Hold stocks of Axis Bank; target Rs 1205

Axis Bank:-

 "Axis Bank Ltd. has reported decent numbers, which were inline with our expectations, with healthy core performance but slight deterioration in asset quality during Q1FY13. PAT was aided on decent NII and lower operating expenses during the quarter. During Q1FY13, NII grew by a decent 26% YoY to Rs.21,799 mn, on the back of strong Advances growth. Its Advances grew 30% YoY (Ex-currency depreciation 25%), mainly from robust growth of 50% YoY in retail segment (as per outlined strategy). Its Deposits grew by 21% YoY, while CASA grew by 17% YoY. However, its CASA share in total deposit contracted by 148 bps YoY & 248 bps QoQ standing at 39.1%, mainly due to contraction in current deposit and high growth in term deposits. The share of bulk deposits stood at 37% of total deposits against 39% in Q1FY12."

"The Bank reported a sluggish non interest income growth of 9% YoY, supported by fee from retail and agri & SME banking. Treasury income saw a growth of 114% YoY, which includes stake sale from Max India (Rs.890 mn). The Bank expects non interest income growth to track B/S growth. Axis Bank’s operating expenses increased by 16% YoY with employee expenses increasing by 14% YoY and other operating expenses increased by 18% YoY on higher network expansion. Its Cost to Income ratio improved to 44.1% in Q1FY13 as against 46.1% in Q1FY12. Axis Bank’s total provisions in Q1FY13 increased by 47% YoY to Rs.2,588 mn on account of higher provisioning required on loan losses & standard assets (Rs.2.75 bn against Rs.1.37 bn in Q1FY12) from higher slippages. Write back on investment depreciation aided provisions. As a result, the Bank’s Net Profit saw a growth of 22% YoY and stood at Rs.11,535 mn."

"Axis Bank has grown at a very healthy pace in past few years with strong build-up in liability franchise, diversified loan book, stable asset quality and high return ratios. We have largely retained our estimates and going forward, we expect its Advance & Deposit to grow by 19.1% & 17.7% respectively in FY13E and 19.5% & 18.4% respectively in FY14E, while Net Profit to grow at 7% in FY13E & at 16% in FY14E. The steady performance, higher than system growth outlook, focus on retail assets and better deposit franchise will emerge as key value drivers for the stock in medium term. Axis Bank currently trades at an attractive valuation of 1.4x FY14E ABV & 8.2x FY14E Earnings. We change our rating to “Hold” with a price target of Rs.1205," says Sushil Finance research report.