Axis Bank

Result Update

CMP: Rs 1355.20
April 27, 2011

The Bank has posted a net profit of Rs 1020.11 crs for the quarter ended March 31, 2011 as compared to Rs 764.87 crs for the quarter ended March 31, 2010. The banks performance in the quarter was driven by traction in fee income, sequential decline in slippages leading to lower provisions and strong loan growth. For FY11, the bank reported a net profit of Rs 3388.49 crs as against Rs 2514.33 crs in FY10. The net interest income of the bank stood at Rs 6562.99 crs as against Rs 5004.29 crs in FY10. For FY11, the bank reported net profit of Rs 3388.49 crs as against Rs 2514.33 crs in FY10. Total Income has increased from Rs 3921.99 crs for the quarter ended March 31, 2010 to Rs 5817.06 crs for the quarter ended March 31, 2011. For FY11, the total income of the bank stood at Rs 19786.94 crs as against Rs 15583.60 crs in FY10.

Financials
Particulars Interest Earned Interest/Discount on Advances/Bills Interest on Investment Interest on bal. with RBI & other inter bank funds Other Interest INTEREST EARNED Other Income Total Income Operating Expenses Payments to / Provisions for employees Other operating expenses Interest TOTAL OPERATING EXPENSES Net Interest Income Operating Profit Before Prov. & Cont. Provisions & Contingencies PBT Provision for Taxes Net Profit EPS (Rs.) Equity Face Value PATM(%) Capital Adequacy Ratio % Gross Non Performing Assets Net Non Performing Assets (%) Gross Non Performing Assets (%) Net Non Performing Assets ROA % Q4FY11 3062.64 1213.06 63.59 27.37 4366.66 1450.40 5817.06 396.02 934.57 2665.66 3996.25 1701.00 1820.81 254.39 1566.42 546.31 1020.11 24.85 410.55 10.00 23.36 12.65 1599.42 410.35 1.01 0.26 1.81 Q4FY10 2074.97 856.01 27.20 30.27 2988.45 933.54 3921.99 333.75 676.05 1528.38 2538.18 1460.07 1383.81 201.87 1181.94 417.07 764.87 18.88 405.17 10.00 25.59 15.80 1318.00 419.00 1.13 0.36 1.85 % Chg 47.60 41.71 133.79 -9.58 46.12 55.37 48.32 18.66 38.24 74.41 57.45 16.50 31.58 26.02 32.53 30.99 33.37 31.62 1.33 0.00 -8.72 -19.94 21.35 -2.06 -10.62 -27.78 -2.16 Q3FY11 2600.55 1166.83 48.18 22.75 3838.31 1147.71 4986.02 396.16 826.19 2105.19 3327.54 1733.12 1658.48 313.88 1344.60 453.24 891.36 21.75 409.90 10.00 23.22 12.46 1482.89 385.54 1.09 0.29 1.75 % Chg FY11 FY10 % Chg 30.26 29.47 52.18 26.46 30.22 17.39 26.97 28.51 29.00 29.52 29.28 31.15 22.43 -7.86 33.35 30.70 34.77 33.00 1.33 0.00 3.49 -19.94 21.35 -2.06 -10.62 -27.78 0.60

17.77 10403.11 7986.40 3.96 4438.69 3428.31 31.98 182.62 120.00 20.31 130.39 103.11 13.77 15154.81 11637.82 26.37 4632.13 3945.78 16.67 19786.94 15583.60 -0.04 1613.90 1255.82 13.12 3165.53 2453.90 26.62 8591.82 6633.53 20.10 13371.25 10343.25 -1.85 6562.99 5004.29 9.79 6415.69 5240.35 -18.95 1280.03 1389.19 16.50 5135.66 3851.16 20.53 1747.17 1336.83 14.44 3388.49 2514.33 14.26 82.54 62.06 0.16 410.55 405.17 0.00 10.00 10.00 0.60 22.36 21.60 1.52 12.65 15.80 7.86 1599.42 1318.00 6.44 410.35 419.00 -7.34 1.01 1.13 -10.34 0.26 0.36 3.43 1.68 1.67

