Axis Bank recorded a net profit of Rs500.9 crore in Q3FY2009, indicating an increase of 63.2% year on year (y-o-y). The bottom line reported by the bank is well above our and street expectations.
The increase primarily stemmed from a higher than expected increase in the bank’s treasury income coupled with the writeback of provisions made on its investment book.
The net interest income (NII) for the quarter has come in at Rs929.7 crore, up by 24.4% y-o-y. For the year-till-date (YTD) period the NII stands at Rs2,653.6 crore, higher by 51.0% y-o-y.
The slowdown in the growth in the NII was on account of a 79-basis-point year-on-year (y-o-y) and 39-basis-point sequential contraction in its net interest margin (NIM) to 3.12%.
The significant increase in the cost of funds (119 basis points y-o-y) outweighed the increase in the yields (~100 basis points y-o-y), taking its toll on the NIM during the quarter. The markets have taken this negatively.
The non-interest income for the quarter has come in at Rs732.2 crore, up by 50.1% y-o-y on the back of a healthy growth in the fee income (up 56.7% y-o-y) and the treasury income (up 35.4% y-o-y).
The operating expenses for the quarter stood at Rs752.2 crore, up by 33.6% y-o-y. Importantly, on a y-o-y basis, the cost to income ratio improved by 31 basis points during the quarter and by 480 basis points in the YTD period to 45.3%.
With the net total income and operating expenses growing largely in line with expectations, the operating profit increased by 35.3% y-o-y to Rs909.6 crore. Meanwhile the core operating profit too grew by 35.3% y-o-y to Rs795.4 crore during the quarter.
Notably, the provisions declined by 34% y-o-y to Rs132.0 crore on account of Rs147 crore write-back of provisions made by the bank on its investment book due to the softening in bond yields.
However, the loan loss provisions for the quarter have come in at Rs270 crore.
On the asset quality front, the bank maintained healthy ratios with gross non-performing asset (GNPA) percentage of 0.90% and net non-performing asset percentage of 0.39%. In absolute terms, the GNPA increased by Rs78 crore as compared with a Rs72-crore sequential increase in the previous quarter.
During the quarter, the provision coverage ratio improved to 56.6% as against 52.6% in Q2FY2009.
In Q3FY2009, the advances grew by a robust 55.0% y-o-y primarily due to the strong growth witnessed in the large and mid corporate (up by 67.0% y-o-y) and small-scale enterprise (up by 57.0% y-o-y) advances.
Meanwhile, the deposits registered a growth of 54.0% y-o-y. The current account and savings account ratio during the quarter dipped to 38.0% from 40.3% in Q2FY2009 due to the flight of deposits from the current and savings deposits to term deposits.
As on 31 December 2008, the capital adequacy ratio of the bank stood comfortable at 13.84%. The tier-I capital ratio was at 9.46%, which provides the bank with enough headroom to raise tier-II capital.
At the current market price of Rs486, Axis Bank trades at 11.4x 2009E earnings per share, 5.2x 2009E pre-provisioning profit and 1.8x 2009E price-adjusted book value. We maintain our BUY recommendation on the stock.