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Axis Bank: Fees, prov. writebacks cushion profits

Jul 26, 2011

Axis Bank declared the results for the first quarter of financial year 2011-2012 (1QFY12). The bank has reported 14% YoY growth in net interest income and 27% YoY growth in net profits for the period. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 14% YoY during 1QFY12 on the back of 22% YoY growth in advances.
  • Net interest margins (NIM) fall to 3.3% in 1QFY12 from 3.7% in 1QFY11 on account of rise in cost of funds.
  • Net profits grow by 27% YoY in 1QFY12 backed by higher fee income and provision writebacks.
  • Net NPA to advances marginally lower at 0.3% at the end of 1QFY12 as against 0.4% in 1QFY11.
  • Capital adequacy ratio (CAR) at 12.5% at the end of June 2011, Tier 1 capital was at 9.4%.

Rs (m) 1QFY11 1QFY12 Change
Interest income 33,255 48,814 46.8%
Interest expense 18,118 31,573 74.3%
Net Interest Income 15,137 17,241 13.9%
Net interest margin (%) 3.7% 3.3%  
Other Income 10,007 11,678 16.7%
Other Expense 10,645 13,335 25.3%
Provisions and contingencies 3,330 1,758 -47.2%
Profit before tax 14,499 15,584 7.5%
Tax 3,751 4,402 17.4%
Profit after tax/ (loss) 7,418 9,424 27.0%
Net profit margin (%) 22.3% 19.3%  
No. of shares (m)   411.8  
Book value per share (Rs)   486.0  
P/BV (x)*   2.8  
*Book value as on 30th June 2011

What has driven performance in 1QFY12?
  • Axis Bank once again managed to outdo most of its peers in balance sheet growth for the first quarter of FY12, despite some shortage of capital (capital adequacy ratio close to 12%). 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. If the bank chooses to increase borrowings to sustain growth rates, the same may come in at the cost of margins.
  • The growth in deposits for the bank was primarily through term deposits. The CASA base (low cost deposits) saw a blip due to hike in term deposit rates. Also, the narrowing of spreads in lending and borrowing rates led to the bank's NIMs dropping by 0.4%. The bank is targeting NIMs in the range of 3.5% to 3.7% in the medium term. While the NIMs remain within our estimates, we believe that Axis Bank's NIMs will be able to sustain amongst the best margins in the industry.

    Outperforming peers...
    (Rs m) 1QFY11 % of total 1QFY12 % of total Change
    Advances 1,086,040   1,319,000   21.5%
    Agriculture 105,860 9.7% 147,210 11.2% 39.1%
    Retail 210,690 19.4% 270,220 20.5% 28.3%
    SMEs 168,180 15.5% 198,340 15.0% 17.9%
    Large corporates 601,310 55.4% 703,230 53.3% 16.9%
    Deposits 1,474,790   1,835,970   24.5%
    CASA 592,490 40.2% 744,140 40.5% 25.6%
    Term deposits 882,300 59.8% 1,091,830 59.5% 23.7%
    Credit deposit ratio 73.6%   71.8%    

  • Axis Bank also continued to build an India-wide presence through its 1,411 branches and 6,871 ATMs across 932 cities. During 1QFY12, the bank added 21 branches and 601 ATMs. The daily average balances of the savings bank deposits during the quarter grew by 32% YoY and those of current account deposits grew 20% YoY. Demand deposits constituted 41% of total daily average deposits during 1QFY12.
  • The rise in operating expenses was due to the addition of franchise and hiring 5,500 employees over the past 12 months.
  • While Axis Bank's fee income registered a growth of 42% YoY during FY12, the proportion of fee to total income improved from 30% in 1QFY11 to 37% in 1QFY12. There was a drop in fees from business banking and capital markets. The fees from large and mid corporate credit recorded the highest growth. As per management, despite the lower demand for project loans, the growth in corporate fees was due to the lumpy nature of this revenue stream.
  • Axis Bank's net NPAs as a percentage of advances remained stable at 0.3% with a marginal improvement in the past quarter. Gross NPAs were at 1.0% at the end of 1QFY12 and the provision coverage was 80% (above RBI's mandate). Having said that the management cited concerns over possible delinquencies in the restructured assets.
  • Axis Bank currently has restructured assets comprising 1.4% of advances at the end of 1QFY12. Most of the restructured loans belonged to the textile and shipping sectors.

What to expect?
At the current price of Rs 1,337, the stock is trading at a multiple of 1.7 times our estimated FY14 adjusted book value. Axis Bank's performance in the first quarter has been well in line with our 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. While we see some capital constraints impacting asset growth in the medium term, we reiterate our positive outlook on the bank from a long term perspective.

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Jun 22, 2021 03:35 PM


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