Q4FY2019 Result Update | Banking

May 03, 2019

Axis Bank

BUY

CMP

`753

Operating performance improves

Target Price

`864

Particulars (` cr)

Q4FY19

Q3FY19

% chg (qoq)

Q4FY18

% chg (yoy)

Investment Period

12 Months

NII

5,706

5,604

1.82

4,730

20.61

Pre-prov. profit

5,014

5,525

-9.24

3,672

36.55

Stock Info

PAT

1,505

1,681

-10.46

-2,189

Source: Company, Angel Research

Sector

Banking

For Q4FY2019, Axis Bank reported PAT of `1,505cr driven by healthy NII growth

Market Cap (` cr)

1,97,273

(20.6% yoy), strong traction in fees income (15% yoy), contained Opex (11.1%

Beta

1.2

yoy). Further, higher recoveries & upgrades and lower slippages led to a fall in

52 Week High / Low

788/499

GNPA (declined 151bps yoy & 50bps qoq).

Avg. Daily Volume

3,85,908

Face Value (`)

Retail loans drive momentum; NIM improved marginally: During Q4FY2019, the

BSE Sensex

39,032

bank’s advances grew by 13% yoy, with retail and SME growing at 19% yoy and

Nifty

11,035

11.7% yoy respectively. However, overseas book de-grew 29% yoy in Q4FY2019.

Reuters Code

AXBK.BO

Unsecured products such as PL (43% yoy) and cards (49% yoyo) were the primary

Bloomberg Code

AXSB IN

drivers for retail loan book. NIM for the quarter remained flat (3.61%) despite

increased share of higher yielding retail, primarily owing to rising CoF and

decline in C/D. Despite aggressive competition and subdued industry deposit

Shareholding Pattern (%)

growth, bank has been able to grow deposits at 21% yoy. The share of CASA in

Promoters

0.0

the Total Deposits stood at 44%.

MF / Banks / Indian Fls

38.4

Traction noted in fees income: Retail fees grew ~37%/18% yoy/qoq to form

FII / NRIs / OCBs

21.2

~61% of total fees and the share of corporate fees was flat qoq at 14%.

Corporate fees witnessed a declining trend since Q4FY2017, however from last

Indian Public / Others

40..4

two quarter it has moderated.

Slippages moderated; fresh accretion of NPA to be moderate going ahead:

Annualised slippages moderated at 2.4% for Q4FY2019. However, we expect

Abs. (%)

3m 1yr 3yr

fresh accretion of NPA to be lower owing to (1) decline in sub investment book,

Sensex

7.1

12.4

53.4

(2) 82% of corporate exposure to A or better rated and 95% incremental lending

HDFC Bank

15.9

55.1

62.5

to A & better rated corporate, and (3) PCR including technical write-offs at 77%.

Outlook & Valuation: Axis Bank currently trades at 2.2x its FY2021E price to book

3-year price chart

value (after adjusting value of subsidiaries). We expect the stock to get re-rated

900

owing to (1) new leadership, (2) limited stressed loan pool, and (3) improvement

800

700

in return ratios (ROA/ROE - 1.23%/114.7% by FY2020E). We recommend Buy on

600

the stock with a Target Price of `860.

500

400

300

Exhibit 1: Key Financials

Y/E March (` cr)

FY17

FY18

FY19

FY20E

FY21E

NII

18,093

18,618

21,708

25,101

29,149

% chg

Source: Company, Angel Research

Net profit

3,679

276

4,677

9,269

11,998

% chg

-55

(93)

1,596

NIM (%)

3.4

3.1

3.2

EPS (`)

P/E (x)

701

Jaikishan Parmar

P/ABV (x)

3.6

3.4

3.1

2.6

2.2

Research Analyst

RoA (%)

0.6

0.0

0.6

1.1

1.2

022 - 39357600 Ext: 6810

RoE (%)

[email protected]

