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UBS Investment Research
AXIS Bank
Strong show
„ Results beat expectation on most counts
Axis Bank Q3 results beat ours and street expectations on most counts. Key
highlights: 1) Margins expanded 10 bps sequentially to 3.8%, 2) NPL additions
slowed to 1.2% in Q3 from 1.7% in H1, 3) strong loan growth at 46% YoY and
12% QoQ, 4) Fee income growth of 21% Y/Y, 5) Cost to income ratio declined to
42% and 6) Trading gains of Rs1.35 bn as compared to Rs1.7bn in Q3FY10.
„ Outlook on loan growth strong while margins likely to normalise
Management is looking at 28-30% loan growth in FY11and 30% higher than
system in FY12. We expect the bank to grow loans at 26% CAGR over FY10-12E.
driven by corporate and retail portfolio. NIMs expanded by 10 bps to 3.8% on back
of lending rate hikes affected in Q3 and high average CASA (42%); however we
expect it will likely normalize by 15-20 bps at least on back of deposit re-pricing.
„ Gross NPA addition slows down to 1.2%
Slippages in the Q3 were at 1.2% well below 1.7% witnessed in H1, management
expects the current rate and stable and maintains relapse rate of 20-25%. Credit
costs (as % of loans) were stable at 1.1% in Q3 and improved its provisioning
coverage to 74%. Gross and Net NPA were stable at 1.1% and 0.3% respectively.
The bank restructured loans worth Rs 1.6 bn during the quarter of which 1.1 bn
was CDR linked; total restructured loans stands at 1.7% of loan book
„ Valuation: Maintain BUY
We largely maintain our estimates. Axis Bank is one of our preferred picks in the
sector and we maintain our PT of Rs 1600 (derived using residual income model.)
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