Company: Axis Bank Q1FY11 Result Update Recommendation: Not Rated

Date: July 17, 2010

Stock Information
CMP 1359
Target Price Not Rated Q1FY11 Result Update
Sector Banking
Bloomberg AXSB@IN •Axis bank has reported a strong set of numbers in Q1FY11. Net interest income grew
Reuters AXBK.BO strongly by 45% y-o-y and 4% q-o-q to Rs 15.14bn. The Net interest income growth was
NSE AXIS BANK
BSE driven by increase in advance and 37 bps expansion in Net interest Margin.
532215
•Net Profit grew at 32% y-o-y to Rs.7.42bn on back of the healthy growth in core business
Mkt Cap (Rs/Bn)
550 and moderate growth in provision and contingencies.
Equity (Bn) 4.07 •Fee income grew at healthy rate by 18.6% y-o-y, Non interest income grew marginally by
Face Value
Rs 10 4.4% y-o-y on back of lower trading profit (decline of 38.9%).
52 Wk High •Net interest Margin expanded by 37bps y-o-y due to the lower cost of funds (decline by
1348
52 Wk Low 784 148bps) and strong mobilization on the Current and saving bank deposits front . Current
Sensex 17955 and saving bank deposits ratio remain strong at 40%
Nifty 5393
Shareholding as on •Slippage continue to remain high resulting into higher credit cost. Slippage for Q1FY11
30 JUNE ’10 (%) stands at 1.6% V/S 1% in 4QFY10. Gross and Net NPA remain controlled q-o-q at 1.13%
Promoters 37.7
FIIs 36.2 and 0.35% respectively in Q1FY11.
Institutions 6.5 •Restructured book saw some decline during Q1FY11; overall bank restructured book
Public & Others 19.5
stood at Rs 21.5bn (2% of the net advance ).
Outlook:
Sensex V/S Axis Axis bank has strong current and saving bank deposits, fee based income, expanding
distribution network and strong control on assets quality. At CMP of Rs 1359 stock is
trading 3.5x of FY10 Adjusted book value of Rs 385 and 22x of FY10 Earning of Rs 62. we
believe bank can sustain higher Return on Assets of 1.6% enabling Return on Equity of
~19% in more efficient manner. As bank is trading at 25% discount to its Adjusted book
value of FY10 as compare to its peers (HDFC bank) .Going forward we believe the
discount on the bank could narrow down to its peers (HDFC bank) due to the bank strong
earning growth and superior profitability. Based on the initial assessment we recommend
buy on stock with 8% upside potential from the current levels in next twelve months.

Financials Synopsis

Particulars PAT Rs bn EPS P/E BVPS ADBV P/BV P/ADBV ROA (%) ROE%
FY10 25.1 62.0 21.8 396.0 385.0 3.4 3.5 1.60% 19%
FY09 18.2 50.0 27.1 283.6 277.0 4.8 4.9 1.50% 19%
FY08 10.7 29.8 45.4 243.0 238.0 5.6 5.7 1.20% 18%

Kantilal Chhaganlal Research reports are also available on Reuters, Thomson publishers and The Markets.com

Analyst : Sneha Kothari – sneha.kothari@kcsecurities.com

Company: Axis Bank Q1FY11 Result Update

Improvement in the Core performance on operating front Axis bank has reported a
strong set of numbers in Q1FY11. Net interest income grew strongly by 45% y-o-y and
4% q-o-q to Rs 15.14bn in Q1FY11 on the back of strong growth of 28% y-o-y in
advances and 38bps expansion in the margin .
During the same period bank’s Net profit grew by 32% y-o-y to Rs 7.42bn mainly driven
by the strong performance on the core operating front and moderate growth in the
provision and contingencies front. (i.e. provision rose by5.6% on y-o-y).
Business growth remain strong- The Bank’s business has grown at 36% y-o-y and 4%
q-o-q to Rs 2560.88bn at the end of Q1FY11.
Bank’s net advance grew by 39.1% y-o-y and 4.1% q-o-q and now stands at Rs.1086.1bn
.The growth in advance was led by strong growth from large & mid corporate segment (by
54.7% y-o-y 15%q-o-q ) in which bulk was from telecom and infrastructure sector. The
retail loans remained flat on q-o-q basis and even loan to Agri and SME segment has
declined by 14% and 8% respectively.
 Trend in Advance       (Rs.bn)

Particulars Q1FY11 Q1FY10 Q4FY10 Y-o-Y% Q-o-Q% Q1FY11 Q1FY10 Q4FY10

Corporate 601 389 525 55% 15% 55% 50% 50%
SME 168 142 195 18% -14% 15% 18% 19%
Agri 106 82 115 29% -8% 10% 11% 11%
Retail 211 167 208 26% 1% 19% 21% 20%
Total Advances 1086 780 1043 39% 4% 100% 100% 100%
Source-Company KC Research

Bank’s total deposits also grew by 33.8% y-o-y and 4% q-o-q to Rs.1474.8bn by the
end of Q1FY11. current and saving bank deposits ratio remains healthy at ~40%
displaying a superior liability franchisee. It’s current and saving accounts grew by 38%
and 29% y-o-y respectively
Deposits Mix Rs .bn

Particulars Q1FY11 Q1FY10 Q4FY10 Y-o-Y% Q-o-Q%

Saving Deposits 347 252 339 38% 2%
Current Deposits 245 190 322 29% -24%
Term Deposits 882 661 753 34% 17%
Total Deposits 1475 1103 1413 34% 4%
Demand Deposits to
total Deposit 40% 40% 47% 0bps (700bps)
Source-Company KC Research
Company: Axis Bank Q1FY11 Result Update

