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CORPORATE VALUATION

INTRODUCTION

Banking in India

originated in the last decades of the 18th century. The oldest bank in existencein India is the State Bank of India, a government-owned bank that traces its origins back to June1806 and that is the largest commercial bank in the country.Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks, 31 private banks and 38 foreign banks.According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2%and 6.5% respectively.With the growth in the Indian economy expected to be strong for quite some time-especially inits services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong.

Axis bank

Axis Bank was established in 1993 and was the first private sector bank to start operations after the Government of India allowed entry of private banks. Previously called UTI Bank, Axis Bank was promoted by Unit Trust of India (UTI-I), Life Insurance corporation of India (LIC), GeneralInsurance Corporation (GIC) and its four subsidiaries, New India Assurance Company, OrientalInsurance Corporation, National Insurance Company and United Insurance Company. The nameof the Bank was changed in 2007 as there was brand confusion because many unrelatedshareholder entities such as UTI Securities, UTI Technological Service and UTI Investor Services were also sharing the UTI brand. Moreover, the name was changed to connote stabilityand solidarity as well as was in line with the bank’s expanding operations across geographical boundaries. Staring with one branch in Ahmedabad in 1994, the bank now has 835 branchesincluding extension networks (31

March 2009) across 30 States and 4 Union Territories. The bank also has overseas offices in Singapore, China, Hongkong and Dubai.The bank's broad products and services include consumer banking, NRI business, retail loans,corporate banking, treasury, capital markets and financial advisory services. It divides its business into five segments viz. large corporates, SMEs, agri-business, channel financing andstructured products. The bank's retail assets constituted 23 per cent of total advances at the endof March 2008. Housing loans accounted for 57 per cent of total retail assets. Auto loansconstituted 7 per cent of its retail loansThe bank divides its advances into three focus areas i.e. agricultural, mid--corporate and SMEs.During 2007--08, the bank's agricultural advances grew by 35 per cent to Rs.5,507 crore. Itsadvances to SMEs reported a whopping 74 per cent growth to Rs.11,536 crore.2

The bank maintains a healthy asset quality with 81 per cent of its corporate advances having arating of at least `A' as at the end of March 2008. The bank pruned its net stressed assetsconsistently from 1.92 per cent in 2002--03 to 0.36 per cent by end of 2007--08.

Axis Bank Ltd.

Subsidiaries

Axis Private Equity Ltd.Axis Sales Ltd.

Axis Trustee Services Ltd.

Consistent growth

: The bank’s net profit has grown by over 30% YoY in 36 out of the last 38quarters. Also the two quarters in which the profit did not grow was on account of write-off of extraordinary items (G-Sec valued on mark to market basis). The net profit has grown by over 60% YoY in each of the last eight quarters. The important performance indicators such as ROA,CAR, NPA and NIM have remained strong over the last five years. Axis Bank comes very near to HDFC Bank in terms of important efficiency parameters. As can be from the table above, theshare of current account saving account deposits in the total deposits (CASA) is higher in case of HDFC Bank. Also HDFC Bank scores higher in terms of margins (NIM). However, looking atthe returns generated on networth (ROE) and the growth in advances and deposits, Axis Bank appears to be gearing up well to reduce the gap existing in the margins as well as the total balance sheet size.

Expanding footprint, expanding balance sheet

: The bank has continued to expand itsgeographical coverage across the country. Over the last five years, the total number of branchesincluding extension centers of the bank has increased from 339 in FY05 to 835 in FY09 whereasATMs have increased from 1,599 to 3,595. Also during Q1FY10, the bank added 26 new branches including extension centers and 128 ATMs. This has helped the bank particularly in theacquisition of low cost retail deposits, retail assets, lending to agriculture, SME and mid-corporates as also the sale of third-party products. The bank’s balance sheet has increased at aCAGR of 43.65% over the last five years

Key Positives

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Market leadership position in the travel card segment

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Market leader in the prepaid cards segment

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Second largest merchant acquirer in the country

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Leadership position in private placement of bonds and debentures till 31st December 2008

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High quality of its assets

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The Bank’s Non-Performing Assets (NPAs) are among the lowest in the industry.Post its rebranding exercise in 2007 the bank has continued to do well and the change in namehas not affected the bank’s business. In fact in FY2008 it saw its customer acquisition grow at arobust rate of 67% over the last year to over 9.9 million customer accounts3