Fundamental Analysis of Axis Bank: Banks occupy a substantial portion of the overall stock market and they find their way into the portfolios of many investors. This can be either through mutual funds or by directly investing in stocks. However, analyzing banking stocks for the purpose of investment is slightly different from analyzing stocks from other sectors.

The banking business is different from other businesses. Banks primarily give out loans to different customers and charge interest on them. In addition, they accept deposits and pay interest on them. For example, a high debt-to-equity ratio might be alarming for businesses like the FMCG business, but it is commonplace for banking stocks.

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Apart from a few ratios that are used to analyze other stocks, banking stocks have certain ratios that are specific to their industry. In this article, we are going to do a fundamental analysis of Axis Bank.

Fundamental Analysis of Axis Bank

Industry Overview

According to an IBEF report, an increase in the working population and growing disposable income will raise the demand for banking and related services in India. The country’s fintech market is expected to reach ₹ 6.2 trillion by 2025.

Services like mobile banking, internet banking, and the extension of facilities at ATMs will improve operational efficiency, according to the report. The revenue mix of Indian banks is improving with the help of rising fee incomes. 

According to the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalized and well-regulated. The industry has witnessed the rollout of innovative banking models like payments and small finance banks. In addition, India has focused on increasing its banking reach through various schemes like Pradhan Mantri Jan Dhan Yojana and Post payment banks.

Enhanced spending on infrastructure, speedy implementation of projects, and continuation of reforms are expected to provide impetus to growth in the banking sector. These factors suggest that India’s banking sector is poised for robust growth as rapidly growing businesses will turn to banks for their credit needs.

About the Company

Fundamental Analysis of Axis Bank - Logo

Axis Bank, the third largest private sector bank in India, is one of the first new-generation private-sector banks that began operations in 1994. It offers a spectrum of financial services to customer segments covering large and mid-corporates, MSMEs, and agriculture and retail businesses. It weaves its presence into its consumers’ financial lives through its vast network of branches and ATMs.

The bank has a network of 4,758 domestic branches (including extension counters) with 10,990 ATMs & 5,972 cash recyclers spread across the country, according to its latest annual report. The overseas operations of the bank are spread over eight international offices with branches in Singapore, Dubai (at DIFC), and Gift City-IBU; representative offices in Dhaka, Dubai, Abu Dhabi, and Sharjah and an overseas subsidiary in London, UK.

These offices focus on lending, trade finance, syndication, investment banking, liability businesses, and private banking/wealth management offerings.

Axis Bank – Financials

Before we take a look at numbers, let’s understand the basic functioning of a bank. A bank’s customers or clients deposit their savings in banks. These savings are assets for customers, but they are a liability for a bank because it will have to return the amount deposited with interest.

In other words, the amount deposited by savings accounts, current accounts term deposits, and other kinds of deposits is a liability for a bank. On the other hand, the loans that it provides to those in need are an asset for the bank. It will collect the amount lent along with interest. In simple terms, a bank makes profits by lending at a higher interest rate and accepting deposits at a lower interest rate.

With a balance sheet size of ₹ 11,75,178 crores as on 31st March 2022, Axis Bank has achieved consistent growth. It has a 5-year CAGR (2016-17 to 2021-22) of 14% each in Total Assets & Advances and 15% in Deposits.

Year20182019202020212022
CASA53.4944.1841.0145.4444.97
Net NPA3.42.061.561.050.73
Advances Growth18.0212.6315.06-99.9915.88
Capital Adequacy Ratio1715.8417.5319.1218.54
NIM(%)2.942.963.083.263.05
ROA0.070.670.220.751.29
ROE0.777.652.447.6412.78

Current Account Savings Account (CASA)

The CASA ratio is important to determine the profitability of a bank. It indicates how much of a bank’s total deposits are in both current and savings accounts. Banks do not pay interest on deposits in a current account and pay very little on savings bank accounts. Therefore, it gets these funds at a lower cost. A higher CASA means that a large portion of a bank’s deposits is in current accounts and savings accounts, therefore, its expenses for raising funds are less. As a result, the profitability is high.

