Buy Axis Bank; target of Rs 1577: Dolat Capital

“In Q4 FY12, Axis Bank’s NII grew by 26% YoY to Rs 21.5bn - 4.7% lesser than our estimates of Rs 22.5bn. The bank reported operating profit of Rs 20.4bn compared to our estimates of Rs 25.6bn; the deviation at the operating profit level was mainly due to higher than expected operating expenses and much lesser traction in core fee income. However, sequential reduction in GNPA aided bank’s bottom-line. The bank reported bottom-line growth of 25% YoY to Rs 12.8bn against our expectation of Rs 12.6bn.”

“The bank’s margin declined to 3.55% (compared to 3.75% in Q3 FY12). Rebalancing of liability and asset mix impacted margin negatively. The bank recorded strong savings deposit growth on the back of rapid branch and ATM network expansion. Axis Bank’s CASA share remained stagnant at 41.5%. On asset quality front, there was 13% YoY increase in gross NPA to Rs 18bn; gross slippage ratio declined to 1.31% from 1.56% on sequential basis. Reduction in gross slippage ratio and much higher recoveries improve asset quality. Restructured loan book increased to Rs 30.6bn (1.8% of gross credit book) with incremental addition of Rs 3.6bn in Q4FY12. Considering stable asset quality and future growth prospects, we revise our earnings estimates by 9% for FY13 and introduce FY14 earnings estimates and rollover our target price on FY14’s estimates. We reiterate Buy rating on the stock with an increased price target of Rs 1,577. At current price, it quotes at 1.7x and 1.5x ABV FY13 and FY14 respectively,” says Dolat Capital research report.    

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