report (3)

RESULTS REVIEW 2QFY16 28 OCT 2015

Axis Bank BUY

Taking it on the chest Axis Bank’s (AXSB) reported in line earnings and asset quality. Asset quality was optically stable following the sale to ARC (Rs 18.2bn). The sale was at ~65% haircut, with a Rs 3.4bn hit on P&L and Rs 8.5bn from contingent provisions. Including this cleanup, slippages stood at Rs 24bn (3.3% ann.) vs. the reported 0.8% ann.

AXSB’s conservative approach of building up contingent provisions through wind fall gains has provided a handy cushion this quarter. While the B/S continues towards increasing granularity and diversification, the corporate book's baggage is hitting asset quality. Still, AXSB remains ahead of comparable peers on coverage ratio.

AXSB continues to remain our preferred bet given its strong liability franchise, improving granularity, healthy B/S and superior return ratios. Maintain BUY with a revised TP of Rs 618 (2.5x FY17E ABV).

Highlights of the quarter

AXSB classified two power sector exposures (Rs 18.2bn) as NPAs and sold them to ARC for a haircut of ~65%. The bank provided Rs 3.4bn (through P&L) for the impairment and utilised Rs 8.5bn (from its contingent provisions vs. amortising losses over eight quarters).

With the sale to ARC, AXBS’s asset quality was stable with G/NNPA increasing by a mere 5/6% QoQ. Gross stressed additions for 1H (including assets sold to ARC) stood at Rs 48bn (3.3% ann.), which were higher than expectation, given the management's guidance of gross stressed additions of <Rs 57bn in FY16.

AXSB restructured assets worth Rs 4.6bn and moved a couple of ACs (worth Rs 15bn) to the the 5:25 scheme (vs. one AC of Rs 5bn in 1QFY16).

Financial Summary (Rs mn) 2QFY16 2QFY15 YoY (%) 1QFY16 QoQ (%) FY14 FY15 FY16E FY17E Net Interest Income 40,621 35,249 15.2% 40,562 0.1% 119,516 142,241 171,068 199,086 PPOP 36,280 31,623 14.7% 40,921 -11.3% 114,561 133,854 162,287 188,671 PAT 19,156 16,107 18.9% 19,784 -3.2% 62,177 73,578 86,846 102,367 EPS (Rs) 8.1 6.8 18.0% 8.3 -3.3% 26.5 31.0 36.6 43.2 ROAE (%) (ex revaluations)

17.4 17.8 18.0 18.2

ROAA (%)

1.72 1.74 1.75 1.74 Adj. BVPS (Rs)

158.3 182.9 212.0 247.3

P/ABV (x)

3.30 2.85 2.46 2.11 P/E (x)

19.7 16.8 14.2 12.1

Source: Bank, HDFC sec Inst Research

INDUSTRY BANKS CMP (as on 27 Oct 2015) Rs 522 Target Price Rs 618 Nifty 8,233

Sensex 27,253

KEY STOCK DATA

Bloomberg AXSB IN

No. of Shares (mn) 2,378

MCap (Rs bn) / ($ mn) 1,241/19,094

6m avg traded value (Rs mn) 4,219

STOCK PERFORMANCE (%)

52 Week high / low Rs 655/420

3M 6M 12M

Absolute (%) (6.1) (0.5) 22.3

Relative (%) (5.0) (0.7) 20.4

SHAREHOLDING PATTERN (%)

Promoters 29.54

FIs & Local MFs 14.53

FIIs 42.13

Public & Others 13.80

Source : BSE

Darpin Shah [email protected] +91-22-6171-7328 Siji Philip [email protected] +91-22-6171-7324

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

AXIS BANK : RESULTS REVIEW 2QFY16

Five Quarter At A Glance (Rs mn) 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 YoY Growth QoQ Growth Net Interest Income 35,249 35,896 37,992 40,562 40,621 15.2% 0.1% Non-interest Income 19,476 20,391 26,873 22,983 20,414 4.8% -11.2% Operating Income 2,708 3,290 2,749 6,460 1,675 -38.1% -74.1% Operating Expenses 23,102 23,140 24,737 22,624 24,755 7.2% 9.4% Pre provision Profits 31,623 33,146 40,128 40,921 36,280 14.7% -11.3% Provisions and Contingencies 7,250 5,072 7,098 11,218 7,072 -2.5% -37.0% NPA Provisions 6,400 3,630 3,710 7,960 6,190 -3.3% -22.2% PBT 24,373 28,075 33,030 29,703 29,208 19.8% -1.7% Provision for Tax 8,266 9,077 11,225 9,919 10,051 21.6% 1.3% PAT 16,107 18,998 21,805 19,784 19,156 18.9% -3.2% OTHER DETAILS

