11
RESULTS REVIEW 3QFY17 20 JAN 2017 Axis Bank NEUTRAL HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters Dire straits AXSB continued its weak performance in 3Q as well. While slippages were elevated at 5.2% ann., the sharp 4x sequential rise in ex-watchlist slippages was disappointing . Business momentum also stumbled with a ~2% sequential decline in loans (led by SME and corp) and deposits (FCNR redemptions of $1.62bn). NIM fell ~20bps QoQ with one off interest reversals on SDR and S4A exposures. The few positives include (1) Strong SA growth of ~27/10% leading to a 290bps QoQ rise in CASA ratio (47.6%), (2) Retail loan growth continued (+19%), (3) Higher treasury gains (Rs 15bn+) were utilised to strengthen PCR (64%, +400bps QoQ), (4) Proactive provision of Rs 2.6bn towards a non-funded exposure of Rs 3.8bn and (5) Retail fees fell only ~2%. While AXSB’s past aggression in corporate lending is showing up (stress is now in line with peers), we like the bank’s focus on retail franchise (on both sides of the B/S), healthy margin and CRAR. Maintain NEUTRAL with TP of Rs 501 (2x Dec-18E ABV). Highlights of the quarter Slippages remain elevated (albeit down QoQ) at Rs 45.6bn, 5.2% ann. It includes slippages from the watch-list of Rs 25.8bn and a relapse of Rs 8.1bn. Higher slippages from non watch-list (across segments) at Rs 16.3bn was a major negative. With aggregate stress level (watch-list, SDR, 5:25 and restructured) at ~5.1% and an increasing pain in non watch-list we have factored slippage at avg. ~3.6% over FY17-19E. Despite higher CASA ratio (47.6%; +290bps QoQ), a steady C- D ratio and lower slippages, NIM dipped ~20bps QoQ to 3.4%. This was led by one- time interest reversals of Rs 3.2bn on SDR and S4A exposures. With rising proportion of MCLR loans, fall in MCLR and CASA normalization, we factor NIM of 3.6% over FY17-19E. Loans grew a mere 10% YoY due to muted growth in corporate and SME portfolio (<5%). However, retail loans grew ~19%, despite slower traction in LAP, HL and agri segments. We have lowered our loan CAGR assumption to ~15% vs. 19% earlier. FINANCIAL SUMMARY (Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) FY16 FY17E FY18E FY19E Net Interest Income 43,337 41,621 4.1% 45,139 -4.0% 168,330 178,531 203,601 241,214 PPOP 46,402 39,851 16.4% 41,002 13.2% 161,036 184,581 196,476 222,687 PAT 5,796 21,753 -73.4% 3,191 81.6% 82,237 36,702 60,781 101,955 EPS (Rs) 2.4 9.1 -73.5% 1.3 81.5% 34.4 15.3 25.4 42.6 ROAE (%) 16.8 6.7 10.3 15.5 ROAA (%) 1.67 0.66 0.96 1.38 Adj. BVPS (Rs) 212 195 222 260 P/ABV (x) 2.28 2.48 2.18 1.86 P/E (x) 14.0 31.5 19.0 11.3 Source: HDFC sec Inst Research INDUSTRY BANKS CMP (as on 19 Jan 2017) Rs 484 Target Price Rs 501 Nifty 8,435 Sensex 27,309 KEY STOCK DATA Bloomberg AXSB IN No. of Shares (mn) 2,391 MCap (Rs bn) / ($ mn) 1,157/16,980 6m avg traded value (Rs mn) 5,500 STOCK PERFORMANCE (%) 52 Week high / low Rs 638/373 3M 6M 12M Absolute (%) (9.7) (14.4) 23.1 Relative (%) (7.2) (12.7) 11.5 SHAREHOLDING PATTERN (%) Promoters 30.16 FIs & Local MFs 12.43 FIIs 48.62 Public & Others 8.79 Source : BSE Darpin Shah [email protected] +91-22-6171-7328

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Page 1: NEUTRAL Dire straits - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equity... · Dire straits AXSB continued its weak performance in 3Q as well. While

RESULTS REVIEW 3QFY17 20 JAN 2017

Axis Bank

NEUTRAL

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

Dire straits AXSB continued its weak performance in 3Q as well. While slippages were elevated at 5.2% ann., the sharp 4x sequential rise in ex-watchlist slippages was disappointing. Business momentum also stumbled with a ~2% sequential decline in loans (led by SME and corp) and deposits (FCNR redemptions of $1.62bn). NIM fell ~20bps QoQ with one off interest reversals on SDR and S4A exposures.

