>AXIS BANK: Key Earnings Drivers & Sensitivity

Margin pressure to weigh on earnings; downgrade to HOLD
We revise earnings down by 8% and 9% for FY13E lower NIMs (down 13bp y-y to 3.01%) as deposit cost extremely sticky (as wholesale rates have not declined whereas lending rates will need to be reduced as loan demand remains weak. Credit cost will remain stable, restricting earnings growth.


CATALYST
Policy reform and faster monetary easing remain key triggers
AXSB’s total power exposure (fund + non fund) stands at 10.3% 30% is operational and 70% under construction, which is prone to restructuring. The current pace of policy reforms leaves a lot to be desired and the stress on earnings reduces the margin of safety. and infrastructure-related issues will continue to remain an overhang.


Key Earnings Drivers & Sensitivity
The key macro factors that can impact AXSB’s earnings credit growth, interest rate environment and deterioration/improvement in asset quality.


In our bear case we are factoring slippages to be 35bp and 25bp higher than that in the base cases for FY13E and FY14E, respectively. In our bull case we are factoring in slippages to be 40bp and 50bp lower than the base cases for FY13E and FY14E, respectively.


To read full report: AXIS BANK
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