Axis Bank (Q2 FY13)

NIM expansion on expected lines; to further advance in Q3 FY12

January 01, 1970 5:30 IST | India Infoline News Service
CMP Rs1,146, Target Rs1,375, Upside 19.9%

  • Loan growth moderates; mix moves towards retail segment
  • Deposit profile improves; strong growth in savings and retail TDs
  • NIM expansion on expected lines; to further advance in Q3 FY12
  • Stress assets addition lower than expected; credit cost guidance raised slightly
  • Maintain BUY with 9-month target price of Rs1,375
Result table
(Rs mn) Q2 FY13 Q1 FY13 % qoq Q2 FY12 % yoy
Total Interest Income 66,872 64,828 3.2 52,760 26.7
Interest expended (43,603) (43,030) 1.3 (32,687) 33.4
Net Interest Income 23,269 21,798 6.8 20,073 15.9
Other income 15,931 13,355 19.3 12,349 29.0
Total Income 39,200 35,153 11.5 32,422 20.9
Operating expenses (17,417) (15,517) 12.2 (14,665) 18.8
Provisions (5,094) (2,588) 96.8 (4,056) 25.6
PBT 16,688 17,048 (2.1) 13,701 21.8
Tax (5,453) (5,513) (1.1) (4,497) 21.2
Reported PAT 11,235 11,535 (2.6) 9,203 22.1
EPS 108.4 111.4 (2.7) 89.3 21.4

(Rs mn) Q2 FY13 Q1 FY13 chg qoq Q2 FY12 chg yoy
NIM (%) 3.5 3.4 0.1 3.8 (0.3)
Cost of funds (%) 6.5 6.7 (0.2) 6.2 0.4
CASA (%) 40.5 39.1 1.5 42.2 (1.7)
C/D (x) 0.73 0.77 (0.04) 0.72 0.01
Non-interest income (%) 40.6 38.0 2.6 38.1 2.6
Cost to Income (%) 44.4 44.1 0.3 45.2 (0.8)
Prov./Avg. Advances (%) 6.2 3.3 2.8 6.2 (0.1)
RoA (%) 1.5 1.6 (0.1) 1.5 (0.0)
CAR (%) 13.0 13.0 (0.0) 11.4 1.6
Gross NPA (%) 1.1 1.1 0.0 1.1 0.0
Net NPA (%) 0.3 0.3 0.0 0.3 (0.0)
Source: Company, India Infoline Research

Loan growth moderates; mix moves towards retail segment

Axis Bank’s advances were largely flat qoq representing annual growth of 23% yoy, a significant moderation from 30% in Q1 FY13. Though loan book is expected to seasonally expand in H2 FY13, terminal growth would likely be near 20% in our view. In sync with bank’s strategy, retail book continued to grow at robust pace during Q2 FY13 (9% qoq/51% yoy). Its share in overall advances increased to 25.7%, up 200bps qoq and 500bps yoy. Axis Bank targets to have retail share of 29-30% by FY15. Lower delinquencies in retail segment and changing deposit mix (rising share of retail TDs) have been accelerating this shift. Axis Bank has been witnessing strong growth in key retail products of mortgages and auto loans (combined ~88% of retail book). SME loans grew by 7.5% qoq with its share improving to 14% after having declined to multi-quarter low in Q1 FY13. While corporate advances were flat sequentially, agri loans declined sharply by 23% qoq on account of seasonal run-down.

Deposit profile improves; strong growth in savings and retail TDs continued

CASA ratio for the quarter was 36% on cumulative daily average basis, being stable qoq. The key highlight was sustained strong traction in savings balance growth, up 7% qoq and 20% yoy. Axis Bank savings ratio has been stable at 23-24% over the past six quarters despite huge rate differential of retail TDs and higher rate offered by smaller private banks. Current account balance grew by 15% qoq on the back of eased system liquidity. Retail TD mobilization also remained robust (6% qoq and 39% yoy) driven by attractive rates. Share of bulk deposits declined to 36%.

NIM expansion on expected lines; to further advance in Q3 FY12

Axis Bank’s NIM improved by 10bps qoq to 3.5% driven by decline in funding cost and stable lending yield. Given substantial exposure to wholesale funding, Axis Bank would be a big beneficiary of sharp decline in short term rates over the past six moths. As per the bank, incremental borrowing cost stands in the range of 6.25-6.5% currently as compared to 6.54% during Q2 FY13. On the asset side, shifting loan mix towards retail, a seasonal pick-up in SME credit and delay in base rate cut should support lending yield. Therefore, NIM is expected to further expand by 15-20bps in the current quarter. The management remains confident of achieving NIM of 3.5% for FY13.

Improved fee growth; C/I ratio stable

Fee income growth improved to 20% yoy in Q2 FY13 from high-single digits in the previous two quarters. The revival was driven by a robust 43% yoy growth in retail fees (partially driven by strong growth in retail book) and improvement in the corporate fee growth (6% qoq/15% yoy). The bank is hopeful that fee growth would track balance sheet growth for the year. Trading profits were higher at Rs2.1bn with equity contributing Rs950mn including the profit on stake sale in AMC business. 12% qoq increase in opex led to a stable C/I ratio despite brisk growth in revenues.

Addition to stress assets lower-than-expected; credit cost guidance raised slightly

Asset quality performance was better than expected with slippages at Rs6.3bn including the lumpy Deccan Chronicle account (likely Rs3-4bn). Delinquency ratio for the quarter stood at 1.5%. Axis Bank’s GNPLs increased by muted 5% qoq and remained at 1.1% of advances. The bank restructured assets worth Rs3.2bn, materially lower than previous two quarters. Outstanding restructured book stood at Rs40.7bn, 2% of gross advances. Quarterly addition to stress assets (slippages + restructuring) was within Rs10bn, guidance given by the bank in the past. Provisioning was substantially high at Rs5.1bn that included LLP of Rs4.1bn and contingency provision of Rs1.2bn (created against weak accounts). During the quarter, there was an investment provision release of Rs660mn. Credit cost for Q2 FY13 stood at 120bps and for H1 FY13 at ~95bps. While maintaining its quarterly stress assets addition outlook, Axis Bank marginally raised its full-year credit cost guidance to 85-90bps. As per the bank, current Tier-I capital of 9.9% (including H1 FY13 profit) would be adequate to support healthy balance sheet growth in the medium term.

Maintain BUY with 9-month target price of Rs1,375

We retain constructive stance on Axis Bank on account of structural improvement in asset/liability franchise and its relatively attractive valuation (55-60% discount to HDFC Bank). In our view, a strong revenue growth would largely offset any requirement of higher provisioning from potential weakness in asset quality. The bank is estimated to deliver 1.5-1.6% RoA over FY13/14. Retain BUY and increase 9-month price target to Rs1,375.

Financial Summary
Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E
Total operating income 111,951 134,379 159,975 195,068

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