Axis Bank - A nice balancing act - Elara

Core income and bottomline in-line with our estimates

In Q4FY13, Axis Bank reported NII of INR 26.6bn as against our estimates of INR 27bn and recorded bottomline of INR 15.55bn as compared to our estimates of INR 15.3bn. Expansion in margin and lesser employees' expenses and healthy asset quality aided profitability. The bank's decision to make high contingency provisions of INR 2.4bn in Q4 and INR 200 mn in Q3 would act as buffer to take care of any spike in NPLs in future; total contingency provisions stands at INR 3.75bn. We maintain our positive stance on the stock and it remains one of our top picks in the sector. On account of recent increase in stock price, we downgrade our stock rating to Accumulate with a revised target price of INR 1,665

- Stability in low-cost deposits franchise: Axis Bank reported 23% YoY and 15% QoQ expansion in CASA deposits, its composition remained high at 44.4%. On cumulative daily average basis, CASA share was at 36%; whole-sale deposits share came down further to 32% from 36.4% in Q3FY13. The bank's retail deposit franchise remains robust.

- Retail backed asset expansion: In Q4FY13, loan book expansion was mainly driven by retail book; whole-sale loan book declined due to reduction of exposure in some of the vulnerable industries. In Q4FY13, retail asset grew by 44% YoY and 12% QoQ; its composition further increased to 27% from 22% a year back. The bank's management expects it to increase further to 30% in a gradual manner. Decline in whole-sale loan book was mainly due to risk curtailment; the bank reduced exposure to Iron & steel, Infrastructure and Power Generation/Distribution industries.

- Expansion in margin: Prudent asset side management with reduction in cash balances and re-balancing of loan book composition in favour of retail assets contained erosion in asset yield. On liability side, stability in CASA deposits and reduction in whole-sale deposits share with deployment of fresh equity funds reduced liabilities costs. Margin further expanded to 370bps from 357bps in Q3FY13; though, from here on improvement in margin would be difficult.

Source : Equity Bulls

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