Axis Bank (Q4 FY14)

India Infoline News Service | Mumbai |

Axis Bank Q4 FY14 operational performance was very resilient amid high anxiety around its asset quality and sustenance of profitability.

CMP Rs1,534, Target Rs1,724, Upside 12.4% 
  • Loan growth at 17% yoy; robust traction in Retail loans and weak growth in Corporate book continues

  • Retail deposits franchise has been growing faster; CASA improves 100bps qoq

  • NIM expansion was a positive surprise; outlook is also healthy

  • Fee growth remains weak; C/I ratio improves.

  • FY14 impaired asset creation within guidance; FY15 guidance at Rs65bn should allay street concerns.

  • RoA delivery to remain strong; valuation inexpensive, Retain BUY

Result table
(Rs mn) Q4 FY14 Q3 FY14 % qoq Q4 FY13 % yoy
Total Interest Income  79,652  77,891  2.3  70,476  13.0
Interest expended  (47,995)  (48,051)  (0.1)  (43,829)  9.5
Net Interest Income  31,657  29,840  6.1  26,647  18.8
Other income  22,134  16,444  34.6  20,072  10.3
Total Income  53,791  46,285  16.2  46,718  15.1
Operating expenses  (21,314)  (20,134)  5.9  (18,721)  13.9
Provisions  (5,052)  (2,025)  149.5  (5,954)  (15.1)
PBT  27,424  24,126  13.7  22,044  24.4
Tax  (9,002)  (8,084)  11.4  (6,492)  38.7
Reported PAT  18,422  16,042  14.8  15,552  18.5
EPS  156.9  136.7  14.8  132.9  18.1

Key  Ratios Q4 FY14 Q3 FY14 chg qoq Q4 FY13 chg yoy
NIM (%)  3.9  3.7  0.2  3.7  0.2
Cost of funds (%)*  6.2  6.3  (0.1)  6.5  (0.3)
CASA (%)  45.0  42.6  2.4  44.4  0.6
C/D (x)  0.82  0.81  0.01  0.78  0.04
Non-interest income (%)  41.1  35.5  5.6  43.0  (1.8)
Cost to Income (%)  39.6  43.5  (3.9)  40.1  (0.4)
Provisions/Income(%)  5.0  2.1  2.8  6.6  (1.6)
RoA (%)  2.0  1.8  0.2  1.9  0.1
CAR (%)  16.1  15.5  0.6  17.0  (0.9)
Gross NPA (%)  1.2  1.3  (0.0)  1.1  0.2
Net NPA (%)  0.4  0.4  (0.0)  0.3  0.1
Source: Company, India Infoline Research

Loan growth at 17% yoy; robust traction in Retail loans and weak growth in Corporate book continues

Overall loan growth at 17% yoy was in-line with our expectation. On sequential basis loan book expanded by 9% driven by seasonal acceleration in PSL lending, reflected in substantial 34% qoq bump in agriculture book. In other segments, Axis Bank has been executing well on the lines of its stated strategy. Domestic Retail loan growth continues to be strong at 31% yoy and the book remains robust in quality with home loans accounting for 63% and overall secured products forming 86% of the portfolio. Retail loans share in the domestic advances has increased by 400bps during FY14 reaching to 36%. The growth in Retail portfolio is expected to remain strong supported by widening distribution of products. SME loan growth was healthy at 19% in FY14 driven by bank's selective origination and portfolio resilience despite tough economic conditions. SME book is likely to grow ahead of the overall advances in FY15. Corporate loan growth remained muted at 4% yoy on account of lackluster capex activity and slower drawdown on the funded infra/power projects.

Retail deposits franchise continues to grow faster; CASA improves 100bps qoq

Sequential growth in deposits was marginally lower than advances at 7% and therefore loan/deposits ratio further improved 82%. Aided by aggressive branch addition over the past two years (domestic network has grown by ~1.5x), combined domestic retail TDs and savings deposits grew by robust 29% yoy in FY14. Domestic CASA and retail term deposits constituted 78% of total domestic deposits as at the end of FY14, an improvement of 600bps during the year. This execution has complimented bank's effort of strengthening retail franchise and reducing exposure to lumpy corporate loans on the asset side. On daily average basis, overall CASA ratio improved by 100bps qoq to 39%.

