Unlike its larger peer, HDFC Bank, which continued to remain strong on the three main metrics, namely, credit growth, margins and asset quality, Axis Bank lagged on the asset quality and margin fronts in the June 2012 quarter. Axis, however, managed to put up a good show on the credit growth front. Despite slightly better-than-expected net profit (driven by strong trading income growth), Axis’ stock fell two per cent on Tuesday against a flat Sensex.
The Axis Bank scrip has lagged the broader markets and the BSE Bankex over the past one year due to asset quality concerns. Analysts believe these asset quality pressures will limit potential upsides in the stock in the near-term. In contrast, they like HDFC Bank for its consistent financial performance.
Loan growth healthy, fee income a drag
Though net interest income and loan growth came in as expected, slower-than-anticipated growth in non-interest income (up 14 per cent versus expectations of 22 per cent) disappointed. Up nine per cent over previous year, fee income growth was much lower than expected (15 per cent). Flattish large- and mid-corporate credit (35 per cent of fee income) was a drag. Notably, fee income growth has shrunk from double-digits in the December 2011 quarter to seven to nine per cent in the last two quarters. HDFC Bank, on the other hand, witnessed a robust 26 per cent growth in fee income in the June quarter.
| AXIS LAGS ITS LARGER PEER | ||||
| In Rs crore | HDFC Bank | Axis Bank | ||
| Q1’FY13 | FY13E | Q1’FY13 | FY13E | |
| Net interest income | 3,484 | 14,814 | 2,180 | 9,261 |
| Y-o-Y change (%) | 22.3 | 20.5 | 26.4 | 15.5 |
| NIM (%) | 4.3 | 4.0 | 3.4 | 3.2 |
| Y-o-Y change (bps) | 10 |
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Somnath Sengupta, executive director & chief financial officer, Axis Bank, says, “This quarter we did not book big ticket fee income on the debt capital market side, resulting in the subdued growth. However, we believe retail fee income growth is sustainable and should boost the overall figure, going forward.”
Positively, retail banking and business banking segments grew by 17 and 16 per cent, respectively.
In the June quarter, Axis Bank posted a robust 30 per cent loan growth. However, this was partly due to the low base of the June 2011 quarter along with rupee depreciation of 25 per cent on a year-on-year basis.
Adjusted for these, the normalised loan growth stood at 21 per cent, broadly in line with Axis’ average loan growth of 20-22 per cent in FY12. Despite a higher base, HDFC Bank, too, posted 22 per cent loan growth in the June quarter, helped by strong corporate advances.
Asset quality, margin woes
The pressure on net interest margin (NIM) and asset quality remained two key negatives of Axis’ results. Though year-on-year margins were up, a 25 basis points surge in cost of funds saw NIM contract by 18 basis points to 3.37 per cent on a sequential basis. Axis’ gross and net non-performing assets (NPAs) also expanded by 12 and six basis points respectively, on sequential basis. A big part of this pressure is attributable to the large and medium corporate segments, believe analysts.
In contrast, HDFC Bank witnessed a 10 basis points expansion in NIM, both year-on-year and sequentially, and managed to keep asset quality stable, aided by a diversified loan book. Further, HDFC Bank witnessed a 10 basis points fall in its restructured loans to 0.3 per cent of loans while that for Axis rose by 37 basis points sequentially to 1.95 per cent.
However, assets worth Rs 1,231 crore have displayed a satisfactory repayment track-record of two years. Adjusting for these, restructured assets would constitute 1.32 per cent of gross customer assets, the management said. It plans to maintain gross NPAs at between 1.10 and 1.15 per cent and net NPAs at below 0.50 per cent, going forward.
However, given its significant exposure to power, infrastructure and textile sectors, which are currently facing headwinds, analysts are sceptical.
