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Axis Bank: Retail loan kicker - Views on News from Equitymaster

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Axis Bank: Retail loan kicker

May 4, 2015

Axis Bank declared the results for the fourth quarter and financial year ended March 2015 (FY15). The bank has reported 19% YoY growth in net interest income and 18.3% YoY growth in net profits for FY15. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 19% YoY during FY15 on the back of 22% YoY growth in advances.
  • Net interest margins (NIM) come down marginally from 3.9% in FY14 to 3.8% in FY15. The average NIM over the past 5 fiscals has been above 3.3%.
  • Net profits grow by 18.3% YoY in FY15 backed by growth in fee income.
  • Gross NPAs move up to 1.3% while net NPAs also came in higher at 0.4% of advances at the end of FY15, provision coverage at 87%.
  • Capital adequacy ratio (CAR) on a firm footing at 15.1% at the end of March 2015 as per Basel III norms (Tier 1 capital at 12.0%).
  • Board has recommend dividend of Rs 4.6 per share (dividend yield 0.8%).
Rs (m) 4QFY14 4QFY15 Change FY14 FY15 Change
Interest income 79,652 96,970 21.7% 306,411 354,786 15.8%
Interest expense 47,994 58,978 22.9% 186,895 212,544 13.7%
Net Interest Income 31,658 37,992 20.0% 119,516 142,242 19.0%
Net interest margin (%)       3.9% 3.8%  
Other Income 22,134 26,873 21.4% 74,052 83,650 13.0%
Other Expense 21,314 24,736 16.1% 79,007 92,037 16.5%
Provisions and contingencies 5,052 7,098 40.5% 21,074 23,286 10.5%
Profit before tax 32,478 40,129 23.6% 114,561 133,855 16.8%
Tax 9,001 11,224 24.7% 31,309 36,990 18.1%
Profit after tax/ (loss) 18,425 21,807 18.4% 62,178 73,579 18.3%
Net profit margin (%) 23.1% 22.5%   20.3% 20.7%  
No. of shares (m)         2,363.3  
Book value per share (Rs)**         188.4  
P/BV (x)*         3.0  
*Book value as on 31st March 2015

What has driven performance in FY15?
  • Retail loans turned out to be the growth kicker for Axis Bank in FY15 with the portfolio growing by as much as 27% YoY while the overall loan book grew 22% YoY. Focus on collateralized retail assets like home loans bore fruits for Axis Bank as it did a reasonably good job of growing the loan book as well as protecting margins in FY15. Its earlier focus on corporate loans, however, has taken a backseat. The retail loan portfolio, of which housing loans comprised 50% and auto loans comprised 10%, helped Axis Bank's advance growth meet the RBI's target. With 13.6 m savings bank accounts from 2,589 branches (187 added in FY15) at the end of March 2015 the bank has undoubtedly leveraged its franchise well and capitalized on CASA deposits. The latter was at 40% of overall deposits at the end of March 2015.

  • While Axis Bank's overall fee income registered a growth of 30% YoY during FY15, the retail fees (37% of fee income source) grew by 10% YoY in FY15 offering a big boost. However, the proportion of fee to total income dropped from 35% in FY14 to 34% in FY15. There was a drop in fees from business banking and capital markets.

  • Axis Bank's net NPAs as a percentage of advances moved up slightly to 0.4%, as against 0.33% in FY14. Gross NPAs, also moved up from 1.1% at the end of FY14 to 1.3% in FY15 and the provision coverage was 87%, not accounting for the accumulated write-offs. The restructured assets were also higher at around 2.7% of gross advances at the end of March 2015.
What to expect?

At the current price of Rs 570 the stock is trading at a multiple of 2.3 times our estimated FY17 adjusted book value. Axis Bank's has been healthy over the past year and the growth in retail loans may accelerate. We believe that while most of the margin risks are already factored in, the concerns over NPA overhang will continue to warrant a relatively lower valuation for Axis Bank as compared to its private sector peers. We recommend investors to not buy the stock at current valuations.

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