Axis Bank - Cautious outlook maintained - Karvy

Slippages were contained at 1.1%, however; recoveries and up-gradation have fallen by 55% on a sequential basis to Rs1.2bn. GNPA deteriorated by only 6bps to 1.3% as they did a write-off of Rs1.9bn during the quarter. Management has continued its full year impairment guidance of Rs60bn for FY14. Non-Interest was lackluster with a growth of 2% as fee income grew by only 4% and trading profits were minimal. Fee income has been muted for over 6 quarters and even going ahead management has guided dismal growth. Profitability has beaten our expectations for the quarter only on account of reversal of investment depreciation of Rs1.7bn and lower NPL provisions.

Retail and SME segment drives credit growth: Advances have grown by 18% mainly driven by retail and SME segment which has grown by 44% and 25% respectively. Retail loans proportion has increased by 590bps YoY to 32.7%. Management would continue its focus on retail and SME segment. Corporate segment grew by only 3%. Deposit grew by 7% ? Slight compression in NIMs: NIMs have compressed by 8bps sequentially to 3.7% on account of 4bps increase in cost of funds and equity proportion which was raised last year comes off. Management expects longer term NIMs of ~3.5%

Slippages contained: Slippages were contained at 1.1%, however recoveries and up-gradation were sequentially significantly lower. Restructured book after accounting for upgradation on satisfactory performance is steady at 2.3% of loan book.

Outlook & Valuation

We have increased our FY14 estimates by 2% as we factor 3bps improvement in NIMs and reduction of 5bps in credit cost. We have cut our FY15 estimates by 8% factoring in muted growth in fee income and higher other provisioning, thereby cutting our ABV by 1% in FY15. We continue to maintain a SELL rating on the stock, cutting our target price by 1% to Rs1,230

Source : Equity Bulls

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