This is the busiest time for us as almost around 80% of the businesses that we keep close eye on report their full year financial results and also talk about the business conditions out in the woods.

Banking business is the barometer of any country to gauge the economic activity. Here are the few things you should keep close eyes on financial statements of the banks.

Axis Bank March 2015 March 2014 % change
Loan Book 281,083.03 230,066.76 22%
Investments 132,342.83 113,548.43 17%
Deposits 322,441.94 280,944.56 15%
Interest earned 35,727.46 30,735.96 16%
Other income 266.03 184.30 44%
Cost to income ratio 27% 27%
Operating profits 13,614.38 11,589.72 17%
Provisions 2,331.14 2,110.30 10%
Reported Profits 7,448.48 6,309.17 18%
Gross non-performing assets 4,110.19 3,146.41 31%
Capital invested by shareholders 44,676.51 38,220.49 17%

Source: Financial statements released by Axis Banks

The loan book of Axis bank grew by 22% and their investments by 17%. This really tells us that they have no issues in regards to lending money and customers are walking in the banks for their products even while interest rates are high.

Also, deposits are growing at healthy rates and their net interest margin has also improved. Same time their provisions for bad loans had gone up by 10% and their gross non-performing assets have climbed up by 31%.

The shareholders got back Rs 0.18 for every Rs 1 reinvested in the business which is a bit better than the return on equity (17%) they reported for the year 2015.

Let’s talk a bit about valuations, we valued this business for the year 2015 to be Rs 300 per share. Looking at the consensus forecast for the next two years, we can expect its values for the year 2016 to be in range of Rs 330 – 355 and Rs 425 – 465 for the year 2017. Looking at the historical valuations performance, we expect its value for the year 2016 to be Rs 350 and Rs 410 for 2017.

A growth of Rs 50 – 60 in the intrinsic value for the business whose book value is Rs 190 tells us that this business is the healthy business.

We will share similar matrix for the few more banking businesses in our next few post. Stay tuned.

We also own shares of Axis bank in our portfolio.

Happy Investing!!