Axis Bank - Net Profit above expectations, no surprises on NPA - Reliance Securities

Key highlights of the result

- Net profit above expectations: In 4QFY2012, Axis Bank's Net Interest Income (NII) grew 26.2% yoy and 0.3% qoq to Rs2,146cr due to growth in advances. Non-Interest Income grew 9.5% yoy and 11% qoq to Rs1,588cr on the back of higher third party distribution, retail & non-fund based fees. The provisions declined 45.2% yoy and 67% qoq to Rs139cr, which led to higher Net Profit, an increase of 25.2% yoy and 15.9% qoq to Rs1,277cr.

- Balance sheet grew at a modest pace: Loan book increased 19.2% yoy and 14.1% qoq to Rs1.7 lakh crore as on March 31, 2012. The higher advances was on the back of retail advances, which grew 35.3% yoy and 12.9% qoq to Rs37,570cr. Deposits grew modestly by 16.6% yoy and 13.5% qoq to Rs2.2 lakh crore, supported by growth in term deposits.

- NIMs dip, CASA ratio maintained: The margins fell 20bp qoq to 3.5% owing to increased cost of funds and higher proportion of low yielding Agri loans in 4QFY2012. We expect the margins to stabilize at 3.4% in FY2013E. CASA ratio stood at 41.5% as on March 31, 2012.

- Asset quality remained firm: Asset quality of the bank remained stable in an uncertain macro environment, with GNPA at 0.9% of gross advances as on 4QFY2012. NNPA ratio was reported at 0.3% of net advances.

Outlook and Valuation

In 4QFY2012, Axis Bank reported better than expected results with NII reporting stable growth. Moreover, the Net Profit exceeded expectations owing to lower provisioning. While, the bank continues to have high exposure in infrastructure and housing loan segments, we have seen slippages rising only marginally from those segments, however, restructured assets were a bit higher at Rs588cr in 4QFY2012. We like Axis bank due to its strong distribution network, high return ratios and undemanding valuation.

At CMP of Rs1,107, the stock is trading at an undemanding 1.5x ABV FY2014E. We maintain our Buy recommendation on Axis Bank with a target price of Rs1,470.

Risks to the view

- Due to the bank's high infra & power weightage, we remain cautious of any slippages / restructuring arising for the bank going forward

- The bank would have to raise capital to grow its loan book due to its lower Tier 1 ratio. Any difficulty in raising capital would result in lowering our growth estimates.

Source : Equity Bulls

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