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Axis Bank (AXSB)
Banks/Financial Institutions
NIM expansion providing comfort on rising slippages. Axis Bank reported a strong
quarter driven by healthy NIM expansion. While high NIMs provide near-term comfort,
we believe that the bank will face pressure on slowing fee income and rising loan-loss
provisions over the next few quarters. We revise our price target to `1,500 (from
`1,700) primarily to factor higher provisions, and dilution on acquisition of Enam
business and increase in cost of equity. Improvement in the business environment will
act as a key trigger for the stock while higher NIMs can provide earnings comfort on
rising slippages. Retain BUY.
NIM expansion offset by increase in provisions due to higher slippages; YTD loan growth flat
A mixed quarter with strong improvement in NIM was offset by higher-than-expected provisions
due to increase in delinquency trends and MTM for investments portfolio. Comfort on earnings
has improved by increasing NIMs (50 bps qoq) even as headwinds emerge from weak fee income
growth (32% yoy growth but high base to impact growth in 2HFY12E) and higher provisions over
the next few quarters. Asset quality trends appear comfortable in the medium term (slippages at
1.5%) though we expect headwinds to translate into higher slippages/restructuring in FY2012-
13E. While NIMs may not sustain at 3.8% (management target for NIMs maintained at 3.25-
3.5%) as the bank builds a low-yield PSL book over the next few quarters, the medium-term NIMs
appear to have improved led by improvement in liability franchise (CASA ratio improved 170 bps
qoq). We believe that the bank would be able to grow loan book ahead of industry average,
especially as it builds its PSL portfolio as YTD growth is very marginal.
Profitable growth despite headwinds; retain BUY with TP of `1,500
We see Axis Bank delivering earnings growth of 18% CAGR on the back of 20% balance sheet
growth and about 18% growth in fee income for FY2011-13E (the stock is currently trading at
1.8X book and 9.4X FY2013E EPS). We expect RoEs in the range of 18-19% levels. Loan-loss
provisions are expected to rise to 1.2% levels (from 0.8% currently) on the back of higher
slippages (1.5% from about 0.6% currently) and through higher restructuring. The bank has
additional levers (especially thorough off-balance sheet items which we believe is currently
consuming higher share of capital) to grow at current levels over the next few quarters without
raising fresh equity (Tier-1 ratio is at 8.5%).
We maintain our BUY rating but revise our TP to `1,500 (`1,700 earlier) factoring (1) higher
provisions in FY2012-13E in light of the current economic environment, (2) dilution impact of
3.3% on book value (post merger with Enam) and (3) marginally increasing our cost of equity
estimates (50 bps to 14.3%).
Strong NIM improvement led by re-pricing and improvement in CASA deposits
Axis Bank’s net interest margin (NIM) was 3.8% in 2QFY12—50 bps qoq improvement as
cost of funds was maintained while asset yields improved by about 65 bps qoq. NII grew
24% yoy to `20.1 bn. Cost of deposits was flat at 6.1% (qoq) as the bank benefitted from
an improvement in CASA ratio (170 bps qoq) while wholesale deposits have remained flat
qoq. Lending re-pricing continued with the quarter showing 80 bps qoq improvement while
investment yields improved by about 50 bps. CD ratio for the quarter was flat at 72%.
Axis Bank’s strong performance for the quarter on NIMs gives headroom on earnings
growth (for higher credit costs) though we factor some compression emerging over the next
few quarter as the underlying loan mix shifts towards low yielding PSL (priority sector loans).
Based on our revised estimates, we are building an overall decline in NIMs of about 15 bps
in FY2012E and about 10 bps improvement in FY2013E as the underlying cost of funds
decline.
Slippages rise to 1.5%; lower write-off results in sharp rise in gross NPLs qoq
Axis Bank’s reported slippages were higher at 1.5% levels as against 0.8% (annualized)
reported in the past few quarters. Slippages were primarily in the mid-corporate, SME and
agriculture and very few from large corporate segment. Upgradation and recoveries were
higher at `1.6 bn (against `0.8 bn in June 2011), but the bank wrote off lower loans of
about `1.6 bn resulting in higher increase in gross NPLs.
