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Axis Bank Ltd>
  • CMP : 1,096.7 Chg : -2.55 (-0.23%)
  • Target : 1,100.0 (28.65%)
  • Target Period : 12-18 Month

02 May 2023

Strong growth outlook; valuations reasonable for re-rating

About The Stock

Axis Bank is the third largest private sector bank in India with a balance sheet size of ₹ 13.17 lakh crore as on March 2023. The bank has acquired Citi consumer banking portfolio effective March 2023 for ₹ 11600 crore wherein ~₹ 27000 crore of retail assets and ₹ 40000 crore of liabilities have come on Axis Bank’s books. Accordingly, exceptional provision of ₹ 12489 crore made in Q4FY23 P&L account.

  • Retail and SME comprise ~67% of total loans

Mixed quarter.

  • Credit growth came in at 19.4% YoY (ex-Citi 16% YoY) at ₹ 8.45 lakh crore. Retail book was up 22% YoY. The bank saw strong 10% QoQ (ex-Citi 7% QoQ) growth in deposits
  • NII up 33% YoY, 2.5% QoQ, NIMs declined 4 bps QoQ to 4.22%, domestic NIM at 4.35%
  • Lower provisions at ₹ 306 crore led to PAT growth of 61% YoY. Exceptional item of ₹ 12489 crore led to loss of ₹ 5728 crore
  • Asset quality has improved as GNPA, NNPA ratio declined 48 bps, 12 bps QoQ to 2.02% and 0.39%, respectively
What should Investors do?

Axis Bank’s stock rallied just ~10% in the last one year. With strong growth coupled with guidance of 4-6% above industry and stable margins, we believe earnings growth should remain robust at 20% CAGR over the next two years. RoA to sustain around 1.9-2% and strong capital position offer comfort on valuations as at 1.5x FY25E ABV.

  • We retain our BUY rating on the stock
Target Price and Valuation

Maintain target price of ₹ 1100 at ~2.0x FY25E ABV

Key Triggers for future price performance
  • Credit growth guidance of >-6% compared to industry growth and improving asset mix including Citi, to lead to high yielding book and aid margins trajectory
  • Healthy PCR at 81%, improving asset quality and target of ~2% cost to asset ratio provide comfort on earnings volatility
  • Capitalisation levels still strong post acquisition of Citi assets with CAR at 17.64% and CET 1 ratio of 14.02%
Alternate Stock

Apart from Axis, in our coverage we also like Kotak Bank.

  • Kotak Mahindra Bank is a powerful banking franchise with strong promoter led management. It has a presence across financial services value chain
  • BUY with a target price of ₹ 2175

Key Financial Summary

Particulars FY20 FY21 FY22 FY23 3 Year CAGR(FY20-FY23) FY24E FY25E 2 Year CAGR (FY23-FY25E)
NII 25,206.2 29,239.1 33,132.2 42,944.0 19.4 51,038.4 61,075.7 19.3
PPP 23,438.1 25,702.2 24,742.0 32,046.9 11.0 40,992.6 49,976.7 24.9
PAT 1,627.2 6,588.5 13,025.5 9,579.1 80.6 27,339.2 32,643.2 84.6
ABV (|) 267.9 308.8 347.8 384.8 - 498.8 587.6 -
P/E 149.1 40.0 20.3 27.6 - 9.7 8.1 -
P/ABV 3.2 2.8 2.5 2.2 - 1.7 1.5 -
RoA 0.2 0.7 1.2 0.8 - 1.9 2.0 -
RoE 2.1 7.1 12.0 8.0 - 19.1 18.4 -
Source: Company, ICICI Direct Research

Variance Table

  Q4FY23 Q4FY23E Q4FY22 YoY (%) Q3FY23 QoQ (%) Comments
NII 11,742 11,748 8,819 33.1 11,459 2.5 Driven by strong momentum in retail & wholsesale banking
NIM (%) 4.22 4.37 3.49 73 bps 4.26 -4 bps NIM contacted 4bps QoQ led by higher cof. 
Other Income 4,895 4,545 4,223 15.9 4,665 4.9 Retail fee income up 31% YoY and 14% QoQ
Net Total Income 16,637 16,294 13,042 27.6 16,125 3.2  
Staff cost 2,164 2,415 1,887 14.7 2,281 -5.1 Increase in staff cost led by addition of 3200 employees post Citibank India Consumer Business acquisition
Other Operating Expenses 5,306 5,206 4,690 13.1 4,566 16.2  
PPP 9,168 8,673 6,466 41.8 9,277 -1.2  
Provision 306 2,056 987 -69.0 1,438 -78.7 Credit cost (annualized) at 0.22% declined 10 bps YoY and 43 bps QoQ
Exception items 12489            
PBT -3,627 6,618 5,479 -166.2 7,840 -146.3  
Tax Outgo 2,100 498 1,361 54.3 1,987 5.7  
PAT -5,728 6,119 4,118 -239.1 5,853 -197.9 Loss due to one-time impact on P&L of ₹12489 which included amortization of goodwill/ intangibles. Else PAT growth is 61% YoY at |6625 crore
Key Metrics              
GNPA 18,604 19,204 21,822 -14.7 19,961 -6.8 GNPA at 2.02% declined by 80 bps YoY & 36 bps QoQ, net slippage ratio at
NNPA 3,559 3,032 5,512 -35.4 3,830 -7.1  
Credit 8,45,303 8,22,280 7,07,947 19.4 7,62,075 10.9 Retail loans grew 22% YoY and 14% QoQ and accounted for 58% of the total net advances 
Deposit 9,46,945 9,13,754 8,21,721 15.2 8,48,173 11.6 CASA grew 21% YoY and 18% QoQ, CASA ratio at 47%, up 215 bps YoY and 261 bps QoQ


Q4FY23 Earnings Conference Call highlights

  • Guidance – Credit growth of >4-6% of industry growth. Deposit growth to be at ~15%. Combination of opening new branches (up to 500 branches in FY24), mobile banking, business correspondents will aid deposits traction. Cost to assets to be ~2%
  • The acquisition includes March 2023 (one month) P&L in Axis Bank reported numbers
  • One off impact on P&L was | 12489 crore including amortisation of goodwill of | 11949 crore
  • All one-time expenses have been charged in Q4FY23. Now, only | 1500 crore integration cost is remaining, which will be incurred over the next 18 months
  • There was a 6 bps impact on NIMs due to 13% higher average LCR maintained during the quarter. Excess LCR is likely to get normalised in the next two to three quarters
  • NIMs include interest on income tax refund of | 85 crore (~3 bps)
  • Deposit quality (lendable deposits) has improved with outflow rates lower by 550 bps on a YoY basis
  • The acquisition of Citi portfolio has resulted in ~870 bps YoY increase in share of premium segment in Retail SA deposits
  • Have cushion of ~40 bps over guided NIMs and aim will be to retain as much as possible of this cushion
  • Total 42% of fixed rate book is likely to mature in the next 12 months
  • SME book – Growth continues to be strong in the last 12-14 months. This book is linked to repo rate so rates are passed on immediately
  • Corporate book – Demand strong across multiple segments (iron, roads, infra, NBFCs, etc). Seeing strong uptick in private capex
  • Axis Finance’s (LAP, business loans, etc) focus on growing retail book continue




I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA and Pravin Mule, MBA, M.com. Research Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.     


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