Axis Bank - Sustains strong momentum…. :: ICICI Securities

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Sustains strong momentum….
• PAT came in above estimates at | 1900 crore (up 18.4% YoY) due to
higher than expected traction of 24% YoY in other income to | 2039
crore vs. estimate of | 1780. NII growth was in line at 20% YoY to
| 3590 crore
• Credit traction (23% YoY vs. 16% YoY estimated) and margins
(3.93% vs. 3.85% estimated) surprised positively
• Further, fresh stressed asset addition (restructured asset at | 132
crore compared to | 570 crore in Q2 + slippages at | 708 crore
compared to | 911 crore in Q2) came in lower at | 840 crore vs.
| 1481 crore in Q2. The GNPA ratio was flat QoQ to 1.34%
Loan growth ahead of industry in past; pace to reduce but stay ahead
Axis Bank is the third largest private bank in terms of loans & profitability.
The loan book as on FY14 was at | 230067 crore. On the back of its rising
network and strong corporate relationships, the bank grew its book above
the industry pace. In the past eight & five years, CAGR has been 34% &
24%, compared to industry CAGR of 19% & 17%, respectively. Axis Bank
has largely been a corporate lender though the trend is now changing.
Until FY12, the corporate segment accounted for 54% of total loans.
However, owing to higher risk in the corporate portfolio and reduced
demand as fallout of a strained economic environment, the bank changed
its strategy and focused on the retail & SME segments. Accordingly, their
proportion increased to 32% and 15.4%, respectively while corporate
exposure reduced to 44% as on FY14. We expect loans traction of 17%
CAGR in the next two years with major drivers being retail and SME.
Healthy liability franchise; margins to stay benign
One of the biggest strengths of Axis Bank is its strong liability franchise.
CASA deposits at | 126462 crore account for 45% of deposits as on FY14.
The CASA ratio has been ~40% for almost a decade. This has been due
to constant investment in branches and ATMs, strong brand recognition &
quality services. Savings account (SA) balances have increased 16 times
since FY05 to | 77771 crore as on FY14. Axis Bank has the best
SA/branch in the industry of | 32 crore. This has enabled it to maintain
healthy margins of >3% since FY08 despite a challenging environment.
Over FY14-16E, we expect NIMs to stay at healthy levels of ~3.5%.
Asset quality concerns lingers but no major glitch yet
Concerns about the bank’s asset quality are generally raised owing to its
exposure to certain stressed sectors and troubled corporates. However,
no major shocks have been reported yet. The GNPA ratio for the past
seven years has been in the range of 1-1.2%. Further, PCR of ~78%
provides comfort. Credit costs have stayed below 0.8% for the past three
years. We estimate asset quality will slightly deteriorate but stay
acceptable with credit cost factored at ~0.7% over FY14-16E.
Strong operational performance sustains; maintain BUY
The operational performance has been strong with pre-provisioning profit
(PPP) increasing at 31% CAGR in the past six years to | 11457 crore as on
FY14. This is due to strong loan growth, healthy margins & fee income
growth and strong cost control (CIR down to 40% from 49% in FY08).
RoEs have stayed in the range of 18-20% while RoAs have increased
consistently at 1.7% now. Going ahead, we expect return ratios to stay at
current healthy levels. We raise our target price to | 590 as we roll over to
FY17E (valuing at 2.4x FY17E ABV) and maintain our BUY rating.

LINK
http://content.icicidirect.com/mailimages/IDirect_AxisBank_Q3FY15.pdf