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Axis Bank: Loan growth substitutes fees - Views on News from Equitymaster

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Axis Bank: Loan growth substitutes fees
Jul 17, 2012

Axis Bank declared the results for the first quarter of financial year 2012-13 (1QFY13). The bank has reported 26% YoY growth in net interest income and 22% YoY growth in net profits for the full year period. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 26% YoY during 1QFY13 on the back of 30% YoY growth in advances.
  • Net interest margins (NIM) improve marginally to 3.4% in 1QFY13 from 3.3% in 1QFY12 due to fall in cost of funds over the past two quarters. The average NIMs over the past 5 fiscals have been 3.5%.
  • Net profits grow by 22% YoY in 1QFY13 despite rise in provisions and slower growth in fess (9% YoY).
  • Net NPAs stable at 0.3% of advances at the end of 1QFY13, gross NPAs at 1.1% of advances.
  • Capital adequacy ratio (CAR) on firmer footing at 13.0% at the end of June 2012, Tier 1 capital at 9.5%.

Rs (m) 1QFY12 1QFY13 Change
Interest income 48,814 64,828 32.8%
Interest expense 31,573 43,030 36.3%
Net Interest Income 17,241 21,798 26.4%
Net interest margin (%) 3.3% 3.4%  
Other Income 11,678 13,355 14.4%
Other Expense 13,335 15,517 16.4%
Provisions and contingencies 1,758 2,588 47.2%
Profit before tax 15,584 19,636 26.0%
Tax 4,403 5,513 25.2%
Profit after tax/ (loss) 9,423 11,535 22.4%
Net profit margin (%) 19.3% 17.8%  
No. of shares (m)**   414.2  
Book value per share (Rs)   585.0  
P/BV (x)*   1.7  
*Book value as on 30th June 2012

What drove performance during 1QFY13?
  • Armed with better capital headroom and with funding costs gradually cooling off, Axis Bank managed sizeable growth in its loan book in the first quarter of FY13. So much so that it was almost double the industry average. The bank's loan growth of 30% YoY was on the back of 50% YoY growth in retail loan book. The accretion to deposit base, especially term deposits helped the bank grow deposit base by 21% YoY. Moreover, the growth so far has been while sustaining net interest margins above sector average. In fact for FY12, the NIMs were well above our estimates. Even though the CASA base (low cost deposits) slipped marginally to 39% of overall deposits, NIMs went up to 3.4%. Axis Bank is targeting NIMs in the range of 3.5% to 3.7% in the medium term.

    Going strong on loan growth
    (Rs m) 1QFY12 % of total 1QFY13 % of total Change
    Advances 1,316,508   1,711,460   30.0%
    Agriculture 147,210 11.2% 156,830 9.2% 6.5%
    Retail 270,220 20.5% 405,910 23.7% 50.2%
    SME 198,340 15.1% 219,850 12.8% 10.8%
    Large corporate 700,738 53.2% 928,870 54.3% 32.6%
    Deposits 1,839,926   2,226,310   21.0%
    CASA 744,140 40.4% 869,420 39.1% 16.8%
    Term deposits 1,095,786 59.6% 1,356,890 60.9% 23.8%
    Credit deposit ratio 71.6%   76.9%   7.4%

  • Axis Bank also continued to build an India-wide presence through its 1,681 branches and 10,337 ATMs across 1,050 cities. During 1QFY13, the bank added 59 branches and 413 ATMs. The daily average balances of the savings bank deposits during the quarter grew by 33% YoY and those of current account deposits grew 7% YoY.

  • While Axis Bank's fee income registered a tepid growth of 9% YoY during 1QFY13, the proportion of fee to total income dropped from 37% in 1QFY12 to 33% in 1QFY13. Fees from cash management business however witnessed growth of 41% YoY. The bank now also collects taxes for 8 state governments.

  • Axis Bank's net NPAs as a percentage of advances remained stable at 0.3%, as was the case in 1QFY12. 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 1,023, the stock is trading at a multiple of 1.3 times our estimated FY15 adjusted book value. Axis Bank's performance in 1QFY13 continues to remain broadly in line with our long term 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. We have recently recommended investors to Buy the stock .

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