Visit http://indiaer.blogspot.com/ for complete details • In-line 2Q11: Axis Bank reported 2Q11 net profit at Rs7.35bn, up 38%
y/y, in line with our and consensus forecasts. Positive surprise on
margins and non-interest income was netted off by cost pressures. We
stay positive — loan growth and normalizing credit costs drive strong
EPS for the bank.
contraction drove a positive NII surprise. Axis’ 2Q NIM came in at
3.68% (1Q11- 3.71%, JPM - 3.6%). Acceleration in its investment yield
was a key factor, which we attribute to the sharp spike in short-term
yields from June. We expect margins to moderate as wholesale term
deposits rise and the book leverages up.
• Large corporate segment driving revenue growth: The large
corporate segment delivered loan growth at 59% y/y and fee income
growth of 54% y/y. Growth from the SME segment is slow as asset
quality for SMEs is still stabilizing and credit standards are tighter.
• Asset quality stable, not robust yet: GNPAs held at 1Q11 levels, but
incremental gross delinquency stayed above 2%. Credit costs were in
line at 1.1-1.2%, and the impact of the improving economy is yet to flow
through completely. Management flagged that retail delinquencies had
stabilized but the SME book continues to be soft – stopped short of
guiding improvement in 2H11.
• Maintain Overweight, classic cyclical play: We see strong credit
growth and lower credit costs driving ~24% EPS growth for Axis over
FY10-12E. Margin moderation is unlikely to be a risk, with short-term
investments cushioning rising wholesale deposit costs. We maintain our
OW rating with a Sep-11 PT of Rs1800. The key risks are continued
SME delinquencies and an interest rate shock from aggressive RBI
action.
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