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Axis Bank Ltd Overweight
AXBK.BO, AXSB IN
Year of consolidation
AXSB’s 1Q12 PAT at Rs9.4bn +27% y/y, 4% higher than JPMe. PAT beat
was largely due to lower credit costs and taxes - PPOP growth was very
weak at 8%, a 6% miss. FY12 is a year of consolidation and we think this
could put sustained, multi-quarter pressure on revenues.
Key negative surprises: (1) Non-interest income growth was 16% y/y. A
sharp drop in treasury income was offset by a spike in corporate fees. We
think our fee income forecast of 25% is the best-case scenario. (2)
Cost/income increased to 46% from 42% due to aggressive branch
expansion. We expect FY12 opex growth to remain high, an inevitable
outcome of management's efforts to improve its retail deposit mix.
Margins decline on expected line: NIMs contracted by ~14bps q/q to
3.28% in 1Q12, now down ~50bps in two quarters led by wholesale deposit
repricing and a gradual shift to working capital loans. NIM pressures are
largely over but we do not expect a significant recovery either.
Balance sheet consolidation on track: Loan growth moderated on
expected lines, with runoffs in 3G and DDA book accentuating the seasonal
run down in the Agri book. LDR improved but CASA ratio remains flat due
to high term deposit rates. Our 23% loan growth forecast remains realistic.
Asset quality robust: Asset quality continued to improve with gross
delinquency at <1.0% in 1Q12. Overall provision was lower by ~47% y/y
due to lower credit costs at ~45bps and general provision write back.
Overall, we expect credit costs to normalise upward due to general
provisioning and seasoning. While high power exposure remains a concern,
Axis’s book should hold up better than PSU banks.
Reasonable valuations: FY12 will be a challenging year as AXSB deals
with revenue pressures. We think the Street underestimates this and our
PAT forecast is 7% below consensus. Valuations are, however, at a discount
to peers at 14.2x FY12E EPS and peaking interest rates could be an offset
for weaker GDP growth. Maintain OW.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Axis Bank Ltd Overweight
AXBK.BO, AXSB IN
Year of consolidation
AXSB’s 1Q12 PAT at Rs9.4bn +27% y/y, 4% higher than JPMe. PAT beat
was largely due to lower credit costs and taxes - PPOP growth was very
weak at 8%, a 6% miss. FY12 is a year of consolidation and we think this
could put sustained, multi-quarter pressure on revenues.
Key negative surprises: (1) Non-interest income growth was 16% y/y. A
sharp drop in treasury income was offset by a spike in corporate fees. We
think our fee income forecast of 25% is the best-case scenario. (2)
Cost/income increased to 46% from 42% due to aggressive branch
expansion. We expect FY12 opex growth to remain high, an inevitable
outcome of management's efforts to improve its retail deposit mix.
Margins decline on expected line: NIMs contracted by ~14bps q/q to
3.28% in 1Q12, now down ~50bps in two quarters led by wholesale deposit
repricing and a gradual shift to working capital loans. NIM pressures are
largely over but we do not expect a significant recovery either.
Balance sheet consolidation on track: Loan growth moderated on
expected lines, with runoffs in 3G and DDA book accentuating the seasonal
run down in the Agri book. LDR improved but CASA ratio remains flat due
to high term deposit rates. Our 23% loan growth forecast remains realistic.
Asset quality robust: Asset quality continued to improve with gross
delinquency at <1.0% in 1Q12. Overall provision was lower by ~47% y/y
due to lower credit costs at ~45bps and general provision write back.
Overall, we expect credit costs to normalise upward due to general
provisioning and seasoning. While high power exposure remains a concern,
Axis’s book should hold up better than PSU banks.
Reasonable valuations: FY12 will be a challenging year as AXSB deals
with revenue pressures. We think the Street underestimates this and our
PAT forecast is 7% below consensus. Valuations are, however, at a discount
to peers at 14.2x FY12E EPS and peaking interest rates could be an offset
for weaker GDP growth. Maintain OW.
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