utibank_20120427

8/2/2019 UTIBANK_20120427

1/6Emkay Global Financial Services Ltd 1

April 27, 2012

Reco

Accumulate

Previous Reco

AccumulateCMP

Rs1,103

Target Price

Rs1,380

EPS change FY13E/14E (%) 4.7/ -

Target Price change (%) NA

Nifty 5,191

Sensex 17,134

Price Performance

(%) 1M 3M 6M 12M

Absolute (1) 4 (4) (17)

Rel. to Nifty (1) 3 (1) (8)

Source: Bloomberg

Relative Price Chart

750

875

1000

1125

1250

1375

Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12

Rs

-30

-22

-14

-6

2

10%

Axis Bank (LHS) Rel to Nifty (RHS)

Source: Bloomberg

Stock DetailsSector Banks

Bloomberg AXSB@IN

Equity Capital (Rs mn) 4132

Face Value(Rs) 10

No of shares o/s (mn) 413

52 Week H/L 1,370/785

Market Cap (Rs bn/USD mn) 456/8,671

Daily Avg Volume (No of sh) 2494053

Daily Avg Turnover (US$mn) 55.3

Shareholding Pattern (%)

Mar-12 Dec-11 Sep-11

Promoters 37.4 37.6 37.2

FII/NRI 41.7 40.6 42.9

Institutions 13.4 6.7 7.0

Private Corp 1.3 8.7 7.0

Public 6.2 6.4 6.0

Source: Capitaline

Kashyap Jhaveri

[email protected]

+91 22 6612 1249

Pradeep [email protected]

+91 22 6612 1340

Aalok [email protected]

+91 22 6612 1336

Re

sultUpdate

Axis Bank

Results inline; slippages/recoveries surprise positively

Axis Bank (AXSB) Q4FY12 NII a t Rs21.5bn in l ine w i th

consensus. How ever led by sharp ly low er provis ions, net

p ro f i t a t Rs12.8bn w as ahead o f expect a t ions

Sharp incre ase in LDR to 77% (71% in Q3FY12) and st able

CASA at 41.5% restr ic ted NIMs com pression to 20bps to

3 .6%, inl ine w i th our est im ates

Stable sl ippages at Rs5.1bn and h igher recover ies/upgrades

at Rs5.9bn (30% of op GNPAs) dr ive asset qual i ty even as

rest. assets at Rs5.9bn w as sl ight ly on the h igher s ide

Cont inues to surpr ise on asset qual i t y but rat ing prof i le of

corpora tes wi t nesses major sh i f t tow ards low er s ide (AA to

BBB). Mainta in ACCUMULATE wi t h TP of Rs1,380

Strong performance; Recoveries surprises positively

Axis Banks Q4FY12 NII grew by 26.2%yoy to Rs21.5bn, inline with consensus

expectations. However driven by lower provisions, net profit at Rs12.8bn was ahead of

consensus/our expectations. While advances grew by a strong 19.2% yoy (14.1%qoq),

deposit growth was relatively lower at 16.3% yoy (5.5% qoq). Resultantly CD ratio

increased significantly from 71.3% in Q3FY12 to 77.1% in Q4FY12helping the

contraction in NIMs remain limited to 20bps qoq to 3.1%, inline with our expectations.

The bank surprised positively on the balance sheet front as GNPA declined by

5.7%qoq. Stable slippages at Rs5.1bn and substantially higher recoveries at Rs5.9bn

(Rs1.3bn avg rec/upgradation in earlier two quarters) led to the improvement in asset

quality. Resultantly the provision cover also improved to 80.2% from 75.3% (incl tech

write off) in previous quarter. However the restructuring during the quarter was slightly

on the higher side at Rs5.9bn, as against the run rate of Rs3bn in last two quarters.

