1. finance
2. bank

Results Review
INDIA
FINANCIALS
17 October 2014
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
PAT in line, operational metrics strong – BUY
AXSB reported a largely in-line PAT of Rs 16.1bn (+18.2% YoY) driven by an
unexpected 9bps margin expansion and improved traction in fee/treasury
income, but partly offset by higher provisions. Robust traction in retail
along with some pick-up in the corporate portfolio shored up loan growth.
Impaired asset formation was higher but within the guided lines of
management. Valuations at 1.9x FY16E ABV appear reasonable in the
backdrop of higher RoEs (+17%) and better capitalisation levels. BUY.
REPORT AUTHORS
Vikash Mundhra
+91 22 6766 3474
[email protected]
 Retail momentum continues; corporate book too picks up: AXSB reported robust
advances growth primarily driven by its retail and corporate portfolios. Though
growth in the retail portfolio was slightly hurt due to a slowdown in the economy,
the bank managed to sustain the momentum. The SME book remained flattish
QoQ. For FY15, management has guided to 20% YoY growth in the loan book.
 NIMs surprise again; average CASA stable at 40%: NIMs improved 9bps QoQ to
3.97% against our expectations of a 5bps-7bps correction, led by higher blended
yields and flat cost of funds. While NIMs would remain under pressure in H2FY15 on
account of a recent 10bps cut in the base rate, stringent control over cost of funds
aided by a strong liability franchisee (CASA ratio: 44.5%) would keep margins
resilient at +3.5% in FY15.
 Higher impaired assets formation, but within guided lines: Total impaired asset
formation was higher at Rs 14.8bn (as against Rs 11.1bn in Q1FY15), which included
Rs 9.1bn of slippages and Rs 5.7bn of restructured loans. However, net addition to
GNPLs was lower QoQ on account of higher write-offs.
 Fee income to grow in low two-digits in FY15: Fee income growth saw little
traction during the quarter, driven by traction in retail fees and some increase in
corporate fees. Fees from third-party products however were up 21% YoY.
Management expects corporate fee income to pick up in H2FY15 led by increasing
demand for corporate loans, and has guided for FY15 fee income growth of 10-12%.
Financial Highlights
FY13A
FY14A
FY15E
FY16E
FY17E
Net interest income (INR mln)
96,663
119,516
140,640
160,365
185,156
162,174
193,569
220,229
250,736
290,149
Pre-provision profits (INR mln)
93,031
114,561
128,068
146,729
171,329
Adj. PAT (INR mln)
51,794
62,177
71,557
84,458
101,012
Adj. EPS (INR)
22.1
26.5
30.5
36.0
43.0
ROE (%)
18.5
17.4
17.4
17.7
18.2
ROA (%)
1.7
1.7
1.7
1.8
1.8
Gross NPA (%)
1.2
1.4
1.4
1.4
1.3
Tier I ratio (%)
12.2
12.6
12.1
11.5
10.9
2.8
2.5
2.1
1.8
1.6
18.1
15.2
13.2
11.2
9.3
P/BV (x)
P/E (x)
INR 401.95
MARKET CAP
INR 948.5 bln
USD 15.3 bln
SHARES O/S
2.35 bln
FREE FLOAT
62.7%
3M AVG DAILY VOLUME/VALUE
4.2 mln / USD 27.5 mln
52 WK HIGH
52 WK LOW
INR 423.70
INR 202.33
(%)
Y/E 31 Mar
Net revenues (INR mln)
PRICE CLOSE (17 Oct 14)
Stock Price
Index Price
200
150
100
50
0
Source: Company, Factset, RCML Research
This report has been prepared by Religare Capital Markets Limited or one of its affiliates. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the end of
this report. Analysts employed by non-US affiliates are not registered with FINRA regulation and may not be subject to FINRA/NYSE restrictions on communications with covered companies, public appearances, and
trading securities held by a research analyst account.
