Axis Bank Ltd. share price target

Axis Bank reported strong Q4FY19 results, with higher-than-expected profits of Rs15bn (our est. - Rs8.8bn), led by strong fees and lower provisions coupled with continued deceleration in GNPA to 5.3% for the fourth consecutive quarter. Deposit growth (~21%) continued to outpace credit (~13%) which coupled with higher CoF weighed on NIMs in Q4FY19. The bank guided for better credit growth in FY20, led by...

Axis Bank Ltd. (Axis) is the third largest private sector bank in India and one of the first new generation banks to have begun operations in 1994. Axis Bank Ltd. has been promoted by the largest and the best Financial Institution of the country, UTI. The Bank offers the entire spectrum of financial services which includes Treasury, Retail Banking, Corporate/Wholesale Banking and Other Banking Business services to customer segments covering Large and MidCorporates, MSME, Agriculture and Retail Businesses. Its Treasury operations include investments in sovereign and corporate debt, equity and mutual funds, trading operations,...

Maintain BUY with a revised SOTP TP of Rs 894 (2.8x FY21E ABV of Rs 308 + Rs 32 for subs). Our recent interaction with the top management of AXSB bolsters our belief of meaningful change led by an astute top mgt revamp. This is evidenced by the following changes/ data points (anecdotal): (1) Material change in corporate credit/ risk practices with credit/risk heads reporting to the MD instead of business heads. (2) These heads are no longer bound by NII/ Fee targets, reducing the chances of 'trigger-happy lending' (3) A sustained decline in the share of the BB and below rated corporate book (4) Clear focus on profitable growth, driven by a well-articulated strategy. (5) Conscious efforts to trim costs evidenced by declining branch size (down ~60% in the last 5 years) and superior efficiency metrics (AXSB has the lowest avg employees/branch). (6) The entire PL book consists of salaried customers.

Axis Bank's top management provided deep insights into the bank's strategy to achieve aspired RoE of 18% in the medium term (FY22E). New Changed from | 790 to | 825 MD & CEO, Amitabh Chaudhary, showcased their Growth- ProfitabilityUnchanged at | 37.5...

Axis Bank hosted an analyst day to showcase the path ahead to the goal of Change in Estimates | Target | Reco articulating detailed strategy. Some of the key points were (i) scaling up of...

Corporate loan growth will be a function of Risk Adjusted Return and if the return criteria are met, then AXSB does not plan to impose any upper limit on growth. Incrementally, the bank is looking to grow both its retail and wholesale side of the balance sheet, and has guided for calibrated increase in retail asset mix. AXSB plans to make Product, Underwriting and Operations a separate function in both Wholesale and Retail business from 1 Apr19. Axis Bank wishes to enter into manufacturing of the life insurance business; however, it is awaiting clarity from the RBI on the structuring of a life insurance company. However, AXSB will exercise caution in growing the international/guarantee business, which will cap the recovery in fee intensity to historical levels. The mix of fees has changed in favor of retail, where in the card business contributes 24% to the total fees v/s 9% in FY14, while corporate fees have declined from 32% to 17%.

We attended Axis Bank's Analyst Day, in which Mr. Amitabh Chaudhary, the new MD and CEO, reiterated his stance on undertaking a major overhaul of business verticals, focusing on three pillars (Growth/Scalability, Profitability, and Sustainability), and achieving 18% RoE in the medium term (we believe by FY22) on a sustainable basis. The current corporate stress pool of 2.8% of loans may have some inter-quarter volatility, but largely factors in corporate stress, and there are no worrying signs of stress in the retail...

PNGRB recently concluded the 10th round of CGD bidding that offered 50 geographical areas (GA), taking the cumulative count to 130 GAs awarded across India within a year. Given the strategic nature of ~20 GAs won by GAIL Gas, IGL and GUJGA that complement their infrastructure presence, these players could see significant volume ramp-up over 2-3 years....

We believe that the de-risked loan portfolio, a competent and young CEO (one of the youngest amongst large banks) with a very credible track record at HDFC Life, along with reversal in provisioning cycle will drive sharp expansion in valuation multiples for AXSB over the next few years. A decade ago, Corporate/SME segments accounted for ~70% of total loans. Currently, the share of these two segments has steadily declined to ~50%, as the bank is focused on retail assets and has added significant granularity to its loan book. The growth in retail assets was driven by smaller ticket sized loans such as vehicle loans, personal loans and credit cards, even as AXSB consciously slowed growing its housing portfolio owing to lower profitability in the segment. AXSB has been focusing on the cross-selling strategy with ~96%/93% of credit cards/personal loans being extended to existing customers.

Retail slippages remains a pain point; unfavorable risk reward: We note that we had a cautious outlook on the stock as we had built in risk of consolidation on growth post the transition given that we assess non-corporate slippages (retail/SME) to be elevated.