Strong margins, stable asset quality and healthy net interest income growth enabled Axis Bank race ahead of Street expectations for the quarter ended December 2012. Notably, Axis has been able to maintain its strong loan growth as well as fee income in addition to keeping its low-cost current and savings account (Casa) ratio intact at about 40 per cent levels, all of which have also aided its performance. Its stock, thus, rallied to make a new 52-week high of Rs 1,427.60 on Tuesday before closing at Rs 1,422 apiece, reflecting a gain of 2.6 per cent compared to its previous close.
Going ahead, most analysts are positive on the bank as they expect it to report healthy performance. However, they believe current stock valuations of Axis Bank (1.9 times FY14 estimated adjusted book value) are fair and price in most positives. While the recent rally (up 5.3 per cent in a week) would limit significant upsides from here on, the impending capital raising plans may also act as a key overhang on the scrip, going forward. Although analysts believe the asset quality concerns for Axis Bank are largely factored in the price, any visible improvement could provide triggers for the stock.
Siddharth Teli, co-head, India Research, Religare Capital Markets, says, “There are no significant negative surprises on the asset quality front. We believe Axis could benefit from economic recovery as the asset quality could improve. However, post Tuesday’s rally, it is not cheap anymore.” Consensus analysts target price of Rs 1,384.6 (prior to results) also indicates that upside for the stock is limited.
| HEALTHY OUTLOOK | ||
| In Rs crore | Q3’ FY13 | FY14E |
| Net interest income | 2,495 | 11,423 |
| % change y-o-y | 16.6 | 21.4 |
| NIM (%) | 3.6 | 3.3 |
| Bps change y-o-y | -18 | 10 |
| Net profit | 1,347 | 5,939 |
| % change y-o-y | 22.2 | 17.7 |
| Price/Book value (x) | - | 1.9 |
| E: Estimates Source: Analyst reports | ||
For the December quarter (Q3), Axis' net interest income grew by 16.6 per cent to Rs 2,494 crore, led by healthy loan growth of 20.7 per cent over the previous year. Strong traction in retail loan book (up 45 per cent year-on-year) fuelled loan growth for the bank. Within retail book, home loans and auto loans witnessed strong traction. Positively, its fee income growth (up 14.9 per cent) came in higher than expectations of about 13 per cent growth. Given the subdued corporate demand environment, this growth is noteworthy and was driven by retail banking and small and medium enterprises (SME) segments.
While Axis' net interest margins (NIMs) have expanded by 11 basis points sequentially to 3.57 per cent (aided by lower rates on bulk deposits), these were down 18 basis points on year-on-year basis. Going forward, the bank’s management expects NIMs to range 3.25-3.5 per cent. Increasing focus on retail assets, whose share in total loans increased further to 27 per cent, should help on the margin as well as asset quality fronts.
Its net profit grew by 22.2 per cent year-on-year to Rs 1,347 crore, reasonably higher than Bloomberg consensus estimate of Rs 1,274 crore. However, this surprise was driven by a sharp 8.4 per cent reduction in provisions to Rs 387 crore, which in turn is partly aided by write-back of provisions worth Rs 33 crore in the quarter.
The Street was keenly watching Axis' asset quality and was anticipating increased pressure on that front. However, the bank managed to hold on to its gross non-performing assets (NPAs) as well as net NPA ratios of 1.1 per cent and 0.33 per cent, respectively, on a sequential basis. Its incremental restructured assets stood at Rs 368 crore as against Rs 320 crore in the preceding quarter.
Analysts, though, believe it is still early days to conclude that the bank's asset quality woes are over, given the increasing number of cases being referred to the corporate debt restructuring cell.
However, the bank is optimistic of sustaining asset quality. Somnath Sengupta, executive director - corporate centre, Axis Bank, says, “We expect to maintain net NPA and gross NPA ratios around current levels and target to contain credit costs within 85-90 basis points. We are not witnessing any special stress for SME segment. While recoveries have been slower than previous quarters, we continue to push for higher recoveries."
Amongst other key metrics, Axis' provision coverage ratio stood strong at 81 per cent, which provides comfort and is in line with its private peers.