Note: CMP as of 02/05/2019

Please refer to important disclosures at the end of this report

Axis Bank|Q4FY2019 Result Update

Exhibit 1: Quarterly Summary

Particular (` Cr)

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

yoy

qoq

Interest Income

11,052

11,235

11,722

11,771

12,777

13,281

14,130

14,798

Interest Expenses

6,436

6,695

6,990

7,041

7,610

8,049

8,526

9,092

Net Interest Income (NII)

4,616

4,540

4,732

4,730

5,167

5,232

5,604

5,706

% Growth YoY

2.2%

0.6%

9.2%

0.0%

11.9%

15.3%

18.4%

20.6%

% Growth QoQ

-2.4%

-1.7%

4.2%

0.0%

9.2%

1.3%

7.1%

1.8%

Other Income

3,000

2,586

2,593

2,789

2,925

2,678

4,001

3,526

(12)

Other income as % of TOI

39%

36%

35%

37%

36%

34%

42%

38%

(8)

Total Income

14,052

13,821

14,315

14,560

15,702

15,959

18,130

18,324

Net Income

7,616

7,125

7,325

7,519

8,092

7,910

9,604

9,232

(4)

Operating Expenses

3,325

3,348

3,471

3,847

3,720

3,816

4,080

4,217

Employee Expenses

1,088

1,083

1,063

1,079

1,228

1,175

1,203

1,142

(5)

Other Operating Expenses

2,237

2,265

2,408

2,768

2,492

2,642

2,877

3,075

Cost / Income %

43.7%

47.0%

47.4%

51.2%

46.0%

48.2%

42.5%

45.7%

(5)

Operating Profit

4,291

3,777

3,854

3,672

4,372

4,094

5,525

5,014

(9)

Provisions

2,342

3,140

2,811

7,180

3,338

2,927

3055

2711

(62)

(11)

PBT

1,949

637

1,043

-3,507

1,034

1,167

2,470

2,303

(166)

(7)

Provisions for Tax

644

205

316

-1,319

333

377

789

798

(161)

Tax Rate %

33.0%

32.1%

30.3%

37.6%

32.2%

32.3%

34.0%

PAT

1,306

432

726

-2,189

701

790

1,681

1,505

(169)

(10)

Profitability

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

bps

Yield Advance

8.7

8.5

8.4

8.1

8.7

8.9

9.1

9.2

104.1

4.7

Yield on Investment

7.1

6.8

7.1

7.0

7.2

7.3

7.1

12.1

(23.8)

Cost of Fund

4.9

5.0

5.1

4.9

5.1

5.2

5.3

45.7

4.8

NIM Cal

3.3

3.2

3.1

3.2

3.3

3.2

11.5

(12.0)

Spread

3.7

3.5

3.4

3.2

3.7

3.6

3.8

58.4

(0.1)

NIM Domestic Reported

3.60

3.59

3.50

3.59

3.61

2.0

ROE

0.09

0.03

0.05

-0.14

0.04

0.05

0.10

0.09

22.6

(1.2)

Asset Quality

GNPA%

5.03

5.90

5.28

6.77

6.52

5.96

5.75

5.26

(151)

(49)

NPA%

2.30

3.12

2.56

3.40

3.09

2.54

2.36

2.06

(134)

(30)

PCR Calculated

1,106

188

Tier - 1

12.60

12.36

14.13

11.68

11.86

11.71

11.77

11.27

(41)

(50)

AT -1

1.36

1.33

1.30

1.27

(9)

(3)

Tier - 2

4.03

3.96

3.87

3.53

3.49

3.41

3.33

3.30

(23)

(3)

Total

16.6

16.3

18.0

16.6

16.71

16.45

16.40

15.84

(73)

(56)

Source: Company

May 03, 2019

Axis Bank|Q4FY2019 Result Update

Exhibit 2: Advances movement

Particular (` cr)

