K E Y N O T E

INSTITUT
TIONAL RE
ESEARCH

Ax
xis Bank Ltd.
L
Q4
4FY11 Resu
ult Update A
April 27, 2011
Key Stock Datta
Axis Bank registered healthy (33.4% y-o-y and 14.4% q-o-q)q growth in its Net pro
ofit
Secctor: Private Bank
B
QFY11, ahead
in 4Q d of our expeectation and broad markett consensus. For FY11, N Net
CM
MP: `1355.200
profitt grew 36.7%% to Rs3388ccr supported by strong NIII growth (31.4% y-o-y) and
52wwk High/Low: `1608/11146
core fee income (29.6% y-o-yy). However, NII was low wer than estimmated due to o a
Maarket Cap: `549.09bbn
sharp p 37bps q-o--q decline in reported NIIM, which wa as offset by stronger oth her
($12202mmn)
incomme led primarrily by fee inccome. Cost to o income ratio has been stable
s at 42.5
5%
6m
m Avg. daily vol: 186879
BSE Sensex: 19545.355
despite of aggresssive branch anda ATM expansion during g the year. Lo
oan growth w was
at 366.5% y-o-y and 15.3% q--o-q, well above the indu ustry average e credit growwth.
Reco: ‘Buy’
Asseet quality trends continue to show imprrovement witth Gross NPA A ratio and N Net
Tarrget Price: `1575
NPA ratio declinin ng in Q4FY11. Deposits increased 33..9% y-o-y and 21.5% q-o--q,
Sttock Codes CASA A ratio declined 121 bpss q-o-q due to rising intterest rates across depo osit
Blo
oomberg Codees: AXSB.IN maturities. Strong g y-o-y grow wth in balancce sheet, core fee incom me and bran nch
Reuters code: AXBK.BO netwo ork were the key positive from
f the results.
BSE Code: 532215
5
NS
SE Code: AXISBAANK Key Performanc
ce Highligh
hts
Facce Value: `10
hareholding pattern (31stt
Sh ¾ R
Robust grow
wth in Advanc
ces and depo
osits
M 2011):
Mar,
Advances gre
A ew by 36.5% y-o-y and 15 5.3% q-o-q to `142407.83ccr, primarily led
Other b growth in Agricultural
by A loans (for fulfilling the prioritty sector lend
ding obligation
ns)
s Prom
20.0 oter a SME seg
and gments which grew by 60.8% and 25.5 5% q-o-q resp pectively. Rettail
DII
% 37.2 a Corporate
and e loans grew at 33.3% y-o o-y and 44.6% % y-o-y respe ectively. Growwth
5.1%
5
%
F
FII in
n retail loan book was driiven by Houssing Loans (2 28.0% y-o-y), and Auto loan
37
7.7 (10.3% y-o-yy). The bankk has witnessed good credit growth from Pow wer
%
g
generation, Engineering annd Electrical, Food processsing and Miining sectors in
Prrice Perform
mance (%) 4
4QFY11.
1 Mth
M 3 Mths 6 Mths 1 Yr
Y (continued… …)
0.8
8% 6.1% -6.1% 11.7%
Sttock Price Pe
erformance Key Financials cr)
(`c
200% Partticulars FY
Y09 FY
Y10 FY
Y11 FY122E FY133E
150% Adva ances 81556.76 104343.12 142407.83 178006.73 218951.90
100% Deposits 117374.11 141300.22 189237.80 234654.87 286278.94
NII 3686.21 5004.49 6562.99 7941.87 9901.97
50%
Totaal Income 13732.36 15583.80 19786.94 26520.16 32887.84
Proffit after Tax 1815.36 2514.53 3388.49 4323.21 5294.15
Axis Bank BSESEN
NSEX EPS S (`) 50.57 62.06 82.54 101.94 124.83
BSEBANKEX X
Book Value (`) 284.53 396.00 462.77 527.81 625.18
Hetal Shah
h, Analyst Adj. Book Value (``) 275.41 385.66 452.77 516.19 610.73
RON NW (%) 19.1
1% 19.2
2% 19.3
3% 20.9
9% 21.7
7%
(hetal@keynoteindia.net)
ROA A (%) 1.4
4% 1.5
5% 1.6
6% 1.6
6% 1.6
6%
(+9122-3026
66073) (E- Ke
eynote Capitalss Institutional Research
R Estim
mates)

Keynote Cap
pitals Institutio
onal Researchh is also available on
Blo
oomberg KNT
TE <GO>, Th homson One Analytics,
A Reuuters Knowledge, Capital IQ,
I TheMarke ets.com and securities.com
s m
Keynote Cap
pitals Institu
utional Resea
arch –awarde ed “India’s Best
B IPO Ana alyst 2009” by MCX-Zee Business
B
Axis Bank Ltd. – Q4FY11 Result Update

As per the management guidance, loan book growth is expected to be moderate

at ~25% in FY12E driven by Retail and SMEs. We expect the loan book to grow
at ~24% CAGR over FY11-13E and thereby supporting NII growth.

