Buy Axis Bank - Motilal Oswal

• Mkt Cap USD11.7b
• CMP Rs1,345
• Buy

Axis Bank's 1QFY11 PAT grew 32% YoY to Rs7.4b (v/s our estimate of Rs7.6b). NII growth of 45% surprised us positively (9% higher than expected), led by better than expected loan growth of 39%. Key highlights are:

- Strong loan growth of 39% YoY and 4% QoQ (after 23% QoQ growth in 4QFY10), led by loans to the infrastructure sector (especially telecom), and large and mid-size companies.

- Margins declined from 4.1% in 4QFY10 to 3.7% in 1QFY11 (down 38bp QoQ). Reported fee income grew ~19%, adjusted growth was 28% YoY.

- CASA deposits grew 40% YoY on an average daily basis; average daily CASA ratio stood at ~40% v/s ~42% a quarter ago

- Slippages for the quarter stood at Rs4.2b, leading to annualized slippage ratio of 1.6% v/s 2.2% in FY10. On a QoQ basis, net restructured loans have declined by Rs1.35b. From the peak level of gross restructured loans of Rs32b, Rs4.6b (14% of the restructured loans) has already slipped into NPA category.

- Reported GNPA and NNPA remained stable QoQ. Including prudential write-offs, PCR stood at 76.6% v/s 72.4% a quarter ago.

- Trading profits were strong at Rs2b v/s Rs1b in 4QFY10 but were lower than the Rs3.3b in 1QFY10.

No earnings revision; maintain Buy: We expect the bank to report loan CAGR of ~25% and fee income CAGR of ~22% over FY10-12. In our view, core operating profitability and decline in credit cost will drive earnings growth in FY11. The stock trades at 2.5x FY12E BV and 14x FY12E EPS. We maintain Buy.

Source : Equity Bulls

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