25 June 2019
Annual Report Update | Sector: Financials
TP: INR925 (+18%)
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Strategy + Team in place; execution remains the key
Operating metrics to improve gradually; estimate FY21 RoA at ~1.4%
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
2047.6 / 29.5
827 / 499
Axis Bank’s (AXSB) annual report analysis reveals the bank’s focus on improving its
earnings metrics and asset quality. As part of its FY20-22 strategy, AXSB targets an
RoE of 18% by FY22, with credit cost, opex and business mix identified as the key
drivers for the achievement of this goal.
Digital initiatives at the bank are gaining traction, with 43% of its personal loans
sourced digitally versus 22% in FY18. Also, the bank’s market share in credit cards
expanded to 12.4% from 5% in FY13, helping it become the fourth largest credit card
issuer in the country.
The concentration in top 20 advances/exposures improved by 171bp/86bp YoY to
8.6%/12.4% in FY19. However, on the liability side, the concentration of top-20
depositors increased by 39bp YoY to 11.8%. The bank has shifted its deposit strategy
away from CASA to ‘CASA + retail term deposits’.
Though the bank has strong management team and a well-articulated strategy in
place the execution is going to be critical to deliver long-term sustainable growth and
earnings. NPL cycle has shown improvement signs and we estimate earnings to
recover though credit cost trajectory can still remain uneven given sluggish macro.
We thus estimate RoA/RoE to improve to 1.4%/17.0% by FY21 and maintain our Buy
rating with a TP of INR925 (2.7x FY21E ABV + INR42 for subsidiaries).
Financials Snapshot (INR b)
FY19 FY20E FY21E
EPS Gr. (%)
Retail franchise strengthens; deposit strategy focused on ‘CASA + retail TD’
The contribution of retail book has increased to 50% from 32% in FY14, even as the
bank has consciously lowered the share of housing loans in its retail mix to 47%
from 55% in FY15. The proportion of higher-yielding retail loans – comprising
mainly personal loans, credit cards and small business banking (SBB) – has
increased from 9% in FY13 to 20%. On the liability side, the share of CASA and
retail term deposits has been largely stable at ~81% though bank has guided for a
change in deposit strategy, with focus shifting from CASA to ‘CASA + Retail TD.’
Business productivity improving; aggressive focus on increasing branch count
AXSB’s business per branch improved from INR2.4b in FY18 to INR2.6b in FY19,
while business per employee improved from INR150m to INR168m over the same
period. However while the focus on increasing branch count stays high the bank
has relatively lower deposit productivity (SA per branch) when compared to other
private peers. Notably, AXSB’s management has guided for a further rise in the
number of branches to 5,000 from 4,050 currently.
Shareholding pattern (%)
Mar-19 Dec-18 Mar-18
FII Includes depository receipts
Fee income getting granular; credit card segment forms ~23% of total fees
Retail and transaction banking fees now form ~81% of total fees (77% 5years ago),
signifying the increasing granularity of fee income. This is primarily driven by cards
and third-party distribution fees, which together constitute 36% of total fees. The
credit card business is showing a robust performance, with its market share up by
~1.8x over the last five years. The efficient use of data analytics, along with higher
digital transaction volumes, has led to increased volumes for several retail
segments, which, in turn, is helping build good traction in retail fees.
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
(Parth.Gutka@motilaloswal.com); +91 22 6129 1567
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.