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
Results Review
INDIA
FINANCIALS
Fig 1 - Actual vs. estimated performance
(Rs mn)
Actual
Estimate
% Variance
NII
35,249
33,073
6.6
Net revenues
54,725
51,239
6.8
PPP
31,623
28,850
9.6
PAT
16,107
16,337
(1.4)
NII/operating profit much higher than
our estimate; PAT largely in line due to
higher provisions
Source: RCML Research
Fig 2 - Quarterly performance
(Rs mn)
Interest income
Q2FY15
Q2FY14
% Chg YoY
Q1FY14
% Chg QoQ
86,024
76,090
13.1
82,894
3.8
Interest expenses
50,775
46,723
8.7
49,789
2.0
Net interest income
35,249
29,367
20.0
33,105
6.5
Other income
19,476
17,661
10.3
16,911
15.2
2,708
50
5315.0
2,600
4
105,500
93,751
12.5
99,805
5.7
23,102
19,530
18.3
21,059
9.7
7,860
6,439
22.1
7,518
4.6
31,623
27,498
15.0
28,957
9.2
7,250
6,875
5.5
3,866
87.5
24,373
20,623
18.2
25,091
(2.9)
8,266
7,000
18.1
8,423
(1.9)
16,107
13,623
18.2
16,668
(3.4)
Cost to Income ratio (%)
42.2
41.5
42.1
Tax rate (%)
33.9
33.9
33.6
NIMs (%)
3.97
3.79
3.88
CAR (%)
15.9
15.9
16.1
- Trading profit
Total Income
Operating expenses
- Staff expenses
PPP
Provisions and W/off
PBT
Taxes
PAT
- Tier I (%)
NIMs up 9bps QoQ to 3.97% led by an
improvement in blended yields and
flat cost of funds
12.6
11.7
Advances (Rs bn)
2,422
2,013
20.3
2,305
12.6
5.1
Deposits (Rs bn)
11.1
2,720
4.3
2,837
2,554
CASA ratio (%)
44.5
42.9
42.4
C/D ratio (%)
85.4
78.8
84.8
Investments (Rs bn)
Gross NPA (Rs mn)
Gross NPA (%)
Net NPA (Rs mn)
Net NPA (%)
PCR (%)
1,143
1,184
(3.5)
1,079
5.9
36,131
27,345
32.1
34,633
4.3
40.7
11,135
1.3
1.2
11,798
8,383
Staff costs rise due to an increase in
headcount and an unfavourable base
Average CASA stable at 40%
Despite higher slippages, headline
GNPLs stable due to higher write-offs
1.3
0.4
0.4
0.4
67.3
69.3
67.8
6.0
Source: Company, RCML Research
17 October 2014
Page 2 of 7
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
Results Review
INDIA
FINANCIALS
Key highlights
Fig 3 - Break- up of fund-based industry advances (Sept’14)
Others
63%
Infrastructure
7%
Power
5%
Engineering &
Electronics
3%
Real Estate
3%
Shipping
2%
Food Processing
4%
Petroleum
1%
Financials
4%
Trade
4%
Metals
4%
Source: Company, RCML Research
Fig 4 - Break-up of loan book
Retail
39%
Corporate
45%
SME
16%
Source: Company, RCML Research
Fig 5 - NIMs improve 9bps QoQ
(%)
CASA
NIMs (R)
(%)
CoF (R)
46
7
45
6
44
5
43
42
4
41
3
40
2
39
1
38
37
0
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Source: RCML Research, Company
17 October 2014
Page 3 of 7
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
Results Review
INDIA
FINANCIALS
Fig 6 - Break-up of other income
(Rs mn)
Fee income
Q2FY15
Q2FY14
% Chg YoY
Q1FY15
% Chg QoQ
15.4
15,906
14,320
11.1
13,780
- Large and mid-corporate
4,613
4,296
7.4
3,402
35.6
- Treasury
3,022
3,150
(4.1)
3,509
-13.9
- Agri and SME
954
1,002
(4.8)
530
80.1
- Business Banking
1,273
1,146
11.1
1,399
-9.1
- Retail Business
6,044
4,582
31.9
4,940
22.4
