"The management of the bank is still cautious in its growth strategy over the next couple of quarters at least. Asset quality should remain under control and we believe that despite having reasonable exposure to the infrastructure segment the bank has done well in keeping its stressed assets pool at 3.6%. As the investment cycle and money flow within the economy improves, the bank can see a reasonable amount of deflation in its stressed assets pool. However, this is unlikely to be immediate and can take some time to pan out. The bank in our view can be a significant beneficiary of softening of bulk deposit rates as bulk deposit forms 22% of total domestic deposits and the bank is not averse to raising this proportion moderately if it is beneficial and warranted."
"The bank continues to maintain its balance sheet growth targets and believes that it would take some time before the high growth phase is resumed at the bank. An improvement in loan growth is expected mostly towards the end of FY15. We expect that the bank's overall loan book to grow at CAGR of 21% during FY14-16E."
"The bank expects the traction in retail and SME loans to continue and to grow at faster than overall loan growth. The bank's proportion of retail loans had over the past 2 years shown a significant improvement forming 32% of loan book in March 2014 from 22% in March 2012. Going forward the growth in retail portfolio would be driven by both; increasing the branches offering retail products as well as introducing newer retail product offerings. While 71% of its branches offer retail products, all branches do not offer the entire product suit and there is a scope of expanding the portfolio from the current branches itself. Over the next couple of years the proportion of SME and retail loans will continue to form the major pie of the entire loan book."
"While the bank has been able to maintain its average CASA since the past 12 quarters now, improvement in productivity at the new branches and the existing branches which are in the high CASA catchment areas will continue to drive the CASA growth. The management also plans to increase the salary account additions. Branch network is expected to reach 2650 + by March 2015 as the bank plans to add another 250 branches this year."
"The bank has always been conservative in guiding its core NIM trajectory which it places at 3.5%+. In our view the banks reported NIM for FY15 is likely to remain stable YoY at around 3.8% and any pressure is likely to be marginal and temporary."
"Asset quality is likely to remain stable and the stressed assets accretion is likely to plateau before its starts to trend down expectedly towards the end of FY15. While the new government is expected to improve the investment cycle, it could take some time for the improvement to reflect on the ground. Some companies which were in need of capital would be able to raise equity as the conditions improve, and the resultant improvement in the stressed assets at the bank can become noticeable after some lag."
"As at March 2014, 47% of the bank's exposure to the power generation sector comprised of operational projects. While there have been cases of extension of Commissioning Dates for some projects, the management expects almost 65% of the power sector exposure to comprise of operating assets by March 2015. The bank does not foresee any major asset quality stress in this portfolio. We believe that as the proportion of operating assets moves towards higher levels, the comfort level shall rise giving support to the valuations."
Valuation: "Current valuations of 2.1x FY15E ABVPS forecasts still provides reasonable room for further upsides as the bank is well placed to capitalize on the change in the economic cycle. We maintain our preference for Axis Bank in our top picks with a target price of Rs 2264 based on PABR of 2.5x on FY15 ABVPS forecasts", says Dolat Capital research report.
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