Key Data

CMP Rs 1029

Sector Banking

Face Value Rs.10

BSE Code 532215

52 Week H/L Rs 1291/ 399

Market Cap Rs 36773 Cr

Investment Rationale

Results of the bank were ahead of our and market estimates, net profit of the bank showed whopping growth of 66.2 percent to Rs306.8 crore during the quarter. For the first nine months of the current fiscal, net profit of the bank grew by 58.7 percent to Rs709.6 crore. Main drivers of growth were stronger loan growth, margin expansion and robust growth in both fee and treasury income. Asset quality of the bank improved; Gross NPAs declined from 1.2 percent in Q3FY07 to 0.8 percent in Q3FY08 and Net NPAs from 0.7 percent to 0.4 percent for the same period. Margins too expanded during the quarter by more than 55 bps sequentially to 3.54 percent on the back of decline in the cost of funds. Going forward growth trajectory of the bank would continue; we expect the profits of the bank to grow by 55 percent to Rs1020 crore in FY08E and by 35 percent to Rs1377 crore in FY09E. Though capital raising exercise would decline the ROE of the bank but the bank has strong track record of leveraging on the enhanced capital and increasing ROE levels. Recent initiatives taken by the bank to foray into mutual fund, insurance and private equity will diversify its revenue stream and boost its other income. Axis Bank is not only a growth story but at the same time available cheaper as compare to other large private sector banks. We reiterate BUY rating on the stock.

During the quarter, the bank redeemed the bulk deposits and went slow on the growth of term deposits which reduced the cost of funds of the bank by 40 bps on sequential basis. During the quarter, margins of the bank surged by 55 bps and by 77 bps on sequential and yoy basis to 3.54 percent mainly due to reduction in the cost of funds.

Axis Bank is one of the most aggressive banks in the private banking space; it showed net profit growth of 66.2 percent to Rs306.8 crore during the quarter. Main drivers of growth were stronger loan growth, margin expansion and robust growth in both fee and treasury income. For the first nine months of the current fiscal, net profit showed a growth of 58.7 percent to Rs710 crore.

At the CMP of Rs1029, the bank is trading at 35.8x TTM Dec’07 earnings and 4.4x TTM Dec’07 book value. Going forward growth trajectory of the bank would continue; we expect the profits of the bank to grow by 55 percent to Rs1020 crore in FY08E and by 35 percent to Rs1377 crore in FY09E. Though capital raising exercise would decline the ROE of the bank but the bank has strong track record of leveraging on the enhanced capital and increasing ROE levels. Recent initiatives taken by the bank to foray into mutual fund, insurance and private equity will diversify its revenue stream and boost its other income. Axis Bank is not only a growth story but at the same time available cheaper as compare to other large private sector banks.

We reiterate BUY rating on the stock.

Click here to view the complete K R Choksey Ltd research report of Axis Bank Ltd, target price, and stock recommendation report.