Axis Bank - Q1FY14 Result Update - Sushil Finance

Axis Bank Ltd. has reported good numbers, with healthy core performance mainly driven by NIM expansion. High trading gains and lower operating expenses led to a decent rise of 22% in PAT, while higher write-offs abetted high slippages keeping asset quality stable during Q1FY14.

Key Highlights of Q1FY14

NII grew by 31% YoY to Rs.28.65 bn, on the back of increased NIMs. Advances growth remained moderate at 16% YoY on slower growth of 7.5% YoY in its Corporate book. Retail advances continued to grow sharply by 39.7% YoY (with share of 28.6% in advances v/s 23.7% in Q1FY13), mainly contributed from personal loans & LAP segment. SME loans saw a decent growth of 27% YoY while Agri saw a de-growth of 13% YoY. Deposits grew by 7% YoY as infused capital deployment and borrowings led the Bank to consciously lower reliance on wholesale deposit thereby taking the C/D ratio to 83%. CASA profile remained strong growing by 16% YoY with share in total deposit to 42%. Going ahead, the Bank expects credit growth of 1.2x-1.5x to the industry and also C/D ratio to normalize as it will have to raise deposits.

Axis Bank's non-interest income witnessed a strong growth of 33% YoY, mainly on back of large trading gains. Fee income saw a blip as large & mid corporate fee income continued to remain weak (7% YoY de-growth), while retail fee income continued to remain robust (23% YoY growth).

Axis Bank's operating expenses remained under control, increasing by 16% YoY with employee expenses increasing by 10% YoY and other operating expenses increasing by 20% YoY. Its C/I ratio improved further at 38.8% on high trading gains. The Bank indicated cost to rise ahead owing to expansion in network (plans to add 250 branches in FY14) but will maintain C/I ratio below 45%.

Axis Bank's total provisions in Q1FY14 increased by 175% YoY & 20% QoQ to Rs.7.12 bn, as high slippages prompted to increase the loan loss provisions to Rs.5.72 bn against Rs.2.13 bn in Q4FY13. The Bank carries contingency provision buffer of Rs.3.75 bn on its books which it has been providing from last few quarters. As a result, Net Profit saw a growth of 22% YoY and stood at Rs.14.1 bn.

NIMs continue to surge on substitution of high cost funds

Infused capital utilisation and higher CASA accretion reduced the requirement of raising wholesale term deposits decreasing the cost of funds, as a result NIMs surged by 49 bps YoY & 16 bps QoQ to 3.9% in Q1FY13. Going ahead, the Bank expects its NIMs to soften to the range of 3.5%-3.7% as capital gets deployed. Seeing the recent increase in wholesale funding and systemic pressure on lending yields especially on corporate book, we estimate NIM at 3.51% for FY14E (3.53% in FY13).

Asset quality performance aided by high write-offs, stress visible via high slippages

In Q1FY14 stressed assets increased to Rs.13.7 bn which was above Bank's guidance of Rs.10 bn/qtr. Incremental slippages came in higher than expected at Rs.6.81 bn (1.4% annualised v/s 0.8% in Q4FY13) while Restructuring increased by Rs.6.87 bn. Its cumulative restructured loan portfolio stood at Rs.42.1 bn (2.1% of advances) including Rs.4.8 bn upgradation on 2 year satisfactory performance. Credit cost came at 29bps (non-annualised) above the comfort level. The Bank maintains its guidance of Rs.10 bn/qtr in form of stressed assets for a few more quarters as asset quality risk still persist, while it sees restructuring pipeline to continue mainly from CDR mechanism.

In absolute terms, Gross NPAs increased by 19% YoY & 4% QoQ and Net NPAs increased by 31% YoY 12% QoQ. In percentage terms, Gross NPAs stood at 1.1% increasing 4 bps YoY & QoQ respectively, while Net NPAs stood at 0.35% i.e. increasing 4 bps YoY and 3 bps QoQ in Q1FY14.

OUTLOOK & VALUATION

Axis Bank's core performance continues to remain strong on back of decent biz growth and strong NIMs. It witnessed minor blips in its asset quality, but has been managing it quite well. Considering decent Q1FY14 results, we have largely retained our FY14 & FY15 estimates. Its thrust on retail will continue, while corporate loan book to remain tepid. Going forward, we expect its Advances & Deposits to grow by 18.6% & 17.3% respectively in FY14E and 19.8% & 18.9% respectively in FY15E, while Net Profit to grow at 17% in FY14E & at 19% in FY15E. The focus on retail assets, higher than system growth outlook, better deposit franchise and better management of asset quality are key value drivers for the stock. Axis Bank currently trades at an valuation of 1.4x FY15E ABV & 8.0x FY15E Earnings. We change our rating to "Buy" with an price target of Rs.1565.

Source : Equity Bulls

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