Trading income
2,708
50
5315.0
2,600
4.1
862
3,291
(73.8)
531
62.4
19,476
17,661
10.3
16,911
15.2
Misc Income
Total
Source: Company, RCML Research
Fig 7 - Movement of NPAs
(Rs mn)
Opening GNPAs
Additions (Slippages)
Up-gradations & Recoveries
Write-offs
Closing GNPAs
Annualised slippages (%)
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
23,924
24,897
27,345
30,082
31,464
34,633
6,810
6,180
5,890
3,010
6,260
9,110
720
2,660
1,220
1,489
971
1,641
5,117
1,072
1,933
139
2,120
5,971
24,897
27,345
30,082
31,464
34,633
36,131
1.4
1.2
1.1
0.5
1.1
1.6
Source: Company, RCML Research
Fig 8 - Asset quality trend
Gross NPA (Rs mn)
Gross NPA (%)
Net NPA (Rs mn)
Net NPA (%)
Provision coverage ratio (%)
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
21,910
22,753
23,924
24,897
27,345
30,082
31,464
34,633
36,131
1.1
1.1
1.1
1.1
1.2
1.3
1.2
1.3
1.3
6,542
6,787
7,041
7,897
8,383
10,034
10,246
11,135
11,798
0.3
0.3
0.3
0.4
0.4
0.4
0.4
0.4
0.4
70.1
70.2
70.6
68.3
69.3
66.6
67.4
67.8
67.3
Source: Company, RCML Research
17 October 2014
Page 4 of 7
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
Results Review
INDIA
FINANCIALS
Per Share Data
Y/E 31 Mar (INR)
FY13A
FY14A
FY15E
FY16E
FY17E
Reported EPS
22.1
26.5
30.5
36.0
43.0
Adjusted EPS
22.1
26.5
30.5
36.0
43.0
DPS
18.0
20.0
22.0
24.0
26.0
Book value
142
163
188
218
255
Adjusted book value
140
160
185
215
251
FY13A
FY14A
FY15E
FY16E
FY17E
18.1
15.2
13.2
11.2
9.3
P/BV
2.8
2.5
2.1
1.8
1.6
P/ABV
2.9
2.5
2.2
1.9
1.6
FY13A
FY14A
FY15E
FY16E
FY17E
Valuation Ratios
Y/E 31 Mar (x)
P/E
Financial Ratios
Y/E 31 Mar (%)
Spread Analysis
Yield on advances
10.5
10.3
10.3
10.2
10.1
Yield on investments
7.5
7.3
7.3
6.9
6.7
Cost of funds
6.4
6.0
5.8
5.7
5.6
NIMs
3.2
3.4
3.5
3.5
3.4
42.6
40.8
41.8
41.5
41.0
2.2
2.2
2.3
2.2
2.2
Proportion of CASA deposits
44.4
45.0
45.4
43.7
42.3
Non-int inc / Total income
40.4
38.3
36.1
36.0
36.2
Credit / Deposit ratio
78.0
81.9
84.2
85.5
85.8
Investment / Deposit
45.0
40.4
38.8
38.4
38.0
Gross NPA
1.2
1.4
1.4
1.4
1.3
Net NPA
0.4
0.4
0.4
0.4
0.4
Coverage ratio
70.6
67.4
70.0
70.0
70.0
CAR
17.0
16.1
15.3
14.1
13.2
Tier I ratio
12.2
12.6
12.1
11.5
10.9
Net interest income
20.6
23.6
17.7
14.0
15.5
Non-interest income
20.9
13.0
7.5
13.5
16.2
Non-interest income (ex-treasury)
11.5
18.7
7.1
13.5
16.4
Pre-provisioning profit
25.2
23.1
11.8
14.6
16.8
Net profit
22.1
20.0
15.1
18.0
19.6
Assets
19.2
12.5
13.7
16.4
17.9
Advances
16.1
16.8
17.0
18.1
18.2
Deposits
14.8
11.2
13.8
16.3
17.7
Book value per share
28.2
15.0
15.6
16.1
16.9
7.8
19.6
15.1
18.0
19.6
Operating Ratios
Operating cost to income
Operating expenses / Avg assets
Asset Quality and Capital
Growth Ratios
EPS
DuPont Analysis
Y/E 31 Mar (%)
FY13A
FY14A
FY15E
FY16E
FY17E
Net interest income / Assets
3.1
3.3
3.4
3.4
3.4
Non-interest income / Assets
2.1
2.0
1.9
1.9
1.9
Operating expenses / Assets
2.2
2.2
2.3
2.2
2.2
Provisions / Assets
0.6
0.6
0.6
0.5
0.4
Taxes / Assets
0.8
0.9
0.8
0.9
