Axis Bank - Numbers in line, higher credit cost factored - Karvy

Axis Bank's numbers are in line with our expectations. Despite sequential NIMs compression of 18bps along with lower fee income growth of 9%, PAT grew by 22% to Rs11.5bn backed by decent adjusted credit growth of 21%, improving operating efficiency, doubling of treasury profits and reversal of investment depreciation of Rs0.7bn. It has guided credit cost of 80-85 as against our earlier assumption of 70bps for FY13E.

- Retail segment drives credit growth: Advances have grown by 30%, however, adjusted for rupee depreciation and run-off of short term loans in corresponding quarter last year, credit has grown by 21%. Retail segment has grown by 50% YoY and its proportion in total loans has increased by 320bps to 23.7%.

- Compression in NIMs: NIMs have compressed by 18bps sequentially to 3.4% mainly on account of 250bps sequential compression in CASA to 39.1%. Compression in NIMs is seen across domestic as well as international segment.

- Slight deterioration seen in asset quality: Despite lower slippages of 1.1%, gross NPA has increased by 12bps sequentially to 1.1% on account of lower upgradation/recoveries. Restructured book increased 25% sequentially (half of it relates to 1 chunky infra loan) to 2.2% of loan book. Management has guided incremental stress of Rs10bn each quarter in form of slippages and restructuring. Similarly management has guided higher credit cost of 80-85bps as against our earlier assumption of 70bps.

Outlook & Valuation

At the CMP the stock is trading at 9.3x and 7.5x FY13E and FY14E earnings, and at 1.6x and 1.4x P/ABV FY13E and FY14E respectively. We have cut our estimates by 3.6% and 0.2% for FY13E and FY14E respectively after factoring higher credit cost. We continue to maintain a BUY rating on the stock, however we cut our price target from earlier Rs1,333 to Rs1,240 based on P/ABV of 1.7x FY14E.

Source : Equity Bulls

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