Reduce Axis Bank; target of Rs 1050: Emkay

“Axis Bank’s, H1FY13 loan growth at 1.4% YTD is far too lower than 3% YTD growth on a systemic basis. While mgmt attributed the reason for muted growth to sluggish demand from large corporates (+1% YTD) and some large drawdown from agri portfolio (-30% YTD), it expects healthy traction in retail loans / working capital loans in H2FY13. Seasonally H2 has been a strong quarter for bank with ~20% of credit growth (including meeting PSL requirement) for the period. We thereby expect the bank to clock 23% growth in its customer assets for FY13 largely driven by retail loans and PSL requirements in Q4. Some headwinds on loan growth could arise also from INR movement. Loan growth in H2FY12 includes ~2-3% upside from INR depreciation which may not be available in H2FY13.”

“Q2FY13 problem loans at Rs9.5bn (Slippages at Rs6.3bn + restructuring at Rs3.3bn vs Rs10.8bn in Q1FY13) were largely inline with our / consensus estimates. Slippages include one-large account towards media sector. Provisions at Rs5.1bn included NPA provisioning at Rs4.1bn (95bps annualized), standard asset provisioning at Rs590mn, contingency provisioning at Rs1.2bn and some reversal on investment depreciation of Rs660mn. Restructured portfolio at 2.4% of loans + slippages thereof at Rs8.2bn (34% of O/s. restructured portfolio at H1FY12) also remain high when compared to its peers HDFC Bank (0.3%) and ICICI Bank# (1.6%). AXSB has maintained grim outlook on asset quality for H2FY13 with projected run rate for stressed loans (ie slippages + restructuring) running high at Rs10- 11bn per quarter. The guidance is kept intact driven by few more lumpy accounts which may slip in coming quarters.”

“In the backdrop of limited one-off other income (when compared with H2FY12), and higher provisioning requirement we have kept our earnings estimates intact. With 35% CAGR in overall provisioning, we expect the bank to witness 16/25% growth in net profit over FY13/14E. Valuations at 1.8x/1.6x FY13/FY14E ABV do not offer upside given headwinds towards asset quality and earnings growth as highlighted above. With recent run-up (+14% in past 1-month) we have changed our rating to reduce. Target price however has been kept intact at Rs1050,” says Emkay Global Financial Services research report.

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