- Healthy loan growth lead by retail traction; strong growth in savings balance and retail TDs continued
- NIM expansion of 10bps qoq on expected lines; margin to be sustained in Q4 FY13
- Resilient fee growth; C/I ratio improves materially
- Addition to stress assets lower-than-expected; credit cost guidance unchanged
- Maintain BUY with 9-month target price of Rs1,625
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Total Interest Income||69,649||66,872||4.2||57,770||20.6|
|Net Interest Income||24,948||23,269||7.2||21,403||16.6|
|(Rs mn)||Q3 FY13||Q2 FY13||chg qoq||Q3 FY12||chg yoy|
|Cost of Funds (%)||6.5||6.5||(0.0)||6.3||0.2|
|Non-interest income (%)||39.3||40.6||(1.3)||40.0||(0.7)|
|Cost to Income (%)||42.5||44.4||(1.9)||42.3||0.2|
|Gross NPA (%)||1.1||1.1||-||1.1||-|
|Net NPA (%)||0.3||0.3||-||0.4||(0.1)|
Healthy loan growth lead by retail traction
Axis Bankâ€™s advances grew by 4% qoq/21% yoy propelled by continuance of robust growth in retail loans (9% qoq/45% yoy) and seasonal traction in SME book (7% qoq/22% yoy). Growth in large & mid corporate segment remained muted reflecting lackluster corporate investment activity and moderate disbursements on the sanctioned project loans. Retail loans share in overall advances increased to 27%, up 100bps qoq and 440bps 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 mortgages which comprise ~68% of the retail book. For the full year FY13, we expect bankâ€™s loan growth at 19%.
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 22% yoy. Axis Bank savings ratio has been stable at 23-24% over the past seven quarters despite huge rate differential of retail TDs and higher rate offered by smaller private banks. Retail TD mobilization remained robust at 30% yoy driven by attractive rates. Share of bulk deposits was at 36%.
NIM expansion on expected lines; likely to be sustained in Q4 FY13
Axis Bankâ€™s NIM improved by 10bps qoq to 3.6% driven by stable funding cost and improvement in lending yield. The latter was driven by shift in the loan mix towards retail and SME segments. Given substantial exposure to wholesale funding, Axis Bank is benefiting materially from benign short term rates. On the asset side, favourable portfolio mix and delay in base rate cut should support lending yield in the near term. Therefore, NIM is expected to remain stable in the current quarter. Axis Bank would achieve its NIM guidance of 3.5% for the year.
Resilient fee growth; C/I ratio improves materially
Fee income growth stood resilient at 15% yoy both for Q3 FY13 and 9m FY13. Relatively lower dependence on corporate fees, robust growth in retail fees and other established fee streams underpin bankâ€™s sturdy fee performance despite macro challenges. Trading profits were lower sequentially at Rs1.6bn as the previous quarter income of Rs2.1bn included Rs950mn profit from stake sale in the AMC business. Flat opex and strong revenue performance drove 200bps qoq improvement in C/I ratio.
Addition to stress assets lower-than-expected; credit cost guidance unchanged
Asset quality performance was better than expected with slippages coming at Rs5.4bn, implying a delinquency ratio of 1.2% against 1.5% in the previous quarter. Aided by strong upgrades and recoveries, Axis Bankâ€™s GNPLs increased by muted 4% qoq remaining at 1.1% of advances. The bank restructured assets worth Rs3.7bn and the outstanding restructured book stood at Rs42.5bn, 2.4% of gross advances. The quarterly addition to stress assets (slippages + restructuring) was within Rs10-11bn run-rate guided by the bank in the past. Both, fresh slippages and new restructuring during the quarter comprised multiple accounts from varied sectors. Loan loss provisioning was sequentially lower at Rs3.3bn (Rs4.1bn in Q2 FY13 included lumpy provisioning against Deccan Chronicle account) but was commensurately higher vis-Ă -vis addition to GNPL thereby improving PCR materially to 81%. Credit cost based on specific provisioning stood at benign 74bps. Bankâ€™s asset quality outlook remains unchanged for the near term with quarterly stress assets addition expected at similar levels. Full-year credit cost guidance has been maintained at 85-90bps. Axis Bank has boosted its capital adequacy through optimal allocation, loan mix change, external rating of loans and by demanding additional security. Current Tier-I capital of 10.3% (including 9m FY13 profit) should be adequate to support healthy balance sheet growth in the medium term.
Maintain BUY with 9-month target price of Rs1,625
We retain constructive stance on Axis Bank on account of structural improvement in asset/liability franchise, strong revenue growth and healthy near-term asset quality outlook. Further, bankâ€™s relatively valuation (~50% discount to HDFC Bank) remains attractive despite the impressive recovery in the stock price. We estimate Axis Bank to deliver robust RoAs of 1.6-1.7% over FY13-15. Retain BUY and increase 9-month price target to Rs1,625.
|Y/e 31 Mar (Rs m)||FY12||FY13E||FY14E||FY15E|
|Total operating income||134,379||160,555||191,499||231,838|
|yoy growth (%)||20.0||19.5|
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