Balance Sheet items/ratios

Deposits (Rs bn) 2,837 2,912 3,224 3,078 3,241 14.2% 5.3% CASA Deposits (Rs bn) 1,264 1,256 1,444 1,316 1,434 13.5% 9.0% Advances (Rs bn) 2,422 2,606 2,811 2,846 2,981 23.1% 4.7% CD Ratio (%) 85.4 89.5 87.2 92.5 92.0 660 bps -52 bps CAR (%) 15.9 15.6 15.1 15.1 15.4 -48 bps 37 bps Tier I (%) 12.5 12.4 12.1 12.2 12.2 -33 bps 6 bps Profitability

Yield on Advances (%) 10.6 10.3 10.4 10.0 10.1 -50 bps 8 bps Cost of Deposits (%) 6.2 6.2 6.3 6.1 6.0 -20 bps -13 bps NIM (%) 4.0 3.9 3.8 3.8 3.9 -12 bps 4 bps Cost-Income Ratio (%) 42.2 41.1 38.1 35.6 40.6 -165 bps 496 bps Tax Rate (%) 33.9 32.3 34.0 33.4 34.4 50 bps 102 bps Asset quality

Gross NPA (Rs bn) 36.1 39.0 41.1 42.5 44.5 23.2% 4.7% Net NPA (Rs bn) 11.8 12.5 13.2 14.6 15.4 30.8% 5.6% Gross NPAs (%) 1.3 1.3 1.3 1.4 1.4 4 bps 0 bps Net NPAs (%) 0.4 0.4 0.4 0.5 0.5 4 bps 0 bps Delinquency Ratio (ann, %) 1.5 1.1 0.9 1.7 0.8 -74 bps -88 bps O/s restructured book (%) 2.8 2.6 2.9 3.0 2.8 6 bps -16 bps Coverage Ratio (%) 78.0 78.0 78.0 78.0 78.0 0 bps 0 bps

Change In Estimates

(Rs mn) FY16E FY17E

Old New Change Old New Change NII 172,672 171,068 -0.9% 202,279 199,086 -1.6% PPOP 161,843 162,287 0.3% 189,849 188,671 -0.6% PAT 88,497 86,846 -1.9% 106,565 102,367 -3.9% Adj. BVPS (Rs) 214 212 -0.8% 252 247 -1.8%

Source: HDFC sec Inst Research

In line with estimates with marginally better NIM

Sale to ARC (Rs 18.2bn) cushioned headline GNPAs

Slippages were higher than expected at Rs 24bn (3.3% ann.) including the sale to ARC; fresh restructuring was lower at Rs 4.6bn vs. Rs 7.4bn QoQ

PPOP miss of 5% was led by higher-than-estimated other opex and lower treasury gains

Includes provisions of Rs 3.36bn for the impairment of two ACs sold to ARC

Driven by retail (+27%), fourth consecutive quarter of strong YoY growth in corporate (+26%)

Domestic NIM at 4.11% and foreign at 1.6%

Contingent provisions of Rs 8.5bn utilised , thus not having an impact on PAT

Page | 2


Business momentum continues

Loans grew ~23% YoY, ahead of industry average of 9-10% driven by corporate (+26% YoY, ~46.5% share) and retail (+27%, 40% share). However, the SME segment (+5%, 13% of loans) grew at a moderate rate. The corporate segment's share improved with 2QFY16 being the fourth consecutive quarter of 26+% growth vs. the earlier trend of high single-digit growth.

In the corporate segment, we saw a marginal improvement with 61% book in ‘A to AAA’ category vs. 60% QoQ. A break-up of funded exposure shows QoQ rise in infra (37bps, 7.2% share) and metals (+30bps, 6.2% share). However, a QoQ decline was seen in power (-76bps, 5.9% share) and real estate (13bps, 3.1%).