Advances and Deposits y-o-y
growth more than the industry
average
Deposits grew 33.9% y-o-y and 21.5% q-o-q, above industry average deposit
growth. Stable CASA deposit growth and acceleration in term deposit growth
(48% y-o-y) led to decline in CASA ratio by 121bps q-o-q to 41.1% mainly due to
hike in deposit rate across deposit maturities during the quarter. Going forward,
balance sheet growth is likely to moderate from current growth trend resulting
into lower fund requirement and improvement in CASA ratio from current levels.
We expect the deposit to grow at ~23% CAGR over FY11-13E.

¾ Strong non-interest income growth

Non-interest income accelerated 55.4% y-o-y and 26.4% q-o-q to `1450.40cr,

mainly due to healthy growth in core fee income (39.3% y-o-y and 27.2% q-o-q).
The main drivers for fee income were syndication fees on large & mid-corporate
loans, fees from SME and retail banking. Growth in non-interest income was
partly aided by the 215.7% y-o-y spurt in miscellaneous income (primarily
recoveries from written-off accounts of `155cr during 4QFY11 and `325cr during
FY11). Trading gains reported a decline to `58cr in Q4FY11 from `103cr in
Q3FY11. Hence, branch network expansion, better debt structuring & syndication
capabilities, and wide range of products & service delivery will continue to drive
fee income going forward. We expect the non-interest income to grow at 23.2%
Robust fee income growth CAGR for FY11-FY13E.
boosted non-interest income and
the profitability.
Break up of Non-Interest Income (`cr)
Q4- Q3- Q4- % change % change
Particulars FY11 FY11 FY10 y-o-y q-o-q
Fee income* 1231 968 780 57.8% 27.2%
Corporate Banking 438 352 260 68.5% 24.4%
Treasury 255 162 143 78.3% 57.4%
Agri & SME Banking 100 58 69 44.9% 72.4%
Business Banking 107 95 89 20.2% 12.6%
Capital markets 19 15 3 533.3% 26.7%
Retail Banking 312 286 216 44.4% 9.1%
Trading gains 58 135 103 -43.7% -57.0%
Misc. income 161 45 51 215.7% 257.8%
Non Interest Income 1450 1148 934 55.4% 26.4%
(* Fee income adjusted for change in accounting policy for BG commissions for Q4FY11
grew 39.3% y-o-y.)

¾ NIM contraction due to spike in cost of funds

NII growth moderated to 16.5% y-o-y in 4QFY11 from 28.5% y-o-y in Q3FY11
due to sharp margin contraction (37 bps) q-o-q. NIM declined to 3.4% from 3.8%
in Q3FY11, mainly on account of ~400bp decline in CASA ratio on a daily
average basis coupled with rising term deposit rates by 121 bps, moderation in
CD ratio (400bps q-o-q) and cyclical acceleration in priority sector loan book.

Keynote Capitals Institutional Research Page 2

Axis Bank Ltd. – Q4FY11 Result Update

The decline in NIM led to the first sequential decline in NII (1.9%) in the last nine
quarters. The bank has hiked base rate and BPLR by 75bps each during the
quarter to counter the increase in cost of funds but was unable to offset the cost-
of-funds pressures due to lag in repricing. Going forward, management expects
NIM to stabilize at 3.3–3.5%. We expect NII to grow at 22.8% CAGR over FY11-
FY13E driven by healthy loan growth.

¾ Stable Asset Quality

The asset quality of the bank is comfortable with gross and net NPA ratios of
1.0% and 0.3% respectively in Q4FY11. Provision coverage stands at 80.9%
including technical write-offs well above RBI’s mandate of 70%. We expect the
same to continue and the gross and net NPA ratio may be maintained around
1.1% & 0.3% respectively, in another couple of years. The restructured loans
stood at `1930cr as on 31st March-2011 constituting 1.2% of gross customer
assets. The bank saw increase in pace of up-gradation and recovery during the
quarter. Gross slippages during the quarter came down to `248cr compared to
`334cr in 3QFY11 and `446cr in 2QFY11, resulting in an annualized slippage
ratio of 1.0% which is lower than the 9MFY11 ratio of 1.5% and FY10 of 2.2%.