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

yoy%

qoq%

Retail

175278

184256

193295

206464

211648

221710

232397

245812

Home Loan

77122

79230

81184

82586

84659

86467

90635

93409

Rural Lending

26292

27638

27061

30970

29631

28822

32536

34414

Auto Loan

17528

18426

19330

22711

23281

24388

25564

27039

15775

16583

19330

20646

21165

24388

25564

29497

LAP

14022

14740

15464

16517

16932

19954

18592

22123

7011

7370

7732

8259

8466

8868

11620

12291

SBB

3506

3685

3866

6194

6349

6651

6972

7374

Other

14022

16583

19330

18582

21165

22171

20916

19665

(6)

Corporate Banking

162284

173197

172744

174446

172443

174149

180469

183402

Term Loan

123909

128049

120700

118418

121948

119520

124698

1,21,122

(3)

38375

45148

52674

56028

50495

54629

55771

62,279

SME

47918

52718

54884

58740

56983

60262

62238

65584

Term Loan

11124

11725

12170

13264

12348

12496

12846

13,475

36795

40993

42714

45476

44635

47766

49392

52,109

Total

385480

410171

420923

439650

441074

456121

475104

494798

Advance Mix (%)

pbs

Retail

45.47

44.92

45.92

46.96

47.98

48.61

48.91

49.68

272

Home Loan

20.01

19.32

19.29

18.78

19.19

18.96

19.08

18.88

(20)

Rural Lending

6.82

6.74

6.43

7.04

6.72

6.32

6.85

6.96

(9)

Auto Loan

4.55

4.49

4.59

5.17

5.28

5.35

5.38

5.46

4.09

4.04

4.59

4.70

4.80

5.35

5.38

5.96

127

LAP

3.64

3.59

3.67

3.76

3.84

4.37

3.91

4.47

1.82

1.80

1.84

1.88

1.92

1.94

2.45

2.48

SBB

0.91

0.90

0.92

1.41

1.44

1.46

1.47

1.49

Other

3.64

4.04

4.59

4.23

4.80

4.86

4.40

3.97

(25)

(43)

Corporate Banking

42.10

42.23

41.04

39.68

39.10

38.18

37.99

37.07

(261)

(92)

Term Loan

32.14

31.22

28.68

26.93

27.65

26.20

26.25

24.48

(246)

(177)

9.96

11.01

12.51

12.74

11.45

11.98

11.74

12.59

(16)

SME

12.43

12.85

13.04

13.36

12.92

13.21

13.10

13.25

(11)

Term Loan

2.89

2.86

2.89

3.02

2.80

2.74

2.70

2.72

(29)

9.55

9.99

10.15

10.34

10.12

10.47

10.40

10.53

Total

100.00

Source: Company

May 03, 2019

Axis Bank|Q4FY2019 Result Update

Exhibit 3: GNPA Movement, slippages are moderating

Particular (` Cr)

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

GNPA Opening

21,280

22,031

27,402

25,001

34,249

32,662

30,938

30,855

Fresh Slippage

3,519

8,936

4,428

16,536

4,337

2,777

3,746

Slippage

0.9%

2.2%

1.1%

3.8%

1.0%

0.6%

0.8%

Slippage Annual

3.7%

8.7%

4.2%

15.0%

3.9%

2.4%

3.2%

3.0%

Upgrade & Rec

306

1,048

4,008

3,401

2,917

2,186

1,622

Write off

2,462

2,517

2,821

3,887

3,007

2,315

2,207

Closing GNPA

22,031

27,402

25,001

34,249

32,662

30,938

30,855

30,772

Prov

12,265

13,350

13,232

17,657

17,760

18,222

18,622

NPA

9,766

14,052

11,769

16,592

14,902

12,716

12,233

12,150

Prov

2,342

3,140

2,811

7,180

3,338

2,927

3,055

2,711

0.6%

0.8%

0.7%

1.6%

0.8%

0.6%

0.5%

CC Ann

2.4%

3.1%

2.7%

6.5%

3.0%

2.6%

2.2%

Source: Company

Exhibit 4: Additional standard asset provisions made in 4QFY2019

Particular

` cr

Provision on non-banking asset (land bank) received through debt resolution process. Residual `1600cr adjusted