The retail segment's share is steady at 40.1%. Within the segment, mortgage loan share was

flat QoQ at 48% (+500bps YoY). The bank’s unsecured retail portfolio stood at 14%, which the bank intends to increase over the next few quarters. With pickup in the corporate book, continued momentum in retail portfolio, coupled with a well-capitalised B/S, we have factored loan growth of 20% over FY15-17E.

On the funding front, the bank opted for borrowings (+51% YoY) over deposits (+14% YoY). Thus, C-D ratio is elevated at ~92% (domestic at 78%), +660bps YoY. The low-cost deposits (44.2% share; +~150ps) grew 9% QoQ (13.5% YoY), driven by CA growth of ~15% YoY (& QoQ as well) and saving deposits growth of ~13/6% YoY/QoQ. Average CASA ratio, too, was stable at ~40%. This, coupled with retail TD (+18% YoY), resulted in the highest retail deposit share at ~80%.

Advances Grew 23% YoY Retail Segment Remains Growth Driver

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

For the fourth consecutive quarter, corporate growth was healthy (+26%) Retail book, too, grew ~27% YoY to form ~40.1% of total loans Sequentially, funded exposures increased in sectors like infra and metals, while that for power and real estate declined We have factored loan growth of 20% over FY15-17E

12.5 14.5 16.5 18.5 20.5 22.5 24.5 26.5 28.5 30.5 32.5

1,2501,4501,6501,8502,0502,2502,4502,6502,8503,0503,250

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Advances (Rs bn) Growth (YoY, %)

Rs bn %

54 53 53 50 50 48 46 44 44 45 47 45 46 46

13 14 14 15 15 16 16 17 15 16 15 15 13 13

24 26 27 27 34 35 38 38 40 39 38 40 40 40

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Retail SME Corporate%

Page | 3


Retail Loan Mix: Secured Book At 86% (%) 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 Housing 65 64 64 63 53 53 50 48 48 48 Personal & CC 10 10 10 10 9 9 9 9 10 10 Auto 12 11 11 12 10 9 9 8 8 8 Non -Schematic 5 7 6 6 5 6 10 12 11 11 Retail Agri - - - - 15 15 15 16 15 15 LAP 8 8 9 9 8 8 7 7 8 8 Source : Bank HDFC sec Inst Research

Deposit Mix : Avg CASA Balance At ~40% (%) 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 CA 16 17 16 17 15 16 16 17 15 17 SA 27 26 27 28 27 28 27 27 28 28 Retail TD 27 27 31 30 34 34 35 33 36 36 Others 30 31 26 25 23 21 22 22 21 20 Source : Bank HDFC sec Inst Research

Superior NIM and fee performance

AXSB again surprised with a superior NIM performance (3.85%, +4bps QoQ) with domestic NIM at 4.1%. This was largely because of (1) Steady yields, (2) Sharp decline in the cost of deposits, and (3) Elevated CD ratio. We have lowered our NIM assumption to factor in the recent sharp reduction in base rate and the move towards the new RBI regulations (marginal cost of funds). We factor NIM of 3.6% over FY15-17E.

Led by strong growth in retail fees (Rs 7.2bn, +19/18% YoY/QoQ) and corporate fees (+27/2%

QoQ/YoY), fee income grew 17/15% YoY/QoQ. However, lower treasury gains (Rs 1.7bn, -74/38% QoQ/YoY) and lower forex income (Rs 612mn, -40/-30% YoY/QoQ) led to muted below estimates non-interest income (Rs 20.4bn, -11% QoQ).

