Visit http://indiaer.blogspot.com/ for complete details Raise PO on higher earnings, but maintain Neutral
We raise our PO on Axis Bank to Rs1700 (US$39 per GDR) to factor in 6/7%
increase in earnings for FY11/12 and the possibility of the bank continuing to
trade (3.2-3.3x fwd book) at a sharp premium to theoretical P/B multiples due to
strong earnings momentum, improving macro, and likelihood of asset quality
improving. We est. earnings growth to sustain at +28-30% and +20% RoEs
(FY12). But, we maintain Neutral as a lot of this is priced in.
2QFY11: Reported earnings beat est. on higher fees
by fees. Topline grew +40% yoy (<2% ahead of estimates) on expanding margins
(up 16bps yoy to 3.7%) and strong volume growth of +36% yoy (bulk of the
growth came from large corp. book). CASA ratio down +120bps yoy to 41.5%.
While fees grew only 10% yoy, it was largely driven by corporate fees (up +50%
yoy). Retail, SME and biz. banking fee disappointed.
Slippages still a worry, but asset quality manageable
While headline asset quality appears stable qoq (gross and net NPLs rose by only
2%), the pace of slippages was a tad higher qoq at Rs4.5bn (Rs4.2bn in 1Q).
The rise in slippages came from SME, agri and unsecured retail loans. Fresh relapse
from restructured book was only Rs600mn in 2QFY11, but overall re-lapse
ratio is amongst the highest at ~20% and could rise to 25% according to the bank.
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