Axis Bank’s CASA declined from 53.49% in 2018 to 41.01% in 2020. Thereafter it increased to 45 in 2022. The decline in 2022 can be attributed to the situation during the Covid 19-pandemic. During this period, many people lost their source of income and had to tap into their savings to make ends meet. This could be a reason why deposits decreased in 2020. The bank’s CASA improved in tandem with recovery.

It is important to note that the CASA for certain banks tends to be very high if they have a higher interest rate in SB accounts as compared to their peers. High-interest rates attract more deposits, pushing the cost of funds higher.

Net Non-Performing Assets (Net NPA)

Axis Bank’s Net Non-Performing Assets (NPA) decreased from 3.4% in 2018 to 0.73% in 2022, which is a positive sign. A decrease in Net NPA tells us that the percentage of the bank’s loans that are not recoverable has decreased. It means that the bad or non-functional loans that are not generating any interest income for the banks have been reduced. This indicates that a bank is making better decisions with regard to the customers whom it is giving loans to.

Advances Growth

An increase in the advances growth ratio shows that a bank is giving more loans. Since a bank receives interest on the advances or loans that it gives, an increase in this ratio is a good sign. However, this increase should be read along with the capital adequacy ratio. When the capital adequacy ratio is growing along with advances growth, it is a positive sign.

Axis Bank’s advances show a declining trend, from 18.02% in 2018 to 15.88% in 2022. However, its capital adequacy ratio has increased from 17% in 2018 to 18.54% in 2022.

Net Interest Margin (NIM)

The net interest Margin is a measure of profitability. It is the difference between the interest earned by a bank on loans and the interest paid by it on deposits, expressed as a percentage of the average earning assets of a bank. Axis bank’s NIM has remained above 2% during the last five years. In fact, it has shown an increasing trend from 2.94% in 2018 to 3.05% in 2022.

Return on Equity (ROE) & Return on Assets (ROA)

Return on Equity (ROE) indicates how much a company earns against the amount invested by shareholders. Ideally, the ROE should be above 15% to 20%. Axis Bank’s ROE is at 12.78%.

ROA is a bank’s after-tax income divided by its total assets. ROA of 1% to 2% is considered to be substantial for banks. Axis Bank’s ROA has remained below 1 for four years, till 2021. However, it is at 1.29% in 2022.

Key Metrics Of Axis Bank

ParticularsValuesParticularsValues
Face Value (₹)2ROE (%)12.78
Market Cap (₹ in Cr)2,86,236.32Net Profit Margin20.57
EPS (₹)45.99Net NPA0.73
Stock P/E (TTM)15.57CASA Ratio44.97
Dividend Yield (%)0.13Net Interest Margin(%)3.05

Q3FY23 Update

As per the latest quarterly results (October to December 2022) of the bank, its balance sheet grew 10% year on year (YoY) and stood at ₹ 12,23,509 crores as of 31st December 2022. The bank’s total Deposits grew by 9% YoY and 2% quarter on quarter (QoQ) on a quarterly average balance basis (QAB).

The share of CASA deposits in total deposits stood at 44%. 56% of the company’s loans have been given to retail customers, 11% to Small and Medium Enterprises (SMEs) and 33% of the loans have been given to the corporate sector. Its profit after tax increased by 62% year on year from ₹ 3614 crores to ₹ 5853 crores.

Acquisition of Citi Bank’s Retail Business

Axis Bank in the year 2022 had agreed to buy Citibank’s consumer business in India for over ₹ 12,000 crores in cash. The deal is expected to close in the first half of 2023. It includes the sale of credit cards, retail banking, wealth management, and consumer loans to Axis Bank as part of Citi Bank’s plans to exit retail operations in 13 markets. The acquisition is in progress and is expected to be completed by May.

In Closing

In this article, we did a fundamental analysis of Axis Bank. We took a look at its business, the industry in that it functions in, and important ratios that are specific to banks. Then we took a look at its update for the latest quarter. That’s all for this article, folks. We hope to see you around and happy investing until next time!

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