Axis Bank Ltd - Research Report

Private Client Research




Bank - Private


Axis Bank Ltd

Bank - Private

January 09, 2019

Sensex: 36212.91

CNX Nifty: 10855.15


BSE: 532215

Reco Price
Rs. 665
Price Target (1 Year)
Rs. 931


January 09, 2019



CNX Nifty








Stock Data

CMP (Rs)
Face value (Rs)
52 Week Range (Rs)
677.95 - 481.25
Market cap (Rs Crores)
Price To Book Value (x)
P/E Ratio (x)

One Year indexed Stock Performance

Axis Bank Ltd Sensex
Axis Bank Ltd
Return (%)


(in %)

+91 22 6639 3000


Axis Bank is the third largest private sector bank in India. The bank offers the entire spectrum of financial services to customer segments covering Large and Mid-Corporates, MSME (Micro, Small and Medium Enterprises), Agriculture and Retail.

With its 3,882 domestic branches (including extension counters) and 12,660 ATMs across the country as on 30th September 2018, the network of Axis Bank spreads across 2,211 cities and towns, enabling the bank to reach out to a large cross-section of customers with an array of products and services. The bank also has ten overseas branches - in Singapore, Hong Kong, Dubai (at the DIFC), Shanghai and Colombo; representative offices in Dubai, Abu Dhabi, Dhaka and Sharjah and an overseas subsidiary in London, UK.

Axis Bank is one of the first new generation private sector banks to have begun operations in 1994. The bank was promoted in 1993, jointly by Specified Undertaking of Unit Trust of India (SUUTI) (then known as Unit Trust of India), Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC), National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd. The share holding of Unit Trust of India was subsequently transferred to SUUTI, an entity established in 2003.

Improvement in asset quality, lower credit cost and growth in advances and deposits to drive performance

Story so far:
The bank saw a good run in the last decade with deposits having increased by 8 times, advances by 12 times and its market capitalization by 20 times. The bank had a smooth run up until FY16, when RBI initiated its Asset Quality Review (AQR). The RBI came down heavily on banks for restructuring bad loans under various schemes. Axis Bank continued reporting respectable asset quality till FY16 and after the RBI’s action, the bank released a watch list of Rs. 22,600 crore, where it expected 60% of the assets to flow to Non-Performing Assets (NPAs) in the following six quarters. This was after continually reassuring the market that its corporate book is free of any major stress. Since then, the bank has been reporting enhanced provisions and write-off, leading to reduced profitability. The RBI also cut short the tenure of the MD and CEO, Shikha Sharma in FY18, and asked the board to pick a new MD and CEO. The bank is now headed by Amitabh Chaudhary, ex MD and CEO of HDFC Standard Life Insurance Company Ltd.

Story at a Glance (Rs. Crore):

Axis Bank Ltd

Asset Quality:

Axis Bank Ltd

Investment Rationale:
Asset Quality pain receding
In Q2 FY19, Axis Bank’s slippages declined 69% YoY and 36% QoQ to Rs. 2,780 crore, its lowest level in the last 10 quarters. Over 855 of the slippages were from the pool of stressed assets that have already been identified. Gross Non-Performing Assets (GNPA) at 5.96% and Net Non-Performing Assets (NNPA) at 2.54% also improved sequentially. The bank has already provided over 80% for its exposure in Insolvency and Bankruptcy Code (IBC) accounts (List 1 and 2), and provided for 20% of its exposure to IL&FS, which amounted to Rs. 238 crore. The bank’s overall provision coverage ratio (the extent of provisions already made with respect to NPAs) was high at 74%, significantly reducing the need for further provisioning on existing NPAs. Most of the slippages reported by the bank in the past few quarters were from the accounts rated BB & below. This low rated corporate portfolio has now been reduced to Rs. 8,860 crore at the end of Q2 FY19 as compared to Rs. 27,411 crores at the end Q1 FY17. This portfolio presently comprises only 1.7% of the gross customer assets. We expect the slippages to further moderate going forward which will lead to decline in NPAs.

