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Spark Capital: Q3FY13 Result Reviews of Axis Bank




Spark Capital Advisors(India) Private Limited


27 Jan 2013





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Axis Bank - Retail business driving growth; Asset quality holds up: Maintain BUY Axis Bank’s (AXSB) Q3FY13 results were in line with expectations with a marginal beat on loan growth and fee income. Retail business remained the biggest driver of loan and fee income growth for the bank. Retail loan book was the biggest driver of loan growth contributing to 51% of loan growth during the quarter and 48% of incremental loan growth on yoy basis. Similarly, retail fee income growth contributed towards 65% of incremental fee growth on yoy basis and 52% of fee income growth on qoq basis. Corporate loan book grew by 12% on yoy basis while fee income from the segment de-grew by 3% on yoy basis. Continuing weak trends in new projects sanctions (46% drop between FY11 & FY12) can keep loan and fee income growth in large and Mid-corporate segments on a weak wicket going into FY14 as well. Trends in asset quality continue to remain in line with the management guidance of slippages and restructuring of ~Rs 10bn per quarter. However, we remain circumspect on the asset quality of the bank and believe that a large chunk of asset quality problems lie ahead for the bank. A YTD loan growth of only 5.7% suggests one more year of chunky loan growth in last quarter. Despite our skepticism on quality of loan growth, fee income and asset quality we remain positive on the stock as we see the bank to be amongst the biggest beneficiaries of a fall in wholesale rates, improvement in capex/infra cycle, in addition to a potential capital raise providing a bump up to the book value. We maintain BUY on the stock with a TP of Rs. 1600

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