Axis Bank is an Indian private sector bank which offers a range of financial products. The bank has its head office in Mumbai and has 4,800+ branches, 17801+ ATMs and 4,917+ cash recycling machines across the country and 9+ international offices.
The company’s shares have 52 weeks high of 765and have a total market capitalization of INR 1.31 trillion which makes it a the Large-Cap company. The shares have a P/E ratio of 73 and a dividend yield of 0.23%
Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 parameters and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The parameters are as follows.
- Economic Moat
- Business Model and Management
- Financial Position
- Profitability Ratios
- Cash Flows and Liquidity Ratios
- Debt Coverage Ratios
- Efficiency Ratios
- Valuation Ratios
- ROE (Du Pont Analysis)
- Future Prospects
(All units are INR Crores except ratios and per share data)
You can get the complete excel model used for this analysis from below:
1.Economic Moat (★ ★ ★ ★ ☆)
The banking business is such that market dominance is achieved by the low cost of funds and a large diversified loan book. The three important factors leading to this is the market presence, CASA ratio (Current Account Savings Account) and low Non Performing assets (NPAs). The company has a good CASA ratio of around 81% which reduces its cost of funds. The loan portfolio is also well-diversified with 57% consisting of retails loans and 43% wholesale credit. Axis bank has the 4th largest in Credit Cards business in the country and more than 70% of sourcing is to the Pre Approved customers. The company is looking to be a prominent player in India’s Wealth Management space through its Burgundy Private business. This overall gives a good economic moat to the company. Therefore this category gets 4 stars in Axis Bank shares fundamental analysis.
2. Business Model and Management (★ ★ ★ ★ ★)
The business model of the company is such that they aim for a pan India presence across all the banking services. The company has a well-distributed branch network with 24% in South India, 15% in Central India,19% in East India, 19% in West India and the remaining 23% in North India. The branch network has been completely organic and built over the last 26 years. In terms of economic segregation, the company has 30% of branches in Metros, 31% in Semi-Urban regions, 23% in Urban regions and 16% in Rural India. This overall shows a good business model for the company. Therefore this category gets 5 stars in Axis Bank fundamental analysis.
Mr Amitabh Chaudhry is the Managing Director and Chief Executive Officer of Axis Bank. He joined the bank in January 2019, after successfully leading HDFC Life for nine years. Under his leadership, HDFC Life emerged as the finest brand in the insurance space and is today one of India’s largest private life insurers. Mr. Deepak Maheshwari is the Group Executive and Chief Credit Officer of the Bank since January, 2019 and is responsible for credit underwriting, policy and monitoring. He joined Axis Bank after spending two decades in HDFC Bank where he was Group Head of the Wholesale Credit function. The new management was hired to turnaround the business and give a new growth strategy to the company.
The company has recently launched Burgundy Private arm which is being branded as “A Company with the expertise of wealth management backed by the power of a Bank”. Burgundy Private Caters to the high and ultra-high, net-worth segment of customers with minimum Total Relationship Value of INR 5+ crore. In addition to personalized banking services, specialized needs such as estate & succession planning, family office solutions, tax advisory, customized lending solutions and philanthropy are also catered through this arm. This overall shows a good business model for the company. Therefore this category gets 5 stars in Axis Bank shares fundamental analysis.
3. Growth Ratios (★ ★ ★ ★ ★)
The revenue has grown at a CAGR of about 18.19% over the last 10 years. The total expenses, on the other hand, has increased by almost the same rate. This indicates a good interest margin throughout interest rate cycles for the company. The net worth of the bank has also seen a double-digit growth along with the provisions and contingencies. Overall this indicates good solvency for the company. Therefore this category gets 5 stars in Axis Bank shares fundamental analysis.
4. Profitability Ratios (★ ★ ★ ☆ ☆)
The return on long term funds has declined due to lowering interest rates but the company has managed to stabilize profitability with their good CASA ratios. The adjusted return on net worth has also declined in recent years. The net profit margin has however declined due to higher provisions and NPAs. Overall the company has managed to overcome economic and Interest rate cycles but at the cost of reduced profitability. Therefore this category gets 3 stars in Axis Bank shares fundamental analysis.
5. Cash Flow Ratios (★ ★ ★ ★ ☆)
The quick ratio has been declining at a steady rate and the bank is also not having a significant increase in profits. The company has a good CASA ratio and Floats from multiple transactional banking franchises. This helps the bank to maintain liquidity while increasing its advances portfolio. Indian banks, however, will see reduced deposits and slow growth due to the economic impact of lockdown in the country which will impact liquidity as well. Therefore this category gets 4 stars in Axis Bank shares fundamental analysis.
