Dear All,
Forwarding you the Result Flash on Axis Bank for 4QFY2011 with a Buy recommendation and a Target Price of Rs1,770 (12 months).
Axis Bank registered a healthy 33.4% yoy growth in its net profit for 4QFY2011 to Rs1,020cr, which was in line with our estimates of Rs995cr. However NII was lower than estimated due to a sharp sequential compression in Reported NIMs of 37bp which was offset by stronger other income led primarily by fee income. Strong yoy growth ahead of peers in balance sheet, fee income and branch network was the key positive from the results.
The sequential NIM compression of 37bp was unusually high during 4QFY2011 as the bank had to fulfill its priority sector lending obligations through term deposits (in a sharp rise in term deposits rates scenario), as CASA deposits growth moderated (CASA ratio on a daily average basis down by 400bp qoq). Also the full benefit of re-pricing on the advances side did not flow through during 4QFY2011, as the lending rate hikes were carried out in mid-January and mid-February. During 4QFY2011, apart from NIM, performance of the bank on other operating parameters was strong as evident from the strong fee income growth (39% adjusted yoy), cost-to-income ratio stable at 42.2%, slippages rate contained within 1.0% and gross NPAs brought down to 1.01% with a strong 80.9% provision coverage ratio (including technical write-offs).
The stock is currently trading at valuations of 2.3x FY2013E ABV. We remain positive on the bank owing to its attractive CASA franchise which is likely to be bolstered further on the back of strong branch expansion (increased network by 41.4% during FY2011), multiple sources of sustainable fee income, strong growth outlook and A-list management. We maintain a Buy recommendation on the stock with a Target Price of Rs1,770.
| Exhibit 1: 4QFY2011 Actual vs. Estimates | |||
| (Rs cr) | Actual | Estimates | Var (%) |
| Net interest income | 1,701 | 1,803 | (5.7) |
| Non-interest income | 1,450 | 1,219 | 19.0 |
| Operating income | 3,151 | 3,022 | 4.3 |
| Operating expenses | 1,331 | 1,245 | 6.9 |
| Pre-prov. profit | 1,821 | 1,777 | 2.5 |
| Provisions & contingencies | 254 | 250 | 1.6 |
| PBT | 1,566 | 1,527 | 2.6 |
| Prov. for taxes | 546 | 532 | 2.7 |
| PAT | 1,020 | 995 | 2.5 |
Source: Company, Angel Research
Exhibit 2: 4QFY2011 Performance summary
| (Rs cr) | 4QFY2011 | 3QFY2011 | % chg (qoq) | 4QFY2010 | % chg (yoy) |
| Interest earned | 4,367 | 3,838 | 13.8 | 2,988 | 46.1 |
| Interest expenses | 2,666 | 2,105 | 26.6 | 1,528 | 74.4 |
| Net interest income | 1,701 | 1,733 | (1.9) | 1,460 | 16.5 |
| Non-interest income | 1,450 | 1,148 | 26.4 | 934 | 55.4 |
| Operating income | 3,151 | 2,881 | 9.4 | 2,394 | 31.7 |
| Operating expenses | 1,331 | 1,222 | 8.9 | 1,010 | 31.8 |
| Pre-prov. profit | 1,821 | 1,658 | 9.8 | 1,384 | 31.6 |
| Provisions & contingencies | 254 | 314 | (19.0) | 202 | 26.0 |
| PBT | 1,566 | 1,345 | 16.5 | 1,182 | 32.5 |
| Prov. for taxes | 546 | 453 | 20.5 | 417 | 31.0 |
| PAT | 
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