0.9
ROA
1.7
1.7
1.7
1.8
1.8
Networth / Assets
11.2
10.1
9.9
9.9
9.9
ROAE
18.5
17.4
17.4
17.7
18.2
17 October 2014
Page 5 of 7
BUY
Axis Bank
TP: INR 500.00
 24.4%
AXSB IN
Results Review
INDIA
FINANCIALS
Profit and Loss Statement
Y/E 31 Mar (INR mln)
Interest income
Interest expense
FY13A
FY14A
FY15E
FY16E
FY17E
271,826
306,412
347,871
394,179
455,692
(175,163)
(186,895)
(207,231)
(233,814)
(270,537)
Net interest income
96,663
119,516
140,640
160,365
185,156
Non-interest income
65,511
74,052
79,589
90,371
104,994
Non-interest income (ex-treasury)
59,648
70,776
75,822
86,039
100,142
Net revenue
162,174
193,569
220,229
250,736
290,149
Operating expenses
(69,142)
(79,008)
(92,162)
(104,007)
(118,820)
Pre-provision profits
93,031
114,561
128,068
146,729
171,329
(17,504)
(21,075)
(23,144)
(21,606)
(21,682)
75,527
93,486
104,923
125,124
149,647
0
0
0
0
0
(23,733)
(31,310)
(33,366)
(40,665)
(48,636)
Reported PAT
51,794
62,177
71,557
84,458
101,012
Adj. net profit
51,794
62,177
71,557
84,458
101,012
Provisions & contingencies
PBT
Extraordinaries
Income tax
Balance Sheet
Y/E 31 Mar (INR mln)
Cash in hand & bal with RBI
Bal with banks, money at call
FY13A
FY14A
FY15E
FY16E
FY17E
147,921
170,413
178,934
223,667
279,584
56,429
111,974
123,131
107,098
133,369
Investments
1,137,375
1,135,484
1,241,525
1,428,410
1,662,129
Advances
1,969,660
2,300,668
2,691,888
3,179,024
3,757,323
Fixed assets (net)
23,556
24,102
33,189
41,134
47,091
Other assets
70,666
89,808
90,603
92,912
98,897
Total Assets
3,405,607
3,832,449
4,359,270
5,072,245
5,978,394
Equity capital
4,680
4,698
4,698
4,698
4,698
Reserves & surplus
326,399
377,506
436,970
508,235
594,954
Net worth (ex-pref capital)
331,079
382,205
441,669
512,934
599,653
0
0
0
0
0
Deposits
2,526,136
2,809,446
3,197,515
3,720,228
4,377,282
- CASA deposits
1,120,998
1,264,623
1,451,866
1,625,449
1,849,423
- Term deposits
1,405,138
1,544,822
1,745,649
2,094,779
2,527,859
Borrowings (+sub-ord bonds)
439,511
502,909
578,294
689,978
849,974
Other liabilities & provisions
108,881
137,889
141,792
149,105
151,485
3,405,607
3,832,449
4,359,270
5,072,245
5,978,394
Preference capital
Total Equity & Liabilities
17 October 2014
Page 6 of 7
RESEARCH DISCLAIMER
Important Disclosures
This report was prepared, approved, published and distributed by a Religare Capital Markets
(“RCM”) group company located outside of the United States (a “non-US Group Company”). This
report is distributed in the U.S. by Enclave Capital LLC (“Enclave Capital”), a U.S. registered broker
dealer, on behalf of RCM only to major U.S. institutional investors (as defined in Rule 15a-6 under the
U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in Rule 15a-6
and any transaction effected by a U.S. customer in the securities described in this report must be
effected through Enclave Capital. Neither the report nor any analyst who prepared or approved the
report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc.
