Guru Nanak Institute

of
Management Studies
ARUN B IYER
MMS-(B)
Roll No:- 15

AXIS BANK LTD.
BUY (TARGET PRICE )
Market Data

Price on reco. date (Rs)
bse 07/03/14
1253.80

CMP - BSE / NSE (Rs)


Change since reco.


52-week High/Low (Rs) 1549.00/764.00

NSE Symbol AXISBANK

BSE Code 532215

No. of shares 469,246,304

Free float 8.5%

Face value
Market cap (Rs m)
10.00
17,782.84

stock performance








Investment Rationale

Consistently high shareholder returns
Axis Bank has consistently generated a high Return
on Equity (ROE) for shareholders. This has been
achieved mainly because of Axis Banks high net
interest margins and CASA (current account and
savings accounts) deposits maintained by the Bank.
Interest rate paid on CASA deposits is much lower
compared to other deposits like term deposits or
recurring deposits. While banks do not pay any
interest on current account, interest paid on
savings account deposit is set by RBI at 4%. Banks
therefore make maximum effort to increase the
share of CASA on their books to reduce their overall
cost of deposits and increase their Net Interest
Margin (NIM).
Despite worsening economic conditions, in FY
2013, Axis Bank reported a healthy 20.56 % jump in
its Net Interest Income (NII) over FY 2012. NIM,
stood at 3.53% compared to 3.59% in FY 2012.
We expect that in the next 2-3 years, the Company
will continue to enjoy this advantage of having
wide spread on its interest income given its large
low cost deposit base coming from its CASA
accounts. As on 31
st
March 2013, 44.38% of total
deposits with Axis Bank were in the form of low
cost CASA deposits.



Stock price performance



Shree
cement
Index*sensex

1-Yr 7.37%
11.97%

3-Yrs

170.49% 18.49%

5-Yrs

Shareholding (DEC 2013)

Category (%)

Promoter 33.88

FIIs 43.18

DIIs 9.74

Others 13.20

Total 100.0


The net interest income (NII) growth remains
healthy (up 19.6% year on year [YoY]), though a
reversal of investment provisions (Rs173 crore
inQ3FY2014) boosted the earnings. A sequential
decline in the net interest margin (NIM) was on
expected lines.
Deposit profile improves, CASA ratio stable at
about 43% In Q3FY2014, the deposits grew by 7.3%
YoY on account of a 14.3% year-on-year
(Y-o-Y) growth in the current account and savings
account (CASA) deposits. The current account
deposits grew by 4.6% YoY, while the growth in the
CASA deposits was largely driven by a 21.0% Y-o-Y
growth in the saving account deposits.
The CASA ratio in Q3FY2014 stood largely stable at
42.6% (vs 42.9% in Q2FY2014). The proportion of
the retail deposits (CASA + retail term deposits),
which are more stable deposits, increased to 73.9%
compared with 64.4% in the corresponding period
of last year.

Good performance in 4QFY13:-Shree Cements
(SRCM) 4QFY13 performance was above estimates,
with EBITDA of INR3.8b (v/s est. of INR3.6b),
driven by higher power EBITDA. Cement business
performance was in line, with EBITDA/ton of
~INR934 (v/s est. INR919). However, higher other
income and lower tax boosted reported PAT to
~INR2.8b (v/s est. INR1.8b), a decline of 19% .
Shree Cement (SCL) has been generating absolute
EBITDA similar to ACC/Ambuja Cements
(ACEM), on ~60% of their volumes.


Strong case for re-rating, upgrade EV/EBITDA
multiple to 9x:- Historically, SRCMs valuation
discount to large caps has declined only in a sectoral
down-cycle. But current positioning makes a strong
case for next leg of re-rating. We value SRCM at 9x
FY15E Cement EV/EBITDA and DCF for power
business, translating to a target price of INR5,400
(38% upside). Lower payout and prolonged delay in
volume recovery could be key deterrents for re-
rating. Maintain Buy.


