Robust numbers for Axis Bank

Axis Bank, the third-largest private bank in the country, reported a better-than-expected net profit growth of 35.88% year on year (yoy) to Rs891.36 crore, driven by strong growth in net interest income (NII) and lower provisioning expenses.

NII, or the difference between interest earned and interest expended during the quarter, grew 28.46% to Rs1,733.12 crore, accompanied by a 21% growth in fee income to Rs968 crore.
NII growth was aided by a strong growth of 45.74% yoy and 11.71% sequentially in advances to Rs123,547 crore, led by a 69.51% growth in lending to large and medium corporates and a 33.36% jump in retail lending.

Total deposits grew 36.85% yoy even as they decreased a bit sequentially to Rs155,811 crore. Term deposits grew at a higher pace of 45%, while demand deposits (current and savings account (CASA) grew 36.34%.

The cost of deposits fell 4 basis points (bps; 100 bps make a percentage point) to 4.79%. However, a 66 bps drop in yield on advances to 9.26% due to higher lending to corporates caused the net interest margin (NIM, which is the NII expressed as a percentage of the average assets held during the period) to decline 19 bps to 3.81%.

However, NIM witnessed a 13 bps improvement on a sequential basis as the bank had increased its base rate/BPLR by 25-50 bps in October 2010 and also because of an almost 200 bps qoq improvement in its low-cost current and savings account (CASA) deposits ratio (on average daily basis) to 41.29%.

The bank, which has been able to maintain its CASA deposits ratio at over 40%, expects the trend to continue. However, NIM may taper in the coming quarters due to the rising cost of funds amid tight liquidity conditions. The bank sees NIM in the range of 3.4-3.6% in the coming quarters.

Other income grew 16.15% to Rs1,147.71 crore due to a 21% increase in fee-based income to `967.65 crore even as trading income fell 20%.

The bank’s provisioning and contingency expenses reduced almost 16% to Rs313.88 crore, thereby aiding the bottomline. It was able to maintain its healthy asset quality with gross non performing assets (NPAs) as a percentage of gross customer assets falling 14 bps to 1.09%, while net NPAs reduced 17 bps to 0.29%.

he results were cheered by the market and the stock gained 2.18% to `1,227.55 per share at close on the BSE, on Monday. Analysts continue to remain overweight on the stock and one can consider it at current levels as it has corrected more than 15% in the last three months.