With pickup in corporate loans and steady retail loans, we expect fee income traction to continue. We have factored non-interest income growth of 16% CAGR with fee growth of ~17% CAGR

Cost And Yield Movement % 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 NIM 3.86 3.79 3.71 3.89 3.88 3.97 3.93 3.81 3.85 Cost of fund 6.26 6.25 6.29 6.20 6.21 6.19 6.17 6.26 5.99 Yield on fund (calc.) 8.91 9.18 9.06 8.86 8.97 9.19 8.99 9.04 9.20 CD Ratio (RHS) 83.1 78.8 80.6 81.9 84.8 85.4 89.5 87.2 92.0 Source : Bank

Within the retail segment, unsecured loans form ~14% of the total retail loans CA grew 15% YoY and QoQ, while the SA deposits grew ~6% QoQ to form 44% of the total deposits On an average, daily balance CASA ratio was steady at 40% Sharp drop in cost of deposits and stable yields led to 4bps rise in NIM vs. our estimate decline We have factored NIM of average 3.6% over FY16-17E 82% of the domestic book linked to base rate

Page | 4


Non-Interest Income: Retail Fees Remain Healthy Rs bn 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 Fee 13.2 14.3 14.6 17.8 13.8 15.9 16.9 21.2 15.5 18.1 % Loan book (ann.) 2.67 2.87 2.82 3.23 2.39 2.69 2.68 3.14 2.19 2.49 Trading 4.4 0.0 0.3 2.2 2.6 2.7 3.3 2.7 6.5 1.7 Others 0.2 3.3 1.5 2.2 0.5 0.9 0.2 2.9 1.0 0.6 Total 17.8 17.7 16.4 22.1 16.9 19.5 20.4 26.9 23.0 20.4 Growth (YoY, %) 33.4 10.9 1.8 10.3 (5.1) 10.3 24.0 21.4 35.9 4.8 Source : Bank

Fee Income Break-up: Retail Segment Dominates Sharp Improvement in Fee Income Contribution

Source : Bank Source : Bank

C-I Ratio Jumped QoQ

Other Provisions Declined 37% QoQ


Lower treasury gains (Rs ~1.7bn) and forex income led to lower-than-estimated non-interest income Retail fees grew ~19% to Rs 7.2bn and third-party fees grew ~6% to Rs 2bn Corporate fees saw a sequential jump of 27% Aggregate fees % of loans jumped to 2.5% ann. vs. 2.2% in 1Q Addition of 154 branches, coupled with lower other income, pushed up C-I ratio by ~500bps QoQ to 40.6% However, the core C-I ratio jumped 210bps QoQ to 41.7% Other provisions were 26% below estimates at Rs 7.1bn (-37% QoQ), with a decline in LLP (-22% QoQ)

35 32 33 29 29 30 31 30 25 29 25 28 24 26

10 7 8 8 10 8 8 7 10 8 9 7 19 19

28 31 32 32 30 32 33 34 37 38 39 39 39 40 1Q

FY13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Retail Banking Business bankingAgri and SME banking TreasuryLarge and Mid Corp

%

-

1.0

2.0

3.0

4.0

5.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Retail fee % Retail loan (ann., %)

Corp. fee % Corp. loan (ann., %)

35.0

37.0

39.0

41.0

43.0

45.0

47.0

49.0

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Opex/Other income (x) C-I ratio (%, RHS)

-

2.0

4.0

6.0

8.0

10.0

12.0

5.0

10.0

15.0

20.0

25.0

30.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Other provision (Rs bn, RHS) % Operating Profit

Page | 5


Asset sale cushions headline asset quality

AXSB sold two power sector exposures (belonging to the single corp) worth Rs 18.2bn for a haircut of ~65%. The bank provided Rs 3.4bn (through P&L) for the impairment and utilised Rs 8.5bn from its contingent provisions. O/S contingent provisions stood at Rs 4.5bn.

With these sales, AXBS’s asset quality was stable with GNPA at Rs 44.5bn (+23/5% YoY/QoQ) and NNPA increase of ~6% QoQ to Rs 15.4 (0.5%). Further, PCR was maintained at ~78%. While the reported slippages were a mere Rs 5.8bn (0.8% ann.), slippages including sale to ARC stood at Rs 24bn (3.3% ann.).

AXSB restructured assets worth Rs 4.6bn and sanctioned a couple of ACs worth Rs 15bn under the 5:25 scheme (vs. one AC of Rs 5bn in 1Q).

Gross stressed additions for 1H (including assets sold to ARC) stood at Rs 48bn (3.3% ann.), which were higher than expectation, given the

management's guidance of gross stressed additions of <Rs 57bn in FY16.