¾ Adequately capitalized to support earnings quality

The bank has a healthy capital adequacy ratio of 12.7%, with tier-I capital of
9.4% at the end of FY11. The bank is not looking at any immediate tier-I capital-
raising plans, as it has got significant headroom for raising tier-II capital. The
bank reported 1.7% ROA and 20.1% ROE in FY11. We expect the bank to
sustain return ratios at ~ 1.7% ROA and ~21.5% ROE over FY11-FY13E.

¾ Branch Network Expansion

The bank has opened 270 branches and 967 ATMs in Q4FY11, taking the total
branch network to 1390 branches and 6270 ATMs. Branch expansion was
substantial with growth of 41.4% in FY2011. The management has indicated that
the growth trend on branch expansion is likely to moderate to 200-250 branch
addition in FY12E.

Valuations

The bank's total business, multiple sources of sustainable fee-income, distribution

network and vast customer base in CASA-franchise enable it to leverage significant
business opportunities in the current rising interest rate scenario. This along with a
balanced loan portfolio and high proportion of low-cost funds will help the bank to
earn better margins compared to its peers. We recommended the stock at
`21227.55 on 18th Jan-2011 and achieved the target price of `1415 (an upside of
15.3%) within three months. Considering the above factors, we increase our target
price to `1575 per share by assigning a multiple of 3.05x FY13E price to adjusted
book for the period of one year, with a ‘Buy’ recommendation. At CMP of `1355.20,
the stock is trading 2.63xFY12E and 2.22xFY13E price to adjusted book.

Keynote Capitals Institutional Research Page 3

Axis Bank Ltd. – Q4FY11 Result Update

P/ABV Bands

1800
3.25x
1600
1400 2.75x
1200 2.25x
1000
1.75x
800
600
400
200
0

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10
Apr-06
Jul-06

Jan-07
Apr-07
Jul-07

Jan-08
Apr-08
Jul-08

Jan-09
Apr-09
Jul-09

Jan-10
Apr-10
Jul-10

Jan-11
(Source: Keynote Capitals Institutional Research)

Key Quarterly Updates (`cr)

% % %
change change change
Particulars Q4-FY11 Q3-FY11 Q4-FY10 y-o-y q-o-q FY11 FY10 y-o-y
Interest Earned 4366.66 3838.31 2988.45 46.1% 13.8% 15154.81 11638.02 30.2%
Interest on advances 3062.64 2600.55 2074.97 47.6% 17.8% 10403.11 7986.60 30.3%
Income from Investment 1213.06 1166.83 856.01 41.7% 4.0% 4438.69 3428.31 29.5%
Interest on RBI balance 63.59 48.18 27.20 133.8% 32.0% 182.62 120.00 52.2%
Others 27.37 22.75 30.27 -9.6% 20.3% 130.39 103.11 26.5%
Interest expended 2665.66 2105.19 1528.38 74.4% 26.6% 8591.82 6633.53 29.5%
Net Interest Income 1701.00 1733.12 1460.07 16.5% -1.9% 6562.99 5004.49 31.1%
Non-Interest Income 1450.40 1147.71 933.54 55.4% 26.4% 4632.13 3945.78 17.4%
Net Total Income 3151.40 2880.83 2393.61 31.7% 9.4% 11195.12 8950.27 25.1%
Operating Expenses 1330.59 1222.35 1009.80 31.8% 8.9% 4779.43 3709.72 28.8%
Staff costs 396.02 396.16 333.75 18.7% 0.0% 1613.90 1255.82 28.5%
Other expenses 934.57 826.19 676.05 38.2% 13.1% 3165.53 2453.90 29.0%
Pre-provisioning profit 1820.81 1658.48 1383.81 31.6% 9.8% 6415.69 5240.55 22.4%
Provisions 254.39 313.88 201.87 26.0% -19.0% 1280.03 1389.19 -7.9%
PBT 1566.42 1344.60 1181.94 32.5% 16.5% 5135.66 3851.36 33.3%
Tax 546.31 453.24 417.07 31.0% 20.5% 1747.17 1336.83 30.7%
PAT 1020.11 891.36 764.87 33.4% 14.4% 3388.49 2514.53 34.8%
EPS (`) 24.85 21.75 18.88 31.6% 14.3% 82.54 62.06 33.0%

(Source: Company & Keynote Capitals Institutional Research)

Keynote Capitals Institutional Research Page 4

Axis Bank Ltd. – Q4FY11 Result Update

Financials:

Profit & Loss (`cr)

