees
14,320
13,779
15,910
11.1%
50
2,603
2,710
5320.0%
3,290
529
860
-73.9%
Trading profits
Misc
2.0% Higher CASA and LDR ratios aided NIM
6.5% expansion of ~10bps q/q.
4.1% some uptick in corporate fees and robust
62.7% growth in retail fees of +30% y/y
19,530
21,059
23,102
18.3%
9.7%
6,439
7,518
7,860
22.1%
4.6%
Overheads
13,090
13,541
15,242
16.4%
Pre prov profit
27,498
28,957
31,623
15.0%
6,875
3,866
7,250
5.5%
Operating expenses
Staff Expenses
Provisions
Com m ents
12.6% PPOP growth was encouraging despite higher
9.2% opex. Core PPOP growth was up 18% y/y
87.5%
20,623
25,091
24,373
18.2%
-2.9%
Provision for tax
7,000
8,423
8,266
18.1%
-1.9%
Profit after tax
13,623
16,668
16,107
18.2%
-3.4%
NIM
Cost to Income
3.79%
41.5%
3.88%
42.1%
3.97%
42.2%
0.18%
0.69%
0.09% NIM improvement led by higher LDRs and
0.11% CASA ratio
Provisions/PPOP
25.0%
13.4%
22.9%
-2.07%
9.58%
Tax rate
33.9%
33.6%
33.9%
-0.03%
0.34%
Profit before tax
Balance sheet data
Advances
2,013,032 2,305,352 2,421,981
20.3%
5.1% Higher than expected loan growth was
Deposits
2,553,651 2,720,042 2,837,276
11.1%
4.3% driven by 8% q/q growth in corporate segment
Credit to Deposit
78.8%
84.8%
85.4%
6.5%
0.6%
CASA Ratio
42.9%
42.4%
44.5%
1.7%
2.2%
Asset quality
Gross NPA
27,345
34,633
36,131
32.1%
Net NPA
8,383
11,135
11,798
40.7%
NPA coverage (%)
69.3%
67.8%
67.3%
Gross NPA (%)
1.19
1.34
1.34
0.15
0.00 within guided range
Net NPA(%)
0.37
0.44
0.44
0.07
0.00
LLP/Loans
1.28
0.70
1.22
(0.06)
0.52
-2.0%
4.3% There was some uptick in both restructuring
6.0% and slippages during the quarter resulting to
-0.5% higher LLPs of ~120bps but remains well
Fees breakdow n
2Q14
1Q15
2Q15
y/y
Retail banking
4,582
5,098
6,046
31.9%
Business banking
1,146
1,378
1,273
11.1%
-7.6% uptick in corporate fee growth. Retail fee
Agri & SME banking
1,002
551
955
-4.8%
73.2% growth trends remain robust growing +30% y/y
Treasury
3,150
3,307
3,023
-4.0%
-8.6%
Large & Mid corp
Total
q/q
18.6% Improvement in core fee growth was led by
4,296
3,445
4,614
7.4%
33.9%
14,320
13,779
15,910
11.1%
15.5%
Source: Company data, Nomura research
4
Nomura | Axis Bank
18 October 2014
Fig. 2: Positive surprise on loan growth was led by ~8% q/q uptick in large and mid
corporate segment
INRm n
2Q14
1Q15
2Q15
y/y
q/q
Total Advances
2,013,032
2,305,352
2,421,981
20.3%
5.1%
Large Corporates
986,385
1,018,410
1,101,760
11.7%
8.2%
SME
328,910
374,710
377,010
14.6%
0.6%
Retail
697,736
912,230
943,211
35.2%
3.4%
438,257
556,460
575,358
31.3%
3.4%
Personal loans & cards
60,869
82,101
84,889
39.5%
3.4%
Auto loans
66,956
91,223
84,889
26.8%
-6.9%
Others
42,608
45,612
56,593
32.8%
24.1%
Housing loan
Source: Company data, Nomura research
Fig. 3: Margins improve on the back of higher yield, LDR and CASA
Net Interest Margin (%)
3.97
3.89
3.86
3.88
3.79
3.75
3.71
3.70
3.57
3.55
3.46
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3.37
3Q12
4.1
4.0
3.9
3.8
3.7
