Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Axis Bank: Margins lower but in comfort zone - Views on News from Equitymaster
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Axis Bank: Margins lower but in comfort zone
Oct 17, 2012

Axis Bank declared the results for the second quarter and first half of financial year 2012-13 (1HFY13). The bank has reported 21% YoY growth in net interest income and 22% YoY growth in net profits for the half year period. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 21% YoY during 1HFY13 on the back of 23% YoY growth in advances.
  • Net interest margins (NIM) slip to 3.5% in 1HFY13 from 3.8% in 1HFY12 due to fall in yields over the past two quarters. The average NIM over the past 5 fiscals has been above 3.5%.
  • Net profits grow by 22% YoY in 1HFY13 despite rise in provisions and slower growth in fees (15% YoY).
  • Net NPAs stable at 0.3% of advances at the end of 1HFY13, gross NPAs at 1.1% of advances.
  • Capital adequacy ratio (CAR) on firmer footing at 13.0% at the end of September 2012, Tier 1 capital at 9.0%.

Rs (m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Interest income 52,759 66,872 26.7% 101,573 131,700 29.7%
Interest expense 32,687 43,603 33.4% 64,260 86,633 34.8%
Net Interest Income 20,072 23,269 15.9% 37,313 45,067 20.8%
Net interest margin (%)       3.8% 3.5%  
Other Income 12,349 15,930 29.0% 24,027 29,286 21.9%
Other Expense 14,665 17,417 18.8% 28,000 32,934 17.6%
Provisions and contingencies 4,056 5,094 25.6% 5,814 7,682 32.1%
Profit before tax 17,756 21,782 22.7% 33,340 41,419 24.2%
Tax 4,497 5,453 21.3% 8,900 10,966 23.2%
Profit after tax/ (loss) 9,203 11,235 22.1% 18,626 22,771 22.3%
Net profit margin (%) 17.4% 16.8%   18.3% 17.3%  
No. of shares (m)**         414.5  
Book value per share (Rs)         608.7  
P/BV (x)*         1.9  
*Book value as on 30th September 2012

What has driven performance in 1HFY13?
  • The retail loan portfolio, of which housing loans comprised 68% and auto loans comprised 13%, was the flag bearer of Axis Bank's above average loan growth in the first half of FY12. In what was an otherwise difficult period for the sector, the bank manged to grow its loan portfolio by 23% YoY, with the retail portfolio growing by 51% YoY. 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, lower loan yields led to fall in net interest margins by almost 0.3%. However, since Axis Bank is targeting NIMs in the range of 3.3% to 3.7% in the medium term, the NIMs are within our estimates.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 deposit accretion
    (Rs m) 1HFY12 % of total 1HFY13 % of total Change
    Advances 1,400,890   1,721,320   22.9%
    Agriculture 106,160 7.6% 121,530 7.1% 14.5%
    Retail 293,280 20.9% 442,860 22.0% 51.0%
    SMEs 207,550 14.8% 236,280 13.7% 13.8%
    Large corporates 793,900 56.7% 920,650 57.2% 16.0%
    Deposits 1,944,550   2,356,190   21.2%
    CASA 821,400 42.2% 955,380 40.5% 16.3%
    Term deposits 1,123,150 57.8% 1,400,810 59.5% 24.7%
    Credit deposit ratio 72.0%   73.1%    

  • Axis Bank also continued to build an India-wide presence through its 1,740 branches and 10,297 ATMs, of which 42% are in the semi urban and rural areas. During 1HFY13, the bank added 119 branches and 373 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 15% YoY during 1HFY13, the retail fees grew by 31% YoY. However, the proportion of fee to total income dropped from 36% in 1HFY12 to 34% in 1HFY13. 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 0.3%, as was the case in FY12. Gross NPAs were at 1.1% at the end of 1HFY13 and the provision coverage was 80% (above RBI's mandate). Having said that the management has cited concerns over possible delinquencies in the restructured assets. The latter were around 2.04% of gross advances at the end of September 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. The bank also clarified that it has written off loans (estimated at Rs 4 bn) to beleaguered media company Deccan Chronicle as NPAs.

What to expect?
At the current price of Rs 1,146, the stock is trading at a multiple of 1.5 times our estimated FY15 adjusted book value. Axis Bank's performance in 1HFY13 has been slightly above 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 do not see any immediate positive outcome from the Axis Bank - Enam 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. While loan growth may remain moderated in FY13, we reiterate our Buy view on the stock.

To Read the Full Story, Subscribe or Sign In

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Feb 23, 2018 (Close)


  • Track your investment in AXIS BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks