In Q1FY13, Axis posted NII of Rs2,179.9 cr up 26.4% YoY and up 1.6% QoQ. Loan growth was up 29.8% YoY to Rs1,71,146 cr. Sequentially, NIMs have contracted 18 bps to 3.37% due to pressure on bank’s CASA (39.1% in Q1FY13 vs 41.5% in Q4FY12) and funding cost (up from 6.45% in Q4FY12 to 6.7% in Q1FY13). However much of this was on expected lines as a marked trend in the bank’s annual growth pattern has been a marginal expansion in first half followed by robust growth in the second half. Fee income growth was muted - down 13% QoQ. Net NPAs stood at 0.31%, up from 0.25% in Q4FY12 but flat over Q1FY12. It restructured assets worth Rs628 cr which included an infra account of ~ Rs350 cr. Slippages were moderate at 1.07%. Cost to income ratio has improved due to lower opex - down to 44.1% (from 45.4% in Q4FY12). Axis posted Net Profit growth of 22.4% YoY and down 9.7% QoQ to Rs1,153.5 cr.
Contraction in NIMs & CASA inline; higher retail advances positive
In Q1FY13, Axis posted NIMs of 3.37%, up 9 bps YoY and down 18 bps QoQ. Cost of funds sequentially has gone up from 6.45% in Q4FY12 to 6.7% in Q1FY13. Advances have grown 0.8% to Rs1,71,146 cr while investments have come down to 5.6% QoQ. Over last year corresponding quarter, advances have gone up 29.8% while investments have gone up 16.8%. Net Interest Income rose by 26.4% YoY and 1.6% QoQ to Rs2,179.9 cr.
CASA of the bank has come down to 39.05% in Q1FY13 (a 14 quarter low) compared to 40.53% in Q1FY12 and 41.54% in Q4FY12 with term deposits growing at a faster rate compared to demand deposits. Sequentially demand deposits witnessed a de-growth of 4.9% compared to a 5.4% growth in term deposits while YoY demand deposits have grown 16.8% compared to 24.3% growth in term deposits. The daily average balance of Savings account deposits has gone up 22% to 48,886 cr while that of current account grew just 7% YoY. On a daily average basis, demand deposits constituted 36% of total deposits during Q1FY13, as against 37% in Q1FY12. In Q1FY13, Axis added 52 branches and 413 ATMs which took its total domestic branch count to 1,674 and 10,337 ATMs situated in 1,080 cities and towns.
The total credit to deposit ratio of Axis has fallen to 76.87% in Q1FY13 compared to 77.13% in Q4FY12 y-o-y while up from 71.84% YoY. Sequentially advances have gone up 0.8% QoQ while deposits have grown faster at 1.1%. Over last year, deposits grew at a slower rate of 21.3% compared to 29.8% growth in advances YoY. Retail Advances grew 50.2% YoY to Rs40,591 cr and constituted 24% of total advances as compared to 22% in Q4FY12. Loans to Agri and SME have come down to 9.2% and 12.8% in Q1FY13.
Outlook & Valuation
Axis Bank continues to be one of the premier private sector banks in India with robust growth prospects. Bank’s major strengths have been its ability to grow CASA deposits. Growth drivers for the medium term remains with loan growth like to be steady with almost stable NIMs. Fee income growth should broadly track asset growth. Asset quality too has been maintained and CAR remains adequate.
Over the past couple of quarters, the outlook on the banking sector has been partially negative. Increased competition and tight money market conditions could continue to put pressure on the NIMs of the bank going ahead as tight liquidity could result in higher cost of funds and in turn affect the margins of the bank. After maintaining almost stable NIMs in Q2FY12 and Q3FY12, NIMs in Q4FY12 have slightly come down further to 3.55% and further to 3.37% in Q1FY13. CASA too has come down to 39.05% in Q1FY13 from 41.54% in Q4FY12 with a 14% drop in current account deposits.
While Banks continue to be valued on the basis of P/BV, valuations get impacted on a sustainable basis if the BV (book value) or its growth is getting impacted due to slower profitability growth or higher provisioning/growing NPAs.
In Q1FY13, Axis posted NII of Rs2,179.9 cr up 26.4% YoY and 1.6% QoQ. Loan growth was up 29.8% YoY to Rs1,71,146 cr. Sequentially, NIMs have contracted 18 bps to 3.37% due to pressure on bank’s CASA (39.1% in Q1FY13 vs 41.5% in Q4FY12) and funding cost (up from 6.45% in Q4FY12 to 6.7% in Q1FY13). However much of this was on expected lines as a marked trend in the bank’s annual growth pattern has been a marginal expansion in first half followed by robust growth in the second half. Fee income growth was muted down 13% QoQ. Net NPAs stood at 0.31%, up from 0.25% in Q4FY12. Bank restructured assets worth Rs628 cr which included an infra account of ~ Rs350 cr. Slippages were moderate at 1.07%. Cost to income ratio has improved due lower opex down to 44.1% (from 45.4% in Q4FY12). Axis posted Net Profit growth of 22.4% YoY and down 9.7% QoQ to Rs1,153.5 cr.
Axis quotes at a large discount to HDFC Bank in terms of P/BV. This discount has expanded lately but we feel that worries on this front are overdone and hence the discount could narrow going forward.
HDFC Sec is encouraged by 1) growing retail advances 2) low cost income ratio. But we are worried about 1) Restructuring of loans - given its retail and industrial exposure which may slip into NPAs 2) Low fee income 3) Retail profitability is still low after more than 15 years of existence and such a large branch spread 4) slippages in ratings of mid and large corporate borrowers and 5) falling CASA ratio. Management is looking to increase its retail exposure (especially in unsecured segment), which is likely to provide support to NIM in the longer duration, though near term pressure will exist in Q2FY13.
For FY13 HDFC Sec is maintaining their estimates and the bank could post better growth in second half of the year. In their results update for Q4FY12 dated May 04, 2012 HDFC Sec had said that the stock could trade in the range of Rs933 - Rs1159 (1.45 – 1.8x FY13E Adj. BV) over the next quarter. The stock touched a low of Rs922 on 18th May 2012 and a high of Rs1081.8 on 11th July 2012.
HDFC Sec feels existing investors could look to exit the stock on rises to fair value of Rs1126 (1.75x FY13 Adj. BV) and existing/fresh investors can look to buy back the stock on dips to Rs966 (1.5x FY13 Adj BV) over the next 1-2 quarters.
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