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EARNINGS REVIEW
Axis Bank (AXBK.BO)
Neutral Equity Research
Above expectations on higher loan growth, NII; Retain Neutral
What surprised us
Axis Bank reported 3QFY11 net profit of Rs8.91bn, up 36% yoy and 13%
above our estimate on higher NII (8% above GSe). Key highlights: (1) Loan
growth was significantly higher (+46% yoy and 12% qoq, GSe 33%), driven
by loans to large- and mid-sized corporates (up 49% yoy). Management
has been guiding to lower growth, but delivering much higher numbers.
We therefore raise our loan growth estimate by 6-7% for the next three
years. However, we would be skeptical and concerned about significantly
high loan growth in the current economic environment. (2) NII grew by a
relatively lower 28% yoy (growth likely more back-ended) driven by
advances growth as well as NIM expansion of 13bps qoq to 3.81%. We
expect margin compression over the next two to three quarters as cost of
funds catch-up and ability of banks to pass on cost increases to corporate
India (as risk to growth and NPLs increase) gets affected. (3) Fees income
grew 21% yoy, driven by corporate business. (4) Gross NPA rose 26% yoy
and 9% qoq to Rs14.8 bn (1.1% of loans), while net NPLs remained low at
0.3%. Incremental slippage ratio was 1.6%, including Rs260 mn or 1.3% of
opening restructured loans, that slipped into NPLs.
What to do with the stock
We revise FY11E-FY13E PAT by 6%/-1%/-4% to factor in higher NII for
FY11, but factor in lower NIM going forward. Our unchanged 12-m
CAMELOT based TP of Rs1,510 implies 23% absolute upside in the stock.
We however retain a Neutral rating given: (1) Macro concerns, which may
delay stock price appreciation and (2) We find higher value appreciation in
other stocks in the banking space. Key risks: dependence on bulk deposits,
strong loan growth may lead to the bank tapping capital market in FY12
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