Axis bank - Turnaround imminent

Axis bank is the 3rd largest private bank and is trading at a discount to its peers.

On the liability side their CoF is just 3.6 with a good number of CASA accounts.

The SA accounts have high AMB’s lead by the Burgundy franchise. They tie ups with the armed forces which can be a sticky source of low cost funds

On the asset side they have massively improved over the last few years, the BB and below + net npa pool is now 1.79% and 80% of retail advances are secured. The RWA to total assets have also declined steadily indicating improving safety of lending Retail advances are 55% of total advances. Gross NPA’s are less than 1%, restructured loans are 0.63% of gross customer assets the lowest among top Private Banks and the bank is sitting on 13,400 crs of unutilised covid provisions that will act as a stabiliser to the future earnings

Screenshot 2022-01-27 at 6.35.38 AM

The total assets are > 10 lakh crores and they are well on their was to achieve a sustainable 1.5% RoA which would mean a yearly run rate of 15000 crs in profits. Just valuing this at 2x book (the banks current valuations) would lead to a market cap compounding of ~15%. Also the leverage of the bank is currently ~10x so the assets can compound at 15% as well.

And this is without taking the valuation of the subsidiaries like axis amc, axis securitues, axis finance, A.Treds and axis trustee which in addition to valuation help deliver a seamless one stop solution for both retail and corporate clients and aid in fee income to the core bank.

Currently 3.8% of assets are low yielding RIDF bonds that axis bank holds because they could not meet prior priority sector lending in the past, the gradual run off of these bonds will lead to a NIM expansion. Repo rate hikes will increase the yields on the home loans that are 37% of retail advances.

The bank is well capitalised at 15% core tier 1 and 13k crs of excess provisions. This is combined with the fact that axis can raise AT1 bonds domestically and abroad incase needed

In my view the bank is well capitalised and fully ready to take advantage of the capex recovery when it happens. The bank has completely transformed itself from the bank that got into the NPA mess in the mid 2010’s. Mr Amitabh can continue for the next decade. Even without a significant valuation rerating there is good scope to compound at 14-15% over the next decade.


  1. Legacy accounts like srei could pose an issue down the
  2. Government could offload its SUUTI stake at higher valuations
  3. Without a capex recovery the excess liquidity and capital will drag down RoE’s


Disc invested


The earnings this time was good. Asset quality good, no exposure to the future group, margins were a little disappointing and i think the thing most people were upset about was the opex that likely to remain high for some time

Citi deal was an ok deal, it doesn’t move the needle and i think they paid a little too much for it. Especially if they have to raise capital at these share prices. The really kicker would be if the citi employees integrate into axis and make it a more predictable safe bank with deep leadership talent

Big risk is that everyone knows that fund raising has to happen in 18-24 months, after the citi deal the tier comes down to 13% which very comfortable, especially since they have the unused covid provisions, but this leaves them less capital incase there is strong growth.

And the axis amc front running will dent the valuation and credibility of the entire group

But next years earnings should be 16-18k cr, implying a valuation of 11-13 PE, 1.7 PB for a such a quality bank
Disc: Still very positive and adding at these prices


Looks like a very good set of results from Axis Bank beating the analysts estimates by a wide margin.

However, the management commentary on slippages and City bank integration should be the key.

Disc : invested. Aprox 4 pc of portfolio.

Particulars Q3FY23 Q3FY22 Q2FY23
Net interest income (in cr) 11,459.00 8,653.00
Net interest margin % 4.26% 3.53% 3.96%
Cost of funds 4.34% 3.77% 4.09%
GNPA 2.38% 3.17% 2.50%
NNPA 0.47% 0.91% 0.51%
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As of Q3FY23, the domestic loan book stands at 7,621 crores, which is 95% of the overall loan book of the bank.
Segmental loan Q3FY23 Q3FY22
Retail 56% 55%
SME 11% 10%
Corporate 33% 35%
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Dec-2022 Sep-2022 Dec-2021
SBIN 22.49% 23.25% 23.59%
HDFC ltd 17.58% 18.22% 17.89%
ICICI bank 12.15% 12.46% 12.19%
AXIS bank 5.40% 5.73% 5.93%
HDFC bank 3.58% 3.45% 3.46%
BOB 3.37% 3.46% 3.37%
KOTAK bank 3.27% 3.36% 3.02%
PNB 2.89% 3.01% 3.26%
UNION bank 2.42% 2.93% 3.01%
FEDERAL bank 0.93% 0.96% 0.95%
IDBI 0.88% 0.69% 1.06%

Source- Tijori finance


Axis Bank Q4 concall highlights -

Excluding exceptional items ( Acquisition of Citi Banks India business ) -

PAT at 6625 cr, up 61 pc yoy
RoA - 2.18 pc, consol
RoE - 21.5 pc, consol !!!

