In this research report, we will look at Axis Bank Share Price Target after looking into its business, its results and its future growth prospect. We will understand what Axis Bank’s Product are and then see what they are doing to grow in future.
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Company Overview:
Axis Bank is a private sector bank incorporated on December 03, 1993 promoted jointly by Unit Trust of India (now Administrator of Specified Undertaking of Unit Trust of India – SUUTI), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSU insurance companies.
Axis Bank has an experienced senior management team led by Mr. Amitabh Chaudhry who is appointed as the Managing Director and Chief Executive Officer w.e.f. January 01, 2019.
Axis Bank is third largest bank in the private sector banking space with total assets size of Rs.11,13,065.54 crore as on December 31, 2021.
As on December 31, 2021, the Bank had a network of 4,700 domestic branches and extension counters situated in 2,665 centers compared to 4,586 domestic branches and extension counters situated in 2,586 centers as at end of December 31, 2020.
In terms of ATMs and cash recyclers, as on December 31, 2021, the bank had 11,060 ATMs and 5,943 cash recyclers spread across the country.
Products & Services:
The Bank offers the entire spectrum of financial services to customer segments covering Large and Mid Corporates, MSME, Agriculture and Retail Businesses.
Subsidiaries:
As on 31 March, 2021, the Bank has the nine unlisted subsidiary companies and one step down subsidiary
Key Statistics:
Key Rationale:
Strong Market Position:
Axis Bank is amongst the top three private sector banks, with a market share of around 5.7% in advances and 4.6% in deposits as on Sep 30, 2021.
Advances recorded a compound annual growth rate (CAGR) of 13% over the five fiscals through 2021, mainly contributed by stronger growth in retail loans (19% CAGR).
Also, loan portfolio is well balanced with retail loans constituting 55% of loans, followed by corporate (35%) and small and medium enterprise (SME – 10%) loans, as on Dec 31,2021
Share of the retail portfolio has grown sharply to 55% as on Dec 31, 2021, from 27% as on Mar 31, 2013. Further, around 67% of the retail loans are now being sourced by existing customers; which should support healthy growth rates.
The bank has also retained its strong position in the debt syndication business, which continues to support expansion in fee income.
With healthy capitalization, well spread-out branch network, diverse product offerings, and a strong digital footprint, market share is expected to improve over the medium term.
Citibank Acquisition:
Axis Bank has announced the acquisition of the consumer assets of Citibank as well as that of its NBFC subsidiary, Citicorp Finance.
The portfolio includes a lucrative 2.6mn credit cards franchise, other loan book of Rs.185 bn (mortgages, PL etc.), deposit base of Rs.502 bn and wealth management business with AUM>Rs.1trn.
The deal consideration is ~US$ 1.6bn, along with anticipated integration-related expenses of Rs.15bn and is expected to be consummated by Q4FY23.
The acquisition will strengthen Axis Bank’s market position and provide an opportunity to accelerate retail business growth in a value accretive manner.
Citibank’s customers will continue to avail all the rewards, privileges and offers to which they were previously entitled.
Q3FY22 Financial Results:
The Bank’s operating profit for the quarter grew 17% YOY and 4% QOQ to Rs.6,162 crs. Net profit grew 224% from Rs.1,117 crs in Q3FY21 to Rs.3,614 crs in Q3FY22.
The Bank’s Net Interest Income (NII) grew 17% YOY and 10% QOQ to Rs.8,653 crores. Net interest margin (NIM) for Q3FY22 improved by 14 bps QOQ to 3.53%.
The Bank’s balance sheet grew 20% YOY and stood at Rs.11,13,066 crs as on 31st Dec 2021.
The total deposits grew by 22% YOY on quarterly average balance (QAB) basis and 20% YOY on period end basis.
Strong Capital Structure:
Capitalization is strong, with sizeable net worth of Rs.1,10,746 crore as on Dec 31, 2021 (Rs.1,01,603 crore as on Mar 31, 2021).
Tier-I CAR and overall CAR were comfortable at 16.46% and 18.72%, respectively, as on same period (16.47% and 19.12%, respectively, as on Mar 31, 2021).
Capitalization is also supported by the bank’s demonstrated ability to raise equity. The bank had raised Rs.10,000 crore in fiscal 2021 through a QIP and had raised Rs.12,500 crore in fiscal 2020.
Healthy net worth also cushions credit growth and helps maintain adequate cover against net NPAs.
Industry Analysis:
The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks in addition to cooperative credit institutions.
As of Sep 2021, the total number of ATMs in India reached 213,145. In FY18 FY21, bank assets across sectors increased. Total assets across the banking sector (including public and private sector banks) increased to US$ 2.48 trillion in FY21.
In FY21, total assets in the public and private banking sectors were US$ 1,602.65 billion and US$ 878.56 billion, respectively.
During FY16-FY21, bank credit increased at a CAGR of 0.29%. As of FY21, total credit extended surged to US$ 1,487.60 billion.
During FY16 FY21, deposits grew at a CAGR of 12.38% and reached US$ 2.06 trillion by FY21. India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1 trillion by FY23 driven by the five-fold increase in the digital disbursements.
By 2025, India’s fintech market is expected to reach Rs. 6.2 trillion (US$ 83.48 billion).
Growth Drivers:
In November 2021, RBI launched the ‘RBI Retail Direct Scheme’ for retail investors to increase retail participation in government securities.
Finance Minister Nirmala Sitharaman announced that the Reserve Bank of India will use block-chain and other technology to bring out a digital currency in the coming financial year 2022-23.
Enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to provide further impetus to growth in the banking sector.
Outlook:
Q3FY22 marks the manifestation of sequentially lower provisioning expenses (Rs.13bn v/s Rs.17bn in the previous quarter) and 15% sequential increase in net profit at Rs.39bn.
The bank’s reported slippages number were lower (Rs.41bn v/s 54bn in 2QFY22) as GNPA and NNPA ratio narrowed down to 3.17% and 0.91% respectively against of 3.53% and 1.08% in the previous quarter. This has also shown in Axis Bank Share Target Price.
The bank’s PCR stood sequentially flat at 89%. Moreover, credit off-take (14% YoY) reached pre-Covid growth rate, led by growth across segments.
Furthermore, the BB & below book came down sequentially by 10bps to 0.88% of customer assets and reported slightly higher restructured advances of Rs.46.4bn (63bps of gross loan book).
On business front, credit growth (14% YoY & 7% QoQ) and healthy deposit growth (18% YoY & 5% QoQ) were superior against previous quarter.
The future outlook of asset quality is at manageable level as the strong standard asset coverage (2.1% of gross loans) is likely to absorb delinquencies from restructuring.
Valuation:
AXIS Bank delivered a strong operating performance, led by robust loan growth, higher margin and controlled provisions.
Asset quality improved sharply, aided by controlled slippages and higher recoveries and upgrades.
We expect slippages to remain in control, enabling a sustained improvement in credit costs. The stock currently trades at 1.9x of FY24E ABV per share.
We recommend a BUY rating in the stock with the Axis Bank Share target price (TP) of Rs.910, 2.1x FY24E ABV per share.
Risks Involved:
- Asset Quality Risk – A higher-than-expected deterioration in the asset quality could result in the erosion of the Tier I capital. Fresh formation of bad loans could keep provisioning high and return ratios compressed for a longer time.
- Pandemic Risk – Impact of third wave could lead to delayed recoveries which in turn affects profitability and pause growth momentum.
- Interest rate Risk – The rise in interest rates may impact the loan growth the bank has high retail facing loan book and high interest rates negatively impacts the demand.
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