Axis bank - Fundamental Call - Consortium

Axis bank reported better than expected PAT at Rs 13.5 bn (~22% YoY), primarily on the back of healthy NII growth and lower non-tax provisions. NIMs expand by 11 bps QoQ to 3.57%. Retail fee growth remains strong (37% YoY), but lower corporate fee growth drags down other income. Asset quality holds up well with lower NPA formation (GNPAs up just ~4% QoQ) and fresh restructuring at Rs 3.7 bn.

Retail momentum continues: Loan growth picked-up (4% QoQ/21% YoY), primarily driven by continued traction in retail loans with its share rising to 27% and SME book. Savings growth remains strong (22% YoY), however, lower CA accretion led to marginal decline in terminal CASA ratio to ~40%. Avg. CASA too declined to 35.8%, but has bottomed-out. Retail forms 39% of overall Term deposits. NIMs improved 11 bps QoQ to 3.57% led by better YoA and contained funding cost.

Well managed asset quality: Despite stressed environment, bank reported fresh slippages at just Rs 5.4 bn, leading to just ~4% QoQ rise in GNPAs, while GNPA ratio remained flat at 1.26% (1.1% on customer assets). Fresh restructuring was low at Rs 3.7 bn, however, could go up in FY14 due to delay in infra (mainly power) projects.

Outlook

Asset quality performance will be key monitorable given some lumpy stress loans in pipeline (infra/power), however, given bank's impressive NPA management and recent govt reforms, we believe that it is unlikely to blow-out. Conservatively, we model higher NPAs/restructuring and thus higher credit cost (~1% v/s 0.8-0.85% bps guided by mgt). However, we still expect bank to deliver healthy 21% earnings CAGR over FY12-15E, with relatively healthy RoA~1.6%/RoE~17-17.5% (postdilution). Likely capital raising in next 3-6 m will shore up its otherwise falling Tier-I cap, addressing investors concern.

Source : Equity Bulls

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