Buy AXIS Bank - Kotak

Q4FY12 results: Core earnings better than expectations. CASA and NIM remained healthy; however, slippage remained at the elevated levels.

- Axis bank reported strong net interest income growth (26.2% YoY) on back of 19.2% YoY loan growth and 11 bps improvement in NIM (3.55% in Q4FY12). Its net profit grew 25.2% YoY mainly aided by strong core performance and lower NPA provisions.

- CASA mix remained healthy at ~42%; NIM also came healthy at 3.55% for Q4FY12 and closed the year at 3.59%, well above the upper band of guided range of 3.5%. Strong uptick in Priority Sector Lending (PSL) portfolio (62.1% QoQ) during Q4FY12 provided some semblance of respect to its loan book. We believe its full impact on the margin is likely to be seen during H1FY13.

- Although asset quality improved in percentage terms, slippage remained at the elevated levels (Rs.5.14 bn; 144bps annualized slippage ratio). The bank has also restructured Rs.5.88 bn during Q4FY12 (on the higher side) and now its cumulative restructured book stands at Rs.30.6 bn (~2.1% of net advances).

- Although slippage was higher, strong up gradation & recovery contained the credit cost during Q4FY12. We are modeling earnings to grow 16.7% during FY13E along with healthy return ratios (RoE: ~20%, RoA: ~1.6%). At the current market price of Rs.1104, the stock is trading at 9.2x its FY13E earnings and 1.8x its FY13E ABV. Due to recent fall in share price, we are upgrading the stock from ACCUMULATE earlier to BUY with unchanged TP of Rs.1230 based on P/ABV of 2.0x its FY13E adjusted book value.

Source : Equity Bulls

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