Thursday, October 14, 2010

Axis Bank (Earnings growth healthy; Slippage remains high; REDUCE; TP: Rs1,200); LIC Housing Finance (Structurally strong story continues; ACCUMULATE; TP: Rs1,490)

Axis Bank

Reco: REDUCE

CMP: Rs1,563

Target Price: Rs1,200

Earnings growth healthy; Slippage remains high

·      Axis Bank's (AXSB) Q2FY11 NII at Rs16.2bn marginally ahead of expectations driven by 36% growth in advances and 18bps expansion in NIMs

·      Higher growth in NII was partially offset by lower trading gains and higher operating expenditure

·      Slippages continue to remain high resulting in higher credit costs. Slippages for Q2FY11 at 1.7% vis-à-vis 1.5% in FY10 and 1.6% in Q1FY11

·      Valuations unattractive at 3.0x FY12E ABV with slippages remaining high. Continue REDUCE rating with TP of Rs1,200

 

 

LIC Housing Finance

Reco: ACCUMULATE

CMP: Rs1,458

Target Price: Rs1,490

Structurally strong story continues

·      LICHF reported strong 63% growth in NII at Rs3.1bn driven by 36% growth in advances and 35bps expansion in spreads. Stable spreads/NIMs are positive surprise

·      The growth in sanctions to individuals remained strong at 28% yoy, although the D/S ratio was lower at 67% due to as LICHF funded mostly under construction properties

·      The asset profile improved as the gross NPAs were down by 22% yoy and net NPAs were down 54% yoy. The gross and net NPAs stood at 0.7% and 0.1% respectively

·      Valuations at 2.7x FY12E ABV look expensive in short term. However, strong balance sheet, earnings growth keep long term story intact. Maintain ACCUM with 18-mth TP of Rs1,490

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