3.6
3.5
3.4
3.3
3.2
3.1
3.0
Source: Company data, Nomura research
Fig. 4: LDRs continue to expand further
50
LDR
85.0%
79%
78%
77% 77%
40
41.6
41.5
73% 73%
41.0
39.1
35
42.4
42.9
42.6
3Q14
75.0%
45.0
44.4
82%
2Q14
83%
81%
44.5
42.4
40.0
Source: Company data, Nomura research
2Q15
1Q15
4Q14
4Q13
3Q13
2Q13
1Q13
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
25
4Q12
60.0%
3Q12
30
4Q12
71%
65.0%
3Q12
70.0%
45
85% 85%
80.0%
CASA ratio (%)
1Q14
90.0%
Fig. 5: CASA ratio back to 45% led by 20% y/y growth in SA
Source: Company data, Nomura research
Fig. 6: Some uptick in impairments but remains well within management guidance of
INR65bn for FY15F
INRm n
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
Gross slippages
6,810
6,180
5,890
3,010
6,260
9,110
1640
Recoveries+ Upgradations
720
2660
1220
1490
970
5130
1070
1930
140
2120
5970
1.37%
1.23%
1.11%
0.52%
1.09%
1.50%
Write offs
Slippage ratio
Total restructured loans
42,110
% of Loans
2.13%
Additions in Qtr
6,860
48,070
2.39%
10,310
49,000
2.32%
6,700
60,790
2.64%
11,150
62,890
66,900
2.73%
2.76%
4,800
5,700
Source: Company data, Nomura research
5
Nomura | Axis Bank
18 October 2014
0.4
0.4
0.2
3Q12
4Q12
3Q12
0.0
Source: Company data, Nomura research
2Q15
0.4
0.4
1Q15
0.4
4Q14
0.4
3Q14
0.3
2Q14
0.3
2Q14
0.3
1Q14
0.4
0.4
1Q14
0.3
0.94
4Q13
0.3
1.22
Restructuring (INRmn)
3Q13
1.10
2Q15
1.06
1.34
1Q15
1.10
1.34
1.25
3Q14
1.10
4Q13
0.6
1.06
3Q13
1.10
0.8
2Q13
1.19
1Q13
1.0
4Q14
1.2
Slippage (INRmn)
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
% of Net NPAs
2Q13
% of Gross NPAs
1.4
1Q13
1.6
Fig. 8: Total impairments remains within guided range
4Q12
Fig. 7: Asset quantity trends remains comfortable
Source: Company data, Nomura research
Fig. 9: Stable mix of >A rated corporate at +60% levels
120%
3%
3%
3%
4%
5%
6%
6%
6%
7%
9%
8%
9%
27%
30%
33%
34%
34%
32%
31%
32%
31%
30%
31%
30%
40%
39%
38%
37%
37%
36%
37%
35%
33%
35%
16%
15%
14%
15%
16%
16%
16%
14%
18%
15%
9%
12%
11%
11%
11%
12%
11%
4Q14
1Q15
2Q15
<BBB or unrated
3Q14
BBB
2Q14
A
1Q14
80%
AA
4Q13
100%
AAA
60%
41%
40%
19%
6%
8%
6%
7%
7%
1Q13
2Q13
3Q13
0%
23%
4Q12
20%
3Q12
40%
Source: Company data, Nomura research
Fig. 10: Qtrly RoA break-down – Margins remain strong – Provisioning likely to come off from 2QFY15 levels
ROA Tree
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
Net Interest Incom e/Assets
3.14%
3.21%
3.23%
3.22%
3.25%
3.36%
3.41%
3.47%
3.64%
Fees/Assets
1.87%
1.89%
2.15%
1.51%
1.95%
1.81%
2.15%
1.50%
1.73%
Investment profits/Assets
0.28%
0.19%
0.29%
0.49%
0.01%
0.04%
0.23%
0.27%
0.28%
Net revenues/Assets
5.30%
5.29%
5.67%
5.21%
5.20%
5.21%
5.79%
5.25%
5.65%
Operating Expense/Assets
-2.35%
-2.25%
-2.27%
-2.02%
-2.16%
-2.27%
-2.30%
-2.21%
-2.39%
Provisions/Assets
-0.69%
-0.50%
-0.72%
-0.80%
-0.76%
-0.23%
-0.54%
-0.41%
-0.75%
Taxes/Assets
-0.74%
-0.81%
-0.79%
-0.81%
-0.77%
-0.91%
-0.97%
-0.88%
-0.85%
Total Costs/Assets
-3.99%
-3.78%