540

directly to reserves. This is to be charged to P&L over next 3 quarters

Higher provisions on standard corporate loans rated BB & below and all SMA 2 loans led by adoption of formula

380

driven process for making provisions

Provisions on security receipts (book value ` 2900cr)

220

Higher provision on self identified stressed asset

170

1310

Source: Company

May 03, 2019

Axis Bank|Q4FY2019 Result Update

Exhibit 5: SOTP Valuation Summary

Sum of the parts

Stake in Company%

Valuation Methodology

Value/Share `

Core Business

100.0

2.5x FY21E ABV

834.4

Axis Capital Ltd

100

15x FY21E PAT

9.9

Axis MF

20x FY21E PAT

3.8

Axis Fin

100

1.5x FY21E BV

10.7

Axis Sec

100

15x FY21E PAT

5.3

Sum of Parts

864.2

Source: Company

Exhibit 6: 1 year Froward P/ABV Band

3.50

P/BV

Avg. P/BV

+1STD

-1STD

High

Low

3.00

3.25

2.50

2.46

2.00

2.01

1.50

1.55

1.00

0.92

0.50

0.00

Source: Company

Exhibit 7: DuPont Analysis

DuPont Analysis (%)

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20E

FY21E

Interest Income

8.3

8.7

8.5

8.4

8.2

7.8

7.1

7.4

7.6

7.7

Interest Expenses

5.3

5.6

5.2

5.0

4.8

4.6

4.2

4.5

4.6

4.7

NII

3.0

3.1

3.3

3.4

3.2

2.9

3.0

- Prov

0.4

0.6

0.7

2.1

2.4

1.6

1.0

0.9

Adj NII

2.6

2.5

2.7

2.8

2.6

1.0

0.5

1.3

2.0

2.1

Other Income

2.1

2.0

1.9

2.0

1.7

1.8

Total Income

4.7

4.6

4.8

4.5

3.1

2.2

3.1

3.7

3.9

Opex

2.3

2.2

2.0

2.1

2.2

2.1

Emp

0.8

0.7

0.6

Other

1.5

1.4

1.5

1.4

1.3

1.5

PBT

2.4

2.6

2.5

1.0

0.0

0.9

1.7

1.9

TAX

0.8

0.9

0.8

0.3

-0.0

0.3

0.6

RoA

1.6

1.7

1.6

0.6

0.0

0.6

1.1

1.23

Leverage

12.6

11.2

10.1

10.2

10.5

10.8

11.4

11.9

RoE

20.3

18.5

17.4

17.8

16.8

6.8

0.5

7.2

12.9

14.7

Source: Company

May 03, 2019

Axis Bank|Q4FY2019 Result Update

Income Statement

Y/E March (` cr)

FY17

FY18

FY19

FY20E

FY21E

Net Interest Income

18,093

18,618

21,708

25,101

29,149

- YoY Growth (%)

Other Income

11,691

10,967

13,130

14,884

17,528

- YoY Growth (%)

(6)

Operating Income

29,784

29,585

34,839

39,985

46,677

- YoY Growth (%)

(1)

Operating Expenses

12,200

13,990

15,833

17,783

20,150

- YoY Growth (%)

Pre - Provision Profit

17,585

15,594

19,005

22,202

26,527

- YoY Growth (%)

(11)

Prov. & Cont.

