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Axis Bank: No NPA surprises yet

Oct 18, 2013 | Updated on Oct 30, 2019

Axis Bank declared the results for the second quarter and first half of financial year 2013-14 (1HFY14). The bank has reported 29% YoY growth in net interest income and 22% YoY growth in net profits for 1HFY14. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 29% YoY during 1HFY14 on the back of 17% YoY growth in advances.
  • Net interest margins (NIM) move up from 3.5% in 1HFY13 to 3.8% in 1HFY14. The average NIM over the past 5 fiscals has been above 3.3%.
  • Net profits grow by 22% YoY in 1HFY14 backed by growth in fee income (21% YoY).
  • Net NPAs stable at 0.37% of advances at the end of 1HFY14, provision coverage at 80%.
  • Capital adequacy ratio (CAR) on a firmer footing at 15.9% at the end of September 2013 (Tier 1 capital at 11.7%).

Rs (m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Interest income 66,872 76,089 13.8% 131,700 148,868 13.0%
Interest expense 43,603 46,723 7.2% 86,633 90,849 4.9%
Net Interest Income 23,269 29,366 26.2% 45,067 58,019 28.7%
Net interest margin (%)       3.5% 3.8%  
Other Income 15,930 17,660 10.9% 29,285 35,474 21.1%
Other Expense 17,417 19,529 12.1% 32,934 37,559 14.0%
Provisions and contingencies 5,094 6,875 35.0% 7,682 13,997 82.2%
Profit before tax 21,782 27,497 26.2% 41,418 55,934 35.0%
Tax 5,453 7,000 28.4% 10,966 14,223 29.7%
Profit after tax/ (loss) 11,235 13,622 21.2% 22,770 27,714 21.7%
Net profit margin (%)       17.3% 18.6%  
No. of shares (m)**         468.8  
Book value per share (Rs)         772.0  
P/BV (x)*         1.5  
*Book value as on 30th September 2013

What has driven performance in 1HFY14?
  • Axis Bank showed up no surprises in margins and asset quality in the first half of FY14. The bank continued to remain conservative in terms of loan growth. Yet, at the same time it managed to show some 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 16.9% YoY, with the retail portfolio growing by 37% YoY in 1HFY14.

    With 13.2 m savings bank accounts from 2,225 branches at the end of September 2013 the bank has undoubtedly leveraged its franchise well and capitalized on CASA deposits. The latter remained at 42.9% of overall deposits at the end of September 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 0.3% to 3.8% in 1HFY14. 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) 1HFY13 % of total 1HFY14 % of total Change
    Advances 1,721,320   2,013,030   16.9%
    Agriculture 121,530 7.1% 126,420 6.3% 4.0%
    Retail 442,860 25.7% 608,690 22.0% 37.4%
    SMEs 236,280 13.7% 304,150 15.1% 28.7%
    Large corporates 920,650 53.5% 973,770 56.6% 5.8%
    Deposits 2,356,190   2,553,650   8.4%
    CASA 955,380 40.5% 1,094,590 42.9% 14.6%
    Term deposits 1,400,810 59.5% 1,459,060 57.1% 4.2%
    Credit deposit ratio 73.1%   78.8%    

  • During 1HFY14, the bank added 278 branches and 551 ATMs. The daily average balances of the savings bank deposits during the quarter grew by 19% YoY and those of current account deposits grew 7% YoY.

  • While Axis Bank's overall fee income registered a growth of 21% YoY during 1HFY13, the retail fees grew by 15% YoY. However, the proportion of fee to total income dropped from 35% in 1HFY13 to 34% in 1HFY14. 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 0.37%, as against 0.33% in 1HFY13. Gross NPAs, however, moved up from 1.0% at the end of FY13 to 1.2% in 1HFY14 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 2.1% of gross advances at the end of September 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. The bank had an exposure of 9% each to infrastructure and power and 2.5% to real estate at the end of 1HFY14.

What to expect?
    At the current price of Rs 1,158, 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 while most of the margin risks are already factored in, the concerns over NPA overhang will continue to warrant a relatively lower valuation for Axis Bank as compared to its private sector peers. 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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