>Axis Bank (KARVY)

We have revised our Axis Bank earning estimates after a visit to the bank's senior management; we expect that the bank's credit growth would moderate to 31.5% (Y/Y) to Rs1,146 bn from our earlier credit book estimate of Rs1,226 bn in FY10. Net interest margin is estimated to shrink by 30 bps to 2.57% in FY10.The bank's core fee income growth momentum
is expected to come down to 28% (Y/Y) in FY10 from 70% in FY08 and 50% in 9MFY09. The bank's management did not provide with any guidance or estimates on non-performing assets front; we expect 152% (Y/Y) rise in gross NPA in FY10 to Rs21.5 bn and increased credit cost to
1.3% in FY10 from 0.71% in FY08 and 1.1% 9MFY09. We increase our earning estimates for FY09 by 5.0% to Rs17.7 bn and reduce for FY10 by 9.6% to Rs15.5 bn and reduce our target price by 29% to Rs629 per share. We estimate the bank to record RoAE of 18.8% and 14.4% in FY09 and FY10 respectively. We re-iterate our BUY rating on the stock with a target price of Rs629 at 2.2x adjusted book value FY10.

Key takeaways of the meeting are

Moderation in credit growth: Axis Bank's management is of the view that in FY10 SCBs' and the bank credit book would grow by around 18- 20% and 28-35% (Y/Y) respectively; we have slightly reduced our credit growth assumption to 31.5% (Y/Y) to Rs1,146 bn. Focus on CASA improvement and cost of deposits: Relatively slower growth in credit book would reduce undue dependence on term deposits and declining whole-sale deposits rates would also improve overall cost of deposits. According the bank's management total whole-sale deposits contributes almost 35% of total deposits; average cost of whole-sale deposits was close to 7.75%.

Margin under pressure: The Bank's management indicated there would be strain on net interest margin; we expect that in FY10 margin would come by 30 bps to 2.57% from estimated NIM of 2.87% for FY09.

To see full report: AXIS