Accumulate Axis Bank - 3QFY2013 Result Update - Angel Broking

Axis Bank (CMP: Rs.1,422 / TP: Rs.1,594 / Upside: 12.1%)

During 3QFY2013, Axis Bank reported a 22.2% yoy growth in its net profit to Rs.1,347cr, which was in-line with our estimates. Sequential improvement in NIMs, robust growth in fee income and stable NPA ratios, were the key highlights from the results.

NIMs improve sequentially on better yields; NPA levels remain stable: During 3QFY2013, the bank reported healthy growth in business, with advances and deposits registering a growth of 20.7% and 17.2% yoy, respectively. The growth in the loan book was primarily on account of strong traction witnessed in the retail loan book, particularly home and auto loan segments, which grew by 31.0% and 33.4% yoy, respectively. Growth in the large and mid-corporate segment remained moderate at 12.5% yoy. CASA deposits grew by moderate 12.7% yoy, aided by strong growth of 21.6% in savings deposits, even as current deposits grew at subdued pace of 2.0% yoy. Overall, reported NIMs improved by 11bp qoq to 3.57%, largely on account of improvement in the yields. 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. On the asset quality front, slippages came in at Rs.541cr, as against Rs.628cr witnessed in 2QFY2013. As guided by the management, slippages and restructuring taken together have amounted to ~Rs.900cr in 3QFY2013 and ~Rs.2,900cr in 9MFY2013. Even going ahead, the management expects a similar run rate in slippages and restructuring to continue for next few quarters. Along with sequentially lower slippages, the bank also reported sequentially higher recoveries and upgrades at Rs.180cr, which helped it to contain the increase in its gross and Net NPA levels, on an absolute basis to around 3.8%. Gross and Net NPA ratio remained stable sequentially at 1.1% and 0.33%, respectively. The bank's PCR (provisioning coverage ratio) improved to 81.0% in 3QFY2013 from 80.0% in 2QFY2013. Additionally, the bank restructured advances worth Rs.368cr during the quarter, thereby taking its total restructured book to Rs.4,257cr.

Outlook and valuation: Axis Bank is trading at 1.9x FY2014E ABV - more than 50% 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 Accumulate recommendation on the stock with a target price of Rs.1,594.

Source : Equity Bulls

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