20 October, 2008

Axis Bank

Current market price: Rs 619.30

Target price: Rs 910 Upside: 46.94%

Brokerage: India Infoline

Axis Bank’s Q2 FY09 results were better than expected, with net profit surging by 77 per cent year-on-year (y-o-y) to Rs 402.9 crore, driven by robust loan growth, net interest margin (NIM) expansion, strong fee income growth and most importantly, without any material rise in non-performing loans (NPL).

Loan growth was impressive at 54 per cent y-o-y in Q2 FY09, driven by retail (55 per cent), SMEs (68 per cent) and large/mid-sized corporates (49 per cent). NIMs expanded by 16 basis points q-o-q to 3.51 per cent; it was 3.47 per cent in FY08.

Fee income grew by a stellar 91 per cent y-o-y, driven by all segments including retail banking, large and mid-sized corporates, treasury and capital markets. Retail banking remains the largest fee contributor with one-third of the total. This growth rate should decelerate in H2 FY09, with expected slowdown in retail (primarily wealth management products) and capital market fees. NPLs rose by only 11 per cent q-o-q, after the scare caused by 29 per cent q-o-q jump in Q1 FY09 NPLs.

The NPL concerns are primarily concentrated in the SME and unsecured retail loans, which constitute 25 per cent of the loan book. Capital adequacy remains comfortable at 12.2 per cent, including Tier-I of 9.2 per cent. The stock is trading at a P/BV of 2.4x and P/E of 15.8x on FY09E earnings. Maintain Buy.