While AXSB has been able to manage the risk in a challenging macro environment by building granularity, the corporate book's historical baggage continues to result in higher gross stressed additions. With slower-than-expected recovery, we have revised upwards our average slippages assumption to 1.22% from 1% earlier over FY16-17E

Loan loss provisions stood at Rs 6.2bn (85bps ann.), including Rs 3.36bn towards these impaired assets. The strategy to create a contingent buffer has cushioned the P&L impact for AXSB. The bank utilised Rs 8.5bn of contingent liability towards the losses on sale of these assets vs. amortisation over the next eight quarters. We factor non-tax provisions of 110bps over FY15-17E vs. 90bps in FY15.

Provision Break-Up: LLP AT 0.85% ann. Rs bn 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 NPA 5.7 2.9 2.9 1.4 3.4 6.4 3.6 3.7 8.0 6.2 % loan (ann) 1.16 0.57 0.57 0.26 0.58 1.08 0.58 0.55 1.13 0.85 MTM Loss 1.2 0.4 (1.7) (0.9) (0.2) - (0.2) (0.1) 0.3 0.7 Others 0.2 3.6 0.8 4.5 0.7 0.9 1.6 3.5 3.0 0.2 Total 7.1 6.9 2.0 5.1 3.9 7.3 5.1 7.1 11.2 7.1 YoY % 175% 35% -48% -15% -46% 5% 150% 40% 190% -2% Source : Bank, HDFC sec Inst Research

AXSB classified two power sector exposures (Rs 18.2bn) as NPA and sold to ARC The bank took haircut of ~65% on these assets Consideration received Rs 6.5bn (including Rs 1bn in cash) AXSB provided Rs3.4bn (through P&L) for the impairment of these assets and utilised Rs 8.5bn from the contingent provisions vs. amortising the loss over the next eight quarters Slippages incl. the sale to ARC stood at Rs 24bn (3.3%) Slippages include Rs 900mn from restructured pool G/NNPA increased 5/6% QoQ to form 1.4/0.5% of loans Fresh restructuring was Rs4.6bn vs. Rs 7.4bn QoQ O/s std. restructured pool now stands at Rs 84.6bn,

Page | 6


Headline asset quality continue to be stable

Impaired asset formation elevated


Higher Provision Hit RoAA During The Quarter

Source : Bank

-

0.5

1.0

1.5

-

10.0

20.0

30.0

40.0

50.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

GNPA (Rs bn) NNPA (Rs bn)GNPA (%, RHS) NNPA (%, RHS)

1.50

1.60

1.70

1.80

1.90

2.00

2.10

2.20

(4.0)

(2.0)

-

2.0

4.0

6.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

NII Other income Opex Other provision Tax provision RoAA (RHS)

0.6

0.6

0.5

2.5 2.

8

3.3

2.4 2.6

1.9

2.5

1.3

3.2

2.7

1.4

0.0

1.0

2.0

3.0

4.0

-

5.0

10.0

15.0

20.0

25.0

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

Slippages Restructuring Gross stress addition % loan book (RHS)

Rs bn %

Page | 7


P/ABV Band Chart

Source: Bank, HDFC sec Inst Research

Peer Valuations

BANK CMP (Rs)

Mcap (Rs bn)

Rating TP

(Rs)

ABV (Rs) P/E (x) P/ABV (x) ROAE (%) ROAA (%)

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

AXSB 522 1,237 BUY 618 183 212 247 16.8 14.2 12.1 2.85 2.46 2.11 17.8 18.0 18.2 1.74 1.75 1.74 DCBB 91 26 NEU 98 52 57 61 13.4 15.7 17.5 1.73 1.60 1.48 14.0 9.8 8.0 1.32 0.90 0.65 FB 57 97 BUY 78 43 47 52 9.6 13.0 10.2 1.32 1.21 1.09 13.7 9.1 10.5 1.28 0.84 0.95 ICICIBC # 284 1,645 BUY 382 108 120 138 12.2 10.3 8.3 2.18 1.89 1.59 14.8 14.9 15.9 1.80 1.85 1.96 IIB 954 505 BUY 1,040 189 290 336 28.2 23.4 18.1 5.04 3.28 2.84 19.0 17.4 16.6 1.83 1.95 2.02 BOB 168 373 BUY 196 139 146 163 11.0 8.7 6.9 1.21 1.15 1.03 9.2 10.6 12.2 0.49 0.57 0.65 OBC 140 42 BUY 249 278 268 312 8.4 4.5 3.2 0.50 0.52 0.45 3.8 6.9 9.1 0.34 0.39 0.51 PNB 134 249 BUY 167 120 137 167 8.1 6.8 5.1 1.12 0.98 0.80 8.5 9.4 11.4 0.53 0.57 0.68 SBIN # 249 1,882 BUY 344 122 140 163 11.1 8.6 6.7 1.60 1.35 1.12 11.4 13.2 14.6 0.69 0.77 0.85 UNBK 167 106 BUY 205 180 195 228 5.9 4.7 3.7 0.93 0.85 0.73 10.1 11.8 13.4 0.48 0.57 0.64

