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Axis Bank: Retail, housing loans stoke growth

Oct 27, 2014 | Updated on Oct 30, 2019

Axis Bank declared the results for the second quarter of financial year ended March 2015 (2QFY15). The bank has reported 20% YoY growth in net interest income and 18.2% YoY growth in net profits for 2QFY15. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 20% YoY during 2QFY15 and 17.8% in 1HFY15 on the back of 20% YoY growth in advances.
  • Net interest margins (NIM) move up from 3.8% in 1HFY14 to 4% in 1HFY15. The average NIM over the past 5 fiscals has been above 3.3%.
  • Net profits grow by 18.3% YoY in 1HFY15 backed by higher NIMs and growth in fee income (22% YoY).
  • Gross NPAs move up to 1.3% while net NPAs also came in higher at 0.4% of advances at the end of 1HFY15, provision coverage at 87%.
  • Capital adequacy ratio (CAR) on a firm footing at 14.8% at the end of September 2014 as per Basel III norms (Tier 1 capital at 11.5%).

Rs (m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Interest income 76,089 86,023 13.1% 148,868 168,917 13.5%
Interest expense 46,723 50,775 8.7% 90,849 100,564 10.7%
Net Interest Income 29,366 35,248 20.0% 58,019 68,353 17.8%
Net interest margin (%)       3.8% 4.0%  
Other Income 17,660 19,476 10.3% 35,474 36,386 2.6%
Other Expense 19,529 23,101 18.3% 37,559 44,160 17.6%
Provisions and contingencies 6,874 7,250 5.5% 13,997 11,116 -20.6%
Profit before tax 27,497 31,623 15.0% 55,934 60,579 8.3%
Tax 7,000 8,265 18.1% 14,223 16,688 17.3%
Profit after tax/ (loss) 13,623 16,108 18.2% 27,714 32,775 18.3%
Net profit margin (%) 17.9% 18.7%   18.6% 19.4%  
No. of shares (m)         2,359.6  
Book value per share (Rs)**         177.0  
P/BV (x)*         2.4  
*Book value as on 30th September 2014

What has driven performance in 1HFY15?
  • Albeit with heavy reliance on retail loans, Axis Bank did a reasonably good job of growing loan book as well as protecting margins in 1HFY15. The bank's loan growth at 20% YoY remains above our estimates for the fiscal. Its earlier focus on corporate loans, however, has taken a backseat. The retail loan portfolio, of which housing loans comprised 53% and auto loans comprised 10%, helped Axis Bank's advance growth meet the RBI's target. With 13.6 m savings bank accounts from 2,505 branches (84 added in 2QFY15) at the end of September 2014 the bank has undoubtedly leveraged its franchise well and capitalized on CASA deposits. The latter was at 44.5% of overall deposits at the end of September 2014

    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 safeguarding the bank's net interest margins (NIMs) at 4% in 1HFY15. Axis Bank is targeting NIMs in the range of 3.3% to 3.7% in the medium term.

    Corporate loans take backseat
    (Rs m) 1HFY14 % of total 1HFY15 % of total Change
    Advances 2,013,030   2,421,980   20.3%
    Retail 710,350 25.7% 943,210 22.0% 32.8%
    SMEs 328,910 13.7% 377,010 15.1% 14.6%
    Large corporates 973,770 53.5% 1,101,760 56.6% 13.1%
    Deposits 2,553,650   2,837,280   11.1%
    CASA 1,094,600 42.9% 1,263,670 44.5% 15.4%
    Term deposits 1,459,050 57.1% 1,573,610 55.5% 7.9%
    Credit deposit ratio 78.8%   85.4%    

  • While Axis Bank's overall fee income registered a growth of 8% YoY during 1HFY14, the retail fees (37% of fee income source) grew by 10% YoY in 1HFY15 offering a big boost. However, the proportion of fee to total income dropped from 35% in 1HFY14 to 34% in 1HFY15. There was a drop in fees from business banking and capital markets.

  • Axis Bank's net NPAs as a percentage of advances moved up slightly to 0.4%, as against 0.33% in 1HFY14. Gross NPAs, also moved up from 1.1% at the end of 1HFY14 to 1.3% in 1HFY15 and the provision coverage was 87%, not accounting for the accumulated write-offs. The restructured assets were around 2.5% of gross advances at the end of September 2014. The bank had an exposure of 8% each to infrastructure and power and 2.3% to real estate at the end of 1HFY15. This exposure remains most vulnerable to slippages. Most of the restructured loans too belonged to the power, textile, oil and shipping sectors. Axis Bank seems to have been very cautious about lending to large corporate projects in 1HFY15 given its experience in restructured loans from the segment.

  • Axis Bank's return on equity of 17.1% is lower than that of past 3 years.
What to expect?
At the current price of Rs 423 (adjusted for stock split in the ratio 5:1), the stock is trading at a multiple of 1.8 times our estimated FY17 adjusted book value. While Axis Bank's balance sheet growth may pick up in coming quarters, 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. We recommended investors to Sell the stock in May 2014. Even as per our FY17 estimates for the stock, there is hardly any upside from current levels.

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Jun 22, 2021 03:21 PM


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