The few positives include (1) Strong SA growth of ~27/10% leading to a 290bps QoQ rise in CASA ratio (47.6%), (2) Retail loan growth continued (+19%), (3) Higher treasury gains (Rs 15bn+) were utilised to strengthen PCR (64%, +400bps QoQ), (4) Proactive provision of Rs 2.6bn towards a non-funded exposure of Rs 3.8bn and (5) Retail fees fell only ~2%.

While AXSB’s past aggression in corporate lending is showing up (stress is now in line with peers), we like the bank’s focus on retail franchise (on both sides of the B/S), healthy margin and CRAR. Maintain NEUTRAL with TP of Rs 501 (2x Dec-18E ABV).

Highlights of the quarter

Slippages remain elevated (albeit down QoQ) at Rs 45.6bn, 5.2% ann. It includes slippages from the watch-list of Rs 25.8bn and a relapse of Rs 8.1bn. Higher slippages from non watch-list (across segments) at Rs 16.3bn was a major negative. With aggregate stress level (watch-list, SDR, 5:25 and restructured) at ~5.1% and an increasing pain in non watch-list we have factored slippage at avg. ~3.6% over FY17-19E.

Despite higher CASA ratio (47.6%; +290bps QoQ), a steady C-D ratio and lower slippages, NIM dipped ~20bps QoQ to 3.4%. This was led by one- time interest reversals of Rs 3.2bn on SDR and S4A exposures. With rising proportion of MCLR loans, fall in MCLR and CASA normalization, we factor NIM of 3.6% over FY17-19E.

Loans grew a mere 10% YoY due to muted growth in corporate and SME portfolio (<5%). However, retail loans grew ~19%, despite slower traction in LAP, HL and agri segments. We have lowered our loan CAGR assumption to ~15% vs. 19% earlier.

FINANCIAL SUMMARY (Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) FY16 FY17E FY18E FY19E

Net Interest Income 43,337 41,621 4.1% 45,139 -4.0% 168,330 178,531 203,601 241,214 PPOP 46,402 39,851 16.4% 41,002 13.2% 161,036 184,581 196,476 222,687 PAT 5,796 21,753 -73.4% 3,191 81.6% 82,237 36,702 60,781 101,955 EPS (Rs) 2.4 9.1 -73.5% 1.3 81.5% 34.4 15.3 25.4 42.6 ROAE (%)

16.8 6.7 10.3 15.5

ROAA (%)

1.67 0.66 0.96 1.38 Adj. BVPS (Rs)

212 195 222 260

P/ABV (x)

2.28 2.48 2.18 1.86 P/E (x)

14.0 31.5 19.0 11.3

Source: HDFC sec Inst Research

INDUSTRY BANKS

CMP (as on 19 Jan 2017) Rs 484

Target Price Rs 501

Nifty 8,435

Sensex 27,309

KEY STOCK DATA

Bloomberg AXSB IN

No. of Shares (mn) 2,391

MCap (Rs bn) / ($ mn) 1,157/16,980

6m avg traded value (Rs mn) 5,500

STOCK PERFORMANCE (%)

52 Week high / low Rs 638/373

3M 6M 12M

Absolute (%) (9.7) (14.4) 23.1

Relative (%) (7.2) (12.7) 11.5

SHAREHOLDING PATTERN (%)

Promoters 30.16

FIs & Local MFs 12.43

FIIs 48.62

Public & Others 8.79

Source : BSE

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

Page 2: NEUTRAL Dire straits - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equity... · Dire straits AXSB continued its weak performance in 3Q as well. While

