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Axis Bank surprised positively on core earnings in 2QFY12, but higher delinquency and provision
on equity investments pulled down net profit. We expect margins to take a breather in 2H, but
business growth should ensure healthy core earnings, which will likely offset elevated credit
costs. Buy.
2QFY12: NIMs surprise positively…
Axis Bank reported a 50bp qoq increase in net interest margins (NIMs) to 3.78% in 2QFY12.
According to management, the qoq margin expansion was driven by: 1) 23bp on account of passthrough
of the increase in base rate (+50bp in 2Q); 2) 14bp due to the change in loan book mix
towards the large and mid corporate segment, and the decline in the agriculture portfolio (see
Table 2); 3) 12bp on account of the higher yield on investments; and 4) the increase in the
average low-cost deposits (CASA) ratio and retail term deposits, which kept funding costs in
check (see Table 3 and 4).
… offset partly by higher credit costs and provision on equity portfolio
Gross delinquencies increased to about Rs5bn qoq to 45bp of loans (on a one-year lag basis) in
2QFY12 (72bp in 1HFY12, 144bp annualised). Further, restructured assets increased to about
Rs24bn (2.9% of loans), driven largely by Rs2.3bn of loans being restructured in the microfinance
portfolio. A combination of the above led to higher provisions for bad loans (23bp in 2Q, 34bp in
1HFY12). Further, the bank had to provide for value depreciation on the equity portfolio.
2HFY12: NIMs to take a breather, volume growth gains to offset elevated credit costs
Going forward, we expect NIMs to contract in 2HFY12 from the current high levels. Management
maintained its NIM guidance of 3.25-3.50% in FY12 (3.65% in FY11). However, business growth
in 1HFY12 should ensure healthy core earnings growth in 2HFY12. Management does not
foresee any material concern about asset quality going forward, but stated the agriculture and
SME portfolio needed to be watched closely. Management is guiding for a 75bp provision for bad
loans in FY12 (80bp in FY11). Further, the bank will likely have to provide for value loss on the
equity portfolio.
No material change to our forecasts, maintain Buy
We forecast reported ROA on an annualised basis, based on 1HFY12, of 157bp in FY12 (168bp
in FY11). Our earnings estimates remain largely unchanged. We maintain our Buy
recommendation and Rs1,423 target price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Axis Bank surprised positively on core earnings in 2QFY12, but higher delinquency and provision
on equity investments pulled down net profit. We expect margins to take a breather in 2H, but
business growth should ensure healthy core earnings, which will likely offset elevated credit
costs. Buy.
2QFY12: NIMs surprise positively…
Axis Bank reported a 50bp qoq increase in net interest margins (NIMs) to 3.78% in 2QFY12.
According to management, the qoq margin expansion was driven by: 1) 23bp on account of passthrough
of the increase in base rate (+50bp in 2Q); 2) 14bp due to the change in loan book mix
towards the large and mid corporate segment, and the decline in the agriculture portfolio (see
Table 2); 3) 12bp on account of the higher yield on investments; and 4) the increase in the
average low-cost deposits (CASA) ratio and retail term deposits, which kept funding costs in
check (see Table 3 and 4).
… offset partly by higher credit costs and provision on equity portfolio
Gross delinquencies increased to about Rs5bn qoq to 45bp of loans (on a one-year lag basis) in
2QFY12 (72bp in 1HFY12, 144bp annualised). Further, restructured assets increased to about
Rs24bn (2.9% of loans), driven largely by Rs2.3bn of loans being restructured in the microfinance
portfolio. A combination of the above led to higher provisions for bad loans (23bp in 2Q, 34bp in
1HFY12). Further, the bank had to provide for value depreciation on the equity portfolio.
2HFY12: NIMs to take a breather, volume growth gains to offset elevated credit costs
Going forward, we expect NIMs to contract in 2HFY12 from the current high levels. Management
maintained its NIM guidance of 3.25-3.50% in FY12 (3.65% in FY11). However, business growth
in 1HFY12 should ensure healthy core earnings growth in 2HFY12. Management does not
foresee any material concern about asset quality going forward, but stated the agriculture and
SME portfolio needed to be watched closely. Management is guiding for a 75bp provision for bad
loans in FY12 (80bp in FY11). Further, the bank will likely have to provide for value loss on the
equity portfolio.
No material change to our forecasts, maintain Buy
We forecast reported ROA on an annualised basis, based on 1HFY12, of 157bp in FY12 (168bp
in FY11). Our earnings estimates remain largely unchanged. We maintain our Buy
recommendation and Rs1,423 target price.
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