Margin improved Y-o-Y, however declined Q-o-Q – Bank’s Net interest Margin has
improved by 37bps y-o-y to 3.71% and declined by 38bps on q-o-q basis from 4.09% in
4QFY10. This was primarily due to 1) Higher interest payment on the savings deposits
since the beginning of Q1FY11 2) Higher reserve requirements as mandated by the RBI. 3)
Steps taken by the bank to meet the priority sector loans obligation towards the end of
4QFY10.
Margin & Cost of Funds %
Particulars % Q1FY11 Q1FY10 Q4FY10 Y-o-Y% Q-o-Q%
NIM 3.71 3.34 4.09 37bps (38bps)
Cost of funds 4.61 6.09 4.54 (148bps) 7bps
Source : Company KC Research

Fee income growth remain modest – The fee income has been adjusted for the change
in accounting policy for guarantees from 4QFY10 which resulted into 18% y-o-y growth
which is lower than the advance growth of 28%. Growth in Corporate Banking by 42% y-o-
y was the key driver of the growth. Capital market and the business banking segments has
offset the jump in large and mid corporate segments backed by the strong disbursements.

Non interest Income & Fee Income table

Particulars (Rs bn) Q1FY11 Q1FY10 Q4FY10 Y-o-Y% Q-o-Q%

Corporate banking 2.28 1.61 2.37 42% -4%
Treasury 1.58 1.29 1.20 22% 32%
Agri &SME 0.37 0.40 0.69 -8% -46%
Business Banking 0.94 0.89 0.78 6% 21%
Capital market 0.20 0.18 0.42 11% -52%
Retail banking 2.05 1.90 2.33 8% -12%
Core Fee income 7.42 6.27 7.79 18% -5%
Trading Profit 1.96 3.26 1.03 -40% 90%
Others 0.62 0.06 0.52 933% 19%
Total 10.00 9.59 9.34 4% 7%

Source –Company KC Research

Company: Axis Bank Q1FY11 Result Update

Assets quality remains stable, slippages a bit higher – Gross and Net NPA
remain controlled q-o-q at 1.13% and 0.35% respectively. The slippage rate for the
quarter remains higher at a 1.6% V/S 1% seen in 4QFY10. Bank has aggressively
written off Rs2.8bn, coupled with recoveries and up gradation has maintain the
GNPA. The slippage still remain high resulting into higher provision. The total
restructured assets slipped over the last twelve month totaled to Rs4.6bn or 21% of
the restructured assets. Bank restructured book stood at Rs 21.5bn (2% of the
advance which is down by Rs 1.3bn q-o-q.
Assets Quality Rs .Bn

Particulars Q1FY11 Q1FY10 Q4FY10 Y-o-Y Q-o-Q

Gross NPA 13 9 13 4.26 0.23
Net NPA 4 4 4 0.46 -0.06
Gross NPA(%) 1.1 1.0 1.1 12bps -
Net NPA (%) 0.4 0.4 0.4 (6bps) (1bps)

Source –Company KC Research

Other highlights
• Capital adequacy ratio stood comfortable with Tier-I at 10.3% and overall capital
adequacy at 14.5%
• Provision coverage adjusted for prudential write-offs improved from 72.4% in 4QFY10
to 76.6% in 4QFY11.
• Operating expenses grew by 29% y-o-y reflecting by 35% build up form staff
expenses ,as a function of the wage inflation .

Outlook: Axis bank has strong current and saving bank deposits, fee based income,
expanding distribution network and strong control on assets quality. At CMP of Rs
1359 stock is trading 3.5x of FY10 Adjusted book value of Rs 385 and 22x of FY10
Earning of Rs 62. we believe bank can sustain higher Return on Assets of 1.6%
enabling Return on Equity of ~19% in more efficient manner. As bank is trading at
25% discount to its Adjusted book value of FY10 as compare to its peers (HDFC
bank) .Going forward we believe the discount on the bank could narrow down to its
peers (HDFC bank) due to the bank strong earning growth and superior profitability.
Based on the initial assessment we recommend buy on stock with 8% upside potential
from the current levels in next twelve months.
 Company: Axis Bank Q1FY11 Result Update

Axis Bank Q1FY11 Result Analysis

Particulars Rs.bn 1QFY11 1QFY10 4QFY10 Y-o-Y Q-o-Q

Interest earned
- On Advances 23 20 21 17% 11%
- On Investments 9 9 9 8% 9%
- RBI / Inter bank / Others 1 1 1 23% 38%
Total Interest Income 33 29 30 14% 11%
Interest Expenses 18 19 15 -3% 19%
Net Interest Income 15 10 15 45% 4%
Other Income 10 10 9 4% 7%
Total Income 43 39 39 12% 10%
Operating Expenses 6 5 7 25% -4%
Employee Cost 4 3 3 35% 25%
Total Expenditure 11 8 10 29% 5%
Operating Profit 15 12 14 23% 5%
Provisions & Contingencies 3 3 2 5.6% 65%
Tax 4 3 4 25% -10%
Profit After Tax 7 6 8 32% -3%
Balance sheet item Q1FY11 Q1FY10 Q4FY10 Y-o-Y Q-o-Q
Liabilities
Equity capital 4 4 4 13% 1%
Reserve & Surplus 165 104 156 58% 5%
Deposit 1475 1103 1413 34% 4%
Borrowing 196 160 172 23% 14%
Other liabilities & Provision 55 41 62 32% -11%
Total liabilities 19 14 18 34% 5%
Assets

Cash & Balances with RBI & Balance with

the Banks & money 171 120 152 42% 13%
Investments 575 463 560 24% 3%
Advances 1086 781 1043 39% 4%
Fixed Assets 17 11 12 52% 42%
Other Assets 45 35 39 26% 13%
Total Assets 19 14 18 34% 5%
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