Yield analysis

YoY QoQ% Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12

(bps) (bps)

Yield on advances* 9.2 10.1 10.8 11.0 10.7 148 -28

Yield on investments* 7.4 7.2 7.7 8.1 7.6 20 -53

Yield on assets* 7.8 8.2 8.7 8.9 8.7 96 -15

Cost of funds* 4.7 5.3 5.4 5.6 5.6 90 5

NIM* 3.0 2.9 3.3 3.3 3.1 7 -20

Cost of funds # 5.6 6.1 6.2 6.3 6.5 89 11NIM # 3.4 3.3 3.8 3.8 3.6 11 -20

Source: Company, Emkay Research Note:* Calculated on basis of average quarterly balances # Reported

Valuation tableY/E March 31 Net Net EPS ABV RoA RoE PE P/ABV

income profit (Rs) (Rs) (%) (%) (x) (x)

FY2011 111,951 33,885 82.5 440.8 1.6 19.3 14.0 2.5

FY2012A 134,379 42,682 103.3 528.7 1.6 20.4 11.1 2.1

FY2013E 154,333 48,777 113.7 633.1 1.6 19.1 9.7 1.7

FY2014E 181,699 58,840 136.1 736.8 1.7 19.2 8.0 1.5

Source: Company, Emkay Research

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Axis Bank Result Update

Emkay Research 27 April 2012 2

Key financials Quarterly

Rs mn Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 YoY (%) QoQ (%) YTD' 12 YTD' 11 YoY (%)

Net Interest Income 17,010 17,241 20,073 21,403 21,461 26.2 0.3 80,178 65,630 22.2

Other Income 14,504 11,679 12,349 14,298 15,876 9.5 11.0 54,202 46,321 17.0

Fee Income 12,311 10,570 11,207 12,210 13,270 7.8 8.7 47,256 37,904 24.7

Net Income 31,514 28,920 32,422 35,701 37,337 18.5 4.6 134,380 111,951 20.0

Total Operating Expenses 13,306 13,335 14,665 15,109 16,962 27.5 12.3 60,071 47,794 25.7As % Of Net Income 42.2 46.1 45.2 42.3 45.4 44.7 42.7

Employee Expenses 3,960 5,100 4,986 5,420 5,296 33.7 -2.3 20,802 16,139 28.9

As % Of Net Income 12.6 17.6 15.4 15.2 14.2 15.5 14.4

Other Expenses 9,346 8,235 9,679 9,689 11,666 24.8 20.4 39,269 31,655 24.1

As % Of Net Income 29.7 28.5 29.9 27.1 31.2 29.2 28.3

Operating Profit 18,208 15,585 17,756 20,592 20,376 11.9 -1.1 74,309 64,157 15.8

As % Of Net Income 57.8 53.9 54.8 57.7 54.6 55.3 57.3

Provisions 2,544 1,758 4,056 4,223 1,393 -45.2 -67.0 11,430 11,497 -0.6

Prov for NPA 1,760 1,530 2,470 3,340 1,393 -20.9 -58.3 8,733 9,021 -3.2

PBT 15,664 13,827 13,701 16,369 18,983 21.2 16.0 62,879 52,660 19.4

Total Tax 5,463 4,403 4,497 5,346 6,210 13.7 16.2 20,456 17,472 17.1

Adjusted PAT 10,201 9,424 9,203 11,023 12,773 25.2 15.9 42,422 35,188 20.6

Extra Ordinary Items 0 0 0 0 0 0 0

Reported PAT 10,201 9,424 9,203 11,023 12,773 25.2 15.9 42,422 35,188 20.6

Reported EPS 24.8 22.9 22.3 26.7 30.9 24.4 15.7 102.8 86.0 19.6


Large corp/ Retail drive advances growth; PSL targets may still be way off

The banks advances grew by a strong 19.2%yoy to Rs1.7tn led by strong growth in Retail

and large corporate book. While retail book grew by a stellar 35.3%yoy to Rs376bn, large

corporate book grew by a healthy 19.9%yoy to Rs911bn. The growth in retail book was

driven by strong growth in all the segments (ex personal loans); mortgages which constitute

75% of the total retail book grew by 49.3%yoy to Rs282bn.The large spike in the agriculture loans was more seasonal in nature for meeting year end

PSL targets. However, since as % of last years loan book the agricultural loans stood at

12.2% vs 16% last year, we believe that PSL targets are still way off the norm and may

continue to put pressure on NIMs next year.

