Banks and NBFCs, Trending in the Economy

Axis Bank – A Turnaround Stock Story

Among the top three private sector banks, with a market share of around 5.7% in advances and 4.7% in deposits.

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(A) About

Axis Bank - Logo

Axis Bank is the third largest private sector bank in India. The Bank offers the entire spectrum of financial services to customer segments covering Large and Mid-Corporates, MSME, Agriculture and also Retail Businesses. Formerly known as UTI Bank (1993-2007). Moreover, is now the third-largest private sector bank in India.

It was jointly promoted by the administrator of Specified Unit Trust of India Undertaking, Life Insurance Corporation of India Ltd, General Insurance Corporation Ltd, and also four public sector undertakings (National Insurance Company Ltd, The New India Assurance Company Ltd, The Oriental Insurance Company Ltd, and United Insurance Company Ltd).

Moreover, currently it as a branch network of 4,849 branches with 16900+ ATMs & Cash Machines, and an employee base of 87,575 employees.

The Turnaround

On January 2019 Amitabh Chaudhry joined Axis Bank, who was working with HDFC Life. He was known as a turnaround expert as his appointment was very positive for the bank at that time, given his diverse experience and technology/innovation leadership in HDFC Life. Over the years the bank has improved its balance sheet significantly, its NNPA have improved from 3.8% in FY18 to 0.8% in FY22, meanwhile its ROA have improved from 0.07% to 1.3% in FY22.

(B) Journey of Axis Bank

(C) Shareholding Pattern

Axis Bank - Shareholding Pattern
Axis Bank - Shareholding

(D) Board of Directors

(E) Business Verticals

Axis Bank - Business Verticals

(i) Retail Banking

Bank offers omni-channel banking services to our urban, semi-urban and rural consumers with an expansive range of products and services in loans, payments, services, insurance and also in investments.

Axis Bank stock research- Retail loans Book

Therefore, Others Segments comprise of supply chain finance loans, education loans, gold loans etc.

(ii) Commercial & Wholesale Banking

It provides services to leading corporates and MSMEs with a range of products and also services including loans, deposits, trade finance, foreign exchange and derivatives.

Bank has added close to 1100 new credit relationships in the corporate segment during the year, up by nearly 40%.

(iii) One Axis

It provides various services under One Axis vertical.

(a) Axis Capital Ltd

Axis Capital is one of India's leading financial experts providing customize solutions in the area of investment banking and also in institutional equities. Further, provide Services ln Treasury, Capital market & Investment Banking.

  • Debt Capital Market (DCM)
  • Equity Capital Market (ECM)
  • M&A & Advisory
  • Forex & Derivatives Solutions

(b) Axis Finance Ltd

Through which Axis Finance it provide wholesale & lending solutions to corporate and retail consumers across geographies and businesses. Moreover, its AUM as of Dec,22 is Rs 20,257 Cr.

(c) Axis Asset Management Company Ltd

Axis Asset Management Company Ltd provides risk managed investment solutions to both retail and institutional investors. Moreover, its avg. AUM for Q3FY23 stood at Rs 2,48,220 Cr.

(d) Axis Securities Ltd

Axis Securities is an end-to-end broker, focused on building an advisory model to acquire consumers. Moreover, as of Dec,22 its total customer base is 4.73Mn.

(e) Axis Trustee Service Ltd

It is register with the SEBI and has been successfully executing various trusteeship activities including debenture trustee, security trustee, security agent, lenders’ agent, trustee for securitization and also escrow agent, among others.

(f) Axis Trend Ltd

Its Invoice-mart a digital invoice discounting, trade receivables Discounting System (TReDS) platform, that empowers MSMEs by making working capital easily accessible, while also tacking delayed payments.

Moreover, it works for MSMEs across 580+ cities and 2500+ pin codes in India, enabling bill discounting from financiers including Banks and NBFC factors over the app.

(g) Freecharge Payment Technologies Pvt. Ltd

Freecharge has launched multiple new age products targeted towards digitally native consumers and also towards merchants. It evolve into a complete digital financial services platform, covering all aspects like Saving, Lending, Investments, Payments and also insurance.

