AXIS Bank (AXBK.BO)
Raising target price to Rs675 — UTI Bank has now formally changed its name
to Axis Bank. We also make changes, raising our target price to Rs675 (Rs560),
on the back of a) new capital and rolling forward valuation benchmark
valuations to FY09 (FY08); b) revised earnings (up 5%-2% FY08E-FY09E); c)
relatively higher loan and fee growth momentum; and d) possible upsides, from
proposed new business initiatives.
New name – new game? More growth, more businesses — AXBK is currently
establishing its new identity; in the marketplace; its high visibility advertising
campaign goes with the byline, "new name, same bank." Our sense is that there
is a little more to the bank: a) higher asset growth momentum and b) broader
business mix, through new initiatives in credit cards, international, wealth,
distribution businesses and forays in private equity and institutional broking.
Effectively, Axis Bank should be a slightly broader-based version of UTI Bank.
Does the large capital raising necessarily add value? In the opportunity context,
probably yes —AXBK is more than doubling its capital base; but will it add
value? – Returns on shareholder equity – No. Returns to shareholders – given
high market growth and opportunity, regulatory protection from international
competition (medium term), its own track record of leveraging up capital and
returns, and a competitive perspective; our sense is Yes.
Maintain Hold/Low Risk — While Axis Bank has pulled back after a sharp 44%
move over the quarter and capital raising, we see moderate returns over the next
12 months; maintain Hold/Low Risk (2L), with a Rs675 price target.
Raising target price to Rs675 — UTI Bank has now formally changed its name
to Axis Bank. We also make changes, raising our target price to Rs675 (Rs560),
on the back of a) new capital and rolling forward valuation benchmark
valuations to FY09 (FY08); b) revised earnings (up 5%-2% FY08E-FY09E); c)
relatively higher loan and fee growth momentum; and d) possible upsides, from
proposed new business initiatives.
New name – new game? More growth, more businesses — AXBK is currently
establishing its new identity; in the marketplace; its high visibility advertising
campaign goes with the byline, "new name, same bank." Our sense is that there
is a little more to the bank: a) higher asset growth momentum and b) broader
business mix, through new initiatives in credit cards, international, wealth,
distribution businesses and forays in private equity and institutional broking.
Effectively, Axis Bank should be a slightly broader-based version of UTI Bank.
Does the large capital raising necessarily add value? In the opportunity context,
probably yes —AXBK is more than doubling its capital base; but will it add
value? – Returns on shareholder equity – No. Returns to shareholders – given
high market growth and opportunity, regulatory protection from international
competition (medium term), its own track record of leveraging up capital and
returns, and a competitive perspective; our sense is Yes.
Maintain Hold/Low Risk — While Axis Bank has pulled back after a sharp 44%
move over the quarter and capital raising, we see moderate returns over the next
12 months; maintain Hold/Low Risk (2L), with a Rs675 price target.
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