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Axis Bank Ltd
▼ Neutral
Previous: Overweight
AXBK.BO, AXSB IN
Limited upside, downgrade to Neutral
• Limited upside, downgrade to Neutral: We are downgrading Axis to
Neutral as the upside to our Mar-12 PT is just ~5%. Axis Bank reported
4Q11 PAT at Rs10.2bn up 34% y/y. In spite of the ~12% profit beat
(higher than expected loan/fee growth), margin contraction was higher
than expected. Credit costs continue to remain low but high IPP
exposure remains a concern.
• Strong growth but CASA pressure: Axis reported strong ~15% q/q
loan growth mainly driven by strong growth in the Agri (direct Agri
targets) and SME (low growth in 9M11) space. CASA deposits on an
average basis were lower by ~350bps q/q and the overall funding mix
deteriorated with >70% incremental funding through high cost term
deposits.
• Margin disappointment: Margins contracted ~37bps q/q to 3.44%
(JPMe -10bps contraction) as cost of term deposits increased by ~125bps
q/q. Re-pricing of a large proportion of bulk deposits and growth funded
through high cost deposits led to the margin disappointment. We now
believe the margin guidance of 3.25-3.5% is not conservative and
reflects the funding pressure experienced.
• Credit costs low but high IPP exposure is a risk: Asset quality
improvement was inline with the sector with low delinquencies at
~75bps and credit costs at ~50bps. We see the positive asset quality
trend continuing but high infra exposure at ~10% remains a medium
term asset quality risk though current IPP asset quality remains stable.
• Downgrade to Neutral: We maintain earnings at 7% below consensus
but we cut our Gordon growth based Mar-12 PT by 5% to Rs1525/share
(Rs1600 earlier) to factor in concerns on margins and IPP asset quality.
We downgrade Axis to Neutral as upside potential is ~5% and believe
risk-reward is unfavorable. Key upside risk is better than expected
liquidity aiding margins, restructuring of IPP debt remains a key
downside risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Axis Bank Ltd
▼ Neutral
Previous: Overweight
AXBK.BO, AXSB IN
Limited upside, downgrade to Neutral
• Limited upside, downgrade to Neutral: We are downgrading Axis to
Neutral as the upside to our Mar-12 PT is just ~5%. Axis Bank reported
4Q11 PAT at Rs10.2bn up 34% y/y. In spite of the ~12% profit beat
(higher than expected loan/fee growth), margin contraction was higher
than expected. Credit costs continue to remain low but high IPP
exposure remains a concern.
• Strong growth but CASA pressure: Axis reported strong ~15% q/q
loan growth mainly driven by strong growth in the Agri (direct Agri
targets) and SME (low growth in 9M11) space. CASA deposits on an
average basis were lower by ~350bps q/q and the overall funding mix
deteriorated with >70% incremental funding through high cost term
deposits.
• Margin disappointment: Margins contracted ~37bps q/q to 3.44%
(JPMe -10bps contraction) as cost of term deposits increased by ~125bps
q/q. Re-pricing of a large proportion of bulk deposits and growth funded
through high cost deposits led to the margin disappointment. We now
believe the margin guidance of 3.25-3.5% is not conservative and
reflects the funding pressure experienced.
• Credit costs low but high IPP exposure is a risk: Asset quality
improvement was inline with the sector with low delinquencies at
~75bps and credit costs at ~50bps. We see the positive asset quality
trend continuing but high infra exposure at ~10% remains a medium
term asset quality risk though current IPP asset quality remains stable.
• Downgrade to Neutral: We maintain earnings at 7% below consensus
but we cut our Gordon growth based Mar-12 PT by 5% to Rs1525/share
(Rs1600 earlier) to factor in concerns on margins and IPP asset quality.
We downgrade Axis to Neutral as upside potential is ~5% and believe
risk-reward is unfavorable. Key upside risk is better than expected
liquidity aiding margins, restructuring of IPP debt remains a key
downside risk.
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