Q1FY13 Result Update
Axis Bank
Buy
Target Price: Rs1,300
CMP: Rs1,023
Upside: 27%
A mixed bag
Axis Bank’s bottom-line came in 5% below our estimates on weaker non-interest income and higher provisions. Slippage rate was down to 1.07% (from 1.5% avg for the last 3 quarters), though GNPA increased by 16% QoQ due to weaker recoveries and upgrades. Meanwhile, restructured assets increased by 25% QoQ though still comfortable at 2.2% of loans. At current valuations, the asset quality concerns seem to be adequately priced in and hence we maintain Buy rating and price target of Rs1,300. Reiterate Top Pick.
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m NIM contracts by 20bps QoQ, Loan growth ~30%: NII grew by a healthy26.4% yoy (in-line) to Rs21.8bn led by a healthy credit growth (30% YoY) while the reported NIM contracted by 20bps sequentially. Loan yields benefitted from higher share of retail segment (at 24% of loans), though this was outweighed by 40bps QoQ rise in cost of funds. The management expects the pressure on cost of funds to ease gradually from Q2FY12 onwards led by easing in liquidity. For FY13, we are factoring in flattish NIM (3.25%) YoY led by higher share of retail loans and lower wholesale funding cost.
m Asset quality, a mixed bag: Asset quality performance was mixed for Q1FY13 as 1) slippage rate came off to 1.07% from 1.5% avg for the last three quarters 2) restructured loans increased by 25% QoQ though remains comfortable at 2.2% of loans and 3) GNPA rose by 16% QoQ. Despite higher provisions sequentially, PCR eroded by 275bps QoQ to 71%. The incremental restructuring includes a chunky exposure from infra (non-power) sector. The management continues to guide for credit cost in 85-95 bps, compared with 60bps in Q1FY13.
m Healthy credit growth, focus on retail evident: The advances book grew by a healthy 30% yoy to Rs1,711 bn, though lower at 21% after adjusting for benefit of currency appreciation. As per the outlined strategy, the retail segment witnessed a robust growth (50% YoY) and now forms 24% of loan book. Meanwhile, SME and agri segments continue to see slower growth (11% and 6.5% respectively). The deployment pace (CD ratio) remained high at ~77%. Meanwhile, deposit growth stood at a healthy 21.3% YoY though primarily led by term deposits – which effectively led to a ~250bps QoQ contraction in CASA ratio to 39%
m Fee income growth likely to pick up in H2FY12: The growth in core fee income (9.2% YoY) remained lackluster (in single digit in Q4FY12 as well) led by unfavorable base effect. However, with base effect turning favorable and significant effort being made to shore up core fee income, the H2FY13 fee income growth should improve and track balance sheet growth.
m CASA dips further: Top Pick: At the current market price of Rs1,025, the stock trades at 7.3x FY2014E EPS and 1.4x FY2014E ABVPS. We are maintaining Buy recommendation and our price target of Rs1300, (based on 1.8x FY14E ABVPS) indicating an upside of 27%. Axis Bank remains one of our Top Picks led by attractive valuations as we believe that current valuations have sufficiently priced in key negatives that could possibly emerge on asset quality front.
Thanks & Regards,
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