Axis Bank Posts Good Numbers - Buy

Axis Bank has come out with a good set of September 2012 quarter numbers wherein it has posted a decent bottom-line growth and an increase in the margin. However, the bank continued to see some pressure on the asset quality front. The stock today closed higher by 4.57 per cent at Rs 1,203 crore. The following are the key financial parameters of the bank:

Particulars (%)	Sept 2012	Sept 2011
Net Profit (Rs / Cr)	1123.54	920.32
CASA	41	42
NIM	3.46	3.78
CAR	13.92	11.35
Provisions (Rs / Cr)	509.42	405.58
Gross NPA	1.1	1.08
Net NPA	0.33	0.34
PCR	80	77.69
Return on Assets	1.5	1.52

For the September quarter its net interest income (NII) increased by 16 per cent to Rs 2,327 crore while the net profit grew at the rate of 22 per cent to Rs 1,123 crore on a YoY basis. On a half yearly basis too the bank’s net profit grew by 22 per cent to Rs 2,277 crore.

The net interest margin (NIM) improved by 9 basis points to 3.46 per cent on a sequential basis which is very commendable. This is after its cost of funds decreased substantially by 16 basis points to 6.54 per cent. However, it contracted by 32 basis points on a YoY basis. As on September 30, 2012, the capital adequacy ratio (CAR) of the bank stands at 13.92 per cent which is higher by 164 basis points on a YoY basis. The Tier 1 CAR stood at 9.92 per cent which is at a very good level.  

The bank continued to face some headwinds on the asset quality front. As on September 30, 2012, the gross and net NPA increased by 4 and 2 basis points to 1.1 and 0.33 per cent respectively. The bank’s provision coverage ratio (PCR) stands at 80 per cent which is at a decent level, hinting that the bank going ahead would not face any major issues on its asset quality front.
 
The bank’s balance-sheet grew by 21 per cent to Rs 3,02,681 crore on a YoY basis and the deposits increased by 21 per cent to Rs 2,35,619 crore while the advances grew by 23 per cent to Rs 1,72,131 crore. The CASA ratio of the bank stood at 41 per cent. Currently, the CASA and retail term deposits constitute around 64 per cent of the total deposits.
 
On the segment front, retail banking witnessed good growth which is evident from the fact that the revenue from the same increased by 42 per cent to Rs 4,464 crore while the bank posted a profit of Rs 180 crore against a loss of Rs 28 crore in the simillar period last year. The profit from treasury also grew by 44 per cent to Rs 189 crore while the wholesale banking business witnessed a muted profit growth of 0.74 per cent to Rs 1,219 crore.
   
As on September 30, the branch network stood at 1,741 branches and extension networks as well as 10,297 ATMs. On the valuation front the bank is currently available at a trailing price to earning multiple of 10.65 times and price to book value of 1.97 times. We believe Axis Bank currently is trading at a fair valuation and one could buy the scrip keeping in mind a long-term horizon to garner better returns.

	Revenue			Operating Profit
Segment (Rs / Cr)	Sept 2012	Sept 2011	% change	Sept 2012	Sept 2011	% change
Treasury Operations	10372.44	8502.07	22.00	189.22	130.81	44.65
Retail Banking	4464.93	3136.39	42.36	180.31	-28.62	730.01
Wholesale Banking	4843.23	4183.54	15.77	1219.5	1210.52	0.74
Other Banking operations	116.62	77.38	50.71	79.81	57.35	39.16
Less Inter segment	11516.93	9388.49	22.67
Unallocable Expense
Total	8280.29	6510.89	27.18	1668.84	1370.06	21.81