AXIS BANK : RESULTS REVIEW 3QFY17

Page | 2

Five Quarters At A Glance (Rs mn) 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY Growth QoQ Growth

Net Interest Income 41,621 45,526 45,169 45,139 43,337 4.1% -4.0%

Non-interest Income 23,378 26,940 27,383 25,397 34,002 45.4% 33.9%

Treasury Income 3,378 951 9,112 5,357 15,254 351.6% 184.8%

Operating Income 64,998 72,466 72,552 70,535 77,339 19.0% 9.6%

Operating Expenses 25,148 28,481 27,858 29,534 30,937 23.0% 4.8%

Pre Provision Profits 39,851 43,985 44,694 41,002 46,402 16.4% 13.2%

Provisions And Contingencies 7,126 11,683 21,172 36,227 37,958 432.7% 4.8%

NPA Provisions 6,260 6,060 18,230 36,480 35,760 471.2% -2.0%

PBT 32,725 32,302 23,522 4,774 8,444 -74.2% 76.9%

Provision For Tax 10,972 10,759 7,967 1,584 2,649 -75.9% 67.3%

PAT 21,753 21,543 15,555 3,191 5,796 -73.4% 81.6%

Balance Sheet Items/Ratios

Deposits (Rs bn) 3,383 3,580 3,579 3,802 3,708 9.6% -2.5%

CASA Deposits (Rs bn) 1,463 1,694 1,554 1,700 1,765 20.6% 3.8%

Advances (Rs bn) 3,154 3,388 3,449 3,532 3,472 10.1% -1.7%

CD Ratio (%) 93.2 94.6 96.4 92.9 93.6 42 bps 74 bps

CAR (%) 15.5 15.3 15.7 15.2 16.6 112 bps 139 bps

Tier I (%) 12.4 12.5 12.4 12.0 13.0 64 bps 96 bps

Profitability

Yield On Advances (%) 9.8 9.9 9.7 9.6 9.3 -50 bps -29 bps

Cost Of Deposits (%) 5.9 5.8 5.8 5.7 5.5 -35 bps -17 bps

NIM (%) 3.8 4.0 3.8 3.6 3.4 -36 bps -21 bps

Cost-Income Ratio (%) 38.7 39.3 38.4 41.9 40.0 131 bps -187 bps

Tax Rate (%) 33.5 33.3 33.9 33.2 31.4 -216 bps -180 bps

Asset Quality

Gross NPA (Rs bn) 57.2 60.9 95.5 163.8 204.7 257.6% 25.0%

Net NPA (Rs bn) 25.1 25.2 40.1 77.6 82.9 229.9% 6.9%

Gross NPAs (%) 1.68 1.67 2.5 4.2 5.2 354 bps 105 bps

Net NPAs (%) 0.75 0.70 1.1 2.0 2.2 143 bps 16 bps

Delinquency Ratio (Ann, %) 2.7 1.8 4.3 10.1 5.2 250 bps -484 bps

O/s Restructured Book (%) 2.5 2.4 2.1 1.9 1.8 -70 bps -14 bps

Coverage Ratio (%) 72.0 72.0 69.0 60.0 64.0 -800 bps 400 bps

Change in Estimates

(Rs mn) FY17E FY18E

Old New Change Old New Change

NII 187,733 178,531 -4.9% 221,038 203,601 -7.9%

PPOP 186,443 184,581 -1.0% 214,796 196,476 -8.5%

PAT 39,685 36,702 -7.5% 79,178 60,781 -23.2%

Adj. BVPS (Rs) 188 195 3.8% 223 222 -0.2% Source: HDFC sec Inst Research

Slippages were elevated at Rs 45.6bn largely from the corp. watch list (80% of the total) and relapse of Rs 8.1bn

Non watch list slippage too were elevated at Rs 16.3bn

Fresh SDR: Rs 5bn (o/s Rs 13.6bn); 5/25-NIL (o/s Rs 29.9bn)

Funded watch-list falls 20% QoQ to Rs 111bn (3.2% of loans)

Non-funded watch-list at Rs 16bn (-15% QoQ)