Operating performance (yoy)-

NII up 33 pc
Fee inc up 24 pc
Op profits up 42 pc

Advances up 19 pc ( including Citibank’s loans )-
Domestic -

Retail advances up 22 pc - of which Rural up 26 pc, Cards up 97 pc
Corporate advances up 24 pc, Mid corporates up 38 pc, SME up 23 pc
Small Business Banking advances up 50 pc

Overseas advances lagging domestic growth

Deposits up 15 pc ( including Citibank’s deposits )-

CA up 17 pc
SA up 23 pc
Term deposits up 11 pc

GNPAs at 2.02 vs 2.82 pc yoy
NNPAs at 0.39 vs 0.73 pc yoy
Annualised gross slippages at 1.76 pc ( within guided range )

PAT from subsidiaries for FY 23 at 1304 cr, up 9 pc

Excluding acquisition impact, Annual EPS at Rs 86/share

Including acquisition impact, Book Value at 406

CASA deposits at 47 pc of total, up 21 pc yoy

Advances Domestic breakup -

Retail 58 pc, up 22 pc
SME 11 pc, up 23 pc
Corporate 31 pc, up 24 pc

NIMs at 4.02 pc, up 55 bps

PCR at 80 pc. Including specific + std+ addnl + COVID provisions - at 145 pc of GNPAs (very healthy)

Management commentary -

Among the largest issuer of credit cards in FY 23 at 4.2 million

New accounts opened in FY 23 at 1.08 cr, up 26 pc yoy

Cost/Inc at 46.1 pc, improving by 274 bps ( for FY 23 )

Added 6000 ppl to growth businesses and Technology teams in Q4

Lower credit costs allowing bank to invest in ppl and tech

Guidance for FY 24 -
Advances growth between 16-18 pc
Deposit growth between 14-15 pc

Expect to add upto 500 branches in FY 24

Next yr, Opex is likely to be higher due Citibank’s acquisition which is largely a retail business. By FY 25, want to come back to 2 pc of assets as Opex cost

Corporates/wholesale and Mortgage loans - remain very competitive wrt yeilds

Some easing in competition witnessed on corporate/wholesale side

Recoveries and upgrades trend has been good because the quality of Bank’s book has structurally improved. Bank has made a lot of efforts to reach here

Expect uplift in growth due Citi’s acquisition from Q2 onwards

All one time costs wrt Citi’s merger have been absorbed. 1500 cr of operating costs will be absorbed over next 18 months

Also seeing pickup in Corporate demand across various sectors like - steel, infra, RE etc

Disc : holding, biased


Why is axis current p/e at historic low?? It’s quite astonishing

Business Momentum

Deposit Growth : 18.5% YoY 5.2% Sequentially
Loan Growth : 22.3% YoY 3.9% Sequentially - They have gained Market share

More than 5% Deposit Growth is the strongest in the Banking Sector.


From the recent con-call - Seems like tight liquidity will continue until CY24 H2

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I do not think the tight liquidity trend will ease off anytime soon. In fact, Q4 being the last quarter of the year, we will probably see this continuing.

The main driver will be how the liquidity in the system plays out and how the Reserve Bank sort of deals with the liquidity. So, I think that the trend is kind of there. It will play out steadily over some time.

This is from the Axis Bank’s con-call. Very interesting Con-call.

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“There was a blatant fraud in Max Life Insurance and Max Financial Services allowing their shareholder Axis Bank and its group companies Axis Securities and Axis Capital to make undue profits or gains from the purchase and sale of equity shares of Max Life in non-transparent manner thereby, violating the mandatory directions of the Insurance Regulatory and Development Authority of India,”

Wasn’t this transaction approved by regulatory authorities and we’re missing something here?

Disc: Looking to hold Axis bank for long term


Most likely should fade away with time and I don’t expect a major impact. Not sure why a transaction between two regulated entities completed with regulatory approvals should be made to review via a PIL. Just one of those things I feel that goes on between powerful people.

And if we are to assume that Axis underpaid by 4k cr for the acquisition, let’s say they have to shell it out to Max. That’s just an increase on the acquisition cost and not a direct P&L impact. Axis balance sheet is large enough to absorb it. May be a small penalty impact on the P&L. That’s my understanding of the impact.

Yes question May be raised around governance if allegation turns out to be true, but commercial deals are always complicated. Going forward hopefully the banks further improves on its dealings, if any lapses. Part of business as usual I guess.

Disclaimer - Holding 3 lots Axis bank futures and views may be biased.

Large private banks have been trading at a discount for quite sometime now. Axis bank particularly is at a discount even from its peers considering P/B of 2.5. At the same time, it has the lowest ROA and ROE among the peers. Just needed someone’s views on the fundamentals if you know more about the sector and how the CITI bank’s acquisition playing out if someone has info?

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