Advances mixRs bn Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 YoY (%) QoQ (%) % of total

Large corporates 759 703 794 841 911 19.9 8.3 53.6

Mid-corporate/SME 214 198 208 207 238 11.2 15.0 14.0

Agriculture 173 147 106 107 173 0.1 62.1 10.2

Retail 278 270 293 333 376 35.3 12.9 22.1

Personal loans 39 11 12 20 23 -42.0 12.9 1.3

Mortgages 189 203 223 249 282 49.3 12.9 16.6

Car Loans 31 35 38 43 49 60.0 12.9 2.9

Credit cards 6 5 6 3 8 35.3 125.9 0.4

Others 14 16 15 17 15 8.3 -9.6 0.9

Total 1,424 1,319 1,401 1,487 1,698 19.2 14.1 100.0


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CASA mix stable despite strong advance growth

The banks CASA mix remain stable at 41.5% despite strong growth in advances, as CASA

deposit grew by a strong 5.4%qoq, inline with growth in term deposits. The entire growth in

CASA deposit was driven by saving deposit which grew by 9.2%qoq.

CASA Mix

Rs bn Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 YoY (%) QoQ (%)Current Deposits 369 315 354 395 398 7.7 0.7

Savings Deposits 409 429 468 473 517 26.5 9.2

CASA 778 744 821 868 914 17.6 5.4

Term deposits 1,115 1,092 1,123 1,219 1,287 15.4 5.5

Total Deposits 1,892 1,836 1,945 2,087 2,201 16.3 5.5

CASA 41.1 40.5 42.2 41.6 41.5 44 -4


Strong fee income/ trading gains drive other income

The bank continued to report strong traction in fee income, as it grew by 8.6%qoq to

Rs13.3bn, helped by business/ retail banking. Higher third party product business and

government business drove retail and business banking Moreover with robust trading gainsat Rs1.5bn, total non interest income grew by even higher 11%qoq to Rs15.9bn.

Fee incomeRs mn Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 YoY (%) QoQ (%) YTD' 12 YTD' 11 YoY (%)

Corporate banking 5,381 4,560 4,430 5,390 5,590 3.9 3.7 19,970 15,591 28.1

Business banking 1,070 990 970 1,090 1,280 19.6 17.4 4,330 3,880 11.6

Capital markets 190 160 150 130 130 -31.6 0.0 570 700 -18.6

Retail banking 3,120 2,760 2,910 3,280 3,770 20.8 14.9 12,720 10,010 27.1

Treasury 2,550 2,100 2,740 2,320 2,490 -2.4 7.3 9,650 7,710 25.2

Total fee income 12,311 10,570 11,200 12,210 13,260 7.7 8.6 47,240 37,891 24.7

Trading gains/(losses) 581 702 277 1,180 1,460 151.2 23.7 3,619 4,970 -27.2

Others 1,612 407 866 908 1,146 -28.9 26.2 3,327 3,448 -3.5

Total 14,504 11,679 12,349 14,298 15,876 9.5 11.0 54,202 46,321 17.0

Source: Company, Emkay Research Note: The growth in fee income on yoy basis adjusted for change in accounting policy at 39%

Asset quality improves further; recovery surprises positively

The banks asset quality improved during the quarter as GNPA/ NNPA declined by

5.7%qoq/ 30.8%qoq. While slippages remain stable at 5.2bn, significantly higher

recoveries/ upgradation at Rs5.9bn surprised positively. Moreover provision cover also

improved to 74% in Q4FY12 from 64% in Q3FY12. However restructured assets during the

quarter were slightly higher at Rs5.9bn as against Rs3bn run rate for previous two quarters.

