Key Highlights of Q1FY13

- During Q1FY13, NII grew by a decent 26% y-o-y to Rs.21,799 mn, on the back of strong Advances growth.  Its Advances grew 30% y-o-y (Ex-currency depreciation 25%), mainly  from robust growth of 50% y-o-y in retail segment (as per outlined  strategy). Its Deposits grew by 21% y-o-y, while CASA grew by 17%  y-o-y. However, its CASA share in total deposit contracted by 148  bps y-o-y & 248 bps q-o-q 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% y-o-y, supported by fee from retail and agri & SME banking. Treasury income saw a growth of 114% y-o-y, 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% y-o-y with employee expenses increasing by 14% y-o-y and other operating expenses increased by 18% y-o-y 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% y-o-y 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% y-o-y and stood at Rs.11,535 mn.

Outlook and Valuation: 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. Sushil Finance have largely retained their estimates and going forward, they 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. Rating is changed to “Hold” with a price target of Rs.1205.