Axis Bank : Weak NPL, strong NIM, in-line PAT ::JPMorgan,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Axis Bank reported in-line PAT of Rs 9.2bn for 2Q12 – net interest
margins recovered to 3.78% but so did delinquencies and, consequently,
credit costs. We think the numbers were fairly solid, but the credit quality
will now be carefully watched in the next few quarters.
 Asset quality slippage. The gross NPLs grew by Rs 1.7bn, the fastest in
eight quarters. The numbers are still relatively small (~50bp) but the
acceleration will be watched. Credit costs jumped to 96bp (the highest
among private sector banks who have reported, so far). The source of the
incremental NPLs seems to be SME.
 NIM jumps sequentially. The 50bp q/q surge to 3.78% was driven by:
a) a seasonal factor with the run-down in the agri loan book - y/y
improvement was 10bp; b) repricing of its large floating rate loan book;
c) improvement in deposit quality. Axis’ CASA ratio jumped 170bp q/q
to 42.2%, with 9% q/q growth in savings balances. Management
maintained its guidance of 3.25% - 3.5%: we do expect a seasonal
downtick in 4Q.
 Loan and fee growth robust. Loan growth remained at expected levels
of 25% - we do not see our full-year target of 23% at risk. Fee growth
stayed elevated, and, despite a collapse in trading income, non-interest
income growth was strong at 19%. The key driver was retail and
treasury/DCM – Axis continues to hold out in the latter despite rising
competition.
 All eyes on asset quality. We maintain earnings, though revenue
composition may need to be revised in favor of NII (vs fees). We think
the stock could face some near-term challenges with asset quality
remaining in focus. Some longer-term positives are coming through,
especially the momentum in retail (both deposits and loans). We
maintain OW.