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Recommendations India

Axis Bank 3QFY2014 performance highlights and results update

January 21, 2014, Tuesday, 06:27 GMT | 01:27 EST | 10:57 IST | 13:27 SGT
Contributed by Angel Broking


Axis Bank delivered a healthy performance for the quarter, with an earnings growth of 19.1% yoy, which was in-line with expectations, largely supported by one-offs in nature of provisioning reversal of Rs.173cr and profit repatriation of around Rs.150cr from an overseas branch. On the asset quality front, while current quarter’s performance was healthy as stressed asset addition was limited to Rs.1,259cr during the quarter vs. Rs.1,649cr in last quarter, annual guidance was maintained at Rs.6,000cr.
 
Advance growth remains healthy; Slippages plus incremental restructuring lower qoq: During 3QFY2014, the bank reported advance growth of 17.8% yoy, while the growth in deposits came in moderate at 7.3% yoy. Loan book growth was primarily aided by continued strong traction in the Retail and the SME loan books, which grew by 33.4% and 24.9% yoy, respectively. Within retail advances, housing loans grew by 25.6% yoy and now constitute around 19.4% of the total loan book. CASA deposits grew at 14.3% yoy, aided by a healthy growth of 21.0% yoy in savings deposits, even as growth in current deposits came in weak at 4.6% yoy. During 3QFY2014, fee income growth for the bank was subdued at 3.6% yoy. Reported NIMs for the bank declined sequentially by 8bp qoq to 3.71%, as cost of funds were up 4bp qoq. On the asset quality front, slippages and fresh restructuring taken together amounted to Rs.1,259 much lower than Rs.1,649cr, reported during 2QFY2014. Flat slippages and lower recoveries/upgrades resulted in around 10% sequential increase in absolute Gross NPA levels for the bank, which given the context of current challenging macro environment, was a moderate increase. Lower loan loss provisioning led PCR to decline by 200bp to 78% and Rs.165cr qoq increase in absolute net NPA levels (much higher than what we had factored in). Going forward, the management exuded confidence in maintained its annual guidance for slippages and incremental restructuring for FY2014 at Rs.6,000cr, which implies stressed asset addition of around Rs.1,700cr during 4QFY2014.
 
Outlook and valuation: At CMP, the stock trades at near historic low valuations of 1.3x FY2015 ABV (at around 60% discount to HDFC Bank) which is well below our longer term fair value estimate for the bank. In the near term, given the weak macro environment, there is a high probability that stocks like Axis Bank may underperform. However, with increasing expectations of lower interest rates by early part of next fiscal, from a medium term perspective, we recommend investors to Buy the stock with a target price of Rs.1,553.