Buy Axis Bank; target of Rs 1350: PLilladher

“Axis Bank reported higher-than-expected Q1FY13 PAT of Rs11.5bn, driven by treasury income and write-back on investments. Loan growth and margin performance were robust but core fee income as we expected continues to disappoint. Though restructuring and rating data suggest some inch-up in asset quality stress, we believe stress levels are manageable (net slippages of <1%). Despite assuming ~95bps of credit costs in FY13, Axis will be able to maintain best in class ROAs of 1.6% in FY13 and we believe valuations at 1.4x Mar-12 book is extremely reasonable. Maintain BUY with Sep-12 PT of Rs1,350/share.”

“Growth adjusted for rupee depreciation was robust at 25% YoY with lower Q1 seasonality. Retail growth continues to remain strong, driving 40% of incremental loan growth. NIMs at 3.37% were in line with expectations. CASA ratios have been moderating largely related to tepid CA growth as SA ratios remain relatively steady at 22-23%. Though proportion of bulk deposits has marginally eased, 60% of TDs are still in bulk and would re-price faster in a falling rate environment. Core fee income growth at 9.2% YoY disappointed with a large miss related to large and medium corporate fees (including project finance). Base impact continues to remain unfavourable till Q3FY12 and hence, we expect ~13% core fee income growth v/s management expectation of in line b/s growth for core fees, though treasury income could make up for the miss.”

“Credit cost at ~75 bps was in line with the expectation and gross slippages at Rs4.6bn were much better but restructuring at Rs6.3bn was high with one large infra account of Rs3.5bn. Rating of large corporate did show deterioration but we believe the large ~10% shift from AA to BBB category is also impacted due to Infra disbursements which mostly are BBB for greenfield SPV projects. Notably, SME rating has remained stable in a relatively challenging environment,” says Prabhudas Lilladher research report.  

FIIs holding more than 30% in Indian cos

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