Source: Company, HDFC sec Inst Research, # Adjusted for subsidiaries value

0

100

200

300

400

500

600

700

800

Oct

-07

Oct

-08

Oct

-09

Oct

-10

Oct

-11

Oct

-12

Oct

-13

Oct

-14

Oct

-15

1.5x

2.0x

2.5x

3.0x

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Oct

-07

Oct

-08

Oct

-09

Oct

-10

Oct

-11

Oct

-12

Oct

-13

Oct

-14

Oct

-15

-1SD

+1SD

Avg.

Page | 8


Income Statement (Rs mn) FY13 FY14 FY15 FY16E FY17E

Interest Earned 271,826 306,412 354,786 410,774 479,554

Interest Expended 175,163 186,895 212,545 239,706 280,468

Net Interest Income 96,663 119,516 142,241 171,068 199,086

Other Income 65,511 74,052 83,650 97,599 114,012

Fee Income (CEB) 50,251 53,938 61,211 71,234 85,691

Treasury Income 5,863 3,276 9,949 12,436 12,747

Total Income 162,174 193,569 225,892 268,666 313,099

Total Operating Exp 69,142 79,008 92,037 106,379 124,427

Employee Expense 23,770 26,013 31,150 37,138 44,048

PPOP 93,031 114,561 133,854 162,287 188,671

Provisions & Contingencies 17,501 21,074 23,286 33,914 37,912

Prov. for NPAs (incl. std prov.) 13,759 15,862 20,788 30,108 35,489

PBT 75,531 93,487 110,568 128,373 150,759

Provision for Tax 23,733 31,310 36,990 41,527 48,392

PAT 51,798 62,177 73,578 86,846 102,367 Source: Bank, HDFC sec Inst Research,

Balance Sheet (Rs mn) FY13 FY14 FY15 FY16E FY17E

SOURCES OF FUNDS

Share Capital 4,680 4,698 4,741 4,741 4,741

Reserves 326,399 377,506 442,024 514,981 602,070

Shareholders' Funds 331,079 382,205 446,765 519,722 606,811

Savings 637,777 777,759 882,921 1,041,847 1,229,379

Current 483,221 486,864 561,082 631,217 725,900

Term Deposit 1,405,138 1,544,822 1,780,416 1,976,834 2,557,184

Total Deposits 2,526,136 2,809,446 3,224,419 3,649,898 4,512,463

Borrowings 439,511 502,909 797,583 956,561 1,151,138 Other Liabilities & Provisions

108,881 137,889 150,557 169,914 194,448

Total Liabilities 3,405,607 3,832,449 4,619,324 5,296,094 6,464,862

APPLICATION OF FUNDS

Cash & Bank Balance 204,350 282,387 360,990 324,417 427,112

Investments 1,137,375 1,135,484 1,323,428 1,517,069 1,834,489

G-Secs 725,182 696,004 812,460 910,544 1,114,447

Advances 1,969,660 2,300,668 2,810,830 3,316,780 4,046,471

Fixed Assets 23,556 24,102 25,127 26,132 27,439

Other Assets 70,666 89,808 98,932 111,696 129,351

Total Assets 3,405,607 3,832,449 4,619,308 5,296,094 6,464,862 Source: Bank, HDFC sec Inst Research,

