Private sector player Axis Bank proposes to raise Rs 6,000 crore to fund its business growth. The issuance of long-term bonds or non-convertible debentures will be conducted on a private placement basis.
Morningstar’s equity analyst Suruchi Jain has always liked the fact that growth occurs with lean operations. Axis Bank’s cost-to-income is the industry’s lowest, and is the basis for its narrow economic moat rating. In a note in April, she noted that the bank’s cost-to-income ratio plunged, to 41.5% versus its historic average of 43%, despite investing in branch expansion. In her last quarterly review, she noted that on the expenses front, both operating expenses (up 17%) and provisions (down 46%) were below our expectations, which points to the bank’s ability to control costs in a challenging environment, further reaffirming our narrow economic moat rating on Axis.
She maintains her positive view on the stock and believes the bank's ability to keep costs low while continuing to generate high earnings growth of 28.5% over the past 5 years, speaks to its competitive advantage. The bank continues to keep its operating costs-to-income ratio below 45%, which is commendable. Over the coming 5-year horizon, she forecasts average annual growth in Axis Bank’s earnings at 18%, and returns on equity above 18% every year.
To read a detailed analysis on the stock, click here.