Aggregate watch list at Rs 127bn i.e. 3.7% of loans vs. 4.4% QoQ

Below estimates with slower loan growth and interest reversal of Rs 3.2bn towards SDR and S4A exposures

LLP 4.1% vs. 4.2bps QoQ, as PCR improved ~400bps QoQ

Sharp drop led by interest reversal on SDR/S4A exposures

CASA growth was tepid (4%QoQ) due to a drop in CA (~6% QoQ); SA grew ~27/10% YoY/QoQ

Fees declined ~7% QoQ led by drop across segments, especially corp (-27% QoQ); Retail fees dipped a mere 2% QoQ

Page 3: NEUTRAL Dire straits - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equity... · Dire straits AXSB continued its weak performance in 3Q as well. While

AXIS BANK : RESULTS REVIEW 3QFY17

Page | 3

Advances Grew 10% YoY Corporate And SME Decline QoQ

Source: Bank, HDFC sec Inst Research Source: Bank, HDFC sec Inst Research

Retail Loan Mix: Sharp Rise In Auto And CV Portfolio (%) 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Housing 64 63 53 53 50 48 48 48 47 45 46 45 47

PL & CC 10 10 9 9 9 9 10 10 11 11 11 12 12

Auto 11 12 10 9 9 8 8 8 8 9 9 9 10

Non -Schematic

6 6 5 6 10 12 11 11 11 10 10 10 8

Retail Agri - - 15 15 15 16 15 15 15 17 16 15 14

LAP 9 9 8 8 7 7 8 8 8 8 8 9 9

Source : Bank, HDFC sec Inst Research

Deposit Mix: CASA Ratio At ~47.6%; +290Bps QoQ; Avg CASA at 42%, +100Bps QoQ (%) 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

CA 16 17 15 16 16 17 15 17 16 18 15 16 16

SA 27 28 27 28 27 27 28 28 27 30 28 28 32

Retail TD 31 30 34 34 35 33 36 36 36 34 36 36 34

Others 26 25 23 21 22 22 21 20 21 19 20 19 19

Source : Bank, HDFC sec Inst Research

Retail book grew ~19% YoY to form ~43% of total loans Ex. FCNR redemptions, retail loans grew ~22% SME loans dipped ~6% and corp loans declined ~2% QoQ Incrementally ~83% of the sanctions are towards A+ corporates Amongst Retail segments, LAP, Home loans and Retail Agri loans witnessed a slower disbursement growth We are positively surprised by strong growth in Auto and CV portfolio SA grew ~27/10% YoY/QoQ, while CA deposits declined ~6% QoQ Avg. daily CASA ratio stood at ~42%, +100bps QoQ with Avg SA growth of 22% and CA growth of 22%

12.5

14.5

16.5

18.5

20.5

22.5

24.5

1,200

1,600

2,000

2,400

2,800

3,200

3,600

4,000

1Q

FY1

4

2Q

FY1

4

3QFY

14

4Q

FY1

4

1Q

FY1

5

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

Advances (Rs bn) Growth (YoY, %)

Rs bn %

50 48 46 44 44 45 47 45 46 46 47 46 46 45 44

15 16 16 17 15 16 15 15 13 13 13 13 13 13 12

34 35 38 38 40 39 38 40 40 40 40 41 42 42 43

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

Retail SME Corporate%

Page 4: NEUTRAL Dire straits - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equity... · Dire straits AXSB continued its weak performance in 3Q as well. While

AXIS BANK : RESULTS REVIEW 3QFY17

Page | 4

Cost and Yield Movement % 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

NIM 3.71 3.89 3.88 3.97 3.93 3.81 3.81 3.85 3.79 3.97 3.79 3.64 3.43

CoF 6.29 6.20 6.21 6.19 6.17 6.26 6.12 5.99 5.86 5.84 5.81 5.68 5.51

YoF 9.06 8.86 8.97 9.19 8.99 9.04 9.10 9.20 9.01 9.10 8.95 8.80 8.46

CD Ratio

80.6 81.9 84.8 85.4 89.5 87.2 92.5 92.0 93.2 94.6 96.4 92.9 93.6

Source: Bank, HDFC sec Inst Research

Non-Interest Income: Fee Drop Led By Corporate Segment Rs bn 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Fee 14.6 17.8 13.8 15.9 16.9 21.2 15.5 18.1 18.8 22.5 17.2 19.4 18.0 % Loan (ann.)

