Axis Bank: maintain BUY target price of Rs.1825; says Kotak Sec

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AXIS BANK
PRICE: RS.1564 RECOMMENDATION: BUY
TARGET PRICE: RS.1825 FY12E P/E: 15.1X, P/ABV: 2.9X

Good performance on core operating front; gross NPA was
contained due to higher write-offs, despite elevated slippage…
Axis bank reported strong growth in its net interest income (40.5%)
buoyed by strong growth in its loan book (36.5% YoY; however, muted
growth of 1.8% QoQ) along with 16 bps YoY improvement in margins. Its
net profit grew 38.3% on back of robust growth in its core business and
moderate growth in provisions & contingencies.
Non-interest income declined marginally to Rs.10.33 bn during Q2FY11
(decline of 3.0% YoY) on back of lower trading profit (decline of 51.6%).
During the same period, fee income grew moderately at 18.0% YoY;
however, it lagged overall business growth.
It continued to display superior liability franchise which is visible in terms
of its CASA mix (41.5% at the end of Q2FY11). Its NIM improved (16 bps
YoY) on back of lower cost of funds (decline of 66 bps YoY) which is
underpinned by strong CASA mobilization.
In absolute terms, gross NPA inched up marginally (1.6% QoQ) due to
higher write-offs, despite elevated slippage witnessed during Q2FY11.
During the same period, net NPA declined slightly on higher provisions
done by the bank. As a result, coverage ratio improved to 80.1% (including
prudential write-offs).
Restructured book has performed better than our expectations. At the end
of Q2FY11, cumulative restructured book stands at Rs.20.6 bn (1.86% of net
advances).
We have slightly tweaked our earning estimates for FY11 & FY12. We are
also rolling over the target multiples to FY12E estimates. We maintain BUY
rating on the stock with the target price of Rs.1825 (revised upward from
Rs.1490) based on P/ABV of 3.4x its FY12E adjusted book value and P/E of
17.5x its FY12E earnings.