Axis Bank - Asset quality remains stable, Maintain Outperform - Sunidhi

Axis Bank reported a Q2FY13 PAT of Rs.11.2bn up 22.1% yoy led by a strong growth in NII (up 33% yoy) and other income (up 29% yoy). NII growth was led by 9 bps sequential improvement in the NIM and other income growth was due to strong treasury and fee based income. The asset quality remained largely stable sequentially and restructuring activity came off during the quarter.

Loan growth led by the retail segment

Loan book growth stood strong at 23% yoy though flat sequentially. Advances growth was led by the retail (up 9.1% qoq) and SME (up 7.5% qoq) segments. Meanwhile agricultural and large & mid corporate advances came off sequentially. Within retail loans, growth was led by housing (up 47% yoy), auto (up 51% yoy) and personal loans (up 164% yoy).

NIM improves sequentially

NIM improved by 9 bps sequentially to 3.5% as the yield on advances Improved by 19 bps qoq and cost of funds came off by 10 bps sequentially. CASA ratio improved by 150 bps sequentially to 40.5%, daily average CASA balances stood more or less flat sequentially.

Robust growth in other income

Other income grew by 29% yoy and 19.3% qoq led by strong growth in fee and treasury income. Fee income growth was led by the 43% yoy growth in retail fees. Meanwhile treasury income during the quarter included income received from the stake sale in Axis AMC to Schroder.

Asset quality remains largely stable sequentially

Asset quality remained largely stable sequentially. On an absolute basis GNPAs and NNPAs grew by 5% and 8% qoq respectively. However, %GNPAs and %NNPAs were largely flat qoq. Slippages during quarter stood at Rs.6.3 bn (1.5% annualised vs 1.1% in Q1FY13). Write offs at Rs.3.9bn stood relatively high sequentially. Provisions increased by 97% qoq as the bank made Rs.1.2 bn of provisions for contingency default during the quarter. Restructuring activity came off during the quarter with the bank restructuring loans of Rs.3.2 bn as compared to Rs.6.3 bn in Q1FY13. Total restructured assets stood at Rs.40.7bn or 2.4% of total loans, an increase of 6% qoq.

Maintain Outperform with a target price of Rs.1326

At the CMP of Rs.1142, the bank trades at 1.8x FY13E ABV and 1.6x FY14E ABV. Although asset quality remains a concern due to the banks high infrastructure exposure and rising restructured assets portfolio, valuations appear attractive and seem to capture the deterioration in asset quality. We believe the profitability of the company would be sufficient to cover increase in slippages going ahead and despite assuming provision CAGR of 31% for FY12-14, PAT is expected to register a CAGR of 17% for FY12-14. We thus maintain our Outperform rating on the stock with a price target of Rs.1326 (1.8x FY14E ABV) from Rs.1336 earlier.

Source : Equity Bulls

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