-3.56%
-3.78%
-3.63%
-3.69%
-3.40%
-3.81%
-3.50%
ROA
1.52%
1.73%
1.89%
1.58%
1.51%
1.81%
1.98%
1.75%
1.66%
Equity/Assets
8.36%
8.29%
9.00%
9.55%
9.83%
10.39%
10.22%
10.26%
10.57%
18.16%
20.93%
20.96%
16.56%
15.31%
17.37%
19.43%
17.04%
15.75%
ROE
Source: Company data, Nomura research
6
Nomura | Axis Bank
18 October 2014
Valuations: Still reasonable, more re-rating likely; Top Pick
We increase our TP to INR490 largely due to a rollover. Axis continues to deliver on
diversifying it asset mix and making its liability more granular. As some credit concerns
ease over the next 12-18 months and corporate growth picks up we expect further rerating. In our view, the current valuation at 1.75x Sep-16 book of INR235 is reasonable in
that context.
Risks: (1) (1) A slower-than-expected recovery in corporate capex execution; and (2)
higher than expected delinquency.
Fig. 11: ROA decomposition
ROA decomposition
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15F
FY16F
FY17F
Net Interest Income/Assets
2.93%
2.96%
3.42%
3.39%
3.29%
3.27%
3.46%
3.46%
3.47%
3.38%
Fees/Assets
1.80%
2.11%
2.22%
2.21%
2.18%
2.02%
2.05%
1.90%
1.91%
1.88%
Investment profits/Assets
0.23%
0.23%
0.49%
0.19%
0.04%
0.20%
0.09%
0.14%
0.11%
0.09%
Net revenues/Assets
4.96%
5.30%
6.13%
5.78%
5.51%
5.48%
5.60%
5.50%
5.49%
5.35%
Operating Expense/Assets
-2.44%
-2.31%
-2.57%
-2.47%
-2.46%
-2.34%
-2.29%
-2.28%
-2.22%
-2.15%
Provisions/Assets
-0.66%
-0.75%
-0.95%
-0.66%
-0.47%
-0.59%
-0.61%
-0.63%
-0.60%
-0.51%
Taxes/Assets
-0.65%
-0.78%
-0.92%
-0.90%
-0.84%
-0.80%
-0.91%
-0.85%
-0.88%
-0.89%
Total Costs/Assets
-3.75%
-3.84%
-4.44%
-4.03%
-3.77%
-3.73%
-3.80%
-3.77%
-3.70%
-3.55%
ROA
1.21%
1.46%
1.69%
1.75%
1.74%
1.75%
1.80%
1.73%
1.78%
1.80%
Equity/Assets
6.89%
7.62%
8.97%
9.05%
8.57%
9.45%
10.33%
10.25%
10.03%
9.73%
ROE
17.6%
19.1%
18.9%
19.3%
20.3%
18.5%
17.4%
16.9%
17.8%
18.5%
RORWA
1.51%
1.86%
1.98%
2.01%
1.98%
2.11%
2.28%
2.21%
2.24%
2.26%
Source: Company data, Nomura estimates
Fig. 12: TP of INR490
Fig. 13: Valuations still reasonable
1yr fwd P/B chart
3.5
Risk free rate
8.5%
Equity Risk Premium
5.0%
Beta
Cost of Equity
1.15
2.5
2.0
5.0%
Normalised ROE
21.1%
Stage 2 grow th
18.0%
Sep-15 PT
490
Implied Sep-16 P/B
2.09
Implied Sep-16 P/E
12.36
Source: Nomura estimates
3.0
14.3%
Terminal grow th
Axis
1.5
1.0
0.5
Apr-05
Oct-05
Apr-06
Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Valuation assum ptions
Source: Company data, Bloomberg, Nomura estimates
7
Nomura | Axis Bank
18 October 2014
Appendix A-1
Analyst Certification
We, Adarsh Parasrampuria and Amit Nanavati, hereby certify (1) that the views expressed in this Research report accurately
reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of
our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this
Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures
The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more
Nomura Group companies.