Some of the key highlights of the results are as follows:

The CASA ratio of Axis Bank fell on q-o-q basis in Q4FY11 even as demand deposits grew by 23% y-o-y to Rs 77767 crores during Q4FY11 from Rs 66030 crores during Q4FY10. Demand Deposits on a daily average basis grew by 33% y-o-y to Rs 59,551 crores for FY11 from Rs 44,839 crores during FY10, with Savings Bank deposits growing by 36% y-o-y. Savings deposits growth in Mar11, at 20% y-o-y, was the lowest in the past three years, which led to its proportion falling to 21.6%. High accretion of term deposits to fund the 15% q-o-q loan growth during the quarter (highest sequential growth in the past 12 quarters) impacted the cost of funds. The CASA ratio for Q4FY11 stood at 41.09% against 47% in Q4FY10 and 42% in Q3FY11. This CASA ratio in a Q4 of a year is the lowest in 3 years. This drop despite the increase in demand deposits was mainly due to a bigger jump in the term deposits, which was up 48% y-o-y in Q4FY11. The number of Savings Bank accounts grew from 81.22 lakhs as on 31st March 2010 to 93.94 lakhs as on 31st March 2011 The Bank opened 270 new branches and 967 new ATMs in Q4FY11. Cash Management clients went up marginally on a y-o-y basis in Q4FY11 to 8465 from 6614 in Q4FY10. The Current Account deposits increased 14.76% y-o-y. The increase in the number of branches and increase in current account/CMS account base will enable the bank to maintain CASA at high levels going forward. Axis Bank continued to extend its presence across the country and at the end of Q4FY11, had a network of 1390 domestic branches and extension counters, and 6270 ATMs situated in 921 cities and towns. In FY11 the daily average balances of Savings Bank deposits grew 36% y -o-y and those of Current Account deposits grew 28% y -o-y. Demand deposits on a daily average basis constituted 39.40% of total deposits during FY11 compared to 40.39% observed during FY10. The Bank posted a NIM of 3.65%

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during FY11 compared to 3.75% during FY10. During Q4FY11, the Bank posted a NIM of 3.44% compared to 3.81% during Q3 FY11. Cost of funds rose sequentially to 5.56% vs. 4.79% in Dec 2010 quarter. Demand deposits on a daily average basis constituted 37.48% of total deposits during Q4FY11 compared to 41.29% in Q3 FY11. The Banks advances grew 36.48% y-o-y, from Rs 1,04,341 crores as on 31st March 2010 to Rs 1,42,408 crores as on 31st March 2011, while investments rose to Rs 71,992 crores from Rs 55,975 crores, over the same period, growing 29% y-o-y. The NII rose to Rs 6,563 crores during FY11 from Rs 5,004 crores during FY10, a growth of 31% y-o-y. During Q4FY11, the NII was Rs 1,701 crores registering a growth of 17% over Q4FY10 and compared to Rs. 1733.12 crs in Q3FY11.
CASA%

NIM% 4.2

49.00

4
47.00 45.00 43.00 41.00

3.8 3.6 3.4

39.00 37.00 35.00 Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

3.2 3 Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 2

Net NPAs, as a proportion of net customer assets, were 0.26% as on 31st March 2011 compared to 0.36% as on 31st March 2010 and 0.29% as on Dec 31, 2010. This is the lowest Net NPA% for the bank in the past many quarters. Gross NPAs as a proportion of gross customer assets stood at 1.01% as on 31st March 2011, compared to 1.13% as on 31st March 2010 and 1.09% as on 31st December 2010. The Bank had provision coverage of 80.90% as on 31st March 2011 (as proportion of Gross NPAs together with prudential write-offs). The provision coverage (as a proportion of Gross NPAs) before accumulated write-offs was 91.09%. During the quarter, the Bank added Rs 248 crores to Gross NPAs. Recoveries and upgradations of Rs 122 crores and write -offs of Rs 10 crores during the quarter resulted in a closing position of Rs 1,599 crores of Gross NPAs on 31st March 2011, higher than the position at the end of March 2010 by Rs 281 crores. The Bank restructured loans aggregating Rs. 108 crores during Q4FY11. The cumulative value of assets restructured till 31st March 2011, stood at Rs. 1930 crores (1.22% of gross customer assets). 84% of these loans amounting to Rs 1,629 crores were restructured prior to FY11 and were more than a year old. Segment Wise Break Up of Restructured Loans % Of Restructured Loans (Mar Segment 11 vs. Dec 10) Large and 75% vs. 73% Mid Corporate Credit SME 15% vs. 15% Agri 7% vs. 9% Capital Markets 3% vs. 3% Sector Wise Break Up of Restructured Loans % Of Sector Restructured Loans Textiles 23% Shipping 23% Iron & Steel 7% Sugar 7% Others 40%

