security analysis and portfolio

8/6/2019 Security Analysis and Portfolio

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Security Analysis and Portfolio

Management

ProjectOn

Fundamental and Technical analysisof

AXIS BANK

Submitted to- Submitted By-


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CO MPANY PR O FILE:

Axis Bank was the first of the new private banks to have begun operations in 1994, after theGovernment of India allowed new private banks to be established. The Bank was promoted jointly bythe Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life InsuranceCorporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSUinsurance companies, i.e. National Insurance Company Ltd., The New India Assurance CompanyLtd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd.

The Bank today is capitalized to the extent of Rs. 407.44 crores with the public holding (other than promoters and GDRs) at 54.51%.

The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai. The Bank has a very wide network of more than 1042 branches (including 56 Service Branches/CPCs as on 30thJune 2010). The Bank has a network of over 4474 ATMs (as on 30th June 2010) providing 24 hrs aday banking convenience to its customers. This is one of the largest ATM networks in the country.

The Bank has strengths in both retail and corporate banking and is committed to adopting the bestindustry practices internationally in order to achieve excellence.


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FUNDAMENTAL ANALYSIS

F undamental analysis can be done on the basis of following areas.

E CO NO MI C AL ANALYSIS:

Leading indicators - Growth, monsoon, stock market. Lagging indicators GDP

Economic features of banking industry:

Supply- Liquidity is controlled by the Reserve Bank of India (RBI). Demand- India is a growing economy and demand for credit is high though it could be cylical Barriers to entry- Licensing requirement, investment in technology and branch network. Bargaining power of suppliers- High during periods of tight liquidity. Trade unions in public

sector banks can be anti reforms. Depositors may invest elsewhere if interest rates fall.

ECONOMICAL

COMPANY

SPECIFICINDUSTRIAL


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The liquidity crisis that swept the heavyweights of global financial sector off their feet inFY 09 did affect the entities in Indian banking sector as well, albeit marginally. Other than thetemporary crunch after bankruptcy of Lehman Brothers, the global financial meltdown was weathered

by banks in India with relative ease. The monetary stimuli (reduction in repo rate, cash reserve ratio(CRR) and statutory liquidity ratio (SLR)) offered to the banks by the RBI made things easier.Despite the severe liquidity pressure and poor credit appetite at the retail and corporate levels, Indian

banks managed to grow their advances and deposits by 24% Y oY and 22% Y oY respectively inFY 09. The growth was mainly driven by a sharp expansion in term deposits and growth inagricultural and large corporate credit. Having said that, higher delinquency levels in retail credit anddebt restructuring took its toll on the sector. Repo rate 4.75%, RRR 3.25%, CRR 5.5% recently.

Financial Performance Q1FY11 Q1FY10 %Growth Net Profit 741.88 562.04 32.00% EPS Diluted (Rs.) 17.95 15.50 15.81%

Net Interest Income 1,513.77 1,045.63 44.77%

Other Income 1,000.78 958.57 4.40% - F ee Income 743.07 626.63 18.58% - Trading Income 195.74 326.07 (39.97%) - Miscellaneous Income 61.97 5.87 955.71%

Operating Revenue 2,514.55 2,004.20 25.46% Core Operating Revenue* 2,318.81 1,678.13 38.18%

Operating Expenses (incl. depreciation) 1,064.50 827.84 28.59%

Operating Profit 1,450.05 1,176.36 23.27% Core Operating Profit** 1,254.31 850.29 47.52%

Business Performance As on 30 t As on 30 t

% Growth Jun10 Jun09 Total Deposits 1,47,479 1,10,256 33.76%

Demand Deposits 59,249 44,176 34.12% - Savings Bank Deposits 34,703 25,199 37.72% - Current Account Deposits 24,546 18,977 29.35%

Demand Deposits as % of Total Deposits 40.17% 40.07%

Term Deposits 88,230 66,080 33.52%

Demand Deposits on a Cumulative Daily 55,043 39,739 38.51% Average Basis for the quarter

Demand Deposits as % Total Deposits (CDAB 39.94% 37.30% basis) for the quarter


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Net Advances 1,08,609 78,105 39.06% - Large & Mid-Corporate 60,131 38,875 54.68% - SME 16,818 14,232 18.17% - Agriculture/Micro F inance 10,587 8,218 28.83% - Retail Advances* 21,073 16,780 25.58%

Investments 57,540 46,328 24.20% Balance Sheet Size 1,89,459 1,41,142 34.23%

Net NPA as % of Net Customer Assets 0.35% 0.41% Gross NPA as % of Gross Customer Assets 1.13% 1.01%

Equity Capital 407.44 359.76 Shareholders F unds 16,889 10,784 56.61% Capital Adequacy Ratio 14.54% 15.28% - Tier I 10.32% 9.39% - Tier II 4.22% 5.89%

INDUSTRY ANALYSIS:

However, even as the opportunities increase, there are some issues and challenges that Indian bankswill have to contend with if they are to emerge successful in the medium to long term. This analysisdiscusses these issues and challenges -- both intrinsic and external, such as

Risk management Consolidation Overseas expansion Technology Government reforms Non Performing Assets (NPAs) Skilled manpower Consumer protection

The report concludes with thrust areas for future growth.

