At Rs 906.70 per share, money has been raised at a substantial premium to the current book value.
Axis Bank’s plan to build a strong capital base is not a bad idea; the bank has raised around Rs 3,900 crore through a combination of GDR issue, qualified institutional placement (QIP) and a preferential allotment to promoters. The money has been raised at a valuation of 3.2 times price to book value for March 2009.
Although, the equity will be diluted by 12 per cent, analysts point out that the book value will go up by an estimated 18 per cent in 2009-10 and around 16 per cent in the following year. It’s not too clear whether the money will be used for any non-banking ventures, but it must find its way into profitable channels, else the return on equity (RoE) would get depressed.
There will not be any shortfall of capital when it comes to growing the asset book and the bank should be able to grow its loan book by about 25 per cent in the current year, a rate that will probably be higher than the industry growth rate.
Between 2006 and 2009, the bank saw a compounded loan growth rate of over 50 per cent, of course, on a much lower base. At Rs 919, the stock trades at 2 times price to estimated book value for 2010-11, which is not too expensive given the capital cushion and an expected RoE of close to 18 per cent.
Also despite the fairly high level of restructured loans of around 3.2 per cent of the loan book as at the end of June 2009, gross non-performing loans (NPL) are unlikely to cross 1.5 per cent.