2.82 3.23 2.39 2.69 2.68 3.14 2.19 2.49 2.46 2.76 2.01 2.22 2.06

Trading 0.3 2.2 2.6 2.7 3.3 2.7 6.5 1.7 3.4 1.0 9.1 5.4 15.3

Others 1.5 2.2 0.5 0.9 0.2 2.9 1.0 0.6 1.2 3.5 1.1 0.7 0.7

Total 16.4 22.1 16.9 19.5 20.4 26.9 23.0 20.4 23.4 26.9 27.4 25.4 34.0 Growth (YoY %)

1.8 10.3 (5.1) 10.3 24.0 21.4 35.9 4.8 14.8 0.2 19.1 24.4 45.4

Source: Bank, HDFC sec Inst Research

Fee Income Break-up: Retail Segment Dominates Fee Income Contribution Marginally Dips

Source : Bank, HDFC sec Inst Research

Source : Bank, HDFC sec Inst Research

Interest reversals of Rs 3.2bn for SDR and S4A exposures impacted NIM Domestic NIMs stood at 3.61% vs. 3.93% QoQ Fee de-growth was led by 27% QoQ drop in corporate fees Retail fees was relatively steady with a mere 2% QoQ dip, cushioned by cards income Retail fee forms 45% vs. 43% QoQ, while corp fee proportion dipped to ~20% vs. 25% QoQ

29 30 31 30 25 29 25 28 24 26 25 26 25 25 20

10 8 8 7 10 8 9 7

19 19 19 16 27 26 29

30 32 33 34 37 38 39 39 39 40 41 42 42 43 45

1Q

FY1

4

2Q

FY1

4

3Q

FY1

4

4Q

FY1

4

1QFY

15

2Q

FY1

5

3QFY

15

4Q

FY1

5

1Q

FY1

6

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

Retail Banking Business banking

Agri and SME banking Treasury

Large and Mid Corp%

-

1.0

2.0

3.0

4.0

5.0

1Q

FY1

4

2Q

FY1

4

3Q

FY1

4

4Q

FY1

4

1Q

FY1

5

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1Q

FY1

6

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

Retail fee % Retail loan (ann., %)

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

Page 5: NEUTRAL Dire straits - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equity... · Dire straits AXSB continued its weak performance in 3Q as well. While

AXIS BANK : RESULTS REVIEW 3QFY17

Page | 5

C-I Ratio Improves QoQ

LLP Drives Provisions (+5.7x YoY)

Source : Bank, HDFC sec Inst Research Source : Bank, HDFC sec Inst Research

Provision Break-up: LLP At 4.1% Ann. Rs bn 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

NPA 2.9 1.4 3.4 6.4 3.6 3.7 8.0 6.2 6.3 6.1 18.2 36.5 35.8

% Loan (Ann.)

0.57 0.26 0.58 1.08 0.58 0.55 1.13 0.85 0.82 0.74 2.13 4.18 4.08

MTM (1.7) (0.9) (0.2) - (0.2) (0.1) 0.3 0.7 (0.2) (0.2) (0.2) (0.4) (0.0)

Others 0.8 4.5 0.7 0.9 1.6 3.5 3.0 0.2 1.0 5.8 3.1 0.1 2.2

Total 2.0 5.1 3.9 7.3 5.1 7.1 11.2 7.1 7.1 11.7 21.2 36.2 38.0

YoY % -48% -15% -46% 5% 150% 40% 190% -2% 41% 65% 89% 412% 433%

Source: Bank, HDFC sec Inst Research

Despite subdued NII and drop in fees, C-I ratio improves ~190bps QoQ led by treasury gains (Rs15.2bn) The bank guided to add 350-400 branches in FY17 and cost/income ratio to be ~40%

LLP stood at 4.1% ann. vs. 4.2% ann.QoQ, which led to PCR improvement of ~400bps QoQ AXSB provided Rs 2.6bn for a non funded exposure of Rs 3.8bn Contingent provisions O/S at Rs 1.6bn

