Hold Axis Bank; target of Rs 1380: Emkay

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Hold Axis Bank; target of Rs 1380: Emkay

Emkay Global Financial Services has recommended hold rating on Axis Bank with a target of Rs 1380, in its January 20, 2012 research report.

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Emkay Global Financial Services has recommended hold rating on Axis Bank with a target of Rs 1380, in its January 20, 2012 research report.

"Axis Bank's NII grew by 23.5%yoy to Rs21.4bn, inline with expectation. However net profit was ahead of expectation aided by strong growth in non interest income. The growth in other income was aided by strong growth in fee income and higher trading gains. Advance growth was strong at 20.4%yoy (6.2%qoq), while deposit growth was even stronger at 34%yoy (7.3%qoq), resulting in a marginal drop of 70bps in CD ratio to 71.3%. Despite strong growth in advances, NIM's held up strong at 3.75%. The bank did not give any negative surprise on the asset quality front with GNPA ratio remaining stable at 1.1%. However led by lower provisions, NNPA ratio increased marginally to 0.4%.While slippage ratio (annualized) was stable at 1.2% with slippage of Rs5.4bn, the bank did additional restructuring of Rs3bn during the quarter."

"As management continue to maintain its credit growth target at around 21-22% for FY12, the implied sequential growth for next quarter comes at ~17%. As most of the incremental growth in the next quarter will be to meet PSL lending requirements, which is low yielding, the NIM will moderate by 20-25bps in the next quarter (seasonal phenomenon). The bank's advances grew by a strong 6.2%qoq to Rs1.5tn led by strong growth in Retail and large corporate book. While retail book grew by a stellar 13.4%qoq to Rs333bn, large corporate book grew by a healthy 5.9%qoq to Rs841bn. The growth in retail book was driven by strong growth in all the segments (ex credit card); mortgages which constitutes 75% of the total retail book grew by 11.9%qoq to Rs249bn."

"We are encouraged by Axis Bank's increasing penetration into the high yielding retail segment in recent past. The move will enable bank tide over concerns on loan growth slowdown on SME / agri front and also lend stability to its PSL portfolio. Further, higher branch addition, primarily in semi urban and rural areas (41% of total network) should reap benefit in times of economic revival. An increasing retail exposure calls for higher provisioning. We have accordingly built in a credit cost of 80bps for FY12-13E. Axis Bank mgmt remains confident of 1.4x the system loan growth and we have factored a loan CAGR of 21% over FY11-13E. The stock has underperformed its peer HDFC Bank in recent past over concerns on asset quality and growth slowdown. However, Q3FY12 results clearly shrugged off all this negatives. The stock now trades at 49% discount to HDFC Bank (against average of 32% for past 5-years). We believe the stock should reiterate to its historic average valuations at 2.3x 1-year forward. Maintain HOLD with TP of Rs 1380," says Emkay Global Financial Services research report.  

Non-Institutions holding more than 90% in Indian cos

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To read the full report click on the attachment