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Axis Bank: Sharp uptick in NIMs

Jul 19, 2013 | Updated on Oct 30, 2019

Axis Bank declared the results for the first quarter of financial year 2013-14 (1QFY14). The bank has reported 32% YoY growth in net interest income and 22% YoY growth in net profits for 1QFY14. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 32% YoY during 1QFY14 on the back of 16% YoY growth in advances.
  • Net interest margins (NIM) move up sharply from 3.4% in 1QFY13 to 3.9% in 1QFY14. The average NIM over the past 5 fiscals has been above 3.3%.
  • Net profits grow by 22% YoY in 1QFY14 backed by growth in fee income (14% YoY).
  • Net NPAs stable at 0.35% of advances at the end of 1QFY14, provision coverage at 80%.
  • Capital adequacy ratio (CAR) on a firmer footing at 16.9% at the end of June 2013 (Tier 1 capital at 12.3%).

Rs (m) 1QFY13 1QFY14 Change
Interest income 64,826 72,778 12.3%
Interest expense 43,030 44,126 2.5%
Net Interest Income 21,796 28,652 31.5%
Net interest margin (%) 3.4% 3.9%  
Other Income 13,355 17,813 33.4%
Other Expense 15,517 18,029 16.2%
Provisions and contingencies 2,588 7,122 175.2%
Profit before tax 19,634 28,436 44.8%
Tax 5,513 7,223 31.0%
Profit after tax/ (loss) 11,533 14,091 22.2%
Net profit margin (%) 17.8% 19.4%  
No. of shares (m)**   468.8  
Book value per share (Rs)   745.4  
P/BV (x)*   1.6  
*Book value as on 30th June 2013

What has driven the performance in 1QFY14?
  • Axis Bank did manage to go what most of its peers are aiming for, in the first quarter of FY14. The bank continued to remain conservative in terms of loan growth. Yet, at the same time it managed to show some sharp improvement in margins and kept asset quality intact. The retail loan portfolio, of which housing loans comprised 68% and auto loans comprised 13%, helped Axis Bank's advance growth meet the RBI's target. The bank managed to grow its loan portfolio by 16% YoY, with the retail portfolio growing by 40% YoY in 1QFY14.

    With 13.2 m savings bank accounts from 2,021 branches at the end of June 2013 the bank has undoubtedly leveraged its franchise well and capitalized on CASA deposits. The latter remained at 42.4% of overall deposits at the end of June 2013.

    The accretion to low cost deposit base (CASA), albeit at a slower pace, also helped the bank tide over the pressure on cost of funding. Nevertheless, the CASA support was instrumental in boosting the bank's net interest margins (NIMs) by a good 0.5% to 3.9% in 1QFY14. Axis Bank is targeting NIMs in the range of 3.3% to 3.7% in the medium term. The bank plans to raise the limit for authorized share capital. 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.

    Going strong on low cost deposit accretion
    (Rs m) 1QFY13 % of total 1QFY14 % of total Change
    Advances 1,711,460   1,981,510   15.8%
    Agriculture 156,830 9.2% 136,060 6.9% -13.2%
    Retail 405,910 23.7% 567,060 22.0% 39.7%
    SMEs 219,850 12.8% 280,210 14.1% 27.5%
    Large corporates 928,870 54.3% 998,180 57.0% 7.5%
    Deposits 2,226,310   2,384,410   7.1%
    CASA 869,420 39.1% 1,010,960 42.4% 16.3%
    Term deposits 1,356,890 60.9% 1,373,450 57.6% 1.2%
    Credit deposit ratio 76.9%   83.1%    

  • During 1QFY14, the bank added 408 branches and 1,564 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 overall fee income registered a growth of 14% YoY during 1QFY13, the retail fees grew by 23% YoY. However, the proportion of fee to total income dropped from 35% in 1QFY13 to 34% in 1QFY14. There was a drop in fees from business banking and capital markets.

  • Axis Bank's net NPAs as a percentage of advances remained stable at 0.35%, as was the case in 1QFY13. Gross NPAs, however, moved up from 1% at the end of FY13 to 1.1% in 1QFY14 and the provision coverage was 80%. Having said that the management has not offered enough clarity over possible delinquencies in the restructured assets. The latter were around 1.87% of gross advances at the end of June 2013.

    Most of the restructured loans belonged to the textile, oil and shipping sectors. More importantly, the bank's exposure to GMR Infrastructure is a concern. It had lent about Rs 19 bn to GMR Infrastructure for building Male airport. Later, the project hit a roadblock with the government of Maldives and it led to cancellation of the project contract. Therefore, Axis Bank's exposure to GMR, Deccan Chronicle and Suzlon are major concerns in terms of provisioning risks.

What to expect?
At the current price of Rs 1,191, the stock is trading at a multiple of 1.3 times our estimated FY16 adjusted book value. Axis Bank's balance sheet growth is expected to remain muted in the near term. Also we do not see margins being sustainable at the current levels. We believe that most of the downside risks in NPA is already factored into the bank's valuations. While we reiterate our Buy view on the stock, we would recommend that subscribers read the investment concerns thoroughly before investing. Please also ensure that no stock comprises more than 5% of your portfolio.

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Jun 21, 2021 (Close)


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