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Axis Bank: Encouraging start to the fiscal - Views on News from Equitymaster

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Axis Bank: Encouraging start to the fiscal

Jul 14, 2009

Performance summary
  • Net interest income rises by 29% YoY during 1QFY10 on the back of 28% YoY growth in advances.
  • Bottomline expands by 70% YoY aided by strong traction in other income (up 53% YoY) coupled with lower provisioning.
  • Net interest margin (NIM) drops marginally to 3.3% from 3.4% in 4QFY09.
  • Net NPA to advances lower at 0.4% at the end of 1QFY10, as compared to 0.5% at the end of 1QFY09.
  • Capital adequacy ratio (CAR) comfortable at 15.3% at the end of 1QFY10.

Standalone numbers
Rs (m) 1QFY09 1QFY10 Change
Interest income 22,664 29,055 28.2%
Interest Expense 14,559 18,599 27.7%
Net Interest Income 8,105 10,456 29.0%
Net interest margin (%) 3.4% 3.3%
Other Income 6,248 9,586 53.4%
Other Expense 6,329 8,278 30.8%
Provisions and contingencies 2,967 3,153 6.3%
Profit before tax 5,057 8,611 70.3%
Tax 1,754 2,990 70.5%
Profit after tax/ (loss) 3,303 5,621 70.2%
Net profit margin (%) 14.6% 19.3%
No. of shares (m) 358.5 359.7
Book value per share (Rs)* 299.8
P/BV (x) 2.6
* Book value as on 30th June 2009

What has driven performance in 1QFY10?
  • In the first quarter of the fiscal and the first one after the change in Axis Bank’s management, the bank has once again put up a commendable performance showing growth and improvement across parameters. While the modest growth in advances (28% YoY) was primarily on the back of lending to large corporate and small and medium enterprises (SMEs), the exposure to retail advances was pared further to 15% of the bank’s total advances in an attempt to curb retail delinquencies. Housing and auto loans comprised 65% and 13% of the retail loans respectively at the end of 1QFY10. The overall growth in loan book is nearly double the industry average growth rate. However, despite the marginally higher proportion of CASA (current and savings account), the downward re-pricing of loans led to a slight dip in the bank’s NIM during the quarter from 3.4% in 4QFY09.

    Modest growth…
    (Rs m) 1QFY09 % of total 1QFY10 % of total Change
    Advances 611,600 781,000 27.7%
    Agriculture 56,370 9.2% 75,430 9.7% 33.8%
    Retail 146,380 23.9% 167,800 21.5% 14.6%
    SME 114,300 18.7% 149,070 19.1% 30.4%
    Large corporates 294,550 48.2% 388,700 49.8% 32.0%
    Total deposits 889,760 1,102,560 23.9%
    CASA 354,490 39.8% 441,760 40.1% 24.6%
    Term deposits 535,270 60.2% 660,800 59.9% 23.5%
    Credit /Deposit 70.8%   68.7%    

  • Axis Bank’s fee income was once again a key growth area, as it registered a growth of 17% YoY during 1QFY10. However, the slowdown in business activity led to a drop in the bank’s fee to total income ratio from 37% in 1QFY09 to 31% in 1QFY10. The growth in fees came from large and mid corporate banking (15% YoY), treasury (55% YoY) and retail banking (21%). Growth in fees from capital markets dropped by 51% YoY. Fees from the retail segment were muted due to lower third party sales of financial products. Retail and corporate banking contributed 21% and 31% respectively to the bank’s fee income in 1QFY10.

  • Although the bank’s net NPAs in 1QFY10 are lower than that in 1QFY09, Axis Bank’s net NPAs have risen over that in 4QFY09 (0.35%) due to lower provisioning this quarter. Gross NPAs were at 1% at the end of FY09. The total coverage ratio was 86% at the end of 1QFY10.

  • The bank restructured loans worth Rs 9.9 bn during the quarter of which loans worth Rs 1 bn were restructured for the second time. The cumulative value of assets restructured till date is Rs 25 bn constituting 2.8% of Axis Bank’s gross advances. We draw comfort from the fact that 71% of the amount restructured was in the large and mid corporate segment that is relatively quick in recovering from the economic downturn.

  • Investments in the held to maturity basket (HTM) stood at 58% of total investment book at the end of 1QFY10.

What to expect?
At the current price of Rs 775, the stock is trading attractively at a multiple of 1.9 times our estimated FY12 adjusted book value. Axis Bank continues to outdo our expectations in terms of asset growth and NIM. 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 have estimated a moderate growth in assets for the bank over the next two to three years, 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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