Axis Bank - Results mixed; stay cautious on asset quality - HOLD - Religare

Axis Bank's (AXSB) PAT was higher than estimates at Rs 15.6bn (growing 22% YoY), but overall results were mixed. NIMs rose by 13bps QoQ though primarily led by capital raise and interest income on investments; advances were flat QoQ. As regards advances growth, retail/SME stood strong and corporate/Agri subdued. Fee income was healthy at 22% YoY, led by treasury/retail. Slippages declined QoQ but restructuring was higher. We revise our March'14 TP to Rs 1,380 from Rs 1,360 earlier. Maintain HOLD.

Retail segment performed well: Overall advances grew by 10% QoQ but on a YoY basis, advances growth declined from 21% in December'12 to 16% YoY in March'13. Retail advances grew by 12% QoQ and 44% YoY, while Agri advances declined by 14% YoY International assets also grew from US$ 6.4bn in December'12 to US$ 6.84bn in March'13. SA deposits grew a healthy 11% QoQ and 23% YoY.

Slippages lower QoQ but restructuring higher: Slippages declined from Rs 5.4bn (1.25% of advances) to Rs 4bn (0.8% of advances). However, restructuring was high at Rs 7.9bn (as against Rs 3.9bn in December'12). As a result, total impaired assets were higher at Rs 11.9bn. Provisions were high at Rs 5.9bn (including contingency provisions of Rs 2.4bn) Credit costs remained low at 70bps in FY13 and as per management, credit costs would remain low at ~85bps into FY14.

NIMs improve QoQ; fee income healthy: Interest income on advances and investments was flat QoQ (despite strong growth in advances), but interest expenses declined QoQ on account of CASA mobilisation and capital raising. Fee income grew at a robust 22%, led by a 43% YoY/37% YoY growth in treasury/retail, but growth in agri and business banking was weak.

Maintain HOLD: At current valuations of 1.75x FY14E BV and 11.2x FY14E EPS, we remain neutral given bank's exposure to project finance and stressed corporates. Maintain HOLD with a TP of Rs 1,380/share (1.7 FY14E BV and 10x FY14E EPS).

Source : Equity Bulls

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