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Axis Bank: CASA eases pressure on capital

Jan 23, 2012

Axis Bank declared the results for the third quarter and first nine months of financial year 2011-12 (9mFY12). The bank has reported 21% YoY growth in net interest income and 25% YoY growth in net profits for the nine month period. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 21% YoY during 9mFY12 on the back of 20% YoY growth in advances.
  • Net interest margins (NIM) remain stable at 3.8% in 9mFY12 despite rise in cost of funds.
  • Net profits grow by 25% YoY in 9mFY12 backed by higher fee income and provision writebacks.
  • Net NPA to advances slightly higher at 0.4% of advances at the end of 9mFY12 as against 0.3% in 9mFY11.
  • Capital adequacy ratio (CAR) at 11.8% at the end of December 2011, Tier 1 capital at 8.3%. Considering profits for 9mFY12, the overall CAR stands at 13.1%.

Standalone Financial Results:
Rs (m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Interest income 38,383 57,769 50.5% 107,881 159,343 47.7%
Interest expense 21,051 36,366 72.8% 59,261 100,626 69.8%
Net Interest Income 17,332 21,403 23.5% 48,620 58,717 20.8%
Net interest margin (%)       3.8% 3.8%  
Other Income 11,477 14,298 24.6% 31,817 38,326 20.5%
Other Expense 12,223 15,109 23.6% 34,488 43,109 25.0%
Provisions and contingencies 3,138 4,223 34.6% 10,256 10,037 -2.1%
Profit before tax 16,586 20,592 24.2% 45,949 53,934 17.4%
Tax 4,532 5,346 18.0% 12,009 14,246 18.6%
Profit after tax/ (loss) 8,916 11,023 23.6% 23,684 29,651 25.2%
Net profit margin (%) 23.2% 19.1%   22.0% 18.6%  
No. of shares (m)**         412.6  
Book value per share (Rs)         536.5  
*Book value as on 30th December 2011

What has driven performance in 9mFY12?
  • While the loan growth remained muted in line with the sector trend in 9mFY12, Axis Bank managed to outdo most of its peers in deposit growth for the first nine months of the fiscal. The accretion to deposit base, especially low cost deposits (CASA) helped the bank tide over the pressure on capital adequacy (CAR). As per the management, even if the bank goes in for equity dilution, the growth in loan book may be muted over the next 1 to 2 years. The growth so far has been while sustaining net interest margins above sector average. In fact for 9mFY12, the NIMs are well above our estimates. However, if the bank chooses to increase borrowings to sustain growth rates, the same may come in at the cost of margins. The growth in deposits for the bank was primarily through CASA. The CASA base (low cost deposits) remained stable at 42% of overall deposits despite the steady growth in term deposits. Axis Bank is targeting NIMs in the range of 3.5% to 3.7% in the medium term.

    Going strong on deposit accretion
    (Rs m) 9mFY11 % of total 9mFY12 % of total Change
    Advances 1,235,330   1,487,390   20.4%
    Agriculture 107,720 5.3% 107,000 5.3% -0.7%
    Retail 251,900 20.4% 332,640 51.3% 32.1%
    SMEs 170,530 13.4% 206,920 11.2% 21.3%
    Large corporates 705,180 35.5% 840,830 32.2% 19.2%
    Deposits 1,558,110   2,086,930   33.9%
    CASA 659,310 42.3% 867,560 41.6% 31.6%
    Term deposits 898,800 57.7% 1,219,370 58.4% 35.7%
    Credit deposit ratio 79.3%   71.3%    

  • Axis Bank also continued to build an India-wide presence through its 1,493 branches and 8,324 ATMs across 971 cities. During 9mFY12, the bank added 103 branches and 2,054 ATMs. The daily average balances of the savings bank deposits during the quarter grew by 32% YoY and those of current account deposits grew 20% YoY.

  • While Axis Bank's fee income registered a growth of 33% YoY during 9mFY12, the proportion of fee to total income improved from 32% in 9mFY11 to 35% in 9mFY12. There was a drop in fees from business banking and capital markets. The fees from retail segment recorded the highest growth.

  • Axis Bank's net NPAs as a percentage of advances slipped marginally to 0.4% as against 0.3% in 9mFY11. Gross NPAs were at 1.1% at the end of 9mFY12 and the provision coverage was 87.7% (above RBI's mandate). Having said that the management cited concerns over possible delinquencies in the restructured assets.

  • Axis Bank currently has restructured assets comprising 1.6% of advances at the end of 9mFY12. Most of the restructured loans belonged to the textile, petroleum and shipping sectors.

What to expect?
At the current price of Rs 1,008, the stock is trading at a multiple of 1.4 times our estimated FY14 adjusted book value. Axis Bank's performance in the first nine months of FY12 has been well in line with our estimates in terms of asset growth and net interest margins for the full fiscal. The bank's performance in terms of sustaining its asset quality is also well within our estimates and we do not envisage any material downsides to the same. While we see some capital constraints impacting asset growth in the medium term, we reiterate our positive outlook on the bank from a long term perspective.

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