F OREIGN BANKS

Assets 2008-09:Q3 2008-09:Q2 2008-09:Q1 2007-08:Q4 2007-08:Q3

Cash F undsand Balanceswith other

42,666.97 41,250.84 42,232.47 41,932.70 38,094.49


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Banks

F ixed Assets 4,126.99 4,042.45 3,994.92 3,966.91 3,620.94

Investments 109,902.77 105,189.78 96,094.21 100,218.41 101,250.25

Loans andAdvances(net) 172,047.82 185,623.89 171,658.90 161,132.63 145,543.46

Other Assets 121,382.63 123,415.83 114,889.68 57,915.22 59,418.88

Total Assets 450,127.18 459,522.79 428,870.18 365,165.87 347,928.02

Liabilities 2008-09:Q3 2008-09:Q2 2008-09:Q1 2007-08:Q4 2007-08:Q3

Capital andReserves 57,188.84 55,051.38 52,496.38 49,157.97 41,415.87

Other Liabilities and

provisions 128,094.37 132,955.96 122,077.30 66,733.69 68,535.95

TotalBorrowings 47,988.53 60,084.09 55,353.87 58,079.07 47,993.81

TotalDeposits 216,855.44 211,431.36 198,942.63 191,195.14 189,982.39

TotalLiabilities andCapital 450,127.18 459,522.79 428,870.18 365,165.87 347,928.02

Nationalised Banks:


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Assets 2008-09:Q3 2008-09:Q2 2008-09:Q1 2007-08:Q4 2007-08:Q3

Cash F undsand Balances

with other Banks 153,026.19 204,765.11 185,217.19 187,343.00 164,772.22

F ixed Assets 27,128.87 24,662.59 23,645.44 23,704.32 18,977.14

Investments 593,165.38 530,940.57 557,114.25 528,891.92 516,638.19

Loans andAdvances (net) 1,316,599.00 1,246,985.84 1,145,719.41 1,137,078.52 1,004,564.86

Other Assets 76,436.39 62,358.15 67,268.39 56,126.36 53,994.25

Total Assets 2,166,355.83 2,069,712.26 1,978,964.68 1,933,144.12 1,758,946.66

Liabilities 2008-09:Q3 2008-09:Q2 2008-09:Q1 2007-08:Q4 2007-08:Q3

Capital andReserves 135,820.45 126,167.64 119,315.94 116,405.02 113,002.15

Other Liabilities and

provisions 152,741.99 146,374.95 143,489.32 141,669.61 128,564.46

TotalBorrowings 70,185.57 69,568.82 76,091.57 69,440.09 58,304.49

Total Deposits 1,807,607.82 1,727,600.85 1,640,067.85 1,605,629.40 1,459,075.56

TotalLiabilities andCapital 2,166,355.83 2,069,712.26 1,978,964.68 1,933,144.12 1,758,946.66


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Private Sector Banks

Assets

2008-09:Q3 2008-09:Q2 2008-09:Q1 2007-08:Q4 2007-08:Q3

Cash F unds and Balances withother Banks 20,490.80 23,388.97 21,990.84 23,071.55 20,904.68

F ixed Assets 2,132.66 2,086.76 2,040.72 2,016.82 1,943.07

Investments 61,875.62 54,884.71 56,588.04 54,124.09 49,469.39

Loans and Advances (net) 123,389.56 121,703.21 114,073.25 111,222.69 100,798.78

Other Assets 5,535.17 5,155.39 4,942.31 4,319.42 3,985.33

Total Assets 13,42300.81 1207,219.04 1199,635.16 1194,754.57 1177,101.25

Liabilities

2008-09:Q3 2008-09:Q2 2008-09:Q1 2007-08:Q4 2007-08:Q3

Capital and Reserves 17,404.77 16,583.13 15,936.97 15,363.12 13,293.57

Other Liabilities and provisions 11,542.15 11,556.23 11,134.56 10,284.00 9,872.94

Total Borrowings 3,655.75 4,691.24 4,384.69 3,477.19 3,544.88

Total Deposits 180,821.14 174,388.44 168,178.94 165,630.26 150,389.86

Total Liabilities and Capital 13,42300.81 1207,219.04 199,635.16 1194,754.57 1177,101.25


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Financial Highlights

Net Interest Income (NII) and Net Interest Margin (NIM)

