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Are Axis Bank Shares a Good Investment For Long-Term?

Axis Bank is a private sector bank in India that offers a comprehensive range of financial services and products. Founded in 1993 as UTI Bank, it is the third-largest private bank in India in terms of total assets, trailing only behind the likes of HDFC Bank and ICICI Bank. It caters to various segments such as personal, NRI, corporate, business, and agro & rural. Some of the banking products offered by the bank are loans, accounts, deposits, cards, foreign exchange, investment services, wealth management, and insurance.

Axis Bank Financial Performance FY 2017-18

       Balance Sheet:

For the year ended on March 31, 2018, Axis Bank reported its balance sheet to be at Rs.6,91,330 crore - a growth of 15% over the previous financial year.

The bank’s total advances grew by 18% YoY to Rs.4,39,650 crore. Of these, retail loans grew by 23% over the year to the Rs.2,06,465 crore, SME loans grew by 19%, and corporate credit grew by 12% YoY.

Axis Bank Shares a Good Investment For Long-Term

Considering the bank’s total deposits, they were reported to be at Rs.4,53,622 crore as on March 31, 2018. Current Account and Savings Account deposits (CASA) grew respectively by 16% and 23%, YoY on a cumulative daily average basis. CASA deposits accounted for 46% of total deposits.

       Profit & Loss Statement:

As on March 31, 2018, the bank’s net interest income grew by 3% YoY to the Rs.18,618 crore. As for the bank’s other income, it shrank by 6% over the course of the financial year to stand at Rs.10,967 crore.

Considering the total expenditure for the FY 2017-18, it was reported to be worth Rs.41,152 crore, in comparison to Rs.38,649 crore reported for the previous financial year. Consequently, the bank’s operating profit went down by 11% YoY to the Rs.15,594 crore.

Over the course of the fiscal year, the bank’s provisions and contingencies grew by a little over 20% to the Rs.15,472.9 crore. Owing to this significant rise in the provisions for bad loans, the company’s profitability was impacted. For the entire year, it reported a net profit after tax of Rs.276 crore; for the FY 2016-17, the same figure was reported to be at Rs.3,679 crore. This marked a drop of 93% in the profit, YoY.

Consequently, the company’s basic earnings per share came down from Rs.15.40 to Rs.1.13, YoY.

       Asset Quality:

As of March 31, 2018, the amount of gross non-performing assets were reported to be worth Rs.34,248 crore, while the company’s net non-performing assets were worth Rs.16,591.7 crore. Both these figures have increased substantially over the course of the financial year. In terms of ratio, the Gross NPA grew from 5.04% to 6.77% YoY while Net NPA grew from 2.11% to 3.40% YoY.

Axis Bank Stock Returns

Considering the performance of the Axis Bank stock, the shares have moved up since the start of 2016 to deliver returns worth more than 20% over the course of the last couple of years. At the start of 2016, the shares were trading hands at levels close to Rs.450. The same, by September 2016, were trading at levels above Rs.610 although, they failed to gain momentum at those levels.

Consequently, by the end of the year, the shares were back to their previous levels at Rs.430.

In 2017, on the other hand, the rise was far more gradual and steady. Once again, the scrip commenced the year trading at levels close to Rs.450. By the end of the first half of the calendar year, the scrip had crossed the Rs.510 mark. The stock price of Axis Bank moved on to gain another 10% over the course of the remainder of the year. The closing price of the scrip on December 29, 2017, was Rs.563.95.

As for the performance of the scrip in 2018, it was quite bearish in the first half of the year. The Axis Bank shares were traded at levels below Rs.550 for most of the time in this period. It wasn’t until the month of July that the stocks moved on to gain dramatically. In September, the shares soared to hit their 52-week high at Rs.677.95 on the NSE.

However, this meteoric rise was followed by a sharp dive which resulted in a drop of little over 15%. As of early September, the stock price of Axis Bank was varying at levels close to Rs.570.

As for the dividends, Axis Bank announced a 250% dividend in July 2016 and July 2017.

Are Axis Bank Shares Worth Buying?

As mentioned earlier, Axis Bank is one of the largest private banks in the country. In terms of assets owned, it is the third largest private lender in the country, trailing only behind ICICI Bank and HDFC Bank.

The bank’s balance sheet has grown like clockwork, year-after-year. The lender has recorded a healthy growth in advances and deposits segments, backed by a strong market penetration. As of March 31, 2018, Axis Bank had a network of 3,703 domestic branches and extension counters in 2,163 centers. It is also one of the top three players in the mobile banking space. Click on the website bankbazaar.com to know more about the latest Axis bank stock trends.

However, considering the profitability of the lender for the FY 2018, it has taken a dire hit on account of provisioning for bad loans. It is a well-known fact that Axis Bank has been tackling this issue for quite some time now and it has taken provisioning worth thousands of crores to surmount this problem.

It is also worth mentioning that the bank will have a new Chief Executive Officer - Amitabh Chaudhary, who will be taking over the reigns from Shikha Sharma on January 1, 2019, for a period of three years.

The bank was compelled to hire a new CEO after the Reserve Bank of India turned down its proposal to extend Shikha Sharma’s tenure. While the reasons for this haven’t been made official, many experts believe that it was owing to the divergence in the recognition and provisioning for non-performing assets.

Final Thoughts

It goes without saying that the RBI is absolutely determined to tackle the bad loans problem - whether it is in the public sector or private sector. With this mind, we may very well expect the asset quality of Axis Bank to improve in the future. Consequently, we may also expect better financial performance and, in turn, superior stock returns. However, for this to happen, investors will have to stay invested for a long-term.

Nonetheless, before investing in this stock, it is strongly recommended that you research thoroughly on the lender. For more information on stocks, you can visit Bankbazaar.com.

1 comment:

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