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Axis Bank: Capital and profits on firm footing

Apr 30, 2012

Axis Bank declared the results for the fourth quarter and financial year 2011-12 (FY12). The bank has reported 22% YoY growth in net interest income and 25% YoY growth in net profits for the full year period. Here is our analysis of the results.

Performance Summary
  • Net interest income grows by 22% YoY during FY12 on the back of 19% YoY growth in advances.
  • Net interest margins (NIM) slip marginally to 3.6% in FY12 from 3.7% in FY11 due to rise in cost of funds. The average NIMs over the past 5 fiscals have been 3.5%.
  • Net profits grow by 25% YoY in FY12 backed by higher fee income and provision write-backs.
  • Net NPAs stable at 0.3% of advances at the end of FY12, gross NPAs at 1.1% of advances.
  • Capital adequacy ratio (CAR) on firmer footing at 13.7% at the end of March 2012, Tier 1 capital at 9.5%.
  • Board proposed dividend of Rs 16 per share (dividend yield 1.6%).

Rs (m) 4QFY11 4QFY12 Change FY11 FY12 Change
Interest income 43,666 60,603 38.8% 151,548 219,946 45.1%
Interest expense 26,656 39,142 46.8% 85,918 139,769 62.7%
Net Interest Income 17,010 21,461 26.2% 65,630 80,177 22.2%
Net interest margin (%)       3.7% 3.6%  
Other Income 14,504 15,876 9.5% 46,321 54,202 17.0%
Other Expense 13,306 16,962 27.5% 47,794 60,071 25.7%
Provisions and contingencies 2,543 1,392 -45.3% 12,800 11,430 -10.7%
Profit before tax 18,208 20,375 11.9% 64,157 74,308 15.8%
Tax 5,463 6,210 13.7% 17,471 20,456 17.1%
Profit after tax/ (loss) 10,202 12,773 25.2% 33,886 42,422 25.2%
Net profit margin (%) 23.4% 21.1%   22.4% 19.3%  
No. of shares (m)**         413.2  
Book value per share (Rs)         552.0  
P/BV (x)*         1.8  
*Book value as on 31st March 2012

What has driven performance in FY12?
  • At less than 12%, Axis Bank's CAR was lower than the average amongst its private sector peers for most part of FY12. The lack of capital headroom so far has been a key reason for the bank's discounted valuations. However, with funding costs gradually cooling off, the bank seems to have gathered enough capital headroom to meet its growth needs. The loan growth of 19% YoY was slightly above the sector average. The accretion to deposit base, especially low cost deposits (CASA) also 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. Moreover, the growth so far has been while sustaining net interest margins above sector average. In fact for FY12, the NIMs are well above our estimates. 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) FY11 % of total FY12 % of total Change
    Advances 1,426,555   1,697,600   19.0%
    Agriculture 173,200 12.1% 173,400 10.2% 0.1%
    Retail 278,296 19.5% 375,700 22.0% 35.0%
    SMEs 214,060 15.0% 237,950 14.0% 11.2%
    Large corporates 760,998 53.3% 912,778 53.8% 19.9%
    Deposits 1,892,380   2,201,040   16.3%
    CASA 777,670 41.1% 914,220 41.5% 17.6%
    Term deposits 1,114,710 58.9% 1,286,820 58.5% 15.4%
    Credit deposit ratio 75.4%   77.1%    

  • Axis Bank also continued to build an India-wide presence through its 1,622 branches and 9,924 ATMs across 1,050 cities. During FY12, the bank added 232 branches and 3,654 ATMs. The daily average balances of the savings bank deposits during the quarter grew by 20% YoY and those of current account deposits grew 30% YoY.

  • While Axis Bank's fee income registered a growth of 25% YoY during FY12, the proportion of fee to total income improved from 32% in FY11 to 35% in FY12. 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 remained stable at 0.3%, as was the case in FY11. Gross NPAs were at 1.1% at the end of FY12 and the provision coverage was 87% (above RBI's mandate). Having said that the management has cited concerns over possible delinquencies in the restructured assets. The latter were around 1.6% of gross advances at the end of March 2012. Most of the restructured loans belonged to the textile, oil and shipping sectors. While Axis Bank does not have an exposure to beleaguered aviation companies Kingfisher and Air India, its exposure to GTL and KS Oils is a concern on the slippages front.

What to expect?
At the current price of Rs 1,007, the stock is trading at a multiple of 1.4 times our estimated FY14 adjusted book value. Axis Bank’s performance in FY12 has been slightly above 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.

Seventeen months and several deliberations later, the RBI has given the go-ahead to the Axis Bank - Enam deal. While we do not see any immediate positive outcome from the deal, a boost to the non fund revenue pipeline is given. Enam's strengths in investment banking and broking will complement Axis Bank's strong presence in the debt-related fund-raising business. While loan growth may remain moderated in FY13, we reiterate our positive outlook on the bank from a long term perspective.

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