Raise target price and estimates. We upgrade Axis Bank to Buy from Sell and raise FY11e EPS by 4.8% owing to healthy 1QFY11 performance. We value the stock at FY12e BV of 3.0x (at FY11e BV of 2.4x earlier) owing to improved RoE, and increase our target price to Rs1,623 from Rs1,085. Net profit up 32%. Robust net interest income growth and lower NPA provisions aided net profit growth. While NII and fees rose 44.8% and 18.6% yoy respectively, NPA provisions slid 9.5%. Business growth strong, margin declines. Advances grew 39.1% yoy (4.1% qoq), largely owing to demand from telecom firms. Deposit growth was also stronger than the system (33.8% yoy, 4.4% qoq). Reported NIM, though up 37bp yoy, declined 38bp qoq to 3.7%. Despite our expectation of rising liability costs in FY11, strong loan growth is likely to help Axis Bank register NIMs of 3.4% in FY11e and 3.5% in FY12e. Healthy NPA coverage and asset quality. Total re-structured assets at Rs21.5bn (1.8% of loans) seem to have peaked. In 1QFY11, Rs300m in loans was re-structured; management expects 25% of re-structured loans to turn into NPAs. Hence, credit costs are likely to remain high in FY11, though lower than estimated earlier. However, the bank has adequate NPA coverage (76.6%) and healthy asset quality (net NPAs at 0.35%). Valuation. At our target price of Rs1,623, the stock would trade at 3.5x FY11e and 3x FY12e BV . Upgrade to Buy from Sell. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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