35.0

37.0

39.0

41.0

43.0

45.0

47.0

49.0

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

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

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

Other provision (Rs bn, RHS) % Operating Profit

Page 6: NEUTRAL Dire straits - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equity... · Dire straits AXSB continued its weak performance in 3Q as well. While

AXIS BANK : RESULTS REVIEW 3QFY17

Page | 6

Asset Quality QoQ Deterioration Continues Impaired Asset Formation was Lower QoQ

Source : Bank, HDFC sec Inst Research Source : Bank, HDFC sec Inst Research

Sequentially ROAA Improvement Led By Treasury Gains

Source : Bank, HDFC sec Inst Research

Total slippages at Rs 45.6bn – largely driven by the corp watch list (80% of the total corp slippages) Relapse stood at Rs 8.1bn Net Retail and SME slippage Rs 2.74bn (Rs 1.68bn QoQ) and Rs 3.82bn (Rs 1.63bn QoQ) Fresh SDR: Rs 5.0bn 5/25: NIL O/S SDR at Rs 13.6bn (w/w Rs 5.9bn is a part of the watch list and Rs 2.66bn is part of restructured book) O/S 5:25 at Rs 29.92bn (w/w Rs 9.94bn is part of watch-list) ~57% of the restructured book is part of the watch-list O/S funded watch list declined 20% QoQ to Rs 111bn (3.2%of loans) and non-funded exposure watch-list of Rs 16bn (-15% QoQ)

-

1.0

2.0

3.0

4.0

5.0

6.0

-

50.0

100.0

150.0

200.0

250.0

1Q

FY1

4

2Q

FY1

4

3Q

FY1

4

4Q

FY1

4

1QFY

15

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1Q

FY1

6

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

GNPA (Rs bn) NNPA (Rs bn)

GNPA (%, RHS) NNPA (%, RHS)

2.8 3.3

2.4

2.6

1.9

2.5

1.3

3.2

2.7

3.9

2.9

2.9

4.9

10

.9

5.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-

20.0

40.0

60.0

80.0

100.0

120.0

1Q

FY1

4

2Q

FY1

4

3Q

FY1

4

4Q

FY1

4

1Q

FY1

5

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1Q

FY1

6

2Q

FY1

6

3Q

FY1

6

4QFY

16

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

Slippages Restructuring Gross stress addition % loan book (RHS)

Rs bn %

(0.30)

0.20

0.70

1.20

1.70

2.20

(4.0)

(2.0)

-

2.0

4.0

6.0

1Q

FY1

4

2Q

FY1

4

3Q

FY1

4

4Q

FY1

4

1Q

FY1

5

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1Q

FY1

6

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

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

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AXIS BANK : RESULTS REVIEW 3QFY17

Page | 7

P/ABV Band Chart

Source: Bank, HDFC sec Inst Research

Peer Valuations

BANK Mcap

(Rs bn) CMP (Rs)

Rating TP

(Rs)