The Bank continued to extend its presence across the country and at the end of Q1 FY 11, had a

network of 1,050 domestic branches and extension counters, and 4,474 ATMs situated in 651 cities

and towns. During the quarter, the Bank added 15 branches and 181 ATMs. The daily average

balances of Savings Bank deposits during the quarter grew 39.35% yoy and those of Current Account

deposits grew 37.30% yoy. Demand deposits constituted 40% of the aggregate daily average deposits

during Q1 FY 11, higher than the level of 37% in Q1 FY 10 and lower than 43% in Q4 FY 10. At the end

of the quarter, Current Account and Savings Bank deposits together accounted for 40.17% of the total

deposits of the Bank. The Bank posted a NIM of 3.71% during Q1 FY 11, higher than the NIM of 3.34% during Q1 FY 10 and lower than the NIM of 4.09% during Q4 FY 10. The reduction in NIM

during Q1 FY 11 compared to the previous quarter was primarily on account of the increase in cost of

Savings Bank deposits and higher reserve requirements as mandated by the Reserve Bank of India.

The Banks advances grew by 39% yoy, from Rs. 78,105 crores as on 30 th June 2009 to Rs. 1,08,609

crores as on 30 th June 2010 while investments rose to Rs. 57,540 crores from Rs. 46,328 crores over

the same period, a growth of 24% yoy. The NII rose to Rs. 1,514 crores during Q1 FY 11 from Rs.1,046 crores during Q1 FY 10, a growth of 45% yoy.

Fee Income

F ee income registered a growth of 19% yoy, rising to Rs. 743 crores during Q1 FY 11 compared to Rs.

627 crores in Q1 FY 10, with contributions from all the major businesses in the Bank. F ee income from

Large and Mid Corporate Credit (including Infrastructure) grew 42% yoy, followed by that from

Treasury and Debt Capital Markets (22% yoy), Capital Markets (10% yoy), Retail business (8% yoy),

Business Banking (6% yoy) while fee income from SME and Agri lending businesses declined by

6%.

Trading Profits

The Bank generated Rs. 196 crores of trading profits during Q1 FY 11, as compared to Rs. 326 crores

during Q1 FY 10, a decline of 40% yoy. The share of trading profits to operating revenue was 7.78% in

Q1 FY 11, compared to 16.27% in Q1 FY 10.

NPAs and Restructured Loans

Net NPAs, as a proportion of net customer assets, were 0.35% as on 30 th June 2010 compared to


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0.41% as on 30 th June 2009 and 0.36% as on 31 st March 2010. Gross NPAs as a proportion of grosscustomer assets stood at 1.13% as on 30 th June 2010, compared to 1.13% as on 31 st March 2010 and1.01% as on 30 th June 2009. The Bank had a provision coverage of 76.62% as on 30 th June 2010 (as a

proportion of Gross NPAs) including prudential write-offs. The provision coverage (as a proportion of

Gross NPAs) before accumulated write-offs was 89.59%.

During the quarter, the Bank added Rs. 421 crores to Gross NPAs. Recoveries and upgradations of

Rs. 121 crores and write-offs of Rs. 277 crores during the quarter resulted in a closing position of Rs.

1,341 crores of Gross NPAs on 30 th June 2010, higher than the position at the end of June 2009 by Rs.

426 crores.

The Bank restructured loans aggregating Rs. 30 crores during Q1 FY 11. The cumulative value of

assets restructured till 30 th June 2010, however, declined to Rs. 2,151 crores (1.81% of gross customer

assets).

The segment-wise break-up of restructured loans as on 30 th June 2010 is as follows:Large an M - orporate re t 69SME 20%Agri 7%Capital Markets 4%


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The sector-wise breakup of restructured loans as on 30 th June 2010 was as follows:Textiles 22%Shipping 22%Sugar 8%Petroleum 8%Real estate 8%Others 32%

Investment Portfolio

The book value of the Banks investment portfolio as on 30 th June 2010 was Rs. 57,540

crores, of which, Rs. 38,819 crores related to government securities while Rs. 18,721 crores

was invested in other securities such as corporate bonds, equities, preference shares, mutual

funds etc. 82% of the government securities has been classified in the HTM category while

99.56% of the Bonds & Debentures portfolio has been classified in the H F T and A F S

categories. The distribution of the investment portfolio in the three categories as well as the

modified duration as on 30 th June 2010 in each category was as follows:

C ategory Percentage Duration* HF T 6.42 % 4.55 yearsAF S 32.74 % 2.76 yearsHTM 60.84 % 4.80 years

* Excluding mutual funds and equity investment

INDUSTRIAL RATI O S:

Profitability ratios 18.44333

Operating margin (%) 16.06333

Gross profit margin (%) 12.09

Net profit margin (%) 14.43

Adjusted cash margin (%) 12.57333

Adjusted return on net worth (%) 12.56667

Reported return on net worth (%) 69.28667


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R t l t

Y R

C t ti

C t ti i t l

COMPANY ANA L YSIS:


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