CMP Rs1,002, Target Rs1,350, Upside 34.8%
In a meeting with Axis Bank, we discussed outlook on CASA, loan mix, balance sheet growth, margins and asset quality. With the interaction re-affirming encouraging trajectory in most trends, we reiterate our constructive stance on the bank. Further, current valuation is at steep 55-60% discount to HDFC Bank and would re-rate quickly in case of any beneficial reform actions for power sector. Key takeaways from our meeting were as follows
After witnessing the strongest savings deposits growth of 27% in FY12, Axis Bank is confident of 20%+ growth in FY13. Improving maturity of substantial branches added during 2009 and 2010 would continue to drive savings mobilization. Overall deposits mix is expected to strengthen with steady increase in CASA and retail TD share. Loan growth would track CASA growth as the bank is averse to grow balance sheet ahead of CASA. The loan mix is targeted to materially shift towards retail with enhanced focus on existing products and addition of some new products.
NIM after seasonally declining in Q1 FY13 is likely to recover and average 3.5% for the year. Favorable change in both funding and loan profile would act as structural levers. Moderation in fee growth and significant investments in branch network would push C/I ratio marginally upwards. Axis Bank does not expect any material spike in slippages and restructuring in ensuing quarters. Prolonged policy inertia could lead to restructuring of some power exposure in FY14. After being exceptionally low in FY12, credit cost has been guided at higher 85bps in FY13. RoA is estimated to remain near 1.6%. With capital adequacy enough to support medium term growth requirements, the bank is not in hurry to raise capital at current valuation.
Savings deposits growth has been exceptional
During FY12, Axis Bank witnessed a strong of 27% in savings deposits. This was despite increased rate differential on retail term deposits (TDs) and savings rate de-regulation induced rate competition from smaller private banks. Amongst the larger banks, the second highest savings growth was 17% for HDFC Bank. Axis Bank attributed robust savings traction to improving maturity of branches added during 2009 and 2010. Over FY08-11, the bank grew its branch network 2.2x by adding 746 branches; of these 516 branches were opened in new centers thereby widening distribution. A bulk of the addition was in semi urban areas which have higher savings concentration. In the past two years, bank has opened 3.8mn savings account.