Axis Bank - 2QFY2013 Result Update - Angel Broking

For 2QFY2013, Axis Bank reported a 22.1% yoy growth in its net profit to Rs.1,124cr, which was in-line with our estimates. Key highlights of the result were sequential improvement in NIMs, healthy growth in fee income and stable NPA ratios.

NIMs improve sequentially on lower deposit costs; NPA levels stable: The bank's loan book grew by a healthy 22.9% yoy, while deposits grew by 21.2% yoy. The growth in the loan book was primarily on account of higher retail lending, with strong growth witnessed in both home and auto loans segments. CASA deposits registered a sequential growth of 9.9%, which was largely due to a strong 15.2% qoq growth witnessed in current deposits. Overall, reported NIMs improved by 9bp qoq to 3.46%, on account of lower deposits costs. The bank registered a healthy growth in its non-interest income excluding treasury, largely driven by strong growth in fee income from the retail and agri & SME segments. Slippages for the bank during the quarter came in at Rs.628cr, which included the account of Deccan Chronicle. Slippages and restructuring taken together amounted to Rs.2,000cr in 1HFY2013 and the management has guided for a similar number in 2HFY2013. The bank registered treasury gains of Rs.207cr during the quarter and used the opportunity to provide aggressively for NPAs (~407cr) and create a contingency reserve of Rs.115cr. Along with recoveries and upgrades of Rs.136cr, this helped the bank to keep its net NPA ratio at 0.33% (on an absolute basis net NPAs increased by 8.2% qoq to 47cr), which was a positive surprise. Gross NPAs also remained in check at 1.1%, due to large write-offs. The bank's (PCR) improved by 100bp to 80.0% in 2QFY2013. The bank's cumulative restructured book as of 2QFY2013, which is reported facility-wise, stood at Rs.4,068cr (2.3% of net advances).

Outlook and valuation: Axis Bank is trading at 1.6x FY2014E ABV -58% discount to HDFC Bank vs an average discount of 35% over the past five years (which we believe over-discounts asset quality concerns). We remain positive on the bank, owing to its attractive CASA franchise, multiple sources of sustainable fee income and reasonable growth outlook. We maintain our Buy recommendation on the stock with a target price of Rs.1,328.

Source : Equity Bulls

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