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Axis Bank Ltd
Infra exposure overhang. We retain OW on Axis given the recent correction, but
it’s not one of our preferred picks in the space. We believe that its risky exposures to
infrastructure will be an overhang on the coming months, especially in the IPP space
where we expect some debt restructuring. Margins are also under pressure, but we
think that’s well embedded in street expectations. We cut earnings by 2% for FY12E
due to lower loan growth and margins and revise our Mar-12 PT to Rs1600/share
based on 2 stage Gordon growth model (Sep-11 PT of Rs1800/share earlier).
Margins trended down. The spike in wholesale funding costs should impact
margins – we are baking in a 20bps contraction in FY12. There will be some backended impact as the bank has a majority of its loans as floating rate – we think
margins will come under severe pressure when cost of deposits push upwards in
2HFY12.
Loan growth linked to economy. We are cutting loan growth from 25% to 23%, in
line with our revised view on the sector. There is a risk that loan growth could slip
further, given Axis’ exposure to the infra sector and mid-corporates – loan demand
from these tend to be volatile.
Credit quality ok, for now. We do not see any significant risk to credit quality, as
we expect a muted slowdown. However, the stresses on IPP debt is an overhang that
we think will prevent a re-rating, given Axis' significant exposures in this sector.
Risks to our view. The key risk to our OW rating is a restructuring of a large IPP
project, which would negatively impact sentiment across the sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Axis Bank Ltd
Infra exposure overhang. We retain OW on Axis given the recent correction, but
it’s not one of our preferred picks in the space. We believe that its risky exposures to
infrastructure will be an overhang on the coming months, especially in the IPP space
where we expect some debt restructuring. Margins are also under pressure, but we
think that’s well embedded in street expectations. We cut earnings by 2% for FY12E
due to lower loan growth and margins and revise our Mar-12 PT to Rs1600/share
based on 2 stage Gordon growth model (Sep-11 PT of Rs1800/share earlier).
Margins trended down. The spike in wholesale funding costs should impact
margins – we are baking in a 20bps contraction in FY12. There will be some backended impact as the bank has a majority of its loans as floating rate – we think
margins will come under severe pressure when cost of deposits push upwards in
2HFY12.
Loan growth linked to economy. We are cutting loan growth from 25% to 23%, in
line with our revised view on the sector. There is a risk that loan growth could slip
further, given Axis’ exposure to the infra sector and mid-corporates – loan demand
from these tend to be volatile.
Credit quality ok, for now. We do not see any significant risk to credit quality, as
we expect a muted slowdown. However, the stresses on IPP debt is an overhang that
we think will prevent a re-rating, given Axis' significant exposures in this sector.
Risks to our view. The key risk to our OW rating is a restructuring of a large IPP
project, which would negatively impact sentiment across the sector.
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