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Axis Bank: Comfortable present, hazy future - Views on News from Equitymaster

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Axis Bank: Comfortable present, hazy future
Apr 20, 2009

Performance summary
  • Net interest income rises by 43% YoY during FY09 on the back of 37% YoY growth in advances.
  • Bottomline expands by 70% YoY aided by strong traction in other income (up 61% YoY), despite higher provisioning.
  • Net NPA to advances remain stable at 0.4% at the end of FY09.
  • Capital adequacy ratio (CAR) comfortable at 13.7% at the end of FY09.
  • The bank has recommended dividend of Rs 10 per share (yield of 2%).
  • Ms. Shikha Sharma to replace Dr. P.J. Nayak as the MD and CEO of the bank.


Rs (m) 4QFY08 4QFY09 Change FY08 FY09 Change
Interest income 20,154 30,392 50.8% 70,053 108,354 54.7%
Interest expense 11,870 20,066 69.0% 44,199 71,492 61.8%
Net Interest Income 8,284 10,326 24.6% 25,854 36,862 42.6%
Net interest margin (%)       3.1% 3.4%  
Other Income 5,565 8,455 51.9% 17,954 28,968 61.3%
Other Expense 6,620 7,396 11.7% 21,549 28,582 32.6%
Provisions and contingencies 1,642 2,551 55.4% 5,796 9,396 62.1%
Profit before tax 7,229 11,385 57.5% 22,259 37,248 67.3%
Tax 1,972 3,018 53.0% 5,752 9,698 68.6%
Profit after tax/ (loss) 3,615 5,816 60.9% 10,711 18,154 69.5%
Net profit margin (%) 17.9% 19.1%   15.3% 16.8%  
No. of shares (m)       357.3 359.0  
Book value per share (Rs)         284.5  
P/BV (x)*         1.8  
*Book value as on 31st March 2009

What drove performance in 4QFY09?
  • Axis Bank’s results for the fiscal year 2009 show the bank’s ample resilience to the global economic turmoil which had a resonance on the Indian banking sector as well. While the strong growth in advances (37% YoY) was primarily on the back of lending to large corporate and SMEs, the exposure to retail advances was pared to 20% of the bank’s total advances at the end of the fourth quarter. Despite the lower proportion of CASA, the differential in lending and borrowing rates aided the improvement in the bank’s NIMs by a healthy 0.3%.

    Keeping pace..
    (Rs m) FY08 % of total FY09 % of total Change
    Advances 596,610   815,570   36.7%
    Agriculture 55,070 9.2% 82,170 10.1% 49.2%
    Retail 135,920 22.8% 160,520 19.7% 18.1%
    SMEs 115,360 19.3% 160,770 19.7% 39.4%
    Large corporates 290,260 48.7% 412,110 50.5% 42.0%
    Deposits 876,260   1,173,740   33.9%
    CASA 400,270 45.7% 506,440 43.1% 26.5%
    Term deposits 475,990 54.3% 667,300 56.9% 40.2%
    Credit deposit ratio 68.1%   69.5%    

  • Axis Bank’s fee income registered a strong growth of 64% YoY during FY09 due to which the proportion of fee to total income improved from 34% in FY08 to 37% in FY09. The growth in fees from capital markets segment doubled while that from large and mid corporate banking was the lead driver for the bank’s overall fee income growth during FY09. Fees from the retail segment were muted due to lower third party sales of financial products.

  • Axis Bank’s net NPAs as a percentage of advances remained stable at 0.4% as was the case in 4QFY08. Gross NPAs were at 1% at the end of FY09.

What to expect?
At the current price of Rs 493, the stock is trading attractively at a multiple of 1.4 times our estimated FY11 adjusted book value. Axis Bank continues to outdo our expectations in terms of asset growth and net interest margins. 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 do not see the same rate of asset growth being sustainable, the bank’s consistency in fee income growth makes it a safe play in the current scenario. However, given the change in the bank’s top management, our long-term outlook on the bank may warrant a review in the event of any material policy changes seen over the next few quarters.

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