The value of the Banks investment portfolio as on 31st March 2011 was Rs 71,992 crores, of which, Rs 44,155 crores was in government securities, while Rs 27,837 crores was in other investments, including corporate bonds, equities, preference shares, mutual funds etc. 89% of the government securities have been classified in the HTM category while over 99% of the Bonds & Debentures portfolio has been classified in the HFT and AFS categories. The distribution of the investment portfolio in the three categories as well as the modified duration as on 31st March 2011 in each category was as follows: Category HFT AFS HTM Percentage (Mar11 vs. Dec 10) 4.81% vs. 3.29% 34.71% vs. 36.59% 60.48% vs. 60.12% Duration* Mar 11) 2.3 Years 3.0 Years 5.3 Years Duration* (Dec 10) 1.9 Years 3.3 Years 5.4 Years Duration* (Sept 10) 4.7 Years 3.6 Years 5.3 Years

*excluding mutual funds and equity investments

The Bank has six international offices - branches at Singapore, Hong Kong and Dubai (at the DIFC) and representative offices at Shanghai, Dubai and Abu Dhabi - with focus on corporate lending, trade finance, syndication, investment banking, risk management

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and liability businesses. The total assets u nder overseas operations amounted to US$ 4.99 billion as on 31st March 2011 growing by 61% y-o-y. Axis UK Limited was incorporated as a subsidiary on 7 th March 2011. The fee income of the bank this quarter rose to Rs 1231 crores from Rs 779 crores in the same quarter last year. It also rose sequentially from Rs 967 crs in Q3FY11. The rise was mainly due to an increase in income from Large and mid corp credit from Rs 260 crs in Q4FY10 to Rs 438 crores in Q4FY11 and Treasury growth from Rs 143 crores in Q4FY10 to Rs 255 crores in Q4FY11. The Bank generated Rs 58 crores of trading profits during Q4FY11, as compared to Rs 103 crores during Q4FY10. The share of trading profits to operating revenue was 2% in Q4FY11, as compared to 4% in Q4FY10. The other income of the bank which includes trading income and miscellaneous income apart from the fee income, stood at Rs 1450 crs in Q4FY11 vs. Rs 933.54 crs in Q4FY10. Fee Income Split - Rs Crs Large & Mid Corp Credit Treasury Agri & SME Banking Business Banking Capital Markets Retail Banking Total

