Ambit on Axis bank: Bellwether sets the pace

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Bellwether sets the pace
 NII growth at 40%; net profit growth marginally ahead of expectations
 YoY loan book growth at 36% suggests disproportionate mkt share gain
 Sequential dip in NIMs arrested on account of strong CASA accretion
 Restructured portfolio behaves better than earlier anticipated
 Maintain loan book growth forecast of ~26% for current fiscal
 Maintain ‘HOLD’ with revised target price of Rs1,725 (rounded-off)
 Assumptions on asset quality remain conservative through FY11E

Axis Bank reported its Q2/H1FY11 results broadly ahead of expectations.
While the NII clocked in at a stronger-than-anticipated Rs16.15bn, net profit
clocked in at Rs7.35bn, marginally ahead of expectations. While the P&L has
panned out more or less in line with expectations, what has clearly surprised
us is the balance sheet growth – loan book growth at 36% is visibly out of sync
with the systemic growth and indicates a disproportionate market share gain
during the quarter.
Although the bank continued to witness slippages from the SME portfolio, the
asset quality ratios continue to remain at comfortable levels.
Valuation and recommendation: Axis Bank currently quotes at 3.0x our
FY12E ABVPS of Rs531. While we have maintained our forecasts, our EVA
approach yields a higher target price due to the lower discounting factor.
While we maintain our 'HOLD' recommendation with a revised TP of Rs1,725,
we continue to advocate caution on the asset quality front in light of
the high skew towards BBB-rated large corporates.