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Axis Bank Ltd (updated - 15 July 2009)
In a relatively difficult environment, Axis Bank has managed to post a reasonably good set of numbers for the June 2009 quarter. To begin with the net interest income is up 29 per cent year-on-year, more or less in line with expectations, and the bank has managed to post a net interest margin (nim) of 3.34 per cent, only slightly lower than the 3.37 per cent reported in the March quarter.

The pace of growth has tapered off somewhat in a sluggish credit market with the loan book growing at just 28 per cent year-onyear compared with a growth of 35 per cent in the March quarter. Even if there has been a slight sequential fall in the yields on assets of an estimated 50 basis points, the performance is creditable against the backdrop of falling interest rates.

However, if the growth in the bottom line is an impressive at 70 per cent year-on-year, much of it has to do with the strong increase in other income-the bank has made huge profits - up 469 per cent year-on year - trading in government securities and corporate bonds.

The concerns lie in the higher quantum of restructured loans, now cumulatively at Rs 2,500 crore, which is 2.77pe rcent of gross customer assets . Besides, net non-performing assets (npas) have inched up to 0.41 per cent from 0.35 per cent in the March quarter.

However, bad loans are likely to increase for the banking system as a whole. Where Axis Bank scores is that it has been prudent enough to stay well covered -the coverage ratio is a high 86 per cent of gross npas and accumulated write-offs - and it is cleaning up the book - npas on credit cards for instance have halved since the March quarter.

The Axis Bank stock was up just over 2 per cent at Rs 756 on Monday; at this price it now trades at around 2.5 times price to estimated book value for 2009-10 with upsides priced in for the present.
source - BS

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Axis Bank Ltd (updated - 21 April 2009)
Although Axis Bank’s loan book grew at a slower pace of 37 per cent in the March 2009 quarter, compared with the 55 per cent seen in the December 2008 quarter, the growth has been far higher than that clocked by some of its peers. That is somewhat disconcerting given that the environment hasn’t exactly been conducive to lending.

Nevertheless, the bank has posted a strong net interest margin of 3.3 higher by about 20 basis points sequentially with the cost of funds coming down. Both income from fees and treasury have been strong; interest income less so. Axis Bank has also managed its risk fairly well; although gross non-performing loans (NPLs) were up slightly on asequential basis, net NPLs have fallen sequentially to 0.35 per cent from 0.39 per cent at the end of December 2008.

If provisions have risen sequentially it’s because there was a writeback in provisions in the December 2008 quarter Of course, the RBI has allowed banks to restructure loans which means, they can be classified as good assets and require less or no provisioning. To that extent, one doesn’t have a clear idea of how good the assets are. But, as of now, the easier norms for classifying assets,have helped the bank post a smart increase in the net profit of 61 per cent y-o-y in the March 2009 quarter.

After a difficult December 2008 quarter when interest rates were volatile, the cost of funds has come down sequentially to 6.64 per cent and the proportion of cheaper current and savings accounts (CASA) is up at 43 per cent. If the stock trades at around 1.5 times estimated adjusted 2009-10 book value, and appears to be cheap despite having a a strong return on equity, it’s because the Street is concerned about a possible rise in NPLs. It’s a fact that the bank has lent aggressively in the past few years especially to the SME sector.

Merrill Lynch believes that a weak economic environment could result in a fairly sharp increase in NPLs in the current year.
source - BS

Axis Bank Ltd (updated - 24 Sept 2009)
Axis Bank’s plan to build a strong capital base is not a bad idea; the bank has raised around Rs 3,900 crore through a combination of GDR issue, qualified institutional placement (QIP) and a preferential allotment to promoters. The money has been raised at a valuation of 3.2 times price to book value for March 2009.

Although, the equity will be diluted by 12 per cent, analysts point out that the book value will go up by an estimated 18 per cent in 2009-10 and around 16 per cent in the following year. It’s not too clear whether the money will be used for any nonbanking ventures, but it must find its way into profitable channels, else the return on equity (RoE) would get depressed.

There will not be any shortfall of capital when it comes to growing the asset book and the bank should be able to grow its loan book by about 25 per cent in the current year, a rate that will probably be higher than the industry growth rate.

Between 2006 and 2009, the bank saw a compounded loan growth rate of over 50 per cent, of course, on a much lower base. At Rs 919, the stock trades at 2 times price to estimated book value for 2010-11, which is not too expensive given the capital cushion and an expected RoE of close to 18 per cent.

Also despite the fairly high level of restructured loans of around 3.2 per cent of the loan book as at the end of June 2009, gross non-performing loans (NPL) are unlikely to cross 1.5 per cent.
source - BS

Axis Bank Ltd (updated - 13 Oct 2009)
Axis Bank did not outsmart the street this time; the results have come in line with the average market consensus. Slower economic growth rates made it inevitable that Axis would be distributing loans at a sluggish pace than earlier. Retail loans had dried up, mitigating a robust pickup seen in the agriculture segment. Considering a higher base now, its loan disbursals may not grow at 50 per cent that it’s used to over the last five years.

However, with a pickup expected in the third and fourth quarters, the bank should see an improvement from 18 per cent to 20 per cent in the first half of 2009-10. The capital raising plans worth around Rs 3,900 crore not only shored up the banks networth but also indicates its willingness to grow its balance sheet further. For the future also, Axis Bank is expected to outgrow the industry, given that it aims to grow its loan-book by about 25 per cent and further has plans to step up lending to the infrastructure segment through its non-banking financial subsidiary.

Lending might have slowed down; however a decrease in the cost of funds is boosting the margins. As deposit rates corrected nearly 300 to 350 bps from its peak levels, the net interest margins stand at 3.52 per cent, representing an increase of 18 bps sequentially. During the quarter, the bank added 55 branches to its existing network of 860, boosting its low cost deposits which added to margins.

Earlier analysts were concerned about the potential rise in the banks non-performing loans in view of the weak economic environment and aggressive lending undertaken in the past. However, the gross non performing loans stood at 1.21 per cent, an increase of only 30 bps year-onyear, aided by RBI guidelines to some extent. Nevertheless, restructuring loans does not hide; it grew to 3.77 per cent of gross customer assets. The management feels that this ratio could increase to 4 per cent in the subsequent quarters, suggesting that downside is limited in terms of asset quality.

At 1,012.75, the bank is trading at 2.25 times its 2011E book; it’s cheaper than peers like HDFC Bank but looks fairly priced, with no major upsides.
source - BS