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Axis Bank

Results higher than estimates at PAT level: Axis Bank (Axis)’ Q3FY2011 results were higher than our estimates as net profits grew 36% year on year (YoY) led by a strong growth in the net interest income (NII; 28.5% YoY) and higher than expected treasury profits.

Strong growth in core income: Led by a robust growth in advances (46% YoY and 12% quarter on quarter [QoQ]) and an expansion in margins, the NII grew by 28.5% YoY which was largely in line with our estimates

Margins jump 13 basis points QoQ: The bank’s margins expanded by 13 basis points QoQ to 3.81% due to re-pricing of loans and sustained high current account – savings account (CASA) ratio.

 We expect Axis Bank’s earnings to grow at a compounded annual growth rate (CAGR) of 25% over FY2010-13, leading to sustainable return on equity (RoE) at ~20%. In our view the asset quality will remain stable while margins will decline by 20-30 basis points and will sustain at ~3.5% levels. We have fine tuned our FY2012 estimates to incorporate higher than expected increase in deposit rates. Accordingly our new target price is Rs1,637 (3xFY2012 BV). We maintain Buy on the stock.