Buy Axis Bank - 3QFY2013 Result Update - Angel Broking

During 3QFY2013, Axis Bank reported a 22.2% yoy growth in its net profit, which was in-line with ours' and ahead of streets' 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; Asset quality remains stable: During 3QFY2013, the bank reported a healthy growth in business, with advances and deposits registering a growth of 20.7% and 17.2% yoy, respectively. Growth in the loan book was primarily on account of robust traction witnessed in the retail loan book, particularly home and auto loan segments. Growth in the large and mid-corporate segment remained moderate at 12.5% yoy. CASA deposits grew by a moderate 12.7% yoy, aided by a strong growth of 21.6% in savings deposits, even as current deposits grew at a subdued pace of 2.0% yoy. Overall, the reported NIM improved by 11bp qoq to 3.57%, largely on account of improvement in the yields. The bank registered moderate growth in its non-interest income excluding treasury, largely driven by a healthy 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. In-line with the Management's guidance, slippages and restructuring taken together, have amounted to ~Rs.900cr in 3QFY2013 and ~Rs.2,900cr in 9MFY2013. Going ahead, the Management expects a similar run rate in slippages and restructuring to continue for the 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% qoq. The gross and net NPA ratio remained stable sequentially at 1.1% and 0.33%, respectively. The bank's PCR improved by 100bp qoq to 81.0%. 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 around 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, with a target price of Rs.1,641.

Source : Equity Bulls

Keywords