(“FINRA”) or other regulatory requirements pertaining to research reports or research analysts. No
non-US Group Company is registered as a broker-dealer under the Exchange Act or is a member of
the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization.
Subject to any applicable laws and regulations at any given time, non-US Group Companies, their
affiliates or companies or individuals connected with RCM (together, “Connected Companies”) may
make investment decisions that are inconsistent with the recommendations or views expressed in this
report and may have long or short positions in, may from time to time purchase or sell (as principal or
agent) or have a material interest in any of the securities mentioned or related securities or may have
or have had a business or financial relationship with, or may provide or have provided investment
banking, capital markets and/or other services to, the entities referred to herein, their advisors and/or
any other connected parties. Any particular arrangements or relationships are disclosed below. As a
result, recipients of this report should be aware that Connected Companies may have a conflict of
interest that could affect the objectivity of this report.
See “Special Disclosures” for certain additional disclosure statements, if applicable.
This report is only for distribution to investment professionals and institutional investors.
Analyst Certification
Each of the analysts identified in this report certifies, with respect to the companies or securities that
the individual analyses, that (1) the views expressed in this report reflect his or her personal views
about all of the subject companies and securities and (2) no part of his or her compensation was, is
or will be directly or indirectly dependent on the specific recommendations or views expressed in this
report.
Analysts and strategists are paid in part by reference to the profitability of RCM which includes
investment banking revenues.
Stock Ratings are defined as follows
Recommendation Interpretation (Recommendation structure changed with effect from March 1, 2009)
Recommendation
Buy
Hold
Sell
Expected absolute returns (%) over 12 months
More than 15%
Between 15% and –5%
Less than –5%
Expected absolute returns are based on the share price at market close unless otherwise stated.
Stock recommendations are based on absolute upside (downside) and have a 12-month horizon. Our
target price represents the fair value of the stock based upon the analyst’s discretion. We note that
future price fluctuations could lead to a temporary mismatch between upside/downside for a stock
and our recommendation.
Stock Ratings Distribution
As of 1 October 2014, out of 208 rated stocks in the RCM coverage universe, 120 have BUY ratings
(including 6 that have been investment banking clients in the last 12 months), 61 are rated HOLD and
27 are rated SELL.
Research Conflict Management Policy
RCM research has been published in accordance with our conflict management policy, which is
available here.
Disclaimers
This report is not directed to, or intended for distribution to or use by, any person or entity who is a
citizen or resident of or located in any locality, state, country or other jurisdiction where such
distribution, publication, availability or use would be contrary to law or regulation or which would
subject RCM to any registration or licensing requirement within such jurisdiction(s). This report is
strictly confidential and is being furnished to you solely for your information. All material presented in
this report, unless specifically indicated otherwise, is under copyright to RCM. None of the material,
its content, or any copy of such material or content, may be altered in any way, transmitted, copied or
reproduced (in whole or in part) or redistributed in any form to any other party, without the prior
express written permission of RCM. All trademarks, service marks and logos used in this report are
trademarks or service marks or registered trademarks or service marks of RCM or its affiliates, unless
specifically mentioned otherwise.
ensure that the securities referred to in this report are suitable for any particular investor. RCM will
not treat recipients as its customers by virtue of their receiving the report. The investments or
services contained or referred to in this report may not be suitable for you and it is recommended that
you consult an independent investment advisor if you are in doubt about such investments or
investment services. In addition, nothing in this report constitutes investment, legal, accounting or tax
advice or a representation that any investment or strategy is suitable or appropriate to your individual
circumstances or otherwise constitutes a personal recommendation to you.