(F) Segment Revenue

Axis Bank - Segment Revenue

(G) Market Share

Axis Bank - Market Share in Credit Cards

Meanwhile, after the acquisition of Citibank, Axis Bank's market share will increase to 14.6%.

Axis Bank stock update- Market share

Moreover, bank has 5.4% market share in its assets business, 4.8% in deposits, 5.7% advances, 17% in UPI payments, 15% in mobile banking and ~12% in credit card segment.

(H) Operational Parameters

Know the key Operational Parameters of Axis Bank Ltd:

(I) Cost Structure

Axis Bank - Cost Structure

(J) Financials

Axis Bank - Financial Trend

Its sales grew at a CAGR of 9.73% while PAT grew at a CAGR of 10.47% in the last 10 years. However its ROE improve significantly from 7.22% in FY17 to 12.78% in FY22 and ROA improve from 0.69% in FY17 to 1.29% in FY22.

(K) Management Discussion & Concall

(i) Loans and Deposits

  • The quarter's credit growth was 14.6% YoY, lower than the previous quarter's YoY growth, although the loan book nonetheless expanded sequentially by 4.3% to reach 7.6 lakh crore.
  • SME and Retail loan growth was higher than total growth at 23.7% YoY and 17% YoY, respectively.
  • 79% of retail loans are secured in nature while 100% of personal loans are to the salaried segment
  • Rural loans climbed by 27% YoY, and the credit card segment increased by 39% YoY within the retail book.
  • On a sequential basis, the proportion of retail term deposits decreased to 34.2% from 35.5% of all deposits.

(ii) Asset Quality & Capital Adequacy

  • The bank's overall asset quality increased as the GNPA and NNPA ratios decreased sequentially by 12 bps and 4 bps to 2.38% and 0.47%, respectively.
  • The bank's overall asset quality increased as the GNPA and NNPA ratios decreased sequentially by 12 bps and 4 bps to 2.38% and 0.47%, respectively.
  • 96% of the retail restructured book is secured, while the bank has 23% of the whole restructured book in provisions.
  • Restructured book also improved from 0.38% of total gross customer assets to 0.3% QoQ.
  • 45% of the fixed rate book would mature in the next 12 months.

(iii) Citibank consumer business

  • Axis Bank expects to complete the acquisition of Citi India's consumer operations by Mar 1.
  • The acquisition comprises of Citi’s credit cards, unsecured and secured lending portfolios, wealth management, private banking and retail deposit businesses.

(iv) Future Outlook

  • Loan growth for FY23 is expected to be around the industry level. Post FY23, bank aims to grow loans by 500-600bps higher than the industry level.
  • Bank aims to bring down the cost to asset ratio to 2% in the medium term.

(K) Strengths & Weakness

Strengths

(i) Healthy resource profile

Capitalization is strong, with sizeable net-worth, tier-I capital adequacy ratio (CAR) and overall CAR were comfortable at 15.75% and 17.72%, respectively, as on same date (17.54% and 20.04%, respectively, as on September 30, 2021). Capitalization is also supported by the bank's demonstrated ability to raise equity. Healthy net-worth also cushions credit growth and helps maintain adequate cover against net non-performing assets (NPAs).

(ii) Healthy resource profile

Axis bank has a strong focus on increasing the CASA share and has also been ramping up their branch network to effectively target the retail customer base. With a network of 4,760 branches (domestic, including extension counters) as on September 30, 2022 and also a strong digital footprint. Moreover the bank is expected to sustain a healthy resource profile over the medium term.

(iii) Strong market position

Axis Bank is also amongst the top three private sector banks, with a market share of around 5.7% and 4.7% in advances and deposits, respectively. Moreover, its advances recorded a compound annual growth rate (CAGR) of ~10% over the five fiscals through 2022, mainly contributed by stronger growth in retail loans (~14% CAGR).

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, however market share is expected to improve over the medium term.

Weaknesses

(i) Average asset quality

The bank's overall asset quality remains average, although it is on improving trend over the last few quarters and stood at 2.50% as on September 30, 2022. The improving trend is driven by controlled slippages coupled with higher upgradation and recoveries. However, over the near-to-medium term, the asset quality will remain monitorable.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry Publications.

Disclaimer: The report only represents the personal opinions and views of the author. No part of the report should be considered a recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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