Axis Bank reported a strong net profit growth of 61% y-o-y to Rs582 crore for Q4FY09, ahead of our expectations on the back of higher than expected other income driven by substantial treasury profits of Rs166 crore.
Advances increased to Rs81,557 crore, at a slower growth rate of 37% y-o-y, as compared to 45%+ for the past 11 quarters. Similarly, deposits increased to Rs1,17,374 crore at a slower growth rate of 34% y-o-y.
In line with expectations, the pressure on cost of funds reduced sequentially, on account of repricing of bulk deposits (which comprise a substantial 70% of the bank’s total FDs) at much lower rates during 4QFY2009.
As a result, the Bank’s reported NIMs improved sequentially from 3.1% to 3.4%, enabling it to post a reasonably healthy 25% yoy growth in Net Interest Income (NII).
The Bank’s CASA ratio improved sequentially from 38% to 43%, though this was mainly on account of characteristic year-end surge in current account balances. Fee income growth continued to be robust at 42% y-o-y.
The Bank also managed to control operating expenses to a higher extent than anticipated, recording a 12% y-o-y increase and 2% sequential decline, with the cost-to-income ratio declining to 39%.
Restructuring loan basket
During FY2009, the Bank restructured loans aggregating to Rs996 crore. About 61% of the total restructured assets had been restructured with just a principal deferment facility, without any interest rate concessions. 48% of assets restructured fell in the corporate segment and 38% in the SME segment.
In terms of sectoral mix, textiles at 20%, auto ancillaries at 14% and real estate at 10% constituted amongst the highest portion of restructured assets.
The Bank has positioned itself to gain substantially from a fall in interest rates, especially on corporate bonds, by increasing its exposure in the AFS segment to 43%, with a high modified duration of 3.7 years.
At the CMP, the stock is trading at 7.5x FY2011E EPS of Rs67.8 and 1.4x FY2011E Adjusted Book Value (ABV) of Rs375.4.
We remain positive on the Bank and believe it deserves premium valuations on account of its attractive CASA franchise, multiple sources of sustainable fee income, strong growth outlook and A-list management.
We maintain BUY on the stock, with a 12-month target price of Rs751, implying an upside of 52%.