Information and opinions presented in this report were obtained or derived from sources that RCM
believes to be reliable, but RCM makes no representations or warranty, express or implied, as to their
accuracy or completeness or correctness. RCM accepts no liability for loss arising from the use of the
material presented in this report, except that this exclusion of liability does not apply to the extent that
liability arises under specific statutes or regulations applicable to RCM. This report is not to be relied
upon in substitution for the exercise of independent judgment. RCM may have issued, and may in the
future issue, a trading call regarding this security. Trading calls are short term trading opportunities
based on market events and catalysts, while stock ratings reflect investment recommendations based
on expected absolute return over a 12-month period as defined in the disclosure section. Because
trading calls and stock ratings reflect different assumptions and analytical methods, trading calls may
differ directionally from the stock rating.
Past performance should not be taken as an indication or guarantee of future performance, and no
representation or warranty, express or implied, is made regarding future performance. Information,
opinions and estimates contained in this report reflect a judgment of its original date of publication by
RCM and are subject to change without notice. The price, value of and income from any of the
securities or financial instruments mentioned in this report can fall as well as rise. The value of
securities and financial instruments is subject to exchange rate fluctuation that may have a positive or
adverse effect on the price or income of such securities or financial instruments. Investors in
securities such as ADR’s, the values of which are influenced by currency volatility, effectively assume
this risk.
This report is distributed in India by Religare Capital Markets Limited, which is a registered
intermediary regulated by the Securities and Exchange Board of India. In Dubai, it is being
distributed by Religare Capital Markets (Hong Kong) Limited (Dubai Branch) which is licensed and
regulated by the Dubai Financial Services Authority. In Singapore, it is being distributed (i) by
Religare Capital Markets (Singapore) Pte. Limited (“RCMS”) (Co. Reg. No. 200902065N) which is
a holder of a capital markets services licence and an exempt financial adviser in Singapore and (ii)
solely to persons who qualify as ““institutional investors” or “accredited investors” as defined in
section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”). Pursuant to
regulations 33, 34, 35 and 36 of the Financial Advisers Regulations (the “FAR”), sections 25, 27 and
36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to RCMS when providing
any financial advisory service to an accredited investor, or “overseas investor” (as defined in
regulation 36 of the FAR). Persons in Singapore should contact RCMS in respect of any matters
arising from, or in connection with this publication/communication. In Hong Kong, it is being
distributed by Religare Capital Markets (Hong Kong) Limited (“RCM HK”), which is licensed and
regulated by the Securities and Futures Commission, Hong Kong. In Australia, it is being distributed
by RCMHK which is approved under ASIC Class Orders. In Sri Lanka, it is being distributed by
Bartleet Mallory Stockbrokers, which is licensed under Securities and Exchange Commission of
Sri Lanka. If you wish to enter into a transaction please contact the RCM entity in your home
jurisdiction unless governing law provides otherwise. In jurisdictions where RCM is not registered or
licensed to trade in securities, transactions will only be effected in accordance with applicable
securities legislation which may vary from one jurisdiction to another and may require that the trade
be made in accordance with applicable exemptions from registration or licensing requirements.
Religare Capital Markets does and seeks to do business with companies covered in our research
report. As a result, investors should be aware that the firm may have a conflict of interest that could
affect the objectivity of research produced by Religare Capital Markets. Investors should consider
our research as only a single factor in making their investment decision.
Any reference to a third party research material or any other report contained in this report represents
the respective research organization's estimates and views and does not represent the views of RCM
and RCM, its officers, employees do not accept any liability or responsibility whatsoever with respect
to its accuracy or correctness and RCM has included such reports or made reference to such reports
in good faith. This report may provide the addresses of, or contain hyperlinks to websites. Except to
the extent to which the report refers to material on RCM’s own website, RCM takes no responsibility
whatsoever for the contents therein. Such addresses or hyperlinks (including addresses or
hyperlinks to RCM’s own website material) is provided solely for your convenience and information
and the content of the linked site does not in any way form part of this report. Accessing such
website or following such link through this report or RCM’s website shall be at your own risk.
Special Disclosures (if applicable)
Not Applicable
The information, tools and material presented in this report are provided to you for information
purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or
to buy or subscribe for securities or other financial instruments. RCM has not taken any steps to
17 October 2014
Page 7 of 7