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Axis Bank: No ‘slowdown’ impact
Jul 14, 2008

Performance summary
  • Net interest income rises by 81% YoY during 1QFY09 on the back of 48% YoY growth in advances.

  • Net interest margin (NIM) rises to 3.35% in 1QFY09 from 2.56% in 1QFY08. Rising cost of funds and lower proportion of CASA though leads to the same falling below the 4QFY08 levels of 3.93%.

  • Bottomline expands by a whopping 89% YoY aided by strong traction in fee income (up 80% YoY), despite higher provisioning.

  • Capital adequacy ratio (CAR) comfortable at 13.3% (11.5% at the end of 1QFY08).



Rs (m) 1QFY08 1QFY09 Change
Interest income 15,370 22,664 47.5%
Interest expense 10,901 14,560 33.6%
Net Interest Income 4,468 8,105 81.4%
Net interest margin (%) 2.6% 3.4%  
Other Income 3,423 6,248 82.5%
Other Expense 4,212 6,329 50.3%
Provisions and contingencies 1,009 2,967 194.1%
Profit before tax 3,679 8,023 118.1%
Tax 921 1,755 90.6%
Profit after tax/ (loss) 1,750 3,301 88.7%
Net profit margin (%) 11.4% 14.6%  
No. of shares (m) 282.6 358.5  
Book value per share (Rs)   254.4  
P/BV (x)*   2.5  
*Book value as on 30th June 2008

What has driven performance in 1QFY09?
  • Despite widespread worries regarding slowdown in credit offtake, rising retail delinquencies and derivative losses, Axis Bank has recorded yet another quarter of strong performance. During the latest completed 1QFY09, the bank recorded yet another quarter of strong growth in advances, with the same growing by 48% YoY. Out of this, retail advances grew by 52% YoY and formed 24% of the bank’s total advances during the quarter (23% in 1QFY08).

    As in the past, the bank has chosen to not concentrate its exposure to any single segment and has been altering its asset mix depending upon the industry scenario and its risk appetite. The bank has been particularly stressing on its SME portfolio (which has grown by 73% YoY in 1QFY09), in order to safeguard its margins as well as asset quality. The proportion of CASA (current and savings accounts) in the bank’s deposit portfolio has risen from 38% in 1QFY08 to 40% in 1QFY09 (one of the best in the sector) and suggests a cost conscious strategy with respect to deposit accretion.

  • Axis Bank’s fee income registered a strong growth of 80% YoY during 1QFY09 (70% YoY growth attained during FY08). The growth in fees from retail banking (up 50% YoY) and corporate banking (up 105% YoY) was the lead driver for the bank’s overall fee income growth during 1QFY09. Robust growth in cash management, tax collection, project advisory and debt syndication business are expected to continue to aid the fee income growth going forward. Trading profits grew by 14% YoY. The share of trading profits to operating revenue declined marginally to 8% in 1QFY09, from 12% in 1QFY08.

  • Axis Bank’s net NPAs as a percentage of advances increased marginally to 0.47% in 1QFY09 from 0.36% in 4QFY08. This ratio was though better than the 0.59% recorded in 1QFY08.

What to expect?
At the current price of Rs 635, the stock is trading at a multiple of 1.8 times our estimated FY11 adjusted book value. Axis Bank continues to outdo our expectations in terms of asset growth and margins in FY08. The bank’s consistency in fee income growth makes it a safe play in the rising interest rate scenario.

Further, the capital raising during the previous fiscal has made Axis Bank amply capitalised to sustain its growth rate in the medium term without additional dilution. The bank’s transparency with regard to its derivative contracts, sustenance of asset quality and potential of improving return ratios make it very attractive for the longer term. This is particularly so because the bank can also prove to be a very attractive candidate once the consolidation activity kicks off in the Indian banking sector. Our outlook on the bank continues to remain positive from a long-term perspective.

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