>AXIS BANK (SBICAP SECURITIES)

Strong CASA growth stands out amidst growth slowdown and asset quality concerns
CASA growth of 12% QoQ and 19.4% YoY stood out in a quarter marked by slowdown in asset growth (19%), credit growth (17.7%) and asset quality concerns - Gross NPA at 1.21% and Net NPA at 0.45%. We expect NII, Operating Profit and PAT to grow by 30.2%, 39.9% and 28.1%
respectively for FY10E. At the current market price, the stock trades at 2.7X FY10E and 2.3X FY11E ABV. Raise target to Rs.910. Maintain Underperform.

Retail leads slowdown in advances
Retail loans grew by just 7% YoY and their share in total advances reduced to 22% from 24% a year ago. Large and midcorporate loans grew by 19%, SME loans grew by 21% while agricultural loans grew by 38%. Overall advances grew by 17.7% while total assets grew by 19% YoY.

CASA growth at 19.4%
Current Deposits grew by 7.4% YoY and savings deposits grew 30.5% YoY. Share of CASA improved to 43% even as aggregate deposits grew by 12.4%. NIM for the quarter was at 3.52% as against 3.51% in Q2FY09 and 3.34% in Q1FY09.

Fee income growth slowing down, treasury gains surprise positively
Other Income grew by 53.5% YoY primarily driven by growth in treasury gains which were at Rs.2.2 bn. as against 0.4 bn. in Q1FY09. Fee income growth moderated to 11.7% while forex income continued to grow strongly at 35.2%.

Asset quality concerns evident
Despite higher provisioning at 1.4% of average assets for the quarter as against the usual trend of 0.6-0.9% of average assets, Gross NPA and Net NPA moved up to 1.2% and 0.5% respectively. During the quarter, the bank restructured assets amounting to Rs.3.9 bn (0.5% of
advances). Outstanding restructured assets stood at 2.9% of advances at the end of the quarter.

Outlook and valuation
We have upgraded our estimates to account for the higher than expected treasury gains that the bank has posted in this quarter. We expect NII, Operating profit and Net Profit to grow by 30.2%, 39.9% and 28.1% respectively. We are moving over to FY11E for valuing the bank and are upgrading our target price to Rs. 910. At our target price, the stock would trade at 2.4X FY10E and 2.0 FY11E ABV. We have raised our target price primarily on account of dilution at a higher than expected price and lower then expected equity dilution. Maintain Underperform.

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