6.Liquidity and Solvency Ratios (★ ★ ★ ★ ★)
The credit deposit ratio has been increasing for the company at a sustainable rate. The cash deposit ratios have seen a slight improvement and the investment deposit ratio has seen a decline which means lower deposits with RBI in government bonds and higher loan advances. The total debt to owner’s fund has also seen stability over the years along with improvement in last year. Overall the company has good debt coverage along with high solvency. Therefore this category gets 5 stars in Axis Bank shares fundamental analysis.
7. Efficiency Ratios (★ ★ ★ ☆ ☆)
The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.
The Net Interest Income as a percentage of Total funds has declined over the years for the company due to the Repo rate cut regime in India since the last few years. The net profit as a percentage of total funds has also seen deuteriation due to high provisions and NPAs. This is a indicator of declining business efficiency. The Total Income as a percentage of Capital employed has however seen a stability after decline over the recent years. Therefore this category gets 3 stars in Axis Bank shares fundamental analysis.
8. Valuation Ratios (★ ★ ★ ★ ★)
The operating profit per share has seen a sharp decline after 2014 due to new equity issues. The book value of the shares has also grown due to retained earnings but at a slower rate. The average price/ earnings ratio has also seen a significant decline. The average price to book value has also remained stable. The company has a new strategy and focused on premium banking services through Burgundy which can improve its profitability in the near future. Therefore this category gets 5 stars in Axis Bank shares fundamental analysis.
9. ROE 3 way Du Pont Analysis (★ ★ ★ ☆ ☆)
The financial leverage has gone up over the years which means a lower proportion of equity is given out as loans. The net profit margin has also declined along with the asset turnover. Overall the ROE has been decreasing due to the reduced profitability even with increasing leverage which is not a good indicator for solvency in the company. Therefore this category gets 3 stars in Axis Bank shares fundamental analysis.
10. Future Prospects (★ ★ ★ ☆ ☆)
Some insights for the coming years from management discussion & analysis (MD&A) and con calls are as follows.
- The COVID-19 outbreak and the subsequent lockdown in the country will have a negative impact on the loan book of the company. Both the retail and wholesale loans can witness a double-digit increase in NPAs. The deposits will also reduce along with interbank funds which will impact the liquidity of the overall Indian banking system.
- The company has created additional provisions of INR 30 billion towards the COVID-19 crisis. With this, the total contingent provisions stand at INR 59.8 billion.
- In the unsecured loan portfolio for the bank, around 80% are salaried customers with a low default rate. Also, around 67% of the salaried customers are premium employees of large corporates and government agencies, which have a good relationship with the bank. This can provide some relief to already thin margins.
- Sectors that could face severe stress consist of Transport, Hospitality, Entertainment, Textile, and Export and Imports. The management is trying to reduce its exposure to the same.
The Indian banking sector as a whole will face increased loan defaults and liquidity crunch due to the COVID-19 crises in the country. The recovery majorly depends on government stimulus and liquidity infusion by RBI in the economy. Axis bank, however, has declining fundamentals but sufficient provisioning to withstand the temporary setbacks. Any improvement in profitability is not on the horizon. Therefore this category gets 3 stars in Axis Bank shares fundamental analysis.
The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.
Overall Fundamental Rating:
AXIS BANK SHARES (4.0/5)
Therefore it is a 4-star stock
★ ★ ★ ★ ☆
Subscribe to our new Youtube Channel!
Subscribe via Email for our daily analysis on 200+ stocks!
Join our Telegram Channel.
|Summary of the Analysis|
|Economic Moat||★ ★ ★ ★ ☆|
|Business & Management||★ ★ ★ ★ ★|
|Financial Position||★ ★ ★ ★ ★|
|Profitability Ratios||★ ★ ★ ☆ ☆|
|Cash Flow and Liquidity||★ ★ ★ ★ ☆|
|Debt Coverage Ratio||★ ★ ★ ★ ★|
|Efficiency Ratios||★ ★ ★ ☆ ☆|
|Valuation Ratios||★ ★ ★ ★ ★|
|ROE (Du Pont Analysis)||★ ★ ★ ☆ ☆|
|Future Prospects||★ ★ ★ ☆ ☆|
|Overall Fundamental Rating||★ ★ ★ ★ ☆|
My other Investment Analysis:
5 star Investments ★ ★ ★ ★ ★
4 star Investments ★ ★ ★ ★ ☆
3 star Investments ★ ★ ★ ☆ ☆
2 star Investments ★ ★ ☆ ☆ ☆
1 star Investments ★ ☆ ☆ ☆ ☆