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

FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E

ICICIBC # 1,570 270 BUY 312 118 134 154 12.1 10.5 8.6 1.86 1.56 1.30 10.9 11.0 11.8 1.38 1.36 1.39

KMB 1,334 728 BUY 905 136 155 177 33.1 26.2 20.5 4.37 3.68 3.08 12.9 14.4 15.4 1.58 1.64 1.68

AXSB 1,157 484 NEU 501 195 222 260 31.5 19.0 11.3 2.48 2.18 1.86 6.7 10.3 15.5 0.66 0.96 1.38

IIB 726 1,220 BUY 1,329 325 379 443 24.7 19.5 16.0 3.75 3.22 2.75 15.9 17.4 18.3 1.88 1.92 1.89

FB 133 77 BUY 93 44 51 56 16.9 13.5 11.0 1.74 1.52 1.37 9.3 10.8 12.1 0.77 0.81 0.84

CUB 84 140 BUY 157 53 60 70 16.4 14.3 12.2 2.66 2.32 2.01 15.6 15.7 16.1 1.51 1.47 1.47

DCBB 34 119 BUY 143 64 73 82 17.2 14.4 11.5 1.85 1.63 1.46 10.7 11.4 12.5 0.93 0.90 0.91

SBIN # 2,006 258 BUY 284 112 131 154 13.0 9.8 7.5 1.69 1.41 1.10 8.3 10.0 11.1 0.48 0.56 0.60

BOB 370 160 BUY 195 88 121 158 17.6 9.8 7.1 1.82 1.32 1.02 5.7 9.6 12.1 0.30 0.51 0.63

Ujjivan 42 353 BUY 515 148 163 184 15.1 21.0 15.3 2.38 2.17 1.92 18.5 10.5 12.9 3.74 1.83 1.81

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

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

-1SD

+1SD

Avg.

0

100

200

300

400

500

600

700

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

1.5x

2.0x

2.5x

3.0x

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AXIS BANK : RESULTS REVIEW 3QFY17

Page | 8

Income Statement

(Rs mn) FY15 FY16 FY17E FY18E FY19E

Interest Earned 354,786 409,880 441,162 490,325 570,385

Interest Expended 212,545 241,551 262,631 286,724 329,171

Net Interest Income 142,241 168,330 178,531 203,601 241,214

Other Income 83,650 93,715 123,181 127,219 140,443

Fee Income (CEB) 61,211 67,076 72,623 84,969 99,230

Treasury Income 9,949 10,186 32,500 22,500 20,000

Total Income 225,892 262,044 301,711 330,820 381,657

Total Operating Exp 92,037 101,008 117,131 134,344 158,970

Employee Expense 31,150 33,760 39,113 45,648 54,349

PPOP 133,854 161,036 184,581 196,476 222,687

Provisions & Contingencies 23,286 37,099 130,207 105,076 71,642

Prov. For NPAs 22,125 41,891 125,207 98,326 70,142

PBT 110,568 123,938 54,374 91,400 151,045

Provision For Tax 36,990 41,701 17,671 30,619 49,089

PAT 73,578 82,237 36,702 60,781 101,955

Source: Bank, HDFC sec Inst Research,

Balance Sheet

(Rs mn) FY15 FY16 FY17E FY18E FY19E

SOURCES OF FUNDS

Share Capital 4,741 4,775 4,783 4,783 4,783

Reserves 442,024 526,883 559,382 609,655 696,198

Shareholders' Funds 446,765 531,658 564,165 614,438 700,981

Savings 882,921 1,057,931 1,237,780 1,485,335 1,752,696

Current 561,082 636,519 639,702 716,466 802,442

Term Deposit 1,780,416 1,885,225 1,956,523 2,353,974 3,002,074

Total Deposits 3,224,419 3,579,676 3,834,005 4,555,775 5,557,211

Borrowings 797,583 992,264 1,270,989 1,398,088 1,502,944

Other Liabilities 150,557 151,079 182,092 208,917 224,567

Total Liabilities 4,619,324 5,254,676 5,851,250 6,777,218 7,985,703

APPLICATION OF FUNDS

Cash & Bank Balance 360,990 333,254 402,810 412,637 541,878

Investments 1,175,502 1,220,062 1,338,475 1,583,427 1,845,173

G-Secs 812,460 850,430 901,266 1,102,498 1,328,174

Advances 2,810,830 3,387,737 3,743,450 4,379,836 5,168,207

Fixed Assets 25,143 35,232 36,993 38,843 40,785

Other Assets 246,858 278,391 329,523 362,475 389,661

Total Assets 4,619,324 5,254,676 5,851,250 6,777,218 7,985,703

Source: Bank, HDFC sec Inst Research,

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AXIS BANK : RESULTS REVIEW 3QFY17

