Axis Bank reported 22% YoY growth in PAT to INR13.5bn (ahead of our
INR13.2bn estimate) in Q3FY13. In a nutshell, the bank has once again
performed on the key concern area, i.e. asset quality. Incremental stress
buildup (Slippages-INR5.4bn + Restructuring-INR3.7bn) came well within
the guided range. For 9mFY13, the buildup has been at INR29.1bn vis-àvis
the annual guidance of INR50bn, i.e. well within the guided range.
Strategy to build up the retail banking piece is on track with retail fees
(up 35% YoY), asset (up 45% YoY to 27% of total loans) and liabilities (SA +
Retail TD now forms 47% of deposits vis-a-vis 44% a year back)
performing better than the whole bank. We maintain ‘BUY’/sector
Outperformer with a target price of INR1710.
Asset quality: Slippages and restructuring well within guidance
After witnessing a blip in Q2 on account of Deccan Chronicle, slippages have trended
down to 1.25% (well within guided range) from 1.5%. Incremental stress buildup falling
within the guided range is an encouraging sign even while provisioning coverage
continues to be healthy at 81% (including prudential write offs). Headline asset quality
numbers maintained with GNPA/NNPA/Cumulative restructured assets at
1.1%/0.33%/2.06%. Overall, it maintains guidance of 85-90bps on credit cost coupled
with restricting slippages and restructuring at INR40-45bn for FY13.
Outlook and valuations: Retail banking shines; maintain ‘BUY’
Though the stock outperformed the bankex by 15% over the last 3 months, concerns
around its power and SME exposures has led to a discount to other new generation
private sector banks despite delivering similar return ratios. Concerns over asset
quality, however, seem unfounded as it has consistently delivered on all metrics.
Efforts to scale up retail banking—assets moving up to 30-35% and increasing share of
retail liabilities—should help allay investor concerns and at the current pace these
targets are going to be achieved much before the FY15 timeline. It trades at 1.9x FY14
adjusted book, >10% discount to 5Y average attractive given RoA/RoE of 1.7%/20% and
being well positioned to capture maximum upside to improvement in macros
Retail banking impresses with all round performance
• Retail assets form 27% of loans post the 45% YoY growth. Given the focus on secured
lending, both housing (up 45% YoY) saw healthy traction. At the current pace, the
target of retail assets forming 30% of loan book will be met much before the FY15
timeline. Competitive pressure build up in auto loan segment has led to flat loan book
in the segment
• Retail liability further strengthened with healthy SA (up 22% YoY) and retail TD (up 30%
YoY). SA and retail TD now forms 47% of deposits as against 44% a year ago.
• Retail fee also picked up steam and grew 35% YoY and now form 32% of the total fees.
Fee income: Retail segment – stabilizing force
Given the backdrop of reduced investment climate in the country and lower growth in midcorporate
infra segment, corporate banking fee growth continues to suffer. Retail banking
fees, however, shines with a 35% YoY growth. Trading profits came in at PAT to INR1.6bn-
8% of PBT.
NIMs see a further uptick of 11bps to 3.57% - above the guided range
Yield uptick on the back of change in mix favouring SMEs coupled with a marginal drop in
fund costs has led to 11bps pick up in NIMs . The management continues with its guidance
of maintaining NIMs in the 3.25-3.5% range (compared to 3.6% for FY12).
Loan growth at 20.7% YoY: Retail piece the main driver
Given the high growth rate clocked by retail assets, the proportion of Corporate and Agri
segment has declined (largely on expected lines given PSL run down) to 52.7% and 6.7% now.
The management maintained its guidance of growing loan book at a premium to industry
and though growth will be broad based, it will be much more pronounced on the retail
segment. However, considering that in the 9mFY13, the bank has just grown by 5.7% - the
asking rate for Q4 will be 12-13% - a tough task .In terms of new focus product in the retail
segment, the bank is working on CVs and gold loan where it is trying to build a small book.
Tier 1 – Retail driven growth leads to slower consumption of capital
Including 9mFY13 Tier 1 stands at 10.27% which when seen in context of 9.5% of Q1
indicates that the PAT growth has outpaced the growth in RWA which we believe is a
reflection of retail assets driven growth. Also addition of INR 2.65 bn on account of merger
of Enam has supported the rise in networth. This is despite the drop of 100 bps in the share
of A rated and above in the large and mid corporate segment (61% as against 62% in Q1).
Other highlights
• CAR at 15.17% with Tier 1 at 10.27% (including profits for the 9mFY13).
• Amongst large and mid-corporate lending, the proportion of corporate rated BBB and
below has risen from 33% in FY12 to 39% in Q32FY13. Management attributed the
same to some downgrades and coupled with disbursal to the project finance segment
(largely rated BBB).
• Rating distribution of SME suggests improvement – low risk categories of SME1 and
SME2 moving up from 23% to 26%.
No comments:
Post a Comment