Gross and Net Slippages have declined from its highs:

Axis Bank Ltd

Retail to drive growth:
Despite the turbulence that the bank faced due to RBI’s asset quality review, the retail franchise of the bank remained intact. At the end of Q2FY19, the bank’s retail advances were 49% of the total advances and retail liabilities including retail term deposits and Current Account Savings Account (CASA) deposits were 82% of the total deposits. Retail advances grew a robust 20% YoY in Q2FY19 while SME advances grew 14% YoY. Overall cost of deposits remained stable at 4.97%. Retail also forms 82% of the bank’s fee income.

Advances Break-up:

Axis Bank Ltd

Profitability to improve going forward:
With lower provisions and higher Net interest margins (NIMs), we expect the bank’s profitability to see good growth going forward. The bank is also adequately capitalized for growth in advances in the coming two years. It raised ~Rs. 8,700 crore in December 2017 and has a capital adequacy ratio of 16.45%. With strong capital base and decent deposit growth, the bank is rightly positioned for credit growth going forward.


The Indian banking system consists of 27 public sector banks, 21 private sector banks, 49 foreign banks, 56 regional rural banks, 1,562 urban cooperative banks and 94,384 rural cooperative banks, in addition to cooperative credit institutions. In FY07-18, total lending increased at a CAGR (compound annual growth rate) of 10.94 per cent and total deposits increased at a CAGR of 11.66 per cent. India’s retail credit market is the fourth largest in the emerging countries. It increased to US$ 281 billion on December 2017 from US$ 181 billion on December 2014.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

Particulars FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Interest Earned 30736.00 35728.00 41409.00 45175.00 46614.00 53223.00 61518.00
Interest Expended 18703.00 21341.00 24344.00 26789.00 27604.00 31200.00 35345.00
NII 12033.00 14386.00 17065.00 18386.00 19011.00 22023.00 26173.00
Growth (%) 24.20% 19.60% 18.60% 7.70% 3.40% 15.80% 18.80%
Other Income 7766.00 8838.00 9955.00 12422.00 11863.00 12000.00 15300.00
Total Income 19799.00 23224.00 27020.00 30808.00 30873.00 34023.00 41473.00
Operating Expenses 8210.00 9610.00 10611.00 12726.00 14788.00 16258.00 18890.00
Pre-provisioning Profit 11590.00 13615.00 16409.00 18082.00 16085.00 17765.00 22583.00
Provisions and Contingencies 2110.00 2330.00 3719.00 12128.00 15519.00 10903.00 7126.00
Profit Before Tax 9480.00 11284.00 12690.00 5954.00 566.00 6862.00 15457.00
Taxes 3171.00 3836.00 4332.00 1987.00 102.00 2333.00 5255.00
Tax Rate 33.40% 34.00% 34.10% 33.40% 18.00% 34.00% 34.00%
Profit After Tax 6309.00 7448.00 8358.00 3967.00 464.00 4529.00 10201.00
Deposits 280541.00 322244.00 358302.00 414983.00 455658.00 501224.00 566383.00
Advances 232382.00 284449.00 344663.00 381165.00 449844.00 508323.00 594738.00
Equity 37926.00 44475.00 53082.00 55901.00 63694.00 68223.00 78424.00
ROE 17.90% 18.10% 17.10% 7.30% 0.80% 6.90% 13.90%
Price 292.00 560.00 445.00 491.00 509.00 665.00 665.00
BV per Share 161.00 188.00 223.00 233.00 248.00 266.00 306.00
Market Capitalisation 68618.00 132844.00 105929.00 117548.00 130740.00 170675.00 170675.00
P/BV 1.80 3.00 2.00 2.10 2.10 2.50 2.20
No. of Shares 235.00 237.00 238.00 240.00 257.00 257.00 257.00
Source: Stockaxis Research, Company Data


At the current market price, the stock is trading at 2.5x FY19E BV and 2.2x FY20E BV. We value the stock at 3.05x FY20E BV arriving at a target price of Rs. 931.