Gross NPLs were at `17.4 bn (1.1% of loans) while net NPLs were at `5.4 bn (0.3% of
loans) compared to `15.7 bn and `4.6 bn, respectively in the previous quarter. Loan loss
provisions for the quarter were at 0.7% (annualized). We are building loan-loss provisions at
0.9% for FY2012-13E. Restructured loans (1.5% of loans, 12% qoq increase) were mainly
from MFIs.
YTD loan growth flat despite yoy growth of 27%; CASA ratio improved qoq
Axis Bank reported a loan growth of 27% yoy though YTD growth continues to remain flat.
We expect loan growth to remain above industry average as the bank slowly builds a PSL
portfolio (has been running off for the past two quarters). Sequentially, the bank saw strong
loan growth (6% qoq) mainly led by retail (8.5%) and large corporate segment (13% qoq).
Housing loans grew 45% yoy while auto and credit card loans grew 40% yoy.
In the corporate loans segment, we note that loans to telecom sector have reduced to fairly
insignificant levels (10% in 1QFY11). We note that the top 10 sectors contributed 47% of
exposure (funded exposure) in September 2011 as against 57% in June 2011.
Deposits increased by 26% yoy (6% qoq) primarily driven by healthy growth in low-cost
CASA deposits. CASA ratio improved 170 bps qoq to 42% compared to 40% in June 2011.
Fee income to slow on the back of a higher base and low corporate activity
We expect fee income to slow down as we see weakness in corporate activity levels (primary
segment driving overall fee income) and a higher base emerging for Axis Bank in 2HFY12E
(2HFY11 grew 50% over 1HFY11). Growth in fee income was strong at 32% yoy driven by
strong growth in corporate (27% yoy), treasury/debt capital market (80% yoy) and retail
fees (39% led by wealth management products). We could expect a more severe slowdown
(especially from corporate segment) if the bank delays raising capital by more than a few
quarters. We are currently building fee income to grow in line with balance sheet growth.
Other highlights for the quarter
Cost-income ratio was at 45%. The bank opened 35 branches and 723 ATMs in 2QFY11.
The bank made a provision of `800 mn primarily for depreciation in its equity portfolio.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Axis Bank (AXSB)
Banks/Financial Institutions
NIM expansion providing comfort on rising slippages. Axis Bank reported a strong
quarter driven by healthy NIM expansion. While high NIMs provide near-term comfort,
we believe that the bank will face pressure on slowing fee income and rising loan-loss
provisions over the next few quarters. We revise our price target to `1,500 (from
`1,700) primarily to factor higher provisions, and dilution on acquisition of Enam
business and increase in cost of equity. Improvement in the business environment will
act as a key trigger for the stock while higher NIMs can provide earnings comfort on
rising slippages. Retain BUY.
NIM expansion offset by increase in provisions due to higher slippages; YTD loan growth flat
A mixed quarter with strong improvement in NIM was offset by higher-than-expected provisions
due to increase in delinquency trends and MTM for investments portfolio. Comfort on earnings
has improved by increasing NIMs (50 bps qoq) even as headwinds emerge from weak fee income
growth (32% yoy growth but high base to impact growth in 2HFY12E) and higher provisions over
the next few quarters. Asset quality trends appear comfortable in the medium term (slippages at
1.5%) though we expect headwinds to translate into higher slippages/restructuring in FY2012-
13E. While NIMs may not sustain at 3.8% (management target for NIMs maintained at 3.25-
3.5%) as the bank builds a low-yield PSL book over the next few quarters, the medium-term NIMs
appear to have improved led by improvement in liability franchise (CASA ratio improved 170 bps
qoq). We believe that the bank would be able to grow loan book ahead of industry average,
especially as it builds its PSL portfolio as YTD growth is very marginal.
Profitable growth despite headwinds; retain BUY with TP of `1,500
We see Axis Bank delivering earnings growth of 18% CAGR on the back of 20% balance sheet
growth and about 18% growth in fee income for FY2011-13E (the stock is currently trading at
1.8X book and 9.4X FY2013E EPS). We expect RoEs in the range of 18-19% levels. Loan-loss
provisions are expected to rise to 1.2% levels (from 0.8% currently) on the back of higher
slippages (1.5% from about 0.6% currently) and through higher restructuring. The bank has
additional levers (especially thorough off-balance sheet items which we believe is currently
consuming higher share of capital) to grow at current levels over the next few quarters without
raising fresh equity (Tier-1 ratio is at 8.5%).
