Q3FY13 Result Update
Axis Bank
Buy
Target Price: Rs1,550
CMP: Rs1,442
Upside: 9%
Asset quality continues to hold up well
Axis Bank’s operating performance was in line with our estimates, though the bottomline came in well above led by lower provisions. NIM expanded ~10bps QoQ helped by expansion in lending yields while funding costs were largely stable. Complementing the healthy core performance, asset quality matrix held up well with 1) slippage rate inching down to 1.3% (from 1.5% for Q2FY13), 2) %GNPA stable at 1.1% 3) restructured assets stable at 2.4% of loans. Notwithstanding asset quality concerns, we expect the bank’s healthy performance to continue with potential upside risks due to expected recovery in economic activity. We maintain Buy rating and price target of Rs1,550.
m NIM expands by ~10bps QoQ, Loan growth at ~21%: NII grew by a healthy 16.6% YoY to Rs25bn led by a healthy credit growth (21% YoY) and 10bps QoQ expansion in reported NIM. Loan yields benefitted from higher share of the retail segment (at 27% of loans) and uptick in SME deployment, while cost of funds was stable QoQ. Given continued tight liquidity and resulting firmness in deposit rates, NIM is likely to remain stable at current levels.
m Asset quality holds up well: Despite heightened concerns, the bank continued to deliver well on asset quality matrices. During Q3FY13, performance too was healthy with 1) slippage rate inching down to 1.3% (from 1.5% for Q2FY13), 2) %GNPA stable at 1.1% 3) restructured assets stable at 2.4% of loans. Despite lower provisions sequentially, PCR was stable at ~70%. The management continues to guide for credit cost at 85-95 bps and %GNPA around current levels. The stress creation rate (Rs10bn/quarter) is likely to sustain for a couple of quarters more.
m Healthy credit growth, favorable mix: The advances book grew by a healthy 21% YoY to Rs1,795 bn. As per the outlined strategy, retail segment witnessed robust growth (45% YoY) and now forms 27% of the loan book. Among retail products, mortgages continue to remain the key driver though growth in Auto and personal loans has been quite high (albeit on a low base).
m Capital raising on anvil: The capital adequacy position (including M9 profits) stands healthy at 15.17% (Tier I at 10.27%) currently, helped by a calibrated consumption of capital through various measures. However, as the incremental scope of squeezing more out of current capital base diminishes, the bank would look at raising capital. The board has already approved dilution of 11% through QIP/GDR, which may be put to use during H2FY14. The capital infusion will further allay investor concerns over its ability to fund above industry growth and also provide a cushion against asset stress.
m Maintain Buy: At the current market price of Rs1,422, the stock trades at 10.5x FY2014E EPS and 1.7x FY2014E ABVPS. We maintain our Buy recommendation and price target of Rs1550, indicating an upside of 9%. Axis Bank remains one of the key beneficiaries of the potential revival in investment cycle led by the government’s reform initiatives and anticipated reduction in policy rates going ahead.
Thanks & Regards,
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