Axis Bank - Result Inline; Maintain Neutral - Sunidhi

Axis Bank has reported a PAT of Rs. 16 bn for Q3FY14 (vs. our expectations of Rs. 15.7 bn) up 19% yoy and 18% qoq led by lower provisions. The NII came in at Rs. 29.9 bn up 19% yoy and 2% qoq and calculated NIM declined marginally to 3.6%. Loan book growth during the quarter stood at 18% yoy whereas deposit growth was muted at 7% yoy. The asset quality deteriorated marginally QoQ. Maintain Neutral with increased target price of Rs. 1260 (1.4x FY15E ABV) on the stock.

Loan growth led by retail and SME segment

Loan book grew at 18% yoy and 5% qoq led by retail (up 44% yoy) and SME (up 25% yoy) segments. Growth in corporate remains subdued at 3% yoy resulting in corporate share in total loan declining to 46% from 53% yoy. Sector wise, engineering, trade and shipping were major growth contributor whereas NBFCs have seen degrowth of 14% yoy. As the bank focused on retail loan, share of retail lending increased to 30% of total advances from 27% in Q3FY13. Deposit growth was muted at 7% yoy largely led by 17% growth in CASA deposit.

NIM pressure visible despite several efforts

The Net Interest Income came in at Rs. 29.9 bn up 19% yoy and 2% qoq. The calculated NIM declined marginally to 3.6% whereas reported NIMs declined by 8bps qoq to 3.7%. NIM declining even though improvement in Credit to deposit ratio, casa share and defocusing from corporate lending, which means bank is facing severe pressure in managing margins. We expect pressure to continue for next couple of quarters.

C/I ratio increased

Other income declined sequentially by 7% qoq whereas operating expense increased by 15% yoy. Hence C/I ratio increased to 43.5%.

Asset quality deteriorated marginally

The asset quality deteriorated marginally during the quarter with absolute GNPAs increasing by 10% qoq and % GNPAs by 6 bps qoq to 1.25%. Absolute NNPAs and % NNPAs increased by 20% qoq and 5 bps qoq respectively. However due to lower NPA provisions, provision coverage ratio declined to 66.6% vs 69.3% qoq (78% including w/off vs 89% qoq). Slippages during quarter improved sequentially and stood at Rs. 5.9 bn (1.15% annualised vs 1.2% in Q2FY14). Restructured during the quarter was Rs. 6.7bn taking total restructured assets to 49bn vs 48bn in Q2FY14. Stress addition to peak up going ahead.

Maintain Neutral with target price of Rs. 1260

At the CMP, the bank trades at 1.5x FY14E ABV and 1.3x FY15E ABV. We have revised our estimates marginally to factor in quarterly numbers. Although comfortable valuation, concerns remain on NIM and asset quality. Hence maintaining our recommendation on the stock at Neutral and target price of Rs. 1260 (1.4x FY15E ABV) vs previous target price of Rs. 1170.

Source : Equity Bulls

Keywords