Q3FY15 Result Review - Axis Bank :: HDFC Securities

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Q3FY15 was a robust quarter for Axis. During the quarter, it posted NII of Rs 3589.6 cr, up 20.3% y-o-y and up 1.8% q-o-q. NIMs have remained almost stable at 3.93%. Growth in
loans was maintained at 23.2% with momentum in retail advances and corporate advances the key driver. Provisions were higher - up YoY from Rs 202.5 cr to Rs 507.2 cr. NNPAs
stood at 0.44%, stable q-o-q. Slippages were lower at 1.1% compared to 1.5% in Q2FY15. Axis reported Net Profit of Rs 1899.8 cr, up 18.4% y-o-y and 17.9% q-o-q.
NIMs growth decent; Retail as well as corporate credit grew well
In Q3FY15, Axis posted NIMs of 3.93% in Q3FY15, up from 3.71% in Q3FY14 and 3.97% in Q2FY15. The bank has reported high NIM at 3.7-3.9% in the past five quarters. Credit Deposit
Ratio has gone up from 80.6% in Q3FY14 and 85.4% in Q2FY15 to 89.5% in Q3FY15 as advances grew at a faster clip than deposits. Cost of funds has come down from 6.19% in Q2FY15
and 6.29% in Q3FY14 to 6.17% in Q3FY15. Segment-wise, retail banking continues to show traction up 25.1% y-o-y. Corporate banking is up 9.4% y-o-y and 2.5% q-o-q to Rs 5196.6 cr.
CASA was marginally lower at 43% compared to 45% in Q2FY15. Savings Bank Deposits have gone up 14.8% y-o-y while Current deposits are up 8.5% y-o-y. CASA deposits, on a daily
average basis grew 16% YoY constituting 40% of total deposits, compared to 39% during the same period last year. CASA and Retail Term Deposits constituted 78% of Total Deposits as
on 31st December 2014 compared to 74% last year. During Q3FY15 Bank has 53 branches to its network across the country and at the end of 31st December 2014, it had a network of
2,558 domestic branches and extension counters and 12,874 ATMs situated in 1,708 centres, compared to 2,321 domestic branches and extension counters and 12,328 ATMs situated in
1,580 centres last year.

Outlook & Valuation
Axis Bank continues to be one of the premier private sector banks in India with robust growth prospects. Bank’s major strengths have been its ability to grow its retail business (both
assets and liabilities), while simultaneously growing its corporate book. Growth drivers for the medium term remain with loan growth likely to be steady with almost stable NIMs. Fee
income growth should broadly track asset growth. Asset quality too has been maintained and CAR remains adequate (15.6% with tier-1 at 12.4%, as per Basel-3 guidelines (including net
profits for the quarter)).
Q3FY15 was a robust quarter for Axis. During the quarter, it posted NII of Rs 3589.6 cr, up 20.3% y-o-y and 1.8% q-o-q. NIMs have remained almost stable at 3.93%. Growth in loans was
maintained at 23.2% with momentum in retail advances and corporate advances the key driver. Provisions were higher YoY - up from Rs 202.5 cr to Rs 507.2 cr. NNPAs stood at 0.44%
stable q-o-q. Slippages were lower at 1.1% compared to 1.5% in Q2FY15. Axis reported Net Profit of Rs 1899.8 cr, up 18.4% y-o-y and 17.9% q-o-q.
Axis’s been transitioning its asset book & balance over the last few years: with an aggressive retail asset push and playing catch up with peers. Between FY12 –FY14, Axis has added ~800
branches or 33% of its existing branches. The increased branch franchise has enabled the bank improve its retail franchise and is reflective from the fact that retail term deposits plus CASA
deposits now contribute 80% of the deposits vs. 69%, a year earlier. Axis's retail franchise is starting to deliver on deposits, assets and fee growth. Management is looking to increase its
retail exposure to reach 35% by FY15 which is likely to provide support to NIM in the longer duration.
Axis remains exposed to credit risk, given its relatively high exposure to infrastructure and stressed corporate. The bank has so far been able to navigate through an extremely challenging
domestic macroeconomic environment. While challenges do persist in terms of slowing credit, the worst on asset quality seems to be behind us.
We are revising our FY15 & FY16 estimates upwards factoring in better growth in retail lending and improving positioning in capturing growth in other business segments in the coming
quarters. We are also introducing FY17 estimates. Better macros could lead to further relaxed NPA environment and improvement in corporate lending. Management has increased the
NIM guidance to ~3.5% from the earlier guidance of 3.25-3.5%.
While Banks continue to be valued on the basis of P/BV, valuations get impacted on a sustainable basis if the BV (book value) or its growth is getting impacted due to slower profitability
growth or higher provisioning/growing NPAs.
In our results update for Q2FY15 dated October 20 2014 we had recommended investors to book profits at CMP (Rs 423) while fresh investors could look to buy on dips to Rs 370 – Rs 390
for a target of Rs 431. The stock has touched a low of Rs 418 on 21st Oct 2014 and a high of Rs 531.8 on 19th Jan 2015.
Axis is well-placed as the improving macro should ease concerns in the corporate loan portfolio while the transition to retail is making business comparable to leading private banks. We
feel investors could look to buy the stock at CMP (Rs 547.8) and add on dips to Rs 486 -Rs 509 (2.1x-2.2xFY17E Adj BV) for a target of Rs 601 (2.6xFY17E Adj BV) in the next one quarter.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010863