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Key Ratios

FY13 FY14 FY15 FY16E FY17E

VALUATION RATIOS

EPS 22.1 26.5 31.0 36.6 43.2

Earnings Growth (%) 22.1 20.0 18.3 18.0 17.9

BVPS (ex reval.) 141.5 162.7 188.5 219.2 256.0

Adj. BVPS 138.5 158.3 182.9 212.0 247.3

ROAA (%) 1.7 1.7 1.7 1.8 1.7

ROAE (%) (ex reval.) 18.5 17.4 17.8 18.0 18.2

P/E (x) 18.5 17.4 17.8 18.0 18.2

P/ABV (x) 23.6 19.7 16.8 14.2 12.1

P/PPOP (x) 3.8 3.3 2.85 2.46 2.11

Dividend Yield (%) 2.6 2.1 1.8 1.5 1.3

PROFITABILITY

Yield on Advances (%) 10.5 10.3 10.1 9.9 9.6

Yield on Investment (%) 7.5 7.3 7.4 7.2 7.1

Cost of Funds (%) 6.4 6.0 5.8 5.6 5.5

Cost of Deposits (%) 6.4 5.8 5.7 5.6 5.5

Core Spread (%) 4.1 4.3 4.3 4.3 4.2

NIM (%) 3.3 3.6 3.6 3.7 3.6

OPERATING EFFICIENCY

Cost/Avg. Asset Ratio (%) 2.2 2.2 2.2 2.1 2.1

Core Cost-Income Ratio (%) 44.2 41.5 42.6 41.5 41.4

BALANCE SHEET STRUCTURE

Loan Growth (%) 16.0 16.8 22.2 18.0 22.0

Deposit Growth (%) 14.8 11.2 14.8 13.2 23.6

C/D Ratio (%) 78.0 81.9 87.2 90.9 89.7

Equity/Assets (%) 9.7 10.0 9.7 9.8 9.4

Equity/Advances (%) 16.8 16.6 15.9 15.7 15.0

CASA (%) 44.4 45.0 44.8 45.8 43.3

Capital Adequacy Ratio (CAR, %) 17.0 16.1 15.1 15.0 14.1

W/w Tier I CAR (%) 12.2 12.6 12.1 12.4 11.9

FY13 FY14 FY15 FY16E FY17E

ASSET QUALITY

Gross NPLs (Rsm) 23,934 31,464 41,102 51,668 61,334

Net NPLs (Rsm) 7,041 10,246 13,167 17,106 20,488

Gross NPLs (%) 1.1 1.2 1.5 1.6 1.5

Net NPLs (%) 0.3 0.4 0.5 0.5 0.5

Coverage Ratio (%) 70.6 67.4 68.0 66.9 66.6

Provision/Avg. Loans (%) 0.64 0.61 0.70 0.91 0.87

ROAA TREE

Net Interest Income 3.09% 3.30% 3.37% 3.45% 3.39%

Non-interest Income 2.09% 2.05% 1.98% 1.97% 1.94%

Treasury Income 0.19% 0.09% 0.24% 0.25% 0.22%

Operating Cost 2.21% 2.18% 2.18% 2.15% 2.12%

Provisions 0.56% 0.58% 0.55% 0.68% 0.64%

Provisions for NPAs 0.38% 0.36% 0.42% 0.56% 0.55%

Tax 0.76% 0.87% 0.88% 0.84% 0.82%

ROAA 1.65% 1.72% 1.74% 1.75% 1.74%

Leverage (x) 11.2 10.1 10.2 10.3 10.4

ROAE 18.53% 17.43% 17.75% 17.97% 18.17% Source: Bank, HDFC sec Inst Research,

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RECOMMENDATION HISTORY

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 20-Oct-14 402 BUY 470 19-Jan-15 515 BUY 600 23-Mar-15 556 BUY 630 30-Apr-15 552 BUY 632 25-Jul-15 580 BUY 655 28-Oct-15 522 BUY 618

300

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-14

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-14

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-15

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-15

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-15

Axis Bank TP

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Disclosure: We, Darpin Shah, MBA, & Siji Philip, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. 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HDFC Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report.

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report (3)

Documents

advances rs bn

arc rs

net npa rs bn

utilised rs

casa deposits rs bn

asset quality gross

revised tp of rs

power sector exposures