Axis Bank - Q4FY12 Result update - Centrum

Weaker than expected core performance

Axis Bank reported a ~4% bottom-line beat driven by lower provisions while core performance was weaker than expected (PPP ex-treasury up just 7% YoY) led by NIM pressure and higher opex. Asset quality improved with %GNPA contracting by ~15bps QoQ to 0.94% and PCR inching up to 81%, though restructured assets increased 13% QoQ, and more likely in Q1FY13. We maintain Buy rating and price target of Rs1,300 (1.8x FY14E).

- NIM contracts 20bps QoQ, Loan growth slows to 19%: NII grew by a healthy 26% YoY to Rs21.4bn led by a moderate but healthy credit growth (19% yoy) while reported NIM contracted sequentially by 20bps. NIM contraction can be traced to lower blended yields even as cost of funds remained stable QoQ. The downward direction of NIMs was in line with our expectations and we continue to expect some pressure in Q1FY13 as well.

- Subdued core performance: The non-interest income performance was lackluster (9.5% YoY), despite surge in treasury gains, led by poor core fee income flows (up 3.5% YoY). Further, higher than expected opex (8% above) lead to a subdued core performance with PPP (ex-treasury) up by just 7% YoY).

- Strong recoveries contain GNPA, Restructured up 13% QoQ - more likely: Asset quality matrices were largely comfortable with 1) slippage rate coming down marginally (to 1.5%) 2) 15bps contraction in GNPA led by strong recoveries and 3) PCR inching up to 81% despite sharp drop in provisioning costs. Meanwhile, restructured assets increased by 13% QoQ to Rs30.6bn (1.58% of gross customer assets) and are likely to increase further in quarters to come. The management guided for a healthy asset quality in FY13 with credit costs at ~75bps as infrastructure exposure is performing well with no alarming signs currently.

- Moderating but healthy credit growth: The advances book growth continued to moderate though still healthy at 19.2% for the quarter. The loan growth was primarily driven by the retail segment (35% YoY) and corporate (20% YoY). Axis bank has been gradually increasing the share of retail business (from 19.5% a year ago to 22% now) and the trend is likely to continue during FY13 as the bank may remain cautious on SME segment. The bank is considering a foray into the CV segment, likely driven by attractive yields, but will do so gradually given that it is a new segment with inherent risks. Deposits growth slumped to 16% YoY led by weaker growth in term deposits while CASA grew by 17.6% YoY.

- Maintain Buy: At current market price of Rs1,125, the stock trades at 8.0x FY2014E EPS and 1.5x FY2014E ABVPS. While we have tweaked our estimates and rolled over valuations to FY14, we are maintaining our price target of Rs1300, (based on 1.8x FY14E ABVPS) indicating an upside of 16%. We maintain Buy recommendation on the stock.

Source : Equity Bulls

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