Materially mentioned issuers
Issuer
Axis Bank
Ticker
AXSB IN
Price
INR 402
Price date
Stock rating Sector rating Disclosures
17-Oct-2014 Buy
N/A
A1,A2,A3
A1
The Nomura Group has received compensation for non-investment banking products or services from the issuer in the past 12 months.
A2
The Nomura Group had a non-investment banking securities related services client relationship with the issuer during the past 12 months.
A3
The Nomura Group had a non-securities related services client relationship with the issuer during the past 12 months.
Axis Bank (AXSB IN)
INR 402 (17-Oct-2014) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date
26-Aug-14
08-Jul-14
08-Jul-14
28-Jun-14
16-May-14
23-Apr-14
18-Oct-13
10-Jan-13
16-Oct-12
31-Aug-12
31-Oct-11
31-Oct-11
17-Oct-11
Rating
Target price Closing price
460.00
397.60
Buy
377.65
2,300.00
377.65
Suspended
381.84
2,000.00
351.00
1,720.00
303.96
1,500.00
231.24
1,620.00
273.60
1,350.00
229.18
1,200.00
198.36
Buy
231.87
1,400.00
231.87
Not Rated
224.37
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our TP of INR490 is based on 2.1x Sept-16F book of INR235. Axis continues to deliver on diversifying
it asset mix and making its liability more granular. As some credit concerns ease over the next 12-18 months and corporate
growth picks up we expect further re-rating. Current valuations at 1.75x Sep-16 book is reasonable in that context. MSCI India is
the benchmark index for the stock.
Risks that may impede the achievement of the target price (1) A slower-than-expected recovery in corporate capex
execution; and (2) higher than expected delinquency.
Important Disclosures
Online availability of research and conflict-of-interest disclosures
Nomura research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne.
8
Nomura | Axis Bank
18 October 2014
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from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please
email [email protected] for help.
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a
portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are
not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be subject to
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Distribution of ratings (Global)
The distribution of all ratings published by Nomura Global Equity Research is as follows:
48% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 43% of companies with this
rating are investment banking clients of the Nomura Group*.
43% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 54% of companies with
this rating are investment banking clients of the Nomura Group*.
9% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 23% of companies with
this rating are investment banking clients of the Nomura Group*.
As at 30 September 2014. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America, and
Japan and Asia ex-Japan from 21 October 2013
The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock,
subject to limited management discretion. An analyst’s target price is an assessment of the current intrinsic fair value of the stock based on an
appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow
analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the stated
target price, defined as (target price - current price)/current price.
STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',
indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that
the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies
that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or
additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia exJapan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed
at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI
Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.
SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that
the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as
'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging
Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned.
Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan prior to 21 October 2013
STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,
subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,
based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that
potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A
'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price
have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is
acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled
as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should
not expect continuing or additional information from Nomura relating to such securities and/or companies.
SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks
under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average
recommendation of the stocks under coverage is) a negative absolute recommendation.
9
Nomura | Axis Bank
18 October 2014
Target Price
A Target Price, if discussed, reflects in part the analyst's estimates for the company's earnings. The achievement of any target price may be
impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the
company's earnings differ from estimates.
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Nomura | Axis Bank
18 October 2014
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