12,117

15,473

12,031

8,158

8,349

- YoY Growth (%)

227

-22

-32

Profit Before Tax

5,468

122

6,974

14,044

18,179

- YoY Growth (%)

-56

(98)

5,637

101

Prov. for Taxation

1,788

-154

2,297

4,775

6,181

- as a % of PBT

-127

PAT

3,679

276

4,677

9,269

11,998

- YoY Growth (%)

(55)

(93)

1,596

Balance Sheet

Y/E March (` cr)

FY17

FY18

FY19

FY20E

FY21E

Share Capital

479

513

Reserves & Surplus

55,284

62,932

66,676

75,482

86,880

Net Worth

55,763

63,445

67,190

75,995

87,393

Deposits

4,14,379

4,53,623

5,48,471

6,36,227

7,50,748

- Growth (%)

Borrowings

1,05,031

1,48,016

1,52,776

1,74,164

1,98,547

Other Liab & Prov.

26,387

26,373

28,723

15,684

12,647

Total Liabilities

6,01,559

6,91,458

7,97,160

9,02,070

10,49,335

Cash balances

30,858

35,481

35,099

45,641

46,349

Bank balances

19,398

7,974

32,620

13,110

15,377

Investments

1,28,793

1,53,876

1,74,969

2,00,132

2,28,648

Advances

3,73,069

4,39,650

4,94,798

5,73,966

6,77,279

- Growth (%)

Fixed Assets

3,747

3,972

4,827

5,599

6,607

Other Assets

45,693

50,505

54,847

63,623

75,075

Total Assets

6,01,559

6,91,458

7,97,160

9,02,070

10,49,335

- Growth (%)

May 03, 2019

Axis Bank|Q4FY2019 Result Update

Key Ratio

Y/E March

FY17

FY18

FY19

FY20E

FY21E

Profitability ratios (%)

NIMs

3.43

3.1

3.16

3.2

Cost to Income Ratio

RoA

0.6

0.0

0.6

1.1

1.2

RoE

B/S ratios (%)

CASA Ratio

51.4

53.8

44.4

Credit/Deposit Ratio

Asset Quality (%)

Gross NPAs

5.04

6.77

5.0

4.0

Net NPAs

2.11

3.40

2.3

1.7

Credit Cost

3.2

3.5

2.4

1.4

1.2

Provision Coverage

0.58

0.50

0.54

0.58

Per Share Data (`)

EPS

ABVPS (70% cover.)

208

222

246

285

340

DPS

Valuation Ratios

PER (x)

701

P/ABVPS (x)

3.6

3.4

3.1

2.6

2.2

Dividend Yield (%)

0.7

DuPont Analysis

FY17

FY18

FY19E

FY20E

FY21E

Interest Income

7.8

7.1

7.4

7.6

7.7

Interest Expenses

4.6

4.2

4.5

4.6

4.7

NII

3.2

2.9

3.0

- Prov

2.1

2.4

1.6

1.0

0.9

Adj NII

1.0

0.5

1.3

2.0

2.1

Other Income

2.0

1.7

1.8

Total Income

3.1

2.2

3.1

3.7

3.9

Opex

2.1

2.2

2.1

PBT

1.0

0.0

0.9

1.7

1.9

TAX

0.3

-0.0

0.3

0.6

RoA

0.6

0.0

0.6

1.1

1.23

Leverage

10.5

10.8

11.4

11.9

RoE

6.8

0.5

7.2

12.9

14.7

Valuation done on closing price of 02/05/2019

May 03, 2019

Axis Bank|Q4FY2019 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER

Angel Broking Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited, Bombay

Stock Exchange Limited, Metropolitan Stock Exchange Limited, Multi Commodity Exchange of India Ltd and National Commodity &

Derivatives Exchange Ltd It is also registered as a Depository Participant with CDSL and Portfolio Manager and Investment Adviser with

SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Limited is a registered entity with SEBI for Research

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Disclosure of Interest Statement

Axis Bank

1. Financial interest of research analyst or Angel or his Associate or his relative

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives

3. Served as an officer, director or employee of the company covered under Research

4. Broking relationship with company covered under Research

Ratings (Based on expected returns

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

over 12 months investment period):

Reduce (-5% to -15%)

Sell (< -15)

May 03, 2019