Investment Concerns

Its gross net performing assets (NPA) rose to 1.25 per cent of its
total loans as compared to 1.19 per cent in the previous quarter. Its
net NPA expanded to 0.42 per cent in the third quarter vs 0.37 per
cent in the previous quarter.
Intense competition, threat of new entrants and stringent
capital requirements as per Basel III

Many of the services that were traditionally performed by the
banks are now being performed by other players such as
depositories, NBFCs and brokerage houses which has intensified
competition in the banking sector. Additionally, R.B.I. has released
the new Banking License Guidelines for NBFCs and is likely to
award new banking licenses which will further intensify competition.
Additionally, development of technology has resulted in availability
of multiple delivery channels for customers such as ATMs and
phone and internet banking. As technology develops further, some
of the advantage enjoyed by larger banks like Axis Bank, such as a
large branch network could become a drain on the revenue stream.



Background

Axis Bank is the third largest private sector bank in India. Axis Bank offers the
entire spectrum of financial services to customer segments covering Large and

Mid-Corporate, MSME, Agriculture and Retail Businesses.
The Bank has a large footprint of 1947 domestic branches (including extension
counters) and 11,245 ATMs spread across the country as on 31st March 2013.
The Bank also has overseas offices in Singapore, Hong Kong, Shanghai,
Colombo, Dubai and Abu Dhabi.
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 shareholding of Unit Trust of India was subsequently
transferred to SUUTI, an entity established in 2003.
With a balance sheet size of Rs.3,40,561 crores as on 31st March 2013, Axis
Bank has achieved consistent growth and stable asset quality with a 5 year
CAGR (2009-13) of 26% in Total Assets, 24% in Total Deposits, 27% in Total
Advances and 37% in Net Profit.
Industry prospects

Slowdowns in demand, high inflation, government deficits and weaknesses in the
global economy have resulted in a slowdown in India's GDP growth. Cement
demand is closely linked to the overall economic growth, particularly the housing
and infrastructure re sector. As such, cement demand is likely to remain sluggish
over the medium term. However, the long term growth prospects remain intact
given the huge untapped housing demand and positive demographics.

However, the long term drivers for cement demand remain intact. Higher
government spending on infrastructure, robust growth in rural housing and rising
per capita incomes are likely to augur well for the cement industry. The
government plans to spend US$ 1 trillion on infrastructure in the 12th five year
plan period (2012-17). The same during the 11th plan period was US$ 514 bn. The
focus on infrastructure development is expected to boost cement demand.

Key management personnel

Sanjiv Misraformer secretary, department of expenditure, ministry of finance
was appointed as Axis Banks non-executive chairman .

Risk Analysis



Sector: If one were to outline factors that have impaired India's growth
over the past few decades, the poor infrastructure setup shall top the list.
Considering the demand of a growing economy, which also boasts of
second largest population in the world, existence of world-class
infrastructure is no more an option but a necessity. The industry received
a fillip beginning FY00, with the government showing increased focus
towards developing a strong and sound infrastructure setup in the country.
The government is now focusing on a private public partnership model
(PPP) for infrastructure creation, which has seen a host of private sector
construction players investing in the sector, mainly through the BOT model
(Build-Operate-Transfer). While the opportunity is huge, considering the
equally large execution risks involved (especially in the power sector), we
shall assign a medium-risk rating to the sector.
Company standing: Axis Bank began its operations in 1991, after
the Government of India allowed new private banks to be established. The
Bank was promoted jointly by the Administrator of the Unit Trust of
India (UTI-I), Life Insurance Corporation of India (LIC), General Insurance
Corporation Ltd., National Insurance Company Ltd., The New India
Assurance Company, The Oriental Insurance Corporation and United
India Insurance Company.The first branch was inaugurated in April 1994
in Ahmedabad by Dr. Manmohan Singh, the then Finance Minister of India

Treasury operations, Retail banking, Corporate/Wholesale banking and
other banking business.