Q4FY11 438 255 100 107 19 312 1231

Q3FY11 352 162 58 95 15 285 967

Q2FY11 298 165 48 92 16 230 849

Q1FY11 228 158 37 94 20 205 742

Q4FY10 260 143 69 89 3 215 779

The total Credit to Deposit ratio of the bank grew on a y-o-y and fell on a sequential basis from 74.11% in Q4FY10 and 79.29% in Q3FY11 to 75.25% in Q4FY11. This is despite both advances and deposits growing during the quarter both on sequential and y-o-y basis. However faster growth in deposits compared to a dvances on a sequential basis led to the fall of CD ratio sequentially. Retail advances grew from Rs 20,821 crores as on 31st March 2010 to Rs 27,759 crores as on 31st March 2011, a growth of 33% y-o-y. Retail advances accounted for 19.49% of the total advances of the Bank as on 31st March 2011. During Q4FY11, agricultural advances de-grew 5% y-o-y and SME advances grew 23% y-o-y. Lending to Finance sector increased to 13.31% of advances in Q4FY11 vs. 12.72% in Q3FY11 while lending to Infrastructure sector reduced to 10.45% of the total advances in Q4FY11 as against 11.63% in Q3FY11. Lending to Telecom sector also fell to 4.2% in Q4FY11 as against 4.99% in Q3FY11. Housing Loans during the quarter constituted 68% of the total retail assets portfolio in Q4FY11 as against 67% in Q3FY11. Lending to the Metal and Metal Products stood at 8.5% and to Trade stood at 4.84% at the end of Q4FY11. The personal loans fell in the retail asset segment from 16% in Q3FY11 to 14% in Q4FY11, which could marginally minimize risk profile of advances. Advances - Split Large and Mid Corp SME Agri & Micro finance Retail Advances Total Q4FY11 75922 21406 17320 27759 142407 Q3FY11 70518 17053 10772 25204 123547 Q2FY11 63706 16812 9073 21001 110592 Q1FY11 60131 16818 10587 21073 108609 Q4FY10 52504 18269 12747 20821 104341

Loan growth was strong, at 36% y-o-y, ahead of that of peers; sequential loan growth was strongest in the past 12 quarters, at 15%. The Cost to Income ratio came down marginally from 42.43% in Q3FY11 to 42.22% in Q4FY11. Though there has been a slight decrease in the cost to income ratio during Q4FY11, the bank has been maintaining the CI ratio in the range of 40-44% over the last few quarters. One of the reasons why the cost to income ratio has remained in th is range is the consistent increase in the overall expenses of the bank, in line with income growth. Both the employee expenses and the other operating expenses increased during the quarter partly led by branch expansion. The Cost income ratio for FY11 stood at 42.69%.

Cost Income Ratio 46.00 44.00 42.00 40.00 38.00 36.00 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

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 The Bank's International Debit Card base has risen to 10 million debit cards as on 31st March 2011, compared to 8.6 million debit cards as on 31 st March 2010. The Bank had over 6.3 lakh credit cards in force and an installed base of over 1.8 lakh Electronic Data Capture (EDC) machines as on 31st March 2011. The Bank offers personal investment products including life insurance products, general insurance products, online trading accounts and mutual funds of leading manufacturers as also wealth advisory services and Mohur - gold coins and bars - through select branches The Capital Adequacy Ratio for the Bank was 12.65%, as on 31st March 2011, as compared to 15.80% as on 31st March 2010. The Tier-I capital was 9.41% as on 31st March 2011 as compared to 11.18% as on 31st March 2010. The Board of Directors of the Bank and its wholly owned subsidiary, Axis Securities & Sales Limited (ASSL), in their meetings held on the 17th November 2010, had approved a proposal to acquire certain demerged businesses of Enam Securities Private Limited. The proposed acquisition was subject to requisite approvals. In a letter dated 18th April 2011, the Reserve Bank of India (RBI) has conveyed an inprinciple approval. The RBI has also required the fulfillment of certain conditions, including a revised Page 5 of 8 scheme of accounting and the eventual structure for the business proposed to be acquired. Other terms of RBIs in-principle approval include the stipulation that no shareholder of Enam Securities Private Limited acquiring shares of Axis Bank under the Scheme of Arrangement would be eligible for being a Director on the Board of the Bank. The Bank is in the process of examining the implications of the conditions laid down by RBI a nd is reviewing the Scheme of Arrangement in order to proceed with the completion of the transaction.

Concerns
The asset quality of the bank improved by the end of FY11. There is a probability that the quality of assets could get hit in case of economic slowdown and there could be an increase in NPAs in the future quarters. The Cost to income ratio though improved in Q4FY11 needs to be brought down going forward. If the bank fails to bring down the cost income ratio, the operating margins of the bank could get affected. The CASA ratio of the bank fell marginally at the end of Q4FY11. Going forward if the bank is not able to generate growth in CASA, the margins of the bank could be negatively affected. Further, rising term deposits could bring NIMs under pressure going forward. The growth in the total advances and deposits have become slower since the last 2 -3 quarters as compared to previous quarters where the bank grew at a much faster pace in both its advances and deposits (Q4 however shows some resumption of growth in both). The bank's large share of wholesale funding could be exposed to tighter funding; Successful integration of demerged businesses of Enam with the bank may bring in some hiccups.