Page | 9

Key Ratios

FY15 FY16 FY17E FY18E FY19E

VALUATION RATIOS

EPS (Rs) 31.0 34.4 15.3 25.4 42.6

Earnings Growth (%) 18.3 11.8 (55.4) 65.6 67.7

BVPS (Rs) 188.5 222.7 235.9 256.9 293.1

Adj. BVPS (Rs) 182.9 212.1 195.0 222.3 260.0

ROAA (%) 1.7 1.7 0.7 1.0 1.4

ROAE (%) 17.8 16.8 6.7 10.3 15.5

P/E (x) 15.6 14.0 31.5 19.0 11.3

P/ABV (x) 2.6 2.3 2.5 2.2 1.9

P/PPOP (x) 1.7 1.4 1.3 1.2 1.0

Dividend Yield (%) 1.0 1.0 0.3 0.8 1.1

PROFITABILITY

Yield On Advances (%) 10.1 9.7 9.3 9.0 8.9

Yield On Investment (%) 7.3 7.8 7.6 7.5 7.5

Cost Of Funds (%) 5.8 5.6 5.4 5.2 5.1

Cost Of Deposits (%) 5.7 5.4 5.3 5.2 5.1

Core Spread (%) 4.3 4.1 3.8 3.8 3.8

NIM (%) 3.7 3.8 3.6 3.6 3.6

OPERATING EFFICIENCY

Cost/Avg. Asset Ratio (%) 2.2 2.0 2.1 2.1 2.2

Core Cost-Income Ratio (%) 42.6 40.1 43.5 43.6 44.0

BALANCE SHEET STRUCTURE

Loan Growth (%) 22.2 20.5 10.5 17.0 18.0

Deposit Growth (%) 14.8 11.0 7.1 18.8 22.0

C/D Ratio (%) 87.2 94.6 97.6 96.1 93.0

Equity/Assets (%) 9.7 10.1 9.6 9.1 8.8

Equity/Advances (%) 15.9 15.7 15.1 14.0 13.6

CASA (%) 44.8 47.3 49.0 48.3 46.0

Capital Adequacy Ratio (CAR, %) 15.1 15.3 14.4 13.4 12.7

W/w Tier I CAR (%) 12.1 12.5 11.9 11.2 10.9

FY15 FY16 FY17E FY18E FY19E

ASSET QUALITY

Gross NPLs (Rsm) 41,102 60,918 238,303 242,192 207,028

Net NPLs (Rsm) 13,167 25,222 97,907 82,915 79,120

Gross NPLs (%) 1.3 1.7 6.4 5.5 4.0

Net NPLs (%) 0.4 0.7 2.6 1.9 1.5

Coverage Ratio (%) 68.0 58.6 58.9 65.8 61.8

Provision/Avg. Loans (%) 0.70 1.23 3.46 2.37 1.41

ROAA TREE

Net Interest Income 3.37% 3.41% 3.22% 3.22% 3.27%

Non Interest Income 1.98% 1.90% 2.22% 2.01% 1.90%

Treasury Income 0.24% 0.21% 0.59% 0.36% 0.27%

Operating Cost 2.18% 2.05% 2.11% 2.13% 2.15%

Provisions 0.55% 0.75% 2.34% 1.66% 0.97%

Provisions For NPAs 0.42% 0.77% 2.22% 1.52% 0.91%

Tax 0.88% 0.84% 0.32% 0.48% 0.67%

ROAA 1.74% 1.67% 0.66% 0.96% 1.38%

Leverage (x) 10.2 10.1 10.1 10.7 11.2

ROAE 17.75% 16.81% 6.70% 10.31% 15.50%

Source: Bank, HDFC sec Inst Research,

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AXIS BANK : RESULTS REVIEW 3QFY17

Page | 10

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

21-Jan-16 388 BUY 531

8-Apr-16 422 BUY 537

27-Apr-16 480 NEU 477

8-Jul-16 542 NEU 530

25-Jul-16 538 NEU 522

26-Oct-16 529 NEU 486

20-Jan-17 484 NEU 501

300

350

400

450

500

550

600

650

700

750

Jan-

16

Feb

-16

Mar

-16

Ap

r-16

May

-16

Jun

-16

Jul-

16

Au

g-1

6

Sep

-16

Oct

-16

Nov

-16

Dec

-16

Jan-

17

Axis Bank TP

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AXIS BANK : RESULTS REVIEW 3QFY17

Page | 11

Disclosure: I, Darpin Shah, MBA, author and the name 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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