Wednesday, May 30, 2012

>AXIS BANK: Robust in FY13 with slippages/restructuring remaining inline with FY12

Axis bank’s top management ressured that they expect asset quality to remain robust in FY13 with slippages/restructuring remaining inline with FY12 levels and limited risk from growing Infra book in the near term. Retail focus will help mitigate some growth pressures but fee income will moderate. We continue to believe that market is dis‐regarding recent corporate asset quality performance and stable asset quality trends will surprise in the near term. Valuations at 1.6x FY13 book is undemanding; Axis/ICICI continue to remain top picks.

􀂄 Key Takeaways from the Management roundtable:
(1) Retail credit – Key focus: Axis re-emphasised their thrust on increasing share of retail to 30% from 22% currently. Liability customers constitute ~45-50% of incremental sourcing which we believe is a credit positive.
Management is seeing significant pricing competition in mortgages but believes competitive landscape is relatively better in auto lending.

(2) Corporate asset quality/Infra portfolio relatively comfortable:
Delinquency/restructuring in expected to remain in line with FY12 levels v/s consensus expectations of a pick up in slippages/credit costs. Axis does not expect any material near term pressure on Infra portfolio with very limited exposure to imported coal and gas projects. Power portfolio remains unseasoned (at currently 25% project commissioned) but management expects ~45% of their portfolio to be commissioned by FY14.

􀂄 Key Annual report takeaways: (1) Growth in stress sectors exposures (ex Infra) moderated to 14% y/y with contraction in non fund exposure. Infra exposure expanded by +33% y/y with power portfolio expanding by ~60% y/y largely driven by increase in non-fund exposure (2) Accretion to RIDF book of Rs10bn continue to remain low with total RIDF book equivalent of ~3% of loan book

(3) In line with industry trends, retail NPAs showed significant improvement from 1.4% to 0.8% in FY12 . Large and SME NPAs have also contracted except for services which has seen an increase in NPA levels.

To read report in detail: AXIS BANK