CMP: Rs756 Target Price: Rs650
Axis Bank reported Rs5.6bn of net profit for Q1FY10, inline with our estimates. The 70.0% growth in net profit was primarily driven by higher other income. The NII has grown by 29.0% yoy to Rs10.5bn driven by 24.2% yoy growth in the total assets and stable NIMs. With steep rise in trading profits, the operating profit has grown by 46.6% yoy to Rs11.8bn. However, the core operating profit grew by just 18% yoy.
The highlight of the quarter were (1) incremental restructured assets at 1.3% of advances (2) Higher write offs/slippages at 0.42% for quarter (1.7% annualized).
The overall asset quality remained largely stable with GNPAs at 1.01% of gross customer assets (0.96% preceding quarter) and net NPA at 0.40% of net customer assets (0.35% preceding quarter). However, including write offs the GNPA could have been 1.4%. The provision cover has declined sequentially to 60% from 63.6% in Q4FY09.
At the current valuations, the stock is quoting at 2.3x FY10E ABV and 1.9x FY11E ABV. Looking at (a) recent run up in the stock (2) risk of higher slippages and (3) higher than anticipated restructured assets, we downgrade our rating on the stock from BUY to HOLD keeping price target same at Rs650.
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