We maintain our BUY rating but revise our TP to `1,500 (`1,700 earlier) factoring (1) higher
provisions in FY2012-13E in light of the current economic environment, (2) dilution impact of
3.3% on book value (post merger with Enam) and (3) marginally increasing our cost of equity
estimates (50 bps to 14.3%).
Strong NIM improvement led by re-pricing and improvement in CASA deposits
Axis Bank’s net interest margin (NIM) was 3.8% in 2QFY12—50 bps qoq improvement as
cost of funds was maintained while asset yields improved by about 65 bps qoq. NII grew
24% yoy to `20.1 bn. Cost of deposits was flat at 6.1% (qoq) as the bank benefitted from
an improvement in CASA ratio (170 bps qoq) while wholesale deposits have remained flat
qoq. Lending re-pricing continued with the quarter showing 80 bps qoq improvement while
investment yields improved by about 50 bps. CD ratio for the quarter was flat at 72%.
Axis Bank’s strong performance for the quarter on NIMs gives headroom on earnings
growth (for higher credit costs) though we factor some compression emerging over the next
few quarter as the underlying loan mix shifts towards low yielding PSL (priority sector loans).
Based on our revised estimates, we are building an overall decline in NIMs of about 15 bps
in FY2012E and about 10 bps improvement in FY2013E as the underlying cost of funds
decline.
Slippages rise to 1.5%; lower write-off results in sharp rise in gross NPLs qoq
Axis Bank’s reported slippages were higher at 1.5% levels as against 0.8% (annualized)
reported in the past few quarters. Slippages were primarily in the mid-corporate, SME and
agriculture and very few from large corporate segment. Upgradation and recoveries were
higher at `1.6 bn (against `0.8 bn in June 2011), but the bank wrote off lower loans of
about `1.6 bn resulting in higher increase in gross NPLs.
Gross NPLs were at `17.4 bn (1.1% of loans) while net NPLs were at `5.4 bn (0.3% of
loans) compared to `15.7 bn and `4.6 bn, respectively in the previous quarter. Loan loss
provisions for the quarter were at 0.7% (annualized). We are building loan-loss provisions at
0.9% for FY2012-13E. Restructured loans (1.5% of loans, 12% qoq increase) were mainly
from MFIs.
YTD loan growth flat despite yoy growth of 27%; CASA ratio improved qoq
Axis Bank reported a loan growth of 27% yoy though YTD growth continues to remain flat.
We expect loan growth to remain above industry average as the bank slowly builds a PSL
portfolio (has been running off for the past two quarters). Sequentially, the bank saw strong
loan growth (6% qoq) mainly led by retail (8.5%) and large corporate segment (13% qoq).
Housing loans grew 45% yoy while auto and credit card loans grew 40% yoy.
In the corporate loans segment, we note that loans to telecom sector have reduced to fairly
insignificant levels (10% in 1QFY11). We note that the top 10 sectors contributed 47% of
exposure (funded exposure) in September 2011 as against 57% in June 2011.
Deposits increased by 26% yoy (6% qoq) primarily driven by healthy growth in low-cost
CASA deposits. CASA ratio improved 170 bps qoq to 42% compared to 40% in June 2011.
Fee income to slow on the back of a higher base and low corporate activity
We expect fee income to slow down as we see weakness in corporate activity levels (primary
segment driving overall fee income) and a higher base emerging for Axis Bank in 2HFY12E
(2HFY11 grew 50% over 1HFY11). Growth in fee income was strong at 32% yoy driven by
strong growth in corporate (27% yoy), treasury/debt capital market (80% yoy) and retail
fees (39% led by wealth management products). We could expect a more severe slowdown
(especially from corporate segment) if the bank delays raising capital by more than a few
quarters. We are currently building fee income to grow in line with balance sheet growth.
Other highlights for the quarter
Cost-income ratio was at 45%. The bank opened 35 branches and 723 ATMs in 2QFY11.
The bank made a provision of `800 mn primarily for depreciation in its equity portfolio.
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