Cumulative restructured book stood at Rs30.6bn, which is 1.8% of the overall advances.

NPA profile

Rs mn Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 YoY (%) QoQ (%)

Gross NPAs 15,994 15,731 17,438 19,145 18,063 12.9 -5.7

Net NPAs 4,104 4,625 5,488 6,829 4,726 15.2 -30.8

Gross NPAs (%) 1.0 1.1 1.1 1.1 0.9

Net NPAs (%) 0.3 0.3 0.3 0.4 0.3

Net NPAs/Net worth (%) 2.2 2.3 2.6 3.1 2.1

Provision cover (%) 74.3 70.6 68.5 64.3 73.8


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However there is a sharp change in the rating profile

Even as the asset quality continued to surprise, there was a sharp shift in the rating profiles

of the large/mid corporate book. There was ~4% shift of in the distribution of ratings from

AA category in favor of lower category of BBB. We believe that this could be due to

lowering of rating of some of the existing loans of the bank.

In fact over past five quarters, there has been 700bps migration from A/AA rated to BBB

rated portfolio.

Axis bank approves the valuation; Merger likely in three months

Axis Bank board approved the valuation of financial services business proposed to be

acquired from Enam Securities Private Limited (ESPL). Pursuant to the Revised Scheme,

Enam Shareholders would receive Axis Bank shares in the ratio of 5:1, translating into

approximately 2.9% shareholding in Axis Bank, which is valued at Rs13.4bn at CMP of

Rs1,103. The proposed transaction is subject to requisite regulatory approvals including

High Courts of Gujarat and Maharashtra and from the shareholders and creditors of the

respective companies. We believe it will take around three months for taking the required

approvals, post which both the entities will merge.

Valuation and view

While Axis Banks performance for Q4FY12 was robust and also positively surprised on

NPLs, we are still factoring in lower 13.4% growth in earnings next year for few reasons (1)

NIMs may continue to remain under pressure due to shortfall on PSL requirements which

may be substituted with RIDF bonds and (2) the downgrading in the loan rating profiles may

spike up restructuring and consequently provisions. We believe that these two can pose

further risks to our earnings estimates. But still valuations at 1.7x/1.4x FY13E/FY14E are

not unreasonable. Maintain accumulate with TP of Rs1,380.

.

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Key Financials

Profit and loss (Rs mn) Balance sheet (Rs mn)

(Year Ending Mar 31) FY11 FY12A FY13E FY14E (Year Ending Mar 31) FY11 FY12A FY13E FY14E

Net interest income 65,630 80,178 91,592 108,463 Liabilities

Other income 46,321 54,202 62,741 73,236 Equity 4,106 4,132 4,288 4,324

Net income 111,951 134,379 154,333 181,699 Reserves 185,883 223,953 278,025 325,714Operating expenses 47,794 59,811 68,917 80,571 Net worth 189,988 228,085 282,314 330,037

Pre provision profit 64,157 74,568 85,417 101,128 Deposits 1,892,378 2,201,043 2,553,941 3,062,319

PPP excl treasury 67,820 78,187 89,036 105,108 Borrowings 344,767 427,150 440,412 454,499

Provisions 12,793 11,430 13,262 14,087 Total liabilities 2,427,134 2,856,278 3,276,667 3,846,854

Profit before tax 51,364 63,138 72,154 87,041 Assets

Tax 17,479 20,456 23,377 28,201 Cash and bank 214,087 139,339 186,588 223,729

Tax rate 34% 32% 32% 32% Investments 539,211 658,928 744,720 870,742

Profit after tax 33,885 42,682 48,777 58,840 Customer assets 1,604,783 1,970,589 2,259,180 2,667,688