Particulars FY09 FY10 FY11 FY12E FY13E
Interest Earned 10835.48 11638.02 15154.81 20769.19 25860.28
Interest on advances 7465.86 7986.60 10403.11 14889.64 19048.96
Income from Investment 3051.50 3428.31 4438.69 5539.84 6458.32
Interest on RBI balances 210.19 120.00 182.62 208.94 166.72
Others 107.93 103.11 130.39 130.76 186.28
Interest expended 7149.27 6633.53 8591.82 12827.32 15958.31
Net Interest Income 3686.21 5004.49 6562.99 7941.87 9901.97
Non-Interest Income 2896.88 3945.78 4632.13 5750.97 7027.56
Net Total Income 6583.09 8950.27 11195.12 13692.84 16929.53
Operating Expenses 2858.21 3709.72 4779.43 5813.76 7310.52
Staff costs 997.66 1255.82 1613.90 1873.89 2349.21
Other expenses 1860.55 2453.90 3165.53 3939.87 4961.31
Pre-provisioning profit 3724.88 5240.55 6415.69 7879.08 9619.01
Provisions 939.68 1389.19 1280.03 1331.72 1593.68
PBT 2785.20 3851.36 5135.66 6547.36 8025.32
Tax 969.84 1336.83 1747.17 2224.15 2731.18
PAT 1815.36 2514.53 3388.49 4323.21 5294.15
EPS (`) 50.57 62.06 82.54 101.94 124.83
Book Value (`) 284.53 396.00 462.77 527.81 625.18
Adjusted Book Value (`) 275.41 385.66 452.77 516.19 610.73

(E: Keynote Capitals Institutional Research Estimates)

Balance Sheet (`cr)

Particulars FY09 FY10 FY11 FY12E FY13E
Sources of Funds
Share Capital 359.01 405.17 410.55 424.10 424.10
Reserves 9855.79 15639.44 18588.28 21960.38 26089.82
Net Worth 10214.80 16044.61 18998.83 22384.48 26513.92
Deposits 117374.11 141300.22 189237.80 234654.87 286278.94
Borrowings 15519.87 17169.55 26267.88 28612.76 35814.20
Other Liab. & Prov. 4650.07 6166.15 8208.86 7245.94 6082.25
Total Liabilities 147758.85 180680.53 242713.37 292898.05 354689.31
Applications of Funds
Cash Balances 9419.21 9473.88 13886.16 14730.27 17581.52
Bank Balances 5597.69 5732.56 7522.49 7947.99 9116.34
Investments 46330.35 55974.81 71991.62 85649.03 103060.42
Advances 81556.76 104343.12 142407.83 178006.73 218951.90
Fixed Assets 1072.89 1222.42 2273.15 2699.81 3209.78
Other Assets 3781.95 3933.74 4632.12 3864.22 2769.36
Total Assets 147758.85 180680.53 242713.37 292898.05 354689.31

(E: Keynote Capitals Institutional Research Estimates)

Keynote Capitals Institutional Research Page 5

Axis Bank Ltd. – Q4FY11 Result Update

Return Ratios (%)

Particulars FY09 FY10 FY11 FY12E FY13E
Net Interest Margin (NIM) 3.3% 3.8% 3.7% 3.2% 3.1%
Yield on Advances 9.7% 8.7% 8.7% 9.5% 9.8%
Yield on Investments 7.6% 6.7% 6.9% 7.0% 6.8%
Cost of Deposits 6.4% 5.1% 4.7% 5.4% 5.4%
Return on Average Assets 1.4% 1.5% 1.6% 1.6% 1.6%
ROAE 19.1% 19.2% 19.3% 20.9% 21.7%
Dividend Yield (%) 0.7% 0.9% 1.2% 1.4% 1.7%
Effective tax rate 34.8% 34.7% 34.0% 34.0% 34.0%

(E: Keynote Capitals Institutional Research Estimates)

Efficiency Ratios (%)

Particulars FY09 FY10 FY11 FY12E FY13E
Net Interest Income/ Net total Income 56.0% 55.9% 58.6% 58.0% 58.5%
Non Interest Income/ Net total Income 44.0% 44.1% 41.4% 42.0% 41.5%
Interest expended/ Interest earned 66.0% 57.0% 56.7% 61.8% 61.7%
Cost to income 43.4% 41.4% 42.7% 42.5% 43.2%
Opex/ Avg. assets 2.2% 2.3% 2.3% 2.2% 2.2%
Credit Deposit ratio (C-D ratio) 69.5% 73.8% 75.3% 75.9% 76.5%
Incremental C-D ratio 73.6% 95.2% 79.4% 78.4% 79.3%
Investment Deposit ratio (I-D ratio) 39.5% 39.6% 38.0% 36.5% 36.0%
Incremental I-D ratio 42.4% 40.3% 33.4% 30.1% 33.7%
Credit/ Assets 55.2% 57.8% 58.7% 60.8% 61.7%
Loan growth 36.7% 27.9% 36.5% 25.0% 23.0%
Deposits/Assets 79.4% 78.2% 78.0% 80.1% 80.7%
Deposit growth 33.9% 20.4% 33.9% 24.0% 22.0%