Sales: Shree cement is one of the largest manufacturer of cement in
northern India & average net sales of last three year is Rs. 50,503.67
million & this year company average net sales is rs.55,903 which is not so
good compared to last FY 12 which was Rs.57,995
Operating margin: Operating margin is a measurement of what
proportion of a company's revenue is left over after paying for variable
costs of production such as raw materials, wages, and sales and
marketing costs. A healthy operating margin is required for a company to
be able to pay for its fixed costs, such as interest on debt. The higher the
margin, the better it is for the company as it indicates its operating

efficiency.
Shree cement average operating margins for the past three years has
been 27.11%, which we expect to marginally decline in during the next
three. As such, we assign a medium risk rating of 4 to the stock on this
parameter.
Long term EPS growth:

L&T has grown its net profits at a CAGR of 24.2% in the past three years.
Taking a 3-year view, we believe that earnings growth of about 7% is
possible.
Return on capital invested (ROIC): ROIC is an important tool to assess
a company's potential to be a quality investment by determining how well
the management is able to allocate capital into its operations for future
growth. A ROIC of above 15% is considered decent for companies that
are in an expansionary phase. Considering shree cement's last three
years' average ROIC of almost 23.4%,
Dividend payout: A stable dividend history inspires confidence in the
management's intentions of rewarding shareholders. L&T's average
payout ratio has been a healthy16.08 %over the past 3 fiscals.
Promoter holding: A larger share of promoter holding indicates the
confidence of the people who run it. We believe that a greater than 40%
promoter holding indicates safety for retail investors. In shree cement
promoter share is 64.8%.
Liquidity: The average daily trading volumes of L&T's stock over the past
52 weeks stand at over 295,370 shares. Such high liquidity level is a
matter of comfort, as this might protect the stock from undue volatility in
case of exchange of large holdings among market participants/investors.
The rating assigned is 10.
Current ratio: shree cement average current ratio during the period FY 12
was 1.4% & FY 13 was 1.6%. This indicates that the company is
comfortably able to pay off its short-term obligations, which gives comfort
to its lenders. We assign a medium-risk rating of 5.
Debt to equity ratio: shree cement debt-equity ratio has increase to

0.52% from 0.86% which indicates that company borrowing is increased
from last year.
Interest coverage ratio: It is used to determine how comfortably a
company is placed in terms of payment of interest on outstanding debt.
The interest coverage ratio is calculated by dividing a company's earnings
before interest and taxes (EBIT) by its interest expense for a given period.
The lower the ratio, the greater are the risks. Given shree cement average
interest coverage ratio is6.21% which is more compared to last year which
was 3.92% which mean risk factor of the company is increased by 2.29%
P/E Ratio: The P/E ratio (price-to-earnings ratio) of a stock is a measure
of the price paid for a share relative to the per share income or profit
earned by the company. This is one of the important metrics to judge the
attractiveness of a stock, and thus gets the highest weightage in our risk
matrix. Shree cement P/E ratio is 13.7% which is increased compared to
last FY.
Considering the above analysis, the total ranking assigned to the
company is 59 that, on a weighted basis, stands at 4.3. This makes
the stock a medium-risk investment from a long-term perspective.

Valuations

At the current price
of Rs 1,266, the
stock is trading at
a multiple of 13.5
times our
estimated FY14
earnings, which we
believe makes it an
attractive
proposition for
long-term
investment.
Although there are
near term
concerns over
execution, rising
working capital and
deteriorating

Valuations

(Rs
m)
FY11 FY12E FY13E FY14E
Revenue
(Rs m)
520,891 594,609 688,102 802,104
PAT (Rs m) 44,562 42,888 48,241 54,848
EPS (Rs) 73.2 70.4 79.2 90.1
Price to
earnings (x)
16.7 17.4 15.4 13.6
Price to
book value
(x)
3.0 2.6 2.3 2.1
Price to
sales (x)
1.4 1.3 1.1 0.9


margins most of
them have been
priced in. We
believe that the
current scenario
factors in a
pessimistic view
presenting a good
entry point for
investors As such,
we recommend a
BUY' on the stock
as we expect it to
fetch a CAGR of
16.7% over the
next 2 to 3 year
period.







http://crisil.com/pdf/research/CRISIL-Research-cust-bulletin_may13.pdf


http://www.navhindtimes.in/business/prospects-automobile-industry