Conclusion
Axis Bank continues to be one of the fast growing private sector banks in India with a dynamic management team and robust growth prospects. The bank continues to perform well over the past few quarters. The asset quality of the bank has been decent, however the bank needs to work hard on its expenses management in order to expand its margins and also bring down its cost income ratio further. The Bank has shown first signs of stress in terms of CASA ratio and NIMs touching a multi quarter low. Over the past couple of quarters, the outlook on the banking sector has been partially negative. Increased competition and tight money market conditions could continue to put pressure on the NIMs of the bank going ahead as the tight liquidity could result in higher cost of funds and in turn affect the margins of the bank. The management of the bank had expected the NIMs to be in the range of 3.4% - 3.6% in the fourth quarter and has been successful in achieving their target. While Banks continue to be valued on the basis of P/BV, valuations get impacted on a sustainable basis if the BV (book value) or its growth is getting impacted due to slower profitability growth or higher provisioning/growing NPAs. Q4 results on the whole have been neutral for the Bank, with growth seen in advances/deposits but at the cost of CASA and NIMs. Further a large sequential jump in other income has come to the aid of the Bank in keeping the momentum of profitability growing. In our results update for Q3FY11 dated January 21 2010 we had said, the stock could trade in the range of Rs 1,161(2.2x FY12E Adj. BV) to Rs 1,425 (~2.7x FY12E Adj. BV) over the next quarter. The stock touched a high of Rs.1460.55 on April 08, 2011 and a low of Rs.1149 on February 09, 2011. We maintain our FY12 Estimates at the moment. We think that the stock could trade in the range of 1214 (2.4x FY12E Adj. BV) and Rs 1478 (2.8x FY12E Adj. BV) over the next quarter.

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Quick Estimates Particulars (Rs Crs) Net Interest Income % growth Total Income % growth PBT % growth PAT % growth EPS % growth Adj. Book Value % growth One-Year Forward P/ABV Chart

FY07 1468.47 0.00 5471.55 0.00 991.41 0.00 654.25 0.00 23.33 0.00 110.87 0.00

FY08 FY09 FY10 FY11E FY11A FY12E 2585.24 3680.19 5004.49 6709.55 6562.99 8185.65 76.05 42.35 35.98 34.07 31.14 22.00 8801.00 13745.04 15583.77 18999.04 19786.94 22133.88 60.85 56.18 13.38 21.92 26.97 16.50 1634.81 2782.72 3851.33 4854.17 5135.66 5994.90 64.90 70.22 38.40 26.04 33.35 23.50 1059.14 1812.93 2514.50 3203.75 3388.49 4016.58 61.89 71.17 38.70 27.41 34.76 25.37 31.80 50.54 62.06 78.16 82.54 97.99 36.31 58.93 22.79 25.94 32.99 25.37 238.19 275.38 385.66 445.90 452.83 527.70 114.84 15.61 40.05 15.62 17.42 18.34
Source: Capitaline, HDFC Sec Estimates

1500.00 1300.00 1100.00 900.00 700.00 500.00 300.00 Apr-07 Apr-08 Apr-09 Apr-10 Jan-08 Jan-09 Jan-10 Jan-11 3.0x Apr-11 Oct-07 Oct-08 Oct-09 Oct-10 Jul-07 Jul-08 Jul-09 Jul-10 2.8x

Close -Unit Curr

2.0x

2.3x

2.5x

Analyst: Tiju K Samuel (tiju.samuel@hdfcsec.com ) RETAIL RESEARCH Fax: (022) 3075 3435
Corporate Office: HDFC Securities Limited, I Think Techno Campus, Building B, Alpha, Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Fax: (022) 30753435 Website: www.hdfcsec.com Disclaimer: This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for Retail Clients only and not for any other category of clients, including, but not limited to, Institutional Clients

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