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Axis Bank Ltd Research Report - 21st Jan 2016

Banking | Published on Oct 28th 2015


Axis Bank reported a moderate set of numbers for 2QFY2016 with 8.9% yoy growth in profit to Rs. 1,915.6cr, which is in line with our expectations. However, the asset quality took a severe hit with stressed assets increasing to Rs. 2,866cr (slippages + sale to ARCs + restructuring). However, the bank had pre-emptively made provisions for the same, thereby cushioning the impact on profitability Advances growth remains strong; NIM improves qoq During 2QFY2016, the bank reported an advance growth of 23.1% yoy, while deposits grew by 14.2% yoy. The bank’s loan book growth outpaced industry loan growth, primarily due to strong traction witnessed in the retail and corporate book. The retail book grew by 26.6% yoy and accounted for 40% of the advances. The corporate loan book, which comprises 47% of the total advance book, increased by 25.8% yoy, mainly on account of refinancing and nonrupee financing. The CASA ratio came in at 44.2%, declining by 29bp yoy, while it improved by 149bp on a qoq basis. The NIM improved qoq and stood at 3.85%, as the cost of funds fell by 13bp qoq to 5.99%. The impact of base rate cut in October will likely have an effect in the upcoming quarter’s NIM since 82% of the domestic loans of the bank are linked to the base rate. Asset quality deteriorated following the sale to ARC (Rs. 1,820cr). The sale was at ~65% haircut, with a Rs. 336cr hit on the P&L and Rs. 850cr accounted from contingent provisions. Outstanding contingent provisions now stand at Rs. 450cr. Including this sale to ARC and restructuring, slippages stood at Rs. 2,866cr (4.1% annualized) vs the reported 0.8% annualized (without considering the sale to ARC and restructured loans). However, the company had pre-emptively made the provisions, thereby cushioning the impact on profitability. The bank restructured Rs. 463cr worth of loans during the quarter. However, the Management has reiterated its credit cost guidance of 90bp, while it has guided for lower stressed asset formation in FY2016 (excluding the sale to ARC). Outlook and valuation: Healthy pace of branch expansion and a strong distribution network continue to be the driving force for the bank’s retail business. Going forward, the bank will continue to focus on the retail business. While the near term asset quality environment remains challenging, the company will be able to absorb the credit costs given the adequate profitability. The bank is positioned strongly to benefit once the macros revive. We are of the view that the stock is over discounting the near-term concerns. The stock currently trades at 2.0x P/ABV FY2017E. We maintain our Buy rating on the stock with a revised target price of Rs. 630.

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CMP 483
Target Price 630
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)125,882.92
MCAP NSE (Rs in Cr)125,763.39
P/E (x)16.14
EPS (Rs.)32.63
BV (Rs.)229.54
Div Yield (%)0.00
FV (Rs.)2.00
P/BV (x)2.29
EV/Sales (x)13.40
EV/EBITDA (x)20.15

Shareholding Pattern (%)

Public & Others4.0
Grand Total100.0

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