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Axis Bank – Divergent Views

April 24, 2008

The best quarter in FY08. Axis Bank reported Q4FY08 net profit of INR3.61bn, +71% y-o-y, and c30% above our estimate. Strong net interest income growth on the back of unabated credit offtake and robust fee income growth were the key drivers. The Bank continued to focus on the large & mid corporate and the SME segments for driving its loan growth, though retail also showed signs of picking up.

Axis Bank reported its Q4 and it is worthwhile to read two research reports – one published by HSBC and the other by Morgan Stanley. While the former is Overweight, the latter is Underweight. They have Zameen Aasman difference in their 12 months price targets 🙂

HSBC Outlook on Axis Bank:
Core business performance strong as reflected in high profitability ratios; continued investment in branches and employees could make Axis a strong play on the market.

Axis continued to invest in branches, ATM and employees to drive the natural growth of the Bank. In Q4FY08 alone, Axis has added 63 branches, 169 ATMs and hired c4800 employees to support its fast growing business. We estimate that this has helped Axis increase its market share from c2% at end-March 2007 to 2.9% at end-March 2008.

HSBC expects Axis to report an EPS of Rs 42 and Rs 56 for Fy09 and Fy10. HSBC sets a target price of Rs 1,000

Morgan Stanley on Axis Bank:
Axis Bank’s tier 1 ratio declined to 10.2% from 12.6% last quarter and 13% post recent capital issuance. This implies that the bank has consumed more than 40% of recent capital raised (where it had issued almost 25% new shares) in just two quarters

Morgan’s Modelware expects Axis to report an EPS of Rs 34.8 and hence it has set a price target of Rs 550 with an underweight rating.

We think the bank may report an EPS close to Rs 38 and hence recommend a HOLD.

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