For Q1Y2011 Axis Bank has reported a net profit of Rs741.9 crore, an increase of 32% year on year (yoy). The reported profit was in line with our estimate of Rs728 crore. The top line too was in line with our estimate and was driven largely by a surge in the balance sheet?s growth rate.
The net interest income (NII) grew by a strong 44.8% yoy to Rs1,513.8 crore. The growth was on account of a strong 39.1% year-on-year (y-o-y) growth in the advances (well above expectations) which overshadowed the sequential contraction in the calculated net interest margin (NIM). Though the blended yields were largely stable at 7.2% on a sequential basis, the cost of funds rose by 26 basis points to 4.5% leading to a contraction in the NIM (down 26 basis points quarter on quarter [qoq] to 3.27%).
The non-interest income during the quarter grew by a moderate 4.4% yoy to Rs1,000.8 crore on account of a 40% y-o-y drop in the treasury gains. Meanwhile, the core fee income growth was healthy at 18.5% yoy. The operating expenses grew by 28.6% yoy and by 5.4% qoq, and translated into a cost-income ratio of 42.3% (stable qoq).
The provisioning expenses were largely stable at Rs333 crore (up 6% yoy but higher sharply on a sequential basis as the bank continued to make higher provisions on loan loss that came in at Rs304 crore. Also, there was provision for investment depreciation as against the write-back in Q1FY2010 which increased the overall provisions for the bank. The provision coverage ratio, including the technical write-off, currently stands at 76.62%.
The asset quality of the bank was stable on a sequential basis as the gross non-performing assets (NPAs) increased by just 1.7% qoq to Rs1,341 crore during Q1FY2011. In relative terms too, the percentage of gross NPAs was stable at 1.13%. The resulting provisioning coverage improved by about 100 basis points qoq to 69.2% (76.6% including the prudential write-offs).
During the quarter the bank restructured assets worth Rs30 crore, though the cumulative restructured assets stood reduced to Rs2,151 crore, constituting 1.81% of the gross customer assets. Of these, a total of Rs460 crore or approximately 22% of restructured assets have slipped into the NPA category.
The business growth picked up during the quarter, as the advances grew by 39.1% yoy to Rs108,609 crore, while the deposits grew by 33.8% yoy to Rs147,479 crore. The loan book growth was supported by all the segments with the ?large & mid corporate? segment and agri-advances growth strong at 54.7% and 28.8% yoy respectively. Going ahead, the advances growth is likely to moderate. The demand deposits continued their upward trend showing a growth of 34% yoy with the current account and savings account (CASA) ratio now forming 40.2% of the total deposits.
The capital adequacy ratio (CAR) of the bank stood at 14.54% (vs 15.8% in Q4FY2010) with the tier-I capital adequacy ratio at 10.32%.
At the current market price of Rs1,359, the stock trades at 13.3x 2012E earnings per share (EPS), 7.3x 2012E pre-provisioning profit (PPP) and 2.6x 2012E book value (BV).
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