NIM expansion was a positive surprise; outlook is also healthy

A material 20bps qoq improvement in NIM was a positive surprise as we were expecting a marginal correction. The margin expansion is likely to have been driven by uptick in loan/deposit ratio, CASA improvement and decline in blended cost of wholesale deposits. Based on our broad calculations, the yield on advances has fell qoq which can be attributable to the higher share of lower-priced PSL lending during the quarter. We expect Axis Bank to sustain NIM in an elevated range of 3.6-3.9% in the medium term supported by further softening of wholesale funding rates and improving deposits mix. Bank has guided for NIMs at north of 3.5%.

Fee growth remains weak; C/I ratio improves

Fee income growth for FY14 was weak at 8% yoy as compared to 17% in FY13. There was a sharp moderation in both corporate fees (just 1% growth; contributes 30%) and retail fees (modest 10% growth, contributes 32%) during the year. While corporate fees were impacted by sluggish new sanctions, retail fees were hit by lower third party product distribution fees. We expect overall fee income growth for the bank to be slower than balance sheet growth in FY15. Miscellaneous income was substantial at Rs2.16bn, of which, ~Rs1.4bn was repatriation of accumulated profits from overseas operations (was seen in previous two quarters also). Axis Bank continues to have a tight control on cost growth which stood at 14% yoy for Q4 FY14. Due to sequential jump in fee income and NIM expansion, the cost/income ratio improved by substantial 400bps to 39.6%.

FY14 impaired asset creation within guidance; FY15 guidance at Rs65bn should allay street concerns 

While slippages were lower at Rs3bn (Rs5.9bn in Q3 FY14) implying a annualized delinquency ratio of modest 0.5%, restructuring during the quarter was materially higher at Rs11.2bn (Rs6.7bn in Q3 FY14). Overall, stress assets addition during Q4 FY14 was at Rs14.2bn and for FY14 was at R56.9bn, the latter being within bank's guidance of Rs60bn. Annualized credit cost (based on overall provisioning) stood at 92bps. For the year, it was at 99bps which was within bank's expectation. For FY15, Axis Bank expects impaired assets creation to be within Rs65bn and credit cost at be near FY14.

RoA delivery to remain strong; valuation inexpensive, Retain BUY

Axis Bank Q4 FY14 operational performance was very resilient amid high anxiety around its asset quality and sustenance of profitability. Further, bank's guidance on impaired asset addition and credit cost for FY15 (which is similar to FY14) should allay street concerns about significant deterioration in asset quality. Strengthened NIMs and cost productivity should be able to offset the impact of continued high provisioning on RoA in FY15. With Axis Bank expected to deliver average RoA of 1.7% over FY14-16, valuation at 1.5x FY16 P/adj.BV is inexpensive. Retain Buy rating and raise 9-12 month target to Rs1,724.


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E
Total operating income 162,174 193,563 219,583 261,549
yoy growth (%) 20.7 19.4 13.4 19.1
Operating profit (pre-prov) 93,031 114,555 129,119 155,707
Net profit 51,794 62,171 69,374 84,939
yoy growth (%) 22.1 20.0 11.6 22.4
 
EPS (Rs) 110.7 132.3 147.7 180.8
Adj.BVPS (Rs) 692.5 791.7 908.3 1,045.0
P/E (x) 13.9 11.6 10.4 8.5
P/BV (x) 2.2 1.9 1.69 1.47
ROE (%) 18.5 17.4 16.9 17.9
ROA (%) 1.7 1.7 1.7 1.7
Dividend yield (%) 1.4 1.5 1.7 2.0
CAR (%) 17.0 16.1 15.5 14.6
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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