Monday, January 23, 2012

>AXIS BANK: Driven by Fx treasury gains and lower provisioning costs

Ex-one offs, In line
Axis Bank reported a healthy set of numbers with a ~6% bottom-line bea driven by Fx treasury gains (Rs1300mn) and lower provisioning costs. Moreover, asset quality was largely stable and NIM compression was lower than expected. Excluding the fx related gains on prop book, the earnings performance was largely inline. We maintain Buy on lower valuations.

 NIM stable QoQ, Loan growth @ 22%: NII grew by a healthy 23.5% yoy (inline) to Rs21.4bn led by a moderate but healthy credit growth (20.4% yoy) while the reported NIM was stable sequentially at 3.75%. Blended yields benefitted from higher share of retail business and higher investment yields during the quarter. However, this was offset by 20 bps increase in cost of funds leading to QoQ flattish NIM. NIMs are likely to move lower in quarters to come from current levels.

 Healthy credit growth: The advances book grew by a healthy 20.4% yoy to Rs1,487bn primarily driven by the retail segment (32% YoY) and SME (21.3% YoY). Axis bank has been gradually increasing the share of retail business (from 20.3% a year ago to 22.4% now) and the trend is likely to continue during FY13. Deposits grew by a strong 34% yoy to Rs2,087bn led by current and time deposits, though growth in SB was healthy at ~21%.

 Slippage rate sustains at 1.5%: Slippage rate sustained at high level (1.5%) while recovery environment continues to remain tough. However, significant write-offs (Rs2.4bn) helped contain the rise in GNPA to ~10% to Rs19.2bn (%GNPA - 1.1% flattish QoQ). Additional restructuring of ~Rs3bn (likely from Petroleum sector) pushed the cumulative restructured assets to Rs27bn (1.8% of loans). Meanwhile, PCR witnessed some erosion (to 75.3% from 77.7% in previous quarter). We maintain our view that restructured portfolio is likely to increase further led by challenges faced by the infrastructure companies.

  Fee income surprises positively: Non-interest income surprised positively during the quarter led by 1) increased traction in third party distribution 2) strength in traditional products (debt syndication, guarantees etc) and 3) significant trading gains on prop forex book (Rs1300mn). The fx trading gains are result of increased currency volatility and hence should be viewed as oneoff and is unlikely to be sustained over quarters to come.

  Maintain Buy: We raise our earnings estimates (5% for FY12 & 1.7% for FY13) as we factor in additional information. At current market price of Rs1008, the stock trades at 8.7x FY2013E EPS and 1.6x FY2013E ABVPS. We believe that current valuations largely factor in the potential risks emanating from higher exposure to SME and power sector (funded & non-funded). Since our last sector update (dated 27th Sep’10), the stock had corrected and touched our stress value of Rs900 and has recovered since then. We maintain Buy with an
investment horizon of 12-15 months.

To read the full report: AXIS BANK