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Axis Bank – Dividend Discount Valuation
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Axis Bank is the third largest private sector bank in India. The Bank offers the entire spectrum of financial services to customer segments covering Large and Mid-Corporates, MSME, Agriculture and Retail Businesses.
The Bank has a large footprint of 4,758 domestic branches (including extension counters) with 10,990 ATMs & 5,972 cash recyclers spread across the country as of 31st March 2022. The Bank has 6 Axis Virtual Centers with over 1,500 Virtual Relationship Managers as of 31st March 2022. 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, Sharjah and an overseas subsidiary in London, UK. The international offices focus on Corporate Lending, Trade Finance, Syndication, Investment Banking, Liability Businesses, and Private Banking/Wealth Management offerings.
Axis Bank is one of the first new generation private sector banks to have begun operations in 1994. The Bank was promoted in 1993, jointly by Specified Undertaking of Unit Trust of India (SUUTI) (then known as Unit Trust of India), Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC), National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd., and United India Insurance Company Ltd. The shareholding of Unit Trust of India was subsequently transferred to SUUTI, an entity established in 2003.
With a balance sheet size of Rs. 11,75,178 crores as on 31st March 2022, Axis Bank has achieved consistent growth and with a 5-year CAGR (2016-17 to 2021-22) of 14% each in Total Assets & Advances and 15% in Deposits.
The Bank has 9 subsidiaries namely, Axis Capital Ltd. (ACL), Axis Securities Ltd. (ASL), Axis Trustee Services Ltd. (ATSL), Axis Asset Management Company Ltd. (AAMC), Axis Mutual Fund Trustee Ltd. (AMFT), Axis Finance Ltd. (AFL), A.TREDS Ltd.(ATL), Axis Bank UK Ltd. (ABUK) and Freecharge Payment Technologies Private Ltd. (Freecharge).
The company is headed by Amitabh Choudhary, who works as the Managing Director and Chief Executive Officer.
Mission Statement: To be the preferred financial solutions provider excelling in customer delivery through insight, empowered employees and smart use of technology[/vc_column_text][vc_single_image image=”72383″ img_size=”full” alignment=”center” css=”.vc_custom_1671890302335{margin-top: 40px !important;margin-right: 40px !important;margin-bottom: 40px !important;margin-left: 40px !important;border-top-width: 1px !important;border-right-width: 1px !important;border-bottom-width: 1px !important;border-left-width: 1px !important;border-left-color: #000000 !important;border-left-style: solid !important;border-right-color: #000000 !important;border-right-style: solid !important;border-top-color: #000000 !important;border-top-style: solid !important;border-bottom-color: #000000 !important;border-bottom-style: solid !important;border-radius: 1px !important;}”][vc_column_text]
Dividend Discount Valuation
We have considered a multi growth dividend discount model for valuing Axis Bank. A dividend discount model is used for valuing the equity of the company when the company has adopted a stable dividend payment policy i.e. there is high visibility of the quantum of dividend payment in the future and there is little to no variability in the dividend payment history. In most cases, financial service firms and banks are valued using dividend discount valuation models only since they distribute the major chunk of their corporate profits as dividends every year, which goes to say that they have a stable dividend distribution policy.
Excerpts from the model summary are given below.[/vc_column_text][vc_single_image image=”72385″ img_size=”large” alignment=”center” css=”.vc_custom_1671891421659{margin-top: 40px !important;margin-right: 40px !important;margin-bottom: 40px !important;margin-left: 40px !important;border-top-width: 1px !important;border-right-width: 1px !important;border-bottom-width: 1px !important;border-left-width: 1px !important;border-left-color: #000000 !important;border-left-style: solid !important;border-right-color: #000000 !important;border-right-style: solid !important;border-top-color: #000000 !important;border-top-style: solid !important;border-bottom-color: #000000 !important;border-bottom-style: solid !important;border-radius: 1px !important;}”][vc_single_image image=”72386″ img_size=”large” alignment=”center” css=”.vc_custom_1671891438360{margin-top: 40px !important;margin-right: 40px !important;margin-bottom: 40px !important;margin-left: 40px !important;border-top-width: 1px !important;border-right-width: 1px !important;border-bottom-width: 1px !important;border-left-width: 1px !important;border-left-color: #000000 !important;border-left-style: solid !important;border-right-color: #000000 !important;border-right-style: solid !important;border-top-color: #000000 !important;border-top-style: solid !important;border-bottom-color: #000000 !important;border-bottom-style: solid !important;border-radius: 1px !important;}”][vc_column_text css=”.vc_custom_1672120297371{margin-bottom: 20px !important;}”]As per our model, Axis Bank’s fair price is to the tune of Rs 2000 per share, which equates to an upside of about 100% from current levels.[/vc_column_text][vc_column_text]The assumptions in the models are based on the most recent guidance given by the Axis Bank’s management con-call. These assumptions are subject to change as more info comes to fore.[/vc_column_text][vc_zigzag][vc_column_text]Disclosure:
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SEBI-NSE-INB/F/E231435737,BSE-INB011435733/INF011435833, DP-IN-DP-CDSL-679-2013 SEBI- REG.NO- MCX & NCDEX – INZ000015731[/vc_column_text][/vc_column][/vc_row]