Others 68,999 87,422 86,179 84,695

Total assets 2,427,134 2,856,278 3,276,667 3,846,854

Key Ratios Valuations(Year Ending Mar 31) FY11 FY12A FY13E FY14E (Year Ending Mar 31) FY11 FY12A FY13E FY14E

NIM 3.1 3.0 3.0 3.0 Net profit (Rs mn) 33,885 42,682 48,777 58,840

Non-II/avg assets 2.2 2.1 2.0 2.1 Shares in issue (mn) 411 413 429 432

Fee income/avg assets 2.8 2.8 2.9 2.8 EPS (Rs) 82.5 103.3 113.7 136.1

Opex/avg assets 2.3 2.3 2.2 2.3 PER (x) 13.4 10.7 9.7 8.1

Provisions/avg assets 1.0 0.7 0.7 0.7 FDEPS(Rs) 79.0 99.5 113.7 137.2

PBT/avg assets 2.4 2.4 2.4 2.4 FDPER (x) 14.0 11.1 9.7 8.0

Tax/avg assets 0.8 0.8 0.8 0.8 Book value (Rs) 450.8 540.1 646.9 752.0

RoA 1.6 1.6 1.6 1.7 P/BV (x) 2.4 2.0 1.7 1.5

RoAE 19.3 20.4 19.1 19.2 Adj book value (Rs) 440.8 528.7 633.1 736.8GNPA (%) 1.0 0.9 1.0 1.0 P/ABV (x) 2.5 2.1 1.7 1.5

NNPA (%) 0.3 0.3 0.3 0.3 P/PPP (x) 7.1 6.1 5.5 4.7

Dividend yield (%) 1.3 1.5 1.6 2.1

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Recommendation History: Axis Bank AXSB IN

Date Reports Reco CMP Target

20/01/2012 Axis bank Q3FY12 Result Update Hold 1,008 1,380

24/10/2011 Axis Bank Q2FY12 Result Update Accumulate 1,124 1,380

22/07/2011 Axis Bank Q1FY12 Result Update Hold 1,297 1,380

25/04/2011 Axis Bank Q4FY11 Result Update Hold 1,450 1,570

Recent Research Reports

Date Reports Reco CMP Target

25/04/2012 LIC Housing Finance Q4FY12 Result Update Hold 258 285

25/04/2012 Yes Bank Q4FY12 Result Update Accumulate 366 400

23/04/2012 M & M Financial Services Q4FY12 Result Update Buy 668 800

18/04/2012 HDFC Bank Q4FY12 Result Update Hold 537 580

DISCLAIMER: Emkay Global Financial Services Limited and its affiliates are a full-service, brokerage, investment banking, investment management, and financing group. We along with ouraffiliates are participants in virtually all securities trading markets in India. Our research professionals provide important input into our investment banking and other business selection processes.Investors may assume that Emkay Global Financial Services Limited and/or its affiliates may seek investment banking or other business from the company or companies that are the subject of thismaterial and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our salespeople, traders, and other professionals mayprovide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businessesmay make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things,may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is providedherein. 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 suchdistribution, publication, availability or use would be contrary to law or regulation or which would subject Emkay Global Financial Limited or its group companies to any registration or licensingrequirement within such jurisdiction. Specifically, this document does not constitute an offer to or solicitation to any U.S. person for the purchase or sale of any financial instrument or as an officialconfirmation of any transaction to any U.S. person unless otherwise stated, this message should not be construed as official confirmation of any transaction. No part of this document may be distributedin Canada or used by private customers in United Kingdom. All material presented in this report, unless specifically indicated otherwise, is under copyright to Emkay. None of the material, nor its content,nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Emkay. All trademarks, service marks and logos used

in this report are trademarks or registered trademarks of Emkay or its Group Companies. The information contained herein is not intended for publication or distribution or circulation in any mannerwhatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read RiskDisclosure Document for Capital Market and Derivatives Segments as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. In so far as this report includescurrent or historic information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

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