(E: Keynote Capitals Institutional Research Estimates)

Per share Data

Particulars FY09 FY10 FY11 FY12E FY13E
EPS (`) 50.57 62.06 82.54 101.94 124.83
Book Value (`) 284.53 396.00 462.77 527.81 625.18
Adjusted Book value (`) 275.41 385.66 452.77 516.19 610.73

(E: Keynote Capitals Institutional Research Estimates)

Valuation ratios
Particulars FY09 FY10 FY11 FY12E FY13E
P/e (x) 26.80 21.84 16.42 13.29 10.86
P/BV (x) 4.76 3.42 2.93 2.57 2.17
P/ABV (x) 4.92 3.51 2.99 2.63 2.22

(E: Keynote Capitals Institutional Research Estimates)

Keynote Capitals Institutional Research Page 6

Axis Bank Ltd. – Q4FY11 Result Update

Growth ratios (%)

Particulars FY09 FY10 FY11 FY12E FY13E

Adjusted Book value 15.6% 40.0% 17.4% 14.0% 18.3%
Advances 36.7% 27.9% 36.5% 25.0% 23.0%
Deposits 33.9% 20.4% 33.9% 24.0% 22.0%
Investments 37.5% 20.8% 28.6% 19.0% 20.3%
Net interest income 42.6% 35.8% 31.1% 21.0% 24.7%
Non-interest Income 61.3% 36.2% 17.4% 24.2% 22.2%
Net total Income 50.3% 36.0% 25.1% 22.3% 23.6%
Pre-provisioning profit 67.3% 40.7% 22.4% 22.8% 22.1%
Net profit 69.5% 38.5% 34.8% 27.6% 22.5%
EPS 68.9% 22.7% 33.0% 23.5% 22.5%
(E: Keynote Capitals Institutional Research Estimates)

Productivity ratios (%)

Particulars FY09 FY10 FY11 FY12E FY13E
No. of branches 792 983 1390 1590 1740
% growth 23.0% 24.1% 41.4% 14.4% 9.4%
No. of ATMs 3595 4293 6270 6770 7270
% growth 30.1% 19.4% 46.1% 8.0% 7.4%
Total Business (`cr) 198931 245643 331646 412662 505231
% growth 35.1% 23.5% 35.0% 24.4% 22.4%
Business per employee (`cr) 10.98 11.36 13.34 14.82 16.49
Business per branch (`cr) 251.18 249.89 238.59 259.54 290.36
Cost per employee (`cr) 0.16 0.17 0.19 0.21 0.24
Cost per branch (`cr) 3.61 3.77 3.44 3.66 4.20
Net Profit per employee (`cr) 0.10 0.12 0.14 0.16 0.17
Net Profit per branch (`cr) 2.29 2.56 2.44 2.72 3.04

(E: Keynote Capitals Institutional Research Estimates)

Asset quality
Particulars FY09 FY10 FY11 FY12E FY13E
Gross NPA (`cr) 897.77 1318.00 1599.42 1914.86 1962.73
Net NPA (`cr) 327.13 419.00 410.35 493.08 510.31
Gross NPA ratio 1.1% 1.3% 1.1% 1.1% 1.1%
Net NPA ratio 0.4% 0.4% 0.3% 0.3% 0.3%
Provision Coverage 85.3% 88.6% 80.9% 81.3% 82.3%
(E: Keynote Capitals Institutional Research Estimates)

Asset Liability
Particulars FY09 FY10 FY11 FY12E FY13E
Credit-Deposit ratio 69.5% 73.8% 75.3% 75.9% 76.5%
Investment/Deposit 39.5% 39.6% 38.0% 36.5% 36.0%
Proportion of CASA deposits 43.1% 46.7% 41.1% 41.2% 41.8%
(E: Keynote Capitals Institutional Research Estimates)

Keynote Capitals Institutional Research Page 7

Axis Bank Ltd. – Q4FY11 Result Update

Keynote Capitals Institutional Research Page 8