Axis Bank - Strong performance on all fronts - 3QFY13 Results Review - Antique

Axis Bank reported strong earnings for 3QFY13 with net profits at INR13.47bn (20% YoY growth), marginally above consensus and our estimates on better than expected core operating profit progression and lower loan loss provisioning. Contrary to investors' skepticism, asset quality for the bank continued to hold up well and positively surprised with slippages and restructured book accretion at INR9bn which is marginally lower than the previous quarter (INR9.5bn in 2Q). Further, expansion in margins, healthy coverage ratios, stable trends on loan impairment, and marginal improvement in rating portfolio continued to remain key positives during the quarter.

Results highlights

SME and Retail drive the loan growth

In line with management guidance, loan growth for the bank (excluding Retail and SME) continued to moderate to 21% YoY for a third consecutive quarter in a row. Retail loan growth continued to accelerate at 45% YoY driven by housing, personal loans and card segments. Share of retail loans now constitute 26.8% of overall loan book (vs. 25.7% in 2Q). Growth in SME segment also remained strong at 7% QoQ and 22% YoY. While distribution of ratings across corporate segment continued to remain stable, ratings in SME loan segments witnessed marginal improvement during the quarter.

Margins expand on sequential basis, likely to remain at 3.25-3.5% levels for FY13e

Reported margins for the bank expanded 11bps QoQ to 3.57% due to lower cost of funds and a pick-up in loan yields. Calculated loan yields were up 13bps QoQ due to a better asset mix (run down of low yielding priority sector linked agriculture loans). Average CASA balances continued to remain stable at 40% levels. Going forward, management is guiding margins to remain stable at 3.25-3.5% levels for FY13e. However, we believe that margins at current levels are unsustainable and are likely to compress in 4Q as the bank intends to shore up its low yielding agriculture loans to meet PSL obligation.

Asset quality stable; Outlook on FY13E credit costs maintained at 85bps

Asset quality for the bank continued to remain stable with GNPA and NNPA at 1.03% and 0.33%, respectively. Slippages for the bank came in at INR5.4bn leading to annualised delinquency ratio at 1.2% (vs. 1.5% in 2Q). The bank added INR3.68bn of restructured assets in 3Q taking total restructured book to 2.4% of advances. Going forward, management continues to remain confident about asset quality and is guiding credit costs at 85-90bps for FY13e.

Valuation and outlook

Axis Bank has continued to show consistent growth trajectory with strong earnings, return ratios and stable asset quality over the last few quarters. At the CMP of INR1,422, the bank is trading at 1.9x FY14e P/BV and 10.2x FY14e P/E which continues to remain attractive. Therefore, we reiterate a BUY recommendation on the stock with a target price of INR1,580/share.

Source : Equity Bulls

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